Commercial Litigation Update

For months, if not years, you received distribution checks from the business in which you own an interest. The funds came without question and like clockwork. You relied on them. Then suddenly, they stopped coming. Is this the result of a downward business cycle or something more sinister? Before jumping to conclusions, you should seek answers. Here’s how.

Often privately held businesses are organized as limited liability companies (“LLCs”). LLCs are hybrids of corporations and partnerships. They typically insulate members from personal liability to outside parties, a ...

Cannabis has become big business in this country. In 2022, U.S. medical and recreational cannabis sales reached $30 billion. In fact, last year, Americans spent more money on marijuana than chocolate and craft beer combined. By 2027, sales are projected to reach more than $53 billion.

Like any other enterprise, those in the cannabis industry experience typical business disputes, ranging from vendor under/lack of performance, to issues with governmental regulatory bodies. Sometimes those disputes require cannabis businesses to resort to the courts to resolve those issues ...

Nearly a decade ago, the New Jersey Supreme Court in Atalese v. U.S. Legal Services Group, L.P., held that for an arbitration agreement to be enforceable, it had to contain an explicit waiver of the parties’ right to seek access to court. According to a recent New Jersey Appellate Division opinion, that long-standing rule has been qualified to reflect the relative sophistication of the parties involved in the dispute. In County of Passaic v. Horizon Healthcare Services, Inc. d/b/a Horizon Blue Cross Blue Shield of New Jersey, the Appellate Division considered a contract between the County and the entity that managed the County’s self-funded benefits plan. Following the County’s institution of a breach of contract lawsuit, Horizon successfully moved to compel arbitration based upon a clause in the parties’ agreement that required “[i]n the event of any dispute between the parties to this Agreement arising under its terms, the parties shall submit the dispute to binding arbitration under the commercial rules of the American Arbitration Association.” The clause in question contained no explicit waiver of court access. Consequently, the County appealed the decision, arguing for that very reason, the arbitration clause was unenforceable.

Due to the large-scale shutdowns triggered by the Coronavirus pandemic (“COVID-19”), many businesses were unable to operate fully, or not at all. Litigants across the country have sought to be relieved of their obligations under contracts as a result of the pandemic-related disruptions, under legal theories including impossibility, frustration of purpose, and force majeure. As recently decided cases demonstrate, proponents of these theories have faced uphill battles.

We recently participated in what the New Jersey Law Journal called the “first complex civil jury trial to be conducted in person since the COVID-19 pandemic.” Although the case settled shortly after opening statements, this experience taught us that New Jersey courts are ready to try complex civil cases safely and responsibly with new COVID protocols that may force trial attorneys to depart from their usual practices. We published an article in the New Jersey Law Journal about this experience that may be of interest to our readers.

We recently wrote about the pros and cons of the virtual deposition, a mechanism which saw its use burgeon during the pandemic. Epstein Becker & Green’s Managing Director, James P. Flynn, has taken the virtual experience to the next level having recently participated in a virtual bench trial. I asked Jim about his experience, and also received some of his big-picture thoughts on this medium.

Q: Were any aspects of the trial easier, or more streamlined, because it was being conducted virtually?

As the “new normal” of pandemic virtual legal proceedings appears to be waning, a question arises as to which, if any, practices initially born out of necessity, but no longer so, should continue to be utilized. One such device previously employed sparingly, but which became de rigueur during COVID, is the virtual deposition. In some but not all circumstances, virtual depositions can remain an effective tool for litigators.

The critical considerations in determining whether to continue using this mechanism will hinge on the purpose of the deposition and the stature of the ...

Scores of insureds have sued their insurance carriers seeking coverage for business interruption losses stemming from the COVID-19 pandemic and related governmental closure orders. A vast majority have lost. Time and again, courts presiding over these cases have rejected them on the ground that there was no physical loss or damage to the insured’s property. In one Pennsylvania state court, that trend has changed.

In MacMilles, LLC d/b/a Grant Street Tavern v. Erie Insurance Exchange, Judge Christine Ward of the Court of Common Pleas of Allegheny County, Pennsylvania, recently ...

In what can be considered a victory for the drinking classes (see Taps & Bourbon on Terrace, LLC v. Underwriters at Lloyds London, et al.), a Philadelphia judge recently ruled that a tavern’s lawsuit for business interruption coverage for losses caused by COVID-19 will survive for another round. Taps & Bourbon on Terrace (“Taps & Bourbon”) alleged that it sustained business losses resulting from “the COVID-19 pandemic and [] state and local orders mandating that all non-essential businesses be temporarily closed.” In what has become a familiar rejoinder during this ...

