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Richard Robinson was a truck driver who tried to sue his former employer for civil penalties pursuant to the California Private Attorney’s General Act (“PAGA”). Unfortunately for him, his employer settled another PAGA action while his case was still pending, and despite opting out of the other settlement, the Court of Appeals dismissed the case because he no longer had standing to bring his own PAGA claim once the other had settled.

Mr. Robinson worked as a truck driver for Southern Counties Oil Company. After completing the prerequisite steps for bringing a PAGA action against his former employer, Mr. Robinson brought suit against Southern Counties Oil seeking civil penalties on behalf of himself and other aggrieved employees for failure to provide meal and rest breaks, timely wages, proper wage statements, and wages upon termination. While his PAGA action was still pending, Southern County Oil settled another PAGA action in San Diego that sought PAGA penalties for the same alleged Labor Code violations. Robinson and three other employees “opted out” of the settlement in an attempt to maintain their own PAGA action.

Following the San Diego settlement, the trial court dismissed Robinson’s PAGA action, even though Robinson had opted out. The trial court found that Robinson lacked standing to bring the a PAGA claim based on the same claims that had already been settled in the San Diego action.

On appeal, the court affirmed the trial court’s decision—effectively finding that a plaintiff could not opt out of a PAGA settlement and bring his own action alleging the same Labor Code violations. Unlike a class action, a PAGA claim “functions as a substitute for an action brought by the government itself, a judgment in that action binds all those, including nonparty aggrieved employees, who would be bound by a judgment in an action brought by the government.” Because Robinson stood in the shoes of the state when he brought his PAGA action, and the state had already settled the same issues in the San Diego settlement, Robinson was effectively precluded from pursing his PAGA claims.

This decision explains a key difference between PAGA actions and class actions. While a normal class action is brought on behalf of the plaintiffs, PAGA actions are brought on behalf of the state and so individual plaintiffs cannot “opt out” and refuse to be bound by what is effectively the “state’s” settlement. In short, this decision should offer encouragement to employers that when they do settle a PAGA claim they create a clean slate up to the point of settlement even if some employees try to “opt out.”

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To constitutional scholars, the line between Alexander Hamilton and the federal judiciary will always connect through The Federalist No. 78, wherein Hamilton anticipated the doctrine of judicial review by concluding that federal courts would have the “duty…to declare all acts contrary to the manifest tenor of the constitution void.”

But surely Hamilton never anticipated that two-and-half centuries later the federal judiciary he helped create and define would parody a Broadway musical about him to discuss the resumption of jury trials during a pandemic. But, alas, we live in interesting times, and two federal judges from Texas have released their own version of Jonathan Groff’s song “You’ll Be Back” from the musical Hamilton:

You have to admit, Judge Elrod and Judge Eskridge did not throw away their shot at Broadway renown. While their singing may not blow us all away, they should be more than satisfied with the results. We know that everyone feels helpless because COVID-19 is spiking across the nation, so it’s nice to take a break with a little diversion emanating from the federal bench.

As to the serious topic, we have been closely following the issues surrounding attempts to resume jury trials across the country (here, here, and here). Surely, this won’t be the one last time this comes up.

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We have previously discussed (here and here) the complex issues surrounding the resumption of jury trials during the COVID-19 pandemic. We cautioned that the various experimental efforts to resume jury trials taking place in courts around the country were likely to meet with a host of practical and jurisprudential problems. A few weeks later, it appears that our assessment was, if anything, too optimistic. Many of the states that had been taking first steps toward resuming jury trials in some form are now shutting down those experiments because of the spike in COVID-19 cases that is now occurring around the country.

On Friday, a breach of contract trial in the Eastern District of Texas was suspended after at least seven people involved in the trial tested positive for COVID-19. The Eastern District of Texas has been holding jury trials since June, and has been one of the most active federal courts for jury trials since the national shutdown earlier this year. Going forward, the court intends to reassess its safety protocols week-to-week in light of the COVID-19 spike in Texas. Also on Friday, New York court officials postponed all new jury trials and grand jury proceedings. This was in response to at least 15 individuals who work in the New York City’s court system testing positive for COVID-19 in the prior week. And on Monday, the New Jersey Supreme Court issued an Order suspending all in-person jury trials and in-person grand jury proceedings until further notice. The New Jersey Order comes barely a month after the state began experimenting with socially-distanced jury trials on a very limited basis. In fact, according to the Order, only one socially-distanced in-person jury trial is currently taking place in the state, and that trial may continue “absent a particular reason to suspend or end the trial.”

