Third Circuit Rules that Samsung Cannot Compel Arbitration Based on Clause “Buried” in Safety and Warranty Guide

The Third Circuit Court of Appeals recently held that Samsung cannot force arbitration in a consumer fraud class action about the battery life of its Galaxy Gear S Smartwatch.  Noble v. Samsung Electronics America, Inc.

Plaintiff had purchased a smartwatch but found, after trying three of them, that the battery lasted for only a few hours, compared to the advertised “24 to 48 hours with typical use.” Finding that others were in a similar position, Noble filed a class action complaint in federal court in New Jersey. Samsung sought to compel arbitration based on an arbitration clause in the company’s 143 page “Health and Safety and Warranty Guide,” included in the Samsung Smartwatch box.

Affirming the district court’s decision denying Samsung’s motion to compel arbitration, the Third Circuit found that Noble had no actual or constructive notice of the arbitration provision because it was not “reasonably conspicuous.”  The “Guide” in which the arbitration clause was included, “buried” the terms on page 97 of the document.  Unlike previous cases involving “shrinkwrap” or “clickwrap” agreements, Samsung’s “Guide” did not clearly inform customers that they are agreeing to certain terms upon purchase and use of the product.

The Third Circuit’s decision is a reminder to businesses to ensure not only the visibility of their terms and conditions, but also an indication that the terms are a contract to which a consumer is binding himself.

For assistance in editing your company’s agreements or product enclosures, or for further information on the Noble decision, please contact Kathleen Barnett Einhorn, Esq., Chair of the Firm’s Complex Commercial Litigation Group, at keinhorn@genovaburns.com or Jennifer Borek, Esq., Partner in the Complex Commercial Litigation Group, at jborek@genovaburns.com.

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Third Circuit Rejects Class Certification for Widener Law Grads

A panel of the Third Circuit Court of Appeals refused to allow class certification for a group of Widener University School of Law Graduates who allege that the law school inflated postgraduate employment rate statistics in Harnish v. Widener Univ. Sch. of Law, No. 15-3888 (3d Cir. Aug. 16, 2016). The law graduates claimed that, between 2005 and 2011, Widener advertised that up to 97% of students obtained employment after graduation, when, in fact, only 50-70% of graduates obtained full-time legal employment. This misrepresentation, the plaintiffs argued, violated New Jersey and Delaware consumer fraud statutes.

The circuit court rejected the plaintiffs’ theory of damages, predicated on the report of their expert economist, Dr. Donald Martin. Dr. Martin attempted to show a statistically significant relationship between employment rates and tuition prices across 64 private law schools. The analysis, though compelling, was flawed, the Court held. Because the plaintiffs did not present a theory of class-wide damages, they failed to establish that common questions of fact with respect to damages “predominate” over individual questions or that the named plaintiffs’ claims were “typical” of the class—both requirements for class certification under Federal Rule of Civil Procedure 23.

Specifically, the plaintiff’s theory was that Widener’s misrepresentations empowered the school to charge higher tuition across the market. This type of “price inflation” theory is similar (though not identical) to the “fraud on the market” concept that has been accepted in federal securities class actions. Although the Court found that Mr. Martin’s expert approach held some merit since law schools operate in a largely fixed-price market, both the New Jersey and Delaware Supreme Courts have rejected this type of theory of proof outside of the securities context. Because this theory was the only one presented to establish damages on a class-wide basis for the plaintiffs’ state-law consumer fraud claims, the Court found that class certification was inappropriate.

Harnish highlights the importance of expert evidence at the class certification phase. Although plaintiffs are not required to prove their case, they must present a coherent theory showing damages on a class-wide basis, and one that is cognizable under substantive law.

For more information on class certification or consumer fraud claims or the Court’s decision in Harnish v. Widener University School of Law, please contact Kathleen Barnett Einhorn, Esq., Chair of the firm’s Complex Commercial Litigation Group, at keinhorn@genovaburns.com or Jennifer Borek, Esq., a Partner in the Complex Commercial Litigation Group at jborek@genovaburns.com.

