Abstention amid the dust of Pfeil

In Minnesota Appellate Decisions, Supreme Court by Joseph Pull

The Minnesota Supreme Court ruled on April 6, 2016, that a parishioner could not sue her former church and pastors for defamation in statements made within church disciplinary proceedings to excommunicate the parishioner from the church.[1] The explosive mix of high-profile issues present in the case obscures a smaller technical point which may prove crucial in a completely different context when some future litigant advances an abstention argument.   

Can Planning a Wedding Send You to Prison for Insider Trading?

In Securities Fraud, United States Supreme Court by Joseph Pull

Insider trading – in rough terms, using a company’s confidential information to make money trading its stock – is a well-known white-collar crime. In some instances, insider trading is pretty obvious. The Department of Justice alleges a doctor running a clinical trial of a drug for a company sold his stock in that company after learning (confidentially) that there were problems with the clinical trial. The doctor avoided $160,000 in losses after the clinical trial problems became public and the price of the stock declined. If the DOJ’s allegations are true, there was insider trading. Or the former chairman of a large company says he sold secret information about his company to an investor who used that information to trade the company’s stock. If that was their arrangement, it was likely an insider trading conspiracy. Other purported insider trading cases are less clear-cut. Stock analysts and investors spend a lot of time trying to find information that will help them predict whether a stock’s price will go up or down. That’s perfectly legal. They cross a red line if they obtain confidential (“non-public”) information from a company insider for the purpose of trading stocks, a practice sometimes called “tipping.” (The “tipper” gives secret information to the “tippee.”) But a grey area exists in the law when friends, colleagues, business associates, or even perfect strangers (perhaps a stock analyst) obtain information from a company employee that the employee does not intend to be used for trading. In another case, the Department of Justice prosecuted Sean Stewart, a former JPMorgan vice president, for allegedly participating in an insider trading scheme as a “tipper.” The government claimed information Sean gave his father, Bob Stewart, was used by Bob and a friend of Bob to make $1 million in the stock market. Sean testified that he did not tell his father anything for …

Welcome to Club Fed Jur, Trade Secret

In Intellectual Property by Joseph Pull

You can now make a federal case out of a lost trade secret. The Defend Trade Secrets Act of 2016, which became law on May 11, 2016, allows businesses and individuals to bring civil lawsuits in federal court for misappropriation of their trade secrets. Previously, an action based on trade secrets had to be based on state law – in Minnesota, the Minnesota Uniform Trade Secrets Act, Minn. Stat. ch. 325C.[1] This meant that unless the defendant came from out of state, the action most likely had to be litigated in state court.[2] The Defend Trade Secrets Act erases this distinction between trade secrets and their intellectual property kin, patents and copyrights, which long have been included within the federal bailiwick.[3] While the new federal trade secrets law and Minnesota’s statute both derive from the Uniform Trade Secrets Act and are generally quite similar,[4] the federal law contains a potentially powerful provision not found in the state act. 18 U.S. § 1836(b)(2) allows for a court “upon ex parte application but only in extraordinary circumstances, issue an order providing for the seizure of property necessary to prevent the propagation or dissemination of the trade secret.” This means that an individual or business who discovers a trade secret has been stolen can ask the court to order seizure of property to prevent the release of the trade secret to others, without having to notify the thief in advance of the court proceedings. If the victim persuades the court that “extraordinary circumstances” apply, the property is to be seized by “a Federal law enforcement officer” and “taken into the custody of the court.”[5] Imagine FBI agents bursting into a business to grab documents that a newly hired employee stole when she left the business’s competitor, her previous employer. While the Minnesota statute …

