5/18/16 U.S. SUPREME COURT AND OVERTIME UPDATE: The U.S. Department of Labor Increases Minimum Salary Requirement for Employees Exempt from Overtime

The U.S. Department of Labor has issued the final version of a much anticipated overtime exemption rule that focuses primarily on updating the salary and compensation levels needed for workers to be “exempt” from the overtime rules. An "exempt" employee must generally meet the minimum salary requirement, which the employer pays the employee regardless of the quality or quantity of work, and the employee's primary duties must meet certain criteria. Effective December 1, 2016, the minimum salary requirement to qualify for the executive, administrative or professional exemptions from overtime rises from $23,660 to $47,476 per year, and the total annual compensation requirement for the highly compensated employee exemption (employees whose primary duties include performing office or non-manual work and who customarily and regularly perform at least one of the exempt duties or responsibilities of an exempt executive, administrative or professional employee) rises from $100,000 to $134,004 per year. The final overtime rule also establishes a mechanism for automatically updating the salary and compensation levels every three years, starting on January 1, 2020. Additionally, the final overtime rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new minimum salary requirement. According to the DOL, this rule will affect over 4 million workers within the first year of implementation.

While employers may raise employee salaries in order to comply with this new overtime rule, many exempt workers will be reclassified to hourly employees and their hours will be cut to avoid overtime. Employers will need to monitor overtime closely to reduce the risk of being targeted in what will inevitably be a slew of new wage and hour lawsuits. Among other things, many more employees will have to track their hourly time worked, which, again, will expose employers to additional civil liability.

If you would like to discuss the new overtime regulations or your employees’ classifications, please contact This email address is being protected from spambots. You need JavaScript enabled to view it. .

5/18/16 The U.S. Supreme Court Rules Federal Securities Laws Don’t Limit Certain State Suits

The U.S. Supreme Court on May 16, 2016, held unanimously that federal securities laws don't preempt certain claims from being brought in state court. The Court’s decision in Merrill Lynch Pierce Fenner & Smith, Inc. v. Manning, No. 14-1132, 578 U. S. ___ (2016), allows a shareholder suit against a Merrill Lynch unit and other Wall Street firms to proceed in New Jersey state court based on state-law claims seeking to establish liability based, in part, on duties established by the Securities Exchange Act. In a unanimous opinion, the justices held that the Securities Exchange Act does not block shareholders in Escala Group Inc. from bringing their claims in a New Jersey court where the claims sought relief under state law and none necessarily raised a federal issue. Specifically, the Supreme Court held that the jurisdictional test established by section 27 of the Securities Exchange Act is the same as the one used to decide if a case “arises under” a federal law pursuant to 28 U.S.C. section 1331. The justices explained that section 27 confers federal jurisdiction when an action is commenced in order to give effect to an Exchange Act requirement. The language of section 27 stops short of embracing any complaint that happens to mention a duty established by the Exchange Act. Merrill Lynch did not dispute that Manning’s claims were “brought under state law” and none “necessarily raised” a federal issue under 28 U.S.C. section 1331. Accordingly, based on the above rule, federal court was not the exclusive forum under section 27 of the Act. To view the Court’s opinion, click here

5/18/16 Credit Reporting Companies Dodge Bullet (For Now)

The U.S. Supreme Court on May 16, 2016, in a highly anticipated ruling, reversed the Ninth Circuit’s decision finding that the named class plaintiff had standing to pursue a so-called “no injury” class action. The case is Spokeo Inc. v. Robins, No. 13-1339, 578 U. S. ___ (2016). The decision is a narrow—if temporary—win for Spokeo and other companies facing “no-injury” class actions.

Spokeo concerned a proposed class action filed by the named plaintiff, Robins, who alleged that Spokeo, an online search engine, had willfully violated the Fair Credit Reporting Act (15 U.S.C. § 1681 et seq.) by publishing false information about him on its website; viz., that he was in his 50s, wealthy and had a post-graduate degree. Robins, who was unemployed at the time, alleged that Spokeo’s false information prevented him from obtaining employment. The district court dismissed Robins’ lawsuit for lack of Article III standing; the Ninth Circuit disagreed, and reversed. The Supreme Court granted certiorari.

Writing for the majority, Justice Alito emphasized that the Court had “made it clear time and time again that an injury in fact must be both concrete and particularized,” before going on to find that the Ninth Circuit had failed to analyze whether Robins had suffered “concrete” harm. Justice Alito explained that “concrete” injury must be a real harm that actually exists, and that “Robins cannot satisfy the demands of Article III by alleging a bare procedural violation.” After giving an example of a non-injury (an erroneous zip code), the Court returned the matter to the Ninth Circuit for further analysis. The majority expressly avoided deciding whether Robins had alleged “concrete injury”; in her dissent, Justice Ginsburg stated that Robins’ allegation that he had lost job opportunities sufficed to show a concrete injury.

The Spokeo decision leaves open the issue of what injury is required to show Article III standing in FCRA actions in particular, and in “no injury” class actions generally. To view the Court’s opinion, click here.

10/14/15 Firm Obtains Complete Victory in Long-Running Malicious Prosecution Case

Three weeks before trial, three attorney-defendants surrendered and agreed to judgment against them for malicious prosecution. The Firm’s client in 2012 sued four so-called consumer protection lawyers for malicious prosecution arising from a proposed class action the attorneys filed against the Firm’s client the prior year. In the malicious prosecution action, the Firm established (as it had in the prior action) that the named plaintiff’s testimony disavowed almost every material allegation of the class action complaint and contradicted the discovery responses that her prior lawyers wrote for her. The defendants in the malicious prosecution action did everything in their power to delay trial, including an application to the California Supreme Court. Furthermore, the lawyers' former client and another of their associates asserted their Fifth Amendment rights against self-incrimination rather than respond to substantive questions about their conduct in the prior action. The case, styled Innovation Ventures LLC v. Rubinstein, et al., has been the subject of several news articles.

