July 12, 2016

Lit Alerts—July 2016

A Publication of the Litigation Practice Group

In This Issue:

Attorney's Fees: Supreme Court Provides Guidance on Availability of Attorney's Fees Awards Under Copyright Act

In Kirtsaeng v. John Wiley & Sons, Inc., 579 U.S. __ (2016), the Supreme Court provided important new guidance on the availability of attorney's fees in copyright litigation. The case involved the denial of an award of attorney's fees to a prevailing defendant in a copyright infringement case concerning the domestic resale of textbooks that were manufactured and marketed outside the United States. The US District Court for the Southern District of New York denied the prevailing defendant's fee request, and the Second Circuit affirmed.

The Copyright Act provides little guidance on the availability of attorney's fees, simply stating that courts "may . . . award a reasonable attorney's fee to the prevailing party." The Supreme Court previously ruled that this statutory language "connotes discretion," and, in the absence of clearer guidance, the courts of appeal developed their own multi-factor tests for evaluating fee requests under the Copyright Act. In the Second Circuit, the most important factor is the objective reasonableness of the losing party's position; the more reasonable that position, the less likely an award of attorney's fees is appropriate.

In Kirtsaeng, the prevailing defendant argued that the proper test should be whether the litigation "resolved an important and close legal issue and thus 'meaningfully clarified' copyright law" – if so, the prevailing party should be entitled to attorney's fees. The Supreme Court rejected this argument, finding that it would be impractical to ask district courts to evaluate the likely impact of their own rulings on clarifying copyright law. The Court explained that the objective reasonableness test "encourages parties with strong legal positions to stand on their rights . . . . When a litigant . . . is clearly correct, the likelihood that he will recover fees from the opposing (i.e., unreasonable) party gives him an incentive to litigate the case all the way to the end."

Nevertheless, the Court went on to rule that the Second Circuit had placed too much emphasis on the objective reasonableness factor, explaining that it should only be "an important factor . . . not the controlling one" and that the Second Circuit's decisions at times suggested there was a presumption against fees where the losing party's position was determined to be reasonable. The Court remanded for further consideration of "other relevant factors."

Class Actions: Massachusetts District Court Holds Defendant Can Moot Named Plaintiff's Claims By Tendering Check

As previous issues have noted, the Supreme Court in Campbell-Ewald Co. v. Gomez, 136 S.Ct. 663 (2016), left open the possibility that a defendant might moot a class representative's claim and the claims of the proposed class by paying the class representative and obtaining a court-ordered judgment rather than merely extending a settlement offer. In a remarkable case described by some as an attempt to "pick off" the named plaintiff, the US District Court for the District of Massachusetts recently held that unconditionally tendering a check for an amount in excess of the named plaintiff's claims does not amount to a mere settlement offer, and moots the entire case.

The case, Demmler v. ACH Food Cos., No. 15-13556 (June 9, 2016), involved allegedly false labeling of ACH barbecue sauce bottles. The plaintiff alleged the bottles were prominently labeled "All Natural," but contained caramel color that rendered the products not "All Natural." ACH had stopped using the "All Natural" label nearly a year before the lawsuit was filed. Four months before filing suit, the named plaintiff's attorney sent a letter to ACH demanding compensation for plaintiff and the class. ACH responded by tendering a $75 check to the named plaintiff, an amount equivalent to approximately 20 bottles of sauce, undisputedly in excess of the named plaintiff's individual damages. Despite the fact that ACH imposed no conditions or restrictions on the check, the named plaintiff's attorney rejected the check on the grounds that it offered relief only to the named plaintiff.

The court granted ACH's motion to dismiss, holding that the unconditional tender of the $75 check mooted the case. The named plaintiff's refusal to accept the check was "immaterial," and "the mere fact that [the named plaintiff] did not accept unconditionally-provided remediation does not extend the life of the dispute." The named plaintiff's interest in attorney's fees, moreover, was insufficient to "create an Article III case or controversy where none exist[ed] on the merits of the underlying claim." Accordingly, because the individual claim of the lone named plaintiff was fully resolved before a decision on class certification, the claims of the class were no longer viable.

Standing: Supreme Court Interprets "Injury-in-Fact" Requirement in Context of Cases Involving Purely Statutory Damages

In May, the Supreme Court considered whether Article III standing exists in cases involving purely statutory damages. The case, Spokeo, Inc. v. Robins, 578 U.S. __ (2016), involved a plaintiff who alleged that a search run on Spokeo's website had returned inaccurate information about his family, age, employment status, wealth, and level of education and sought damages on behalf of himself and a class of similarly situated individuals for Spokeo's alleged willful failure to comply with the Fair Credit Reporting Act of 1970. The US District Court for the Central District of California held that he had not pleaded an injury in fact and dismissed the complaint, and the Ninth Circuit reversed.

The Supreme Court held that the mere presence of statutory damages does not itself create Article III standing, which "requires a concrete injury even in the context of a statutory violation." The Court noted that a "risk of real harm" could satisfy the concreteness requirement, citing its earlier decision in Clapper v. Amnesty Int'l USA, which held in turn that a risk of future injury could satisfy Article III if the risk was "certainly impending." 133 S.Ct. 1138, 1143 (2013). Unusually, however, the Court declined to apply the concreteness test to the facts before it, instead reversing and remanding to the Ninth Circuit. Accordingly, while the Court held that "a plaintiff [does not] automatically satisf[y] the injury-in-fact requirement whenever a statute grants a person a statutory right and purports to authorize that person to sue to vindicate that right," it provided limited guidance on the types of statutory violations that might meet the test.

Spokeo will force plaintiffs to beef up their pleadings to allege facts showing that their damages claims satisfy the injury-in-fact requirement, and may provide an opening to challenge class certification in cases where plaintiffs' counsel cannot demonstrate that each member of the proposed class has suffered concrete harm or a certainly impending risk of harm as a result of the alleged statutory violation.

© 2016 Arnold & Porter Kaye Scholer LLP. This Law & Industry Update is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

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