Author: John D. Haggerty

Internal Investigations and Compliance in a Post-Pandemic Environment: Risks and Opportunities

The COVID-19 pandemic has presented not only novel challenges, but also opportunities for companies hoping to enhance or regain productivity while preventing wrongdoing and maintaining robust compliance functions. As workplaces reopen, historical challenges will persist and new risks will emerge. To be best positioned during this transition phase and beyond, companies should embrace the opportunity to evaluate their existing compliance processes and make the adjustments now that are necessary to adapt to a risk landscape that will likely never again be the same. Empower Legal, Compliance, and Investigative Resources Responsible companies will not be receptive to attempts to excuse misconduct due to the pandemic, nor will regulators. After all, there will be no “pandemic defense” to wrongdoing, and hindsight tends to be unforgiving—particularly through the lens of regulators looking at current events months or years from now. And as businesses emerge from state stay-at-home orders, an increased focus on productivity threatens to exacerbate the already heightened risk environment. It is critical that compliance, legal, and internal and external investigative resources be empowered to mitigate these risks effectively. Some immediate mitigation actions to be considered include: Conducting mandatory training on the enhanced risk environment and compliance best practices. Assessing existing policies and procedures, including those specific to internal investigations, and revamping them as needed to address...

Third Circuit Relaxes Pleading Requirements for Limited Liability Company Defendants and Urges Supreme Court to Redefine Citizenship Rule

Should limited liability companies continue to be treated differently than corporations for diversity-of-citizenship purposes? If a limited liability company’s citizenship continues to be determined by the citizenship of each of its members, how can a plaintiff get past the pleading stage if the identity of one or more members is unknown even after a diligent pre-filing investigation? In a recent precedential opinion, the Third Circuit in Lincoln Benefit Life Company v. AEI Life, LLC answered the latter question for the first time, holding that a plaintiff need not affirmatively allege the citizenship of each member of a defendant limited liability company to survive a motion to dismiss for lack of subject-matter jurisdiction. And in a separate concurrence targeted directly at the U.S. Supreme Court, the Third Circuit urged the Supreme Court to consider the former question and adopt a more practical rule for determining the citizenship of limited liability companies.

Third Circuit: Challenges to Contract’s Validity Must Be Arbitrated, But Challenges to Contract’s Formation May Proceed in Court

In its recent decision in SBRMCOA, LLC v. Bayside Resort, Inc., the Third Circuit clarified when challenges to a contract containing an arbitration clause must be arbitrated and when they must be decided by a court. Emphasizing that the relevant distinction is between challenges to a contract’s validity, which are subject to arbitration, and challenges to a contract’s formation, which generally are not, the Court concluded that a claim that a contract was coerced must be arbitrated, but a claim that a contract was beyond a signatory’s authority or ultra vires requires judicial determination.