Philadelphia Trial Lawyer Max Kennerly : Business and Commercial Litigation : Civil Attorney : The Beasley Firm : Philadelphia Pennsylvania

Breach of fiduciary duty class actions under the Employee Retirement and Income Securities Act ("ERISA") are as common as the day is long. If an employee pension plan loses a lot of value, odds are good there will be a lawsuit.

Unsurprisingly, the federal courts have clamped down on these lawsuits over the years. As the United States Court of Appeals for the Third Circuit (Pennsylvania, New Jersey and Delaware) just reaffirmed,

in the context of an ERISA plan that offers employees the option of investing in a fund consisting solely of the employer's own securities, there is a "presumption that a fiduciary acted prudently in investing in employer securities" and that, to rebut the presumption, "a 'plaintiff must show that the ERISA fiduciary could not have believed reasonably that continued adherence to the [Plan's] direction was in keeping with the settlor's expectations of how a prudent trustee would operate.'"

Ward v. Avaya Inc., (3d Cir. 2008, November 13, 2008, Jordan, J.)(on appeal from the District of New Jersey). The Third Circuit again rejected that "a company to be on the brink of bankruptcy before a fiduciary is required to divest a plan of employer securities," but held, in essence, that if the plaintiffs cannot show the stock plummeting and staying in the gutter, then they cannot win as a matter of law. In holding the plaintiffs cannot overcome the presumption as a matter of law, the Court describes:

At the outset of the class period immediately following the spin-off on September 30, 2000, Avaya's stock traded at $ 22.18 a share. As Ward takes pains to point out, it initially lost much of that value, and by August 2, 2002, after fluctuating significantly for some time, it reached a low of $ 1.15 a share. By April 25, 2003, the day after Ward's Count II class period ended, Avaya stock was trading at $ 3.24 per share. Following the end of the class period, however, Avaya's stock continued to rise and, by August 2003, was trading at around $ 10.00 a share. Between October and December 2003, the stock was trading between $ 12.00 and $ 14.00 a share. During 2004, Avaya stock usually closed at between $ 12.00 and $ 16.00 a share. Commensurate with its rising stock price, Avaya reported significant positive net income in 2003 and 2004. Further, like the plaintiff in Edgar and unlike the plaintiff in Moench, Ward's complaint fails to point to anything other than Avaya's financial struggles to support his breach of fiduciary duty claim.

The frustrating part here is that of course the plaintiff had no direct evidence, their case was dismissed under Fed.R.Civ.P. 12(b)(6) before they could conduct discovery. The message from the Third Circuit is thus loud and clear: if the company's stock has regained a substantial portion of its value, don't bother filing suit.

I have plenty of sympathy for the defendants here, directors who almost certainly did, in fact, believe they were simultaneously acting in the best interests of the company and the retirement plan beneficiaries. No could blame them for believing in the eventual success of their own company, and the company did, in fact, regain at least two-thirds of its prior market value, more than 10 times its lowest value just two years prior to that.

But that's precisely the problem -- of course the directors will believe in the eventual success of their own company. Indeed, aside from company officers, who could possibly be less objective about their own company? They're supposed to believe in the company's success, even against the odds.

The core problem, as the Third Circuit noted, is that "as the financial state of the company deteriorates … fiduciaries who double as directors of the corporation often begin to serve two masters. And the more uncertain the loyalties of the fiduciary, the less discretion it has to act." At what point should we expect that a "prudent" director will recognize their own lack of objectivity and step aside? The answer from the Third Circuit appears to be "never," at least not if the stock has regained substantial value.

Maybe, on balance, that makes the most sense, a "no serious harm, no foul" rule. The stock market is inherently unpredictable; if, for example, the directors had moved assets out of Avaya in the spring of 2003, the retirement fund likely would have missed out on Avaya's dramatic rise in the fall and winter of 2003. You don't invest your money in a 100% company fund to go willy-nilly at the first sign of trouble.

Nonetheless, though there are many plausible legitimate explanations, it's troubling to see issues like that decided on a motion to dismiss, denying plaintiffs the chance to see what the explanation actually was. The directors here could have completely breached their fiduciary duties and, after getting 'lucky,' still have cost beneficiaries one-third of their pension's value, potentially even more when compared to the fund's hypothetical value if it had been managed properly. Yet, the case was over before it started, merely because the fund lost 'only' one-third of its value as compared to value on the plaintiff's class certification date.

Finally, just how common are ERISA breach of fiduciary suits? So common that the Third Circuit held plaintiffs claims were also barred by a prior class action settlement in Reinhart v. Lucent Technologies, Inc., 327 F. Supp. 2d 426 (D. N.J.).

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The United States District Court for the Eastern District of Pennsylvania punts an easy one:

Counts I and II of the complaint arise under the Truth in Lending Act ("TILA"), 15 U.S.C. §§ 1601, et seq., Home Ownership and Equity Protection Act of 1994 ("HOEPA"), 15 U.S.C. § 1639 and Regulation Z of the Federal Reserve Board ("Regulation Z"), 12 C.F.R. §§ 226.1 et seq. Plaintiff seeks rescission of the loan transaction and actual and statutory damages. ...

Under TILA, a borrower has the right to rescind certain consumer credit transactions [either until midnight of the third business day or, if the consumer was not provided the rescission forms, within 3 years or delivery of those forms] ...

Regulation Z requires the creditor to deliver two copies of the notice of right to rescind to each consumer entitled to rescind and specifies the information that the creditor must include in the notice.

...

Defendants believe plaintiff's rescission claim is untimely because the three-day limitations period under 15 U.S.C. § 1635 (a) applies and plaintiff failed to notify them of her intention to rescind until January 9, 2007. Defendants claim to have complied with 12 C.F.R. § 226.23 (b) (1) by delivering to plaintiff two copies of the required rescission form on January 22, 2004. ...

Defendants support their motion for partial summary judgment with evidence that plaintiff received two copies  of the required rescission form. Exhibit C, attached to Defendants' memorandum of law, is a rescission form dated January 22, 2004 and titled "Notice of Right to Cancel." ... Ms. Gonzales' signature appears below the following sentence: "The undersigned each acknowledge receipt of two completed copies of this Notice of Right to Cancel." Plaintiff does not deny it is her signature.

Counsel for plaintiff contends that, contrary to the written acknowledgment, only one copy of the Notice of Right to Cancel "wound up in the hands of Plaintiff, the borrower." (Plaintiff's Memorandum at 13.) TILA addresses the effect of written acknowledgments of receipt, such as the Notice of Right to Cancel  [*7] produced by Defendants:

Notwithstanding any rule of evidence, written acknowledgment of receipt of any disclosures required under this title ... does no more than create a rebuttable presumption of delivery thereof.

15 U.S.C. § 1635 (c). Plaintiff's written acknowledgment of the Notice of Right to Cancel creates the presumption that plaintiff received two copies of the document. ...

On a motion for summary judgment, the nonmoving party must come forward with evidence setting forth specific facts showing that there is a genuine issue for trial. The nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986). Plaintiff has failed present evidence sufficient to rebut the presumption of delivery. Absent from the record is any sworn statement from Ms. Gonzales or other witness that plaintiff received one copy rather than two. Plaintiff relies entirely on the assertions of counsel and the Closing Checklist. No reasonable jury could conclude, on the basis of the Closing Checklist alone, that plaintiff received one copy rather than two. The three-day limitations period under 15 U.S.C. § 1635 (a) applies and commenced on January 22, 2004, the date plaintiff received the Notice of Right to Cancel. Plaintiff is not entitled to rescission because her letter demanding rescission on January 9, 2007 was untimely.

