A New, Relaxed Standard For Class Cert. In Securities Cases

"Last week, the Second Circuit issued a must-read opinion for securities class action lawyers. In Waggoner et al. v. Barclays PLC, No. 16 Civ. 1912 (2d Cir. Nov. 6, 2017), the Second Circuit held that plaintiffs do not need to present direct evidence of market efficiency (i.e., an event study) in order for a court to certify a class of investors alleging securities fraud under federal law.[1] Indirect evidence may be enough to demonstrate an efficient market."

A New, Relaxed Standard For Class Cert. In Securities Cases

The Second Circuit and Social Justice

The article concludes:  "In this Article, we attempted to illustrate a variety of issues through which the Second Circuit has advanced social justice. This diversity, reflective of the rich legal and social communities in which the Second Circuit sits, is in itself a strength. But the deeper significance of the Second Circuit’s jurisprudence is its nuance and sensitivity to fundamental power inequality, illustrated by the case law discussed herein. In 1951, Chief Judge Learned Hand captured the Second Circuit’s tradition with brevity and eloquence: “If we are to keep our democracy, there must be one commandment: Thou shalt not ration justice.”311 We look forward to the circuit continuing to break new ground as it dispenses justice in its considered and thoughtful fashion."


Before a jury found him not guilty, "Dufort spent nearly five years incarcerated at Rikers Island Prison Complex in New York City awaiting trial."  The Second Circuit writes in a footnote:  "We hope that shockingly long pretrial detentions like this will one soon be a thing of the past.  The recent report of the independent commission that recommended closing Rikers Island gives us reason for optimism."  The report cited by the Second Circuit states:

"Going forward, the idea of community justice must become standard operating practice—investing in New York City neighborhoods damaged by past practice and creating stronger links between criminal justice agencies and the people they exist to serve. Going forward, every decision and interaction— whether on the street, in the courthouse, or behind the walls of our jails—must seek to advance the fundamental values of dignity and respect. And going forward, we must close the jail complex on Rikers Island. Period."

Dismissal of Implant Contraception MDL Upheld by Second Circuit

In 2013, 1,300 women across the country sued Bayer Healthcare Pharmaceuticals, Inc., Bayer Pharma AG and Bayer OY ("Bayer").  The women alleged that they were injured after the contraception Mirena was implanted and perforated their uteruses causing injuries.

In March 2016, the District Court issued an opinion excluding all three of the plaintiffs’ expert witnesses. The district judge found their testimony was unreliable and stated that they “worked backwards to hypothesize a mechanism by which it might occur.”

The standard of review  is highly deferential:  courts look for an abuse of discretion or manifest error.  Applying this standard, the Second Circuit affirmed in a summary opinion.

Sexual Orientation Discrimination Under Title VII

Earlier this year, the Seventh Circuit held under “[t]he logic of the Supreme Court’s decisions, as well as the common-sense reality that it is actually impossible to discriminate on the basis of sexual orientation without discriminating on the basis of sex,” Title VII prohibits discrimination based on sexual orientation.  Hively v. Ivy Tech Cmty. Coll., 853 F.3d 339, 350-51 (7th Cir. 2017) (en banc). 

The Second Circuit is currently considering the same issue en banc in Zarda v. Altitude Express.

But the case that may eventually end up before the Supreme Court is Evans v. Georgia Regional Hospital out of the Eleventh Circuit.  SCOTUSblog has the petition for cert here (link).  The Eleventh Circuit held that petitioner could not “state[] a claim under Title VII by alleging that she endured workplace discrimination because of her sexual orientation.” Pet. App. 11a. The majority noted that circuit precedent from 1979 dictated that “[d]ischarge for homosexuality is not prohibited by Title VII.” Id. 11a (quoting Blum v. Gulf Oil Corp., 597 F.2d 936, 938 (5th Cir. 1979)).

Given the circuit split, it would seem likely that the Supreme Court consider this case.

DOJ Reverses Stance On Workplace Protections

 Jeff Sessions issued a memo stating that Title VII of the Civil Rights Act does not protect individuals against discrimination on the basis of “gender identity per se, including discrimination against transgender individuals.”

In 2014, then-Attorney General Eric Holder took the position that the word “sex” in the statute “extends to claims of discrimination based on an individual’s gender identity, including transgender status.

