Page 11 - Complex Litigation

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Complex Litigation | MONDAY, JUNE 2, 2014 | S11

Telephone
cell phone bills contained charges for each not insurable) or remedial (usually insur- tion over class actions was then left to state law with
mixed results depending on whether state law permit- ted class actions for statutory damages. For example,
call made or received. Smartphones, which able). Some recent Illinois state court deci- a substantial number of TCPA cases and body of juris-
many people now use exclusively, did not sions have found TCPA damage claims to be prudence has developed in federal courts in California
« Continued from page S3
exist. Many TCPA cases thus involve the insurable remedial remedies, but one federal and Washington state.
plaintiff argued that when class members question of what constitutes an ATDS under court in New York recently denied cover- 3. Because the case originated in Connecticut, a
signed up for the messaging service at issue, the statute.
age in a TCPA case for a variety of reasons class action was permitted since Connecticut state courts did not have the same prohibition as New York
the terms and conditions of the service at There is no dispute that calling systems pertaining to the speciic policy clauses at on class actions for statutory damages.
sign up said the messages would be limited that generate random numbers of people in issue in that case.9
4. The Second Circuit still found the case time barred
to three to ive per week. Plaintiff alleged he the general citizenry who are not already cus- even under the longer statute of limitations because of
received more than ive messages per week tomers of a business for marketing purposes a prior denial of class certiication that ended a tolling period pursuant to American Pipe & Construction Co.
Conclusion
v. Utah, 414 U.S. 538 (1974). In an issue of irst impres-
“routinely.” A motion to dismiss was pending falls within the statutory deinition. But in sion in the Second Circuit, but following other circuit
when the case settled. Similarly, in a case the Lakers case, for example, one issue was New York practitioners can expect the courts, the court held that tolling ends as soon as the
brought against the Los Angeles Lakers, the whether the text messages at issue constitut- New York dockets to grow as a result of the district court denies class certiication. Giovanniello,
issue was whether, after a consumer opted ed use of an ATDS because the numbers were recent appellate rulings permitting TCPA 726 F.3d at 107.
5. See, e.g., Holtzman v. Turza, 728 F.3d 682 (7th Cir.
out, a conirmatory message that acknowl- not randomly generated and were only sent class action claims in our courts. The above 2013) (rejecting FCC guidance on “junk fax” regulations
edged the request for the opt out violated the to people who gave the Lakers their num- provides some issues to consider as the body as “untethered” to the statute, but afirming district
TCPA.8 A motion to dismiss was granted but ber. In another recent decision, Yahoo! was of law grows in our circuit.
court’s conclusion that facsimiles at issue constituted
appealed to the Ninth Circuit, where the case dismissed from TCPA liability by a district advertisements rather than informational communica- tions).
•••6. See, e.g., Bais Yaakov of Spring Valley v. Alloy, 936
was settled prior to an appellate decision.
court where it sent individualized messages ••••••••••••••••••••••••••
F. Supp. 2d 272 (S.D.N.Y. 2013).
The question of consent can often dictate via its opt-in texting service, even though the 1. See, e.g., Bonime v. Avaya, 547 F.3d 497 (2d Cir. 7. Prior to the new regulations, most courts followed
whether a class action is certiied. Whether recipient had unsuccessfully tried to opt out 2008); Foxhall Realty Law Ofices v. Telecomm. Premi- um Servs., 156 F.3d 432, 434 (2d Cir. 1998) (reaching “the the general rule that providing your number voluntarily
individualized inquiries are necessary into of the program. Courts are thus increasingly somewhat unusual conclusion that state courts have in most instances gave implied consent for communica- tions concerning the transaction pursuant to which the
whether each class member consented reviewing TCPA claims to determine whether exclusive jurisdiction over a cause of action created by number was provided (so long as the number was pro-
can often predominate over other common the context of the communications at issue a federal statute, the Telephone Consumer Protection vided to the caller by the recipient and not by a third
issues, so this has become a frequently liti- fall within what the statute truly intended Act of 1991 . .” (internal quotations omitted)). While party). That rule, however, was not universal. See, e.g.,
gated issue.
to cover, requiring more than bare pleading.
Foxhall held only that there was no federal question ju- risdiction in federal courts over TCPA claims, that still Mais v. Gulf Coast Collections Bureau, 944 F. Supp. 2d 1226, 1235 (S.D. Fla. 2013).
What technology counts as an “auto- Insurance coverage. It is important for left open the question of diversity jurisdiction. How- 8. FCC Regulations require that even where consent
ever, plaintiffs could not overcome the $75,000 jurisdic- is given, the marketer provide information on how to
matic telephone dialing system” (ATDS)? practitioners to work with their clients to tional threshold for diversity jurisdiction unless they opt out from future communications with the send-
The reach of the TCPA under 47 U.S.C. determine if there is any insurance cover- could aggregate their claims as class actions. Bonime then held that substantive state law governed TCPA ing of each consented-to communication. E.g., 47 CFR
§227(b)(1)(A) is meant to cover communica- age available to cover defense and liability claims under the Erie doctrine, and thus New York’s 64.1200(a)(3)(iv). There has been litigation over wheth- er this requirement is ultra vires, but it has not been
tions that intrude on the privacy of people’s costs for TCPA claims. Complex coverage prohibition on class actions for statutory damages pre- resolved on the merits.
lives and harm them with unanticipated bills. issues are beyond the scope of this note, but cluded diversity jurisdiction as well.
9. Certain Underwriters at Lloyd’s of London v. Con-
When passed in 1991, we lived in a very dif- coverage can turn on whether the damages 2. The Second, Third, Fourth, Fifth, Ninth and Elev- vergys, No. 12-CV-8968-CRK, slip. op. at 4-6 (S.D.N.Y.
ferent communications era, when home or
at issue are deemed to be punitive (usually
enth Circuits had held there was no federal subject matter jurisdiction while the Sixth and Seventh Circuits March 25, 2014); Std. Mut. Ins. v. Lay, 989 N.E.2d 591 (Ill. 2013); id., 2 N.E.2d 1253 (Ill. App. Ct.), app. denied, 2014
had held there was. The exercise of diversity jurisdic-
Ill. LEXIS 433 (2014).