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In-House Counsel May View “Outside Counsel Only” Documents

A federal magistrate judge in Trenton has allowed in-house counsel for a New Jersey corporation to view discovery documents designated for “outside counsel eyes only.” The ruling in Sanofi-Aventis U.S. LLC v. Breckenridge Pharmaceutical, Inc., Nos. 15-289 & 15-1836, relates to a pair of patent infringement lawsuits filed by Sanofi-Aventis against Breckenridge Pharmaceutical Inc. regarding a prostate cancer treatment drug.

The parties’ stipulated confidentiality order did not specify whether Breckenridge’s in-house litigation counsel, Robert Vroom, would be permitted to review discovery designated as “outside counsel eyes only.” Sanofi objected to permitting Vroom access to the documents, contending that Vroom, one of only four in-house attorneys at Breckenridge, reported to the company’s general counsel, who was also vice president of corporate strategy.

The Court disagreed with Sanofi after conducting a “case-by-case inquiry” to determine whether an in-house lawyer engages in competitive decision-making that could pose a risk of protected information being inadvertently disclosed, required by a 1984 decision from the Federal Circuit Court of Appeals, U.S. Steel v. United States. The Court held that sufficient measures were put in place to separate Vroom from his peers and competitive decision-making so as to entitle him to review the discovery items at issue.

The Court found significant Breckenridge’s decision to create the position of “litigation counsel” to permit in-house counsel to function as an outside attorney. Vroom, the Court concluded, did not engage in the decision-making process for pricing, product design, patent prosecution or deciding when to seek FDA approval for production of a drug and he does not have access to Breckenridge’s network drives, reducing the risk of inadvertent disclosure to the company.

The Court’s order included some protections to further ensure that competitively sensitive information is not disclosed to Breckenridge. Breckenridge was ordered to maintain separate computer facilities for Vroom, who is not permitted to review, store or access any information designated as “outside counsel eyes only” while at any Breckenridge facility.

For more information on discovery confidentiality orders or the implications of the decision in Sanofi-Aventis U.S. LLC v. Breckenridge Pharmaceutical, Inc., please contact Kathleen Barnett Einhorn, Esq., Director of the firm’s Complex Commercial Litigation Group at keinhorn@genovaburns.com, or Jennifer Borek, Esq., a Partner in the Complex Commercial Litigation Group at jborek@genovaburns.com

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Mandatory Arbitration Undercutting Consumer Rights?

New Jersey businesses may face increased litigation if proposed legislation to bar mandatory arbitration clauses in consumer contracts is made law. The proposed bill – recommended for passage by the Assembly Consumer Affairs Committee on February 5 – stems from the increasing frequency with which contracts contain provisions that make it difficult or impossible for consumers to pursue remedies for various claims such as misrepresentations, deception, fraud, negligence or breach of contract. This legislation would change the current law in New Jersey – the Truth in Consumer Contract, Warranty and Notice Act – to prohibit companies and businesses from requiring consumers to sign these “take it or leave it contracts” which waive or limit their rights to seek assistance of the courts, and instead require claims arising from these contracts to be resolved through arbitration.

If passed, consumers would be entitled to pursue their claims under the Consumer Fraud Act, the Lemon Law or any other federal or state consumer protection law in court, as well as have the right to bring a complaint within the six-year statute of limitations. In a further effort to protect consumers’ rights, an individual agreeing to waive of any of these rights would only be permitted to do so upon the advice of counsel. In addition, any contract containing a provision requiring a consumer to waive any legal rights – in violation of the new law – could be declared null and void, and entitle consumers to a $100 fee, plus damages and counsel fees.

A number of business groups, including the New Jersey Chamber of Commerce and the New Jersey Business and Industry Association, are opposing the bill, claiming that it runs afoul of the Federal Arbitration Act which encourages arbitration as a valuable litigation tool. However, supporters of the proposed legislation believe the “troubling trend” of companies’ required arbitration clauses in their standard contracts only serves to support companies at the cost of consumers. The proposed bill will make its way to the New Jersey Assembly next for approval and if received, will go before the Senate. Until then, businesses dealing with the public can rest assured that the preferred method of arbitration remains king. However, if the bill becomes law, companies will have to analyze any arbitration language in their consumer contracts.

For more information, please contact Kathleen Barnett Einhorn, Director of the Complex Commercial Litigation Practice Group of Genova Burns, at KEinhorn@genovaburns.com.

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