Gonzales v. CIT Group/Consumer Fin., Inc. (E.D.PA, October 30, 2008, Shapiro, J.).

And just like that, the Truth In Lending rescission claim and all the other pendant federal claims are dismissed, with the state law claims remanded back to state court.

The plaintiff's counsel apparently made a complicated argument relying upon words in the agreement itself that arguably reflected their position that the plaintiff had only received one copy.

But there was no need to go down that road: all they needed was an affidavit from the plaintiff saying that she had only received one copy. That's all. At that point, it would've been a fact issue for the jury and would have survived summary judgment.

Federal Rule of Civil Procedure 56(e) provides for exactly this situation:

(e) Affidavits; Further Testimony.

(1) In General.

A supporting or opposing affidavit must be made on personal knowledge, set out facts that would be admissible in evidence, and show that the affiant is competent to testify on the matters stated. If a paper or part of a paper is referred to in an affidavit, a sworn or certified copy must be attached to or served with the affidavit. The court may permit an affidavit to be supplemented or opposed by depositions, answers to interrogatories, or additional affidavits.

(2) Opposing Party's Obligation to Respond.

When a motion for summary judgment is properly made and supported, an opposing party may not rely merely on allegations or denials in its own pleading; rather, its response must — by affidavits or as otherwise provided in this rule — set out specific facts showing a genuine issue for trial. If the opposing party does not so respond, summary judgment should, if appropriate, be entered against that party.

Keep that in mind the next time you get a motion for summary judgment saying the evidence revealed in discovery failed to meet an essential element of your claim: odds are your client or another witness can fill that gap based on their own recollection.

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In theory, Pennsylvania recognizes a duty in every contract for both parties to act with the utmost good faith and to engage only in fair dealing with one another.

In practice, these claims rarely succeed, like a week ago in the United States District Court for the Eastern District of Pennsylvania:

Pennsylvania law recognizes an independent cause of action for breach of the duty of good faith and fair dealing only in "very limited circumstances," such as insureds' dealings with insurers and franchisees' dealings with franchisees. Northview Motors, Inc. v. Chrysler Motors Corp., 227 F.3d 78, 91 (3d Cir. 2000) (citing Creeger Brick and Building Supply, Inc. v. Mid-State Bank and Trust Co., 560 A.2d 151, 153-53 (Pa. Super. Ct. 1989). In Northview Motors, the United States Court of Appeals for the Third Circuit predicted that Pennsylvania courts would limit the application of claims for breach of the covenant to situations where they were "essential" and would not recognize an independent cause of action for breach of the covenant where the parties had entered into a detailed contract setting forth their obligations and rights. Id.; see also McHale v. NuEnergy Group, 2002 WL 321797 at *8 (E.D. Pa. February 27, 2002) (finding that "Pennsylvania law would not recognize a claim for breach of [the] covenant of good faith and fair dealing as an independent cause of action" where the allegations underlying the breach of covenant claims are "essentially the same" as those underlying the plaintiff's claim for breach of contract).

The Court similarly finds that Pennsylvania would not recognize an independent claim for breach of the covenant of good faith and fair dealing in this case. As in Northview Motors, the parties here entered into a detailed contract setting forth their rights and obligations with respect to the purchase of the property at issue. The facts that Sentry Paint alleges give rise to its claim for breach of the implied duty of good faith and fair dealing are the same as those that form the basis for its breach of contract claims. Under these circumstances, Sentry Paint's breach of covenant claims are subsumed in its breach of contract claims and cannot be maintained as a separate cause of action. Fn 20:

Fn 20: In support of its separate cause of action for breach of the covenant of good faith and fair dealing, Sentry Paint cites to the Pennsylvania Supreme Court's decision in Birth Center v. St. Paul Co., 787 A.2d 376 (Pa. 2001) and the decision of the Lawrence County Court of Common Pleas in Harlan v. Erie Ins. Group, 2006 WL 1374502 (Lawrence Co. CCP February 16, 2006). Both Birth Center and Harlan involved contractual bad faith claims by an insured against an insurer, one of the "limited circumstances" in which Pennsylvania recognizes an independent cause of action for breach of the covenant of good faith and fair dealing. Neither case supports recognizing an independent cause of action here in an action involving an arms-length purchase of property.

Sentry Paint Techs. v. Topth (EDPa, October 31, 2008, McLaughlin, J.).

C'est la vie. Hard to know what their damages would be anyway in this case, if not damages arising out of a breach of the explicit terms of the contract. To me, outside of those quasi-fiduciary situations described above, the "good faith and fair dealing" seemed like a catch-all where it was hard to prove exactly what the breach was, except for a bad faith failure to perform.

But don't despair, business plaintiff trial lawyers — this case was at summary judgment, so you can even use it in support of alleging the claim in your complaint when they file a motion to dismiss or motion for judgment on the pleadings.

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If you've ever done business or commercial litigation, you've done tortious interference with contractual / business relations. It's alleged virtually every time a party switches suppliers or customers, and virtually every time the lawsuit involves more than two parties.

But did you know you can claim non-pecuniary damages (so long as you have some economic damages) and get an injunction  before the damage occurs?

From the Eastern District of Pennsylvania:

The damages element of a claim for intentional interference with contractual relations (the fourth element) requires a plaintiff to prove that the alleged interference has caused an actual pecuniary loss, the benefits of which flowed from the contract itself. Although an actual pecuniary loss must be established, non-pecuniary harms are also recoverable under this tort. Shiner v. Moriarty, 706 A.2d 1228, 1239 (Pa.Super. 1998); Perry v. H&R Block Eastern Enterprises, Inc., 2007 U.S. Dist. LEXIS 22406, 2007 WL 954129, at *10 (E.D.Pa. March 27, 2007)(McLaughlin, J.).

Moreover, the actual pecuniary loss requirement does not defeat actions for tortious interference with contractual relations, such as this one, which seek to enjoin the interfering conduct before it is successful. In Adler, Barish, Daniels, Levin & Creskoff v. Epstein, 482 Pa. 416, 436 n.21, 393 A.2d 1175, 1185 n.21 (1978), the Supreme Court of Pennsylvania specifically held that notwithstanding the actual pecuniary loss requirement, "[i]t  is well settled that equity will act to prevent unjustified interference with contractual relations." See also Restatement (Second) of Torts § 766, comment u.

Similarly, in affirming the issuance of a preliminary injunction in a case based upon tortious interference with contractual relations and trespass claims, the Third Circuit recognized that injunctive relief may be appropriate before an actual pecuniary loss is sustained. In this regard, the Third Circuit held that a preliminary injunction may issue where the claimant has demonstrated that there is a "presently existing actual threat of injury". Ride the Ducks of Philadelphia, LLC v. Duck Boat Tours, Inc., 138 Fed.Appx. 431, 434 (3d Cir. 2005) (citing Continental Group, Inc. v. Amoco Chemicals Corporation, 614 F.2d 351, 359 (3d Cir. 1980)).

Hospitality Assocs. of Lancaster, L.P. v. Lancaster Land Development, 2008 U.S. Dist. LEXIS 76772 (September 20, 3008, Gardner, J.).

Shiner v. Moriarty, cited above, quotes Pawlowski v. Smorto, 403 Pa. Super. 71, 588 A.2d 36 (Pa.Super. 1991), for the damage element of the tort involving "the loss of the benefits of the contract or prospective relation or consequential, emotional or reputational losses resulting from the defendant's conduct."

Did you plead all that last time? If not, perhaps you should consider amending...

