Business Litigation

What Does the Supreme Court’s Decision in Halliburton Co. v. Erica P. John Fund, Inc. Mean for Antitrust Law?

July 3, 2014 | Jarod Bona

The defendants in Halliburton Co. v. Erica P. John Fund, Inc. failed to show the US Supreme Court the “special justification” necessary to overturn settled precedent.

As we explained in a previous post, the Supreme Court in this case agreed to reconsider its 1988 decision in Basic v. Levinson, which allowed a shareholder class in a securities fraud lawsuit to satisfy statutory “reliance” requirements by invoking a presumption that stock prices traded in “efficient” markets incorporate all material information, including alleged misrepresentations.

But between then and now, academics, economists, and commentators chipped away at the economic theory underlying this presumption, which is based upon “the efficient capital markets hypothesis.”

So if a legal precedent depends upon an economic theory that now appears less valid than it did before, do you overrule it or keep it in place because it has ingrained itself into a larger legal structure?

Here is a similar question from real estate: If part of the wood in a load-bearing wall has started to rot, do you replace it? The Supreme Court held that you do, if you can show a “special justification.”

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We Filed an Amicus Brief to the Minnesota Supreme Court in a Property Rights Case

June 29, 2014 | Jarod Bona

We are proud to announce that we filed an amicus curiae brief with the Minnesota Supreme Court on behalf of the Minnesota Vacation Rental Association last week in Dean et al. v. City of Winona, a case concerning municipal power and the right to rent out one’s residential property.

Four property owners represented by the Institute for Justice Minnesota Chapter challenged a City of Winona, Minnesota ordinance that caps the number of rental licenses per residential block to thirty percent (“the thirty-percent rule”). In other words, if you live in one of Winona’s low-density residential districts, your right to rent your home is subject to your neighbors’ exercise of theirs.

Here’s the background:

The City of Winona, Minnesota was unhappy with parking, density, and aesthetic issues in the residential areas near the Winona State University campus. Rather than enforce existing laws against problem residents (students), the City of Winona decided to expropriate its residents’ property rights by restricting the number of homes that could be rented out to 30% of the houses on a given block.

Thus, if six houses comprise your block, owners of only two houses on the block could obtain a license to rent to tenants.

Four homeowners challenged the thirty-percent rule after facing ruinous financial consequences as a result of the rule. One homeowner, who was deployed to Iraq, almost lost his home because the city wouldn’t let him rent it, thus depriving him of rental income to cover the mortgage payment.

Another couple bought a home in Winona for their daughter to live in while she was in college and as an investment that would provide rental income. After their daughter left, the home sat empty on the market because they couldn’t rent it and interested buyers backed out when told of the rental restriction.

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The Lanham Act and POM Wonderful LLC v. Coca Cola: A Cause of Action for Competitors

June 20, 2014 | Jarod Bona

Many of my cases will pit one competitor against another in litigation. An antitrust claim is often at the center of the dispute, but a number of other claims can find their way into the case; sometimes even in a starring role.

Litigation between competitors can include, for example, trade secret or intellectual property disputes, tortious interference claims, and Lanham Act claims, to name just a few. Our focus today is on the Lanham Act because the U.S. Supreme Court last week issued an interesting opinion on its scope in POM Wonderful LLC v. Coca Cola Company.

The question was whether The Federal, Food, Drug and Cosmetic Act (FDCA) precluded a plaintiff from filing a Lanham Act claim related to food labeling. Justice Kennedy explained for a unanimous court (which did not include Justice Breyer) that plaintiffs can pursue their claim about pomegranate-blueberry juice labeling: The statutes don’t conflict—they complement each other.

First, some background. The Lanham Act is a federal private right of action to enforce trademark rights, as well as (and relevant here) “unfair competition through misleading advertising or labeling.” What is particularly interesting about the Act is that it is specifically designed for competitors. That is, consumers that discover false advertising or labeling can’t bring a Lanham Act case. Only competitors that can “allege an injury to a commercial interest in reputation or sales,” have standing. You might recall that the Court addressed Lanham Act standing earlier this term in Lexmark International, Inc. v. Static Control Components, Inc., discussed here.

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Will the Supreme Court’s Lexmark Standing Decision Lead Indirect-Purchaser Antitrust Plaintiffs to Federal Court?