False Claims Act: the “Implied False Certification” Theory Gets More Definition

In Fraud, United States Supreme Court by Joseph Pull

The False Claims Act, or FCA, became federal law in 1863, in response to fraud by Civil War contractors providing (or not providing) goods for the Union war effort. More than 150 years later, the courts are still resolving big questions about its meaning. The FCA[1] creates punishing civil liability — including triple damages — for companies or individuals who submit “false or fraudulent” claims to the United States government.[2] It has a qui tam provision,[3] meaning an individual (called a “relator”) who discovers a violation of the FCA may sue the violator on behalf of the federal government. If the violator is found liable, the relator receives 15-30% of the proceeds of the lawsuit.[4] If an FCA violator is a large company, the amount at stake in a qui tam lawsuit can be very large. In 2009, a pharmaceutical company paid $1 billion to settle FCA claims concerning one of its drugs, yielding total qui tam payments of more than $102 million to six whistleblowers. That case was unusual. But FCA cases where the amount in controversy exceeds $1 million occur with some frequency. In another 2009 lawsuit, for example, three hospitals in St. Paul, Minnesota agreed to pay $2.28 million to settle an FCA claim. And in 2011, a Minnesota company agreed to pay $23.5 million to resolve an FCA claim. The two relators in that case received total payments of more than $3.96 million. With such high stakes, court decisions affecting the FCA, such as the June 16, 2016 Universal Health Services, Inc. v. Escobar[5] decision of the United States Supreme Court, can have big consequences. The specific issue in Escobar was the “implied false certification” theory.

Who’s in Charge Here?

In Corporate Law by Joseph Pull

In a one-person business,[1] there is no confusion about who calls the shots.  There is also no chance of disagreement concerning the operation of the business’s affairs. Confusion and disagreement can arise, however, when there is more than one person involved. Such confusion is unnecessary. Minnesota, like other states, has well-established rules determining who makes decisions on behalf of corporations. These rules define three different decision-making roles: the shareholder, the director, and the officer. Though the same individual can hold two or even three of the roles at the same time, each role has distinct powers. Blurring or confusing the roles can give rise to conflict and even litigation, and remaining mindful of the differences between the roles can help prevent disputes. Shareholder.  A shareholder is an owner of the corporation. The basic rights of a shareholder are (1) to receive money from the corporation in the form of dividends, if and when the corporation chooses to distribute profits; and (2) to vote in elections to select the corporation’s directors.[2] While shareholders may have the right to approve certain important corporate decisions, as a general matter a shareholder does not have the right to make decisions concerning the corporation’s affairs. Director.  Rather, it is the board of directors that controls the corporation’s business and affairs.[3] The directors are elected by the shareholders, thereby giving the shareholders indirect control of the corporation, but direct control lies in the hands of the directors without the participation of the shareholders. “Minnesota law puts the boards of directors, not courts or shareholders, in charge of governing corporate affairs.”[4]  (There is an exception that allows shareholders by unanimous affirmative vote to take action in the same way as the board of directors may act,[5] but this exception quickly becomes difficult to use as the number of shareholders increases beyond two or three.) Officer.  …

Camouflaged Collateral Estoppel

In Eighth Circuit, Trial by Joseph Pull

One challenge of trial work is trying to anticipate beforehand every issue that might arise once the parties are in the courtroom. Discovery greatly reduces the incidence of surprises of fact, but it can’t protect against surprises of law — foreseeable legal arguments that lurk undetected, camouflaged by the obvious issues absorbing everyone’s attention, until they come leaping from hiding in the course of trial. The Eighth Circuit recently decided a question of preclusion that appears to have ambushed the judge and the attorneys who tried the case in this way. Two sets of plaintiffs represented by the same law firm brought factually almost-identical but legally distinct claims against the same defendant.  The claims were tried together, with the judge to decide one set of claims and the jury to decide the other.  When the jury reached its verdict first, a camouflaged legal issue reared its head, and the parties found themselves embroiled in a dispute whether the jury’s verdict should bind the judge based on the doctrine of collateral estoppel (issue preclusion), or whether the judge was free to reach a verdict inconsistent with the jury’s decision.