Audit Committee
bar from serving as an oficer or director of committee as gatekeeper and it will not of attention. Id.
a public company.
hesitate to take action in cases where it The Caremark recipe is, necessarily, amor-
In March 2014, the SEC commenced two feels the audit committee has abandoned phous. What is clear, however, is that pro-
additional actions against audit committee its responsibilities.
tection against liability for company losses
« Continued from page S9
members. In AgFeed Industries, a largely necessitates the board taking some form
At virtually every turn, the committee China-based hog feed and production com- of afirmative action to employ a corporate
failed properly to acquit its responsibili- pany with operations also in Tennessee, the Approach in Class and Derivative Actions
information and reporting system so that

ties and engaged in conscious avoidance SEC alleged that Audit Committee chair K. In addition to SEC enforcement actions, corporate performance is actively monitored
of important red lags, allowing Brooks to Ivan (Van) Gothner knew, or should have audit committee members are vulnerable and, as issues arise, they reach the board
control and subvert what should have been known, that the company was overstat- to private civil litigation, usually in the form and senior management in a timely manner.
the investigative and protective process and ing its revenues and keeping two sets of of class and derivative actions. Committee As the board’s committee responsible for
joining him in the wrongdoing. Although each books. Gothner failed to report that fact members are typically sued for breach of overseeing inancial reporting, internal con-
of the three was charged with substantive to the outside auditors, failed to hire a duty relating to oversight of and commu- trols, and legal compliance, the audit com-
violations, the vast bulk of the allegations professional irm to conduct a review, and nication with the company’s independent mittee seems more susceptible to breach of
were cast in terms of aiding and abetting did not investigate the fraud. The case is auditors and management and relating to duty claims under Caremark than are other
Brooks’ wrongdoings, sending a loud and currently pending in the Middle District the committee’s responsibilities for the com- directors.

clear message: the audit committee is sup- of Tennessee.
pany’s compliance with legal and regula-
posed to be the watchdog and if it is not The SEC also commenced and settled an tory requirements, internal audit function, Protecting the Audit Committee
going to serve that role, then its members administrative proceeding against Shirley internal controls, and, of course, audited
are responsible. The defendants entered into Kiang, the chair of the audit committee inancial statements included in its public Serving on the audit committee of a
consent decrees imposing lifetime bars on of L&L Energy, another China-based com- ilings.
smaller company is perilous business and
service to public companies and ines and pany with headquarters in Seattle. L&L In the seminal decision in In re Caremark has become increasingly so as the duties
disgorgement ranging from $200,000 to just falsely reported that an individual served Int’l, Derivative Litig., 698 A.2d 959 (Del. Ch. and responsibilities of the audit committee
under $1 million.
as its acting CFO. When that individual, 1996), the court set forth a recipe for board have expanded. Decisional law may provide
In March 2010, the SEC commenced, and who had declined the job, learned of the conduct. In that case, board members were some level of protection, and D&O cover-

settled, an action against Vasant Raval, chair misrepresentation, she approached Kiang alleged to be liable for failing to discover cor- age and indemniication rights might cover
of the audit committee of InfoUSA. The CEO to commence an investigation. Kiang was porate employees’ violations of federal and defense costs and protect against inancial
of InfoUSA, Vinod Gupta, used corporate told by the company’s chairman that the state laws and regulations, which resulted responsibility for a judgment. There are,
assets for personal beneits and engaged representation was false, but Kiang did not in the company being charged with multiple however, limits to that protection, and noth-
in interested party transactions. Raval, as share the information with the auditors or felonies. The court made clear that direc- ing can defray the implicit costs inherent
chair of the audit committee, ignored red the public, and then, by signing L&L’s 2009 tors will be liable for ill-advised or negligent in the diversion of attention from daily life
lags, indeed ignored the results of his own Form 10-K, falsely certiied that any evidence decisions that cause the company to suffer a and the anxiety engendered by litigation.
investigation, and allowed Gupta to run of fraud had been disclosed to the auditors loss, as well as unconsidered failures to act Although it has atime for the SEC to devise

amuck. Rather than taking meaningful cor- and the audit committee. Kiang accepted a in circumstances in which due attention and safe harbors from civil liability for audit
rective action, Raval wrote a report to the lifetime bar from signing SOX-certiied ilings diligent monitoring would have prevented committees. Absent concrete, indelible pro-
board, which the SEC thought omitted criti- with the SEC.
the loss. Id. at 966. On the other hand, when tection, it may very well prove dificult to
cal facts regarding Gupta’s expenses. Raval While these four cases hardly indicate a a director exercises a good faith effort to be recruit qualiied people to serve on audit
consented to the entry of judgment against sea change, the message is clear: The SEC informed and exercises appropriate judg- committees, to the detriment of good cor-
him, was ined $50,000, and took a ive year
takes very seriously the role of the audit
ment, the director satisies his or her duty
porate citizenship.