09/14/15  Crone Hawxhurst LLP Obtains Another Major Ninth Circuit Victory

The Firm recently secured its third significant Ninth Circuit victory in as many years. The Firm’s client, Intamin, Ltd., is the market leader in the design and construction of high-performance “mega-coasters” and other cutting edge amusement park rides. Plaintiff-appellant Magnetar Technologies had sought reversal of the district court’s order granting Intamin’s motion for summary judgment on all of Magnetar’s claims (the Firm also represented Intamin in the trial court). Magnetar sought nearly twenty million dollars in damages based on allegations that Intamin was an illegal monopolist that had unlawfully obtained and enforced a patent for a magnetic braking system, and had engaged in malicious prosecution in pursuing a prior suit against Magnetar.

In 2010, Intamin hired the Firm to replace its prior counsel after Intamin suffered major losses in the district court, including an order determining that Intamin had engaged in improper conduct when obtaining assignment of the magnetic brake patent that it attempted to enforce against Magnetar. The Firm’s attorneys executed a strategy aimed at developing an accurate, complete factual record of the amusement ride industry, and Magnetar’s and Intamin’s businesses. The strategy worked. The evidence the Firm presented to the district court demonstrated that Magnetar’s alleged antitrust market was ill-defined, that Intamin was not a monopolist, and that Magnetar’s supposed lost sales were fictional or otherwise caused by its own poor business acumen. The Firm’s summary judgment presentation also demonstrated that the prior action had not been maliciously prosecuted as a matter of law.

The Ninth Circuit’s unanimous opinion finally puts to rest this longstanding but meritless case. The case is Magnetar Technologies Corp. v. Intamin, Ltd., Case Nos. 13-56119, 13-56333 (9th Cir. Sept. 14, 2015). To view the opinion, click here.



07/21/15  The Department of Labor Issues “Clarification” and Concludes that Most Workers are Employees

On July 15, 2015, the Department of Labor ("DOL") issued new guidance “clarifying” the standards used to determine whether a worker is an employee or independent contractor. The guidance follows several recent high-profile employee misclassification lawsuits and court decisions. The DOL issued the guidance out of concern that workers wrongly classified as contractors "may not receive important workplace protections such as the minimum wage, overtime compensation, unemployment insurance, and workers' compensation” provided to employees. The DOL asserts that "some employees may be intentionally misclassified as a means to cut costs and avoid compliance with labor laws." Administrator's Interpretation No. 2015-1 clarifies that companies and courts must evaluate all the economic realities factors when determining whether a worker is an employee or an independent contractor under the Fair Labor Standards Act ("FLSA”). Classification "must not be evaluated based on the control factor alone.” Thus, a worker who is "economically dependent" on the employer should be treated as an employee. By contrast, a worker must "really" be in business for himself or herself (i.e., operate a business on his or her own) to be an independent contractor. In light of the “clarified” standards, the DOL concludes that given the "very broad definition of employment under the FLSA as 'to suffer or permit to work' and the Act's intended expansive coverage for workers," "most workers are employees under the FLSA's broad definitions.” Employers should reassess their classification decisions as to all contract employees. To review the entire text of Interpretation No. 2015-1, click here.

07/21/15  Ninth Circuit Holds that All Class Members Must See Alleged Misrepresentation to Satisfy Predominance Factor in a Proposed False Advertising Class Action

In a short, unpublished opinion, the Ninth Circuit’s recently held in Cabral v. Supple LLC, No. 13-55943 (9th Cir. June 23, 2015) (opinion here ) that, when seeking class certification in cases “based upon alleged misrepresentations in advertising and the like, it is critical that the misrepresentation in question be made to all of the class members.” Id. At 3. The district court granted certification of claims based on the allegation that the defendant had misrepresented that its products were “clinically proven in treating joint pain.” Id. at 2-3. The Ninth Circuit reversed because the plaintiffs failed to show that a common issue predominated; namely, that all class members had not seen the alleged misrepresentation. The Ninth Circuit noted that “[w]hile some deviations from precise wording in the language of advertisements or representations might not be fatal to class certification,” advertisements that are “a far cry” from the alleged misrepresentations at issue cannot be the basis for certifying a class. Id. at 4. While unpublished, this opinion is another example of the increased scrutiny applied to certification motions.

07/21/15  The Department of Labor Issues “Clarification” and Concludes that Most Workers are Employees

On July 15, 2015, the Department of Labor ("DOL") issued new guidance “clarifying” the standards used to determine whether a worker is an employee or independent contractor. The guidance follows several recent high-profile employee misclassification lawsuits and court decisions. The DOL issued the guidance out of concern that workers wrongly classified as contractors "may not receive important workplace protections such as the minimum wage, overtime compensation, unemployment insurance, and workers' compensation” provided to employees. The DOL asserts that "some employees may be intentionally misclassified as a means to cut costs and avoid compliance with labor laws." Administrator's Interpretation No. 2015-1 clarifies that companies and courts must evaluate all the economic realities factors when determining whether a worker is an employee or an independent contractor under the Fair Labor Standards Act ("FLSA”). Classification "must not be evaluated based on the control factor alone.” Thus, a worker who is "economically dependent" on the employer should be treated as an employee. By contrast, a worker must "really" be in business for himself or herself (i.e., operate a business on his or her own) to be an independent contractor. In light of the “clarified” standards, the DOL concludes that given the "very broad definition of employment under the FLSA as 'to suffer or permit to work' and the Act's intended expansive coverage for workers," "most workers are employees under the FLSA's broad definitions.” Employers should reassess their classification decisions as to all contract employees. To review the entire text of Interpretation No. 2015-1, click here.

07/08/15  Firm Giving Big Law A Run for Its Money

Law360 lists Crone Hawxhurst LLP as one of ten "top boutiques" nationwide that "continue to encroach on big firms' territory by blending the same high level of skill and expertise with a lower rate structure and greater client accessibility." Law360 concludes that Crone Hawxhurst (and the nine other firms) are "capable of competing with - and beating - the best big firms at the highest level" and "have established brands on par with the biggest firms." The full article can be found here.

