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Second Circuit Clarifies “Quo” Element of FCPA’s Anti-Bribery Provision

Mon, 08/19/2019 - 3:30pm

By Gregory A. Brower and Thomas J. Krysa. Mr. Brower is a Shareholder with Brownstein Hyatt Farber Schreck, LLP in Las Vegas, NV and Washington, DC. Mr. Brower also serves on WLF Legal Policy Advisory Board and is the WLF Legal Pulse’s Featured Expert Contributor, White Collar Crime and Corporate Compliance. Mr. Krysa is a Shareholder in Brownstein Hyatt’s Boulder, CO office.

The U.S. Court Appeals for the Second Circuit recently decided that the government need not show that an “official act” was performed in exchange for a corrupt payment in order to prove a violation under the Foreign Corrupt Practices Act’s (FCPA) anti-bribery provision.  In so deciding, the court rejected the argument that the U.S. Supreme Court’s 2018 decision in United States v. McDonnell requires evidence of an official act in FCPA cases.  This is a clear win for the Department of Justice and confirms that the “quo” part of the FCPA’s quid pro quo requirement is to be interpreted very broadly.

The case involved the prosecution of a Chinese national, Ng Lap Seng, who paid more than $1 million to two United Nations ambassadors in order to secure a U.N. commitment to use his property in Macau as the site for an annual U.N. conference.  DOJ alleged that the payments violated 18 U.S.C. § 666, which prohibits corrupt payments to organizations like the U.N. that receive more than $10,000 in federal funding annually, and violated the FCPA, which makes it a crime to give anything of value to a foreign official with the corrupt purpose of obtaining an improper business advantage.  While the trial court instructed the jury that the §666 bribery count required that the government prove an “official act,” it rejected the Ng’s request to give a similar instruction on the FCPA count.  Following his conviction, Ng appealed, arguing that the McDonnell decision requires that the official-act element be part of an FCPA jury instruction.

The Second Circuit rejected this argument, distinguishing the language of the FCPA and that of §666 from the language of 18 U.S.C. § 201 which was the federal bribery statute at issue in McDonnell.1 After comparing and contrasting the three statutes, the court stated that [f]rom these textual differences among various bribery statutes, we conclude that the McDonnell “official act” standard, derived from the quo component of the bribery as defined by §201(a)(3), does not necessarily delimit the quo components of the other bribery statutes….”  The court went on to explain as follows:

“[T]he FCPA…prohibits giving anything of value in exchange for any of four specified quos. While the first FCPA quo referencing an ‘act or decision’ of ‘foreign official in his official capacity’ might be understood as an official act, the FCPA does not cabin ‘official capacity’ acts or decisions to a definitional list akin to that for official acts in section 201(a)(3).  Nor does it do so for acts or omissions that violate an official’s ‘duty,’ or that affect or influence the act or decision of a foreign government.  Finally, the FCPA prohibits bribing a foreign official to ‘secur[e] an improper advantage’ in obtaining, retaining, or directing business, without requiring that the advantage be secured by an official act as limited by the section 201(a)(3) definition.

What does this mean for FCPA enforcement going forward?  Clearly, this decision is a good one for DOJ in that the Second Circuit has now joined several other federal circuits in declining to extend the McDonnell “official acts” requirement to other federal bribery statutes, including, in this case, both §666 and the FCPA.  This is important because it has the effect of confirming the broad range of activities that can legally constitute the quo in FCPA prosecutions.  So, while this decision does, on one hand, confirm that the FCPA requires a quid pro quo, the decision also clarifies that the quo does not have to be an “official act” of the type required in a §201 prosecution under McDonnell.  This interpretation gives DOJ more leeway when identifying an actionable quo, but arguably gives potential targets of FCPA investigations far less clarity on just what type of quo actually violates the law.


The post Second Circuit Clarifies <em>“Quo”</em> Element of FCPA’s Anti-Bribery Provision appeared first on Washington Legal Foundation.

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In Roundup Trials, the Deck Is Stacked Against Science

Mon, 08/19/2019 - 11:40am

Say that one in a thousand people has disease x. There’s a test for x, but five percent of the time it says someone has x when he doesn’t. You, the test says, have x. How likely is it that you do?

A little math goes a long way here. If one in a thousand people is infected but five in a hundred people falsely test positive, then out of every ten thousand people tested, ten will have the disease and test positive while five hundred will test positive without having the disease. The question, then, is whether your positive result is one of the ten out of 510 that’s accurate. There is only a 1.96 percent chance (10/510) that you’re infected.

Now consider this. In 2013 a few dozen doctors and medical students were asked this question, and around three-quarters of them got the answer wrong. In fact, almost half of them said there’s a ninety-five percent chance you have the disease.

