KEEPING UP: Kardashian Brand Sued in TCPA Call Timing Class Action
When Kim Kardashian said, “Get up and work”, the TCPA plaintiff’s bar took that seriously. And another Kardashian sibling may be facing the consequences.
We at TCPAWorld were the first to report on the growing trend of lawsuits filed under the TCPA’s Call Timing provisions, which prohibit the initiation of telephone solicitations to residential telephone subscribers before 8 am and after 9 pm in the subscriber’s time zone. Call it a self-fulfilling prophecy or just intuition honed by decades of combined experience, but these lawsuits show no signs of slowing down.
In Melissa Gillum v. Good American, LLC. (Mar. 11, 2025, C.D. Ca), Plaintiff alleges that Khloe Kardashian’s clothing brand Good American sent the following text messages to her residential telephone number at 07:15 AM and 06:30 AM military time:
Of course, Plaintiff alleges she never authorized Good American to send her telephone solicitations before 8 am or after 9 pm.
Plaintiff also seeks to represent the following class:
All persons in the United States who from four years prior to the filing of this action through the date of class certification (1) Defendant, or anyone on Defendant’s behalf, (2) placed more than one marketing text message within any 12-month period; (3) where such marketing text messages were initiated before the hour of 8 a.m. or after 9 p.m. (local time at the called party’s location).
The consensus here on TCPAWorld is that calls or text messages made with prior express consent are not “telephone solicitations” and likely not subject to Call Time restrictions. We’ll have to see how these play out but stay tuned for the latest updates!
NO SMOKING UNTIL 8 AM: R.J. Reynolds Burned By TCPA Time-Of-Day Class Action Lawsuit
Hi TCPAWorld! R. J. Reynolds Tobacco Company—the powerhouse behind Camel, Newport, Doral, Eclipse, Kent, and Pall Mall—is back in court. This time, though, it isn’t about the usual allegations against Big Tobacco. Instead, the plaintiff accuses the company of violating the TCPA’s time-of-day restrictions and causing “intrusion into the peace and quiet in a realm that is private and personal to Plaintiff and the Class members.” Vallejo v. R. J. Reynolds Tobacco Company, 8:25CV00466: Vallejo v RJ Reynolds Tobacco Complaint Link
Under the TCPA, telemarketing calls or texts can’t be made before 8 a.m. or after 9 p.m. (local time for the recipient). We’ve been seeing a lot of these time-of-day cases pop up lately:
IN HOT WATER: Louisiana Crawfish Company Sued Over Early-Morning Text Messages – TCPAWorld
IT WAS A MATTER OF TIME: Another Company Allegedly Violated TCPA Time Restrictions. – TCPAWorld
TIME OUT!: NFL Team Tampa Bay Buccaneers Hit With Latest in A Series of Time Restriction TCPA Class Action – TCPAWorld
SOUR MORNING?: For Love and Lemons Faces TCPA Lawsuit Over Timing Violations – TCPAWorld
TOO LATE: 7-Eleven Sued in TCPA Class Action for Allegedly Failing to Comply With Call Time Limitations–And This Is Crazy If its True – TCPAWorld
Here, in Vallejo v. R. J. Reynolds Tobacco Company, however, the plaintiff claims he received early-morning marketing texts around 7:15 a.m. and 7:36 a.m., local time. The complaint further alleges that he “never signed any type of authorization permitting or allowing Defendant to send them telephone solicitations before 8 am or after 9 pm,” though it doesn’t actually say he withheld consent entirely for these messages.
The plaintiff seeks to represent the following class:
All persons in the United States who from four years prior to the filing of this action through the date of class certification (1) Defendant, or anyone on Defendant’s behalf, (2) placed more than one marketing text message within any 12-month period; (3) where such marketing text messages were initiated before the hour of 8 a.m. or after 9 p.m. (local time at the called party’s location).
As I’ve said before, from my reading of the TCPA, these time-of-day restrictions apply specifically to “telephone solicitations,” meaning calls or texts made with the recipient’s prior consent or within an existing business relationship might be exempt. Since the plaintiff doesn’t deny consenting to these texts in the first place, we’ll have to keep an eye on this lawsuit to see if the Central District of California agrees with that interpretation.
Court Applies Internal Affairs Doctrine Even Though Statute Refers Only To Directors
Courts are wont to say that Section 2116 of the California Corporations Code codifies the internal affairs doctrine. See Villari v. Mozilo, 208 Cal. App. 4th 1470, 1478 n.8 (Cal. Ct. App. 2012)(“Corporations Code section 2116 codifies [the internal affairs doctrine] in California.”). I have long held the position that this is only partially true. Section 2116 provides:
The directors of a foreign corporation transacting intrastate business are liable to the corporation, its shareholders, creditors, receiver, liquidator or trustee in bankruptcy for the making of unauthorized dividends, purchase of shares or distribution of assets or false certificates, reports or public notices or other violation of official duty according to any applicable laws of the state or place of incorporation or organization, whether committed or done in this state or elsewhere. Such liability may be enforced in the courts of this state. (emphasis added)
The statute makes no reference to officers. Thus, it would seem reasonable to conclude that it does not apply to officers. Courts, however, seem to miss the obvious omission of officers from the statute, as illustrated in a recent ruling by U.S. District Court Judge Janis L. Sammartino in Lapchak v. Paradigm Biopharmaceuticals (USA), Inc., 2025 WL 437904 (S.D. Cal. Feb. 7, 2025). In that case, Judge Sammartino ruled that Delaware law applied to the individual defendant even though the plaintiff failed to allege that the defendant was a director of the corporation. In fact, neither party even alleged that the corporation was incorporated in Delaware, but the court did some online checking. Finally, it is unclear from the ruling whether the individual defendant was even an officer of the corporation.
As I have previously contended, officers are agents of the corporation whilst directors qua directors are not. In many cases, their duties and responsibilities may be governed by contractual choice of law provisions and local agency and employment laws. In any event, a plain reading of Section 2116 reveals that officers have no place in it.
COMPLAINTS ABOUT COMPLAINTS: Defendant Granted Leniency from Burdensome Discovery Production
Discovery disputes are a big part of TCPA cases and, practically speaking, it can be exceptionally difficult for defendants to produce all documents requested by TCPA plaintiffs… for several reasons. Requests for production and interrogatories tend to be worded as broadly as possible (generally to seek class information). Then, even with discovery requests that are agreed upon by the parties, the practical difficulty of obtaining and producing the requested material can range from difficult to nearly impossible.
In Nock v. PalmCo Administration, LLC, No. 1:24-CV-00662-JMC, 2025 WL 750467 (D. Md. Mar. 10, 2025), the District Court of Maryland showed leniency to the defendant, although it still ordered the defendant to at least attempt to produce nearly every material that the plaintiff had requested.
For some context, the plaintiff alleged that the defendant had violated 47 U.S.C. § 227(c), the Do Not Call (“DNC”) provision of the TCPA, and Md. Com. Law § 14-320, Maryland’s analogous DNC law. Id at *1. An informal discovery dispute was brought before the court based on the defendant’s purportedly incomplete responses to the plaintiff’s discovery requests. Id.
Firstly, the court found that an interrogatory seeking “all complaints ‘regarding [the defendant’s] marketing practices’” unreasonably burdened the defendant—since complaints relating to all marketing practices would clearly turn up material unrelated to the case’s subject matter. Id. at *2. However, the court still ordered production of all complaints related to the case’s subject matter. Id. at *3.
