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

The creditors shipped goods via common carrier from China to World Imports in the U.S. “free on board” at the port of origin. One shipment left Shanghai on May 26, 2013; World took physical possession of the goods in the U.S. on June 21. Other goods were shipped from Xiamen on May 17, May 31, and June 7, 2013, and were accepted in the U.S. within 20 days of the day on which World filed its Chapter 11 petition. The creditors filed Allowance and Payment of Administrative Expense Claims, 11 U.S.C. 503(b)(9), allowable if: the vendor sold ‘goods’ to the debtor; the goods were "received" by the debtor within 20 days before the bankruptcy filing; and the goods were sold in the ordinary course of business. Section 503(b)(9) does not define "received." The Bankruptcy Court rejected an argument that the UCC should govern and looked to the Convention on Contracts for the International Sale of Goods (CISG). The CISG does not define “received,” so the court looked to international commercial terms (Incoterms) incorporated into the CISG. Although no Incoterm defines “received,” the incoterm governing FOB contracts indicates that the risk transfers to the buyer when the seller delivers the goods to the common carrier. The Bankruptcy Court and the district court found that the goods were “constructively received” when shipped and denied the creditors’ motions. The Third Circuit reversed; the word “received” in 11 U.S.C. 503(b)(9) requires physical possession. View "In re: World Imports Ltd" on Justia Law

Norman and Elkin were the only shareholders of USM, a company that acquired and sold rights to radio frequencies. Norman held a minority interest and sought legal relief after he discovered that Elkin had transferred to another company the ownership of several frequencies purchased by USM, that Elkin had treated capital contributions as loans, and that Elkin had paid himself from USM funds without giving Norman any return on his minority investment. Despite two juries agreeing with Norman, verdicts in his favor were overturned. Most of his claims were held to be time-barred after the district court rejected his argument that a state court case he had brought to inspect USM’s books and records under the Delaware Code tolled the statute of limitations. Other claims were eliminated for insufficient evidence. The Third Circuit vacated in part. The district court erred in concluding that tolling of the statute of limitations is categorically inappropriate when a plaintiff has inquiry notice before initiating a books and records action in the Delaware courts and erred in vacating the jury’s award of nominal damages for one of Norman’s breach of contract claims. Norman’s fraud claim was not supported by sufficient proof of damages. View "Norman v. Elkin" on Justia Law

Third Circuit rejects "reverse" False Claims Act suit involving Small Business Administration.The SBA, a federal agency, provided $90 million to L Capital, a venture capital group, through the purchase of securities. L Capital invested $4 million in preferred shares of Simparel. The Certificate of Incorporation specified that Simparel must pay preferred shareholders accrued dividends if Simparel’s Board exercised its discretion to pay the dividends or if Simparel underwent liquidation, dissolution, or windup. The SBA was appointed as L Capital’s receiver after Simparel failed to comply with its funding agreement. Petras, Simparel’s Chief Financial Officer, claimed that this failure resulted in the SBA becoming a preferred shareholder, entitled to accrued dividends. The Simparel Board never declared dividends nor did Simparel undergo liquidation, dissolution, or windup. Petras claimed that the Simparel defendants engaged in fraudulent conduct—to which he objected—to avoid paying the contingent dividends: hiding Simparel’s deteriorating financial condition; failing to hold board meetings: and neglecting to send the SBA Simparel’s financial statements. The Third Circuit affirmed dismissal of the “reverse FCA” claim. The Simparel defendants could not have “knowingly and improperly avoid[ed] or decrease[d] an obligation” to pay the accrued dividends at the time of their alleged misconduct because the obligation did not yet exist. View "Petras v. Simparel, Inc." on Justia Law