Statistical thinking does not come easily to us. Our primate brains are not designed to grasp it, or even to reach for it, naturally or intuitively. Reason bows to passion. Instinct substitutes for evidence.

Much of what passes for “common sense” is nonsense. Take our aversion to ambiguity. Would you rather wager on drawing a red ball from a bowl with an equal number of red and white balls, or from a bowl with a random distribution of such balls? If you’re like most people, you’d much prefer to bet on a draw from the first bowl. The risk hasn’t changed; only your perception of it.

We dislike uncertainty, too, and will do strange things to evade it. An optical illusion causes a light in a dark room to appear to move. Ask individuals how far the light moved, and they will offer different estimates. No surprise there—the light didn’t move. Ask a small group the same question, however, and they will coalesce around a common answer. More than that, each member of the group will, if taken aside, confirm that he believes that answer is correct.

When certainty is unavailable, people will accept certitude in its stead. Using words to describe emotions (“That’s not fair!”) is not the same thing as making an argument. In a group setting, however, this fact does not count for much. A person can pull a group in his preferred direction merely by expressing his position with great feeling and confidence.

It’s not just certainty that people want from the group. They also crave solidarity. They want to belong. If the tribe accepts you, you live. If it rejects you, you die. So says your primate brain. Divide children into two randomly assigned groups, and they will quickly form a preference for their groupmates. They will even assume that the other group is comprised of worse behaved children.

“A desire for fraternity and we-ness,” biologist Mark W. Moffett writes, can eclipse “the goal to achieve sound solutions.”

Here is one especially promising way to stoke tribal enthusiasm. It is a ritual. Start by putting twelve men and women in an impressive room. Have them swear a solemn oath. Then have them watch a grand speech contest among smart and serious people wearing robes and other ceremonial attire. (A person who has just completed the ritual will often speak in euphoric terms about the camaraderie it produces among the twelve participants.)

Some of the speakers should appeal frequently to an us-versus-them mindset. This attitude has driven the primate brain to action for generations without number—since our distant forebears were living in trees. The world may be excruciatingly complex, but the stories told in the ritual should be delightfully simple. Vilification is the key. In one of the stories, everything “they” do causes harm. That, indeed, is why “they” do it! “They” are greedy, black-hearted fiends. “They” must be punished. “They” must be brought low.

Ensure that much of the ritual revolves around disgust. The great weight of the evidence suggests that we benefit immensely from nuclear power, genetically modified food, and vaccines. Yet around half of Americans oppose the use of nuclear power, around half think genetically modified food is unsafe or unhealthy, and a vocal minority assert that vaccines are dangerous. Some of the underlying concerns about these things might ultimately be justified—openness to further inquiry and new evidence is what makes science science. But the dissenters generally do not base their views on careful investigation or cost-benefit analysis. They base them, rather, on a vague conviction that the items in question are icky. The primate brain recoils from anything it perceives to be defiled, polluted, or unnatural.

Once your band of twelve is tightly knit, angry, and disgusted, set before it a genuinely sympathetic victim. Let someone explain that this humble man of flesh and blood is one of “us,” and that he has been hurt by the distant corporate “them.” Let the side of “us” tell a real tale of human struggle, and leave the side of “them” to respond with technical—better yet, statistical!—arguments about cohort studies and risk ratios.

The chances are decent that by ritual’s end, twelve private citizens will be ready to act as one avenging hammer.

Which brings us, at last, to the recent jury verdicts in favor of plaintiffs who contend that Bayer AG’s Roundup herbicide gave them cancer.

To show that Roundup caused his cancer, a plaintiff must first show that Roundup can cause cancer. Now it is true that if you douse cells in a Petri dish in massive quantities of glyphosate, Roundup’s active ingredient, the cells’ genetic material will be damaged. The question, however, is whether real live humans who experience real-life exposure to glyphosate in real-world quantities are more likely to develop cancer. And the largest study to grapple with that question found, after tracking more than fifty-thousand people for more than twenty years, that there is no link between glyphosate and non-Hodgkin’s lymphoma, the cancer at issue in the recent court trials.

Even if he can establish causation in principle, a plaintiff must show that Roundup is what caused cancer in him. Most cases of non-Hodgkin’s lymphoma are idiopathic—the reason the patient developed the disease is unknown. A federal trial judge in San Francisco noted that this fact alone might have been “the end of the line for the plaintiffs” in much of the country. But the court of appeals above him, the U.S. Court of Appeals for the Ninth Circuit, has declared that “medicine partakes of art as well as science,” and the judge believed himself required to let the plaintiffs rely on experts whose opinions “lean strongly toward the ‘art’ side of the spectrum.” Even then it was “a close question,” the judge wrote, whether the plaintiffs should be allowed to present their case to a jury, but in his view they had “barely inched over the line.”

