Weil, Gotshal & Manges LLP 2024 LITIGATION TRENDS
LEGAL ICON. WEIL LEGEND. IN MEMORIAM IRA M. MILLSTEIN
LITIGATION DEPARTMENT AND PRACTICE GROUP LEADERS Department Co-Chairs David Lender New York View Bio david.lender@weil.com +1 212 310 8153 Jonathan Polkes New York View Bio jonathan.polkes@weil.com +1 212 310 8881 Elizabeth Stotland Weiswasser New York View Bio elizabeth.weiswasser@weil.com +1 212 310 8022 Antitrust Brianne Kucerik Washington, D.C. View Bio brianne.kucerik@weil.com +1 202 682 7034 Michael Moiseyev Washington, D.C. View Bio michael.moiseyev@weil.com +1 202 682 7235 Jeffrey Perry Washington, D.C. View Bio jeffrey.perry@weil.com +1 202 682 7105 Appeals and Strategic Counseling Mark A. Perry Washington, D.C. View Bio mark.perry@weil.com +1 202 682 7511 Gregory Silbert New York View Bio gregory.silbert@weil.com +1 212 310 8846 Zack Tripp Washington, D.C. View Bio zack.tripp@weil.com +1 202 682 7220 Class Actions David Singh Silicon Valley View Bio david.singh@weil.com +1 650 802 3010 Complex Commercial Litigation Gregory Silbert New York View Bio gregory.silbert@weil.com +1 212 310 8846 Drew Tulumello Washington, D.C. View Bio drew.tulumello@weil.com +1 202 682 7100 Employment John Barry New York View Bio john.barry@weil.com +1 212 310 8150 International Arbitration Jamie Maples London View Bio jamie.maples@weil.com +44 20 7903 1179 IP/Media Benjamin Marks New York View Bio benjamin.marks@weil.com +1 212 310 8029 Patent Litigation Anish Desai New York View Bio anish.desai@weil.com +1 212 310 8730 Edward Reines Silicon Valley View Bio edward.reines@weil.com +1 650 802 3022 Product Liability David Singh Silicon Valley View Bio david.singh@weil.com +1 650 802 3010 Diane Sullivan Princeton & New York View Bio diane.sullivan@weil.com +1 609 986 1120 Securities Litigation John Neuwirth New York View Bio john.neuwirth@weil.com +1 212 310 8297 Caroline Zalka New York View Bio caroline.zalka@weil.com +1 212 310 8527 White Collar Defense Sarah Coyne New York View Bio sarah.coyne@weil.com +1 212 310 8920 Daniel Stein New York View Bio daniel.stein@weil.com +1 212 310 8140
LITIGATION TRENDS 2024 We are pleased to introduce the 2024 edition of Weil’s Litigation Trends Report, featuring insights and guidance from our partners, counsel, and associates about business and legal risks we believe are worth closely monitoring in the near- and long-term. Government agency priorities are a continuous area of focus in this year’s Report, underscoring the need for companies to maintain undivided attention on regulatory risks, and to plan for them as part of overall business and corporate strategy, especially as we approach the next presidential election season. Nowhere is such focus more important than in the transactional context, where numerous agencies, especially but not limited to the FTC, have become more aggressive. Our antitrust team, battleproven against these government enforcers, is the tip of the spear, kicking off our Report as they usually do. They help cut through the FTC’s recent mixed federal court merger enforcement record – with notable losses in challenges to Meta’s acquisition of Within and Microsoft’s acquisition of Activision followed by a later win in a challenge to Illumina’s acquisition of Grail – and foresee a similar approach in 2024, marked by a willingness to block transactions outright in lieu of negotiating remedies. Bookending the Report, our White Collar team explores several new DOJ programs, including its Mergers & Acquisition Safe Harbor Policy, which aims to incentivize timely pre- and postacquisition due diligence and voluntary self-disclosure of criminal conduct, by offering the presumption of declination of prosecution to acquirers in return for early cooperation, investigation, and remediation. Of course, regulatory enforcement and guidance remains active outside of the corporate transactional space, including on issues drawing attention from multiple agencies simultaneously. For example, our Antitrust and Employment groups each Dear Colleagues and Friends address agency priorities in the labor markets, including the DOJ’s unsuccessful attempts to criminally challenge no-poach agreements, the FTC’s coming final vote on its proposed rule that would outlaw most non-compete agreements between employers and employees, and the NLRB General Counsel’s recent (non-binding) memorandum holding that non-compete clauses for non-supervisory employees violate the NLRA. Together with a sustained uptick in private antitrust laborrelated suits targeting no-poach and similar clauses, a bevy of state antitrust civil enforcement actions, and a growing list of state laws that ban or severely limit restrictive covenants, these agency efforts present a stark reminder that companies of all stripes need to closely monitor their workforce rules, policies, and contracts. Elsewhere, our Securities Litigation & Enforcement team previews the likely sustained impact of the SEC’s newly adopted rules mandating disclosure, within four days, of a cyberattack, while our White Collar group examines how the newly enacted Foreign Extortion Prevention Act is a watershed moment in U.S. anti-bribery enforcement, empowering the DOJ for the first time to prosecute foreign recipients of gifts, not just the payor of those gifts, as had been the case for 50 years under the FCPA. Complicating the corporate regulatory risk calculus, albeit beneficially, are judicial restraints on government agency action and authority, which we anticipate will continue to evolve this year. First and foremost, as discussed by our Appeals & Strategic Counseling and Patent litigators, is the Supreme Court’s coming decision in two cases that could spell the end of 40 years of the so-called “Chevron doctrine,” David Lender Jonathan Polkes Elizabeth Stotland Weiswasser