With jury trials again at a standstill for the foreseeable future, businesses currently litigating or anticipating business disputes must be prepared for the effect this shutdown will have on court systems throughout the country—potentially for years to come. Even if the COVID-19 vaccines that have made recent headlines are as successful as everyone hopes, and even if they are successfully deployed on a wide scale in the first half of 2021, jury trials will have been suspended in most jurisdictions for at least a year. When jury trials resume, there will be an unprecedented backlog of cases to be tried. In jurisdictions like the federal courts, where the same judges hear both criminal and civil cases, criminal cases will have to be given priority over civil cases due to Sixth Amendment “speedy trial” concerns. It could be years before courts are holding jury trials in complex commercial cases at pre-pandemic rates. This will likely have a dramatic effect on settlement negotiations, as litigants will have little incentive to take settlement negotiations seriously with no trial date looming.

Foreseeing this dilemma, the New Jersey Supreme Court’s latest Order promises that the “Judiciary and stakeholders will continue to explore the potential for virtual civil trials,” and other jurisdictions are sure to do the same. But virtual jury trials create a whole new set of problems that we previously explored here.

Like many other areas of life, the COVID-19 pandemic has likely changed the way courts will do business for years to come.

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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 pandemic, its carrier denied coverage on the grounds that there was “no ‘direct physical loss’ to the property, the civil authority coverage provision does not apply, and the virus exclusion provision precludes coverage.”

The denial of coverage gave rise to a lawsuit in the Court of Common Pleas of Philadelphia County by Taps & Bourbon and the insurance carrier moved to dismiss. In considering the motion, the court was constrained to view as true all of the material facts and inferences set forth in the complaint. In so doing, the court held that the tavern had successfully pled enough to survive at that preliminary stage in the proceedings. Moreover, the court was loathe to dismiss the complaint since, as it expressly recognized, “the law and facts are rapidly evolving in the area of COVID-19 related to business losses.”

The court’s order does not provide much more grist for consideration. However, we can distill from the operative complaint that Taps & Bourbon had purchased a business interruption policy that provided “coverage for direct physical loss of or damage to Covered Property…resulting from any Covered Cause of Loss.” Additionally the policy offered coverage if food contamination resulted in business closure by a governmental authority.

The complaint further alleges that on March 19, 2020, Pennsylvania Governor Tom Wolf issued an Executive Order closing all non-life sustaining businesses in order to prevent and suppress COVID-19. Although it is certainly open to debate whether or not its business is life sustaining (see George Bernard Shaw’s and others’ thoughts on that very point here), Taps & Bourbon nonetheless immediately closed its doors in response to the Executive Order. Significantly, the complaint also holds forth on why the insurer’s position that there was no direct physical damage is incorrect, namely that the pandemic has been declared a “Disaster Emergency”, affecting all property located within Pennsylvania.

What is conspicuously absent from the complaint are allegations that COVID-19 was present on Taps & Bourbon’s premises – although the tavern claims it took measures to disinfect and “clean surfaces potentially infected with the disease.” Such facts have shown to be central to businesses’ success so far in COVID-19-related disputes, as well as in other communicable disease-related coverage cases.

This case marks the latest matter to join the minority ranks of COVID-19 business loss coverage cases surviving dismissal motions, as we discussed here. As the Taps & Bourbon court noted, the law related to COVID-19 business losses continues to evolve. This should be heartening to policyholders and signals that at least some courts may view these types of disputes as being incapable, at least initially, of resolution as a matter of law. As for Taps & Bourbon, we toast its early success, offering up a hearty “Slainte!”, while waiting for the case to come of age.

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In September 2020, the U.S. Department of Justice (“DOJ”) and the U.S. Department of Health and Human Services (“HHS”) Office of Inspector General (“OIG”) announced its annual healthcare-related “takedown.” The takedown, which involved enforcement actions that actually occurred over numerous months preceding the press event (and as such, the reference to a “takedown” is a misnomer”) targeted alleged schemes that related to opioid distribution, substance abuse treatment facilities (“sober homes”), and telehealth providers, the latter of which served as the focus of the enforcement activity. In all, 345 defendants, across 51 judicial districts were charged with allegedly submitting more than $6 billion in false and fraudulent claims to federal health care programs and to private payers and almost 75% of that amount involve telefraud.