Come trial, of course, subtlety of this sort disappears. During one Roundup trial’s closing arguments, the plaintiff’s lawyer concocted an image of the defendant’s executives sitting in a boardroom, waiting for the phone to ring. “Behind them is a bunch of champagne on ice,” he said, and if they hear of a low damages award, “champagne corks will pop” and “‘Attaboys’” will be “everywhere.” In another of the trials the plaintiffs’ lawyer was reprimanded for violating no less than four pre-trial evidentiary rulings during her opening statement. These violations, the judge concluded, “were premeditated.”

The lawyers paid no real price for these tactics. The attorney who argued in bad faith during her opening was fined $500. No mistrials were declared.

One last thing about the primate brain: if you excite some people to fury and then have them discuss their fury with each other, they will usually rile themselves up and become more furious still. A 2000 study found that when jurors head into deliberation wanting to impose punitive damages, the jury’s ultimate award is typically higher than what the median juror would have awarded before the deliberation started. Often it is higher than what any individual juror would have awarded.

The jury awards against Bayer have been undamped effusions of rage. In August 2018 a former groundskeeper won $289 million. In March a man won more than $80 million. And in May a couple that had used Roundup outside their home won more than $2 billion. The trial courts have reduced each of these awards.

There are now more than 18,000 plaintiffs suing Bayer over Roundup. A mediator is trying to help resolve these cases. The voice of rumor whispers that Bayer might settle them for around $8 billion.

We proudly use juries to give the people a role in the execution of the laws. Sometimes their main contribution is a dose of popular prejudice. The arrangement has the weakness of its strength.

Also published by Forbes.com on WLF’s contributor page.

The post In Roundup Trials, the Deck Is Stacked Against Science appeared first on Washington Legal Foundation.

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WLF Urges Ninth Circuit to Repair its Reading of the Federal Arbitration Act’s Saving Clause

Mon, 08/19/2019 - 11:12am

“The Ninth Circuit should reconnect its reading of the FAA’s saving clause to what the FAA’s saving clause actually says.”
—Corbin K. Barthold, WLF Senior Litigation Counsel

Click HERE for brief

(Washington, DC)—On Friday, August 16, 2019, Washington Legal Foundation filed an amicus curiae brief urging the U.S. Court of Appeals for the Ninth Circuit to reconsider, en banc, a decision that misconstrues the Federal Arbitration Act’s saving clause.

McGill v. Citibank, N.A., 2 Cal. 5th 945 (2017), says that an arbitration clause may not extinguish a party’s right to seek injunctive relief for the public at large. A Ninth Circuit panel held that this “McGill rule” is not preempted by the FAA. Under the FAA’s saving clause, an arbitration agreement that is otherwise enforceable under federal law remains subject to any generally applicable state-law contract defense. The McGill rule, the panel concluded, is such a defense.

As the panel acknowledged, however, the McGill rule arises from California Civil Code § 3513, a state “maxim of jurisprudence.” WLF contends in its brief that California’s maxims of jurisprudence are not contract defenses that properly trigger the FAA’s saving clause.

Even if it stood on a real contract defense, WLF continues, the McGill rule would still be preempted. Although the panel cited some old cases unrelated to arbitration that involve § 3513, today the California courts use § 3513 specifically as a cudgel for striking down arbitration agreements. The FAA preempts a state rule whose only purpose is to serve as a tool for striking down arbitration clauses.

Celebrating its 42nd year as America’s premier public-interest law firm and policy center, WLF advocates for free-market principles, limited government, individual liberty, and the rule of law. 

The post WLF Urges Ninth Circuit to Repair its Reading of the Federal Arbitration Act’s Saving Clause appeared first on Washington Legal Foundation.

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WLF Urges Supreme Court to Apply Normal Causation Standards in Discrimination Cases

Thu, 08/15/2019 - 2:28pm

“Proof that the defendant’s conduct did in fact cause the plaintiff’s injury is a standard requirement of any tort claim. The Ninth Circuit’s abandonment of that requirement in the context of some federal anti-discrimination claims lacks any statutory basis. It will make it very difficult for defendants to win dismissal even of insubstantial claims.”
—Richard Samp, WLF Chief Counsel

Click here for WLF’s brief.

