Gibbons Law Alert
Late last week, the Supreme Court issued two rulings that will have dramatic implications for the SEC’s enforcement authority and the broader administrative landscape.
Justice Sonia Sotomayor delivered the Supreme Court’s unanimous opinion1 in Truck Insurance Exchange v. Kaiser Gypsum Company, Inc., et al. (Case No. 22-1079) (“Kaiser Gypsum”). Reversing the opinion of the United States Court of Appeals for the Fourth Circuit in In re Kaiser Gypsum Co., Inc., 60 F.4th 73 (4th Cir. 2023), the Court held that, pursuant to section 1109(b) of the Bankruptcy Code, “[a]n insurer with financial responsibility for a bankruptcy claim is sufficiently concerned with, or affected by, the proceedings to be a ‘party in interest’ that can raise objections to a reorganization plan.” In doing so, the Court rejected, as “conceptually wrong” and making “little practical sense,” the “insurance neutrality” doctrine that denies insurers the status of parties in interest in confirmation-related matters if the proposed plan neither increases the insurer’s pre-petition obligations nor impairs its rights under the insurance policies it has issued to the debtors. Kaiser Gypsum is an asbestos mass tort Chapter 11 case. A plan of reorganization (“KG Plan”) was confirmed on September 12, 2021. The KG plan provided, inter alia, for uninsured claims to be administered by an asbestos claims trust (“KG Asbestos Trust”), while insured claims were to be resolved through the tort system and paid (less a small deductible) by the debtors’ primary liability insurer,...
Businesses that sell or serve alcoholic beverages, such as liquor stores, grocery stores, bars, and restaurants, not only must obtain the appropriate retail license within the jurisdictions in which they operate, but are also subject to Alcohol Dealer Registration with the Alcohol and Tobacco Tax and Trade Bureau (TTB) within the U.S. Department of the Treasury. This often overlooked registration requirement must be satisfied prior to commencement of alcoholic beverage sales, and any changes in the ownership of the business, business locations, and certain other information must be disclosed annually in a filing that is due July 1. The registration requirement arises from Title 26 of the United States Code (specifically, Subtitle E, Chapter 51 of the Internal Revenue Code) and applies to any “dealer,” which is defined in 27 CFR § 31.1 as “[a]ny person who sells, or offers for sale, any distilled spirits, wines, or beer.” Thus, retail dealers include liquor stores, restaurants, bars, private clubs, fraternal organizations, grocery stores, supermarkets, hotels, sports stadiums, caterers, trains, aircraft, and vessels. Wholesalers and importers are also included within the definition of “dealer.” Subject to certain exceptions, both retail dealers and wholesale dealers must comply with the applicable registration requirements. Registration entails filing TTB Form 5630.5d before engaging in business and on or before July 1 of each...
The U.S. Environmental Protection Agency’s (EPA) announcement on April 19, 2024, of its final rule designating perfluorooctanoic acid (PFOA) and perfluorooctanesulfonic acid (PFOS) as hazardous substances under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), marks a significant moment in environmental regulation of per- and polyfluoroalkyl substances (PFAS). At the same time, the EPA released a new PFAS Enforcement Discretion and Settlement Policy under CERCLA (“Enforcement Policy”). These two announcements have wide-ranging implications for Superfund cleanups, development projects, public health, and the scope of environmental liability under CERCLA. The Persistent Threat of “Forever Chemicals” PFOA and PFOS belong to the PFAS class, a large group of man-made chemicals known for their exceptional resistance to degradation. These chemicals have been widely used since the 1940s in countless industrial applications and consumer products. Their unique chemical structure makes them highly effective in repelling water, oil, and stains. However, this same property also makes them incredibly persistent in the environment, earning them the nickname “forever chemicals.” Over time, PFAS have infiltrated various environmental media, including soil, water, and air. Extensive research over the past few decades has linked PFAS exposure to a range of human health problems, including: Certain cancers, particularly testicular and kidney cancers Liver damage Increased cholesterol levels Thyroid issues Developmental problems in infants and children, including low birth...
In an opinion out of the Southern District of New York addressing alleged spoliation of ESI, Judge Denise Cote found that the plaintiffs – the Federal Trade Commission and a collection of states – only sufficiently established half of their spoliation claims sought against defendant Martin Shkreli. Shkreli, aka “Pharma Bro,” and his business partner, Kevin Mulleady, launched Vyera in 2014. The plaintiffs alleged that in November 2017 Vyera entered into several anti-competitive agreements, including exclusive supply agreements, with a company preparing to seek FDA approval for the manufacture of the active ingredient in one of Vyera’s branded drug products. The plaintiffs sought sanctions under Rule 37(e) against Shkreli, alleging he failed to preserve messages on two cellphones despite receiving a litigation hold in late 2015. The first phone – a company-issued phone – was allegedly used by Shkreli to communicate about issues relevant to the case. When Shkreli’s attorney sent the company phone to be forensically imaged in April 2020, it was discovered that it had been factory reset (i.e., wiped) sometime in 2016 or 2017. While neither Shkreli nor Vyera produced communications from this phone, Vyera represented that company-issued phones were backed up to iCloud. The second was a contraband phone Shkreli appeared to have possessed while in prison. A Vyera executive testified...