Secondly, the plaintiff sought production of documents that had previously been ordered by the court. Id. However, one of the categories of documents was outside the defendant’s possession—data from one of its vendors. Id. As the defendant demonstrated “reasonable efforts to obtain the requested information,” the court allowed the defendant to send one more email request to furnish missing data from the third-party vendor to fulfill the defendant’s obligations under the previous court order. Id.
Although this specific request did not fall under retention requirements, it is worth a reminder that the statutory Telemarketing Sales Rule recently expanded in what records must be kept for all telemarketing calls.
Thirdly, the plaintiff sought records of all communications between the defendant and a third-party vendor. Id. Similarly, the court was lenient with the defendant, even though the defendant had already missed a court ordered production deadline on those communications. Id. The defendant was still ordered to produce the communications within thirty days, but the court was understanding of the practical difficulties in producing all said communications. Id. at *3-4.
That is all for this order. However, the TCPA keeps seeing new rules and requirements. Most urgently, we are now less than a month away from new revocation rules coming into effect. Be ready for those changes as they are set to be implemented on April 11, 2025!
Federal Judge Clarifies Scope of Preliminary Injunction Enjoining President Trump’s DEI-Related Executive Orders
On March 10, 2025, a federal judge in Maryland clarified the scope of the nationwide preliminary injunction that enjoins key portions of two of President Donald Trump’s diversity, equity, and inclusion (DEI)–related executive orders (EOs), stating that the injunction applies to all federal agencies.
Quick Hits
On February 21, 2025, a federal judge granted a nationwide preliminary injunction that enjoined key provisions of President Trump’s executive orders aimed at “illegal” DEI initiatives.
On March 3, 2025, the judge refused to halt the preliminary injunction, pending the government’s appeal to the Fourth Circuit Court of Appeals.
On March 10, 2025, the judge clarified that the preliminary injunction applies to all federal executive branch agencies, departments, and commissions, not just those that were specifically named in the complaint.
U.S. District Judge Adam B. Abelson clarified that the nationwide preliminary injunction enjoining the termination, certification, and enforcement provisions of EO 14151 and EO 14173 “applies to and binds Defendants other than the President, as well as all other federal executive branch agencies, departments, and commissions, and their heads, officers, agents, and subdivisions directed pursuant to” those executive orders.
The court’s February 21, 2025, preliminary injunction order defined the “Enjoined Parties” as “Defendants other than the President, and other persons who are in active concert or participation with Defendants.” The plaintiffs filed a motion to clarify the scope of the order. The government argued that the court lacked jurisdiction to rule on the motion, and that only the specific departments, agencies, and commissions named as additional defendants in the complaint were bound by the preliminary injunction. The complaint named the following defendants: the Office of Management and Budget, the U.S. Departments of Justice, Health and Human Services, Education, Labor, Interior, Commerce, Agriculture, Energy, and Transportation, along with the heads of those agencies (in their official capacities), the National Science Foundation, and President Trump in his official capacity. The government argued that including other departments, agencies, and commissions as enjoined parties would be inconsistent with Federal Rule of Civil Procedure 65(d), Article III of the U.S. Constitution’s standing requirement, and traditional principles of equity and preliminary injunctive relief.
The court disagreed. First, according to the court, the plaintiffs have shown a likelihood of success on the merits that the termination, certification, and enforcement provisions are unconstitutional, so any agencies acting pursuant to those provisions “would be acting pursuant to an order that Plaintiffs have shown a strong likelihood of success in establishing is unconstitutional on its face.”
Second, the termination and certification provisions were directed to all agencies, the enforcement provision was directed to the U.S. Department of Justice, and the president was named as a defendant in the complaint; thus, the preliminary injunction (in both its original and clarified forms) “is tailored to the executive branch agencies, departments and commissions that were directed, and have acted or may act, pursuant to the President’s directives in the Challenged Provisions of” EO 14151 and EO 14173.
Third, only enjoining those agencies that were specifically named in the complaint, despite the fact that the president was named as a defendant, would provide incomplete relief to the plaintiffs because their speech is at risk of being chilled by non-named agencies as well. In addition, the court held that “[a]rtificially limiting the preliminary injunction in the way Defendants propose also would make the termination status of a federal grant, or the requirement to certify compliance by a federal contractor, turn on which federal executive agency the grantee or contractor relies on for current or future federal funding—even though the agencies would be acting pursuant to the exact same Challenged Provisions,” resulting in “‘inequitable treatment.’” Thus, the court granted the plaintiffs’ motion to clarify that the preliminary injunction applies to every agency in the executive branch.
Second Circuit: Rule 37 Sanctions Require ‘Intent to Deprive’ for Lost ESI, Not Mere Negligence
Plaintiff–Appellant Richard Hoffer sued the city of Yonkers, the Yonkers Police Department, and various individual police officers under 42 U.S.C. § 1983, alleging the officers used excessive force when arresting him. After trial, the jury returned a verdict in the officers’ favor. Hoffer appealed the judgment, arguing the district court erred in denying his request for an adverse inference instruction pursuant to Federal Rule of Civil Procedure 37(e)(2), based on a missing video of him being tased. On appeal, the parties disputed the standard applicable to requests for adverse inference instructions under Rule 37(e)(2).
The Second Circuit held that to impose sanctions pursuant to Rule 37(e)(2), a district court or a jury must find, by a preponderance of the evidence, that a party acted with an “intent to deprive” another party of the lost information. Consistent with this holding, the court further held the lesser “culpable state of mind” standard, which includes negligence,[1] was no longer applicable for imposing Rule 37(e)(2) sanctions for lost electronically stored information (ESI).
Hoffer v. City of Yonkers, et al. Background
Plaintiff–appellant commenced a § 1983 suit against the city of Yonkers, the Yonkers Police Department, and various individual police officers alleging, among other things, that the officers used excessive force during his 2016 arrest. A trial was held in 2021 on the claims against the individual police officers (collectively, the officer defendants), where differing accounts of the arrest were offered into evidence. There was no dispute that plaintiff was tased two times. However, each taser generates a log, which reflects each use of the taser. And while the log for the date in issue reflected two deployments, they were hours apart: the first at 4:16 p.m., when the officer tested the taser at the beginning of his shift, and the second at 8:02 p.m., lasting eight seconds, which the officer testified corresponded to the secondtime he tased plaintiff. The log also reflected an event at 10:24 p.m. titled “USB Connected,” that apparently corresponded to the taser syncing to an external device.
There was also testimony that each taser deployment generates a video. However, the testimony established that only video of the second deployment was available because the video of the first deployment “had somehow been overwritten.” No further explanation was provided as to the first video’s absence. Plaintiff’s girlfriend testified that, when she was at the police station after plaintiff’s arrest, she saw one officer holding a USB and saying to another officer: “It shows everything that we did and nothing that he did.”
Plaintiff’s counsel orally requested the district court instruct the jury that it could draw an adverse inference against the officer defendants based on the purported spoliation of the first video. At the charge conference, the district court, after assessing the request under Rule 37(e)(2), declined finding the evidence before it insufficient to establish any defendant “acted with an intent to deprive [Plaintiff] of the use of the video.”
There was no “clear evidence” that the first taser video existed in the first place, speculating that perhaps the first deployment did not trigger a video recording or that the first and second taser deployments happened within the same eight second period the log captured. The court further reasoned that it was not clear what the officer meant when he testified about “something being overwritten,” and nothing in his testimony suggested he had any direct knowledge or experience with the document management system for taser videos or this video specifically. The district court further observed that officer testimony establishing there were two taser deployments and no effort by defendants to “cover up that fact” undercut the theory the video was purposely destroyed. After three days of deliberations, the jury returned a unanimous verdict, finding in the officer defendants’ favor.