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The "Truck Injury Lawyer Blog" points us to a new development in the world of trucking accidents:

In his recent article, Premiums Fall 10% to 50% As New Firms Enter Market, Frederick Kiel describes the effect that the drop in premiums has on the trucking companies, as these new insurance companies are offering across the board rates to trucking companies in an effort to compete for their business. ...

These new insurance companies are offering low premiums in an effort to gain new business, a trend that has been seen intermittently since the 1980s. Perhaps now is the time to look at the minimum insurance required to be carried by tractor trailer companies. Congress set the minimum rates back in 1984 at $750,000 for some companies with most being required to carry $1,000,000. Inflation and time have eroded the value of the coverage. Medical bills and the costs associated with catastrophic injuries have risen dramatically. Today, in a catastrophic case, the minimum limits are paid and quickly spent. The injured are then left for the taxpayer to pay for through medicaid or some other assistance program.

$1 million frequently will not cover the damages in a catastrophic personal injury case, particularly not where there will be extensive continuing medical treatment. $1 million also frequently does not cover wrongful death damages, and it usually will not cover an accident where multiple people have catastrophic injuries.

although the article does not address it, an important point to keep in mind here is how much safer trucking these days should be given the depth and breadth real-time monitoring available to trucking companies. Traffic, weather, and driver alertness -- down to excruciatingly minor details -- are all readily apparent in real-time to fleet managers, thereby eliminating the bulk of the systematic risks faced by truckers that cause major motor vehicle accidents.

If trucking companies used this technology appropriately -- rather than using it solely to run their drivers right up to (and frequently beyond) the Federal Motor Carrier Safety Regulation limits -- and purchased adequate insurance, including insurance with coverage for each plaintiff, rather than the accident as a whole, the costs and financial risk of trucking would be dramatically reduced.

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Courtesy of the complicated mess that is Sovereign Bank v. BJ's Wholesale Club, Inc., 533 F.3d 162 (3d Cir. 2008), in which credit card "Issuers" sued credit card "Acquirers" and "Merchants" (Acquirers are the companies that process transactions for the Merchants) after a bunch of credit card numbers were stolen from the Merchant.

The big issue is: are Issuers intended beneficiaries of the Merchant and Acquirer's agreement with the Visa network, which includes a number of anti-fraud regulations that the Merchant and Acquirer allegedly didn't follow?

Historically, under Pennsylvania law, "in order for a third party beneficiary to have standing to recover on a contract, both contracting parties must have expressed an intention that the third-party be a beneficiary, and that intention must have affirmatively appeared in the contract itself." Scarpitti v. Weborg, 530 Pa. 366, 609 A.2d 147, 149 (Pa. 1992) (citation omitted). Sovereign appropriately concedes that it is not an express third-party beneficiary of the Visa-Fifth Third Member Agreement. However, in Scarpitti, the Pennsylvania Supreme Court adopted § 302 of the Restatement (Second) of Contracts. Id. That provision allows an "intended beneficiary" to recover for breach of contract even though the actual parties to the contract did not express an intent to benefit the third party. Section 302 provides as follows:

Intended and Incidental Beneficiaries

 (1) Unless otherwise agreed between promisor and promisee, a beneficiary of a promise is an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the intentions of the parties and either

(a) the performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary; or

(b) the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.

(2) An incidental beneficiary is a beneficiary who is not an intended beneficiary.

Got all that? Summary judgment reversed, based upon a memorandum and deposition testimony indicating that the regulations were for the benefit of all the members, as discussed in the next post.

Update: for some reason, movable type ate most of my post, which has been corrected.

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From the Middle District of Pennsylvania:

In Pennsylvania, an individual who sustains injury in a motor vehicle collision that is aggravated by subsequent medical negligence may recover damages for both injuries either from the driver exclusively or from the driver and the negligent medical practitioner in tandem. See RESTATEMENT (SECOND) TORTS § 457 (s1965) [hereinafter "RESTATEMENT"]; Smialek v. Chrysler Motors Corp., 290 Pa. Super. 496, 434 A.2d 1253, 1258 (Pa. Super. Ct. 1981) (stating that "the original tortfeasor[ in an automobile collision] is . . . fully responsible . . . for the negligent manner in which a physician or surgeon treats the case"). The plaintiff may recover all damages solely from the negligent driver because subsequent faulty treatment is deemed to be a foreseeable consequence of the automobile accidence. See RESTATEMENT § 457 cmt. a ("[D]amages assessable against [a negligent driver] include not only the injury originally caused by the [driver's] negligence but also the harm resulting from the manner in which the medical, surgical, or hospital services are rendered"); Boggavarapu v. Ponist, 518 Pa. 162, 542 A.2d 516, 517 (Pa. 1988).

However, if the plaintiff sues both the driver and the physician, liability should be allocated according to each tortfeasor's separate negligence. 1 See Frazier v. Harley Davidson Motor Co., 109 F.R.D. 293, 295-96 (W.D. Pa. 1985) (stating that negligent motorists and subsequently negligent physicians commit separately identifiable acts of negligent); Smith v. Pulcinella, 440 Pa. Super. 525, 656 A.2d 494, 497 (Pa. Super Ct. 1995); Harka v. Nabati, 337 Pa. Super. 617, 487 A.2d 432, 434 (Pa. Super Ct. 1985) (quoting Voyles v. Corwin, 295 Pa. Super. 126, 441 A.2d 381, 383 (Pa. Super. Ct. 1982)) ("[T]o the extent that the acts of the original tortfeasor and those of the physician are capable of separation, the damages should be apportioned accordingly."). The court determines as a matter of law whether injuries are capable of apportionment; however, the jury determines the value of the claim against each defendant. Voyles, 441 A.2d at 383.

Trout v. Milton S. Hershey Med. Ctr., 2008 U.S. Dist. LEXIS 65553 (emphasis added).

If the medical malpractice causes a catastrophic injury, there are very few situations in which you would want to proceed only against the car driver, not least because they likely have far less available insurance than the medical provider. Indeed, in this case the plaintiff's leg became necrotic and had to be amputated allegedly due to medical malpractice, an injury that, when combined with the accident itself, likely exceeds the insurance coverage of most drivers.

Then again, if neither the auto accident nor the medical malpractice was catastrophic, and the damages are within the coverage limits, the action can be substantially simplified by proceeding only against the car driver. You will still need expert medical testimony, but you might not get nearly the same fight as you would going against the medical provider directly. You might also have more settlement leverage against the car driver's insurance company because they run the risk of eating all of the damages at trial.

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We're aiming for new heights of nerdom here at Litigation & Trial, combining comic books, movies, old law school contract cases, equitable principles, permanent injunctions, and recent circuit splits in one post. The Watchmen lawsuit -- which is less copyright infringement and more commercial litigation, since the dispute is largely over contract terms -- gives us license (har har) to do so.

Graphic novels (née "comic books") are serious money these days, at least when adapted for the big screen. In addition to the normal superhero adaptations, like Iron Man and The Incredible Hulk (which have generally done quite well), particular attention has been paid to noir comics like Sin City and 300. (The Nolans' Batman adaptations are a hybrid, drawing from noir variations on Batman, like The Dark Knight Returns.)

Watchmen, published in 1986-87, is perhaps the most heralded of the noir comics, a complex and character-driven drama set in a alternative-history 1980s United States in which superheroes (the bulk of which have no obvious superpower) have been suppressed as unaccountable vigilantes, while Nixon is on his fifth term as president.

