PENNSYLVANIA: An Introduction to Litigation: General Commercial
Pennsylvania Litigation Trends to Watch in 2023
After a pandemic-induced slowdown in 2021, Pennsylvania courts picked up their pace significantly in 2022, with most Pennsylvania courts accelerating trial schedules to clear their backlogs. Pennsylvania courts stayed open and held in-person jury trials throughout the year, including during the Omicron spike in early 2022. Bench trials and court hearings were conducted both in-person and via remote technology platforms, depending on individual judges’ preferences. Remote appearances via Zoom or Teams allowed for more efficient scheduling of discovery hearings and court conferences, particularly in large cases with multiple parties or out-of-town attorneys.
Pennsylvania courts produced larger verdicts and settlements in 2022 than in recent years, including the USD206 million verdict against two former judges in the “Kids for Cash” scandal, which involved the illegal detention and incarceration of juveniles for profit(U.S. District Court for the Middle District of Pennsylvania); the Trident Mortgage Co. USD20 million settlement over allegations of redlining in mortgage lending (U.S. District Court for the Eastern District of Pennsylvania); and the USD27 million settlement between Lower Merion School District and taxpayers regarding alleged illegal budgeting practices to justify tax increases (Montgomery County Court of Common Pleas).
Life sciences and biotech continue to be hot growth areas in the Philadelphia region, giving rise to numerous intellectual property trade secrets and patent infringement lawsuits, as well as shareholder disputes and class actions pending in the Pennsylvania state and federal courts. It is worth closely monitoring this dynamic area of law.
COVID-19 Business Interruption Coverage Cases Continue to Unfold
The Pennsylvania courts have seen many lawsuits with businesses suing their insurance carriers for business interruption coverage and recovery of losses caused by COVID-19 and government-mandated shutdowns. Although most of the Pennsylvania trial court opinions have favored the carriers, some Pennsylvania trial courts have sided with policyholders against insurers, primarily based on the language of the specific insurance policies at issue.
The Pennsylvania Superior Court recently issued a split decision of sorts when it issued two opinions in November 2022 with differing outcomes: in one case, a dental practice was entitled to coverage for its lost income caused by the COVID-19 shutdown, but in the other case, a restaurant was not, in effect reversing the trial court’s summary judgment ruling in favor of the insured. Policy language made the difference in those outcomes. The appellate court ruled that the dental practice’s COVID-19 closures were covered under a special “Business Income and Extra Expense” coverage of its insurance policy, while the restaurant could not establish a “direct physical loss of or damage to” its covered property. Appeals of those cases to the Pennsylvania Supreme Court bear watching.
On the federal court front, the Philadelphia-based Third Circuit Court of Appeals recently issued its first decision on business-income interruption insurance coverage for losses caused by COVID-19, affirming 14 lower-court rulings for insurers by federal courts in Pennsylvania and New Jersey. The 3rd Circuit held that restrictions on the use of property, unaccompanied by “a distinct, demonstrable, and physical alteration of its structure,” do not trigger coverage under all-risk commercial property insurance policies. However, the Third Circuit is predicting what the state supreme courts will do, and policyholders contend that the federal court is misinterpreting state law—so there is more to come.
Data Breach Litigation: Potential Harm is Enough for Standing
In September 2022, the Third Circuit Court of Appeals made it easier for plaintiffs to pursue class actions based on data breaches, even if they have not yet been harmed. When a biopharmaceutical company was subject to a phishing attack, sensitive information of former and current employees was stolen and posted on the Dark Web. The named plaintiff was an employee who did not suffer any actual identity theft or fraud, but she feared that her personal information would be used in the future to harm her. She sued her employer in the United States District Court for the Eastern District of Pennsylvania under the Class Action Fairness Act, with claims for negligence, breach of contract, breach of fiduciary duty, and breach of confidence. The Eastern District dismissed the case, holding that allegations of an increased risk of identity theft based on a data breach are insufficient to establish standing in federal court.
The Third Circuit unanimously vacated the District Court’s dismissal of the complaint, clarifying that an injury can be “imminent” in order to qualify for standing, and does not need to have actually taken place at the time of suit being filed. Based on precedent in the area of data breaches, the Court of Appeals determined that the substantial risk of future injury qualifies for standing based on imminence, especially in the event of an intentional, targeted attack by a hacking group. The Court followed the trend of other jurisdictions, which found that actual misuse of the data is not necessarily required in this context. Businesses should be cognizant of this increased risk of class action suits in the data breach context.
"Clickwrap" Arbitration Agreements May Not Be Enforceable
A recent Pennsylvania Superior Court decision calls into question the enforceability of the common “click to agree” (or “clickwrap”) hyperlinked terms and conditions on websites containing an arbitration provision. In Chilutti v. Uber Technologies Inc. et al., the Superior Court invalidated an arbitration clause and allowed the plaintiff to demand a jury trial in her lawsuit against Uber for injuries sustained during a ride. The majority commented that the common use of hyperlinked arbitration agreements in the context of internet contracts “raises concern” because the parties have “unequal bargaining power” hurting Pennsylvania consumers' state constitutional right to hold companies accountable in court. This ruling has significant implications for businesses that rely on clickwrap agreements for consumer consent. Businesses should watch for further developments on this front, be aware that such arbitration clauses (and perhaps other waivers in clickwrap agreements) may not be enforceable, and be prepared to adapt their practices accordingly to avoid legal challenges.