TCPA Consent Not Revocable if Part of Contract

Given that the Second Circuit only hears around one case a year en banc, it is not suprising that the Second Circuit denied the petition in Reyes, Jr. v. Lincoln Automotive Financial Services, No. 16-2104,  But it does show how groundbreaking the opinion in this TCPA case is that Law360 covered the denial.

Coverage of the original decision:

2nd Circuit Says TCPA Consent Not Revocable if Part of Contract

Second Circuit Grants Trump's Stay in Pair of DACA Suits

"The federal government was awarded an emergency stay in discovery proceedings by the U.S. Court of Appeals for the Second Circuit Friday, as it prepares to file a writ of mandamus in a pair of suits over President Donald Trump’s decision, announced last month in an executive order, to end the Deferred Action for Childhood Arrivals program last month."

Second Circuit Grants Trump's Stay in Pair of DACA Suits

Bankruptcy Law Is More Ambiguous Than We Thought

Matt Levine writes about the Second Circuit's decision in In re MPM Silicones, LLC:

"The bankruptcy court and district court responded, effectively, no, come on, we live in a society here. Obviously everyone intended the secured notes to be senior to the subordinated notes; that is the whole point of those words, and of capital structure generally. But on appeal, the Second Circuit took the question more seriously, held that the answer was ambiguous ("Rather, we conclude that the Fourth Proviso renders the definition of Senior Indebtedness ambiguous as to whether it includes the Second-Lien Notes" -- a lovely sentence to show to any young person who is considering whether to go to law school), but ultimately agreed that, as the other courts had held, the junior debt was in fact junior to the senior debt."

Bankruptcy Law Is More Ambiguous Than We Thought

Fees in the Eastern District of New York

This is an interesting appeal from the award of attorneys' fees in a Fair Labor Standards Act (FLSA).  The parties settled in an agreement that provided that, in exchange for general release and compliance with its terms and conditions, Sushi Maru Express will pay $52,324.25 to Seong Soo Ham, and $32,676.75 to Eun Yong Lee. The parties agreed that attorneys' fees and costs would be determined separately.

The magistrate judge surveyed the Eastern District of New York ("E.D.N.Y.") and determined that the rates requested by the primary attorneys "exceeded the hourly rates normally approved in this district for comparable professionals in federal wage cases." The magistrate judge found that partners and experienced attorneys are typically awarded between $300 and $400 per hour, and junior associates between $100 and $150 per hour in wage cases.

The case reached a settlement within ten months and featured no motion practice and limited discovery. Plaintiffs' attorneys stated that they expended over 449 hours of work. The magistrate judge held that these hours expended are unreasonable, and the district court agreed.

Here is the Report and Recommendation (opens in new window).  

The attorneys filed an appeal to the Second Circuit.


Res ipsa loquitur

Manhattan by Sail, Inc., et al. v. Charis Tagle states in explicit dicta that "Res ipsa loquitur is not limited to accidents that could occur only because of negligence. For res ipsa loquitur to apply, a claimant must show that the event is of a type that ordinarily does not occur in the absence of negligence."  Footnote 2 reads:   "If our judgment were based solely on the district court’s incorrect application of the res ipsa doctrine, we would have directed the district court to reconsider whether Biggs was negligent, giving Tagle the benefit of res ipsa loquitur. Because our judgment is that Tagle has proved negligence regardless of the applicability of res ipsa loquitur, we have reached a different judgment—that the district court must rule in favor of Tagle as to Biggins’s negligence as the cause of her injury. Accordingly, our discussion of the standards for res ipsa loquitur is dictum and not a holding of this case."

You can download the oral argument here (MP3).

Argued:  October 24, 2016    
Decided: October 5, 2017
Opinion by Judge Pierre N. Leval

Why do FLSA cases cost employers so much?

"An employer’s liability under the FLSA can be high even in the most average of cases. There are a number of reasons why. First, FLSA cases – almost invariably – involve multiple employees and/or plaintiffs. If one employee says that she has had to work through meal breaks, then you can bet that several more probably have too. Second, FLSA cases often cover extended periods of time. Typically, employees don’t complain that they have worked through lunch once; they complain that they have worked through lunch on a weekly basis for a number of years. Third, unpaid meal break time will be paid at the employees’ overtime rate if it came during a week in which the employees had already worked 40 hours or more.  Fourth, employees are typically awarded “liquidated damages” in FLSA cases equal to the amount of unpaid wages. In other words, employees receive twice what they say they were owed.  Fifth, punitive damages can be awarded at the discretion of the court. And, sixth, employers are commonly required to reimburse employees for the legal fees and costs that they incur in bringing FLSA suit."