Such a complicated tale obviously presents numerous visual, thematic and temporal problems for moviemakers, in addition to normal stress of taking a work revered by a subculture and making it widely appealing without offending the subculture or alienating the masses. Multiple attempts to make the movie since the story was published have fizzled out; even Terry Gilliam, who has no trouble bringing madness to the big screen, deemed it unfilmable.

But Zack Snyder, who directed the enormously successful 300 (which made $450 million on a $60 million budget), has apparently done it and done it well.

Since he's appearing on this blog, you can guess what happened next: the production company, Warner Brothers, was sued.

The movie buzz is that the case has substantial merit and could turn the movie into a loss for WB, and the original documents are available online for your perusal. In essence, Fox bought the complete rights to Watchmen, tried to begin production, gave up, quitclaimed the rights to the producer (with the terms of that quitclaim disputed), then entered into multiple disputed subsequent agreements. Here's the Court's outline (as formatted by Deadline Hollywood):

1986-90: Fox acquires motion picture rights in The Watchmen.

1990: Fox enters into a domestic distribution agreement with Largo Entertainment, a joint venture of JVC Entertainment Inc., Golar (Larry Gordon), and BOH, Inc. The “Largo Agreement” established Fox’s domestic distribution rights, through a license from Largo, in “subject pictures” as defined in the agreement.

June 1991: Fox enters into a “Quitclaim Agreement” with Largo International, through which Fox “quitclaims to Purchaser all of Fox’s right, title and interest in and to the Motion Picture project presently entitled Watchmen, which included specifically described literary materials. Notably, the agreement provides that, “if Purchaser elects to proceed to production, the Picture shall be produced by Purchaser and shall be distributed by Fox as a Subject Picture pursuant to the terms of the Largo Agreement ...” In consideration for the rights to Watchmen, Fox was to be reimbursed for its development costs ($435,600) plus interest plus a profit participation in the worldwide net proceeds of any Watchmen picture.

Nov. 1991: The Largo Agreement was amended; Watchmen was listed as a project quitclaimed to Largo.

Nov. 1993: Larry Gordon, through Golar, withdraws from the Largo Entertainment joint venture; Largo conveys any rights it has in Watchmen to Gordon/Golar. Based on the 1991 quitclaim, the Court may infer that Gordon now stood in the shoes of Largo with respect to Watchmen and held whatever rights it acquired through the 1991 Quitclaim, which left Fox with the distribution rights it retained through that agreement.

1994: Fox negotiated a “Settlement and Release” agreement with Gordon which contemplated that the Watchmen project would be put in “perpetual turnaround” to Lawrence Gordon Productions, Inc. The “turnaround notice” gave Lawrence Gordon Productions “the perpetual right . . . to acquire all of the right, title and interest of Fox [Watchmen] pursuant to the terms and conditions herein provided.” The turnaround notice then described the formula for determining the buy-out price in the event that Gordon elected to acquire Fox’s interest. Thus, the document suggests that Gordon acquired an option to acquire Fox’s interest in Watchmen for a price. In fact, the notice obligated Gordon to pay the buy-out price on the commencement of any production of a Watchmen film. The notice also provided that the agreement was personal to Gordon and that, “prior to payment of the Buy-Out Price,” he could not assign rights or authorize any person to take any action with respect to the project.

(emphasis mine) WB now argues the full rights were quitclaimed multiple times; Fox claims they granted an option the producer failed to exercise, so the rights are still their's. A court last week denied WB's motion to dismiss. Variety summarizes:

At the heart of Fox’s suit, filed in February, is the contention that it never ceded rights to the property. And according to the federal Judge Gary Allen Feess, Fox retained distribution rights to the graphic novel penned by Alan Moore and illustrated by Dave Gibbons through a 1991 claim. Furthermore, Feess appears to agree that under a 1994 turnaround deal with producer Larry Gordon, Gordon acquired an option to acquire Fox’s remaining interest in "Watchmen," which was never exercised, thereby leaving Fox with its rights under the 1994 agreement.

Frankly, I agree with the Court's ruling (denying the motion to dismiss) but not the reasoning, which I'll get to below. For now, it's a motion to dismiss: all disputed facts and ambiguities are resolved in the plaintiff's favor and all reasonable inferences are  made in the plaintiff's favor. The meaning could be as Fox alleges, but that'll require some testimony and extrinsic evidence.

But that's not what this post is about. This post is about the remedy requested in paragraph 30 of Fox's complaint:

Fox is entitled to preliminary and permanent injunctive relief enjoining and preventing Defendants, their agents' and employees, and all persons acting in concert or participation with Defendants, from having, copying, distributing, displaying or making any other unauthorized use of The Watchmen in a manner inconsistent with Fox's rights as detailed herein.

As a practical matter, I can assure all graphic novel fans that no one wants to stop or even delay this movie. Fox doesn't want to scrap the picture, they want as big a piece as they can get, and they want the injunction for leverage. We're watching a negotiation-by-litigation.

Yet, as a legal matter, if they prevail, they can halt distribution entirely.

But, you say, recalling first year contract law, wouldn't that be a tremendous waste of money, the type of economic destruction generally discouraged by a long line of post-formalist, legal realism cases, like Jacob & Youngs v Kent, 230 NY 239; 129 NE 889 (N.Y. 1921, Cardozo, J.)(denying specific performance where home contractor used wrong brand of plumbing pipes)? Yes, but that's the choice you made through your elected representatives and the copyright laws they have enacted.

So how can the law allow Fox to sit by while WB (and their producers, directors, actors, etc) pours their sweat, tears and money into a work, just to later bring a lawsuit requesting not a cut of the profits but total destruction of the work?

It may not sit by. The doctrine of laches was created to thwart people to squat on their rights, lie in wait, and choose not to sue until it will most damage and prejudice the other party.

The doctrine of laches is a judicial escape hatch enabling courts to dismiss or limit lawsuits that, though brought within the statute of limitations, would be inequitable to permit because of the conduct of the party bringing the lawsuit. It's closely related to the doctrine of unclean hands, a similar tool courts use to deny equitable remedies to those who have behaved badly in the context of the dispute.

Since the doctrine of laches has its roots back in the English common law, the elements in all 50 states are roughly the same, so we might as well look to Pennsylvania:

Laches bars relief when the plaintiff's lack of due diligence in failing to timely institute an action results in prejudice to another. Because it is an affirmative defense, the burden of proof is on the defendant or respondent to demonstrate unreasonable delay and prejudice. See Weinberg v. State Bd. of Exam'rs. of Pub. Accountants, 509 Pa. 143, 147, 501 A.2d 239, 242 (1985). Thus, "[t]he party asserting laches as a defense must present evidence demonstrating prejudice from a lapse of time . . . [such as] that a witness has died or become unavailable, that substantiating records were lost, or that the defendant has changed [her] position in anticipation the opposing party has waived his claims." Richard, 561 Pa. at 496, 751 A.2d at 651. Furthermore, "[t]he question of laches is factual and is determined by examining the circumstances of each case." Weinberg, 509 Pa. at 148, 501 A.2d at 242 (quoting Leedom v. Thomas, 473 Pa. 193, 200-01, 373 A.2d 1329, 1332 (1977)).

Commonwealth ex rel. Corbett v. Griffin, 946 A.2d 668, 676-677 (Pa. 2008). Like most equitable doctrines, it has essentially no elements: the court finds it or it does not.

Obviously, such equitable powers apply to common law claims. Can it apply to statutory claims like copyright infringement?