which many pundits and scholars alike view as a pillar of the administrative state. Together with several other matters currently on the High Court’s docket, which could impact the SEC’s ability to impose civil penalties in administrative proceedings or disrupt the funding of the Consumer Financial Protection Bureau, these cases clearly signal approaches that companies should consider pursuing to challenge agency actions. Other appellate developments are or will be worth careful attention. For example, our IP/Media team examines the impact of the Goldsmith and Jack Daniels SCOTUS decisions on the contours of the fair use and parody defenses, respectively, in IP infringement cases, while anticipating the Court’s decision in Netchoice and Paxton regarding the constitutionality of state laws that could dramatically change governance of social media platforms. Our Securities litigators look at an expected Supreme Court decision this term in Moab Partners, L.P. that could resolve a circuit split on the question of whether a SEC Reg S-K Item 303 violation, in which an issuer fails to identify trends that might reasonably affect its liquidity, can form the basis of a Section 10(b) omission claim. And, our Patent group reviews the continued evolution of Federal Circuit jurisprudence governing the scope of estoppel in the wake of the America Invents Act, which is an essential strategic consideration for any party considering a patent challenge before the PTAB. Finally, we as usual take stock of important trends generating significant litigation across the practice spectrum, including AI-related privacy claims, and consumer litigation arising from broad corporate ESG-related statements that increasingly are being used by the plaintiffs’ bar to assert so-called greenwashing claims. Please do not hesitate to reach out to us or your usual Weil contact if you would like further information on any of the enclosed topics. Contact information is listed on the inside front cover. We look forward to partnering with you once again this year. David Lender Co-Chair of Weil’s Litigation Department Jonathan Polkes Co-Chair of Weil’s Litigation Department Elizabeth Stotland Weiswasser Co-Chair of Weil’s Litigation Department LITIGATION TRENDS 2024 10 Antitrust 18 Cross-Practice Focus: Appeals and Strategic Counseling 25 Cross-Practice Focus: Class Actions 30 Complex Commercial Litigation 38 Employment 52 International Arbitration 62 IP/Media 70 Patent Litigation 76 Product Liability 82 Securities Litigation 92 White Collar Defense LITIGATION TRENDS 2024
10 | Weil, Gotshal & Manges LLP LITIGATION TRENDS 2024 | 11 T O C E M P A N T I I P C A P R O W C C O N T A C T I N T A P P P A T C C L S E C The aggressive antitrust enforcement agenda by the Biden Administration continued apace in 2023 with few signs of slowing from its 2022 high. As the government agencies continue pushing new theories and taking bold enforcement actions, clients should anticipate and carefully consider increased antitrust scrutiny of transactions and conduct in 2024. The Antitrust Agencies Continue to Push an Aggressive Enforcement Agenda Numerous Merger- and ConductRelated Litigations The DOJ and FTC (the “Agencies”) continued pursuing an aggressive antitrust enforcement agenda, which we expect to continue in 2024. Set against the backdrop of ongoing litigations broadly challenging the business practices of Google, Meta, and Amazon, the antitrust agencies pursued additional merger enforcement litigations in the face of proposed settlements and based on novel theories of harm. The results of 2023 indicate that the Agencies may face significant headwinds from courts if they fail to support their allegations with sufficient facts, especially with novel theories of harm. Similarly, the Agencies must navigate the tension between their stated preference for litigations to block mergers and the realities of litigating cases with offered remedies on the table. Notwithstanding several losses in court, the Agencies appear committed to pressing on. The year began with a federal district court denying the FTC’s challenge to Meta’s acquisition of Within Unlimited (Weil represented Meta in connection with the acquisition and the subsequent litigation). This challenge – initially touted as a sign of the FTC’s aggressive regulation of “Big Tech” companies – relied on a difficult-to-prove potential competition theory of harm. The court’s decision foreshadowed the headwinds the Agencies would face the rest of the year. These headwinds included a string of litigations settled on the eve of trial, including the FTC’s challenges to Amgen’s acquisition of Horizon Therapeutics and Intercontinental Exchange’s acquisition of Black Knight, as well as the DOJ’s challenge to Assa Abloy’s acquisition of a Spectrum Brands business unit. Though not an outright loss in litigation, these settlements highlighted judicial skepticism toward the Agencies’ stated preference for blocking mergers outright as opposed to negotiating settlement offers to alleviate competitive concerns. The FTC’s mixed court record continued into the fall, with the agency losing its bid in court to block Microsoft’s acquisition of video-game publisher Activision on a vertical theory of harm (Weil represented Microsoft in connection with the acquisition and the subsequent litigation). The FTC’s loss again highlighted the tension with the Agencies’ preference for litigation, as opposed to settlements, as the court favorably cited a proposed remedy Microsoft offered to alleviate the FTC’s concerns. The Agencies ended 2023 on a higher note with a few wins, including in the Fifth Circuit, which largely endorsed the FTC’s legal theory in its challenge to Illumina’s acquisition of I Antitrust Brianne Kucerik Co-Head Washington, D.C. brianne.kucerik@weil.com Michael Moiseyev Co-Head Washington, D.C. michael.moiseyev@weil.com Jeffrey Perry Co-Head Washington, D.C. jeffrey.perry@weil.com
12 | Weil, Gotshal & Manges LLP LITIGATION TRENDS 2024 | 13 T O C E M P A N T I I P C A P R O W C C O N T A C T I N T A P P P A T C C L S E C Grail. Though the case was remanded on narrower grounds, Illumina ultimately abandoned the transaction and sought to divest Grail shortly thereafter. The favorable ruling – in another vertical transaction – demonstrated the Agencies can still prevail on difficult legal theories when they are able to show that a party to a transaction controls a large share of a market relevant to the analysis. The Agencies’ aggressive merger enforcement approach in 2023 indicates litigations seeking to block transactions outright rather than negotiate remedies will likely continue in 2024. Dealmakers considering possible transactions should take into account the lessons learned from these recent litigation challenges when considering their next deal. Revamping Merger Guidelines and Long-Standing HSR Rules In addition to an aggressive litigation agenda, the Agencies also pushed reform via revised antitrust rules and guidelines. In December 2023, the Agencies released the 2023 Merger Guidelines (“Guidelines”), which establish the framework and factors the Agencies will use to assess whether a merger violates the antitrust laws. While the Guidelines represent a significant shift from prior agency guidelines (which have been disavowed), they largely re-articulate and formalize the aggressive philosophy and approach to merger review that has been the hallmark of FTC and DOJ leadership under the Biden administration. A few of the most notable points from the new