We are pleased to present Commercial Litigation Update, the newest blog from law firm Epstein Becker Green (EBG), which will offer engaging content about emerging trends and important developments in commercial and business litigation.

Commercial Litigation Update will feature thought leadership from EBG litigation attorneys and provide insightful and practical commentary and analysis on a wide range of timely litigation issues that affect businesses. Areas of interest will include trends and developments in antitrust, contract, defamation and product disparagement ...

While businesses and their employees continue to operate in the “new frontier” of working-from-home during the COVID-19 pandemic and the gradual reopening of the economy, a serious risk continues to present itself: the threat of cybercrime. The increased use of remote access to work systems and related applications has made businesses a prime target for those unscrupulous individuals seeking to encroach on companies’ cyber-landscape. Flaws in VPNs, firewalls, and videoconferencing, for example, have exposed many companies’ electronic infrastructures to these incursions. Similarly, the at-home workforce has increasingly been subjected to social engineering attacks often cloaked as communications purporting to provide information about pandemic-related issues.

In addition to the technical measures necessary to confront these threats, businesses would be well-advised to ensure that their cyber insurance is up to date and responds to this challenging new environment. Such coverage may be found in a variety of insurance, including property policies, commercial crime bonds or in stand-alone cyber risk policies. Regardless of where it resides, cyber insurance typically provides coverage for data breaches, ransomware attacks and employee wrongdoing, and for loss of business income occasioned by covered occurrences.

While the jurisprudence related to these issues continues to develop, some recent cases provide insight into how courts may decide cyber coverage questions in the current environment. 

Ransomware - Covered

Earlier this year the U.S. District Court for the District of Maryland considered the issue of how first-party “computer coverage” responded to data loss resulting from a ransomware attack. In National Ink & Stitch, LLC v. State Auto Property & Casualty Ins. Co., No. SAG-18-2138, 2020 WL 374460 (D. Md. Jan. 23, 2020), the insured was an embroidery and screen printing business that stored business-related art, logos, designs and graphics software on a server that became compromised by a ransomware attack. Id. at *1. As a result, the insured needed to recreate stored data that it was unable to access because of the incursion. Id. Further, after the software was replaced and reinstalled by experts, there remained a likelihood that remnants of the virus lingered on the system, leaving the insured with the unpalatable choice of either “wiping” the entire system or purchasing a new server. Id.

The policy at issue responded to “direct physical loss of damage to Covered Property at the premises…caused by…any Covered Cause of Loss.” Id. “Covered Property” included electronic data processing, recordings or storage media such as film, tapes, disks, etc. in addition to data stored on such media. Id. at *1-2. Software was included as “covered property” in the policy. Id. at *1. The insurer denied the claim on the basis that the insured had not experienced direct physical loss or damage to its computer system to justify reimbursement of the cost of replacing the entire system. Id. at *2. That is, because the insured “only lost data and could still use its computer system,” the insurer took the position that there was no “direct physical loss” and, therefore, no coverage. Id.

In finding that the insured should be reimbursed for its losses, the court determined that the plain language of the policy “contemplates that data and software are covered and can experience ‘direct physical loss or damage’” Id. at *3. The court refused to credit the insurer’s argument that a loss of software and its related functionality was not a direct loss to tangible property simply because the insured could still use the system albeit in a diminished fashion. Id. Instead, relying on relevant case law, the court it recognized that the insured’s computer system, while still functional, had been rendered inefficient and its storage capability was damaged in a way that its data and software could not be retrieved. Id. at *4. Accordingly, the court ruled that the policy did not require the computer system to be completely unable to function in order to constitute covered “physical loss or damage”. Id. at *5.

In granting summary judgment in favor of the insured, the court viewed the system’s loss of use and reliability and impaired function to be consistent with the “physical loss or damage to” language in the policy. Id. This was so because “not only did [insured] sustain a loss of its data and software, but [it] is left with a slower system which appears to be harboring a dormant virus, and is unable to access a significant portion of software and stored data.” Id.

Much ink has been spilled in recent weeks about how some recipients of Paycheck Protection Program (“PPP”) relief obtained their loans through mistakes or false pretenses. Now banks are coming under fire for their lending practices in connection with this hastily prepared and implemented program, which left them grappling with how to properly issue loans in the face of procedural and substantive gaps in the law. Many lenders tried to fill these gaps by supplementing the PPP application to address practical concerns not covered in the law. Two recent cases, however, demonstrate ...