06/02/15  Firm achieves another victory for Oracle

On June 2, 2015, the Firm continued its streak of victories for Oracle, one of the world’s largest software companies, by obtaining summary judgment in the Los Angeles County Superior Court. The plaintiff asserted he had suffered catastrophic injuries caused by the alleged negligence of Sun Microsystems, which Oracle acquired in 2010, and he and his wife sought millions of dollars in damages from Oracle and three co-defendants. After obtaining key admissions from party and third-party witnesses, the Firm argued that the “completed and accepted doctrine” barred all the plaintiffs’ claims and all cross-claims for indemnity. In opposition, the premises owner contended that the completed and accepted doctrine applies only to construction disputes in light of various reported decisions. However, the Court agreed with the Firm’s argument that precedent, including the stated rationale for shifting risk of potential injury to the premises owner, applied to these circumstances because Sun Microsystems had completed its work and the premises owner had accepted the work before plaintiff suffered his claimed injuries.

05/20/15 
Firm obtains summary judgment victory for international hedge fund

On May 20, 2015, the Los Angeles Superior Court granted summary judgment for the firm’s client, a foreign hedge fund, including a high six-figure monetary award.

05/20/15 
Partner makes financial gift to alma mater

In May 2015, Jerry and Sue Hawxhurst established the Richard A. Hawxhurst Dean’s Endowed Scholarship for Excellence in the Law. Named in honor of Jerry’s late brother Rick, beginning in the 2015 academic year, the scholarship will provide permanent tuition assistance to qualifying Texas Law students.

04/30/15 
Jerry Hawxhurst is elected to the University of Texas System Chancellor’s Council Executive Committee

In April 2015, Jerry was elected to a three-year term on the executive committee for the Chancellor’s Council of the University of Texas System. The Chancellor's Council Executive Committee is the core leadership group for the Chancellor of the University of Texas System. The group convenes several times annually and engages in dialogue with the Chancellor, UT System executive officers, UT presidents and faculty regarding special initiatives and issues of importance to higher education in Texas.

04/13/15 
The Firm obtained a complete defense victory in a McAllen, Texas court for Innovation Ventures, LLC, the maker of 5-hour ENERGY®.

Following extensive fact and expert discovery, the Honorable Randy Crane granted Innovation Ventures’ motion for summary judgment and entered judgment in its favor. Judge Crane sided with the Firm’s arguments that the plaintiff lacked fact and expert evidence that 5-hour ENERGY® was “defectively designed” or “unreasonably dangerous.” The Court also sided with the Firm’s arguments that there was no “failure to warn” liability and that there was no evidence that Innovation Ventures breached any duty in designing, manufacturing or marketing the product. The plaintiff suffered from severe coronary artery disease at the time he allegedly drank the product; his expert opined that consuming the product caused arterial plaque to rupture, which in turn caused a minor myocardial infarction. The Firm demonstrated that plaintiff—despite having received two extensions of pretrial deadlines to obtain expert evidence—lacked evidence to support his causation theory. The Court’s order fully exonerates Innovation Ventures. The case is styled Polanco v. Susser Holdings, et al., Case No. 7:13-CV-568 (S.D. Tex. 2013). (Click here to read the Court’s order and the final judgment.)

03/31/15 
Crone Hawxhurst obtains forum non conveniens dismissal for Mexican clients (download PDF here)

01/02/15  Crone Hawxhurst Mentioned in LA Business Journal (download PDF here)

01/01/15 –
Crone Hawxhurst LLP is pleased to announce that Diyari Vazquez has been elected Partner (View Diyari’s Bio)

08/12/14 –
California Employers Must Reimburse Work-Related Cellular Phone Expenses

The California Court of Appeal’s recent decision in Cochran v. Schwan’s Home Service, Inc., 228 Cal. App. 4th 1137 (Cal. Ct. App. Aug. 12, 2014) (opinion here), announced that California law requires that employers reimburse their employees for a reasonable portion of their cellular telephone expenses, to the extent they use their cellular telephone for work-related communications.

The facts of Cochran demonstrate the broad scope of potential liability for California employers. The Cochran plaintiffs sought to represent a proposed class of management employees seeking reimbursement of their work-related cellular telephone expenses. But several of the plaintiffs never incurred additional employment-related expenses because a family member paid for their cellular telephone, or they already had purchased for themselves an unlimited calling and data service plan. Yet, the Court of Appeal held that reimbursement of such expenses is always required under California Labor Code section 2802, even if the employee never incurs additional expense as a result of the employment. In the Court's opinion, to hold otherwise would have allowed the employer a windfall at the employee’s expense.

As a result of Cochran, California employers are likely to face new claims for unpaid cellular telephone expenses--and potentially penalties--even if employees rarely use their personal cell phones for work-related calls.

06/03/14
  - Ninth Circuit Amends Opinion in Inbuzz Copyright Decision

The Ninth Circuit’s decision earlier this year in Inhale, Inc. v. Starbuzz Tobacco, Inc., No. 12-56331 (9th Cir. Jan. 9, 2014), announced deference to a “persuasive” opinion letter and internal manual prepared by the Copyright Office when determining whether the artistic elements of a useful article are separable from its utilitarian function and, therefore, subject to protection under the Copyright Act.  On June 3, 2014, the Ninth Circuit issued an amended opinion (click here) clarifying that its decision does not affect whether imagery on a container is protected by copyright, especially as the Inhale plaintiff did not claim that any image on its hookah water container was so protected.  The Ninth Circuit further clarified that its opinion does not suggest that in all cases, no elements of a container “can be identified separately from, and are capable of existing independently of” the container.  But on that subject, the Inhale plaintiff had waived its arguments as to copyright protection by failing to include them in its opening brief on appeal.

5/15/14 NLRB’s Requests for Amici Portends Expansion of Joint-Employer Liability (read memo or click here to review NLRB Notice)

04/23/14 -
California Supreme Court Enacts Rule Requiring Newly Admitted Lawyers to Act With Dignity, Courtesy and Integrity
On April 23, 2014, the California Supreme Court adopted rule 9.4 of the California Rules of Court, which will supplement the oath for new lawyers effective May 23, 2014.  The amended oath will include the following language:  “As an officer of the court, I will strive to conduct myself at all times with dignity, courtesy, and integrity.”  This “civility” oath will serve as a reminder to lawyers of their professional responsibility and the manner in which the practice of law should be conducted. To learn more about rule 9.4 click here.