Guidelines include: ■ Lower market share and concentration thresholds for presumptively unlawful mergers; ■ Increased scrutiny of mergers that eliminate potential future competition; ■ Market share threshold and “plus factors” for assessing potential harm in vertical mergers; and ■ Formal assessment of a merger’s competitive impact on employees. In addition to the revised merger guidelines, the Agencies announced in June 2023 a Notice of Proposed Rulemaking that is poised to fundamentally overhaul the HSR Premerger Notification Process – the first comprehensive re-evaluation of the HSR Form since the HSR Act went into effect in 1976. According to Agency leadership, the proposed changes address key gaps in and inadequacies of the current HSR Form and enable the Agencies to analyze more effectively and efficiently the competitive effects of a proposed transaction within the initial 30-day waiting period to review a transaction. If implemented, the proposed changes will significantly increase the scope of information and documents that must be submitted with an HSR filing, resulting in substantial additional time, cost, and burden to parties with reportable transactions in the U.S. Some of the most significant proposed changes include: ■ Expanded scope of transactionrelated documents for submission; ■ Submission of certain ordinary course business plans or market reports; Antitrust Similarly, the Agencies must navigate the tension between their stated preference for litigations to block mergers and the realities of litigating cases with offered remedies on the table. Notwithstanding several losses in court, the Agencies appear committed to pressing on. T I
14 | Weil, Gotshal & Manges LLP LITIGATION TRENDS 2024 | 15 T O C E M P A N T I I P C A P R O W C C O N T A C T I N T A P P P A T C C L S E C ■ Narrative description of deal rationale, identification of horizontal and vertical overlaps, and disclosure of past transactions; ■ Submission of detailed employee information; ■ Identification of Officers, Directors, and Board Observers; and ■ Disclosure of certain minority interest holders. While the timing for implementation of the proposed rulemaking is still uncertain, we expect the Agencies will try to push these changes forward in 2024, before the upcoming U.S. elections. Antitrust Labor Enforcement Remains an Evolving Landscape The DOJ Antitrust Division faced continued resistance from federal courts in its quest to criminally prosecute labor-related conduct in 2023. The agency suffered a number of trial defeats in cases criminally challenging no-poach agreements and ultimately chose to abandon its last open no-poach case in November. While this effort has largely failed on the merits in federal court – the DOJ has been unable to secure a single conviction based on no-poach charges since it began bringing cases in 2020 – the potential deterrent effect of increased enforcement is more difficult to measure. Additionally, DOJ Assistant Attorney General Kanter has publicly stated that the agency is “just as committed as ever” to pursuing criminal prosecution for Sherman Act violations in labor markets going forward. On the civil enforcement side, litigations alleging labor-related antitrust issues continued at a fast pace in 2023, with no signs of slowing in 2024. In Deslandes v. McDonald’s USA, LLC, the Seventh Circuit overturned the dismissal of a complaint challenging no-poach clauses in franchise agreements, on the grounds that it was premature to label a horizontal restraint as naked or ancillary at the pleadings stage before any of the necessary “careful economic analysis” had been done. Additionally, a decade-old case alleging labor-related antitrust violations against the Ultimate Fighting Championship (“UFC”) has recently reached a proposed class action settlement after both the Ninth Circuit declined to hear an appeal of class certification and the district court denied UFC’s motion for summary judgment. State antitrust enforcers have pursued a variety of labor-related civil actions, as well. The Illinois Attorney General’s Antitrust Bureau recently won a unanimous victory in the state’s supreme court in a case challenging no-poach and wage-fixing agreements between temporary staffing firms, with the court holding that such employers are not exempt from Illinois’ antitrust laws. Consistent with the active litigation landscape, the Agencies have also pushed for various policy changes that impact workers. In January 2023, the FTC proposed a regulation that would ban employee noncompete agreements in nearly all circumstances (see additional discussion of this development in the Employment section). Following an extended public comment period, the FTC is expected to vote on the proposed rulemaking in the spring of 2024. If the FTC votes to adopt the proposed ban, it would likely face a court challenge over both the final rule adopted and the scope of the agency’s power to define and regulate “unfair methods of competition.” With the proposed rulemaking pending, the FTC has continued to pursue enforcement actions and has secured consent orders against a number of companies that prohibit them from enforcing non-competes. The FTC and DOJ have also taken policy actions suggesting possible increased scrutiny of information sharing related to worker compensation. In 2023, both agencies separately withdrew various longstanding antitrust policy statements, which, among other things, provided antitrust “safety zones” for sharing of wage information among healthcare providers in certain circumstances. Antitrust I
16 | Weil, Gotshal & Manges LLP LITIGATION TRENDS 2024 | 17 T O C E M P A N T I I P C A P R O W C C O N T A C T I N T A P P P A T C C L S E C Renewed Enforcement of Alleged Monopolization Cases Aggressive agency enforcement of alleged monopolization is stronger than ever – particularly in “Big Tech” – with additional cases brought against Google and Amazon. These new enforcement actions coincide with an anticipated decision in the DOJ’s initial lawsuit against Google in the first half of 2024, as well as a trial expected to begin in the FTC’s ongoing lawsuit against Meta related to its past acquisitions of social media companies. During the fall of 2023, the DOJ and Google completed the first major “Big Tech” antitrust trial in the modern Internet age with a 10-week trial in the U.S. District Court for the District of Columbia. The lawsuit – initially filed by the DOJ during the Trump administration – alleges Google has enforced an unlawful monopoly in the search-engine market. The DOJ’s allegations include that Google has monopolized the market by becoming the default search engine for