As we have previously reported, opioids have been a large focus of DOJ in the past few years in an attempt to stem the opioid epidemic through increased enforcement and this takedown is a continuation of those efforts. DOJ stated that the charges involved in the opioid-related takedown involved the submission of $800 million in false and fraudulent claims to Medicare, Medicaid, TRICARE, and private insurance companies for treatments that were allegedly medically unnecessary and often never provided. DOJ also continued the trend of charging medical professionals with the illegal distribution of opioids (or operating pill mills). Providers need to be mindful of safe opioid prescribing guidelines, develop and implement rigorous compliance programs, and keep up to date on ever shifting federal and state laws in this area.

Tied into the opioid crisis has been the rise in popularity of treatment for drug and/or alcohol addiction as well as the necessary costs of testing and treatment of those patients. The “sober homes” cases announced by DOJ include charges against more than a dozen individuals in connection with more than $845 million of allegedly false and fraudulent claims for tests and treatments. The subjects of the charges include physicians, owners and operators of substance abuse treatment facilities, as well as patient recruiters. Those providers in the substance abuse treatment space should be mindful of providing appropriate utilization of therapies and tests and actively monitor their patient generation/marketing activities for fraud and abuse implications.

Over the past few years, we have been predicting that telehealth is ripe for enforcement. Although we have seen enforcement activity involving telehealth providers in the past, this is the first time that DOJ/HHS has focused so sharply on telehealth providers as the target of a major takedown. The 2020 Takedown is a warning to those in the telehealth industry to pay special attention to compliance infrastructures and efforts especially as use of telehealth to serve patients expands, and related regulations loosen in light of the COVID-19 pandemic.

For more of our analysis of the 2020 Takedown as it relates to telehealth and telefraud please see our article published in the November 4, 2020 issue of the New Jersey Law Journal, available here.

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Congratulations—you’ve been sued again. This time it’s in federal court under the Lanham Act. You review the complaint, and while it’s not outrageously frivolous on its face (which we previously discussed here), it’s also not your run-of-the-mill Lanham Act case. You might assume that your only option is to fully litigate the claim, and wait for vindication from the Court on summary judgment or after trial. But the Lanham Act provides another remedy: fee-shifting to recoup your legal fees. If the Lanham Act claim you’ve defended against is “exceptional” under the “totality of the circumstances,” then you should vindicate your right to recover attorneys’ fees.

The Lanham Act provides that a “court in exceptional cases may award reasonable attorney fees to the prevailing party.” See 15 U.S.C. § 1117(a). In Octane Fitness, LLC v. ICON Health & Fitness, Inc., the Supreme Court analyzed what constitutes an “exceptional case” for fee-shifting purposes in the context of the identical fee-shifting provision in Section 285 of the Patent Act. 572 U.S. 545, 548 (citing 35 U.S.C. § 285). The Court, looking to the plain meaning of the word “exceptional,” concluded that an “exceptional case” is “simply one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.” Id. at 554. The Court held that there is no “precise formula” for making this determination, but emphasized that district courts should consider the totality of the circumstances when deciding whether to award attorneys’ fees under the statute. Id. (citing Fogerty v. Fantasy, Inc., 510 U.S. 517, 534 n.19 (1994) for a non-exclusive list of factors to consider, including “frivolousness, motivation, objective unreasonableness (both in the factual and legal components of the case) and the need in particular circumstances to advance considerations of compensation and deterrence”).

There does not have to be “misconduct” in the litigation in order for it to be “exceptional.” Instead, the Court adopted a more flexible “totality of the circumstances” standard, holding that an “exceptional case” under the Lanham Act for fee-shifting purposes was not limited to cases in which the losing party had acted in “bad faith” but rather meant a case that was “uncommon, not run-of-the-mill”. Id. at 554 (citing Noxell Corp. v. Firehouse No. 1 Bar-B-Que Restaurant, 771 F.2d 521, 526 (D.D.C. 1985)).