WASHINGTON, DC—Washington Legal Foundation (WLF) today urged the U.S. Supreme Court to overturn a Ninth Circuit decision that makes it nearly impossible for defendants to win pretrial dismissal of even frivolous discrimination claims. WLF’s amicus curiae brief argued that unless Congress specifies otherwise by statute, a plaintiff seeking to prevail on a discrimination claim must establish that the defendant would not have acted as it did “but for” unlawful discrimination. The Ninth Circuit held that a plaintiff can establish liability merely by showing that unlawful discrimination was “a factor” in the defendant’s decision-making, even if the defendant would have made the same decision had discrimination not been a factor.

At issue before the Court is 42 U.S.C. § 1981, a statute that prohibits racial discrimination in the making of contracts. The plaintiff, Entertainment Studios Networks (ESN), is a small, minority-owned television-program provider that has been unable to convince major cable operators to carry its programming. ESN sued Comcast and all the other large cable providers under § 1981, arguing that they discriminated against it on the basis of race. Comcast denied the claim, asserting that it denied a contract because ESN did not demonstrate adequate viewer interest in its programming. ESN’s complaint included no factual allegations suggesting discriminatory motives; it merely claimed that its programming was at least as popular as the programming of non-minority companies that were offered contracts.

The Ninth Circuit reversed the trial court’s dismissal of the case. It held that, to prevail on its claim, ESN need not show that discrimination was the “but for” cause of Comcast’s decision; it need merely show that discrimination was “a factor.” It held that ESN’s we’re-as-well-qualified-as-those-who-got-contracts allegation was sufficient to permit ESN to proceed past the pleading stage and to engage in pre-trial discovery. WLF’s brief argued that the Ninth Circuit’s adoption of a lessened causation standard violates well-established tort principles and will likely incentivize the filing of frivolous claims.

Celebrating its 42nd year as America’s premier public-interest law firm and policy center, WLF’s mission is to preserve and defend America’s free-enterprise system by litigating, educating, and advocating for free-market principles, a limited and accountable government, individual and business civil liberties, and the rule of law.

The post WLF Urges Supreme Court to Apply Normal Causation Standards in Discrimination Cases appeared first on Washington Legal Foundation.

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Serial Nature of Consumer Class Actions Sinks Cereal-Labeling Suit

Thu, 08/15/2019 - 11:14am

Serial litigation is pervasive in class-action lawsuits alleging deceptive food labeling. The same plaintiffs, routinely represented by the same law firms, file identical lawsuits in different jurisdictions against the same defendant. Similarly, the same plaintiffs and lawyers file cookie-cutter suits against numerous defendants advancing the same claims. This spaghetti-test approach allows plaintiffs’ lawyers to try out legal theories in different contexts and courts and, if they’re fortunate, create precedents for use in other cases.

But as an August 13, 2019 decision from the Food Court (the Northern District of California) demonstrates, serial litigation can just as easily sow the seeds that lead to a class action’s downfall.

Truxel v. General Mills Sales, Inc. is one of many suits brought by the same law firm on behalf of serial plaintiffs. Each suit claims that the presence of “toxic” amounts of added sugar render all health and wellness statements on the food labels deceptive under California law. Decisions in several of these lawsuits have pared down the plaintiffs’ claims and forced them to amend their complaints. The plaintiff in Truxel has amended her complaint three times in response to rulings by Judge Jeffrey S. White that relied on decisions in other, identical lawsuits.

The fourth time was not the charm for Ms. Truxel. General Mills’ motion to dismiss turned, as so many motions in food-labeling deception cases do, on whether the challenged statements would mislead a reasonable consumer. Some judges in food-labeling suits have held that jurors, not judges, should decide this “reasonable consumer question.” Judge White, however, felt confident in his authority to rule on reasonable consumer as a matter of law. In doing so, he cited another Food Court decision in a lawsuit that featured “nearly identical language in the complaint regarding the health effects of sugar,” Clark v. Perfect Bar.

Clark, Judge White explained, found “the plaintiff’s theory of deception – the precise one adopted here by the same plaintiffs’ counsel – was implausible.” Consumers, the Clark court explained, could simply look at the amount of sugar on the Nutrition Facts label and decide if that amount is “healthy” for them—”The honey/sugar content was properly disclosed – that is the end of it – period.”

Judge White adopted that reasoning and distinguished the Ninth Circuit’s Williams v. Gerber Prods. Co. decision. Truxel asserted that under Williams, a defendant cannot cure deceptive statements elsewhere on the label by point to the Nutrition Facts. The statements General Mills made on its cereal products were not deceptive, however, but were “truthful and required objective facts,” so Judge White concluded that Williams did not apply.

The court explained that consumers have to decide for themselves whether the disclosed amount of sugar is unhealthy because “there is no consensus on just how much sugar is healthy for consumption.” Judge White pointed to decisions in cases like Becerra v. Coca-Cola Co., where the plaintiff’s supporting scientific studies failed to show a causal link between sugar-sweetened beverages and weight gain. That shortcoming factored heavily in those courts’ decisions to grant defendants’ motions. The studies Truxel relied upon were equally unhelpful, as none of them assessed the impact of added sugar in cereal.