In most circuits, yes. The Eleventh Circuit just grappled with that in Peter Letterese & Assocs. v. World Inst. of Scientology Enterprises et al, 2008 U.S. App. LEXIS 14496; Copy. L. Rep. (CCH) P29,589 (July 8, 2008). They unearthed a fantastic Learned Hand quote:

It must be obvious to every one familiar with equitable principles that it is inequitable for the owner of a copyright, with full notice of an intended infringement, to stand inactive while the proposed infringer spends large sums of money in its exploitation, and to intervene only when his speculation has proved a success. Delay under such circumstances allows the owner to speculate without risk with the other's money; he cannot possibly lose, and he may win.

That describes Fox's conduct precisely: they couldn't make it, so they waited for someone else to get it together then filed suit after WB tests Synder and crew out on 300, figures out a plausible script, puts together a cast and crew, films it, and makes its way through a good deal of post-production. But that was before there was an explicit 3-year federal statute of limitations for copyright claims. What now? The Eleventh Circuit sums up other responses:

In answering the question of whether the defense of laches may be interposed in a copyright infringement suit, therefore, we cannot agree with the conclusion of the Fourth Circuit, which is an unqualified "no." See Lyons P'ship, L.P. v. Morris Costumes, Inc., 243 F.3d 789, 798 (4th Cir. 2001). Prather recognized the applicability of general equitable doctrines, and like tolling, laches falls into that category. Cf. Teamsters & Employers Welfare Trust of Ill. v. Gorman Bros. Ready Mix, 283 F.3d 877, 882 (7th Cir. 2002) ("What is sauce for the goose (the plaintiff seeking to extend the statute of limitations) is sauce for the gander (the defendant seeking to contract it)."). However, we remain mindful of the Fourth Circuit's invocation of separation of powers principles which counsel against the use of "the judicially created doctrine of laches to bar a federal statutory claim that has been timely filed under an express statute of limitations." Lyons P'ship, 243 F.3d at 798. We therefore answer this question with a presumptive "no"; there is a strong presumption that a plaintiff's suit is timely if it is filed before the statute of limitations has run. Only in the most extraordinary circumstances will laches be recognized as a defense. Cf. Chirco v. Crosswinds Communities, Inc., 474 F.3d 227, 234 (6th Cir. 2007) (noting the limited applicability of laches to copyright cases in "what can best be described as unusual circumstances"); Jacobsen v. Deseret Book Co., 287 F.3d 936, 951 (10th Cir. 2002) ("Although it is possible, in rare cases, that a statute of limitations can be cut short by the doctrine of laches, we see no reason to supplant the statute of limitations in this case." (internal quotation marks and citation omitted)).

But we're not yet done:

Even where such extraordinary circumstances exist, however, laches serves as a bar only to the recovery of retrospective damages, not to prospective relief. As the former Fifth Circuit explained in a patent infringement action:

Although laches and estoppel are related concepts, there is a clear distinction between the two. The defense of laches may be invoked where the plaintiff has unreasonably and inexcusably delayed in prosecuting its rights and where that delay has resulted in material prejudice to the defendant. The effect of laches is merely to withhold damages for infringement which occurred prior to the filing of the suit.

Estoppel, on the other hand, "arises only when one has so acted as to mislead another and the one thus misled has relied upon the action of the inducing party to his prejudice." Estoppel forecloses the patentee from enforcing his patent prospectively through an injunction or through damages for continuing infringement.

Studiengesellschaft Kohle mbH v. Eastman Kodak Co., 616 F.2d 1315, 1325 (5th Cir. 1980) (internal citations omitted).

Arguably, the big damages here have yet to occur, and will occur when the film is distributed for hundreds of millions of dollars. But I still don't understand why WB didn't raise laches as an affirmative defense in their Answer to Fox's Complaint. There's a legitimate argument that the real infringement damages occured during scripting, casting, filming, and post-production, where Fox was shut out of the creative process it presumably wanted to control.

Moreover, the quitclaim agreement itself (the source of most of Fox's claimed rights) includes a clause where, if the movie is ever made, Fox is entitled to the money it initially spent (at least half a million, circa 1990) plus interest. That's serious money by now, at least enough to warrant adding one line about laches to your Answer and briefing the issue.

THE POINT (other than to learn):

There's been a lot of hoopla about this sentence in the judge's order:

It is particularly noteworthy that nothing on the face of the complaint or the documents supplied to the Court establishes that Gordon, the claimed source of Warner Brothers' interest in 'Watchmen,' ever acquired any rights in 'Watchmen.'

That's a problem, but it's not the end of the road. Let's presume Fox still legally has the rights to Watchmen. Now what? Do they get an injunction?

As the Eleventh Circuit continued,

Rather, under "well-established principles of equity, a plaintiff seeking a permanent injunction must satisfy a four-factor test before a court may grant such relief," and a court's decision to grant or deny such relief is within the exercise of its discretion.  [eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391, 126 S. Ct. 1837, 1839 (2006)]

A plaintiff must demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.

Id.

Even if laches doesn't directly apply, and even though "irreparable injury" is presumed in copyright cases, Fox may have waived its "irreparable injury" by allowing virtually all of Watchmen to be completed (excepting some post-production) before filing suit in February 2008. Fox did exactly what Learned Hand complained about: waiting for WB to finish what Fox could not, then suing when they got wind that it was good.

They're no longer in it for protection of their creative endeavor; they're in it just for the money. That won't do. WB's goal is to show that to the judge.

But I think Fox has a bigger problem: the 1994 agreement. Under that, the last of all agreements with Fox, Gordon (the producer) has a perpetual right to exercise his option to make the film. Fox's complaint mentions the 1994 agreement but does not claim breach of it, just breach of the 1991 quitclaim, which means Gordon (now WB) can still exercise the option, buying out the rights.

And that raises yet another problem for Fox when they then try to claim their due under the 1994 option: laches, which can completely bar a contract claim, not just pre-suit damages. When did Fox first know Gordon was trying to make the movie? Recall from the Court's outline, "The notice also provided that the agreement was personal to Gordon and that, “prior to payment of the Buy-Out Price,” he could not "assign rights or authorize any person to take any action with respect to the project."

Here's a 2001 article about an attempt, long after the relevant agreements with Fox. Did Fox move to protect its rights then? Did it tell Gordon not to "authorize any person to take any action with respect to the project?" Here's a rumor:

[P]rivately, Warner Bros execs are decrying to me what they say is Fox's "opportunistic claim," noting that "Fox sat on its so-called rights for years while other studios in town developed this property. In fact, Paramount greenlit the movie for production and Fox never said a word! Fox even had an opportunity to re-acquire the project at some point and it passed on it!"

Did Fox try to "speculate without risk with the other's money?"

I'd say "we shall see," but we probably won't. Once the injunction and the option are decided, the case will likely be sufficiently narrowed to be settled easily; the spread won't be worth the risk anymore.

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A reminder: failure to pay general contractor / subcontractor disputes can get expensive, per 73 P.S. § 512:

§ 512.  Penalty and attorney fee

(a) PENALTY FOR FAILURE TO COMPLY WITH ACT.-- If arbitration or litigation is commenced to recover payment due under this act and it is determined that an owner, contractor or subcontractor has failed to comply with the payment terms of this act, the arbitrator or court shall award, in addition to all other damages due, a penalty equal to 1% per month of the amount that was wrongfully withheld. An amount shall not be deemed to have been wrongfully withheld to the extent it bears a reasonable relation to the value of any claim held in good faith by the owner, contractor or subcontractor against whom the contractor or subcontractor is seeking to recover payment.
 
(b) AWARD OF ATTORNEY FEE AND EXPENSES.-- Notwithstanding any agreement to the contrary, the substantially prevailing party in any proceeding to recover any payment under this act shall be awarded a reasonable attorney fee in an amount to be determined by the court or arbitrator, together with expenses.