For Lanham Act cases within the Third Circuit, courts consider “exceptional” cases under two theories: “when (a) there is an unusual discrepancy in the merits of the position taken by the parties or (b) the losing party has litigated the case in an ‘unreasonable manner’.” See Fair Wind Sailing, Inc. v. Dempster, 764 F.3d 303, 315 (3d Cir. 2014). Under the “unusual discrepancy” theory, “a party’s position, to expose it to an award of attorneys’ fees, need not be wholly meritless or frivolous.” Renna v. County of Union, N.J., 11-CV-3328 (KM) (MAH), 2015 WL 1815498, at *3 (D.N.J. Apr. 21, 2015). In other words, the losing party may still be ordered to pay attorneys’ fees even if its position “might have some small amount of merit.” Id. However, “Octane Fitness does not stand for the proposition that a case is exceptional merely because a losing party advanced weak or contradictory arguments in support of its claims.” Engage Healthcare Communications, LLC v. Intellisphere, LLC, 12-CV-787, 2019 WL 1397387, at *5 (D.N.J. Mar. 28, 2019) (emphasis in original). “Rather, courts interpreting these cases have generally looked to the motivation behind the claims at the outset of the litigation, and whether the claims, when filed, are frivolous or objectively unreasonable.” Id. Under the alternative, “unreasonable manner of litigation” approach, “the conduct of both parties is relevant to the analysis.” Id. at *6. Contentious disputes in which the parties litigate aggressively do not necessarily give rise to a determination that the losing party has litigated the case in an unreasonable manner. Id. at *7.

In short, if you find yourself defending against an exceptional Lanham Act claim, you can do more than vigorously defend against it. You can make the counter-punch and avail yourself to the remedies afforded under the statute and recover your legal fees.

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On September 30, 2020, the Third Circuit reversed a decision by the Eastern District of Pennsylvania ordering AbbieVie, Inc. (“AbbieVie”) and Besins Healthcare Inc. (“Besins”) to pay $448 million in disgorgement of ill-gotten profits for allegedly filing sham patent lawsuits to stifle competition. AbbieVie and Besins had filed patent infringement lawsuits against two developers of generic alternatives to its brand-name testosterone gel product AndroGel. The FTC sued AbbieVie and Besins in 2014 alleging that the patent suits were baseless and brought for no other reason than to block competition.

In reversing the District Court, the Third Circuit held that disgorgement is not an available remedy under Section 13(b) of the FTC Act, relying on the Supreme Court’s decision Liu v. SEC, 140 S. Ct. 1936, 1942 (2020). Among other things, the Third Circuit noted that Section 13(b) authorizes a court to enjoin antitrust violations, but says nothing about disgorgement, which is a form of restitution, not injunctive relief. The Third Circuit rejected the FTC’s contention that Section 13(b) “impliedly” empowers district courts to order disgorgement as well as injunctive relief, concluding that a district court’s jurisdiction in equity under Section 13(b) is limited to ordering injunctive relief.

Circuit Split

The FTC has used disgorgement with incredible success since the 1980’s and, until recently, federal courts were not troubled by the fact that the remedy is not expressly mentioned in the FTC Act. However, as the federal judiciary continues to drift rightward and more judges adopt a textualist approach, a Circuit split has emerged.

In AMG Capital Management, LLC v. FTC, the U.S. Court of Appeals for the Ninth Circuit held that disgorgement was an available remedy under Section 13(b). The Ninth Circuit reasoned that Section 13(b) “empowers district courts to grant any ancillary relief necessary to accomplish justice, including restitution.”  910 F.3d 417, 426-27 (9th Cir. 2018), cert. granted, No. 19-508, 2020 WL 3865250 (U.S. July 9, 2020).

Less than a year later, the Seventh Circuit reached the opposite conclusion in FTC v. Credit Bureau Center, LLC, holding that Section 13(b)’s permanent-injunction provision does not authorize monetary relief.  937 F.3d 764, 786 (7th Cir. 2019), cert. granted, No. 19-825, 2020 WL 3865251 (U.S. July 9, 2020), and cert. denied, No. 19-914, 2020 WL 3865255 (U.S. July 9, 2020). On July 9, 2020, the Supreme Court granted certiorari in both Credit Bureau Center and AMG Capital Management and consolidated the cases, teeing up the issue for resolution by the US Supreme Court.

The Upshot—A Weakened FTC? Not Necessarily

The FTC has fairly circumscribed authority to obtain money judgments from defendants in enforcement actions. The agency is typically restricted to civil penalties in limited circumstances and it has traditionally used Section 13(b) to get around these limitations and seek equitable monetary remedies such as restitution and disgorgement.