Judge White put a final, merciful end to this serial plaintiff’s anti-cereal crusade by granting General Mills’ motion to dismiss with prejudice.

The tone and reasoning of Judge White’s opinion reflect weariness with serial food-labeling litigation. He vigorously applied the unhelpful precedents serial plaintiffs created in identical lawsuits against Truxel in Truxel v. General Mills Sales, Inc.

Several of these deceptive-due-to-added-sugar class actions remain alive. The presiding judges in those cases should follow Judge White’s lead and hoist the serial plaintiffs and their lawyers on their own collective petard.

Also published by Forbes.com on WLF’s contributor page.

The post Serial Nature of Consumer Class Actions Sinks Cereal-Labeling Suit appeared first on Washington Legal Foundation.

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WLF Asks Supreme Court to Hold State Governments Accountable for Copyright Theft

Tue, 08/13/2019 - 10:30am

“The Framers did not insist that Congress ‘secure’ copyrights with the tacit understanding that the States are perfectly free to trample copyrights without consequence.”
—Cory Andrews, Vice President of Litigation

Click HERE for WLFs brief.

(Washington, D.C.)—Washington Legal Foundation filed an amicus curiae brief today in the U.S. Supreme Court, urging it to reverse a decision by the U.S. Court of Appeals for the Fourth Circuit that would allow state governments and their agents to infringe federal copyrights with impunity. The Supreme Court has already agreed to hear the case, Allen v. Cooper, which will decide whether States’ Eleventh Amendment sovereign immunity shields them from liability for copyright infringement. Oral argument is set for November 5, 2019.

The dispute arises from the discovery of Blackbeard’s eighteenth-century flagship, the Queen Anne’s Revenge, off the coast of North Carolina. After locating the shipwreck, a private salvage–recovery firm hired videographer Frank Allen and his company, Nautilus Productions, LLC, to film and photograph the ship’s salvage. Over the next two decades, Allen created a large archive of video and still images documenting the recovery of the ship and its various artifacts. Allen registered his works with the U.S. Copyright Office and licensed them to Nautilus for commercial use. But the State of North Carolina and its officials began infringing Allen’s copyrights by uploading the works and posting them online without permission.

Allen sued North Carolina and its agents, in federal court, for copyright infringement. After the district court agreed to allow the suit to go forward, the Fourth Circuit reversed. It held that North Carolina and its officers are immune from copyright liability under the Eleventh Amendment. The appeals court explained that, while Congress may abrogate state sovereign immunity in some narrow circumstances under Section 5 of the Fourteenth Amendment, Congress has not validly abrogated state sovereign immunity for copyright infringement.

In its brief, WLF argues that the States consented to such suits in the “plan of the Convention.” As WLF shows, the history of the Copyright Clause, the reasons the Framers inserted it into the Constitution, and the laws enacted under its auspices just after ratification confirm that it was not only an Article I grant of authority to Congress but also a way to subordinate state sovereign immunity in copyright enforcement suits.

Washington Legal Foundation preserves and defends America’s free-enterprise system by litigating, educating, and advocating for free-market principles, a limited and accountable government, individual and business civil liberties, and the rule of law.

The post WLF Asks Supreme Court to Hold State Governments Accountable for Copyright Theft appeared first on Washington Legal Foundation.

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Latest FCC Preemption Orders Part of Campaign to Support National Broadband Infrastructure

Mon, 08/12/2019 - 9:00am

Robert W. Quinn is a Partner with Wilkinson Barker Knauer LLP in Washington, DC and serves as the WLF Legal Pulse‘s Featured Expert Contributor on Communications Regulation.

The relationship between the federal government (particularly the Federal Communications Commission (FCC)) and state/local governments has always been interesting to watch. In many ways, state actions promoting competition for local telephone services served as a catalyst for the Telecommunications Act of 1996 (the “1996 Act”). Congress took that baton and turned telephone competition into national policy.  That does not mean, however, that that federal/state relationship has not be free of ups and downs over the years, particularly as they relate to state and local oversight over carriers, services, or access to rights-of-way (as well as the fees generated by access to those rights-of-way (“ROW”)).

