Appellate Division Addresses Rules Governing Motion For New Trial

Attorneys who practice in New Jersey’s state courts should take heed of a recent Appellate Division case -- Eunhyuk Do v. Hyoungsuk Kang, Docket No. A-5966-13T3 (App. Div. Sept. 28, 2016) – addressing the the rules governing motions for a new trial. 

Background and Motion for New Trial

In May 2014, a New Jersey trial court jury ruled unanimously against Eunhyuk Do and Min Hee Kim (collectively, “Plaintiffs”), finding the Plaintiffs had not sustained permanent injury as a result of a car accident.  Plaintiffs filed a motion for a new trial 21 days after the verdict was rendered claiming, among other things, that the evidence did not support the verdict and that the judge’s inappropriate facial expressions tainted the jury’s verdict.  The trial judge found the motion untimely under Rule 4:49-1(b), and also denied the motion on its merits. 

On appeal, the Appellate Division affirmed the trial court’s decision.

Failure to Follow Procedural Rules

At the outset, the Appellate Division (“the Court”) noted that Plaintiffs failed to supply the Court with the complete trial transcript as required by Rule 2:5-3(a).  Although the Court held it could affirm the trial court’s ruling or dismiss the appeal on that basis alone, it chose to proceed relying upon the thorough opinions written by the trial judge.  The Court noted that it could also affirm the trial court’s decision based on the failure to file the motion for new trial in a timely fashion.  As the Court explained, the twenty-day time limit set by Rule 4:49(1)(b) for filing a motion for a new trial “is one of the few time restrictions that a court may not relax, even if there are extenuating circumstances.” 

Failure to Show a “Miscarriage of Justice Under the Law”

Despite finding it could dismiss the case on two different procedural bases, the Court nonetheless opted to examine the merits of the motion.  Rule 4:49-1(a) provides that a trial judge considering a motion for a new trial “shall grant the motion if, having given due regard to the opportunity of the jury to pass upon the credibility of the witnesses, it clearly and convincingly appears that there was a miscarriage of justice under the law.”  As the Court explained, this standard applies to both Plaintiffs’ contention that the verdict went against the weight of the evidence and Plaintiffs’ arguments that the trial judge tainted the verdict.  Appellate courts reviewing motions for new trial apply the same standard, but must “defer to the trial court's ‘feel of the case’ derived from the judge's personal observations of the witnesses' testimony during the trial and other intangible factors that cannot be duplicated by or extracted from the examination of the transcribed record” (internal citations removed). 

Applying this standard, the Court found ample evidence in support of the jury’s verdict.  The Court held “a jury verdict is impregnable unless so distorted and wrong, in the objective and articulated view of a judge, as to manifest with utmost certainty a plain miscarriage of justice” (internal citations removed).  Under this framework, the Court rejected Plaintiffs’ contention that the jury’s verdict represented a miscarriage of justice as would satisfy this stringent standard and denied the appeal as to that argument.

Turning to the allegation that the judge’s facial expressions and gestures tainted the ruling, the Court explained that “(i)t is well recognized that a trial judge's official expressions of displeasure or disapproval may convey to the jury the belief that defense counsel was somehow acting improperly, disrespectfully, or deceptively” (internal citations removed).  Reviewing the limited record before it, the Court found Plaintiffs’ claim lacked merit and that the evidence did not support a finding that the judge departed from proper standards of conduct.  The Court similarly dismissed the Plaintiffs’ contention that the judge erred in her rulings regarding voir dire and the admission of expert testimony.

Lessons from the Ruling

The Eunhyuk Do case reminds practitioners and litigants that compliance with the New Jersey Court rules is particularly critical when filing a Motion for New Trial.  Here, both the failure to file a timely motion and the failure to provide a proper record could have, independently, resulted in a ruling against the Eunhyuk Do Plaintiffs.

District Court Dismisses Hostile Work Environment Claims as Untimely

A recent decision from the District Court of New Jersey provides important guidance for both employers and employees regarding the continuing violations theory in employment discrimination claims based on a hostile work environment theory.

