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

Mesabi Metallics Company LLC (Mesabi) filed for Chapter 11 bankruptcy in 2016 and emerged successfully in 2017. During the bankruptcy proceedings, Mesabi initiated an adversary proceeding against Cleveland-Cliffs, Inc. (Cliffs), alleging tortious interference, antitrust violations, and other claims. Mesabi sought to unseal certain documents obtained from Cliffs during discovery, which had been filed under seal pursuant to a protective order. Cliffs opposed the motion, arguing that the documents should remain sealed under Bankruptcy Code § 107, not the common law right of access.The United States Bankruptcy Court for the District of Delaware applied the common law standard from In re Avandia Marketing, Sales Practices & Products Liability Litigation, concluding that Cliffs had not met the burden to keep the documents sealed. The court recognized the potential for a different interpretation and certified the question for direct appeal to the United States Court of Appeals for the Third Circuit.The Third Circuit held that the sealing of documents in bankruptcy cases is governed by § 107 of the Bankruptcy Code, not the common law right of access. The court clarified that § 107 imposes a distinct burden for sealing documents, requiring protection of trade secrets or confidential commercial information if disclosure would cause competitive harm. The court vacated the Bankruptcy Court's order and remanded for application of the correct standard.Additionally, the Third Circuit addressed a separate motion by Greg Heyblom to intervene and unseal the documents. The court concluded that the Bankruptcy Court lacked jurisdiction to grant Heyblom's motions while the appeal was pending, as it would interfere with the appellate court's jurisdiction. The orders granting Heyblom's motions were vacated. View "In re: ESML Holdings Inc v. Mesabi Metallics Company LLC" on Justia Law

Mesabi Metallics Company LLC (Mesabi) filed for Chapter 11 bankruptcy in 2016 and emerged successfully in 2017. During the bankruptcy proceedings, Mesabi initiated an adversary proceeding against Cleveland-Cliffs, Inc. (Cliffs), alleging tortious interference, antitrust violations, and civil conspiracy. Mesabi claimed Cliffs engaged in anti-competitive conduct to impede Mesabi's business operations. To facilitate discovery, the parties entered a stipulated protective order allowing documents to be designated as confidential. Mesabi later moved to unseal certain documents filed under seal to support a petition in the Minnesota Court of Appeals.The United States Bankruptcy Court for the District of Delaware, applying the common law right of access, held that Cliffs had not met the burden to keep the documents sealed. The court relied on the Third Circuit's precedent in In re Avandia, which requires a showing that disclosure would cause a clearly defined and serious injury. Recognizing potential ambiguity in the law, the Bankruptcy Court certified the question for direct appeal to the United States Court of Appeals for the Third Circuit.The Third Circuit clarified that the sealing of documents in bankruptcy cases is governed by 11 U.S.C. § 107, not the common law right of access. Section 107 imposes a distinct burden, requiring protection of trade secrets or confidential commercial information without the need for balancing public and private interests. The court vacated the Bankruptcy Court's decision and remanded for application of the correct standard under § 107. Additionally, the Third Circuit held that the Bankruptcy Court lacked jurisdiction to grant a third party's motion to intervene and unseal documents while the appeal was pending, vacating those orders as well. View "ESML Holdings Inc v. Mesabi Metallics Compay LLC," on Justia Law

Plaintiffs alleged that an automobile manufacturer designed, manufactured, and sold defective vehicles, specifically Dodge "muscle" cars with defective rear differentials. They filed a complaint asserting state and federal causes of action based on fraud and breach of warranty. The District Court dismissed the fraud counts and some warranty counts, allowing plaintiffs to amend their complaint. After amending, the District Court dismissed the fraud counts again and some warranty counts, but allowed two warranty counts to proceed.The United States District Court for the District of Delaware initially dismissed the complaint without prejudice, allowing plaintiffs to amend it. After the plaintiffs amended their complaint, the District Court dismissed the fraud counts and some warranty counts with prejudice, but allowed two warranty counts to proceed. The plaintiffs then moved to certify the dismissal of their fraud counts for appeal under 28 U.S.C. § 1292(b) or for final judgment under Rule 54(b). The District Court denied the request for certification under § 1292(b) but granted the request for final judgment under Rule 54(b) for the fraud counts.The United States Court of Appeals for the Third Circuit reviewed the case and determined that the District Court's Rule 54(b) judgment was not final. The Court of Appeals held that the fraud and warranty counts constituted a single claim for purposes of Rule 54(b) because they were alternative theories of recovery based on the same factual situation. As a result, the judgment did not dispose of all the rights or liabilities of one or more of the parties. Consequently, the Court of Appeals dismissed the appeal for lack of jurisdiction and instructed the District Court to vacate its order directing the entry of a partial final judgment. View "Diaz v. FCA US LLC" on Justia Law

