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Roundup: 4th, 7th, 8th and Federal Circuits

Oral contract found enforceable; court denies class certification; business owners liable for tax penalties; analogous art test can apply to different “fields of endeavor”.

4th Circuit: Oral Contract Found Enforceable

On April 11, the 4th Circuit declined to flip a lower court ruling ordering A&E Television Networks to pay $4 million to the real estate investor who developed the one-time hit series “Flip This House” in Trademark Properties Incorporated v. A&E Television Networks.

In 2004, real estate investor Richard Davis proposed an idea for a series about house flipping to A&E. Davis claims that, through an oral agreement, the network promised him 50 percent of the net revenue for developing and appearing on the show. When the show premiered in 2005, it was a hit. Davis left the network following a falling-out after the first season, and in 2006, he sued A&E for $7.5 million, approximately half of the net revenue the series had generated to that point. In 2008, a jury awarded Davis just over $4 million, or roughly half of the first season’s net revenues.

On appeal, the 4th Circuit found the network guilty of breach of contract. Though the courts conceded that Davis should have gotten something in writing, they nonetheless found the oral agreement enforceable.

7th Circuit: Court Denies Class Certification

Sprawling groups of plaintiffs may not be eligible for class certification, the 7th Circuit ruled March 30 in Randall v. Rolls-Royce Corporation.

Two female employees of a Rolls-Royce manufacturing plant sought to represent approximately 500 women alleging violations of Title VII and the Equal Pay Act. The allegations stemmed from Rolls-Royce’s complex pay system, which grouped employees into classes based on their value to the company and assigned a broad pay range to each class. Different levels of base pay were specified for different jobs, and supervisors could make adjustments based on employee performance. The plaintiffs alleged that the base pay for women was, on average, 5 percent lower than men in the pay grades at issue in the suit, and because performance adjustments were a percentage of that base, women were negatively affected by the discrepancy.

The 7th Circuit upheld the district court’s denial of class certification.Because of the complicated pay system, the proposed class was sprawling and included both supervisors and non-supervisors. The court found that the named plaintiffs, both of whom were supervisors, had claims that were “significantly weaker” than many in the class. The court also found the case to be too large a stretch under Rule 23(b)(2), which is usually applied to cases in which there is less variation in the relief sought for class members. In this case, calculating back pay would require 500 separate proceedings, the court found.  

8th Circuit: Business Owners Liable for Tax Penalties

Business owners can be “responsible persons” in IRS penalties for unpaid employment taxes resulting from a bookkeeper’s misconduct, the 8th Circuit affirmed in Oppliger v. United States on March 29.

James and Gayle Oppliger were the sole owners of Double O trucking company and Livestock Feed Company. In 2002, Mary Kerkman, who had handled the companies’ accounting and tax returns since 1996, committed suicide. The day after her death, the IRS informed the Oppligers that more than three years of the companies’ payroll taxes were delinquent, and LFC and Double O employment taxes hadn’t been paid for 13 and 17 quarters, respectively. During the delinquency investigation, the Oppligers also discovered that Kerkman had embezzled $10,000.

When the IRS sought penalties against the couple for the unpaid taxes, they claimed they were not responsible because they hadn’t been aware of Kerkman’s actions. The district court found them liable and, on appeal, the 8th Circuit upheld the decision.

Federal Circuit: Analogous Art Test Can Apply to Different “Fields of Endeavor”

On March 21, in Innovention Toys, LLC v. MGA Entertainment, Inc., the Federal Circuit clarified the requirements for something to be considered “analogous art” for the purpose of establishing an obviousness defense against patent infringement claims.

When Innovention, which holds a patent for a chess-like, light-reflecting board game, brought suit against MGA, MGA denied any infringement and argued that the patent’s claims were obvious because of prior art. As evidence in support of its obviousness defense, MGA offered two articles describing a computer game called “Laser Chess.”

The district court ruled in favor of Innovention, calling the game described in MGA’s articles nonanalogous because it was a computer game as opposed to a board game like Innovention’s game.The Federal Circuit, however, determined that the articles would have been reasonably pertinent to Innovention in development of its board game, because both the patent at issue and the articles focused on “detailing the specific game elements comprising a chess-like, laser-based strategy game.”

Kayleigh Roberts

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