Background on the Case

In early 2016, Plaintiff Eric J. Handelman (“Handelman” or “Plaintiff”) filed suit alleging he had been discriminated against in the course of his employment with the New Jersey Department of Transportation (“NJDOT”).  His suit, filed against the NJDOT, the state of New Jersey, and certain individuals (collectively, the “Defendants”), contained counts based on both federal and state laws, many resting on a hostile work environment (“HWE”) theory.  In Handelman v. New Jersey, Civil Action No.: 16-2325 (JLL)(JAD) (D.N.J. July 12, 2016,), the District Court of New Jersey evaluated the Defendants’ Partial Motion to Dismiss several of these claims. 

Timeliness and the Continuing Violation Theory in Hostile Work Environment Claims

One of the Defendants’ primary arguments was that Handelman’s claim under the New Jersey Law Against Discrimination (“NJLAD”) were barred by the statute of limitations.  While the statute of limitations for NJLAD claims is typically two years, the continuing violations doctrine is an equitable exception that may apply in HWE cases.  Citing the Supreme Court of the United States, the Court recognizes that “[t]he continuing violation doctrine is premised on the nature of a hostile work environment claim, which is composed of a series of separate acts that collectively constitute one unlawful employment practice and cannot be said to occur on any particular day” (citing National R.R. Passenger Corp. v. Morgan, 536 U.S. 101 (2002) (internal quotations removed)).  The District Court goes on to explain “discriminatory acts that are not individually actionable may be aggregated to make out a hostile work environment claim; such acts can occur at any time so long as they are linked in a pattern of actions which continues into the applicable limitations period.’” (citing Mandel v. M & Q Packaging Corp., 706 F.3d 157, 165-66 (3d Cir. 2013)).  In sum, an HWE claim may be deemed timely even if only a single action that contributes to the claim occurred in the two-year limitations period as long as that action is part of the same unlawful practice. 

Plaintiff’s Hostile Work Environment Claim under NJLAD Deemed Untimely

Applying this rule, the Court finds that, as pled, Handelman’s NJLAD claim was untimely.  First, the Court notes that Handelman did not specifically invoke the continuing violations theory in his Complaint.  Although, the District Court concludes that it is unsettled law in the Third Circuit whether a continuing violation theory must be specifically pled, the Court finds persuasive the line of cases that require the clear pleading of the continuing violations doctrine in the complaint.  “[W]ithout such an allegation, there is merely continuity of employment with what may be no more than sporadic instances of discriminatory conduct, and mere continuity of employment, without more, is insufficient to prolong the life of a cause of action for employment discrimination” (internal citations removed).

Further, the Court finds it is unclear whether the Plaintiff’s claim would be timely even if he had specifically invoked the continuing violations doctrine with respect to the discrimination claim under the NJLAD.  There are two important points in this discussion.  First, the Court holds that it is unclear whether a plaintiff can use acts characterized as retaliatory conduct in support of a HWE claim.  Second, the Court looks at a specific action characterized as a "tangible adverse employment action" and, while noting this is likely an “individually actionable discrete act,” finds it is unclear whether it can support a continuing violation theory under an HWE claim.  “To allege a continuing violation, the plaintiff must show that all acts which constitute the claim are part of the same unlawful employment practice and that at least one act falls within the applicable limitations period” (citing Mandel, emphasis added by Handelman court). 

While the Court finds Handelman’s claims time-barred as pled, the Court grants the Plaintiff leave to amend, noting that it is possible the Complaint could be amended to sufficiently invoke the continuing violations doctrine. 

Lessons from Handelman

Although it is not the only issue discussed in the recent Handelman ruling, employment litigators should take note of the District Court’s in-depth analysis of timeliness under the continuing violations theory.  The District Court strongly suggests courts may be leaning toward requiring specific pleading of a continuing violations theory.  Practitioners should also pay close attention to the facts in hostile work environment cases and determine whether cited acts are part of chain of events that support an HWE claim versus discrete instances of discrimination or examples of retaliation.