4/12/14
Crone Hawxhurst Proudly Sponsors Fourth Annual Horns Helping Horns Golf Classic
Crone Hawxhurst served as a sponsor for the Fourth Annual Texas Wranglers Presents Horns Helping Horns Golf Classic on April 12, 2014.  Each year the Horns Helping Horns program serves independent students who arrive at the University of Texas with little or no family support and very limited resources.  The program strives to provide a network of financial and nonfinancial support and mentorship as well as social and educational opportunities based on individual need.  To learn more about the Horns Helping Horns program, click here.

03/31/14 -
U.S. Supreme Court Clarifies Statutory Standing in Lanham Act Dispute (read memo or click here to review Court Opinion).

2/11/14Another Class Action Victory
Continuing its class action defense success, Crone Hawxhurst recently obtained a dismissal with prejudice of a named plaintiff’s claims.  The dismissal followed our defeat of a motion to certify the class and unsuccessful efforts by plaintiff’s counsel to substitute a new plaintiff.  In addition to dismissing all claims with prejudice, the plaintiff paid a substantial cost bill.  The details of the dismissal and payment are confidential.

1/21/14Fast and Less Furious: Proposed Revisions to Federal Rules of Civil Procedure Aim to Increase Speed, Decrease Costs of Litigation
Proposed revisions to 13 of the Federal Rules of Civil Procedure are currently open for comment and, if approved, could take effect as early as December 1, 2014.  The revisions seek to lessen the burdens of civil litigation by shortening the early stages of litigation and by possibly reducing the costs of discovery.  These revisions follow earlier revisions that have attempted to rein in the costs of electronic discovery, and look to limit the costs of all types of discovery.  What do the proposed revisions change, and what could those changes mean for you and your business?

Quicker Resolution
The proposed revisions aim to streamline nascent stages of litigation by shortening the timeframe for many of the early steps in any civil case.  For instance, the revisions to Rule 4(m) would reduce the time to serve a summons and complaint in half, from 120 to 60 days.  Revisions to Rule 16 would decrease the deadline for a court to issue an initial scheduling order from 120 days after service of summons to 90 (or 60 days after a defendant has appeared in the case). 

Pared-Down Discovery
The proposals aim to further curtail litigation cost by restricting the scope of discovery.  The revised rules would reduce the presumptive allowable number of depositions in any case from ten to five, and would limit depositions to six hours, as opposed to the current seven.  The number of interrogatories would be reduced to 15, from the current 25.  
The proposed amendments to Rule 26 summarize the goal of the revisions by adding the requirement that discovery be “proportional to the need of the case,” taking into account the amount in controversy, the importance of the issues, and the resources of the parties.  While these revisions may lower discovery costs they may have the unintended consequence of benefitting parties who possess superior information prior to the start of litigation; counsel will have to take better care at the onset of the case to craft and execute a well-reasoned discovery plan.  In practice, the revisions may have little or no effect on complex litigation, as litigants will remain free to stipulate to more depositions and interrogatories, for example, or seek court approval for additional discovery.

Uniform Standard for Sanctions
In addition to reducing the amount of discovery that can be propounded (absent a stipulation or court modification), the proposed revisions make significant changes to Rule 37(e), regarding issuance of sanctions for discovery violations.  First, the revisions establish a national standard for the issuance of sanctions resulting from the spoliation of discoverable information, and forbid courts from issuing sanctions under the court’s “inherent authority” or state law.  Additionally, the revisions expand the scope of Rule 37(e), so that it applies to all types of discovery, not just electronic discovery.  The revisions also impose a higher showing in order to justify an award of sanctions: under revised Rule 37(e), sanctions may only be imposed after a finding that the party to be sanctioned “acted willfully or in bad faith” and that the loss of discoverable information caused “substantial prejudice.”  Sanctions may still be imposed in the absence of bad faith or willfulness, but only if the loss of discoverable information “irreparably deprive[s]” a party of “any meaningful opportunity” to pursue or defend against the claims, and only if the claim or defense affected was “central to the litigation.” 

Play Nice
Finally, the proposed revision to Rule 1, which simply states the “Scope and Purpose” of the Federal Rules, would add language specifically directing “the court and parties” to ensure that the rules are to be “constructed, administered, and employed . . . to secure the just, speedy, and inexpensive determination of every action and proceeding.”  This subtle addition places the burden to ensure quick and affordable resolution of lawsuits on the parties, together with the court.  It remains to be seen whether the proposed revisions will achieve the drafters’ goals.

1/20/14U.S. Supreme Court Finds AG Case Not a Mass Action Under CAFA
On January 14, 2014, the Supreme Court ruled that unnamed persons who are nevertheless real parties in interest to claims brought by the Mississippi attorney general on their behalf are not counted as “persons” for purposes of the section of the Class Action Fairness Act of 2005 that provides diversity jurisdiction for mass actions that seek to combine claims of “100 or more persons.”  The case is styled Mississippi ex rel. Hood v. AU Optronics Corp., et al., No. 12-1036 (Jan. 14, 2014) (full text here).  
 
The case began when the Mississippi attorney general sued several liquid crystal display manufacturers in state court, alleging violations of state competition laws, including illegal price fixing.  The AG sought restitution for liquid crystal display (LCD) display purchases made by the state and its citizens.  (Slip Op. at 2-3.)  The defendants removed the case to federal court based on CAFA’s “mass action” provision, which applies where “monetary relief claims of 100 or more persons are proposed to be tried jointly on the grounds that the plaintiffs’ claims involve common questions of law or fact.”  (Slip. Op. at 2 (citing 28 U.S.C. § 1332(d)(11)(B)(i).)  The district court found that the “mass action” provision applied, but remanded the suit to state court because it fell within the “general public” exception.  (Id. at 3-4.)  The Fifth Circuit reversed, finding that it was a mass action and that the general public exception did not apply.  (Id. at 4-5.)
 