Prevailing defendants can recover attorneys' fees, too. Zavatchen v. RHF Holdings, Inc., 2006 PA Super 240, 907 A.2d 607, 2006 Pa. Super. LEXIS 2221 (Pa. Super. Ct. 2006), appeal denied by 591 Pa. 685, 917 A.2d 315, 2007 Pa. LEXIS 345 (2007).
 

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Judge Sheppard of the Philadelphia Court of Common Pleas (commerce court division) had opportunity to pen this clear, concise opinion explaining when a litigant may claim legal malpractice for entering into an unfavorable settlement:

Nixon Peabody relies upon the case of Muhammad v. Strassburger, in support of its claim that the Rubins should not be able to bring suit. In Muhammad, plaintiffs in a medical malpractice action agreed to accept a monetary settlement from defendants in exchange for dismissing their lawsuit. After they agreed to the settlement, plaintiffs changed their minds and decided that the settlement amount was insufficient. Plaintiffs sued their attorneys for legal malpractice because plaintiffs were dissatisfied with the monetary settlement. The Pennsylvania Supreme Court held that a client cannot sue his attorney for legal malpractice when the client is simply dissatisfied with the terms of the settlement, unless the client can show that he was fraudulently induced to enter into that settlement.

This holding was later narrowed in McMahon v. Shea. In McMahon, the court noted that Muhammad was based on Pennsylvania's public policy of encouraging the settlement of disputes and preventing "Monday morning quarterback suits."  In limiting Muhammad to the specific facts of that case, the McMahon court concluded that the plaintiffs allegations that his attorney failed to advise him of a contract's controlling law constituted grounds for a permissible claim for negligence. McMahon limited Muhammad to cases involving similar facts.

In Banks v. Jerome Taylor & Associates, the Superior Court reconciled the Muhammad and McMahon decision as follows:

"In cases wherein a dissatisfied litigant merely wishes to second-guess his or her decision to settle due to speculation that he or she may have been able to secure a larger amount of money, i.e. 'get a better deal' the Muhammad rule applies so as to bar that litigant from suing his counsel for negligence. If, however, a settlement agreement is legally deficient or if an attorney fails to explain the effect of a legal document, the client may seek redress from counsel by filing a malpractice action sounding in negligence." 

In the case at bar, the allegations are more similar to the facts in McMahon than in Muhammad. The Rubins alleges that Nixon Peabody, early in its representation of plaintiffs, failed to file one of the claims sought to be prosecuted by plaintiffs within the applicable statute of limitations. Plaintiffs further allege that Nixon Peabody continued to prosecute the claims in the Kentucky federal court suit and caused plaintiffs to expend one million dollars in litigation expenses. Plaintiffs allege that if Nixon Peabody had been honest and forthcoming during the Kentucky representation and Nixon Peabody would have explained to plaintiffs that the statute of limitations had expired on this claim and explained the shortcomings, plaintiffs would have made a decision as to whether they should continue with the claim. Unlike the plaintiffs in Muhammad, the Rubins did not change their minds about the settlement. Rather, they complain about Nixon Peabody's failure to advise them regarding the controlling law applicable to Rubin's claim, i.e. application of the statute of limitations and its ramifications.

Jan Rubin Assocs. v. Nixon Peabody, LLP, 2008 Phila. Ct. Com. Pl. LEXIS 175 (July 31, 2008).

Simple and direct. I'd go a bit farther than the Court (since I'm allowed to) and rephrase the rule as: a plaintiff can claim the fact of settlement at that amount was caused by malpractice, but cannot claim the amount of settlement itself was malpractice. 

The former is where, due to the malpractice of client, an unfavorable settlement was either necessary or an appropriate mitigation of damages. The latter is where the client willingly enters into an unfavorable settlement, into which they later claim the lawyer should have advised them not to enter.

 

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Defendant here did a splendid job of waiving its rights and annoying Judge Pollak:

Second, defendant, in a footnote, suggests that this matter should be referred for arbitration in accordance with the grievance procedures outlined in the CBA. See Pl.'s Ex. 4, at § 1.05-09. Defendant's presentation of this argument is, to say the least, underwhelming. Whether a dispute is subject to mandatory arbitration is a question of too much consequence to be relegated to a one-sentence footnote in an opposition to a motion for summary judgment. Section 3 of the Federal Arbitration Act is instructive:

 If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the  terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.

9 U.S.C. § 3 (emphasis added). Parties desiring an order compelling arbitration must make application to the court for such an order. The manner of this application should, in accordance with Rule 7(b) of the Federal Rules of Civil Procedure, be a formal motion. Such a motion should, in accordance with Local Rule 7.1(c), be accompanied by a memorandum explaining the grounds for the party's request. Here, rather than following these basic rules for requesting action from a federal district court, defendant has styled its request for relief as an alternative argument (that is, alternative to its main argument, which appears in the text of its opposition papers, that summary judgment is inappropriate on the merits) and tucked it into a footnote.

The court will deny defendant's alternative request for arbitration for three reasons.

First, the request is not made in the form of a motion, as Rule 7(b) requires, nor it is briefed, as Local Rule 7.1(c) requires. Few rules of civil procedure are as easy to follow as Rule 7(b) and Local Rule 7.1(c). All these rules require is a formal  [*21] motion and a statement of grounds. If defendant cannot be bothered to submit a formal motion and a statement of grounds, then it cannot be serious about the relief it purports to desire. Moreover, the court could not easily rule on defendant's request, as the court has not been provided a complete copy of the arbitration portion of the CBA. The copy submitted by plaintiffs does not include anything following the third line of § 1.09, which makes sense given that this section has nothing to do with plaintiffs' argument. Defendant, however, has not submitted a complete copy to accompany its footnote request, nor has it made any argument as to how the grievance procedure works or how it applies. Without providing a complete copy of the arbitration agreement and some explanation of why defendant believes it applies here, the court cannot find that defendant has adequately demonstrated that this dispute is subject to arbitration.

Second, defendant has waived any right to arbitration by not raising the issue in motions practice before now. Although waiver by delay is not favored, the Third Circuit has held that the right to arbitration is waived when defendant's delay causes prejudice. Hoxworth v. Blinder, Robinson & Co., 980 F.2d at 912, 926-27 (3d Cir. 1992). Here, defendant has, without a peep, submitted to full discovery in this matter. Discovery is now complete, and the case, having been pending for more than a year, is ready for disposition, either by summary judgment or by trial. Plaintiffs have doubtless spent substantial time, effort, and expense in getting this case ready for summary judgment practice and trial. The sheer number of exhibits and depositions submitted attests to plaintiffs' efforts, which, particularly considering that this is not a high-dollar-value case, are significant. Moreover, the arbitration procedure outlined in those portions of the CBA available to the court do not appear to contemplate discovery. Thus, having accepted the benefit of discovery from plaintiffs, and having put plaintiffs to the expense of discovery, defendant should not now be allowed to stay these proceedings and access an arbitral forum. See id. at 926. The court acknowledges that it appears that defendant raised the issue of arbitration in its answer, and that there has not been, before now, any other substantial formal motions practice 6 (aside from the motions practice associated with vacating defendant's default), id. at 927; nevertheless,  the court believes that, for the reasons just discussed, submitting this case to arbitration at this late stage would cause plaintiff prejudice, and should not be allowed.

Third, defendant's alternative request for an order compelling arbitration bears a striking resemblance to forum shopping. The thrust of its opposition to plaintiff's motion for summary judgment is that this court should deny plaintiff's motion on the merits. But, just in case the court disagrees, it attempts to preserve an argument for arbitration in a footnote. This form of argument is not attractive, nor is it persuasive.

