Commercial Litigation Update

The Paycheck Protection Program (“PPP”) provided forgivable loans to assist small businesses with expenses during the COVID-19 shutdown, seemingly creating a lifeline for many of these enterprises.  As explained here, a borrower could obtain a loan equal to the lesser of $10 million or the sum of its average monthly payroll costs for 2.5 months, (reduced to the extent that any individual was paid more than $100,000 per year) plus the balance of any Economic Injury Disaster Loan received between January 31, 2020 and April 3, 2020.  Like many federal programs, however ...

The Supreme Court of New Jersey unanimously held in Linda Cowley v. Virtua Health System (A-47-18) (081891) that the “common knowledge” exception of the Affidavit of Merit Statute applies only when a simple negligence standard is at issue, and does not apply when a specific standard of care must be evaluated.  In this case involving if and how to reinsert a removed nasogastric tube, the Court reversed the judgement of the Appellate Division and dismissed the plaintiff’s complaint with prejudice because she failed to submit an affidavit of merit within the time required by the Affidavit of Merit Statute.

Enacted in 1995, the Affidavit of Merit Statute requires that plaintiffs in medical malpractice cases “provide each defendant with an affidavit of an appropriate licensed person that there exists a reasonable probability that the care, skill or knowledge exercised or exhibited in the treatment, practice or work that is the subject of the complaint, fell outside acceptable professional or occupational standards or treatment practices.” N.J.S.A. 2A:53A-27. The statute’s primary purpose “to require plaintiffs in malpractice cases to make a threshold showing that their claim is meritorious, in order that meritless lawsuits readily [can] be identified at an early stage of litigation.” Cornblatt v. Barow, 153 N.J. 218, 242 (1998). Failure to provide an affidavit or its legal equivalent is “deemed a failure to state a cause of action,” N.J.S.A. 2A:53A-29, requiring dismissal with prejudice.

An exception to this rule is the judicially-created “common knowledge” exception which provides that an expert is not needed to demonstrate that a defendant professional breached some duty of care “where the carelessness of the defendant is readily apparent to anyone of average intelligence.” Rosenberg v. Cahill, 99 N.J. 318, 325 (1985). In those exceptional circumstances, the “jurors’ common knowledge as lay persons is sufficient to enable them, using ordinary understanding and experience, to determine a defendant’s negligence without the benefit of the specialized knowledge of experts.” Hubbard v.  Reed, 168 N.J. 387, 394 (2001). Thus, a plaintiff in a malpractice case is exempt, under the common knowledge exception, from compliance with the affidavit of merit requirement where it is apparent that “the issue of negligence is not related to technical matters peculiarly within the knowledge of [the licensed] practitioner[].” Sanzari v.  Rosenfeld, 34 N.J. 128, 142 (1961).

On March 23, 2020, Governor Phil Murphy signed Executive Order 109, which “limit[ed] non-essential adult elective surgery and invasive procedures, whether medical or dental, [in order to] assist in the management of vital healthcare resources during this public health emergency.” The purpose of EO 109 was to “limit[] exposure of healthcare providers, patients, and staff to COVID-19 and conserve[] critical resources such as ventilators, respirators, anesthesia machines, and Personal Protective Equipment (‘PPE’) [that] are essential to combatting the spread of the virus.” At the time EO 109 was executed, coronavirus cases were rapidly increasing within the State. On March 23rd, New Jersey had 2,844 coronavirus cases in all 21 counties, an increase of 935 over the previous day, and at least 27 people had died.

In the weeks that followed, New Jersey saw the surge in cases for which it was preparing. On April 4, the three-day average of new confirmed positive COVID-19 cases peaked at 4,064 cases, and by April 14th, there were 8,084 of COVID-related hospitalizations and a staggering 1,705 patients on ventilators. But since that time, thanks to social distancing and New Jersey’s ability to flatten the curve, these numbers have fallen drastically. By May 11th, the three-day average of new, positive cases had fallen to 1,572 new cases—a 61 percent decrease. Likewise, the three-day average of new hospitalizations had fallen to 4,277 patients—a 48 percent decrease.