Appeal
On appeal, plaintiff-appellant argued that the district court erred by failing to instruct the jury that it could draw an adverse inference based on the purported spoliation of the first taser video. To decide that issue, the court was required to first resolve the parties’ dispute regarding the showing required for an adverse inference instruction under Rule 37(e)(2).[2]
In resolving this issue, the court discussed the history of Rule 37. Specifically, it noted that before 2015, a party seeking an adverse inference instruction based on lost evidence—electronic or otherwise—had to establish that the party obligated to preserve such evidence who failed to do so acted with “a culpable state of mind”[3] (internal quotation marks omitted). At that time, the circuit court held the requirement could be satisfied when a party acted knowingly or negligently. An intentional act was not required to establish a “culpable state of mind.” Then, in 2015, Rule 37(e) was amended to address the measures a court could employ if ESI was wrongfully lost, and the findings required to order such measures. At that time, Rule 37 was split into two subsections. The first allowed a court, upon a finding of prejudice to another party arising from the loss of ESI to order “measures no greater than necessary to cure the prejudice.” The second enumerated certain sanctions the court may impose “only upon finding that the party acted with the intent to deprive another party of the information’s use in the litigation.”
The court observed that the Advisory Committee notes to the 2015 Amendment explicitly stated that subdivision (e)(2) rejects cases such as Residential Funding that authorize adverse inference instructions upon a finding of negligence.[4] According to the court, the notes reason that only the intentional loss or destruction of evidence gives rise to an inference that the evidence was unfavorable to the party responsible for that loss or destruction. Negligent—or even grossly negligent—behavior does not logically support that inference.
While plaintiff-appellant correctly noted various circuit decisions after the 2015 Amendment that referenced or used the lesser “culpable state of mind” standard in the context of lost ESI (citing cases), the circuit noted that none of those decisions expressly held that the state of mind required for a sanction under Rule 37(e)(2) could be less than “intent to deprive.” Rather, no decision directly addressed the question before the court: whether the 2015 Amendment abrogated the lesser “culpable state of mind” standard in the context of lost ESI. According to the circuit, “[t]o the extent these decisions implied that a Rule 37(e)(2) sanction could issue upon a finding of a state of mind other than ‘intent to deprive,’ any such implication was mistaken after the 2015 Amendment.”
Conclusion
The Second Circuit has clearly articulated that imposing a sanction under Rule 37(e)(2) requires a finding of “intent to deprive another party of the information’s use in the litigation.” Thus, the 2015 Amendment to Rule 37(e)(2) abrogated the lesser “culpable state of mind” standard used in Residential Funding in the context of lost ESI. “A party’s acting negligently or knowingly will not suffice to justify the sanctions enumerated in Rule 37(e)(2).” Notably, in holding that the requisite state of mind to impose a sanction under Rule 37(e)(2) is “intent to deprive,” the Second Circuit joins the majority of its sister circuits.[5]
[1] see Residential Funding Corp. v. DeGeorge Fin. Corp., 306 F.3d 99, 108 (2d Cir. 2002).
[2] The parties also disagreed about whether the requirements of Rule 37(e)(2) must be proven by clear and convincing evidence or by a preponderance of the evidence, and whether the district court erred in resolving factual questions itself, rather than submitting them to the jury. Although the appellate court determined these issues (i.e., by a preponderance of the evidence and there was no error), these issues are not discussed in this blog.
[3] See Residential Funding Corp. v. DeGeorge Fin. Corp., 306 F.3d 99, 107 (2d Cir. 2002).
[4] Before the 2015 Amendment, Rule 37(e) provided in full: “Absent exceptional circumstances, a court may not impose sanctions under these rules on a party for failing to provide electronically stored information lost as a result of the routine, good-faith operation of an electronic information system.” Rule 37(e)(2) advisory committee’s note to 2015 amendment.
[5] See Jones v. Riot Hosp. Grp. LLC, 95 F.4th 730, 735 (9th Cir. 2024); Ford v. Anderson Cnty., Texas, 102 F.4th 292, 323–24 (5th Cir. 2024); Skanska USA Civ. Se. Inc. v. Bagelheads, Inc., 75 F.4th 1290, 1312 (11th Cir. 2023) (specifying that “intent to deprive” means “more than mere negligence”); Wall v. Rasnick, 42 F.4th 214, 222–23 (4th Cir. 2022); Auer v. City of Minot, 896 F.3d 854, 858 (8th Cir. 2018); Applebaum v. Target Corp., 831 F.3d 740, 745 (6th Cir. 2016) (“A showing of negligence or even gross negligence will not do the trick.”).
GRAB THE POPCORN: Regal’s Marketing Texts Just Premiered in a TCPA Blockbuster!
Grab your popcorn, here’s a quick case alert for you. Regal Cinemas just found itself in the middle of a legal thriller, and this one is playing out in the Central District of California instead of the big screen. See Hensley v. Regal Cinemas, Inc., No. 8:25-cv-00468 (C.D. Cal. Mar. 11, 2025). Here, we have a moviegoer suing the theater giant, claiming they were bombarded with promotional text messages before 8 a.m., breaking the rules set by the TCPA.
We are not just talking about a single rogue text. According to the Complaint, Regal allegedly sent off four early morning marketing messages, including two that landed at 7:21 and 7:22 in the morning. Instead of waking up to a quiet morning, Plaintiff was greeted with ads for free popcorn, extra Crown Club credits, and something called Funnel Fangs. Curious enough, I had to look into what these Funnel Fangs are and apparently they are funnel cake fries with red icing… which sound pretty good. Nothing like getting a promo for deep-fried snacks before you have even had your first sip of coffee.
But here is where things get sticky, like the bottom of a theater floor after a late-night screening. As we know, strict guidelines under the TCPA prohibit businesses from sending telemarketing messages before 8 a.m. or after 9 p.m. However, allegedly Regal rolled the credits on that rule and kept the marketing show going anyway.
This is no small popcorn flick. This is a class action lawsuit, meaning thousands could have been hit with these early morning texts. And the timing could not be worse, no pun intended. TCPA lawsuits are exploding faster than a bag of extra-butter popcorn in a hot microwave. More TCPA class actions were filed in the first ten days of March than in all of March last year!
Lawsuits over time-restricted messages keep rolling in, proving that plaintiffs’ lawyers are watching compliance missteps like hawks. Companies are learning the hard way that when they ignore TCPA rules, the lawsuits come in faster than a summer blockbuster lineup.
Dewberry Group, Inc. v. Dewberry Engineers Inc. (No. 23-900)
The federal Lanham Act provides that a plaintiff who prevails in a trademark infringement suit is sometimes entitled to recover the “defendant’s profits” derived from the infringement. But does the “defendant’s profits” look only to the named defendant, or can it consider the profits of separately incorporated affiliates that were not parties to the lawsuit? In Dewberry Group, Inc. v. Dewberry Engineers Inc. (No 23-900), a unanimous Supreme Court held that district courts may “award only profits properly ascribable to the defendant itself” absent some legal basis (like veil piercing) for looking beyond the named defendant to related entities.
The case began with a trademark infringement suit between two real-estate companies: Dewberry Engineers and Dewberry Group. (As the Court’s opinion acknowledged, any summary of the facts was itself likely to create confusion because there were “too darn many Dewberrys.”) After Dewberry Engineers emerged victorious, it sought to recover the “defendant’s profits,” as authorized by the Lanham Act. But the only named defendant was Dewberry Group. Unfortunately for Dewberry Engineers, Dewberry Group has no profits: It provides various business services at below-market rates to separately incorporated companies also owned by Dewberry Group’s owner, thus operating at a significant loss. And while those affiliates earn millions of dollars in profits, those profits go to the books of the affiliates alone, not back to Dewberry Group. No matter, said the District Court: It would look to the “economic reality” of the situation and treat the affiliates and Dewberry Group “as a single corporate entity” for purposes of calculating the “defendant’s profits.” It therefore awarded $43 million to Dewberry Engineers, an award (and methodology for calculating it) that the Fourth Circuit affirmed.