prominent technology companies through a series of anticompetitive contracts that in turn illegally reinforced its dominant market position. An opinion from the court is expected in the first half of 2024. The DOJ, alongside more than a dozen state attorneys general, brought another monopolization case against Google, this time alleging that Google unlawfully maintained a monopoly in the digital advertising technologies market. The DOJ notably requested a jury trial, a rare move for a complex monopolization case seeking remedies that could potentially require Google to divest parts of its business. Trial is currently scheduled for 2024. Meanwhile, the FTC has focused its efforts on monopoly-related allegations against Amazon and Meta. The agency brought its long-anticipated monopolization case against Amazon in 2023, which challenges Amazon’s business practices, including antidiscounting measures that allegedly ensure Amazon offers the lowest prices among retailers and the company’s requirement that sellers use Amazon fulfillment centers in order to be “Prime” eligible. The FTC’s case follows similar lawsuits filed by California and the District of Columbia, with the latter being dismissed in federal court in 2022. Both California and the FTC’s cases are currently scheduled for trial in 2026. The FTC also has an active monopolization litigation against Meta challenging, in part, its prior acquisitions of potential social media competitors including Instagram and WhatsApp. While the FTC has pushed for a 2024 trial, no trial date has been set. Beyond “Big Tech,” the agencies are expected to continue advancing Section 2 of the Sherman Act to pursue alleged “killer acquisition” cases. The outcome of all of these cases will likely shape how “Big Tech” and other industries respond to monopolization claims and how antitrust enforcers will approach the enforcement of monopolization claims in “Big Tech” and beyond for years to come. Antitrust I
18 | Weil, Gotshal & Manges LLP LITIGATION TRENDS 2024 | 19 T O C E M P A N T I I P C A P R O W C C O N T A C T I N T A P P P A T C C L S E C Gregory Silbert Co-Head New York gregory.silbert@weil.com Mark A. Perry Co-Head Washington, D.C. mark.perry@weil.com Zack Tripp Co-Head Washington, D.C. zack.tripp@weil.com The Supreme Court Considers New Challenges To Administrative Agencies In recent years, the Supreme Court has issued a number of significant decisions addressing the structure and authority of administrative agencies under both the Constitution and the Administrative Procedure Act. This trend (aspects of which were addressed in Weil’s 2022 and 2023 Litigation Trends Reports) continued in the 2022-2023 Term – with the Court expanding procedural avenues for challenging agency action and again applying the major questions doctrine to limit agency authority. And it is only set to intensify as the Court considers several significant agency cases in the 2023-2024 Term. First, in Axon Enterprise, Inc. v. Federal Trade Commission, 598 U.S. 175 (2023), the Court authorized a direct route to raise constitutional challenges against administrative agencies in federal court. In two consolidated cases – one challenging the structure of the Federal Trade Commission and the other that of the Securities and Exchange A P P Appeals and Strategic Counseling Commission – the federal government argued that parties must raise constitutional arguments in a proceeding before the agency and wait, often months or years, to appeal the agency’s final decision in court. The Supreme Court, however, held unanimously that parties can bring immediate constitutional challenges in federal court even while an administrative proceeding is pending. Although the Supreme Court did not address the merits of the underlying challenges to the constitutionality of the agencies’ structures, Justice Thomas concurred to express “grave doubts about the constitutional propriety” of agency adjudications. Axon thus opens the door for parties facing administrative action to challenge the constitutionality of administrative agency proceedings at the outset, and provides some indication that the Court may be receptive to such challenges. Second, in Biden v. Nebraska, 600 U.S. 478 (2023), the Court invoked the major questions doctrine to reject the Department of Education’s plan to cancel approximately $430 billion in federal student loan balances. In a 6-3 decision, the Court explained that the major question doctrine requires administrative agencies to point to “clear congressional authorization” before asserting authority over fields with great “economic and political significance.” The Court found the significance of the student loan cancellation was “staggering by any measure,” and the Court found no textual basis in the HEROES Act authorizing cancellation of the student loans. Following the Supreme Court’s opinion in Nebraska, litigants have invoked the major questions doctrine in a variety of challenges to agency action, including recently in challenges to the EPA’s regulation of motor vehicle emissions and to the SEC’s assertion of jurisdiction over certain cryptocurrencies. Looking ahead, the 2023-2024 Supreme Court Term presents a number of significant cases that may further clarify the scope of agency CROSS-PRACTICE FOCUS
LITIGATION TRENDS 2024 | 21 T O C E M P A N T I I P C A P R O W C C O N T A C T I N T A P P P A T C C L S E C 20 | Weil, Gotshal & Manges LLP authority. In Loper Bright Enterprises v. Raimondo, No. 22-451, and Relentless, Inc. v. Department of Commerce, No. 22-1219 (argued January 17, 2024), the Court will decide whether to overrule the so-called “Chevron doctrine,” which generally requires (or permits) courts to defer to an administrative agency’s reasonable interpretation of ambiguous statutory language (please see our broader discussion of these two cases in the Patent section). And in Securities and Exchange Commission v. Jarkesy, No. 22-859 (argued November 29, 2023), the Court is considering whether the Seventh Amendment and other constitutional protections limit the Securities and Exchange Commission’s authority to impose civil penalties in administrative proceedings. In addition, in two cases in which Weil authored amicus briefs, the Supreme Court will address whether the Consumer Financial Protection Bureau’s funding mechanism is constitutional in Consumer Financial Protection Bureau v. Community Financial Services Association, No. 22-448 (argued October 3, 2023), and clarify when parties are able to bring suits under the Administrative Procedure Act in Corner Post v. Board of Governors of the Federal Reserve System, No. 22-1008 (argued February 20, 2024). Taken