District Court Broadly Interprets NJFPA 20% Requirement

The Protections of the New Jersey Franchise Practices Act Still Potentially Available to Businesses That Do Not Derive 20 Percent Of Sales From Franchise

On July 11, the District Court of New Jersey held in no uncertain terms that a business seeking the protections of the New Jersey Franchise Practices Act, N.J.S.A. §§ 56:10-1, -15 (“NJFPA” or the “Act”), could fall under the umbrella of the Act if there existed a mere intention of 20% of the business sales deriving from a purported franchise’s products/services.   

Background on the Case

In Ocean City Express Co. v. Atlas Van Lines, Inc., Civil No. 13-1467 (JBS/KMW) (D.N.J. July 12, 2016), Ocean City Express Co, Inc. (“Ocean City” or “Plaintiff”) alleged that Atlas Van Lines, Inc. (“Atlas” or “Defendant”) violated the NJFPA by terminating the parties’ Agency Agreement of March 31, 2016 without “good cause.”  After multiple other motions, Atlas moved for summary judgment claiming that, among other failings, the arrangement between the parties did not qualify as a franchise under the NJFPA because less than 20% of the Plaintiff’s gross sales derived from the Agency Agreement.  Indeed, Ocean City readily admitted that only 2.71% of its actual sales in 2010 derived from the Agency Agreement.  Ocean City, in response, claimed that while its actual gross sales fell below the 20% threshold, the intention in executing the Agreement was for sales to exceed the 20% mark and the failure to meet this mark was as a result of the Defendant’s actions.

Analysis of the NJFPA’s 20 Percent Mandate

The Court rejected Atlas’ argument and ultimately denied summary judgment.  In doing so, the Court explained that, by the plain language of the NJFPA, a mere intention for 20% of sales to be derived from the franchise could satisfy the 20% requirement of the Act.  Indeed, the NJFPA provides, in relevant part, that for a purported franchisee to receive the Act’s protections, “more than 20% of the franchisee's gross sales [must be] intended to be or are derived from such franchise.”  Additionally, the Court cited precedent holding that remedial statutes such as the NJFPA should be read broadly to give effect to the legislative purpose of the law.  Applying these precepts, the Court concluded that the NJFPA “compels, on its face, an inquiry into the scope of intended revenues, in addition to actual revenues.”

The Court also noted that even a cursory look at the factual record demonstrated that at least the plaintiff intended that Ocean City would derive over 20% of its gross sales from the arrangement with Atlas.  As such, the court held that “a reasonable factfinder could well conclude that Ocean City meets the 20% requirement of the New Jersey Franchise Practices Act ("NJFPA"), due to the parties' intent, as a matter of law.”

District Court Of New Jersey Weighs In On Pleading Requirements For Private Securities Fraud Claims

On June 20, 2016, the District Court of New Jersey dismissed a private securities fraud action against defendants in a putative class action.  In doing so, the court provided further guidance as to the types of factual allegations that will and will not satisfy the pleading standards for such a cause of action.

Background on the Case

In Henry A. v. Aerie Pharms. Inc., Civil No. 15-3007 (D.N.J. June 20, 2016), the plaintiffs alleged that Aerie Pharmaceuticals Inc. (“Aerie”) and certain corporate officers and directors (collectively, “the Defendants”) defrauded investors by issuing false statements or omitting material facts relating to the development of Rhopressa, a glaucoma medication.  The allegations focused on statements made during the clinical trial process and certain stock trades allegedly made by one member of the board of directors. 

The Court’s Analysis: Emphasizing the Rigorous Pleading Standards for Securities Fraud Claims

The District Court reiterated the well-settled standard that a plaintiff in securities fraud action must allege: “(1) a material misrepresentation or omission, (2) scienter, (3) a connection between the misrepresentation or omission and the purchase or sale of a security, (4) reliance upon the misrepresentation or omission, (5) economic loss, and (6) loss causation” (citing City of Edinburgh Council v. Pfizer, Inc., 754 F.3d 159, 167 (3d Cir. 2014)).  The court also noted that the Private Securities Litigation Reform Act of 1995 (“PSLRA”) requires plaintiffs to meet heightened pleading standards and specify the allegedly misleading statements, identify why the statements are misleading, and, for those allegations made on information or belief, specify the facts supporting that belief.  Additionally, the plaintiff must “state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind” (citing 15 U.S.C. § 78u-4(b)(2)).

