Antitrust Law Daily Wrap Up, ANTITRUST—9th Cir.: Federal law of privilege applied to disputed e-mail settlement agreement, (Sep 6, 2016)

By Edward L. Puzzo, J.D.

In a settlement agreement reached between Sony and Hannstar through e-mail, the federal, and not state, law of privilege applied in determining the enforceability of the agreement, the U.S. Court of Appeals in San Francisco has ruled (In re TFT-LCD (Flat Panel) Antitrust Litigation, September 1, 2016, Graber, S.).

In a long-running price fixing lawsuit brought by Sony Electronics against Hannstar Display, Sony’s supplier of TFT-LCD flat panel displays, the parties agreed to mediation. As a result of the mediation, the mediator proposed a settlement by e-mail. Both parties accepted the settlement by e-mail, but Hannstar subsequently refused to comply with the settlement. Sony then filed this action alleging federal and state antitrust claims against Hannstar, as well as a breach of contract claim for reneging on the settlement agreement. Sony later dropped the antitrust claims but continued to pursue its claim against Hannstar for reneging on the settlement agreement.

Hannstar moved to dismiss for lack of federal jurisdiction, as Sony’s antitrust claims had been dropped. The district court denied Hannstar’s motion to dismiss, ruling that the federal court retained jurisdiction over the matter due to diversity jurisdiction. But the district court also denied Sony’s motion for summary judgment, finding that California’s rules of evidence—California Evidence Code section 1123(b)—precluded the admission of the e-mail settlement because it lacked an express statement that it was intended to be enforceable and binding.

The appellate court noted that the settlement negotiations leading up to the disputed email settlement agreement concerned both federal and state issues. Sony eventually dismissed its federal claims, but the appellate court ruled that since the settlement negotiations involved both federal and state claims, pursuant to Federal Rule of Evidence 501, the federal, not the California, law of privilege applied. Therefore, the appellate court, in a 2-1 decision, reversed the district court order denying Sony’s motion for summary judgment, and remanded for evaluation of the enforceability of the settlement agreement under the federal law of privilege.

The case is No. 14-15916.

Attorneys: Stephen Victor Bomse (Orrick, Herrington & Sutcliffe LLP) for Sony Electronics, Inc. and Sony Computer Entertainment America, LLC. Harrison Frahn (Simpson Thacher & Bartlett LLP) for Hannstar Display Corp.

Companies: Sony Electronics, Inc.; Hannstar Display Corp.; Sony Computer Entertainment America, LLC

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