The Supreme Court reversed the Fifth Circuit’s decision, finding that the case was not a mass action within the meaning of CAFA.  The Court first noted that the statute says “100 or more persons,” not “100 or more named or unnamed real parties in interest.”  In doing so, it rejected defendants’ argument that “claims of 100 or more persons” includes the “persons to whom the claim belongs, i.e., the real parties in interest to the claims.”  (Slip Op. at 6.)

The Court further noted that Congress chose not to use the phrase “named or unnamed” in the mass action provision and that, “[m]ore fundamentally,” the removing defendants’ “interpretation cannot be reconciled with the fact that the ‘100 or more persons’ referred to in the statute are not unspecified individuals who have no actual participation in the suit, but instead [are] the very . . . parties who are proposing to join their claims in a single trial.”  (Id.)  And the Court pointed out that defendants’ proposed interpretation would lead to administrative nightmares—such as how to identify unnamed parties whose individual claims are valued over or under the $75,000 jurisdictional threshold—that Congress could not have intended.  (Id. at 8.)  The decision makes sense and is supported by CAFA’s plain language.  Still, we wonder how many “persons” in Mississippi paid more than $75,000 for a television.

1/15/14Ninth Circuit Announces Deference to Copyright Office Regarding “Conceptual Separability”
Section 101 of the Copyright Act permits a claimant to copyright the design of a useful article “only if, and only to the extent that, [it] incorporates… sculptural features that can be identified separately from, and are capable of existing independently of, the utilitarian aspects of the” container. 17 U.S.C. § 101.  The plaintiff in Inhale, Inc. v. Starbuzz Tobacco, Inc., No. 12-56331 (9th Cir. Jan. 9, 2014) (full text here), claimed that the design of a hookah tobacco smoking device is conceptually separable from its utilitarian aspects. However, the district court entered summary judgment against the plaintiff on the basis that it lacked an enforceable copyright in the shape of the hookah (as opposed to decorative features that the defendant admittedly did not copy), which the Ninth Circuit affirmed.  The district court also had awarded attorney’s fees to the defendant, and the Ninth Circuit did likewise on appeal.

In coming to its decision, the Ninth Circuit noted that several other circuit courts have “twisted themselves into knots trying to create a test” to determine whether the artistic elements of a useful article are separable from its utilitarian function and, therefore, subject to protection under the Copyright Act.  Rather than exhaustively consider whether the mere distinctiveness of an object affects separability, the Inhale panel announced it would instead defer to a “persuasive” opinion letter and internal manual prepared by the Copyright Office.  Specifically, the Ninth Circuit adopted the Copyright Office’s interpretation of 17 U.S.C. § 101 to the effect that “whether an item’s shape is distinctive does not affect separability.”  Based on that determination, the Ninth Circuit held that “[t]he shape of a container is not independent of the container’s utilitarian function—to hold the contents within its shape—because the shape accomplishes that function.”  For this reason, the Inhale plaintiff could not protect the mere shape of its hookah under the Copyright Act as a matter of law.  See also Ets-Hokin v. Skyy Spirits, Inc., 225 F.3d 1068, 1080 (9th Cir. 2000) (shape of vodka bottle was not separable from its utilitarian features).

The Inhale decision may portend future deference to the Copyright Office on other aspects of the Copyright Act.  And, of course, potential copyright claimants may have recourse to other intellectual property rights, such as distinctive trade dress, when seeking protection of useful articles from infringement.

1/14/14Other Law Firm Rates Continue to Skyrocket
A recent study of national law firm billing rates confirmed what most clients already know:  fees at top large and mid-size firms continue to rise, with many partners billing over $1,000 per hour.  According to data compiled by ALM Legal Intelligence, and as reported by the National Law Journal, law firm billing rates continued to climb in 2013, despite a moribund economy.  Even when discounts are factored in (reportedly averaging 13% off “rack rates”), rates can be very high and, in many instances, hard to justify in light of comparable talent pools at smaller firms (which are often founded by former big-firm lawyers).

According to the NLJ report, partners at Los Angeles firms charge an average of $665 per hour, while the average associate rate is over $400 per hour.  Theses averages indicate high rates for inexperienced associates and partners and considerably higher for associates and partners who may not have much more actual trial experience.

1/10/14FDA Declines Requests to Resolve "All Natural" Debate
The U.S. Food and Drug Administration has declined requests from several courts seeking guidance on how to determine whether food products containing genetically modified organisms (GMOs) may be marketed as “natural.”  In a January 6, 2014 letter addressed to three federal district courts (and in response to orders issued by the courts seeking FDA guidance), the FDA’s Assistant Commissioner for Policy declined the courts’ invitations to intervene in private litigations concerning use of the terms “natural,” “100 percent natural” or “all natural.”   The Kux letter begins by noting that the FDA has not promulgated a formal definition of the term “natural,” but has issued a policy statement that the term natural on food labels means that nothing artificial or synthetic has been included or added to the food (citing 58 Fed. Reg. 2302, 2407 (1993).  Ms. Kux explained that the FDA would decline to wade in at this time because of many reasons, including that there could be no assurance that the FDA would make any formal amendments even if it conducted a formal review.  She further explained that other federal agencies have interests in defining the term “natural,” including the USDA (which she reports has been “considering the issue”).  Ms. Kux further explained that the FDA lacked the resources to address the issue of the meaning of “natural” in the context of private litigation, citing the Patient Protection and Affordable Care Act and other initiatives as occupying the FDA’s limited resources.  The FDA’s abdication is unfortunate for many reasons.  Most obviously, it could have settled the “natural” debate, which in turn would free up private and public resources that are needed to help our moribund economic recovery.

1/4/14Ninth Circuit Clarifies Recovery of “Significant” Rule 45 Costs
Rule 45(d)(2)(B)(ii) provides that when a court orders compliance with a subpoena over an objection, “the order must protect a person who is neither a party nor a party’s officer from significant expense resulting from compliance.”  In Legal Voice v. Stormans Inc., Case No. 12-35224 (9th Cir. Dec. 31, 2013) (full text here), the Ninth Circuit interpreted that rule for the first time since its amendment in 1991.  The Ninth Circuit held that the only question a district court should consider on the subject of shifting costs is whether a subpoena imposes significant expense on the non-party.  If so, the district court must order the party seeking discovery to bear at least enough of the cost of compliance to render the remainder “non-significant” to the subpoenaed non-party.

