Commercial Litigation Update

The widespread availability of Artificial Intelligence (AI) tools has enabled the growing use of “deepfakes,” whereby the human voice and likeness can be replicated seamlessly such that impersonations are impossible to detect with the naked eye (or ear). These deepfakes pose substantial new risks for commercial organizations. For example, deepfakes can threaten an organization’s brand, impersonate leaders and financial officers, and enable access to networks, communications, and sensitive information.

In 2023, the National Security Agency (NSA), Federal Bureau of Investigations (FBI), and Cybersecurity and Infrastructure Security Agency (CISA) released a Cybersecurity Information Sheet (the “Joint CSI”) entitled “Contextualizing Deepfake Threats to Organizations,” which outlines the risks to organizations posed by deepfakes and recommends steps that organizations, including national critical infrastructure companies (such as financial services, energy, healthcare and manufacturing organizations), can take to protect themselves. Loosely defining deepfakes as “multimedia that have either been created (fully synthetic) or edited (partially synthetic) using some form of machine/deep learning (artificial intelligence),” the Joint CSI cautioned that the “market is now flooded with free, easily accessible tools” such that “fakes can be produced in a fraction of the time with limited or no technical expertise.” Thus, deepfake perpetrators could be mere amateur mischief makers or savvy, experienced cybercriminals. 

The Rules Governing the Courts of the State of New Jersey were amended effective September 1, 2024, after being approved by the Supreme Court of New Jersey earlier this year. Several of the amendments will be of particular interest to civil litigators.

Rule 1:5-2 – Manner of Service

Rule 1:5-2, which governs the service of papers upon attorneys of record, may now be made by email “to the email addresses listed on an approved electronic court system pursuant to Rule 1:32-2A(a).” While many practitioners have likely followed this practice in their cases and agreed amongst themselves to accept service of routine documents such as discovery requests and responses via email, the amendment to Rule 1:5-2 makes clear that no such agreement is necessary. As the Supreme Court Civil Practice Committee observed in its January 2024 report (the “Civil Practice Committee Report”), “[s]ince the COVID-19 pandemic, practitioners reported having experienced an increase in electronic service of motions and discovery demands, generating the need for a rule amendment to formalize the practice.” This new service-by-email rule applies to all papers referred to in Rule 1:5-1, namely “orders, judgments, pleadings subsequent to the original complaint, written motions (not made ex parte), briefs, appendices, petitions and other papers except a judgment signed by the clerk.”

Since the pandemic, COVID-19-related fraud has been a consistent target of the Department of Justice. The creation of the DOJ’s COVID-19 Enforcement Task Force in May 2021 marked the start of DOJ’s commitment to combatting COVID-19-related fraud. Since then, according to the Task Force’s 2024 Report, published in April of this year, the Task Force has charged over 3,500 defendants with federal crimes related to Covid-19 fraud, recovered more than $1.4 billion in stolen funds and reached over 400 civil settlements and judgments.

Most of these matters involved unemployment insurance (“UI”) benefits fraud, Paycheck Protection Program fraud (“PPP”), and Economic Injury Disaster Loan (“EIDL”) fraud , but other types of CARES Act fraud and health care fraud related to the COVID-19 pandemic were also charged. The quantum of fraud losses associated with these cases was reported to be over $2.1 billion.

Most recently, on August 8, 2024, the DOJ issued  a press release announcing that West Coast Dental Administrative Services LLC, operating a network of dental offices in Southern California, along with its founders and former owners, agreed to pay $6.3 million to resolve allegations that they knowingly violated the False Claims Act (“FCA”) in connection with seven improper loans that the company and its affiliated dental offices received under the PPP. Additionally, an unrelated real estate holdings company owned by one of the founders agreed to pay an additional $35,149.82 to resolve its potential liability under the FCA in connection with a separate PPP loan.

On August 14, 2024, the Federal Trade Commission (“FTC”) announced a new final rule aimed at regulating fake consumer reviews, testimonials, insider reviews, company-controlled websites, and fake indicators of social media influence (e.g., “likes”) (the “Final Rule”).  The Final Rule was promulgated pursuant to Section 18 of the FTC Act, which authorizes the FTC to issue rules that define acts or practices that are unfair or deceptive within the meaning of Section 5(a)(1) of the FTC Act, and it enables the FTC to seek civil monetary penalties for violations.

While it covers ground similar to the FTC’s recently updated endorsement guides (the “Guides”), which we wrote about last year, the Guides regulate the conduct of individuals who are paid or incentivized to endorse products, whereas the Final Rule applies directly to companies advertising through consumer reviews, testimonials, and social media.

The Final Rule has six primary subsections: (1) Fake or False Consumer Reviews, Consumer Testimonials, or Celebrity Testimonials (§ 465.2); (2) Buying Positive or Negative Consumer Reviews (§465.4); (3) Insider Consumer Reviews and Consumer Testimonials (§465.5); (4) Company-Controlled Review Websites or Entities (§465.6); (5) Review Suppression (§465.7); and (6) Misuse of Fake Indicators of Social Media Influence (§465.8). 

On August 1, 2024, the Department of Justice (“DOJ”) launched the Corporate Whistleblower Awards Pilot Program (“Pilot Program”), a three-year initiative managed by the Criminal Division’s Money Laundering and Asset Recovery Section.

This is the culmination of the DOJ’s “policy sprint,” announced back on March 7, 2024 by Deputy Attorney General Lisa Monaco, intended to incentivize companies to invest in a culture of compliance. While announcing the Pilot Program on August 1st, Monaco stated that this Pilot Program is intended to work with DOJ’s corporate voluntary self-disclosure programs to “create a multiplier effect that encourages both companies and individuals to tell [DOJ] what they know – and to tell [DOJ] as soon as they know it.”