Joseph Cammarata and his associates, Eric Cohen and David Punturieri, created Alpha Plus Recovery, LLC, a claims aggregator that submitted fraudulent claims to securities class action settlement funds. They falsely represented that three entities, Nimello, Quartis, and Invergasa, had traded in securities involved in class action settlements, obtaining over $40 million. The fraudulent claims included falsified trade data and fabricated reports. The scheme unraveled when a claims administrator, KCC, discovered the fraud, leading to the rejection of the claims and subsequent legal action.The United States District Court for the Eastern District of Pennsylvania charged the defendants with conspiracy to commit mail and wire fraud, wire fraud, conspiracy to commit money laundering, and money laundering. Cohen and Punturieri pled guilty, while Cammarata proceeded to trial and was found guilty on all counts. The District Court sentenced Cammarata to 120 months in prison, ordered restitution, and forfeiture of certain property.The United States Court of Appeals for the Third Circuit reviewed the case. The court upheld most of the District Court's rulings but found issues with the restitution order and the forfeiture of Cammarata's vacation home. The court held that the restitution order did not fully compensate the victims, as required by the Mandatory Victims Restitution Act (MVRA), and remanded for reconsideration. The court also found procedural error in the forfeiture process, as Cammarata was deprived of his right to a jury determination on the forfeitability of his property. The court vacated the forfeiture order in part and remanded for the Government to amend the order to reflect that the property is forfeitable as a substitute asset under 21 U.S.C. § 853(p). View "USA v. Cammarata" on Justia Law

Coinbase Global, Inc., a trading platform for digital assets, petitioned the Securities and Exchange Commission (SEC) to create rules clarifying the application of federal securities laws to digital assets like cryptocurrencies and tokens. Coinbase argued that the current securities-law framework does not account for the unique attributes of digital assets, making compliance economically and technically infeasible. The SEC denied Coinbase’s rulemaking petition, stating that it disagreed with the petition’s concerns and had higher-priority agenda items. Coinbase’s U.S. subsidiary, Coinbase, Inc., then petitioned the United States Court of Appeals for the Third Circuit to review the SEC’s denial.The SEC’s denial of Coinbase’s petition was challenged on the grounds that it was arbitrary and capricious. Coinbase argued that the SEC’s decision to apply securities laws to digital assets through enforcement actions constituted a significant policy change that required rulemaking. Coinbase also contended that the emergence of digital assets represented a fundamental change in the factual premises underlying existing securities regulations, necessitating new rules. Additionally, Coinbase claimed that the SEC’s explanation for its decision was conclusory and insufficiently reasoned.The United States Court of Appeals for the Third Circuit reviewed the case and found that the SEC’s order was conclusory and insufficiently reasoned, making it arbitrary and capricious. The court granted Coinbase’s petition in part and remanded the case to the SEC for a more complete explanation. However, the court declined to order the SEC to institute rulemaking proceedings at this stage. The court emphasized that the SEC must provide a reasoned explanation for its decision, considering all relevant factors and providing a discernible path for judicial review. View "Coinbase Inc v. Securities and Exchange Commission" on Justia Law

Two employees of a publicly traded company raised concerns internally that the company had overstated its earnings by not accounting for slower-than-expected drilling speeds. Subsequently, an article in The Wall Street Journal reported similar allegations, and within three months, the company terminated both employees. The employees then filed a complaint with the Secretary of Labor, claiming their termination violated whistleblower protections under the Sarbanes-Oxley Act (SOX). An administrative proceeding resulted in a preliminary order for their reinstatement, which the company ignored.The employees sought to enforce the reinstatement order in the United States District Court for the District of New Jersey. The District Court dismissed the case for lack of subject-matter jurisdiction, interpreting the relevant statute as not granting it the power to enforce the preliminary order. The employees appealed this decision.While the appeal was pending, the employees chose to abandon the administrative process and filed a separate civil action in federal court. Consequently, the administrative proceedings were terminated. The company then moved to dismiss the appeal on mootness grounds.The United States Court of Appeals for the Third Circuit reviewed the case and determined that the employees' request to enforce the preliminary reinstatement order no longer satisfied the redressability requirement for Article III standing. The preliminary order was extinguished with the dismissal of the administrative proceedings, and a federal court cannot enforce a non-existent order. Therefore, the employees lost Article III standing during the litigation, and no exception to mootness applied. The Third Circuit vacated the District Court’s judgment and remanded the case with instructions to dismiss it on mootness grounds. View "Gulden v. Exxon Mobil Corp" on Justia Law