If the Supreme Court sides with the Third and Seventh Circuit decisions, as seems likely given the recent passing of Justice Ruth Bader Ginsberg and likely confirmation of Amy Coney Barrett, the FTC will lose the ability to obtain money from enforcement actions brought in federal court under its broadest statutory powers. Such a result will likely impact how the FTC investigates and prosecutes cases as well as the settlement positions of companies under investigation.

Before representatives of industry get too excited, however, if the Democrats win the Presidency (which also seems likely, but given what happened in 2016, far from certain) and are able gain a majority in Congress, it would not be surprising to see legislation enacted to amend the FTC Act and formally grant the FTC the enforcement powers that it has enjoyed by implication for over 40 years.

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There are cybersecurity lessons to be learned from high profile data breaches and the ensuing regulatory responses. The recent well-publicized Twitter hack is no different. According to the New York State Department of Financial Services (“NYSDFS”) investigation and report, on July 15, 2020, a 17-year old hacker and his accomplices easily misled Twitter’s employees into disclosing their credentials resulting in a breach of Twitter’s network and the hackers’ takeover of accounts assigned to high-profile users in just a 24-hour period. The NYSDFS concluded that Twitter’s cybersecurity safeguards were inadequate, permitting the hackers to impersonate politicians, celebrities, entrepreneurs and several cryptocurrency companies by abusing their Twitter accounts to solicit bitcoin payments in a “double your bitcoin” scam. The top takeaways were that social media and consumer organizations should conduct comprehensive workforce cybersecurity training, have strong cybersecurity leadership that effectively manages account access and authentication and utilize a Security Incident Event Management (SIEM) solution to detect and respond to threats in real time. Notably, in light of its findings, the NYSDFS is now calling for the dedicated cybersecurity regulation of large social media companies akin to the NYSDFS cybersecurity regulation for financial services organizations because “[t]he risks posed by social media to our consumers, economy, and democracy are no less grave than the risks posed by large financial institutions.”

The NYSDFS found that the hackers acted like garden variety fraudsters by duping Twitter employees into entering their credentials on a phishing website by pretending to be calling from the Help Desk of Twitter’s Information Technology department about recent issues with Twitter’s VPN. The employees were directed by the hackers to sign into a website, which looked identical to the Twitter VPN website and was hosted by a similar domain, but was in reality a phony website controlled by the hackers. As the employees entered their credentials in the phony website, the hackers simultaneously entered their credentials in Twitter’s real VPN website. The hackers gained account access after the false login generated a 2nd factor notification to the employees’ mobile phones to authenticate themselves, which some of the employees did. After gaining access to the network, the hackers successfully escalated their attack by targeting other Twitter employees who had a higher level of privilege with access to internal tools permitting the takeover of high profile user accounts.

The NYSDFS concluded: “The Twitter Hack is a cautionary tale about the extraordinary damage that can be caused even by unsophisticated cybercriminals. The Hackers’ success was due in large part to weaknesses in Twitter’s internal cybersecurity protocols.” The NYSDFS found that Twitter had no chief information security officer since December 2019, seven months before the Twitter hack. The report also found that the hackers directly exploited Twitter’s shift to remote working during the pandemic. According to the NYSDFS: “The ramp up to total remote working in March 2020 put a strain on Twitter’s technology infrastructure, and employees had frequent problems with the VPN connections to the network. The hackers took advantage of these issues and pretended to be calling from Twitter’s IT department about a VPN problem.” The hackers had researched Twitter’s organization learning basic functions and titles of Twitter employees, so they could more effectively impersonate Twitter’s IT department. Despite public guidance by numerous regulatory authorities, including NYSDFS, to identify and respond to cybersecurity risks during the pandemic, NYSDFS found that Twitter did not implement any significant compensating controls after March 2020 to mitigate this heightened risk to its remote workforce, and the hackers took advantage. The hackers here sought to commit garden-variety financial fraud, but the report emphasized that a similar “hack, when perpetrated by well-resourced adversaries, could wreak far greater damage by manipulating public perception about markets, elections, and more.”

The NYSDFS concluded that although Twitter is subject to generally applicable data privacy and cybersecurity laws, such as the California Consumer Privacy Act, the New York SHIELD Act, and the European Union’s General Data Protection Regulation, all of which regulates the storage and use of personal data, “there are no regulators that have the authority to uniformly regulate social media platforms that operate over the internet, and to address the cybersecurity concerns identified in this Report. That regulatory vacuum must be filled.”

