Justia U.S. 1st Circuit Court of Appeals Opinion Summaries

Articles Posted in Commercial Law

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Plaintiffs brought separate suits alleging unlawful retaliation by their corporate employers, which are private companies that act as contract advisers to and managers of mutual funds organized under the Investment Company Act of 1940. The district court addressed both cases in a single order, holding that the whistleblower protection provision within the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1514A extends beyond "employees" of "public" companies to encompass employees of private companies that are contractors or subcontractors to those public companies if the employees report violations "relating to fraud against shareholders." The First Circuit reversed, concluding that the protections are limited to employees of public companies, as defined by the statute.

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In 2005, plaintiff began consulting for defendant and signed an agreement prohibiting disclosure of proprietary information to third parties, and a non- competition covenant effective during his employment and for two years thereafter. In July, 2006, he left the company. In January 2007, he began consulting for another company. Defendant sued under the agreement. The company filed for bankruptcy. A purchaser moved to substitute itself as plaintiff, but the state court dismissed without prejudice for failure to prosecute. After the court reinstated the case, plaintiff filed in federal court, alleging that the state court suit constituted abuse of process under Massachusetts law and seeking to enjoin the proceedings. He alleged that the amount in controversy was "at least $1,000,000," based on "emotional distress" and harm to his reputation, emotional tranquility, and privacy. The district court dismissed. The First Circuit affirmed. Plaintiff failed to allege damages with substantial particularity to establish jurisdiction. He provided no substantiation for or valuation of any of the alleged economic, emotional or physical damages and could not meet the "good faith" requirement with respect to his assertions.

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A business entity sued an investment fund manager for fraud in Massachusetts state court. Defendant removed to federal court, which dismissed based on the statute of limitations. On appeal, the Sixth Circuit noted that the allegations were insufficient to establish diversity jurisdiction and instructed plaintiff to identify the citizenship of all of its members. Plaintiff did not comply, but simply asserted that none of its members shared defendant's Rhode Island citizenship. The court stated that it could not proceed to judgment with the information it had and ordered plaintiff to provide the necessary information, under seal.

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In 2005, plaintiffs, residents of Puerto Rico, contracted with defendants, Florida corporations, to purchase condominiums to be built in Florida, and submitted earnest money. Because of the financial crisis, the units were not completed and defendant terminated the agreements. Plaintiffs sued for return of the earnest money. The district court dismissed, finding the defendants did not have minimum contacts with Puerto Rico necessary to establish jurisdiction. The First Circuit vacated and remanded, noting that there certain contacts that could establish jurisdiction that were not adequately addressed at trial.

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In 1999 plaintiff pled guilty to making false statements while working on a project funded by the Federal Highway Administration (18 U.S.C. 2, 1014, and 1020). The agreement prohibited plaintiff from participating in any FHWA-funded project for a year. Plaintiff challenged Puerto Rico agencies' subsequent actions. The parties negotiated settlements; plaintiff entered into an agreement allowing it to bid on FHWA projects. Puerto Rico then enacted Law 458, which prohibits award of government contracts to any party convicted of a crime constituting fraud, embezzlement, or misappropriation of public funds and requires rescission of any contract with a party convicted of a specified offense. The statute states that it does not apply retroactively. One agency cancelled plaintiff's successful bids, another withdrew its consent to the settlement. The district court rejected claims of violation of the federal Contracts Clause and breaches of contract under Puerto Rico law. The First Circuit affirmed with respect to the constitutional claim. Any breach of the settlement agreements did not violate the Contracts Clause, even if committed in an attempt to unlawfully enforce Law 458 retroactively; defendants have not impaired plaintiff's ability to obtain a remedy for a demonstrated breach. Given the stage of the litigation, the district court should have retained the breach of contract claims.

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Plaintiff, sued by a competitor and by consumers for unfair trade practices, false and misleading advertising, and deceptive labeling, among other claims, sought indemnity and defense costs from its insurer. The insurer claimed that the suit fell within an exclusion for "antitrust violations, price fixing, price discriminations, unfair competition, deceptive trade practices and/or monopolies." The district court ruled in favor of the insurer. The First Circuit affirmed, finding that the policy headings were not determinative and that the paragraph at issue clearly excluded coverage.

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Hackers breached the security of the database for the grocery store where plaintiffs shop. The district court determined that plaintiffs failed to state a claim under Maine law for breach of fiduciary duty, breach of implied warranty, strict liability, and failure to notify customers. Although the court concluded that plaintiffs adequately alleged breach of implied contract, negligence, and violation of the unfair practices portion of the Maine Unfair Trade Practices Act, it dismissed those claims because alleged injuries were too unforeseeable and speculative to be cognizable under Maine law. The First Circuit affirmed in part, but reversed dismissal of the negligence and implied contract claims. Mitigation damages are available under those claims, for card replacement costs and credit insurance.

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The companies are direct competitors in importing and distributing pharmaceutical ingredients manufactured in China. Plaintiff claimed that defendant intentionally interfered with one of its contracts and sought damages. In court-ordered settlement negotiations, plaintiff demanded $675,000. Defendant made a counter-offer, demanding that plaintiff pay it $444,444.44 in order to settle the case and avoid a motion for sanctions and a suit for malicious prosecution. The court noted that the peculiar amount was due to the fact that the number four is considered an unlucky number in Chinese culture because it is homophonous with the Chinese word for death, but concluded that it was not a death threat and declined to impose sanctions. The court later entered summary judgment for defendant. The First Circuit affirmed the court's refusal to impose sanctions under FRCP 11. Plaintiff's claims were not patently frivolous.

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A company that provides employee training filed suit against a client, claiming breach of contract based both on alleged failure to pay a gain sharing fee and breach of confidentiality provisions.It sought an accounting for disclosures or uses of its materials inconsistent with the copyright license provided by the agreement. The court granted summary judgment for the client. The First Circuit affirmed, finding that the training company did not support its figures with respect to the fee or the breach of confidentiality.

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Debtor, a waste disposal firm, borrowed from FFC, giving FFC a security interest before filing a Chapter 11 petition in 2003. In 2005 a trustee, appointed to run the business, moved to convert to a Chapter 7 proceeding and assented to having Allied service debtor's customers. The court granted the motion and lifted the equitable stay to allow FFC to sell secured equipment. FFC later foreclosed against additional property, which it sold to City Sanitation. A consultant who had been retained by the trustee to assist in operating the business went to work for Allied. In 2007 City Sanitation sued Allied and the consultant, purportedly as the debtor's successor in interest, alleging conversion. The bankruptcy court reopened the bankruptcy case to allow the trustee to take over the case against Allied. The district court and First Circuit affirmed. The right to pursue commercial tort claims cannot be passed to a secured creditor as proceeds of original collateral. The court rejected an argument that FFC's security interest conferred the right to prosecute claims arising from interference with the collateral. The alleged wrongdoing occurred while the consultant was in debtor's employ; any harm was to debtor and belongs to the estate.