In a unanimous opinion by Justice Kagan, the Supreme Court held that the District Court and Fourth Circuit had erred by including the affiliates’ profits in the calculation of the “defendant’s profits.” Kagan began by noting that the ordinary legal meaning of the term “defendant” refers only to the entity actually sued—here, Dewberry Group alone. And while Dewberry Engineers could have added the affiliates as defendants, for whatever reason, it hadn’t. Kagan then turned to “background principles of corporate law,” which generally prohibit courts from treating separately incorporated affiliates as a single legal entity absent some recognized exception. Piercing the corporate veil is one such exception, but Dewberry Engineers had never tried to establish the facts required to pierce Dewberry Group’s corporate veil and reach its affiliates. For these reasons, the lower courts “were wrong to treat Dewberry Group and its affiliates as a single entity in calculating the ‘defendant’s profits.’”
Justice Kagan then turned to an alternative argument raised by Dewberry Engineers to defend the lower courts’ award: Another sentence of the Lanham Act provides that, “[i]f the court shall find that the amount of the recovery based on profits is either inadequate or excessive[,] the court may in its discretion enter judgment for such sum as the court shall find to be just, according to the circumstances.” Kagan rejected Dewberry Engineers’ reliance on that provision, observing that neither the District Court nor Fourth Circuit had based the award on this “just-sum provision.” Instead, the decisions below reasoned only that the courts could disregard the affiliates’ legally separate status. The Court therefore vacated and remanded the case back to the district court for a new award proceeding. Those new proceedings could include consideration of this “just-sum” provision. They could also involve an analysis of whether corporate-veil piercing was an available option. And the lower courts could take up the suggestion of the United States Government as amicus curiae that in calculating a the named defendant’s profits, courts can “look behind” the defendant’s books to identify “the defendant’s true financial gain,” i.e., that Dewberry Group may effectively be earning a profit on its infringing activities even if its books don’t say so.
Justice Sotomayor briefly concurred. She agreed that “principles of corporate separateness,” as well as the Lanham Act’s statutory text, “forbade the lower courts from attributing to Dewberry Group all the profits of its affiliates, absent veil piercing.” But she also noted that such legal principles “do not blind courts to economic realities” or “force courts to accept clever accounting, including efforts to obscure a defendant’s true financial gain through arrangements with affiliates.” She reasoned that there were still “myriad ways” by which courts could consider arrangements with affiliates when calculating the “defendant’s profits.” In particular, she opined that courts could take into account “a non-arm’s-length relationship with an affiliate that effectively assigns some portion of its revenues to the latter,” as well as “evidence that a company indirectly received compensation for infringing services through related corporate entities.”
Federal Circuit Affirms District Court’s Obviousness Judgment on ImmunoGen Patent Application
1. Background: ImmunoGen’s Patent Application & Dispute
In 2014, ImmunoGen, Inc. (Immunogen) filed U.S. Patent Application No. 14/509,809 (the ’809 application).1 The ’809 application has three independent claims, all of which are directed to methods of treating ovarian and peritoneal cancers by administering an antibody drug conjugate (ADC) known as IMGN853 (i.e., mirvetuximab soravtansine) according to certain dosing regimens. Specifically, the ’809 application claims administering the ADC “at a dose of 6 milligrams (mg) per kilogram (kg) of adjusted ideal body weight (AIBW) of the patient.”2
According to the specification, IMGN853 was found to cause ocular toxicity (i.e., blurred vision, keratitis, etc.) at certain doses.3 The inventors of the ’809 application discovered that “the high Cmax and initial AUC values are not required for efficacy” and developed “a therapeutically effective dosing regimen that results in minimal adverse effects.”4
The patent examiner, however, rejected the claims of the ’809 application on various grounds, including obviousness and obviousness-type double patenting. The Patent Trial and Appeal Board affirmed the examiner’s rejections and ImmunoGen filed suit in the Eastern District of Virginia seeking a judgment that it was entitled to a patent under 35 U.S.C. § 145.
After a three-day bench trial,5 the district court agreed with the Patent Office and determined that the claims of the ’809 application were obvious and were not patentably distinct from subject matter claimed in other patents owned by ImmunoGen (and thus were not patentable under the doctrine of obviousness-type double patenting).6, 7 ImmunoGen appealed, and on March 6, 2025, the Federal Circuit affirmed the district court’s judgment on obviousness in a precedential opinion.
2. The Federal Circuit’s Decision
The Federal Circuit began its obviousness analysis by explaining that “Immunogen first argues that the district court erred in its motivation-to-combine analysis because it was undisputed that at the time of the invention, a person of ordinary skill in the art would not have known that IMGN853 caused ocular toxicity in humans.”8 According to ImmunoGen, because the problem that the inventors aimed to solve was not known (i.e., that IMGN853 can cause ocular toxicity), the dosing regimen recited in the claims of the ’809 application could not have been obvious.
The Federal Circuit disagreed, explaining that “it does not follow that a claimed solution to an unknown problem is necessarily non-obvious.”9 And the Federal Circuit explained “that the specific problem the inventors of the ’809 application purported to solve via the claimed dosing regimen was unknown does not necessarily mean that the dosing regimen itself was not obvious.”10 In other words, the motivation provided by the prior art does not need to match the alleged motivation of the inventors—what matters is that a POSA would have been motivated by the prior art to arrive at the claimed dose, regardless of the reason, and would have had a reasonable expectation of success.
Regardless, the district court found that ocular toxicity was a known problem in the context of immunoconjugates like IMGN853 and thus a POSA would have known to monitor patients for those side effects when administering IMGN853. The district court also explained that pre-clinical studies were conducted in rabbits in which they were given IMGN853, but that ocular toxicity was not found to be a side effect in those studies. But experts on both sides agreed that pre-clinical animal studies do not always translate to humans, thus those rabbit studies would not have deterred a POSA from monitoring for those side effects in humans. The Federal Circuit found no clear error in the district court’s reasoning on these points.11
The district court also found that a POSA would have been motivated to reduce the toxicity of IMGN853 by experimenting with the dosing regimen and that AIBW was a known dosing methodology for that purpose.12 ImmunoGen took issue with the fact that the district court did not explain why a POSA would have been motivated to use AIBW specifically, as opposed to other known dosing methodologies.
