A Book Review :Business and Commercial Litigation in Federal Courts, 5th Edition

Business and Commercial Litigation in Federal Courts is a multivolume treatise that provides a comprehensive treatment of federal court practice through all phases of litigation from initial investigation, preparation of pleadings, motions, and discovery to trials, appeals, settlements, and enforcement of judgments. Now, editor in chief Robert L. Haig of Kelley, Drye, and Warren, LLP expanded upon this treatise that now includes 180 chapters, with 17 additional chapters of new materials authored by highly regarded federal practitioners and noted jurists. In July 2018, we reviewed the 4th Edition, so we chose several chapters from the 5th Edition of Business and Commercial Litigation in Federal Courts that we believe reflect current and developing areas of practice for our new review.

In a new chapter, the Treatise addresses the emerging body of law concerning corporate responsibility and ESG, or “Environmental, Social and Governance.” As eloquently stated by the Treatise, ESG is the lens through which investors, directors, and policymakers “evaluate corporate responsibility for climate change, wealth disparity, racial injustice, inadequate diversity in positions of economic leadership, workplace safety, and sexual harassment.”

In litigation, ESG cases fall into a variety of categories, including consumer protection claims, securities fraud, and breach of fiduciary duty claims.

Insofar as consumer protection claims, such lawsuits, usually brought as class actions, challenge “greenwashing,” or when companies make false or misleading claims about their environmental or sustainability practices. For example, in Smith v. Keurig Green Mountain, Inc., 393 F. Supp. 3d 837 (N.D. Cal. 2019), highlighted by the Treatise, class allegations are pending as to whether Keurig falsely mislabeled their coffee pods as “recyclable.”

Another area where ESG has surfaced recently in the litigation context is in cases alleging securities fraud violations. The Treatise points to cases in which,

in the wake of #MeToo, class actions or derivative suits have alleged that a corporation covered up harassment or abuse or failed to truthfully disclose how it handled such allegations. For example, in Construction Laborers Pension Trust for So. Ca. v. CBS Corporation, 433 F. Supp. 3d 515 (S.D.N.Y. 2020), investors alleged that CBS concealed a “dark history of sexual misconduct . . . that posed material business risks to the company.” The court dismissed most of the allegations in the complaint, but found that the investors had stated a claim insofar as Mr. Leslie Moonves statement at an industry event that “[#MeToo] is a watershed moment . . . . Its important that a company’s culture will not allow for this.”

ESG and its attendant litigation may be new, but the Treatise’s new chapter emphasizes what companies already know in this new context—any public statement by any company representative must be thoroughly vetted for accuracy. As ESG litigation makes clear, this is especially true insofar as statements concerning hot topic issues, like climate change, diversity, and sexual harassment.

The Treatise devotes an entire chapter to an area that has dominated the headlines in recent years— virtual currencies. The Treatise’s goal in the new chapter is to assist attorneys in assessing and managing this legally complex area, because if you have not yet dealt with one of myriad issues that can arise in this landscape—you are likely to.

Besides providing a helpful background on what, exactly, virtual currency is, and the terminology surrounding it, the Treatise dives into the regulatory framework, which in some cases, will determine the nature of the virtual currency claim itself. In short, the SEC has determined that the federal securities laws may apply to virtual currencies and blockchain technologies. The SEC has declared that the test from SEC v. W.J. Howey Co., 328 U.S. 293 (1946), will be used to determine whether the currency at-issue meets the definition of a security. Other regulators, and their attendant regulations to be aware of, include the CFTC, FinCen, and DOJ.

The caselaw in the virtual currency case is rapidly developing, but thus far, has followed a fairly prescriptive formula, i.e., an individual or entity that purchased the currency or the SEC has brought suit for suspected securities law violations. Because of the nature of these disputes, which oftentimes involve foreign companies or companies operating without any discernable location, jurisdictional defenses characterize early motion practice. For example, in Shaw v. Vircurex, 2019 WL 2636271 (D. Col. 2019), the court applying the Tenth Circuit’s test for personal jurisdiction found that the court lacked jurisdiction over the out-of-state defendant because, inter alia, the defendant facilitating the plaintiff’s cryptocurrency purchases was insufficient to show continuing relationships with forum residents.

The Treatise also details issues that might arise with cross border discovery and the admissibility of block chain records, all with the caveat that this is an emerging area of law and will see a lot of growth and development in the coming years assuming virtual currencies are here to stay. Chapter 13 comprehensively discusses relevant differences between litigating business disputes in Federal Court and in Delaware state court. Given the number of businesses incorporated under Delaware law—and the relative frequency of operating agreements, partnership agreements, and bylaws containing forum selection clauses mandating that disputes related to the running of the business be brought in Delaware—Chapter 13’s careful look at the relative merits of litigation in the two court systems is welcome.

Chapter 13 is, for the most part, exceedingly practical. In addition to a general rundown of the way the Delaware court system is structured (the book assumes a working knowledge on the part of the reader as to federal court structure), the Chapter contains a number of helpful tips for practitioners in Delaware court. For example, Chapter 13 notes that Delaware’s deadline for electronic filings is 5 pm (and not midnight, as it is in Federal Court).