As previously reported, a new statute concerning real property and flood notifications in New Jersey was enacted on July 3, 2023. The new law, which amends the New Jersey Truth-in-Renting Act (P.L. 2001, c.313) and supplements the New Jersey Consumer Fraud Act (NJCFA) (P.L. 1960, c.39), applies to the sale and exchange of all residential and commercial property, as well as to all residential and commercial lease transactions, with certain exceptions. Effective March 20, 2024, New Jersey law now requires that all sellers of commercial or residential real property and all landlords entering into or renewing any commercial or residential leases disclose, in writing, the below enumerated flood risk information with respect to the subject property. New Seller Flood Disclosure Requirements For sales, the statute supplements the NJCFA, to require all sellers of real property to disclose, on the Property Condition Disclosure Statement (the “Disclosure Statement”) promulgated by the New Jersey Department of Community Affairs, whether the property is located in the FEMA Special or Moderate Risk Flood Hazard Area and any actual knowledge of the seller concerning flood risks of the property. The Disclosure Statement’s relevant flood disclosures are listed as questions 109-117. Pursuant to N.J.S.A. 56:8-19.2, all sellers of real property, regardless of whether such property is residential or commercial, must answer the...
Generative Artificial Intelligence (AI) tools such as OpenAI’s ChatGPT, Anthropic’s Claude, Midjourney and others, have made waves across various industries and the legal profession is no exception. Specialized publications and recent news are replete of examples of professionals in all fields increasingly turning to these tools to streamline their work. However, the use of generative AI in legal practice also raises special concerns about the potential for errors, bias, and ethical violations. In recent high-profile cases, the use of ChatGPT by attorneys came under scrutiny when their court filing were found to contain false statements and references to non-existent legal authorities. In one case, two lawyers were sanctioned for submitting non-existent AI-generated judicial opinions with fake quotes and citations, without properly verifying the accuracy of such citations. See Mata v. Avianca., No. 22-CV-1461 (PKC), 2023 WL 4114965 (S.D.N.Y. June 22, 2023). This incident highlights the need for lawyers to exercise caution and maintain human oversight when using generative AI tools. Building upon the growing awareness of the pervasive use of generative AI, and its gradual adoption in the legal profession, the United States Patent and Trademark Office (USPTO) has taken steps to address the use of AI tools in practice before the agency. In February 2024, USPTO Director Katherine K. Vidal issued a memorandum to...
In a 4-3 opinion, the New Jersey Supreme Court held that the mere purchase of a product falsely represented as “discounted” does not, without more, satisfy the “ascertainable loss” element under the New Jersey Consumer Fraud Act (NJCFA). In Robey v. SPARC Group LLC, the plaintiffs – a proposed class of shoppers at the retail clothing store Aéropostale – alleged that the store advertised clothing as being discounted when, in fact, the items had never been offered or sold at the higher prices off of which the “discount” was taken. The plaintiffs contend that this practice of so-called “illusory discounts” violated the NJCFA, the Truth in Consumer-Contract, Warranty and Notice Act (TCCWNA), and various common law contract rights. The trial court dismissed the complaint for failure to state a claim, determining that the plaintiffs failed to allege an “ascertainable loss.” The Appellate Division majority disagreed and reversed, noting some confusion as to whether the NJCFA’s “ascertainable loss” requirement was the same as the TCCWNA’s “aggrieved consumer” requirement. The Supreme Court granted certification and reversed, finding that the plaintiffs’ NJCFA claim failed because they could show neither of the two recognized types of “ascertainable loss” for a claim based on a seller’s alleged deception: an out-of-pocket loss or a loss of the benefit-of-the-bargain. First, the plaintiffs...
On April 23, 2024, the Federal Trade Commission (FTC) issued a final rule banning all future and most existing non-compete clauses, with few narrow exceptions for senior executives. The rule, however, was immediately met with legal challenges, casting doubt on its future. The FTC has taken the position that entering into a non-compete agreement is an “unfair method of competition” within the meaning of the Federal Trade Commission Act, therefore rendering non-competes unlawful as a general matter. The FTC reasons that a non-compete ban was necessary to address conduct harming fair competition in the labor market, reducing wages, stifling innovation, and hindering business formation and entrepreneurship. Further, the FTC argues that the current state law approach, which assesses the enforceability of non-competes on a case-by-case basis, has not sufficiently addressed the competition concerns cited by the FTC. On the other hand, opponents of the FTC’s non-compete ban argue that the rule exceeds the commission’s statutory and constitutional authority and that non-competes are crucial in guarding an employer’s trade secrets, intellectual property, and significant investments in employee training and development. Key components of the final rule are: It is an “unfair method of competition” for any worker and an employer to enter into, or attempt to enter into, a non-compete clause, to enforce a non-compete clause,...
Pursuant to New Jersey Department of Health regulations, New Jersey hospitals must implement bylaws to govern the hospital’s medical staff. Those bylaws typically address the qualifications and procedures for being admitted to the hospital’s medical staff and often include a right to a hearing and other procedural protections for a physician who has been denied privileges to the hospital. Though it has long been resolved that a physician may compel a hospital to comply with the procedures set forth in its bylaws, it was less clear whether a hospital’s bylaws created a contract between the hospital and its medical staff, which in turn would give rise to an implied duty of good faith and fair dealing, as well as a right to monetary damages for breach of contract. In Comprehensive Neurosurgical, P.C. v. Valley Hospital, the New Jersey Supreme Court resolved this open issue, holding that a hospital’s bylaws do not amount to a contract and thus do not, without more, give rise to implied duties or monetary damages. The Supreme Court, however, also recognized that an implied contract, which itself would include an implied duty of good faith, can arise from the course of dealings between a hospital and a physician group. In Comprehensive Neurosurgical, a group of neurosurgeons that held longstanding privileges at Valley...