New episode of our video podcast, Speaking of Litigation: Sometimes, challenging clients need to be challenged.

Whether encouraging candid client conversations or reining clients in during depositions, it’s important to keep the ultimate goal in mind: success.

In this episode of Speaking of Litigation, Epstein Becker Green attorneys Jim Flynn, Anthony Argiropoulos, and Alex Barnard dive into the world of challenging clients—those who demand more, push boundaries, and ultimately make us better lawyers.

From providing strategic nudges to managing high-stakes tensions, we've got you covered.

In the June 2024 edition of the American Bankruptcy Institute Journal the authors of “Why State Court Receiverships Are Becoming the Norm for Smaller Companies,” write that “state court receiverships are now poised to take center stage . . . as the preferred method for addressing financial distress of small companies.” The authors assert that for smaller middle-market businesses, receiverships are rebounding in popularity due to the expense associated with bankruptcy proceedings. The authors conclude: “With the difficult choice of filing for bankruptcy increasingly becoming a nonviable alternative for smaller companies due to the cost and complexity of doing so, the spreading adoption of model receivership statutes is poised to increase receivership in popularity as a method by which companies can address underlying insolvency issues on a simplified, more cost-effective basis while retaining the best features of federal bankruptcy law.”

I agree that receiverships will increase in popularity. While the spreading adoption of model receivership statutes may increase the uniformity of receivership law and thereby make the remedy more popular, I believe several advantages of receivership proceedings are already driving an increase in the number of receivership proceedings. As mentioned in my prior article, “Receiverships provide many of the protections afforded by bankruptcy proceedings, while having the added benefit that: (a) a receivership can be commenced by a lender; (b) the costs associated with a receivership can be less than in a bankruptcy proceeding; (c) in a receivership a lender has more control over who will be operating the business and the timing of decisions related to the disposition of the lender’s collateral; and (d) recoveries can be enhanced by instituting improvements in the business operations and the pursuit of claims against third parties.”

On June 27, 2024, the U.S. Department of Justice (“DOJ”) and the U.S. Department of Health and Human Services, Office of Inspector General (“HHS-OIG”), along with other federal and state law enforcement partners, announced the annual National Health Care Fraud Enforcement Action using criminal enforcement to target a wide variety of alleged health care fraud schemes.

What Has Stayed the Same and What Has Changed?

Similar to last year’s all-encompassing “takedown,” this year’s enforcement action charged defendants with schemes related to telemedicine and laboratory fraud; diversion of controlled substances (HIV medications and prescription stimulants); addiction treatment schemes; opioids and other familiar types of health care fraud (such as home health, DME and kickbacks).  However, the “headline” this year was a $900 million case in Arizona involving medically unnecessary amniotic wound grafts.

The 2024 enforcement action charged 193 defendants who allegedly have committed over $2.75 billion in fraud. The cases were brought by 32 different U.S. Attorneys’ Offices and 11 State Attorney Generals’ Offices. Although the dollar figure at issue is slightly higher than the 2023 enforcement action, the number of defendants is strikingly higher, with almost two and a half times as many defendants charged. Similarly, the cases were brought in almost twice as many federal districts as last year, suggesting that the Fraud Section is building more partnerships with U.S. Attorney’s Offices nationwide.  

On what was the next-to-last day of the term, a 6-3 Supreme Court delivered a very lengthy opinion written by the Chief Justice, overruling 40 years of jurisprudence embodied in the Chevron doctrine that had been the bedrock of administrative law.

In Loper Bright Enterprises v. Raimondo (which also governs Relentless, Inc. v. Department of Commerce), the Court held that “the Administrative Procedure Act [APA] requires courts to exercise their independent judgment in deciding whether an agency has acted within its statutory authority, and courts may not defer to an agency interpretation of the law simply because a statute is ambiguous; Accordingly, Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837 (1984) is overruled.”

Holding that Chevron deference cannot be squared with the APA, the Chief Justice traces the departure from the traditional role of the judiciary in making independent determinations of statutory meaning. Here, the question was “whether an Environmental Protection Agency (EPA) regulation was consistent with the term ‘stationary source’ as used in the Clean Air Act. In answering the question, the courts below followed Chevron’s familiar two-step approach, first discerning “whether Congress ha[d] directly spoken to the precise question at issue.” If congressional intent is clear, that ends things, but where “the statute [was] silent or ambiguous with respect to the specific issue” under consideration, the court was required to defer to the agency if it had offered “a permissible construction of the statute.”

The Supreme Court has issued its last three decisions of the 2023 term, and its summer recess has begun.

However, while the Justices and Court personnel might be at apparent rest, the future effect of today’s decisions will be significant, both immediately and for years to come.

The Court led the day, as expected, with the long-awaited decision in Trump v. United States. Given the broad scope of the remand of the case and the Court’s 6–3 conservative/liberal split, most of the headlines likely will suggest that Trump has prevailed, especially because of conservative Justices that he himself had appointed. Indeed, though most of his arguments have been rejected by the Chief Justice and those who concurred with him, the former president has gained the thing he likely most wanted: delay. There is no way conceivable, at least to this writer, that this case can be resolved before the upcoming presidential election. Whatever the ultimate resolution of the matter might be, that alone will raise a host of new questions, especially if the former president is reelected. But those are matters more immediately for the political arena, and this blog is about the law and the effects upon which the decision might have longer-term implications. So, let’s look at what the Court says the law is.