together, these cases and the broader trend they reflect are sure to have significant ramifications for the administrative state and its relationship with regulated entities in the years to come and present new avenues for challenging administrative agency action. The Supreme Court Rejects Affirmative Action in University Admissions With Follow-On Impacts for Employers In a major decision, Students for Fair Admissions, Inc. v. President and Fellows of Harvard College, 600 U.S. 181 (2023), the U.S. Supreme Court held that Harvard’s and the University of North Carolina’s race-conscious admissions policies were unconstitutional, effectively ending race-conscious affirmative action programs on college campuses. “However well intentioned” these programs were, the Court held, they constituted illegal racial discrimination and violated the Equal Protection Clause of the Fourteenth Amendment. While the Court’s decision was focused on university admissions, its ramifications are already being felt in the private sector. In the wake of Students for Fair Admissions, lawsuits have been filed against private companies challenging their diversity, equity, and inclusion initiatives. For example, lawsuits have recently been filed challenging a venture capital firm’s grant program for businesses led by Black women and various law firms’ diversity fellowships available to job applicants from historically underrepresented communities. Additionally, dozens of letters have been sent to the Equal Employment Opportunity Commission targeting diversity initiatives by companies like IBM, American Airlines, and Macy’s. The key question in these cases is whether and how the principles articulated in Students for Fair Admissions apply in the context of various Civil Rights Acts that prohibit racial discrimination in private hiring, promotion, and contracting decisions. This is a question that courts will soon address in the wake of the Supreme Court’s decision and that currently creates uncertainty for corporate diversity, equity, and inclusion initiatives going forward. As a result of these risks, some companies are considering dropping or altering their diversity programs, while others are opting to preserve their programs and, if necessary, defend them in court. The Supreme Court Considers Important Questions About Bankruptcy Standing and Third-Party Releases Coming off a Term that saw a unanimous victory for Weil’s client in Bartenwerfer v. Buckley, 598 U.S. 69 (2023), which addressed the treatment A P P CROSS-PRACTICE FOCUS Appeals and Strategic Counseling
LITIGATION TRENDS 2024 | 23 T O C E M P A N T I I P C A P R O W C C O N T A C T I N T A P P P A T C C L S E C 22 | Weil, Gotshal & Manges LLP of fraud claims in bankruptcy, the Supreme Court is set to tackle several important bankruptcy cases in the 20232024 Term. The first, Harrington v. Purdue Pharma L.P., No. 23-124 (argued December 4, 2023), arises out the opioid-related bankruptcy of Purdue Pharma. Although only Purdue Pharma and its associated corporate entities declared bankruptcy, members of the Sackler family (who controlled the company) agreed to contribute over $5 billion to the bankruptcy estate in exchange for a release of liability for claims that could have been brought against them in their personal capacities. The Supreme Court will decide whether the Bankruptcy Code’s general language allowing bankruptcy courts to confirm plans of reorganization including any “appropriate provision not inconsistent with” the Code, 11 U.S.C. § 1123(b)(6), and to issue “necessary or appropriate” orders, id. § 105(a), authorizes such “third-party releases.” The Court’s decision will have major implications for parties’ abilities to use the bankruptcy process in cases arising from mass tort liability. Next, in Truck Insurance Exchange v. Kaiser Gypsum Co., No. 22-1079 (argued March 19, 2024), the Court will clarify when a party has statutory standing as a “party in interest” to object to a chapter 11 reorganization plan. The debtor, Kaiser Gypsum, negotiated a plan that imposed certain fraud-prevention measures with respect to asbestosrelated claims that could be made against the bankruptcy trust for which the debtor lacked insurance. But the plan required no such measures for claims that were insured. The Fourth Circuit ruled that Kaiser Gypsum’s insurer, Truck Insurance Exchange, could not object to the Plan. The Fourth Circuit reasoned that, because the bankruptcy plan did not leave Truck Insurance worse off than it was before, Truck Insurance was not a “party in interest” and therefore lacked standing to object. The Supreme Court is set to assess Fourth Circuit’s construction of “party in interest” in a decision that will likely have broad implications for who may object to a reorganization plan. Together, these decisions have the potential to make the 2023-2024 Term one of the most significant terms for bankruptcy law in recent Supreme Court history. The Supreme Court Punts (For Now) On Communications Decency Act and Tester Standing The Supreme Court’s docket has been shrinking: The Court issued just 58 decisions during the 2022-2023 Term – the lowest total in recent history (see nearby chart illustrating ten years’ worth of opinions). Exacerbating this trend, the Court has shown a willingness to avoid ruling on several issues of significance to the business community even in the few cases it chooses to hear. Two recent decisions – Gonzalez v. Google, 598 U.S. 617 (2023), and Acheson Hotels v. Laufer, 601 U.S. 1 (2023) – exemplify this trend. In Gonzalez, a case highlighted in Weil’s 2023 Litigation Trends Report, the Supreme Court granted certiorari to decide whether an internet platform is immune from liability under Section 230 of the Communications Decency Act when it provides algorithmic recommendations of allegedly tortious third-party content. But the Court avoided that question, holding instead that the complaint failed on other grounds. The Court, however, may have little choice but to confront the issue in the near future, as circuit judges continue to call on the Court to pare back immunity under Section 230. Notably, in a recent dissent from denial of rehearing en banc, a nearmajority of the Fifth Circuit criticized the circuit’s broad interpretation of Section 230 as deviating from the statute’s text and called on “our nation’s highest court to properly interpret the statutory language enacted by Congress.” In Laufer, the Court’s first decision of the 2023-2024 Term, the Supreme A P P Appeals and Strategic Counseling CROSS-PRACTICE FOCUS