In Legal Voice, the non-party incurred $20,000 in expenses complying with a Rule 45 subpoena.  Under the standard announced, the Ninth Circuit had “no trouble concluding that $20,000 is ‘significant,’” which required the district court on remand to shift enough of the cost of compliance to the issuing party so as to render the remainder non-significant to the non-party.  Going forward, non-parties are likely to invoke Legal Voice when faced with significant federal subpoena compliance costs.

12/23/2013Welcome to the Hotel Hellifornia
For the second consecutive year, the American Tort Reform Foundation (“ATRF”) has placed California at the top of its annual “Judicial Hellhole” rankings, naming it as the jurisdiction with the worst reputation in the country for unfair and unbalanced civil litigation.  The ATRF’s report criticizes both the California legislature and judiciary for making the State a breeding ground for frivolous class actions, disability-access lawsuits and asbestos claims.  

The report opines that California—with what it describes as loosely written consumer protection laws and overly-receptive courts—has become the “epicenter” for class action lawsuits against so-called “Big Food.”  It points out as an example that several cases were recently brought against consumer goods companies for using the term “evaporated cane juice” instead of “dried sugar cane syrup” or “sugar.”    

The report also notes that, despite the legislature’s efforts at reform, California continues to facilitate “[a]busive lawsuits brought ostensibly to enforce the technical standards of the Americans with Disabilities Act.”  It states that these lawsuits often target mom-and-pop businesses and have, according to some reports, disproportionately harmed minority and immigrant entrepreneurs.

Because California is one of the largest economies in the U.S. and the world, it’s difficult for major companies to avoid checking in to the Hotel Hellifornia.


12/16/13Ninth Circuit Issues Important CAFA “Local Controversy” Opinion
On November 27, 2013, the Ninth Circuit reversed a district court’s remand order based on the “local controversy” exception to federal diversity jurisdiction under the Class Action Fairness Act.  See 28 U.S.C. §§ 1332(d), 1453(b)).  The case is Mondragon v. Capital One Auto Finance, 736 F.3d 880 (9th Cir. 2013) (full text here).
 
The district court had granted the plaintiff’s motion for remand, finding that the plaintiff met his remand burden based solely on an inference drawn from the class definition.  (Id. at 1.)  The district court agreed that the proposed class definitions (limiting the classes to persons who bought cars intending to register them in California and who bought cars in California) supported an inference that two-thirds of the proposed class members are California residents.  (Id. at 7.)  
 
Capital One filed a petition for permission to appeal pursuant to 28 U.S.C. 1453(c), which the Ninth Circuit granted.  (Id.)  The Ninth Circuit reversed, joining three other circuits that have concluded that determining class membership cannot be based on guesswork.  (Id.at 8-9.)  The Ninth Circuit reasoned that because the local controversy exception “does not say that remand can be based simply on a plaintiff’s allegations when they are challenged by the defendant,” a district court must “make factual findings regarding jurisdiction under a preponderance of the evidence standard.” (Id. at 9.)   Accordingly, “there must ordinarily be at least some facts in evidence from which the district court may make findings regarding class member’s citizenship for purposes of CAFA’s local controversy exception.”  (Id. (citations omitted).)   
 
The Ninth Circuit recognized that its holding might result in “some degree of inefficiency by requiring evidentiary proof of propositions that appear likely on their face” and that the district court’s conclusion was “understandable,” but found that it was also likely that many of the proposed class members are not California residents because some autos would be purchased by owners of second homes, non-U.S. citizens, out-of-state students, persons who have moved out of state and others who are not citizens of California.  (Id.)  (Near the end of its opinion, the court noted the possibility that the “presumption of continuing domicile” might apply, but refused to address its application because the parties had not squarely raised it on appeal.  (Id. at 13).)
 
The Ninth Circuit also noted that the plaintiff could likely develop evidence establishing the percentage of proposed class members whose citizenship was California at the time of removal, and that any inefficiencies and inconvenience to plaintiff was a problem of his own making because he could have defined the classes as limited to California citizens.  Finally, the Ninth Circuit instructed the district court to allow the plaintiff, if he chooses, to renew his motion to remand and to “take jurisdictional discovery tailored to proving that more than two-thirds of the putative class are citizens of California.”  (Id. at 12.)  
 
The Mondragon decision portends greater “inefficiencies” for removal/remand battles, including authorization of jurisdictional discovery.  

11/22/13The Firm Obtains Emergency Relief for Client
The Firm was recently engaged by a well-known Internet-based gaming company whose supplier of branded merchandise refused to deliver a products critical to the success of our client’s largest annual event, attended by thousands of customers.  The Firm filed a complaint in Los Angeles Superior Court the day after being retained.  The Firm also prepared an emergency ex parte application to obtain the withheld goods.  Under threat of a court order, our client’s supplier consented to release the branded product so that the customer event could proceed without a hitch.  The client was able to negotiate a favorable settlement short of further litigation.

11/1/13Blurring the Lines
In a widely publicized decision, the United States Supreme Court held in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011) (“Concepcion”) that California’s rule barring class-action waivers in arbitration agreements was preempted by the Federal Arbitration Act (“FAA”).  To be sure, plaintiffs (and various courts) dispute broad application of the preemption principles that the Supreme Court announced.  Most recently, on October 17, 2013, the California Supreme Court issued a 104-page decision in Sonic-Calabasas A, Inc. v. Moreno, 57 Cal. 4th 1109 (2013) (full text here), holding that plaintiffs may continue to invalidate arbitration agreements as unconscionable notwithstanding Concepcion.