How the Second Circuit overrules its decisions

Prior to 1891, there were no courts of appeals in the federal system.  In the decades following the Civil War, however, Congress increased federal jurisdiction and litigation began to overload the federal courts. 

In 1891, Congress created courts of appeals between the trial courts and the Supreme Court with the Evarts Act, an act named after its primary sponsor Senator William Evarts of New York.  The Act created nine new courts, originally known as the “United States circuit courts of appeals.”  (The name was changed to its current form in 1948.  Today, for example, the Second Circuit is officially “The Court of Appeals for the Second Circuit”).

The Evarts Act provided that the new appellate courts “shall consist of three judges.”  Consistent with this tradition, and now pursuant to 28 U.S.C. § 46(c), the appellate courts continue to hear cases with three-judge panels.[1] 

Each panel of the court is considered to be the court of appeals, and a decision of a three-judge panel carries the full weight of the court.  Every federal appellate court has held that a three-judge panel is bound by the opinions of prior panels until the decision is overruled either by the Supreme Court or that court sitting en banc.[2]  “En banc” is a hearing in which all the active judges of the court participate.  In Textile Mills Securities Corp. v. Conmissioner, the Supreme Court held that a court of appeals has the inherent power to sit en banc.[3] 

In addition, in 1978, Congress passed the Omnibus Judgeship Act, and authorized federal circuit courts consisting of more than fifteen judges to delegate en banc authority to a division of the full court, referred to “limited en banc court.”  Only Ninth Circuit has exercised this option formally, where an en banc court consists of eleven judges.

Unlike other circuits, however, the Second Circuit, however, has a “tradition of hearing virtually no cases” en banc.”[4]  Because of this fact, lawyers should be aware of the two primary ways that the Second Circuit will decide that one of its prior decisions should be reconsidered. 

“[I]f there has been an intervening Supreme Court decision that casts doubt on our controlling precedent, one panel of this Court may overrule a prior decision of another panel even if the intervening decision does “not address the precise issue decided by the panel.”  The second is a frequently referred to as “mini en banc.”

In broad terms, mini-en banc review works as follows: A three-judge panel tentatively decides that a precedent should be overruled. One of the judges on the panel writes a draft opinion on behalf of the panel overruling the precedent. The draft opinion is then circulated to all of the Second Circuit’s active judges, together with a note stating that the panel proposes to overrule a precedent. The panel then proceeds with overruling the precedent, presumably on the assumption that en banc review, while technically necessary, would have been a waste of time and resources in light of the views expressed by the active judges in response to the draft opinion.

Steven M. Witzel & Samuel P. Groner, Mini-En Banc Review In the Second Circuit, January 7, 2016, New York Law Journal.

[1] See Western Pac. R.R. Corp. v. Western Pac. R.R., 345 U.S. 247, 254 (1953).  The three-judge panel goes back to the Judiciary Act of 1869, ch. 22, § 2, 16 Stat. 44, 44, which provided a circuit would be composed of two Supreme Court justices and one district court judge from the district in which the case was pending.  See Roscoe Pound, Organization of Courts 103–04 (1940).

[2] The term “in banc” appeared in earlier versions of Federal Rule of Appellate Procedure 35. See FED. R. APP. P. 35 (1967).

[3] 314 U.S. 326 (1941). See generally Note, The Power of a Circuit Court of Appeals to Sit

En Banc, 55 Harv. L. Rev. 663 (1942). 

[4] See Ricci v. DeStefano, 530 F.3d 88, 92 (2d Cir. 2008) (Jacobs, C.J., dissenting from the denial of rehearing en banc); see also id. at 89-90 (Katzmann, J., concurring in the denial of rehearing en banc) (“Throughout our history, we have proceeded to a full hearing en banc only in rare and exceptional circumstances.”); see also Wilfred Feinberg, Unique Customs and Practices of the Second Circuit, 14 Hofstra L. Rev. 297, 311 (1986)

District Courts should "look through" to the underlying complaint when deciding if they have jurisdiction over an arbitration petition

Section 2 of the Federal Arbitration Act makes agreements to arbitrate “enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2 (2012).   However, as Justice Brennan once wrote, the Federal Arbitration Act “is something of an anomaly in the field of federal-court jurisdiction. It creates a body of federal substantive law establishing and regulating the duty to honor an agreement to arbitrate, yet it does not create any independent federal-question jurisdiction under 28 U.S.C. § 1331 or otherwise.”  Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25 n.32 (1983) (citation omitted)).