LITIGATION TRENDS 2024 | 25 T O C E M P A N T I I P C A P R O W C C O N T A C T I N T A P P P A T C C L S E C 24 | Weil, Gotshal & Manges LLP Court had granted review to decide whether a self-appointed “civil rights tester” has a legal right to file a lawsuit under the Americans with Disabilities Act. As Weil explained in an amicus brief, such lawsuits are “part of a much broader phenomenon affecting millions of businesses nationwide that face the prospect of similar lawsuits.” However, in a unanimous opinion, the Court declined to resolve the issue, holding that the case was no longer a live controversy after the plaintiff in the case dismissed her lawsuit in the lower court following revelations of misconduct by her attorney. Appeals and Strategic Counseling YEAR # OF OPINIONS 100 90 80 70 60 50 40 30 20 10 0 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 OPINIONS ISSUED BY THE U.S. SUPREME COURT, 2013–2022 David Singh Partner Silicon Valley david.singh@weil.com The Rise of Mass Arbitration Corporate defendants, seeking to limit costly class actions, could once take refuge in carefully drafted arbitration provisions. The Supreme Court condoned the use of such provisions in Epic Sys. Inc. v. Lewis, 138 S. Ct. 1612, 1632 (2018), and held that individual arbitration agreements requiring class action waivers are enforceable under the Federal Arbitration Act (“FAA”), despite a federally guaranteed right to collective action under the National Labor Relations Act (“NLRA”). Accordingly, arbitration agreements with class action waivers once allowed corporations to reduce the costs of settling claims while still providing claimants with a suitable forum to bring their claim. That is, until the rise of abusive mass arbitration – a strategy that uses the threat of crippling filing fees to force defendants to settle early, regardless of the claim’s merits. Specifically, mass arbitration refers to the procedure in which plaintiff attorneys file hundreds, if not thousands, of nearly identical arbitration claims against a single defendant. These attorneys typically advance their clients’ filing fees and seek repayment through the arbitration clause’s fee-shifting provision, where the defendant is required to reimburse some or all of a claimant’s filing fees. Mass arbitration seeks to pressure the defendant into Class Actions C A CROSS-PRACTICE FOCUS Source: Derived from data in The Supreme Court Database, Washington University Law, http://scdb.wustl.edu/, accessed March 5, 2024
26 | Weil, Gotshal & Manges LLP LITIGATION TRENDS 2024 | 27 T O C E M P A N T I I P C A P R O W C C O N T A C T I N T A P P P A T C C L S E C settling under the weight of massive collective filing fees. For instance, in 2019 DoorDash was required to pay a filing fee of $1,900 per claim. With 5,010 claimants, DoorDash faced nearly $10 million in fees solely to initiate arbitration. See Abernathy v. DoorDash, Inc., 438. F. Supp. 3d 1062, 1064-66 (N.D. Cal. 2020). Mass arbitrations, however, lead to risks of fraud, as plaintiffs firms often do not – and cannot, given the large numbers – do much vetting of their claimants. Recently, mass arbitrations have revealed that many of the claims filed may not only be defective from a legal perspective, they may also be defective from a factual perspective. To illustrate, Samsung asserted that a plaintiffs’ firm failed to properly investigate its clients’ alleged claims that constituted 50,000 demands for arbitration. Samsung elaborated that the list of claimants in the mass arbitration included individuals who, among other things, were deceased, provided obviously fictitious personal information, were never a Samsung customer, or had filed duplicative demands. See Respondents’ Opposition to Petitioners’ Motion to Compel Arbitration at 14, Wallrich v. Samsung Elecs. Am. Inc., No. 1:22-cv5506, 2023 WL 5935024 (N.D. Ill. Sept. 12 2023) (ECF No. 27). Accordingly, many of the tens of thousands of claimants in a mass arbitration may not be proper claimants at all. In the absence of favorable court rulings that permit defendants to avoid mass arbitration filing fees, corporations have begun redrafting their arbitration provisions. This, however, can be a tricky process, as unconscionable arbitration agreements may be deemed unenforceable under common law. Yet, despite this challenge, several companies have already redrafted their arbitration agreements in a way that seeks to avoid the costs of mass arbitration while not running afoul of existing law. Such changes include shifting fees to claimants for frivolous claims, changing the arbitral forum, and inserting “batching” provisions to resolve legally and factually related demands in one proceeding. Additionally, the American Arbitration Association’s (“AAA”) amended Mass Arbitration Supplementary Rules, effective as of January 15, 2024, may also provide defendants with a means of avoiding exorbitant fees from questionable claims. Under the AAA, corporations will only be responsible for “Per Case Fees” if the cases proceed beyond the initiation stage, which requires a flat fee from the consumers and corporation. Thus, in the coming years, corporations would be prudent to review the AAA’s amended rules and revisit their arbitration agreements to avoid the risk of mass arbitration and the substantial expenses that come along with it. Increasing Scrutiny of Class Action Settlements Rule 23 of the Federal Rules of Civil Procedure provides a process not only for certification of a class, but also for settlement of class action claims. This In the absence of favorable court rulings that permit defendants to avoid mass arbitration filing fees, corporations have begun redrafting their arbitration provisions. This, however, can be a tricky process, as unconscionable arbitration agreements may be deemed unenforceable under common law. C A CROSS-PRACTICE FOCUS Class Actions