The Federal Circuit again disagreed with ImmunoGen and found no clear error in the district court’s reasoning. Specifically, the Federal Circuit agreed with the district court that a POSA would have been motivated to select a 6 mg/kg AIBW dose with a reasonable expectation of success in view of a prior art reference that taught a dose of IMGN853 based on total body weight (TBW) dosing.13 The Federal Circuit acknowledged that TBW and AIBW are different types of weight-based dosing methodologies, but explained that the prior art reference’s 6 mg/kg TBW dose of IMGN853 would have also led to a 6 mg/kg AIBW dose of IMGN853 in certain situations. And the Federal Circuit explained that “[a] doctor dosing a patient at his or her IBW with IMGN853 at a dose of 6 mg/kg TBW would necessarily be dosing that patient at 6 mg/kg AIBW, as claimed. This would be true regardless of whether a doctor knew of AIBW dosing”14
Finally, ImmunoGen argued that the district court erred because a POSA would not have had a reasonable expectation of success with respect to using a 6 mg/kg AIBW dose to ameliorate ocular toxicity. The problem with ImmunoGen’s argument was that “the claims are silent as to any ocular toxicity problem,” and thus “ImmunoGen’s framing of the reasonable-expectation-of-success analysis is inapt.”15 Here, “[t]he inquiry merely required the district court to determine whether the evidence established that a person of ordinary skill in the art would have had a reasonable expectation that dosing a human at 6 mg/kg AIBW would have been effective in treating ovarian and peritoneal cancers, as claimed.”16 Because the prior art taught that dosing regimen, as claimed, the claims of the ’809 application were found to be unpatentable as obvious.17
Conclusions and Takeaways
The Federal Circuit’s opinion offers important guidance on obviousness issues in the context of “method of treatment” and dose-regimen patents. Namely, the fact that a dosing-related “problem” is not expressly known in the prior art may not save an otherwise obvious patent, particularly when the claims are “silent” on the dosing issues. In that case, a POSA can be motivated (and have a reasonable expectation of success) by the prior art for reasons distinct from what motivated the inventors to develop the claimed dosing-regimen.
Indeed, the Federal Circuit made clear that “the obviousness inquiry is generally agnostic to the particular motivation of the inventors,”18 and that “any need or problem known in the field of endeavor at the time of invention and addressed by the patent can provide a reason for combining the elements in the manner claimed.”19 Also, a dosing patent may be obvious even if the prior art does not expressly teach the specific nuances of how to arrive at the claimed dose or dosing methodology (e.g., where the TBW dose necessarily meant the same thing as the AIBW dose in at least some patients). Ultimately, the Federal Circuit’s opinion underscores the fact intensive nature of the motivation and reasonable expectation of success elements in the context of obviousness.
Footnotes
[1] The ’809 application claims priority to a provisional application filed on October 8, 2013.
[2] See, e.g., ’809 application, claim 1.
[3] See, e.g., id. at ¶ [0009].
[4] Id. at Abstract, ¶ [0009].
[5] Before this bench trial, the district court previously ruled in the patent office’s favor after a motion for summary judgment was filed. But the Federal Circuit vacated and remanded the district court’s summary judgment decision because “the district court resolved numerous factual disputes against” ImmunoGen.
[6] ImmunoGen, Inc. v. Vidal, 653 F. Supp. 3d 258, 307 (E.D. Va. 2023).
[7] The district court also found the claim term “adjusted ideal body weight (AIBW)” indefinite after trial, but the Federal Circuit did not address indefiniteness issues on appeal.
[8] ImmunoGen, Inc. v. Stewart, No. 2023-1762, 2025 WL 715996, at *3 (Fed. Cir. Mar. 6, 2025).
[9] Id.
[10] Id.
[11] Id.
[12] Id. at *4.
[13] Id. at *5.
[14] Id.
[15] Id.
[16] Id.
[17] The Federal Circuit also noted that “the government further challenged the patentability of the claims under the doctrine of obviousness-type double patenting,” but “[o]n appeal, the parties agree[d] that that issue rises and falls with the issue of obviousness,” and therefore double patenting was not addressed further by the Federal Circuit. Id., n. 3.
[18] Id. at *12, citing KSR Int’l Co. v. Teleflex Inc., 550 U.S. 398, 419 (2007)
[19] Id. at *7, citing KSR Int’l, 550 U.S. 420.
CAPITAL ONE SUED: Plaintiffs Allege 17 Separate Causes of Action in New Website Tracking Case
Shah v. Cap. One Fin. Corp., No. 24-CV-05985-TLT, 2025 WL 714252 (N.D. Cal. Mar. 3, 2025) has raised some serious allegations against Capital One (“Defendant”), accusing the financial giant of secretly intercepting and sharing sensitive personal information through third-party tracking technologies on its website.
According to a group of plaintiffs, led by the somewhat seasoned Vishal Shah (see INVISIBLE DATA, REAL CONSEQUENCES: Navigating the IP Consent Dilemma – CIPAWorld), these trackers “instantaneously and surreptitiously” captured communications between users and the site, sending personal details to companies like Google, Microsoft, Adobe, Facebook, and others. The information allegedly shared included everything from employment and bank account details to credit card application status and browsing activities.
The Plaintiffs claim they never authorized sharing of their personal and financial data with these third or fourth parties for marketing and sales purposes. In the complaint, the Plaintiffs highlight specific privacy concerns, particularly with the targeted advertising section of Capital One’s Privacy Policy. The Policy states:
“We and our third-party providers may collect information about your activities on our Online Services and across different websites, mobile apps, and devices over time for targeted advertising purposes. These providers may then show you ads, including across the internet and mobile apps, and other devices, based in part on the information they have collected or that we have shared with them.”
The Plaintiffs argue that Capital One’s practices go well beyond what they ever agreed to in the company’s Privacy Policy. While the Privacy Policy does include an option to opt out of targeted advertising, this opt-out only applies to the “specific browser or device” used, meaning users may allegedly still be tracked across other platforms.
In total, the Complaint outlines a staggering 17 different causes of action, ranging from constitutional privacy violations to property claims. In response to these allegations, Capital One has filed a motion to dismiss the complaint in its entirety, along with all 17 claims brought forth by the Plaintiffs.
So, buckle in, and let’s go through them.
Threshold Issues
Defendant sought to dismiss the entire Complaint for two overarching reasons: (1) the Complaint’s exhibits conflict with Plaintiffs’ key allegations and (2) Plaintiffs fail to allege that Defendant disclosed Plaintiffs’ personal information and financial information.
Conflict between allegations of unauthorized disclosure and Privacy Policy attached to the Complaint.
Defendant contended that Plaintiffs’ allegations directly conflict with Defendant’s Privacy Policy because Defendant discloses that it releases customer information for third party marketing. However, the Court noted that while the Privacy Policy states that it collects information about a customer’s internet activities, it does not state that it releases that customer’s personal information such as employment information and credit card preapproval or approval status, which Plaintiffs allege is collected and shared. Therefore, the Court found that the Privacy Policy did not directly conflict with Plaintiffs’ allegations.
Defendant also argued that Plaintiffs consented to the disclosure of their personal information, that Defendant provided sufficient opt out instruction, and that the disclosures did not involve fourth parties. The Court found that the issue of consent was a factual question and declined to decide it at the pleadings stage.
Sufficiency of allegations as to disclosure of personal and financial information.
For the second threshold issue, Defendant argued that Plaintiffs failed to allege specific disclosures of their personal and financial information. The Court found that they did. For instance, Plaintiffs alleged that they interacted with Defendant’s website, which they alleged contained third party trackers. They alleged that they put their personal and financial information, including employment information, bank account information, citizenship status, and credit card preapproval or eligibility, into Defendant’s website and then received targeted third- and fourth-party marketing ads. They also alleged that, as a result of using Defendant’s website, their information was transmitted to third party trackers such as Google, Microsoft, and Meta, without their consent. The Court found these factual allegations sufficient to allege the disclosure of Plaintiff’s personal information and denied Defendant’s motion to dismiss as to the second threshold issue.
Plaintiffs’ Negligence Claims.
Defendant first argued that Plaintiffs have not identified a duty owed by Defendant arising under the Gramm-Leach-Bliley Act (“GLBA”) or the Federal Trade Commission (“FTC”) Act, because neither statute provides a private right of action. The Court dismissed this argument as the Defendant conflated negligence and negligence per se, with only the latter being concerned with a statutorily identified duty.