Ibew Local Union No. 380 Health & Welfare Fund v. Travis Electric, Inc., 2008 U.S. Dist. LEXIS 58037 (E.D. Pa. July 31, 2008)(emphasis added).

What were they thinking? The only good explanation I can think of is that the defendant didn't actually want to arbitrate, and decided such long ago, yet tucked in the remark as some form of collateral persuasion, where you toss in barely-relevant arguments in the hopes that it will, by sheer inertia, carry your other arguments further.

Otherwise, someone dropped the ball, or perhaps never even picked up the ball since they were so busy churning the billable hours on the litigation...

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So sayeth 3si Sec. Sys. v. Protek, 2008 U.S. Dist. LEXIS 56283 (E.D. Pa. July 23, 2008), more routine commercial litigation:

The gist of the action doctrine "precludes plaintiffs from re-casting ordinary breach of contract claims into tort claims." eToll, Inc. v. Elias/Savion Adver., 811 A.2d 10, 14 (Pa. Super. Ct. 2002) citing Bash v. Bell Tel. Co., 601 A.2d 825, 829 (Pa. Super. Ct. 1992). The difference between a cause of action for tort and breach of contract is that "tort actions lie for breaches of duties imposed by law as a matter of social policy, while contract actions lie only for breaches of duties imposed by mutual consensus agreements between particular individuals." Bash, 601 A.2d at 829. A breach of contract may give rise to a tort claim only when defendant's wrongful conduct is the gist of the action, and the contract is collateral. Pittsburgh Constr. Co. v. Griffith, 834 A.2d 572, 582 (Pa. Super. Ct. 2003) citing Bash, 601 A.2d at 829)

To successfully prove a negligence claim a plaintiff must demonstrate the following elements: (1) a duty of care was owed by defendant; (2) defendant breached this duty; and (3) the breach resulted in injury. McCandless v. Edwards, 908 A.2d 900, 904 (Pa. Super. Ct. 2006) (citations omitted). Because Defendant's obligation to provide Plaintiff with FlexPac batteries arose from the contract and not from a general duty of care, Plaintiff's negligence claim should be barred by the gist of the action doctrine.

In Factory Market v. Schuller Intl, defendant guaranteed plaintiff it would install a watertight roof. 987 F. Supp. 387, 388 (E.D. Pa. Jan. 9, 1997). Defendant promised to pay for any repairs needed to maintain the roof in a watertight condition. Id. at 389. From the onset "the roof was plagued with leaking problems," which defendant attempted to fix on a number of occasions. Id. Upon various unsuccessful  attempts by defendant to repair the roof, plaintiff brought suit against defendant alleging breach of contract, negligence, and fraud. Id. at 391. The court held that plaintiff's negligence claim sounded more in contract than in tort. Id. at 394. Plaintiff merely alleged that defendant's repairs were negligently performed, and as a result the roof was not watertight despite defendant's guarantee. Id. at 394-95. The court ruled that defendant did not owe plaintiff a duty of care; rather defendant's obligation to repair the faulty roof was imposed by way of the contract, and without the contract plaintiff "simply would not have [had] a claim." Id. at 395. Therefore, the court barred plaintiff's negligence claim. Id.

(emphasis added).

Without fail, defendants raise the "gist of the action" doctrine in every single breach of contract case that also includes other claims. It doesn't matter if the other claim is unjust enrichment, tortious interference, fraud, defamation, professional malpractice, or any other entirely appropriate claim that can rest alongside a breach of contract. If there's a contract, and there's another claim, the preliminary objections / 12(b)(6) are inevitable.

And it's usually wrong.

The doctrine is simple: the "gist of the action" doctrine precludes negligence claims where, under the facts alleged, the defendant has no duty to the plaintiff except for those created by contract. The "gist" is contractual -- there are no duties between the parties except for those created by the contract.

A reminder: everyone has a duty not to defraud others. Everyone has a duty not to tortious interfere in others' business. Everyone has a duty not to defame others. If someone defrauded you, that's wrong; you don't need to first have a signed and sealed Agreement Not To Defraud Me.

Ergo, there's really only one instance in which, at the complaint stage, the "gist of the action" doctrine applies: where a complaint alleges breach of contract and negligence based solely upon that contract. That a plaintiff cannot do.

Fraud and breach of contract? That's fine -- indeed, they're usually entirely appropriate forms of alternative relief which a plaintiff should allege if they have the factual basis.

But if you're alleging negligence, there must be an independent duty outside from the contract itself.

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Drug and Device Law has an exceptionally detailed post about the new voluntary PhRMA guidelines, along with dozens of cases holding that such guidelines don't create negligence per se liability standards, particularly not retroactively.

But what about ordinary, post hoc negligence? Can voluntary industry codes be relevant to the standard of care?

Absolutely! For example, the Eastern District of Pennsylvania case they cited, Knarr v. Chapman Sch. of Seamanship, 2000 U.S. Dist. LEXIS 5351 (E.D.Pa. 2000)(interpreting Florida law), rejected the per se application of ANSI standards, but was happy to cite "Jackson v. H.L. Bouton Co., 630 So. 2d 1173, 1174-75 (Dist.Ct.App.Fl. 1994)(violation of ANSI standards is "merely evidence of negligence.)."

The same is true in Pennsylvania, where evidence of industry standards is clearly relevant to the reasonableness of a manufacturer's conduct, and is thus admissible, except in strict liability cases where reasonableness is irelevant. Lewis v. Coffing Hoist Div., Duff-Norton, 515 Pa. 334, 528 A.2d 590, 594 (Pa. 1987). As you'd expect, if the plaintiff brings in industry standards, so too can the defendant. Daddona v. Thind, 891 A.2d 786, 807 (Pa. Commw. Ct. 2006).

As for whether its plaintiffs or defendants are engaging in what D&D Law calls "foolishness," you can bet your bottom dollar that every PhRMA defendant from here on out will make their compliance with these new standards the centerpiece of future defenses, and that PhRMA took great pains to ensure these codes were easy to comply with and would play well in front of judges and juries.

Seriously, look at these codes and consider the state of the industry in 2008:

Promotional materials should:
(a) be accurate and not misleading;
(b) only make substantiated claims;
(c) reflect the balance between risks & benefits; and
(d) be consistent with all FDA requirements.

...

Decisions regarding the selection or retention of [health care providers] as consultants should be made based on defined criteria such as general medical expertise and reputation, or knowledge and experience regarding a particular therapeutic area.

...

Companies should not use consultant arrangements as inducements or rewards for prescribing a particular medicine or course of treatment.

...

Train representatives to ensure general science and product-specific information so that representatives can provide accurate, up-to-date information, consistent with FDA requirements.

That's voluntary? It should be mandatory. No praise will come from these quarters, I don't consider it a "good deed" to encourage member companies follow FDA requirements. It's the law.

In 2008 we have to remind (it wasn't part of the old code!) pharmaceutical companies not to mislead people with promotional materials. What a shame.

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A reminder courtesy of the Pennsylvania Superior Court:

Initially, we must address the Seller's position that since Buyer appealed from the order denying post-trial motions rather than the pretrial ruling limiting his claim for consequential damages, we "lack jurisdiction" to "hear his complaints about the pretrial ruling." Brief of Appellee and Cross-Appellant Michael Bupp at 24, 26. The law is to the contrary.