Using this rubric and the established framework for evaluating a 12(b)(6) motion to dismiss, the court evaluated three categories of statements that plaintiffs alleged violated the securities laws.  For each category, the Court held that the plaintiffs failed to sufficiently plead a securities fraud cause of action:

1)      As to statements that Rhopressa was a “blockbuster” drug, the court found the defendants were protected by one of two safe harbors in the PLSRA for forward-looking statements.  Specifically, the court applied 15 U.S.C. § 78u-5(c) and found the statements were accompanied by “meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statement.”   

2)      The second category of statements dealt with how Rhopressa would perform during a Phase 3 clinical trial (referred to as “Rocket 1”), which later failed to produce desired results.  As to these statements, the court found the plaintiffs failed to allege scienter with the requisite level of particularity.  The court evaluated several different statements and dismissed the claims finding: a) a failure to demonstrate intentional or reckless statements, b) a failure to show motives beyond the general wish for a company’s success, and c) that one allegedly suspicious trade did not amount to a trading pattern that could support an inference of a deceptive plan. 

3)      The court likewise found the plaintiffs failed to meet the high bar for alleging scienter as to statements regarding Rhopressa’s previous performance against an existing drug.  Specifically, the court found that the plaintiffs failed to show that there was any deceptive intent or recklessness behind the cited statements.  Citing established law, the court wrote “material representations are what matter in a securities fraud complaint; opinions and general statements of are understood by reasonable investors to be mere puffery” (internal citations omitted). 

Takeaway

The Henry A. case provides concrete examples of allegations that will not satisfy the stringent pleading requirements of a securities fraud action in the District of New Jersey.  Practitioners who represent clients on either side of the "v" would be wise to take note.

District Court of New Jersey Denies Motion to Dismiss Franchisees’ Claims That Franchisor Imposed “Unreasonable Standards” on Franchisees

Last month, the District Court of New Jersey clarified the type of conduct that could give rise to a claim that a franchisor imposed “unreasonable standards of performance” on a franchisee in violation of the New Jersey Franchise Practices Act (the “NJFPA”), N.J.S.A. 56:10-7(e).   

In South Gas, Inc. v. ExxonMobil Oil Corp., Docket No. 09-cv-6236 (KM)(MAH) (D.N.J. Feb. 29, 2016), plaintiffs, ExxonMobil Oil Corporation (“Exxon”) franchisees, filed suit against Exxon.  Plaintiffs’ claimed, inter alia, that Exxon imposed “unreasonable standards of performance” on plaintiffs in violation of the NJFPA.  Specifically, Plaintiffs’ Second Amended Complaint included allegations that Exxon had imposed unreasonable “inventory standards” and “volume requirements.”  Exxon moved to dismiss plaintiffs’ claim, arguing that (1) plaintiffs had not alleged specific conduct that, even if proven, constituted “unreasonable standards of performance,” and (2) plaintiffs did not have standing to sue pursuant to N.J.S.A. 56:10-7(e) because Exxon did not terminate plaintiffs.

The District Court rejected both of Exxon’s arguments and denied Exxon’s motion to dismiss plaintiffs’ claim under N.J.S.A. 56:10-7(e).   Specifically, the Court held that unreasonable “inventory standards” and unreasonable “volume requirements” satisfied even “a fairly strict reading of the ‘standards of performance’ section” of the NJFPA.  The Court also emphasized that even where individual actions by a franchisor do not, alone, violate N.J.S.A. 56:10-7(e), the “cumulative effect” of these actions may amount to the franchisor’s imposition of an unreasonable standard of performance.  Finally, the Court held that a franchisee need not be terminated in order to file a claim under N.J.S.A. 56:10-7(e), explaining that “Exxon cites no case law for this proposition . . . the statute does not explicitly require termination[,] [n]or would requiring termination be faithful to the policy of reading the NJFPA broadly to effect its legislative purpose.” 

