Justia U.S. 3rd Circuit Court of Appeals Opinion Summaries

Articles Posted in Commercial Law

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Between 2002-2006, Lucht purchased treated lumber for a deck on his vacation home in the Virgin Islands. The lumber allegedly decayed prematurely and he began replacing boards in 2010; he claims he did not discover the severity of the problem until the fall of 2011. Lucht sued the retailer, wholesaler, and treatment company of the lumber in February 2013, alleging a Uniform Commercial Code contract claim; a common law contract claim; a breach of warranty claim; a negligence claim; a strict liability claim; and a deceptive trade practices claim under the Virgin Islands Deceptive Trade Practices Act. The district court rejected the claims as time-barred. The Third Circuit affirmed, citing the “‘gist of the action doctrine,” which bars plaintiffs from bringing a tort claim that merely replicates a claim for breach of an underlying contract. View "MRL Dev. I, LLC v. Whitecap Inv. Corp" on Justia Law

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WI buys furniture wholesale. OEC provided WI with non-vessel-operating common carrier transportation services. WI signed an Application for Credit that granted a security interest in WI property in OEC’s possession, custody or control or en route. As required by federal law, OEC also publishes a tariff with the Federal Maritime Commission, which provides for a Carrier’s lien. WI filed voluntary Chapter 11 bankruptcy petitions. OEC sought relief from the automatic stay, arguing that it was a secured creditor with a possessory maritime lien. OEC documented debts of $458,251 for freight and related charges due on containers in OEC’s possession and $994,705 for freight and related charges on goods for which OEC had previously provided services. The estimated value of WIs’ goods in OEC’s possession was $1,926,363. WI filed an adversary proceeding, seeking release of the goods. The bankruptcy court ruled in favor of WI, citing 11 U.S.C. 542. The district court affirmed, holding that OEC did not possess a valid maritime lien on Pre-petition Goods. The Third Circuit reversed, noting the strong presumption that OEC did not waive its maritime liens on the Prepetition Goods, the clear documentation that the parties intended such liens to survive delivery, the familiar principle that a maritime lien may attach to property substituted for the original object of the lien, and the parties’ general freedom to modify or extend existing liens by contract. View "In re: World Imports LTD" on Justia Law

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An Automated Maritime Telecommunications System (AMTS) is a U.S. communication service between land and vessels in navigable waterways, existing on specific broadcast frequencies. Advances in technology have greatly expanded the potential uses of AMTSs. Under the original site-based system, small geographic regions were defined by location and the waterway served and the FCC provided licenses at no cost to the first applicant. In 2000, the FCC stopped issuing site-based licenses and began issuing licenses by competitive bidding; it divided the U.S. into 10 regions and, at public auctions, sold “geographic” licenses for two blocks of AMTS frequencies in each region. Although geographic licensees may generally place stations anywhere within their region, they may not interfere with the functioning of existing site-based stations, so the location of a site-based station creates a gap in a geographic licensee’s coverage area. Plaintiffs obtained geographic licenses in areas overlaying pre-existing site-based licenses. Site-based operators refused to provide plaintiffs with the operating contours for their site-based locations within plaintiffs’ geographic locations. Plaintiffs filed suit, alleging violation of the Federal Communications Act and the Sherman Antitrust Act. The Third Circuit affirmed dismissal of the FCA claims and a determination that no antitrust conspiracy existed. Plaintiffs did not identify particular actions that were determined by the FCC to be unreasonable or unjust and, therefore, do not possess a private right of action. View "Havens v. Mobex Network Servs., LLC" on Justia Law

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SEB distributes household products under several brand names, including electric steam irons sold under the Rowenta brand name. Euro-Pro distributes household appliances under the Shark brand name. The Shark packaging states: “MORE POWERFUL STEAM vs. Rowenta®†† at half the price.” The “††”refers to a fine-print footnote on the package’s bottom, stating that the claim is “††[b]ased on independent comparative steam burst testing to Rowenta DW5080 (grams/shot).” The packaging also asserts “#1 MOST POWERFUL STEAM*” with a fine-print reference on the bottom stating it “*[o]ffers more grams per minute (maximum steam setting while bursting before water spots appear) when compared to leading competition in the same price range, at time of printing.” SEB directed its internal laboratory to conduct tests, which showed that the Rowenta performed the same as the Shark. SEB commissioned an independent laboratory to conduct tests, which showed that the Rowenta outperformed the Shark. SEB claimed false advertising under the Lanham Act, 15 U.S.C. 1125(a), and unfair competition under Pennsylvania common law. The Third Circuit affirmed entry of an injunction, agreeing that the packaging’s definition of a claim term applies to the claim’s explicit message and that the court properly disregarded consumer survey evidence offering alternative meanings. View "Groupe SEB USA Inc v. Euro Pro Operating, LLC" on Justia Law

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In Chapter 11 liquidation of KB Toys Inc. and affiliated entities, the Residual Trustee of the KBTI Trust sought to disallow certain trade claims that ASM (a company in the business of purchasing bankruptcy claims) obtained from creditors. Under 11 U.S.C. 502(d) a claim can be disallowed if a claimant receives property that is avoidable or recoverable by the bankruptcy estate. The Bankruptcy Court disallowed the claims, concluding that a claims purchaser holding a trade claim is subject to the same 502(d) challenge as the original claimant. ASM was on “constructive notice” of potential preference actions, could have discovered the potential for disallowance with “very little due diligence,” and was not entitled to protection as a “good faith” purchaser. The district court and Third Circuit affirmed, holding that a trade claim that is subject to disallowance under502(d) in the hands of the original claimant is similarly disallowable in the hands of a subsequent transferee. View "In re: KB Toys Inc." on Justia Law