This is true because under Section 4, a court has jurisdiction to hear a motion to compel arbitration when “save for such [arbitration] agreement, [the court] would have jurisdiction under title 28, in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties.”  The substantive protections of Section 2 are “equally binding on state and federal courts,” but the federal courts must have independent federal jurisdiction.

In 2009, in Vaden v. Discover Bank, theSupreme Court applied the “well-pleaded complaint rule,” and interpreted the word “controversy” in Section 4 to mean the underlying state court litigation.  Under this interpretation, courts can “look through” the four corners of the arbitration petition filed in federal court to consider any underlying state court complaint. 

However, the Supreme Court found that federal jurisdiction was lacking because Discover Bank’s original complaint did not invoke a federal claim.  The majority rejected a broader “look through” to the controversy subject to arbitration, which would have included the federal law counterclaims.  (The dissent argued that Section 4 encompassed the entire arbitral controversy.)

In Doscher v. Sea Port, No. 15 Civ. 2814 (2d Cir. Aug. 11, 2016) (Wesley, J.), the Second Circuit held that Vaden overruled a previous decision from the Second Circuit that precluded it from using the look-through approach in determining whether federal question jurisdiction exists over an arbitration petition, Greenberg v. Bear, Stearns & Co., 220 F.3d 22 (2d Cir. 2000).  While the District Court correctly applied Greenberg, we conclude that the Supreme Court’s subsequent decision in [Vaden] casts doubt upon Greenberg’s continued vitality. Upon reconsideration of Greenberg, therefore, we conclude that the reasoning of Vaden and the nature of the Act require overruling Greenberg.” 

Thus, in the Second Circuit, District Courts will now apply the look-through approach when deciding if the court has jurisdiction over a petitioner to enforce or vacate an arbitration petition. 

Antitrust laws “protect competition, not competitors”​

Plaintiff failed to prove that the challenged conduct harmed competitionAmong other things, the Sherman Act prohibits “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce.”  Some restraints on trade are unlawful per se.  For example, most price fixing agreements are illegal.  Other restrainged are evaluated under the so-called “rule of reason,” which distinguishes between restraints with anticompetitive effect that are harmful to the consumer and restraints stimulating competition that are in the consumer’s best interest.

In MacDermid Printing Sols. LLC v. Cortron Corp., No. 15-589 (2d Cir. Aug. 10, 2016) (Cabranes, J.), the Second Circuit held “there is really only one way to prove an adverse effect on competition under the rule of reason: by showing actual harm to consumers in the relevant market.”  In a paragraph that will be often cited in antitrust cases, the Second Circuit explained:

How “actual harm” is shown determines whether proof of market power is also required. If a plaintiff proves that consumers have already experienced harm from the challenged behavior because of higher prices, reduced output, or lower quality, then proof of market power is not required. Otherwise, it is.

In fact, “in no precedential opinion in this Circuit has a plaintiff successfully proved an adverse effect on competition without offering evidence of changed prices, output, or quality. “[P]roving an adverse effect on competition without showing increased price, reduced output, or reduced quality in the market has remained possible in theory but elusive in practice.

For this reason, the Second Circuit overturned a jury verdict that found defunct manufacturer Cortron Corp. liable for harming MacDermid Printing Solutions LLC’s ability to compete in the thermal flexographic printing market.  Cortron had issued a press release after settling a patent infringement suit that E. I. du Pont de Nemours and Co. had brought against it.  Under the settlement, Cortron stopped building printing plate machines that Cortron had previously manufactured for MacDermid.

The plaintiff had argued that the news release harmed competition by pushing demand away from it in the market for thermal flexographic printing, which is a narrow segment where MacDermid was the sole rival to the dominant DuPont.  “It is certainly possible that the purported Cortron-DuPont conspiracy, including DuPont’s press release, led some consumers to buy DuPont machines instead of MacDermid ones.”  But “a plaintiff must show that more than its own business suffered; it must ultimately show that the challenged action harmed consumers. MacDermid has not done so here,” the Second Circuit concluded.  Antitrust laws “protect competition, not competitors.”