In Sonic, the California Supreme Court acknowledged that Concepcion necessarily stands for the proposition that the FAA preempts any categorical rule prohibiting the waiver of state administrative hearings set forth in arbitration agreements.  Nonetheless, Sonic instructs trial courts to continue to determine whether an arbitration agreement may be invalidated due to the doctrine of unconscionability under state law.  And one factor showing that an agreement might be unconscionable is if it includes a waiver of state administrative hearing rights.  The California Supreme Court reasoned that administrative hearings of the kind at issue in Sonic promote the same objectives as arbitration, including efficiency and speed. 

Sonic may very well be headed to the United States Supreme Court.  In the meantime, it is likely to be widely cited by plaintiffs seeking to avoid the preemptive effect of Concepcion, and will increase the uncertainty surrounding whether certain arbitration agreements remain enforceable in California.

10/20/13California Missed Meal and Rest Period Pay Penalties Expanded to Missed “Recovery” Periods
California Labor Code section 226.7 provides that an employee must receive one hour of pay as a penalty for not receiving the rest or meal periods required by California law.  The statute has led to numerous class action lawsuits in California alleging missed meal and rest breaks and seeking premium pay.  

In late-2013, the Legislature enacted a modification to Labor Code section 226.7 so that it now mandates payment of one hour of premium pay for missed “recovery periods” too.  Unfortunately, this is likely to lead to a slew of new class action lawsuits seeking premium pay for “missed” recovery periods.  As defined in the statute and applicable regulations, a “recovery period” is a cool down period of at least five minutes provided to workers on an as needed basis “to prevent heat illness.”  

California employers with significant numbers of employees working outdoors or in warehouses, such as construction industry employers and agricultural employers, are likely to see significant new litigation arising from the modified section 226.7.  Employers can find additional information on this subject published by the California Department of Industrial Relations at http://www.dir.ca.gov/dosh/HeatIllnessInfo.html, or by contacting an attorney with the Firm.

7/24/13 - Firm Obtains Significant Jury Verdict for Oracle in Fraud and Racketeering Case
The Firm recently obtained a complete plaintiff’s victory for Oracle America, Inc. in federal court when a jury unanimously found the defendant liable for having defrauded Oracle and third-parties, and having violated the Racketeer Influenced and Corrupt Organizations Act (also known as “RICO”).  The resulting judgment will exceed $3 million.  The Firm also continues to pursue other members of the racketeering conspiracy.  The case is styled Oracle America, Inc., et al. v. Quin Rudin, et al., Case No. CV10-1853 DOC (RNB) (C.D. Cal. 2010).

06/06/13 - Crone Hawxhurst Obtains Complete Defense Victory in Major Antitrust Case(read memo or click here to review Court's Order)

06/03/13 -
Ninth Circuit Lowers  Bar for Alleging Standing to Sue(Please click here to read the case update)

03/23/13 -
Employers Beware: California Appellate Court Eliminates the Writing Requirement for the Tort of Public Disclosure of Private Facts(Please click here to read the case update)

03/19/13 -
Supreme Court Limits Efforts to Manipulate Federal Class Action Jurisdiction(Please click here to read the case update)

02/13/13 - Firm Successfully Opposes Petition for Review.
On February 13, 2013 the California Supreme Court summarily denied our adversaries’ Petition for Review of the Court of Appeal’s decision upholding the trial court decision we obtained in favor of our client.  The denial of their petition for review marks the end of the adversaries’ appellate challenges to the claims against them.  Trial is expected to begin early 2014.

11/29/12California Court of Appeal Affirms Right of Firm Client to Sue Former Adversaries for Malicious Prosecution
On November 29, 2012, California’s Fourth District Court of Appeal affirmed denial of an anti-SLAPP motion brought by various counsel for a class action plaintiff, who had previously sued the Firm’s client for unfair competition.  The Court of Appeal found that our client, a significant distributor of energy shot supplements, had demonstrated probable cause for its malicious prosecution claim.  The case returns to the superior court for trial. (Please click here to read the opinion.)

11/22/12
Firm Obtains Disclosure of Apple Settlement Agreement With HTC
In a widely publicized decision, the United States District Court for the Northern District of California ordered Apple to produce a confidential settlement agreement with HTC to the Firm’s client, Samsung Electronics, which the Firm is representing alongside Quinn Emanuel Urquhart & Sullivan LLP. (Please click here to read news article.)

8/31/12Ninth Circuit Issues Published Opinion Vindicating Client’s Copyright Claim
On August 31, 2012, the Ninth Circuit Court of Appeals issued a published opinion vindicating our client—a significant distributor of aftermarket auto parts and accessories over the Internet—whose copyright claim had been dismissed at summary judgment prior to the Firm’s involvement in the case. The Ninth Circuit reaffirmed that an individual’s exclusive right to prepare derivative works does not trump an employer’s claim of ownership as to all material prepared within the scope of employment, pursuant to the work-for-hire doctrine. Specifically, the Ninth Circuit held that an employer owns all of an employee’s works prepared within the scope of employment, even if the employee is paid to enhance a work that he or she initially developed prior to the employment relationship. (Please click here to read the opinion.)

4/11/12California Court of Appeal Affirms Order Dismissing Vexatious Claims
California’s Second District Court of Appeal affirmed in full a dismissal on the pleadings on behalf of one of the world’s largest database software companies. The plaintiff attempted to litigate a second time significant contract and unfair competition claims against the Firm’s client, and sought more than one million dollars in damages. The Court of Appeal confirmed that res judicata bars a second attempt at litigating identical claims, even if the prior action has not yet reached entry of final judgment. (Please click here to read the opinion.)

2/22/12California Court of Appeal Affirms Summary Judgment Win
In a twenty-three page written order, California’s Second District Court of Appeal affirmed in full the Firm’s summary judgment victory on behalf of one of the world’s largest database software companies.  The plaintiff, a disgruntled reseller, had brought significant contract and fraud claims against the Firm’s client, and had sought millions of dollars in damages for our client’s alleged misconduct. 

2/9/12Defense Verdict in Landmark Patent Case Tried in the Eastern District of Texas
Plaintiffs Eolas Technologies and the University of California asserted two patents that purported to cover all modern, interactive web pages.  The Firm represented the key prior art witnesses throughout the case, whose testimony led the jury to invalidate all asserted claims after only 2.5 hours of deliberation.  Plaintiffs had sought more than $600 million in damages as well as injunctive relief.