Further, the Court evaluated the California factors for determining whether a valid duty of care exists and found that Plaintiffs did allege such a duty by alleging that they placed trust in Defendant to protect their personal information, which Defendant then disclosed.
Next, the Court turned to the economic loss doctrine, which prohibits recovery of purely pecuniary or commercial losses in tort actions. While Defendant argued that the economic loss rule bars Plaintiffs’ negligence claims, the Court found that Plaintiffs also plead non-economic harms such as lost time and money incurred to mitigate the effect of the use of their information. Accordingly, the Court denied Defendant’s motion to dismiss as to negligence.
Plaintiffs’ Negligence Per Se Claims.
The doctrine of negligence per se creates an evidentiary presumption that affects the standard of care in a cause of action for negligence. Defendant next argued that negligence per se is not a standalone cause of action. The Court agreed and held that because Plaintiffs brought a negligence per se cause of action in addition to a negligence claim, the negligence per se claim was not proper. Accordingly, the Court granted Defendant’s motion to dismiss the negligence per se claim without leave to amend.
Plaintiffs’ Invasion of Privacy Claim under the California Constitution.
To state a claim for invasion of privacy under the California Constitution, plaintiffs must show that they possess a legally protected privacy interest, they maintain a reasonable expectation of privacy, and the intrusion is so serious as to contribute an egregious breach of social norms.
The Court determined that regardless of whether Plaintiffs possessed a legally protected privacy interest or maintained a reasonable expectation of privacy in this case, the alleged disclosure of employment information, bank account information, and preapproval or approval for a credit card does not rise to the level of an “egregious breach of social norms.” The Court granted Defendant’s motion to dismiss as the California constitutional privacy claim without prejudice.
Plaintiffs’ Comprehensive Computer Data Access and Fraud Act (“CDAFA”) and the Unfair Competition Law (“UCL”) Claim.
The CDAFA prohibits certain computer-based conduct such as knowingly and without permission accessing or causing to be accessed any computer, computer system, or computer network. The CDAFA provides that only an individual who has suffered damage or loss due to a violation of the statute may bring a civil action. Similarly, the UCL prohibits “unlawful, unfair or fraudulent business act or practice.” To have standing under the UCL, a plaintiff must establish that they suffered an injury in fact and lost money or property as a result of the wrongful conduct.
Here, Plaintiffs stated that they had a property interest in their personal information and that they lost money and property when Defendant disclosed their personal information to third parties. However, the Court determined that Plaintiffs’ personal information does not constitute property. Additionally, Plaintiffs did not plead that they “ever attempted or intended to participate in the market for the information” Defendant allegedly disclosed, or that they derived economic value from that information. Further, the Court held that even an argument that Plaintiffs experienced a diminution of the value of their private and personal information would not confer standing. Accordingly, the Court granted Defendant’s motion to dismiss for lack of standing as to the CDAFA and the UCL without prejudice.
Plaintiffs’ California Consumer Privacy Act (“CCPA”) Claims.
The CCPA imposes a duty on businesses to implement and maintain reasonable security practices to protect consumers’ personal information. While it is generally enforced by the California Attorney General, it also provides a limited private cause of action for any consumer whose personal information is subject to unauthorized access or disclosure as a result of a security breach. Courts, however, have also permitted CCPA claims to survive a motion to dismiss in cases where the plaintiff does not allege a data breach, but instead alleges that the defendants disclosed plaintiff’s personal information without consent by failing to maintain reasonable security practices.
In this case, because Plaintiffs allege that Defendant allowed third parties such as Google and Microsoft to embed trackers on its website and that these trackers transmitted Plaintiffs’ personal information, the Court held that Plaintiffs need not allege a data breach. Accordingly, the Court denied Defendant’s motion to dismiss as to the CCPA claim.
Plaintiffs’ California Customer Records Act (“CRA”) Claims under §§ 1789.81.5 and 1798.82 of the California Civil Code.
The CRA regulates businesses with regard to treatment and notification procedures relating to their customers’ personal information. It requires businesses to “maintain reasonable security procedures and practices appropriate to the nature of the information” and to protect “personal information from unauthorized access, destruction, use, modification, or disclosure.”
The Court first addressed Plaintiffs’ CRA claim under § 1789.81.5. Defendant argued that because it is a financial institution, it is exempt from liability for any violations under this provision. See Cal. Civ. Code § 1798.81(e)(2) (exempting financial institutions from liability under section 1798.81.5). Plaintiffs, however, alleged that Defendant is a business within the meaning of § 1798.81.5(b). The Court sided with Defendant and granted its motion to dismiss without leave to amend as to Plaintiffs’ § 1789.81.5 claims.
The Court next addressed Plaintiffs’ CRA claim under Section 1798.82, which requires a business to disclose a breach of security systems to customers. Plaintiffs allege that the CRA applies because Defendant knew that Plaintiffs’ information was acquired by unauthorized persons and failed to disclose it to Plaintiffs. However, there must be a breach of security to show a CRA claim. See Cal. Civ. Code § 1798.82(a) (stating that a person or business shall “disclose a breach of security of the system following discovery or notification of the breach”). Further, a claim under section 1798.82 is not actionable for the breach itself but instead for the “unreasonably delayed notification,” so Plaintiffs must allege when the breach occurred. Here, the Court held that Plaintiffs not to only failed to allege that there was a breach of security but also failed to allege when Defendant became aware of the alleged breach.
Accordingly, the Court granted Defendant’s motion to dismiss as to the CRA section 1798.82 claim without prejudice.
Plaintiffs’ Breach of Express Contract Claim.
The Court found that Plaintiffs did not state a claim as to the breach of express contract because, while they alleged that they entered a contract with Defendant, they failed to cite to any specific section of the contract that Defendant allegedly violated. Instead, Plaintiffs stated generally that Defendant breached its express contract with Plaintiffs “to protect their nonpublic personal information.” Questioning where in the contract Defendant agreed to protect their nonpublic personal information or when Defendant explicitly promised not to disclose their data, the Court granted Defendant’s Motion to Dismiss as to the breach of express contract without prejudice.
Plaintiffs’ Breach of Implied Contract Claim.
Plaintiffs alleged that they had an implied contract with Defendant that it would keep their personal information confidential. However, once again, Plaintiffs did not state a claim because they failed to expand on the nature of the implied contract. Plaintiffs also fail to differentiate the express contract claim from the implied contract claim – the Court noted that Plaintiffs must elaborate on whether the implied contract involves separate promises from the express contract because Plaintiffs cannot allege both an express contract and an implied contract on the same matter. Accordingly, the Court granted Defendant’s motion to dismiss as to breach of implied contract without prejudice.
Plaintiffs’ Breach of Confidence Claim.
For the same reason as above, the Court held that Plaintiffs do not state a claim as to breach of confidence because they allege the existence of both an express and implied contracts, and the express contract precludes the breach of confidence claim. The Court dismissed the Plaintiffs’ claim without prejudice.
Plaintiffs’ Unjust Enrichment Claim.
The Court acknowledged the “somewhat unclear” nature of unjust enrichment claims in California, but, noting that both the Ninth Circuit and the California Supreme Court have allowed independent claims for unjust enrichment to proceed, allowed Plaintiffs claim to proceed basis the allegations that Defendant benefited from using Plaintiffs’ information and that Plaintiffs’ remedies at law are inadequate.
Plaintiffs’ Bailment Claim.