28 | Weil, Gotshal & Manges LLP LITIGATION TRENDS 2024 | 29 T O C E M P A N T I I P C A P R O W C C O N T A C T I N T A P P P A T C C L S E C three-part settlement process is detailed in Rule 23(e): preliminary approval, notice to class members, and final settlement approval. Rule 23(e)(2), effective as of December 1, 2018, notes that the central concern when reviewing a proposed settlement is ensuring that its terms are “fair, reasonable, and adequate.” In making that determination, courts consider several factors, including the quality of class representation, whether the negotiation took place at arm’s length, the adequacy of class relief, and whether the settlement treats class members equitably. Recently, courts have shown increasing involvement in the class settlement process, reversing a number of class settlement approvals. Notably, following the first appeal of a class settlement, the Ninth Circuit in Kim v. Allison, 8 F. 4th 1170, 1174-75 (9th Cir. 2021) reversed the district court’s approval of a settlement, finding that the district court grossly overstated the value of the claims and that the settlement’s terms were suggestive of collusion. With respect to the collusion finding, the Ninth Circuit found that plaintiff’s counsel had subordinated class relief to self-interest, noting the combination of a clear-sailing provision and an attorneys’ fee award that outstripped the likely financial benefit to the class. In light of this, the parties revised the settlement from a value of $24 million to a $5.2 million payout. But the Ninth Circuit denied the settlement yet again in Kim v. Allison, 87 F. 4th 994, 997 (9th Cir. 2023), holding that the named plaintiff was not an adequate representative of the putative class as she had signed an arbitration agreement when others in the class had not. The Court further scrutinized the named plaintiff’s failure to prosecute the action vigorously on behalf of the class and cited to her failure to conduct extensive discovery as an additional reason for reversing the settlement approval. See id. at 1003. Overall, this case exemplifies the willingness of courts to meticulously examine the district court’s endorsement of class settlements and, in particular, precertification settlements. Class action settlements will continue to pose strategic dilemmas for plaintiffs and defendants alike. The parties must strike the right balance in arriving at a settlement number: a low settlement may be disapproved upon review for being inadequate or unfair, while a settlement more favorable to plaintiffs may compromise a defendant’s ability to defend the case should the court reject the settlement. Thus, when negotiating a settlement for a class action, parties should minimize the risk of settlement disapproval by taking measures to ensure that the class settlement adequately satisfies the factors set forth in Rule 23(e)(2). Specifically, parties may be well-advised to make early investments in discovery so that they have sufficient information to justify the settlement before a reviewing court. C A CROSS-PRACTICE FOCUS Class Actions
30 | Weil, Gotshal & Manges LLP LITIGATION TRENDS 2024 | 31 T O C E M P A N T I I P C A P R O W C C O N T A C T I N T A P P P A T C C L S E C Navigating Privacy and the Future of AI As much as AI has generated excitement about the efficiencies it is creating for businesses, the technology is also presenting unique challenges in the area of data privacy and security. Although still in its infancy, AI privacy litigation continues to rise as the pool of defendants diversifies and regulation intensifies. AI technology companies are facing increased scrutiny as class action lawsuits are filed against them alleging violations of state privacy and consumer protection laws. These complaints generally claim that technology firms are collecting personal and private information from the Internet to train generative AI tools. See e.g., A.T. et al. v. OpenAI LP et al., 3:23-cv-04557 (N.D. Cal. 2023). However, that is not the only theory being pursued in these AI privacy cases. For example, plaintiffs in one such case alleged that a facialrecognition technology company had violated the Illinois Biometric Information Privacy Act by not obtaining their consent before collecting their biometric information. See ACLU v. Clearview AI, Inc., 2020 CH 04353 (Cir. Ct. Cook Cty., Ill.). In a similar case, an AI-based video creating and editing platform was sued for collecting biometric data without consent. Acaley v. Vimeo, Inc., 464 F. Supp. 3d 959 (N.D. Ill. 2020). Both cases resulted in settlement, but they provide helpful insights regarding some of the more obvious risks of employing AI. Technology firms are not the only companies increasingly subject to these litigations – retailers that deploy AI are also facing scrutiny. For example, one plaintiff alleged that a retailer’s use of an AI chatbot resulted in illegal wiretapping by recording and storing conversations (nearby we generally discuss the explosion of wiretapping claims). See Licea v. Old Navy, LLC, 2023 WL 3012527 (C.D. Cal. Apr. 19, 2023). This suit serves as reminder that developers are not the only ones at risk. This past year saw a surge in state AI laws proposed across the United States. Ten states included AI regulations within larger consumerprivacy laws that were passed or went into effect in 2023, and even more states have proposed similar bills. Some states have focused on and passed laws to protect healthcare and biometric data, and others have focused on protecting children. While Congress has not yet passed any new privacy laws targeting AI, President Biden issued an executive order aimed at promoting the development and adoption of AI in various sectors of the government. It comes as no surprise that the order regulates AI development by requiring companies to report and disclose safety testing reports. In addition, the executive order directs agencies to monitor and investigate complaints about AI-related discrimination. The FTC has also begun to revisit its rules and regulations to address increased AI privacy concerns. How to address the risks that come with the rapid growth and capability advancements in AI is a challenge for Complex Commercial Litigation Gregory Silbert Co-Head New York gregory.silbert@weil.com Drew Tulumello Co-Head Washington, D.C. drew.tulumello@weil.com C C L
32 | Weil, Gotshal & Manges LLP LITIGATION TRENDS 2024 | 33 T O C E M P A N T I I P C A P R O W C C O N T A C T I N T A P P P A T C C L S E C businesses. The speed at which AI is growing can make it difficult to stay abreast of the risk areas, but companies can mitigate risks by monitoring changes in laws and policies in this area, bearing in mind that privacy regulations vary by state and by AI use. In particular, companies should keep a close eye on what business practices potentially implicate which laws. This often begins with identifying the many uses of AI within a business. And in addition to establishing clear guidelines for leveraging AI, companies should regularly monitor its use to ensure compliance. Plaintiffs Expand Targets for State Law Wiretapping Cases In 2022, there was an explosion in litigation alleging that the use of common website analytics tools – which track visitors’ interactions with a website, including their mouse movements, keystrokes, and clicks – violated various state wiretapping laws. Since then, plaintiffs’ firms have expanded their targets beyond websites using such “session replay” technology to websites using other kinds of technologies, including