The pretrial order in question was an interlocutory order because it merely limited the damages recoverable in this action and did not resolve all issues as to all parties or otherwise terminate the litigation. See Pa.R.A.P. 341(b). The final order in this action was the one that disposed of post-trial motions, which resolved all outstanding claims as to the two parties and from which Buyer filed his timely appeal. It is established that a notice of appeal filed from the entry of the final order in an action draws into question the propriety of any prior non-final orders. K.H. v. J.R., 573 Pa. 481, 826 A.2d 863 (Pa. 2003). As we recently stated:

[I]nterlocutory orders that are not subject to immediate appeal as of right may be reviewed in a subsequent timely appeal of a final appealable order or judgment. Stephens v. Messick, 2002 PA Super 117, 799 A.2d 793, 798 (Pa.Super. 2002); see also Bird Hill Farms, Inc. v. United States Cargo & Courier Service, Inc., 2004 PA Super 66, 845 A.2d 900, 903 (Pa.Super. 2004) (stating that "[o]nce an appeal is filed from a final order, all prior interlocutory orders are subject to review"). Accordingly, interlocutory orders . . . become reviewable on appeal upon the trial court's entry of a final order[.]

Basile v. H & R Block, Inc., 2007 PA Super 159, 926 A.2d 493, 498 (Pa.Super. 2007).

Seller also suggests that Buyer did not "otherwise" preserve his issues for appellate review. Brief of Appellee and Cross-Appellant Michael Bupp at 24. Again, we disagree. Buyer raised the propriety of the order limiting his consequential damages in his post-trial motions, which are devoted entirely to this question. The ruling also was contested pretrial. Thus, we cannot ascertain the basis upon which Buyer urges a finding of waiver.

Quinn v. Bupp, 2008 PA Super 161 * 13 (emphasis added).

Of course, don't throw the book at the appellate court. See Kanter v. Epstein, 2004 PA Super 470 (by overwhelming the court with issues, "[Defendants] frustrat[ed] this Court's ability to engage in a meaningful and effective appellate review process"). But make sure all the important court orders, not just the post-trial ones, are addressed.

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Concurring Opinions picks up an interesting dispute between a Western District of Pennsylvania trial judge and the Third Circuit:

["How Closely Can Judges' Opinions Mirror Filings?"] was the question at issue in the remand of Bright v. Westmoreland Cty., 341 F.Supp.2d 525, where the Third Circuit had suggested that the district judge's opinion was a little too close to the defendant's proposed order (well, actually, almost a verbatim copy). Here's the judge's response [on remand]:

[T]he starting point of numerous documents, eventually signed by this Court, and by other district court judges in this and other districts, may initially be counsel's work product. Why are district courts throughout this country receiving attorney work product on “computer disk/cd,” if they are not to be used as a starting point? It never occurred to me at that time that anyone would view as improper the practice of an attorney's work product serving as a starting point for a Memorandum Opinion from this Court. . . .

[Moreover,] In addition to “two substantive changes,” I made over sixty (60) “markings,” including correction of citation form, verb changes, tense changes, spelling corrections, etc. My training as a law clerk for a well-respected Judge of the United States Court of Appeals for the Third Circuit and as a member of the Virginia Law Review, as well as over thirty (30) years of trial practice, taught me that such matters were important.

The conflict reminds me of the recent controversy over a judicial nominee accused of "appropriat[ing] without attribution . . . substantial portions" of an article. Both situations suggest that judicial and scholarly independence require a commitment to "make it new;" perhaps only stylistically for the judge, but substantively for the scholar.

I have to side with the District Judge there. While a wholesale adoption of a party's argument could reveal laziness by the judge, the simple truth is that many of us lawyers take our jobs very seriously, and many of us spend a lot of time and effort perfecting our legal arguments.

If you see a written pleading from me, odds are that I have tried to word every sentence in there as best I could, paying close attention to style, length, word choice, cadence, fidelity of my arguments to the cases therein cited. I also strive to ensure that the arguments I put forth are consistent with the relevant legal principles in general, enabling them to be applied or distinguished in other cases. (That may sound like a waste given the case-particular duty of zealous advocacy but, once you've seen your overzealous arguments blown away at appeal, you'll see the merits of a cautious, consistent approach).

Judges should always verify the arguments made to them by counsel -- even putting aside malicious intent, mistakes do happen -- but if a judge reads the words I agonized over, taking into account all my understanding of the case, well, that may just mean I did my job well, not that the judge did anything wrong.

How'd the story end? On second appeal, the District Court was affirmed in what is an important state-created danger / 1983 opinion in the Third Circuit. Bright v. Westmoreland County, 443 F.3d 276 (3d Cir. 2006). I guess the carbon copied lawyer was right the first time around.

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Another day, another breach of contract case alleging "fraud in the inducement, unjust enrichment, and tortious interference with contractual and business relationships." Sheinman Provisions, Inc. v. Nat'l Deli, LLC, 2008 U.S. Dist. LEXIS 54357 (E.D.Pa. 2008). Here's what inevitably happens:

Based upon the parties' pleadings and the Court's own review of the contract at issue, we find that the Asset Rental Agreement is a fully integrated contract, which contains an express provision stating that in entering the Asset Rental Agreement, neither party has relied on any claims, representations or warranties made by the other, except as expressly set forth therein. Therefore, the parole evidence rule squarely applies here because Plaintiff is seeking to offer evidence of representations made prior to the execution of the Asset Rental Agreement to contradict an express provision thereof. As it is well established that "fully integrated contracts preclude fraudulent inducement claims," this claim will be dismissed as barred by the parole evidence rule. Because the fraudulent inducement claim is defeated by the parole evidence rule, we do not need to address Defendant's arguments based on the gist of the action doctrine and Rule 9(b).

...

In this case, the agreement at issue is a fully integrated contract and, by its terms, it governs the entire relationship of the parties. Therefore, we disagree with Plaintiff's argument that Rule 8(d)(2) allows pleading in the alternative in this case. Rule 8 only allows alternative claims to be plead if all of the claims are sufficient on their own. Here, even if the breach of contract claim fails, the unjust enrichment claim is still insufficient because Pennsylvania law prohibits unjust enrichment claims where a contract governs the relationship of  the parties, as is the case here. The bar to this type of claim is not altered when unjust enrichment is plead in the alternative to an unsuccessful breach of contract claim as the relationship of the parties is still governed by a valid contract, and therefore, there is no reason to apply the quasi-contract doctrine of unjust enrichment. Plaintiff's unjust enrichment claim will be dismissed.

...

Sheinman's tortious interference claim alleges almost identical facts: that Defendant intentionally interfered with Plaintiff's business and contractual relationships to cause its customers, vendors and suppliers to discontinue purchasing from Plaintiff and deal directly with Defendant. Following the Third Circuit's holding in Chemtech, we find that the duties allegedly breached by Defendant were not imposed as a matter of social policy, but rather flowed from the Asset Rental Agreement. Therefore, the gist of the action doctrine bars Plaintiff's tortious interference claim here as the duties  allegedly breached were grounded in the contract between the parties.

Ouch! Those all look like pleading problems: if you're doing to allege claims outside breach of contract, make sure the facts you allege can support them -- the claims can't simply be naked alternatives to your breach of contract. From looking at the facts (a wholly integrated contract only breached in a few, but important, ways), I really don't see how the plaintiffs could have pulled it off.

I can't blame the plaintiffs for trying, though: if they had not alleged these claims, and then evidence later revealed they should have, the defendants would have inevitably cried foul with the statute of limitations, and probably would have won, since the amendment would have been for entirely new claims. It was largely a waste of everyone's time, but unless defense counsel's in the mood for a tolling agreement (hint: they're not), you don't have a choice.

Hate the game, not the players.

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