To promote a competitive telecommunications infrastructure, the FCC has historically used its preemption authority aggressively to encourage, first, communications investment and then, as voice service gave way to the internet, the broadband infrastructure investment. In the wake of the 1996 Act, the FCC preempted dozens of state/municipal laws that attempted to regulate carriers, services, or infrastructure deployment that the agency deemed would be a barrier to that investment.1 Another wave of preemption arose in the mid-2000s emanating from state attempts to regulate the nascent VOIP industry; as voice was perceived as a “killer app” for broadband.2 The advent of 4G wireless infrastructure brought another flurry of preemptions as carriers sought to deploy more fiber and densify their infrastructure.3 Today, with a national desire for faster, fiber-based wireline broadband and the worldwide race to 5G wireless network superiority, not surprisingly preemption has raised its head again.

For the fourth time in less than a year, the FCC has used its preemption authority to override certain state and local regulations which it deemed deterrents to investment in broadband infrastructure in the United States. The latest FCC preemption targets are local/state cable franchising laws which authorize the imposition of additional fees on cable providers for providing non-cable services to consumers (like broadband). Those fees are assessed either through the imposition of an additional fee applied to revenue derived from non-cable services or by charging additional fees on cable providers for utilization of the franchising authority’s ROW to provide those services (even though the same facilities are used to provide video services for which the franchise authority is compensated through the 5% cable franchise fee). For example, the Oregon Supreme Court recently affirmed Eugene, OR’s imposition of an additional 7% telecommunications license fee on the provision of broadband service over a franchised cable system with mixed use facilities.4

The FCC in its new § 621 Order5 finds that state/municipalities are limited by statute to recover only the 5% franchise fee for the provision of video services irrespective of the other services offered over that cable system. The agency further found that the 5% franchise fee also covers all ROW access so that municipalities cannot also charge extra ROW access fees to provide “mixed-use” services. Consequently, the Order expressly overrules the City of Eugene decision as well as other state or local attempts to impose fees in addition to the 5% franchise fee. Once approved, any state or municipal attempt to recover more than that 5% franchise fee for services or ROW access will be subject to FCC preemption.

The FCC § 621 Order follows an action taken by the agency three weeks earlier that preempted a local San Francisco ordinance which, on its face, appeared to require building owners in multi-tenant environments (MTEs) to provide competitive access to inside cable wiring even if that wiring was in use.6 The FCC’s preemption Order noted that the wording of the ordinance did not appear so limited but restricted its preemption to in-use wiring.  Id. ¶52.  Nonetheless, the City has announced it intends to appeal.  The FCC has long regulated the area of cable inside wiring and cable technical standards.7 In addition, the FCC has prohibited cable or communications providers from entering into exclusive contracts with building owners as a means to enable competition in MTEs.8 But the FCC has, since the mid-2000s, prohibited the sharing of broadband infrastructure in order to promote deployment of such infrastructure.9 By preempting the sharing of “in-use” cable wiring in the MTE Order, the FCC stated it was extending that pro-investment philosophy for inside wire to encourage investment in all forms of broadband infrastructure.

Late last year, the FCC also utilized federal preemption in two other areas related to broadband infrastructure. First, it preempted state and local regulations designed to create “Moratoria” periods during which the construction of communications infrastructure was prohibited. The FCC also set forth a national framework (with shot clocks) for small-cell deployment in public rights-of-way. The building “Moratoria” item, issued in August, was significant in that the agency preempted a means by which state and local governments were impeding the deployment of communications infrastructure; not by denying building or ROW permits, but rather by freezing all applications, permitting or construction in public-rights-of-way for defined (or sometimes undefined) periods of time.10 The FCC found, among other things, that states and municipalities were using “Moratoria” periods to evade the cell-siting-infrastructure shot-clock time periods it had enacted in the 4G Orders from 2009 and 2014.  The FCC as a result declared that all “Moratoria” periods were a violation of the § 253(a) prohibition on state or local regulations that “prohibit or have the effect of prohibiting the provision of telecommunications services” and thus preempted.

In September 2018, the FCC addressed the issue of small-cell deployment necessary to densify wireless infrastructure for the evolution to 5G services.11  Mobile broadband infrastructure has evolved from cell towers serving several square miles (with DS1/DS3 backhaul) to a dense fiber infrastructure with small cells serving areas as small as several hundred meters. In that environment, the FCC has promoted timely and economically efficient deployment of small-cell architecture to speed the evolution to 5G Technology.

In the September Small Cell Order, the FCC first reaffirmed that the test for whether an ordinance or rule “prohibits or has the effect of prohibiting” the provision of telecommunications or personal wireless services12 would be whether the regulation “materially inhibits the ability of any competitor to compete in a fair and balanced legal and regulatory environment. ¶35. Second, the FCC established that the fee structure for access to rights-of-way must be “cost-based.”¶50. Third, the FCC clarified that rights-of-way includes, not only underground conduit or street access, but also the use of government property within the ROW like street lamps and traffic lights.¶54. Finally, in the Report & Order section, the FCC instituted “safe harbor” application fees and shot clocks for states or municipalities to respond to requests for collocation on existing structures or for new structures in the public ROW. ¶¶ 79, 105.