The New Jersey Staffing Alliance, the American Staffing Association, and the New Jersey Business and Industry Association sought to enjoin a New Jersey law designed to protect temporary workers. The law, known as the Temporary Workers’ Bill of Rights, mandates recordkeeping, disclosure requirements, and state certification procedures for staffing firms. It also imposes joint and several liability on clients hiring temporary workers and requires staffing firms to pay temporary workers wages equivalent to those of permanent employees performing similar work.The United States District Court for the District of New Jersey denied the preliminary injunction, concluding that the Staffing Associations were unlikely to succeed on the merits of their claims. The court found that the law did not discriminate against out-of-state businesses, as it imposed the same burdens on both in-state and out-of-state firms. The court also rejected the void-for-vagueness claim, reasoning that the law provided sufficient guidance on its requirements. Additionally, the court determined that the law was a reasonable exercise of New Jersey’s police power, as it was rationally related to the legitimate state interest of protecting temporary workers.The United States Court of Appeals for the Third Circuit affirmed the District Court’s decision. The Third Circuit agreed that the Staffing Associations failed to show a likelihood of success on their claims. The court held that the law did not violate the dormant Commerce Clause, as it did not favor in-state businesses over out-of-state competitors. The court also found that the law was not unconstitutionally vague, as it provided adequate notice of its requirements. Finally, the court upheld the law as a permissible exercise of state police power, as it was rationally related to the goal of protecting temporary workers. View "New Jersey Staffing Alliance v. Fais" on Justia Law

The Securities and Exchange Commission (SEC) brought a civil enforcement action against Dale Chappell and his investment entities for insider trading. The SEC alleged that Chappell traded securities based on material, nonpublic information about the FDA's feedback on a drug developed by Humanigen, a company in which Chappell's entities were the largest shareholders. The FDA had expressed significant concerns about the drug's clinical trial and recommended an additional trial. Despite this, Humanigen submitted an application for Emergency Use Authorization (EUA) without conducting a second trial. Chappell sold a significant portion of his Humanigen stock before the FDA's denial of the EUA application was publicly announced, avoiding substantial losses.In the District Court, the SEC sought and obtained a preliminary injunction to freeze Chappell’s assets. Chappell appealed this decision to the United States Court of Appeals for the Third Circuit.The Third Circuit affirmed the District Court's decision. It found that the SEC had shown a likelihood of success on its claim that Chappell violated insider trading laws. The court concluded that the FDA's feedback was material and that Chappell had the necessary mindset to commit fraud. The court also found that the preliminary injunction factors, including irreparable harm, balance of equities, and public interest, supported the injunction. The court noted that without the injunction, there was a substantial potential injury to Humanigen shareholders if Chappell was able to move assets out of reach of future judgment creditors. View "Securities and Exchange Commission v. Chappell" on Justia Law

The case involves Gerald Forsythe, who filed a class action lawsuit against Teva Pharmaceuticals Industries Ltd. and several of its officers. Forsythe claimed that he and others who purchased or acquired Teva securities between October 29, 2015, and August 18, 2020, suffered damages due to misstatements and omissions by Teva and its officers related to Copaxone, a drug used to treat multiple sclerosis. Teva's shares are dual listed on the New York Stock Exchange and the Tel Aviv Stock Exchange.The District Court granted Forsythe's motion for class certification, rejecting Teva's assertion that the class definition should exclude purchasers of ordinary shares. The Court also rejected Teva's argument that Forsythe could not satisfy Rule 23(b)(3)’s predominance requirement.Teva sought permission to appeal the District Court’s Order granting class certification, arguing that interlocutory review is proper under Federal Rule of Civil Procedure 23(f). Teva contended that the Petition presents a novel legal issue and that the District Court erred in its predominance analysis with respect to Forsythe’s proposed class-wide damages methodology.The United States Court of Appeals for the Third Circuit denied Teva's petition for permission to appeal. The court found that the securities issue did not directly relate to the requirements for class certification, and agreed with the District Court’s predominance analysis. The court also clarified that permission to appeal should be granted where the certification decision itself under Rule 23(a) and (b) turns on a novel or unsettled question of law, not simply where the merits of a particular case may turn on such a question. View "Forsythe v. Teva Pharmaceutical Industries Ltd" on Justia Law

The case involves a shareholder derivative action against Cognizant Technology Solutions Corporation and its board of directors. The plaintiffs, shareholders of Cognizant, alleged that the directors breached their fiduciary duties, engaged in corporate waste, and unjust enrichment. The allegations stemmed from a bribery scheme in India, where Cognizant employees allegedly paid bribes to secure construction-related permits and licenses. The plaintiffs claimed that the directors ignored red flags about the company's anti-corruption controls and concealed their concerns from shareholders.The case was initially dismissed by the United States District Court for the District of New Jersey, which held that the plaintiffs failed to state with particularity the reasons why making a demand on the board of directors would have been futile. The plaintiffs appealed this decision to the United States Court of Appeals for the Third Circuit.The Third Circuit, sitting en banc, reconsidered the standard of review for dismissals of shareholder derivative actions for failure to plead demand futility. The court decided to abandon its previous standard of review, which was for an abuse of discretion, and adopted a de novo standard of review. Applying this new standard, the court affirmed the District Court's dismissal of the case. The court found that the plaintiffs failed to show that a majority of the directors faced a substantial likelihood of liability or lacked independence, which would have excused the requirement to make a demand on the board. View "In re: COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION DERIVATIVE LITIGATION" on Justia Law