Source: https://www.jgschwartzlawblog.com/category/business-litigation/
Timestamp: 2019-04-19 00:38:05+00:00

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Business Litigation Category Archives — Pleasanton Business & Commercial Law Blog Published by California Business and Commercial Attorneys — Law Offices of James G. Schwartz, P.C.
The Delaware Court of Chancery recently denied a motion to dismiss a breach of contract suit brought by former shareholders of a corporation, who alleged that the corporation’s buyers had failed to fulfill their obligations under a merger contract. Himawon, et al. v. Cephalon, Inc., et al, C.A. No. 2018-0075-SG, mem. op. (Del. Chanc. Ct., Dec. 28, 2018). Since Delaware law tends to influence businesses around the country, the ruling could be relevant to California business disputes. The case presents interesting questions about the use of highly subjective language to define a party’s obligations in a contract. In this case, the buyers agreed to use “commercially reasonable efforts” to develop a valuable product owned by the corporation, id. at 2, and the plaintiffs allege that they failed to do so.
Although the plaintiffs in Himawon are shareholders of the corporation, it is not a shareholder derivative suit. Instead, it is a suit for breach of contract, based on a merger contract in which the plaintiffs agreed to sell their shares. In California, a plaintiff claiming breach of contract must prove six elements by a preponderance of the evidence: (1) a valid and enforceable contract existed between the parties; (2) the plaintiff performed their duties under the contract, or was excused from doing so; (3) all conditions necessary for the defendant to perform their duties under the contract had either occurred or been excused; (4) the defendant either failed to do something required by the contract, or did something prohibited by the contract; (5) the plaintiff suffered harm; and (6) the defendant’s breach substantially caused the plaintiff’s harm.
The corporation in Himawon owned the intellectual property rights to an antibody, which is a type of protein used to fight diseases. Antibodies are a natural part of the human immune system, but they are also used in medical and pharmaceutical research to develop new treatments. The court notes that “bringing antibodies to market” involves a “long, arduous, and risky” process due to “rigorous governmental oversight for risk and efficacy.” Id. The corporation entered into a merger agreement with another corporation, which reportedly tried to divide the risk among the parties. The buyer agreed to pay an initial sales price, followed by earn-outs paid to the former shareholders based on “certain milestones in the approval of the antibody to treat two different conditions.” Id. It agreed to use “commercially reasonable efforts” to attain these goals.
Businesses involved in legal disputes may choose to use alternative dispute resolution (ADR) instead of litigation. California and federal law encourage litigants to use ADR, in part to lessen the burden on the court system. Arbitration, mediation, and other types of ADR may offer advantages over litigation. For example, ADR may offer a faster resolution of a dispute, free from packed court schedules. Unlike litigation, ADR proceedings are not public record, and the parties are often barred from disclosing the details of an arbitration or mediation. Since the results of ADR proceedings are often binding on the parties, ADR practitioners must abide by legal standards that ensure fairness. A court in New York City recently granted a request to stay an arbitration proceeding, after one party alleged that a lack of racial diversity among available arbitrators rendered the proceeding unfair and discriminatory. Carter, et al v. Iconix Brand Group, Inc., et al, No. 655894/2018, petition (N.Y. Sup. Ct., N.Y. Cty., Nov. 28, 2018). If you are facing a similar issue in California, contact a California intellectual property attorney without delay.
An arbitration proceeding resembles a courtroom trial. The parties present their cases, including witnesses and other evidence, to one or more arbitrators, and the arbitrator(s) render a decision. Statutes like the Federal Arbitration Act and the California Arbitration Act hold that agreements to arbitrate disputes are generally “valid, irrevocable, and enforceable.” 9 U.S.C. § 2, Cal. Civ. Pro. Code § 1281. If the parties have agreed in advance to binding arbitration, then state and federal law strictly limit courts’ authority to vacate or revise an arbitrator’s decision to specific situations, such as “corruption, fraud, or undue means.” 9 U.S.C. § 10(a)(1), Cal. Civ. Pro. Code § 1286.2(a)(1).
The arbitration proceeding at issue in the Carter case arises from a rather lengthy series of intellectual property disputes between the plaintiff, a hip-hop artist and record producer, and the defendant, a clothing company. The plaintiff sold a clothing brand to the defendant in 2007, leading to several lawsuits and settlements involving trademark rights. A lawsuit filed by the defendant against the plaintiff in New York in 2017, for example, is still pending. The current arbitration is related to a settlement agreement between the parties from 2015. The defendant alleged breach of the 2015 agreement, and commenced a proceeding with the American Arbitration Association (AAA) in October 2018.
California businesses that sell goods or services to the public have a duty to deal fairly with consumers and other businesses. Statutes like the California Consumers Legal Remedies Act (CLRA) and the Unfair Competition Law (UCL) prohibit a variety of deceptive or unfair practices and allow civil claims for damages by aggrieved businesses or consumers. A lawsuit filed late last year in a Northern California federal court alleges violations of the CLRA and the UCL by a major technology company. Harvey v. Apple, Inc., et al., No. 3:17-cv-07274, complaint (N.D. Cal., Dec. 21, 2017). The complaint, which includes class action allegations, claims that the defendant allowed one of its signature products to go to market with a known defect, failed to disclose this defect to consumers, and made misleading statements about the nature of the defect and possible solutions for problems caused by the defect. Lawsuits filed in other California federal courts and other states make similar allegations, and the court is reportedly considering consolidation of some or all of the complaints.
The CLRA prohibits a wide range of deceptive practices involving the sale of goods or services to consumers. The deceptive practices alleged in Harvey include “representing that goods…have…characteristics,…uses, benefits, or quantities that they do not have”; “representing that [they]…are of a particular standard, quality, or grade,…if they are of another”; and “advertising [them] with intent not to sell them as advertised.” Cal. Civ. Code §§ 1770(a)(5), (7), (9). Damages under the CLRA may include injunctive relief, actual damages, punitive damages, and restitution. Id. at § 1780.
The UCL also establishes broad prohibitions on unfair or deceptive business practices under various provisions of state law, but its coverage is not limited to consumers. California law states that a person is liable for damages that result from “willfully deceiv[ing] another with intent to induce him to alter his position to his injury or risk.” Id. at § 1709. “Deceit” includes acts like “the suppression of a fact, by one who is bound to disclose it.” Id. at § 1710(3). An act of deceit that is intended “to defraud the public” can potentially result in liability to every person “who is actually misled by the deceit.” Id. at § 1711. An individual can file suit for violations of the UCL if the alleged unfair act has caused them to “suffer injury in fact and…los[e] money or property.” Cal. Bus. & Prof. Code §§ 17203, 17204.

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