While the last twelve months have been remarkable in terms of the FCC’s frequent exercise of its preemptive authority to restrict states and municipalities from inadvertently (or advertently) imposing additional barriers to broadband infrastructure deployment, these actions are merely the latest chapter (in a long-running story) of the importance to our nation’s economy to have a world-leading broadband infrastructure in the United States. Given both the economic and strategic importance of winning the race to 5G, you can expect the FCC to remain active and vigilant in this area in future.

To that end, in the § 621 proceeding, the FCC asserted incredibly broad preemption authority pursuant to § 636(c) of the Communications Act of 1934 (“The Act” )13  stating that: “[t]he reference in section 636(c) to “this chapter” means that Congress intended to preempt any state or local law (or any franchise provision) that is inconsistent with any provision of the Communications Act, whether or not codified in Title VI. Draft Order at ¶81. Ostensibly, the agency must have felt broad preemption authority that went beyond Title VI was necessary to specifically address the Eugene ordinance imposing a 7% tax on broadband services (which the FCC has declared are information services). But there may be a more pressing need for identifying a new preemption basis.

The agency’s traditional infrastructure preemption authority has been § 253(a) of The Act. By its definition, § 253(a) grants express preemptive authority for regulations that prohibit carriers from providing a “telecommunications” service. Given the FCC’s Restoring Internet Freedom Order (which declared reclassified broadband as an information service) and the recent Eighth Circuit case in Charter v. Lange, _ F.3d _ (2018) (No. 17-2290) (affirming a district court decision classifying fixed interconnected VOIP as an information service) one can envision a world soon where none of the communications service offerings provided by an ISP are classified as a telecommunications service. Consequently, perhaps the lasting impact of this round of preemption decisions will be the § 621 Preemption Order’s identification of the authority upon which the FCC will rely in the future to continue to use preemption as a means to remove regulations or fees which it determines pose a barrier to broadband infrastructure investment.


The post Latest FCC Preemption Orders Part of Campaign to Support National Broadband Infrastructure appeared first on Washington Legal Foundation.

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Five Lessons from the First Round of DOJ’s FARA Case against Prominent DC Attorney

Fri, 08/09/2019 - 11:36am

Gregory A. Brower is a Shareholder with Brownstein Hyatt Farber Schreck, LLP in Las Vegas, NV and Washington, DC. Mr. Brower also serves on WLF Legal Policy Advisory Board and is the WLF Legal Pulse’s Featured Expert Contributor, White Collar Crime and Corporate Compliance.

Earlier this week, well known Washington, D.C. lawyer Gregory Craig received a split decision on a pre-trial motion to dismiss an indictment alleging he violated the Foreign Agent Registration Act (“FARA”)1 in the context of his work for the government of Ukraine.  U.S. District Court Judge Amy Berman Jackson dismissed one of two counts against Craig, giving him a partial and mostly inconsequential victory, while deciding that DOJ’s case could nevertheless go to trial on the main count in the indictment.  In describing the underlying facts and the applicable law, Judge Jackson’s decision suggests several do’s and don’ts when it comes to the sometimes murky world of practicing at the intersection of law and politics in our nation’s capital.

The FARA statute essentially requires that anyone engaged in political or public-relations activities in the U.S. on behalf of a “foreign power” register with DOJ to disclose said relationship.  FARA defines “public-relations” activity as including “directly or indirectly informing, advising, or in any way representing a principal in any public relations matter pertaining to political or public interests, policies, or relations.”  It is this public-relations part of the statute that is at issue in DOJ’s prosecution of Craig.  Count One of the indictment alleges that Craig engaged in a scheme to knowingly and falsely conceal material facts about his public-relations activities on behalf of Ukraine in his communications with DOJ in violation of 18 U.S.C § 1001(a)(1).

Count Two of the indictment alleged that Craig also violated FARA itself by omitting certain material facts in a letter to DOJ.  It was this second count that Judge Jackson dismissed, finding the language of the FARA statute to be ambiguous as to the meaning of the phrase “filed with or furnishing to the Attorney General under the provisions of” in the statute.  Applying the “rule of lenity,” the judge dismissed Count Two, preserving Count One for trial.

This case is essentially about Craig’s alleged intentional avoidance of the registration requirements of the FARA statute.  According to the indictment, Craig, although aware of FARA’s requirements, nevertheless misled his now former law firm and DOJ about the true nature and scope of his work for Ukraine in an effort to convince them both that registration was not required.  Craig and his former firm were retained by Ukraine to conduct an independent inquiry into whether its prosecution of former Prime Minister Yulia Tymoshenko was fair in accordance with Western standards of justice and to prepare a report with the their findings.  That engagement, alone, would not necessarily implicate FARA.