While it remains to be seen if the NYSDFS’ report will ultimately result in momentum for the appointment of a new national cybersecurity regulator, social media and other consumer facing organizations should look at their own practices in light of the Twitter hack, and take steps now to address the risks to a remote workforce as outlined in our recent blog “Cybersecurity In The Age Of The Covid-19 Remote Worker and Beyond.”

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Mark Twain once said: “Trial by jury is the palladium of our liberties. I do not know what a palladium is, but I am sure it is a good thing!” If Mr. Twain were alive today, he wouldn’t be quite so sure that jury trials conducted during the COVID-19 pandemic are really such a good thing.

Recent news reports suggest that a vaccine may not be available until next spring at the earliest, and it may take months before that vaccine can be widely distributed. But the demands of justice do not rest, and courts—already overburdened with growing dockets before the pandemic—are struggling to reconcile the need for jury trials with the demands of social distancing. As a result, courts around the country have become laboratories, experimenting to find the right combination of remote video conferencing and traditional in-person proceedings while testing long-held assumptions about jury social dynamics, the right to confront witnesses, and due process.

Some courts are trying to press ahead with traditional, in-person jury trials, but are being thwarted by the pandemic. In West Virginia, for example, drug distributors are seeking to delay a bellwether opioid MDL trial, calling it a potential “super-spreader” event in the making. This follows an Ohio federal court indefinitely delaying another opioid MDL trial that was set to begin on November 9th because of COVID-19 concerns.

Other courts have fully embraced virtual trials. In August, a Texas court held a full jury trial via Zoom video conference. Jurors who did not have access to a video-enabled computer were loaned iPads so they could participate in the trial. In Arizona, hundreds of indictments have been handed down by grand juries that convene, not in a courtroom, but over video conference.

Between these extremes, New Jersey is trying a “hybrid” approach to jury selection and trials. Under this approach, potential jurors are first pre-screened for their ability to participate in the virtual selection process, and attend trial in person. Jurors who are older than 65, or have an underlying medical condition (such as kidney disease, COPD, organ transplant, obesity, certain heart conditions, sickle cell disease, or type 2 diabetes) are excused and rescheduled for a future date. Final jury selection and trial are then conducted in person at the courthouse. Limited observers are permitted to assemble in a separate space in the courthouse and observe the proceedings via video feed. This “hybrid” approach recognizes the importance of in-person interaction at trial, where a juror is expected to read a witness’s expressions and body language when evaluating credibility, just as an attorney needs to see the faces of jurors who make up the attorney’s audience.

This sounds great in concept, but it’s not working too well so far. New Jersey’s bellwether “hybrid” trial—a criminal case captioned State v. Wildermar Dangcil—has ground to a halt after the defense challenged the constitutionality of the court’s new jury selection procedures. The defendant contends that pre-screening for the ability of potential jurors to participate in virtual selection “resulted in the elimination of roughly 75% of the jury pool, leaving a substantially smaller than anticipated array.” The defendant also contends that pre-screening of potential jurors produces a jury pool that is neither random, nor representative. To the contrary, the defendant contends, it skews toward jurors who are younger, healthy, and who have a level of wealth and sophistication that enables them to participate in jury selection by virtual means. The trial judge rejected these arguments and denied the defendant’s motion for a stay, but the Appellate Division granted an interlocutory appeal. The appellate court is expected to issue a decision before the end of October.

The confusion over whether and how to proceed with jury trials does not bode well for complex commercial litigation for a number of reasons. The first concern is delay. Trials have essentially been on pause across the country since the lockdown began in mid-March. (The authors of this article, for example, had complex commercial trials scheduled for March and October of this year, and both have been indefinitely delayed.) Even if jury trials now were to resume with normal frequency, there would be a six-month backlog of cases. That backlog grows every day. And once jury trials fully resume, criminal cases will be given priority over civil cases because of public safety and Sixth Amendment “speedy trial” concerns. If a vaccine is not widely available until next spring or later, courts will likely be looking at years of backlog for commercial cases.

And certainly the backlog will affect settlement negotiations. As every judge and litigator knows, there is no better way to encourage settlement than holding the parties to a firm trial date. If the status of jury trials remains in doubt well in to 2021, litigants will have little incentive to take settlement negotiations seriously. Courts, on the other hand, will be more likely to order mediation (over the parties’ objections, if necessary) in the hope (probably vain) that they can clear their dockets.