District Court of New Jersey Sanctions Franchisor For “Misleading” and “Troublesome” Discovery Responses

Last month, the District Court of New Jersey issued an opinion sanctioning 7-Eleven for its “discovery transgressions” in Younes v. 7-Eleven, Civil No. 13-4578 (RMB/JS) (D.N.J. Dec. 11, 2015), a case currently pending in Camden. In Younes, plaintiffs alleged that 7-Eleven wrongfully targeted certain South Jersey franchisees for termination in violation of their franchise agreements. 

Plaintiffs filed a motion for sanctions against 7-Eleven for 7-Eleven’s alleged refusal to adequately respond to plaintiffs’ discovery requests, as well as 7-Eleven’s alleged failure to comply with multiple Court Orders compelling discovery.  In its December 11, 2015 decision, the District Court issued sanctions against 7-Eleven for its discovery transgressions, noting “[n]othing would please the Court more than if it did not have to decide the present motion . . . .”  In doing so, the District Court sent a stern warning to practitioners and litigants that failure to take a reasonable approach to discovery would not be tolerated.  Among the important takeaways from the opinion are the following:

(1)   A Court Order compelling discovery is not a prerequisite to discovery sanctions. 

In response to 7-Eleven’s argument that it could not be sanctioned for any alleged discovery transgressions that occurred prior to any Court Order regarding discovery, the District Court held in no uncertain terms that 7-Eleven was wrong.  The Court explained that “[a] party cannot serve substantially deficient discovery responses with impunity,” explaining that 28 U.S.C. 1927, the Court’s inherent power and Rule 26(g)(3) provided the Court authority to sanction 7-Eleven for conduct 7-Eleven engaged in prior to the Court’s involvement in the discovery dispute. 

(2)   If you reasonably understand what a party is requesting in discovery, and the discovery is not otherwise objectionable, provide the discovery.  Parties play a “gotcha” game at their own risk. 

7-Eleven argued that its failure to provide discovery was justified because plaintiffs did not correctly identify the exact project name – “Project P” – in its discovery requests seeking information regarding projects related to franchise terminations in South Jersey.  Instead, Plaintiffs referred to the project at issue as “Operation Philadelphia.”  The District Court rejected this argument, explaining as follows:

 7-Eleven is playing a ‘gotcha’ game when it argues it did not have to produce Project P discovery because plaintiffs referred to Operation Philadelphia instead of Project P.  In this context these terms are synonymous.  It was not plaintiffs’ burden to specifically identify the term Project P before they received responsive information.  They are franchisees with no knowledge of 7-Eleven’s internal plans.  If a reasonable investigation was done the use of the term ‘Operation Philadelphia,’ in the context of plaintiffs’ representations and theory of the case, and 7-Eleven’s hoard of Project P documents, would have and should have put 7-Eleven on notice that plaintiffs were referring to Project P. . .

Further, the federal rules do not and should not require plaintiffs to use “magic words” to obtain clearly relevant discovery.  The obligation on parties and counsel to come forward with relevant documents requested during discovery is “absolute”.

(3)   Showing that a party spent a substantial amount of money on responding to discovery will not, by itself, be a defense to a claim for discovery sanctions.                 

7-Eleven also attempted to avoid sanctions by explaining to the Court that it had spent a substantial amount of time and money on responding to plaintiffs’ discovery requests.  The District Court was unpersuaded, explaining that “7-Eleven only has itself to blame for its incomplete, duplicative and/or misguided document and ESI searches.  If 7-Eleven had done what it was supposed to do from the outset of discovery its transaction costs would have been substantially reduced.”

In sum, the District Court’s decision reminds practitioners and litigants that parties must take their discovery obligations seriously and, perhaps above all, always, in the Court’s words, “stop and think” about the legitimacy of a discovery response.

S.E.C. v. Holley: District Court of New Jersey Clarifies “Personal Benefit” Requirement for Tipper Liability

The District Court of New Jersey recently weighed in on what the government needs to establish to prove that a defendant is liable for insider trading as a “tipper” in violation of SEC Rule 10b-5.  In S.E.C. v. Holley, Civil Action No. 11-0205 (DEA) (D.N.J. Sept. 21, 2015) -- one of the few cases in this District addressing the elements of tipper/tippee liability -- the District Court confirmed that although a defendant’s receipt of a tangible benefit from the purported tippee will satisfy the personal benefit test, the “mere fact of a friendship” is not enough to establish liability.  