In 2010, EFIH borrowed $4 billion at a 10% interest rate, issuing notes secured by its assets; the Indenture states that EFIH may redeem the notes for the principal amount plus a “make-whole premium” and accrued, unpaid interest. It contains an acceleration provision that makes “all outstanding Notes . . . due and payable immediately” if EFIH files for bankruptcy. Interest rates dropped. Refinancing outside of bankruptcy would have required EFIH to pay the make-whole premium. EFIH disclosed to the Securities and Exchange Commission a “proposal [whereby] . . . EFIH would file for bankruptcy and refinance the notes without paying any make-whole amount.” EFIH later filed Chapter 11 bankruptcy petitions, seeking leave to borrow funds to pay off the notes and to offer a settlement to note-holders who agreed to waive the make-whole. The Trustee sought a declaration that refinancing would trigger the make-whole premium and that it could rescind the acceleration without violating the automatic stay. The Bankruptcy Court granted EFIH’s motion to refinance. EFIH paid off the notes and refinanced at a much lower interest rate; the make-whole would have been approximately $431 million. The Bankruptcy Court and district court concluded that no make-whole premium was due and that the noteholders could not rescind acceleration. The Third Circuit reversed. The premium, meant to give the lenders the interest yield they expect, does not fall away because the full principal amount becomes due and the noteholders are barred from rescinding acceleration of debt. View "In re: Energy Future Holdings Corp." on Justia Law

A large communications equipment manufacturer, Avaya, and its dealer and service provider, TLI had a falling out. Avaya subsequently aggressively acted to block TLI from providing independent maintenance services for Avaya equipment. Meanwhile, the newly-independent TLI took various “legally dubious actions” to gain access to Avaya communications systems used by clients the parties once shared. Avaya filed suit, alleging several business torts and breach of contract; TLI counter-sued for antitrust violations. After years of pre-trial litigation, and in the midst of a months-long trial, the district court granted TLI’s motion for judgment as a matter of law on all of Avaya’s affirmative claims. The court later instructed the jury that none of TLI’s actions could be considered unlawful. The jury found Avaya liable for two antitrust violations and awarded substantial damages. The Third Circuit vacated. Given how intertwined the two sides’ claims are, and given that Avaya’s antitrust defense relied in large part on justifying Avaya’s conduct as a response to TLI’s conduct, the erroneous Rule 50 judgment infected the jury’s verdict. View "Avaya Inc v. Telecom Labs Inc" on Justia Law

Jani-King, the world’s largest commercial cleaning franchisor, classifies its franchisees as independent contractors. Its cleaning contracts are between Jani-King and the customer; the franchisee is not a party, but may elect to provide or not provide services under a contract. Jani-King exercises a significant amount of control over how franchisees operate and controls billing and accounting. Two Jani-King franchisees assert that they are misclassified and should be treated as employees. On behalf of a class of Jani-King franchisees in the Philadelphia area (approximately 300 franchisees), they sought unpaid wages under the Pennsylvania Wage Payment and Collection Law (WPCL), 43 Pa. Stat. 260.1–260.12. The Third Circuit affirmed certification of the class under Federal Rule of Civil Procedure 23(f). The misclassification claim can be made on a class-wide basis through common evidence, primarily the franchise agreement and manuals. Under Pennsylvania law, no special treatment is accorded to the franchise relationship. A franchisee may be an employee or an independent contractor depending on the nature of the franchise system controls. View "Williams v. Jani-King of Philadelphia Inc" on Justia Law

The members of the Pennsylvania Public Utility Commission (PPUC) and Core Communications, Inc., appealed a District Court’s grant of summary judgment in favor of AT&T Corp. Core billed AT&T for terminating phone calls from AT&T’s customers to Core’s Internet Service Provider (ISP) customers from 2004 to 2009. When AT&T refused to pay, Core filed a complaint with the PPUC, which ruled in Core’s favor. AT&T then filed suit in federal court seeking an injunction on the ground that the PPUC lacked jurisdiction over ISP-bound traffic because such traffic is the exclusive province of the Federal Communications Commission. After review of the matter, the Third Circuit found that the FCC’s jurisdiction over local ISP-bound traffic was not exclusive and the PPUC orders did not conflict with federal law. As such, the Court vacated the District Court’s order and remanded this case for entry of judgment in favor of Core and the members of the PPUC. View "AT&T Corp v. Core Communications Inc" on Justia Law