Bailment is generally defined as the deposit of personal property with another, usually for a particular purpose. The Court held that Plaintiffs have not alleged a deposit of personal property that falls within the scope of bailment because they only allege that they deposited their personal information. The Court cited Worldwide Media, Inc. v. Twitter, Inc., 17-cv-07335-VKD, 2018 WL 5304852 (N.D. Cal. Oct. 24, 2018) and In re Sony Gaming Networks & Customer Data Sec. Breach Litig., 903 F. Supp. 2d 942 (S.D. Cal. 2012), both finding that personal information is not something that can be delivered or taken custody of and later returned. Accordingly, the Court granted Defendant’s motion to dismiss as to bailment with prejudice.
Plaintiffs’ Claim for Declaratory Judgment.
The Court acknowledged Defendant’s contention that the declaratory judgment claim is duplicative of other claims but held that Plaintiffs may still bring it as it is predicated on their negligence claim. Therefore, the Court denied Defendant’s motion to dismiss as to declaratory judgment.
Plaintiffs’ Electronic Communications Privacy Act (“ECPA”) Claim.
The ECPA prohibits unauthorized interception of an electronic communication. To state a claim, a plaintiff must allege that the defendant intentionally intercepted the contents of plaintiff’s electronic communications using a device. The one-party consent exemption provides that it is not unlawful for a person to intercept a wire, oral, or electronic communication when that person is a party to the communication or when a party to the communication has consented to interception, unless the interception is to commit a crime or a tort.
Defendant argued that the “one-party consent exemption” applies because Defendant was a party to the communications. However, because Plaintiffs alleged that Defendant intercepted the contents of the communications for an unauthorized purpose, which resulted in tortious acts, the Court held that the one-party exemption does not apply.
Another reason that the one-party exemption does not apply is because the issue of whether Plaintiffs consented to Defendant’s conduct is at the center of the dispute – and this is a factual determination. Accordingly, the Court denied Defendant’s motion to dismiss as to the ECPA.
Plaintiffs’ CIPA Claims
Plaintiffs allege that Defendant violated both §§ 631 and 632 of CIPA.
Plaintiffs’ § 631 claims.
§ 631(a)(2) applies to anyone who reads, attempts to read, or to learn the contents of a communication while it is in transit and without the consent of all parties to the communication. Defendant argues that Plaintiffs’ claims under § 631 fail because Plaintiffs consented to the data sharing practices in the Privacy Policy, do not allege that any third party read a communication “in transit,” and do not allege that Defendant disclosed “contents” of a communication.
As for the first issue, because this once again involves factual determination of consent, the Court held that Plaintiffs’ allegations were sufficient for the pleadings stage. The Court also held that Plaintiffs plausibly alleged that Defendant intercepted communications while they were in transit by describing how Defendant allegedly installed third-party trackers on its website. Finally, Plaintiffs stated that the communication included personal information, which is a “content” under CIPA. As a result, the Court found that Plaintiffs sufficiently stated a claim as to § 631.
Plaintiffs’ § 632 claims.
§ 632 prohibits intentionally and without consent using an “electronic amplifying or recording device” to eavesdrop upon or record confidential communication. Again, because this issue hinges on whether Plaintiffs consented to Defendant’s disclosure, the Court found that Plaintiffs allegations are sufficient for purposes of a motion to dismiss.
Accordingly, the Court denied Defendant’s motion to dismiss as to the CIPA.
Plaintiffs’ Stored Communications Act Claim.
The Stored Communications Act created a private right of action against anyone who intentionally and without authorization (or in excess of their authorization) accesses a facility through which an electronic communications service is provided. The Stored Communications Act, however, only provides liability for a provider that is a “remote computing services” or “electronic communication services.” Plaintiffs alleged in the complaint that Defendant is an electronic communication service because it “intentionally procures and embeds” Plaintiffs’ personal information through the tracking technology on Defendant’s website. However, the Court held that Defendant is not an electronic communication service because its website does not allow customers to send and receive messages to third parties. The Court compared the situation here to that in In re Betterhelp, Inc., No. 23-cv-01033-RS, 2024 WL 4504527, at *2 (N.D. Cal. Oct. 15, 2024), where the defendant was found to be an electronic communication service because defendant’s customers communicated with third parties through the “conduit” of defendant’s websites. Instead, Plaintiffs here themselves stated that they were unaware of the presence of the trackers, and did not allege that they communicated with the third parties. Therefore, because Defendant’s website does not allow customers to send and receive messages to third parties, the Court held Defendant is not an electronic communication service.
Accordingly, the Court granted Defendant’s motion to dismiss as to the Stored Communications Act with prejudice.
Plaintiffs’ Computer Fraud and Abuse Act (“CFAA”) Claim.
The CFAA makes intentionally accessing a computer without authorization a federal crime. It imposes a civil liability when someone “knowingly and with intent to defraud, accesses a protected computer without authorization, or exceeds authorized access” unless the “object of the fraud” is less than $5,000 in any 1-year period. Plaintiffs here did not state a claim as to CFAA because they did not allege with specificity a loss of $5,000. The complaint only states that “secret transmission” of Plaintiffs’ personal information caused them loss, but it does not go into further detail. The alleged loss is therefore speculative, and insufficient for purposes of the CFAA. Accordingly, the Court granted Defendant’s motion to dismiss as to the CFAA claim without prejudice.
Takeaways
My first takeaway – if you got through all that, congratulations on your attention span. Secondly, a recurring theme in the Court’s extensive analysis is its refusal to determine issues of consent at the pleadings stage. This is nothing new or groundbreaking, the issue of consent unquestionably requires a factual investigation and is rarely, if ever, conclusive as grounds for a motion to dismiss.
On the brighter side for Capital One, the Court did agree to dismiss three of the Plaintiffs’ claims with prejudice, meaning the Plaintiffs cannot amend these claims and bring them again. These were Plaintiffs’ claims under negligence per se, bailment, and the Stored Communications Act.
The Court also granted the motion to dismiss as to Plaintiffs’ claims for invasion of privacy under the California Constitution, CDAFA, UCL, breach of express contract, breach of implied contract, breach of confidence, and CFAA, albeit with leave to amend. The California Constitution and CDAFA claims are notable for the Courts findings that the alleged disclosures do not amount to an “egregious breach of social norms”, and that Plaintiffs’ personal information does not constitute property. This fits into a trend of Courts being somewhat hesitant to expand the scope of privacy standing where there is no “tangible” harm. Blake digs into this here: READ ALL ABOUT IT: Reuters Faces Privacy Lawsuit But The Court Finds No Story To Tell – CIPAWorld.
You can read the order here: Shah v. Cap. One Fin. Corp., No. 24-CV-05985-TLT, 2025 WL 714252 (N.D. Cal. Mar. 3, 2025)
Under New York Law a Recourse Provision Bars Most Claims Except for Fraud
In Iberdrola Energy Projects v. Oaktree Capital Management L.P., 231 A.D.3d 33, 216 N.Y.S.3d 124, the Appellate Division for the First Department ruled that a nonrecourse provision in a contract barred a plaintiff’s causes of action for tortious interference with contract, unjust enrichment, and statutory violations of a trade practices statute, but not for fraud.
This case arose from a contract related to the construction of a power plant in Salem, Massachusetts. A choice-of-law provision dictated that the contract was governed by and construed in accordance with New York law. Defendants created a special-purpose entity (SPE) to serve as the company charged with constructing the new plant. Defendants owned, controlled, and managed the SPE and were the SPE’s majority and controlling equity holders. The majority of the SPE’s board of directors and officers were also defendants’ employees. The SPE retained plaintiff to be the project’s engineering, procurement, and construction contractor.