In Holley, the SEC filed suit against the former Chairman of a publicly traded company, Board of Home Diagnostics, Inc. (“HDI”).  The SEC alleged that, between December 2009 and January 2012, the defendant intentionally provided material, nonpublic information to six individuals regarding HDI’s impending acquisition.  These individuals purchased shares in HDI and, after HDI was later acquired, together profited approximately $250,000.  

Based on this conduct, the government brought both criminal charges and a civil action against defendant.  The defendant pled guilty to two counts of securities fraud in the criminal action.  Later, the defendant agreed to a consent judgment in the civil action based on the underlying facts of the defendant’s guilty plea in the criminal action.

The defendant subsequently moved to vacate the consent judgment, arguing that a new case decided two days after the consent judgment was entered -- United States v. Newman, 773 F.3d 438 (2d Cir. 2014) – rendered the defendant’s admitted conduct not actionable under the securities laws.  Specifically, the defendant argued that, per Newman, because the defendant did not intend to receive "at least a gain of pecuniary or similarly valuable nature" when he provided confidential information, he was no longer liable for the conduct to which he pled guilty.

The District Court disagreed, explaining that, consistent with Newman, the defendant’s admitted intent to benefit the recipients of his tips is enough to satisfy the “personal benefit” requirement for tipper liability.  The Court also emphasized, however, that the “mere fact of a friendship, particularly of a casual or social in nature", would not be proof of the receipt of a personal benefit.  Instead, it was only due to the additional evidence of defendant’s intent to benefit the “tippees” that defendant’s conduct established his liability.

As such, although the Holley court refused to vacate the judgment against defendant, the case reaffirms that, in this District, the government will need to show more than a friendship between a purported tipper and tippee to prove a tipper’s liability for insider trading.

The New Jersey Franchise Practices Act: Beware the “Constructive Termination”

In any franchise relationship, a franchisor may wish to terminate a franchisee for reasons having nothing to do with a franchisee’s performance. Perhaps the franchisor seeks to downsize the number of franchisees in its fleet or distribute its products through a new business plan in which the franchisee no longer fits.  In any event, a New Jersey franchisor likely knows that, absent good cause, the New Jersey Franchise Practices Act generally prohibits a franchisor from terminating a franchisee.  In other words, the franchisor’s hands may be tied.

What if, however, the franchisee decides to back out of the franchise relationship on its own?  Could a savvy franchisor avoid the prohibitions of the Franchise Practices Act by simply making its franchisee’s life so miserable that the franchisee decides to leave the franchise?  

Not likely.

The Franchise Practices Act generally prohibits both express termination and “constructive termination” of a franchisee without good cause.  As explained by the Appellate Division in Maintainco, Inc. v. Mitsubishi Caterpillar Forklift American, Inc., 408 N.J. Super 461, 479 (App. Div. 2009), “the word “ ‘termination’ in the [Franchise Practices Act] includes constructive termination in accordance with traditional contract law principles.”  

What conduct constitutes a “constructive termination”?  Generally, where a franchisee gives up a franchise because a franchisor acts in a manner that would force a reasonable franchisee to leave a franchise, the franchisor’s conduct may give rise to a “constructive termination” claim.  Indeed, a change in the terms of the relationship could count as a “constructive termination”.  For example, where a franchisor removes a franchisee’s designation as the “exclusive” distributor while still permitting the franchisee to be a non-exclusive distributor of its products, this action may constitute a “constructive termination” under the Franchise Practices Act.  See 408 N.J. Super 479-480.

Bottom line -- franchisors should think twice before attempting to push a franchisee to leave a franchise “voluntarily” or engaging in conduct that would force a reasonable franchisee to give up the franchise.   The franchisor’s actions may constitute a “constructive termination” under the Franchise Practices Act and result in the same repercussions as an express termination of the franchisee.