customerservice-chat technologies and advertising technologies. Specifically, dozens of recent cases have targeted the use of routine marketing tools like the Meta Pixel and Google Analytics, alleging that they and others intercept communications between visitors and the website in violation of state law. Beyond the traditional courtroom setting, claims under these state wiretapping laws have also recently become popular in mass arbitrations, the goal of which is to use punishing filing fees to leverage early settlements against corporate defendants (see expanded discussion of this trend in the Class Action section). These state wiretapping claims appeal to plaintiffs due to the pervasive nature of such advertising technology throughout the modern internet, as well as the availability of statutory damages. The California Invasion of Privacy Act (“CIPA”), for instance, provides for $5,000 per violation, while both the Florida Security of Communications Act (“FSCA”) and the Pennsylvania Wiretapping and Electronic Surveillance Control Act (“WESCA”) provide for at least $100 per day for each day of violation or $1,000, whichever is higher. Because statutory damages provide parties with a clear method to quantify defendants’ exposure and often obviate the need to prove actual damages, they too are a powerful tool for encouraging early settlement. Another tool is the potentially factintensive nature of some of the strongest defenses against these state wiretapping claims. One defense against certain CIPA claims, for instance, is that no communication between visitors and the website has been intercepted “in transit” as required by the statute. Cal. Pen. Code § 631(a); see also Jacome v. Spirit Airlines, NO: 2021-000947-CA01 (Fla. 11th Cir. Ct. June 17, 2021) (dismissing a FSCA claim where the plaintiff failed to plead facts sufficient to show that “any interception happened contemporaneously with transmission”). While many courts have dismissed CIPA claims on this basis, some federal judges have found even conclusory allegations that a communication was intercepted “in transit” to be sufficient at the pleading stage. See, e.g., Licea v. Old Navy, No. 5:22-cv-01413-SSS-SPx (C.D. Cal. Apr. 19, 2023). Accordingly, some plaintiffs’ firms continue to threaten these claims in the hopes of strong-arming defendants into early settlements, regardless of the true merits of their claims. As plaintiffs expand their targets beyond “session replay” technologies, mitigation efforts become increasingly complicated. Websites often utilize many different third-party service providers, and plaintiffs are becoming increasingly indiscriminate about which they allege violate state wiretapping laws. Accordingly, it has become more and more difficult to take targeted approaches to reducing the risk of these claims. In light of these developments, some website providers are revisiting previously unpopular broad mitigation strategies, such as Complex Commercial Litigation C C L
34 | Weil, Gotshal & Manges LLP LITIGATION TRENDS 2024 | 35 T O C E M P A N T I I P C A P R O W C C O N T A C T I N T A P P P A T C C L S E C obtaining from all website visitors entering the site opt-in consents to the use of third-party services. Given the evolving litigation and arbitration landscape in this area, companies utilizing third-party services on their websites should work closely with outside counsel to evaluate the risk of wiretapping claims and develop appropriate mitigation strategies. Courts Will Grapple With Whether Article III’s Case or Controversy Requirements Apply to Bankruptcy Courts The Fourth Circuit’s recent decision in Kiviti v. Bhatt, 80 F.4th 520 (4th Cir. 2023), has deepened a circuit split on whether bankruptcy courts are subject to Article III’s “case or controversy” requirement. Courts previously facing this issue had addressed it only in passing. The Third, Sixth, and Eighth circuits had held – without much analysis – that bankruptcy courts are subject to Article III’s strictures. In re Global Indus. Techs., 645 F.3d 201, 210 (3d Cir. 2011); Rosenfeld v. Rosenfeld (In re Rosenfeld), 698 F. App’x 300, 303 (6th Cir. 2017); GAF Holdings, LLC v. Rinaldi (In re Farmland Indus.), 639 F.3d 402, 405 (8th Cir. 2011). Conversely, the Fifth Circuit had held – also without much analysis – that bankruptcy courts are not subject to Article III’s “case or controversy” requirement, because they are not Article III courts. Furlough v. Cage (In re Technicool Sys.), 896 F.3d 382, 385 (5th Cir. 2018). Then came the Kiviti and Pettine decisions, in which the courts for the first time took a deep dive into this constitutional and statutory question – with conflicting results. In Kiviti, the Fourth Circuit joined the Fifth Circuit in holding that bankruptcy courts are not constrained by Article III’s mootness doctrine. Kiviti held that bankruptcy courts “can constitutionally adjudicate cases that would be moot if heard in an Article III court,” because “[m]ootness is an Article III doctrine, and bankruptcy courts are not Article III courts.” Bankruptcy courts also have the statutory authority to decide constitutionally moot matters. As statutory creatures, they have whatever power Congress gives them, and 28 U.S.C. § 157(b)(1) allows bankruptcy courts to “hear and determine all [bankruptcy] cases … and all core proceedings … referred to them by a district court.” Thus, not every dispute arising post-referral has to satisfy Article III’s requirements. Two months later, the Tenth Circuit Bankruptcy Appellate Panel decided Pettine v. Direct Biologist, LLC (In re Pettine), 2023 Bankr. LEXIS 2763 (10th Cir. B.A.P. Nov. 15, 2023), but reached a contrary result. The B.A.P. held that Article III’s “case or controversy” requirements apply in bankruptcy court because its “jurisdiction is entirely derivative of district court jurisdiction and cannot extend beyond” the district court’s jurisdiction. Specifically, Section 1334 grants federal district courts – not bankruptcy courts – jurisdiction over bankruptcy cases and proceedings. Section 157 then permits district courts to refer title 11 cases and proceedings to bankruptcy judges. Because district courts may only decide “cases and controversies,” so too must bankruptcy courts. Looking forward, litigants in the Fourth and Fifth Circuits will likely try to expand Kiviti’s holding to aspects of Complex Commercial Litigation C C L The Fourth Circuit’s recent decision in Kiviti v. Bhatt, 80 F.4th 520 (4th Cir. 2023), has deepened a circuit split on whether bankruptcy courts are subject to Article III’s “case or controversy” requirement.
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