The contract permitted the SPE to terminate the contract for convenience or for a material breach by the contractor. In the event of termination for cause, the owner would incur substantial payment obligations; a termination for convenience would not. The contract required the contractor to post a standby letter of credit in the amount of approximately $140 million as security for the contractor’s performance. The owner was permitted to draw on the letter of credit only “upon any Contractor’s breach or failure to perform, when and as required, any of its material obligations under the Contract.” The contract contained a nonrecourse provision that provided that,
[Owner’s] obligations hereunder are intended to be the obligations of Owner and of the corporation which is the sole general partner of Owner only and no recourse for any obligation of Owner hereunder, or for any claim based thereon or otherwise in respect thereof, shall be had against any incorporator, shareholder, officer or director or Affiliate, as such, past, present or future of such corporate general partner or any other subsidiary or Affiliate of any such direct or indirect parent corporation or any incorporator, shareholder, officer or director, as such, past, present or future, of any such parent or other subsidiary or Affiliate.
The project was plagued with delays and cost overruns. When the project was 98% complete, the SPE terminated for cause. The SPE drew the $140 million afforded by the letter of credit, retained a replacement contractor, and completed the remaining work. The original contractor filed for arbitration against the SPE, claiming that the SPE breached the contract, engaged in tortious conduct, violated the Massachusetts Unfair Trade Practice Act, and sought $700 million in damages. The SPE appeared in the arbitration proceeding and asserted counterclaims.
The arbitration panel determined, among other things, that the SPE lacked cause to terminate the contract and that it terminated the contract as a pretense to draw on the letter of credit and issued a final award in the contractor’s favor for $236,404,377. That award was confirmed in New York, and the SPE filed for bankruptcy. The original contractor filed a civil action in New York, bringing the same claims against the defendants, but all counts except for fraud were dismissed based on the nonrecourse provision.
The New York lower court enforced the plain meaning of the nonrecourse provision, which sophisticated commercial parties negotiated. The nonrecourse provision is a contractual limitation on liability, which, like other exculpatory clauses, is generally enforceable provided it does not violate a statute or run afoul of public policy. The court determined the provision to be “as broad as it is clear: no liability could be imposed upon various individuals and entities for “any claim based on the contract or otherwise in respect thereof.” Plaintiff’s causes of action for tortious interference with contract, unjust enrichment, and violations of Massachusetts’s deceptive trade practices statute were all hinged or predicated on conduct taken under or in contravention of the contract. Since these causes of action were all related to or connected with the contract, they were all barred by the nonrecourse provision. The court showed no sympathy for the plaintiff contractor and its likely inability to recover any part of the judgment it was holding. The plaintiff knew it was entering a very large contract with an SPE and should have known of the breadth of the nonrecourse provision. The takeaway appears to be: Beware of nonrecourse provisions with SPEs.
Texas Federal Court Holds that Dodd-Frank Act Whistleblower Protection Law Does Not Authorize Jury Trials [Video]
On February 20, 2025, Judge Horan held in Edwards v. First Trust Portfolios LP that a Dodd-Frank whistleblower retaliation plaintiff is not entitled to a jury trial. This opinion underscores the importance of bringing additional claims that can be heard by a jury, including a Sarbanes-Oxley (SOX) whistleblower retaliation claim.
Aaron Edwards filed suit against his former employer, First Trust, alleging that he was terminated in retaliation for raising concerns about a gift program. Edwards claimed that First Trust’s practice of only awarding gifts to financial advisors at the end of the year who sold the most First Trust products during that year constituted an illegal sales contest under SEC regulations. He brought claims under the whistleblower protection provisions of SOX, the Dodd-Frank Act, and the Consumer Financial Protection Act (CFPA). After Judge Horan denied First Trust’s motion for summary judgment, First Trust moved to strike Edwards’ jury demand for his Dodd-Frank retaliation claim.
In contrast to an express provision in SOX clarifying that a SOX plaintiff “shall be entitled to trial by jury,” the whistleblower protection provision of the Dodd-Frank Act does not expressly provide for a right to a jury trial, so this dispute hinges on whether Dodd-Frank Act retaliation remedies are legal or equitable in nature (if the remedies are legal, then there is a right to a jury trial under the Seventh Amendment). Per the Supreme Court’s decision in SEC v. Jarkesy, the key factor determining “whether a monetary remedy is legal is if it is designed to punish or deter the wrongdoer, or, on the other hand, solely to restore the status quo.” 603 U.S. 109, 123 (2024).
A prevailing whistleblower in a Dodd-Frank whistleblower retaliation action is entitled to reinstatement, double back pay with interest, and litigation costs, including attorneys’ fees. Edwards argued that double back pay damages are legal in nature because they “go beyond restoring the status quo to deter and punish Dodd-Frank violators” and that Dodd-Frank’s doubling of back pay transmutes it from an equitable to legal remedy because it “serves to deter future misconduct by litigants.”
First Trust, however, asserted that under Fifth Circuit precedent, Dodd-Frank retaliation remedies, including reinstatement and back pay, are equitable in nature. Relying on a Georgia district judge decision, Judge Horan held that reinstatement and back pay are generally recognized as equitable remedies and that the automatic doubling of back pay does not change it from an equitable remedy to a legal one. See Pruett v. BlueLinx Holdings, Inc., No. 1:13-cv-02607-JOF, 2013 WL 6335887 (N.D. Ga. Nov. 12, 2013).
Since Edwards is already trying his SOX claim before a jury, and the motion to strike was filed close to trial, Judge Horan held that a binding jury will be empaneled for Edwards’s SOX claim and the same jury will serve as an advisory jury for Edwards’s Dodd-Frank claim.
Strategic Considerations: Why a Whistleblower Should Bring Both SOX and Dodd-Frank Whistleblower Retaliation Claims
Where a whistleblower that suffered retaliation qualifies for protection both under SOX and the Dodd-Frank Act, we recommend bringing both claims uto maximize the potential recovery. There are four advantages to bringing a SOX claim in addition to a Dodd-Frank claim:
Uncapped special damages: The Dodd-Frank Act authorizes economic damages and equitable relief but does not authorize non-economic damages. In contrast, SOX authorizes uncapped “special damages” for emotional distress and reputational harm.
Exemption from mandatory arbitration: SOX provides an unequivocal exemption from mandatory arbitration, but Dodd-Frank claims are subject to arbitration.
Preliminary reinstatement: If an OSHA investigation concludes that an employer violated the whistleblower protection provision of SOX, OSHA can order the employer to reinstate the whistleblower. However, there is some dispute as to whether an OSHA order of reinstatement is enforceable. See, e.g., Gulden v. Exxon Mobil Corp., 119 F.4th 299 (3d Cir. 2024).
Favorable causation standard: A far more generous burden of proof (“contributing factor” causation under SOX, rather than “but for” causation under Dodd-Frank).
There are four advantages to bringing a Dodd-Frank claim in addition to a SOX claim:
Double back pay: Dodd-Frank authorizes an award of double back pay (double lost wages) plus interest, whereas SOX authorizes ordinary back pay with interest along with other damages. Both statutes authorize reinstatement and attorney fees.
Longer statute of limitations: Whereas the statute of limitations for a SOX retaliation claim is just 180 days, the statute of limitations for a Dodd-Frank retaliation claim is a minimum of 3 years after the date when facts material to the right of action are known or reasonably should have been known by the whistleblower.
Broader scope of coverage: SOX whistleblower protection applies primarily to employees of public companies and contractors of public companies. The Dodd-Frank prohibition against whistleblower retaliation applies to “any employer,” not just public companies.
No administrative exhaustion: In contrast to SOX, Dodd-Frank permits a whistleblower to sue a current or former employer directly in federal district court without first exhausting administrative remedies at DOL.
Whistleblower Protections for SEC Whistleblowers
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