The Chapter also contains an extended description of Delaware state courts’ expedited litigation procedure—one of the chief benefits (or, depending on your position, drawbacks) of litigating in Delaware state court. The chapter describes, inter alia: the circumstances in which it is appropriate to move for the expedited procedure; when in the life of the case such a motion should be filed, and what should

That said, Chapter 13 does contain sections that (in this reviewer’s opinion) could have been omitted. Is it really necessary to explain to readers (presumably mostly lawyers) that only admitted Delaware attorneys can practice in Delaware absent pro hac vice admission, or that even pro hac attorneys are bound by Delaware’s rules of professional conduct? For that matter, it is necessary to spend more than a page explaining what pro hac vice admission is? Still, these excess subsections aside, Chapter 13 will be an important resource for attorneys deciding whether to litigate their dispute in Delaware in Federal or state court.

Chapter 89 is a niche chapter that will be of interest only to lawyers representing public companies that are involved in litigation, as its sole purpose is to describe the relevant reporting obligations when a public company is sued. For the average Oklahoma attorney, Chapter 89 will therefore likely not be of use often. However, given how extensive the various reporting obligations are—and how important it is that they be complied with—Chapter 89’s reporting obligation “road map” will be extraordinarily helpful for any attorney who finds themselves in that situation.

Chapter 89’s structure lends itself to easy reference. It is generally divided into sections based on the entities to which a company might be required to report (e.g.,the SEC, private parties, industry regulators, accounting firms, etc.) and then further into subsections describing the specific obligations as to each entity. What is more, the Treatise helpfully peppers Chapter 89 with frequently-asked-questions, to make it even more user friendly. As a result, while Chapter 89 will only infrequently be of use to Oklahoma practitioners, when it is of use it will be essential.

Chapter 97 of the Treatise focuses on and is titled “Shareholder Activism.” In this Chapter, the Treatise “focuses on the ways in which shareholder activism campaigns may lead to litigation in federal courts, as well as various legal and strategic considerations involved when such litigation occurs or is contemplated.” As the Treatise notes, historical shareholder activism was primarily “focused on capital allocation issues (such as dividends and share buybacks) and strategic considerations (including the sale or spinoff of specific assets or divisions, or company combinations involving the whole company) to maximize shareholder value in the near-term . . . .” Notably, however, “a new world of activism has emerged with a greater focus on operational improvements and stakeholder activism.” This, it is explained, has been the “result of increasing capital flows to passive-strategy funds . . . which primarily have a long-term focus . . . .”

Bearing this long-term focus in mind, the Treatise observes that “[i]n recent years, activists have increasingly shifted their focus to the governance practices of a target company, including features such as the average tenure of the directors serving on the board, lack of diversity, the takeover defense profile of a target company (which can hinder progress for other activism goals) and the target company’s environmental and social impact.” And while this has represented a material change in the substance of shareholder disputes, it is also important to know that from a procedural perspective, “activists no longer necessarily need to accumulate a significant stake in a target company in order to achieve their objectives” given that “[s]hareholders now enjoy increased access to the proxy process and can therefore influence governance more easily thanks to initiatives by institutional shareholders like the New York City Pension Fund’s Boardroom Accountability Project.”

Against this emerging backdrop of shareholder activist motivations and the processes available to them, the Treatise walks the reader through the nuts and bolts of typical shareholder activist litigation and important strategy considerations to bear in mind in connection with bringing and defending such lawsuits.

Chapter 100 of the Treatise addresses common litigation issues related to the “Valuation of a Business.” One particularly interesting topic addressed in this Chapter is the question of what type of expert counsel should retain to value a business and/or attach the valuation offered by the opposing side. As the Treatise explains, “[p]ractioners should consider whether the company being valued is in a unique industry requiring and expert with specialized knowledge of that industry,”

noting that while some federal courts have deemed this a requirement in certain instances, others have instead ruled that the presence of absence of such qualifications goes only to the weight of the opinion offered by the expert.

In subsequent parts of this Chapter, the Treatise goes on to address additional valuation considerations, offering helpful tips on how to assist in the valuation method of counsel’s expert, as well as areas of potential vulnerability to be used in attacking the other side’s expert, and many other topics.

1 Christopher M. Scaperlanda is a Shareholder with McAfee & Taft as a trial and appellate lawyer whose state and federal litigation practice encompasses a broad range of commercial matters, including those involving trust and estate disputes, securities claims, directors’ and officers’ liability, contract disputes, and other complex business litigation. 2 Katie G. Crane is an Associate with McAfee & Taft as a trial lawyer and former federal law clerk whose commercial litigation practice encompasses complex business disputes, class actions, securities litigations, internal and government investigations, and white collar criminal defense.

3 Michael K. Avery is Of Counsel with McAfee & Taft as a trial lawyer whose state and federal practice focuses on general civil litigation, including complex business litigation and appeals. 4 Robert L .Haig is a Partner with Kelley, Drye & Warren, LLP, focused on focuses on commercial and other types of civil litigation in the federal and state courts of New York at both the trial and appellate levels. He has written and lectured extensively on various litigation and dispute resolution topics, as well as being the editor in chief of two definitive treatises on business litigation in federal and New York state courts.

5 Business and Commercial Litigation in Federal Courts, 4th Edition, included 153 chapters, which was an increase of 25 chapters of new materials over the previous 3rd Edition.