Hanover Realty contracted with Wegmans to develop a supermarket on its New Jersey property, requiring Hanover to secure necessary permits and approvals before breaking ground. ShopRite and its development subsidiary filed administrative and court challenges to Hanover’s applications. Believing these filings were baseless and intended only to frustrate the entry of a competitor, Hanover sued for antitrust violations. The district court dismissed, holding that Hanover did not have standing because it was not a competitor, consumer, or participant in the restrained markets and did not sustain the type of injury the antitrust laws were intended to prevent. The Third Circuit vacated with respect to the claim for attempted monopolization of the market for full-service supermarkets. Hanover can establish that its injury was “inextricably intertwined” with defendants’ anti-competitive conduct. Hanover sufficiently alleged that the petitioning activity at issue was undertaken without regard to the merits of the claims and for the purpose of using the governmental process to restrain trade, so that defendants are not protected by Noerr-Pennington immunity because their conduct falls within the exception for sham litigation. The court affirmed as to the claim for attempted monopolization of the rental space market; there was no standing because Hanover does not compete with defendants in that market. View "Hanover 3201 Realty LLC v. Vill. Supermarkets, Inc." on Justia Law

The U.S. chocolate market is dominated by three companies: Hershey, Mars, and Nestlé USA (the Chocolate Manufacturers). A certified class of direct purchasers of chocolate products and a group of individual plaintiffs alleged that the Chocolate Manufacturers conspired to raise prices on chocolate candy products in the United States three times between 2002 and 2007. They offered evidence of a contemporaneous antitrust conspiracy in Canada. The district court granted the defendants summary judgment. The Third Circuit affirmed, finding that the Canadian conspiracy evidence was ambiguous and did not support an inference of a U.S. conspiracy because the people involved in and the circumstances surrounding the Canadian conspiracy are different from those involved in and surrounding the purported U.S. conspiracy; evidence that the U.S. Chocolate Manufacturers knew of the unlawful Canadian conspiracy was weak and, in any event, related only to Hershey. Other traditional conspiracy evidence was insufficient to create a reasonable inference of a U.S. price-fixing conspiracy. View "In re: Chocolate Confectionary Antitrust Litig." on Justia Law

Brand developed Thermablaster, a vent-free heater, to be manufactured by a Chinese company, Reecon. Reecon suggested using Intertek testing to ensure the heaters met U.S. safety standards. Brand spoke with Intertek representatives and visited the company’s website to ensure that Intertek could test to American National Standards Institute (ANSI) standards. Satisfied that Intertek’s China facility had the necessary expertise, Brand allowed Reecon to use Intertek for testing against the most recent applicable ANSI standard. The $22,000 testing cost was part of the per-unit price. Ace Hardware agreed to pay Brand $467,000 for 3,980 Thermablasters. Brand visited China to monitor production. Reecon gave Brand an Intertek document signed by its engineers, showing that the heaters had passed all relevant tests. Brand bought 5,500 heaters and delivered them to Ace. Ace began selling the heaters in 2011 but halted sales permanently after learning from a competitor that they did not meet ANSI standards. Ace obtained a default judgment of $611,060 against Brand. Brand sued Intertek. Intertek countersued, alleging trademark infringement because Brand had placed Intertek’s testing certification mark on boxes before receiving permission. Intertek bought Ace’s judgment against Brand for $250,000 and aggressively tried to collect before trial. The Third Circuit affirmed a verdict finding Intertek liable to Brand for negligent misrepresentation and awarding Brand $1,045,000 in compensatory and $5 million in punitive damages. View "Brand Mktg. Grp. LLC v. Intertek Testing Servs. NA" on Justia Law