1/20/12 -
Case Update: Ninth Circuit Provides Important Guidance on Predominance and Reliance Criteria to be Applied When Determining Certification of Consumer Class Actions
Click here for memorandum, and click here for case file.

7/13/11
- California Court of Appeal Refuses to Extend Concepcion to California Labor Code Claim
Click here for article.

5/26/11
- U.S. Supreme Court Upholds Arizona Law Sanctioning Businesses That Hire Illegal Immigrants
The U.S. Supreme Court in Chamber of Commerce v. Whiting, No. 09-115 (May 26, 2011), upheld an Arizona law that imposes a progressive series of sanctions against employers who are caught repeatedly hiring illegal aliens.  The sanctions range from modest to a complete loss of the right to do business in Arizona.  The law also requires Arizona employers to use the federal E-Verify system before hiring new workers.   The Supreme Court upheld both aspects of the law, which had been challenged by a coalition that included the U.S. Chamber of Commerce, civil rights groups and advocates of more open borders.  (Please click here to read the opinion.)

Challengers contended that the Arizona law was barred by the federal Immigration Reform and Control Act of 1986, which prohibits states from imposing sanctions against businesses that hire illegal aliens.  That law, however, exempts states’ “licensing and similar laws,” which is the savings clause that Arizona argued allowed passage of its law.  Challengers to the Arizona law also argued that it was preempted by federal immigration law.  The Supreme Court rejected both arguments.

“Because we conclude that the state’s licensing provisions fall squarely within the federal statute’s savings clause and that the Arizona regulation does not otherwise conflict with federal law, we hold that the Arizona law is not preempted,” Chief Justice John Roberts wrote in the majorities’ 27-page opinion.  The Arizona law had been upheld by a federal district judge and by the Ninth Circuit Court of Appeals before making its way to the U.S. Supreme Court.

Other states, including Colorado, Mississippi, Pennsylvania, South Carolina, Tennessee, Virginia and West Virginia, have passed similar laws.  The Supreme Court’s ruling will likely encourage other states to enact similar laws, and may lead to increased scrutiny of employer hiring decisions.

5/3/11
- Ninth Circuit clarifies expert report requirements for non-retained treating physicians
In a matter of first impression in the Ninth Circuit, the court held in Goodman v. Staples the Office Superstore, LLC, Case No. 10-15021 (9th Cir. May 3, 2011), that Rule 26(a)(2) requires a party to provide an expert report for non-retained treating physicians, to the extent those witnesses intend to render opinions at trial beyond the scope of medical treatment.  Thus, a treating physician is only exempt from the requirement to provide an expert report to the extent his or her opinions were formed during the course of treatment.  If a party fails to comply with the report requirements for such additional opinions, they are likely to be barred at trial.

5/2/11
- Federal court grants summary judgment against purported class of Blockbuster on-line subscribers
Click here for article.

4/27/11
- U.S. Supreme Court rules that FAA prevents states from conditioning enforceability of arbitration agreements on availability of class action remedies
To read more about the AT&T Mobility decision, click here.

4/21/11 - Jerry Hawxhurst is elected to a three-year term on the Executive Committee of the University of Texas School of Law Alumni Association
Jerry Hawxhurst is elected to a three-year term on the Executive Committee of the University of Texas School of Law Alumni Association, which is the principal governing body of the Law School’s alumni organization.  Jerry was selected from among dozens of nominees.  His term begins September 2011.

3/25/11 - Daryl Crone honored by Los Angeles magazine as a Southern California “Rising Star” for 3rd year running

3/23/11 - Nicholas Spencer joins Crone Hawxhurst LLP as a litigation associate
Nick was previously associated with Mitchell Silberberg & Knupp, LLP and before then, the New York office of Proskauer Rose LLP.  To learn more about Nick, click here.

3/4/11 - Dismissal on the pleadings and sanctions awarded against vexatious litigant
We were retained by one of the world’s largest software companies to defend against claims of breach of contract and unfair competition brought by one of its former resellers.  So as to avoid costly discovery, we immediately sought dismissal on the pleadings, on the basis that plaintiff had previously litigated its claims in the same forum.   The court granted our motion for sanctions and dismissed plaintiff’s complaint without leave to amend.

2/20/11 - Jerry Hawxhurst honored by Los Angeles magazine as a Southern California “Super Lawyer” for 6th year running

1/11/11 - Firm obtains $2.5 million JAMS arbitration award against popular energy drink company
After obtaining an interim $2.5 million award for our client, we were able to extract a “walk away” settlement of our opponent’s counter-claims following the cross-examination of a dozen of their witnesses, followed by the testimony-in-chief of one of our client’s executives—who proved to be the “star witness” of the two-week arbitration.

12/2/10 - Jerry Hawxhurst and Diyari Vazquez prevail in an international arbitration on behalf of a premier Mexican beverage company 
The opponent refused to pay hundreds of thousands of dollars that were owed to our client based on a claim that the payments were barred by a written settlement and release.  At arbitration, we presented evidence showing that the settlement had either been obtained by fraud or that there was a mistake.

11/5/10 - Summary judgment win and award of fees for clients accused of copyright infringement
We were hired less than a month before the close of discovery by the owners of a nationwide chain of indoor go-kart facilities accused of infringing the copyright in a software program.  Plaintiff sought more than $40 million in damages.  We immediately deposed plaintiff’s witnesses and filed a motion for summary judgment on the basis that plaintiff’s copyright registration was invalid and that plaintiff lacked standing to pursue its claim.  Although plaintiff claimed to have previously settled with our clients’ co-defendants for a significant sum, the court dismissed our clients at summary judgment and then granted our motion for an award of the attorneys’ fees and costs that our clients had incurred to defend the action since its inception.

11/01/10 - Jerry Hawxhurst selected as a Leading Lawyer in America by Law Dragon magazine

3/31/10 - The Federal Bureau of Investigation gives a commendation to Jerry Hawxhurst for his assistance with the capture of a serial bank robber

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