April 3, 2014 | Jarod Bona

While waiting for my flight to leave San Diego on my way to Washington, DC for the ABA Antitrust Spring Meeting, I saw on Twitter—the best source for immediate Supreme Court news—that the Supreme Court had decided Lexmark International, Inc. v. Static Control Components, Inc.

The Supreme Court in that case clarified standing requirements for Lanham Act claims, which create liability for false association and false advertising. The Lanham Act often comes up in legal battles between competitors, as competition often devolves into allegedly false statements about each other’s products or services.

The case is significant for standing in general, but I wonder if it may have some antitrust implications down the road as the lower courts grapple with its broader implications.

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I Love Running My Own Law Firm

March 20, 2014 | Jarod Bona

You may have heard that last week I left DLA Piper to start my own law firm. I am humbled and appreciative of all the support that I have received from many of you. Thank you.

As an antitrust attorney, I analyze markets every day. Even when I’m not working, I do it. I can’t help myself. When I go to the grocery store and stare at a shelf of products, my three-and-a-half-year-old son—who is my grocery-shopping buddy—might think I am carefully determining the best product to buy. (Well, he actually is probably wondering when we are going to come across more food items with cartoons on them).

Instead, I find myself looking at the difference in prices and the placement of companies’ products on the shelf, and thinking about, for example, whether loyalty discounts or category management played a role.

The same compulsion to analyze markets is now occurring in my own market—the market for legal services—now that I am participating in it as an owner rather than an employee. Thus, I thought it would be fun to periodically blog about my experiences moving from biglaw to my own law firm.

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I Left BigLaw to Start My Own Law Firm . . . Today

March 10, 2014 | Jarod Bona

I am excited to announce that after a dozen years of big-law practice, I am leaving DLA Piper to start my own law firm—Bona Law PC. I believe that through Bona Law I can offer clients the legal services of the best law firms, but in a much more efficient way. I am headquartered in the San Diego, California area, but expect to continue to practice nationally.

My family, friends, and former co-workers have commented lately that I seem very happy—maybe even giddy. It is true. I am as enthusiastic about the practice of law—and life—as I have ever been. I have a wonderful supportive family and am about to embark on a journey that marries my entrepreneurial spirit with a profession that I love. I feel like I am living the dream.

After years of analyzing other markets for antitrust matters, I finally sat down and analyzed my own. My conclusion is the legal market has structurally changed such that the largest law firms are concentrating more and more on their biggest clients and developing such diseconomies of scale that they are no longer competitive for most businesses. Unless a company can provide these law firms with a minimum volume of work, the firms are unlikely to offer a competitive price for their services.

First, matters with less volume could create conflict issues, which are a significant and costly issue for large law firms. Without sufficient volume, it just isn’t worth it for firms to discount their already high prices.

Second, large law firms have huge fixed overhead—leases, management, marketing departments, etc. Moreover, many (probably most) of them have excess capacity, which means that they are paying a lot of attorneys that aren’t billing as many hours as the firm would like. So volume is a big deal.

This is where I come in.

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What Does the Possible Demise of the Securities Class-Action Lawsuit Mean for Antitrust?

February 28, 2014 | Jarod Bona

On March 5, the Supreme Court will hear arguments on whether the fraud-on-the-market presumption in securities class actions should survive. The case is Halliburton v. Erica P. John Fund and it could be groundbreaking. If the Supreme Court jettisons the presumption, it will close a major avenue for securities class-action lawsuits.

Update: The US Supreme Court issued its decision on June 23, 2014.

But what does this mean for antitrust lawsuits? We’ll get to that in a moment.

First, some background: In 1988, the Supreme Court held in Basic v. Levinson that when a shareholder class sues a company under Rule 10b-5 (for misrepresentation, etc.), it need not show that the individual class members relied on the misrepresentations because the stock market is “efficient” and such statements are quickly incorporated into the stock price.

So if you purchased a share of stock after a management official said that the company increased revenue twenty-percent year-over-year even though the manager knew that the revenue numbers were not accurate, you purchased stock that was already inflated from the statements because the market incorporated those statements immediately into the stock price.

Remember the classic book, A Random Walk Down Wall Street? It is all about efficient-market theory. Great book, by the way.

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