In light of this decreased burden on the healthcare system, Governor Murphy signed Executive Order 145, which allows for elective surgeries to resume as of 5 am on May 26, 2020. EO 145 provides that elective surgeries and invasive procedures may proceed at both licensed healthcare facilities and in outpatient settings not licensed by the Department of Health (e.g., health care professional offices, clinics, and urgent care centers), subject to limitations and precautions set forth in policies to be issued by the Division of Consumer Affairs, in consultation with the Department of Health, by Monday, May 18, 2020. EO 145 further states that the Department of Health and/or the Division of Consumer Affairs may issue supplemental or amended policies concerning elective surgeries and elective invasive procedures on or after Monday, May 18, 2020.

Consumer complaints regarding alleged price gouging have been increasing as the COVID-19 pandemic continues. Generally, price gouging occurs when there unreasonable increase the price of a consumer good (or service) during a public emergency. Although we are facing a national emergency, except for a March 23, 2020, executive order issued by President Trump prohibiting hoarding and price gouging of certain critical supplies, there is no federal price gouging law. Although there are proposal pending in Congress to more broadly prohibit price gouging, currently, the issue is ...

Recently, the U.S. Securities and Exchange Commission’s (“SEC”) Office of Compliance Inspections and Examinations (“OCIE”) issued a Risk Alert to provide broker-dealers with guidance on examinations regarding regulation Best Interest (“Reg BI”).  Reg BI requires that when broker-dealers make a recommendation regarding securities to a retail customer it must act in the best interest of the customer, without placing its own financial or other interest ahead of the retail customer’s interest.  The Financial Industry Regulatory Authority (“FINRA”) also ...

On March 23, 2020, shortly after the Governors of California, New York, Connecticut and New Jersey issued orders closing non-essential businesses, we recommended that businesses review their insurance policies to determine if they had either business interruption coverage or civil authority coverage that might be available to lessen the economic blow of COVID-19.  As explained here, business interruption coverage generally allows a business to recover certain  losses in the event that the business suffers physical damage or loss that prevents it from operating its business ...

Sometimes a crisis can be an opportunity to embrace new technologies and changes that were already on the horizon – albeit at a much more expedited pace.  As employees are required to work remotely and practice social distancing due to the COVID-19 pandemic, the federal government and several state governments (including New York and New Jersey) are moving (New York more quickly than New Jersey) to enable remote online notarization and keep businesses operating.

A Potential Federal Solution

On March 18, 2020, Senator Kevin Kramer, R-N.D. and Mark Warner, D-Va, introduced ...

Imagine these scenarios:

• Your company cannot perform a contract because of the COVID-19 pandemic.
• A vendor informs you that she cannot provide your company with necessary goods because of supply chain issues caused by a governmental emergency declaration.
• A subcontractor cannot perform because its employees are self-quarantining.

These are not hypotheticals. Scenarios like these are playing out around the country. The real-world impact of the COVID-19 pandemic is colliding with contractual requirements, and there is new attention to the legal doctrines of “impossibility,” “frustration of purpose,” “impracticability, and “force majeure.”

What do they mean? In a nutshell, traditional contract law says that an unforeseeable event occurring after the contract was formed can excuse contract performance, and determining whether an event was unforeseeable will depend heavily on the specific facts and the language of the contract.

Across the nation, authorities are scrambling to meet the new challenges posed by COVID-19. The United States Centers for Disease Control and Prevention (“CDC”) has recommended that individuals remain six feet apart in order to prevent the spread of COVID-19. On March 13, 2020, the White House proclaimed a national emergency and many State governments have ordered non-essential businesses to close, and residents to self-distance. However, these emergency measures conflict with the rules for personal service of process established by Federal Rule of Civil Procedure 4.

Personal service of process is among the oldest and commonest means by which a court can obtain personal jurisdiction over a defendant. F.R.C.P. 4(e) provides that personal service of process can be accomplished by handing the process papers to the defendant personally or leaving the papers with a responsible person at the defendant’s dwelling.

In most cases, personal service involves the physical act of handing papers from one person to another. The very act of accomplishing personal service therefore violates the CDC’s recommendation that individuals remain six feet apart. However, it can also run contrary to more stringent restrictions imposed by State governments.

On Monday March 23, 2020, President Donald Trump signed an executive order aimed at preventing hoarding and price gouging.  Attorney General William H. Barr indicated that the order is authorized under the Defense Protection Act, which allows the United States to compel private industry to assist in meeting national defense needs in response to national emergencies.

The new executive order empowers the Health and Human Services Secretary to designate supplies as “critical.”  Hoarding – accumulating quantities beyond those reasonable to satisfy personal or business needs ...