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Rahman filed a securities class action against KB, an importer of infant furniture and products, and individuals, alleging violation of Section 10(b) of the Securities Exchange Act and SEC Rule 10b-5 and (2) and Section 20(a) of the Exchange Act. The complaint alleged that defendants misled investors by artificially inflating KB’s stock price by issuing deceptive public financial reports and press releases dealing with compliance with customs laws and overall financial performance. A second amended complaint specified failure to disclose product recalls, safety violations, and illegal staffing practices. The district court dismissed for failure to satisfy the heightened scienter pleading standard required by the Private Securities Litigation Reform Act, 15 U.S.C. 78u-4(b)(2). The Third Circuit affirmed. View "Rahman v. Kid Brands, Inc." on Justia Law

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In 2009, to “preserve Delaware’s pre-eminence in offering cost-effective options for resolving disputes, particularly those involving commercial, corporate, and technology,” Delaware granted the Court of Chancery power to arbitrate business disputes. That Court then created an arbitration process as an alternative to trial for certain disputes, 10 DEL. CODE tit. 10, 349; Del. Ch. R. 96-98. To qualify for arbitration, at least one party must be a business entity formed or organized under Delaware law, and neither can be a consumer. Arbitration is limited to monetary disputes that involve an amount of at least one million dollars. The fee for filing is $12,000, and the arbitration costs $6,000 per day after the first day. Arbitration begins approximately 90 days after the petition is filed. The statute and rules bar public access. Arbitration petitions are confidential and are not included in the public docketing system. Attendance at proceedings is limited to parties and their representatives, and all materials and communications produced during the arbitration are protected from disclosure in judicial or administrative proceedings. The Coalition challenged the confidentiality provisions. The district court found that Delaware’s proceedings were essentially civil trials that must be open to the public, under the First Amendment. The Third Circuit affirmed. View "Delaware Coal. for Open Gov't v. Strine" on Justia Law

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Sam’s Club is a members-only retail warehouse that features a section for clearance items, called “as-is” items. Items may be designated “as-is” for various reasons and may be damaged or undamaged. Every as-is item is marked with an orange sticker; when a cashier scans the item, the original price appears and the cashier must perform a manual override. The software records the fact that a price override was performed, but does not include the reason. Overrides can occur for reasons other than “as-is” designation. Sam’s contracted with NEW to sell extended warranties for items sold in the store. NEW will not cover some “as is” products, including some purchased by Hayes. On each occasion, Sam’s employees offered and Hayes purchased a NEW warranty. The store provided Hayes with a manual and remote missing from a television he purchased and offered to refund the warranty price. Hayes declined. Hayes sued, on behalf of himself and all other persons who purchased a warranty for an as-is product from Clubs in New Jersey since 2004, asserting violation of the state Consumer Fraud Act, breach of contract, and unjust enrichment. The trial court certified a Rule 23(b)(3) class. The Third Circuit vacated and remanded for consideration of Rule 23’s class definition, ascertainability, and numerosity requirements in light of a recent decision. View "Hayes v. WalMart Stores Inc" on Justia Law

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BIC, which has its principal place of business in New Jersey, distributed machines manufactured by BIL, BIC’s parent entity located in Japan. In 2001 BIC began distributing the Brother 3220C, a printer, fax machine, scanner and copier, accompanied by a Limited Warranty and User Manual drafted by BIL in Japan and translated by BIC. Huryk alleges that from 2002 to 2005, BIC and its executives in New Jersey, knew about but concealed information regarding defects in the 3220C that caused printer heads to fail and caused the machines to purge excess amounts of ink when not used frequently enough. The district court dismissed his putative class action claim under the New Jersey Consumer Fraud Act, N.J. Stat. 56:8 on the ground that South Carolina law, not New Jersey law, applied. The Third Circuit affirmed, noting that South Carolina was the place where Huryk acted in reliance upon BIC’s representations, the place where Huryk, a domiciliary of South Carolina, received the representations, and the place where a tangible thing which is the subject of the transaction between the parties was situated at the time. View "Maniscalco v. Brother Int'l Corp." on Justia Law

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Crispin worked as a CPA and as CFO of an energy company; his wholly-owned S-corporation has engaged in leasing, structured finance, aircraft acquisition, and mortgage-backed securities investing for more than 20 years. The business purchases aircraft costing $1 million to $10 million and leases them for 10 years before reselling. A Custom Adjustable Rate Debt Structure (CARDS) transaction is a tax-avoidance scheme that purports to generate large “paper” losses deductible from ordinary income. In 2000 the IRS warned against taking tax deductions based on artificial losses generated by inflated bases in certain assets. After the IRS discovered the widespread use of CARDS, before Crispin filed the contested return, the IRS issued another Notice addressed to CARDS transactions and imposed disclosure obligations on CARDS promoters and users. Crispin used a CARDS transaction, involving aircraft financing, to shelter $7 million of income for the 2001 tax year. The tax court held that he was not entitled to an ordinary loss deduction and was liable for an accuracy-related penalty (26 U.S.C. 6662), finding that the transaction lacked economic substance and that he had not relied reasonably or in good faith on the advice of an independent and qualified tax professional. The Third Circuit affirmed. View "Crispin v. Comm'r of Internal Revenue" on Justia Law