Also, the resumption of trials virtually or through a “hybrid” approach may create strategic concerns. Our colleagues Theodora McCormick and Robert Lufrano already examined some of those strategic and practical issues here. Distinct issues will arise in hybrid trials. For example, how does a jury pool pre-screened to minimize the risks of COVID-19 impact the demographics of the jury ultimately selected? In the New Jersey bellwether “hybrid” trial, the appellate court will have to decide whether such a jury skews younger, better educated, and wealthier (as the defendant contends) and whether that creates a barrier to a fair trial. Even if such skewing of the jury pool does not rise to the level of a due process violation, future litigants will have to evaluate how such issues will impact jury selection and the unique demographic questions that every trial presents.

Finally, courtrooms are not laboratories (at least in the short run) because experimentation inevitably leads to appeals, appeals, and more appeals—as the New Jersey bellwether case has already shown. Even jury trial experiments that appear to be successful at first will likely result in appeals, and some of those appeals will result in reversals that start the process over from scratch. Instead of the “palladium of liberties” that Mark Twain talked about, some jury trial experiments may prove to be fool’s gold.

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The Third Circuit recently affirmed the significant discretion that district court judges have to manage their dockets when it confirmed that “good cause” must be shown under Federal Rule Civ. P. 16(b)(4) to add a party or amend a pleading after the deadline in a district court’s scheduling order has passed rather than Rule 15(a)’s more liberal (“[t]he court should freely give leave when justice so requires”) standard. In Premier Comp Solutions, LLC v. UPMC, 970 F.3d 316 (3d Cir. 2020), the plaintiff made a motion to amend its complaint and add a party, relying on Rule 15 of the Federal Rules of Civil Procedure. The district court denied the motion, reasoning that because the deadline in the court’s scheduling order had passed, Rule 16(b)(4) required the plaintiff to show good cause.

In the underlying case, the plaintiff filed suit alleging violations of federal antitrust and state unfair competition laws. Nearly five months after the deadline in the district court’s scheduling order for amending pleadings or adding new parties, the plaintiff deposed an employee of the defendant who testified regarding an illegal bid-rigging agreement between the defendant and a third party. Plaintiff then moved to file a second amended complaint asserting a new antitrust count and adding the third party as a defendant. In the motion, the plaintiff asked the district court to apply Rule 15(a) of the Federal Rules of Civil Procedure and did not mention Rule 16(b)(4).

The defendant countered that the plaintiff’s motion relied on the wrong rule and plaintiff had failed to show diligence, which is relevant to a court’s determination of “good cause” under Rule 16(b)(4). In reply, defendant conceded that Rule 16(b)(4) applied and argued for the first time that it had been diligent.

The district court denied defendant’s motion, noting that it had failed “to even discuss due diligence, relying instead on Rule 15(a).” Thus, the district court concluded, defendant had “utterly fail[ed] to establish good cause” under Rule 16(b)(4).

On appeal, Judge Hardiman writing for the Court, first noted that “we take this opportunity to clarify that when a party moves to amend or add a party after the deadline in a district court’s scheduling order has passed, the ‘good cause’ standard of Rule 16(b)(4) applies. A party must meet this standard before the district court considers whether the party also meets Rule 15(a)’s more liberal standard.”

The Third Circuit went on to reject plaintiff’s two arguments on appeal: (1) that Rule 16(b)(4)’s “good cause” standard does not require a party to show diligence and (2) if such a showing is require, its reply brief sufficed. It found that because plaintiff failed to present the first argument to the district court it forfeited it on appeal. Likewise, the Third Circuit concluded that the district court did not abuse its discretion when it found plaintiff forfeited the second argument by only raising it on its reply brief.

There are a couple of important takeaways from this succinct but significant decision for anyone litigating in the Third Circuit. First, be mindful of scheduling orders and deadlines for adding parties or amending pleadings. To the extent possible, litigants need to expeditiously conduct discovery as early as possible so as that if they discover a basis for adding new claims or a new party it won’t be potentially time barred from doing so. To the extent that the deadline for amending a pleading or adding additional parties has passed, litigants must be prepared to show “due diligence” and “good cause” in support of the motion to amend. Litigants should also be able to explain to the court why they were unable to discover the facts supporting their new claims or adding a new party sooner. Finally, while not a new principle, this is a good reminder not to raise arguments for the first time on reply briefs.