However, DOJ has alleged that Craig went beyond merely preparing a report, and was also personally involved in a public-relations campaign to improve Ukraine’s public image internationally and in the U.S.  It is alleged that Craig knew this activity would require registration under FARA and because, for a variety of reasons, he did not want to register, he misled both his firm and DOJ about the true nature of his public-relations activities.  Craig has contested these allegations, pleading not guilty and vigorously litigating this case.  A trial on the remaining § 1001 count is scheduled to start on Monday, August 12, 2019 in Washington, D.C.

The alleged facts underlying the indictment present a fascinating example of just how careful practitioners in this area of the law, and their firms, need to be in navigating FARA’s registration requirements.  A few important lessons emerge from the details of this case, at least as they are alleged in the indictment, including:

  1. Don’t hide the true size and source of fees. According to Judge Jackson’s recent decision, Craig was aware of FARA’s requirements, even telling one of his partners in an email, “I don’t want to register…under FARA.” Among the reasons why he apparently did not want to register was that registration would have required the disclosure of the fact that a private Ukrainian citizen had paid more than $4 million for the underlying work on the commissioned report.  Instead, Craig allegedly prepared and signed an engagement letter that falsely stated the total fee to be approximately $12,000. Beyond raising obvious ethical questions, this fact likely raised suspicions within DOJ.
  1. Get competent legal advice on what FARA does and does not require, and follow it. Although Craig knew enough to seek FARA advice within his firm, and did so, he allegedly chose to ignore it. The record indicates that one firm partner with FARA experience opined to Craig that “if we were to perform public relations work aimed at the U.S….then we would be obligated to register under FARA.”  Another partner weighed in with “I think our engagement should not include PR advice….it will create a FARA problem.”  Despite that good advice, Craig nevertheless misled his colleagues about the true scope and nature of his work so as to convince them that registration was not required.
  1. Do not backdate documents or create false invoices. When the media began to question the $12,000 fee for the report, Craig allegedly worked with others to create a backdated letter and false invoice to make it appear that the Ukrainian Ministry of Justice paid $1,250,000 for the work. In fact, this invoice falsely stated both the source and amount of the payment. This fact also must have caused DOJ to believe that something was fishy about Craig’s representations concerning the true scope and nature of his work.
  1. If you manage a law firm and you receive a letter from the FARA unit at DOJ about one of your partners’ activities on behalf of a foreign power, don’t let that partner respond to the letter. According to Judge Jackson’s order, that’s exactly what happened. The FARA unit wrote to the firm’s Managing Director stating that “[i]t has come to our attention…that your firm may be engaged in activities on behalf of the [Ukraine], which may require registration pursuant to [FARA].”  According to the indictment, it was Craig who responded for the firm and made no reference to his contacts with the media on behalf of the client.  When DOJ followed up with more questions, Craig allegedly disclaimed any contacts with the media.  These representations notwithstanding, DOJ informed Craig and the firm that their activities nevertheless required registration.  Despite DOJ’s position, Craig persisted in convincing the firm’s general counsel that the firm should not register, allegedly misleading him as to the true facts.  After a meeting with DOJ, the FARA unit relented and revised its conclusion that Craig and the firm needed to register.  However, according to the indictment, this revised conclusion was based on false and misleading statements by Craig at said meeting.
  1. Don’t discuss nuanced legal and ethical issues via email. When it comes to preliminary communications about weighty legal or ethical matters, step away from the keyboard, pick up the phone or walk down the hall, and have a good old-fashioned live oral communication about it. This seems obvious in light of the now many indictments that have been based largely on email evidence, but as this case reveals, it cannot be said often enough.

The bottom line is this: although Craig hasn’t been convicted of anything yet, his apparent attempt at playing fast and loose with FARA’s requirements has resulted in a criminal indictment for him, and an embarrassing and expensive problem for his former firm.2  DOJ has made it very clear recently that it means business when it comes to FARA enforcement.  Indeed, Assistant Attorney General John Demers, head of DOJ’s National Security Division where the FARA unit resides, recently confirmed a shift from seeing FARA as primarily an administrative statute to using it as an enforcement tool. Lawyers and law firms would be well-advised to take note of this case and the lessons it offers.


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Roundup Cases May Be a New Example of an Old Problem: The Post Hoc Fallacy

Thu, 08/08/2019 - 4:07pm

By Victor E. Schwartz, co-chair of Shook, Hardy & Bacon L.L.P.’s Washington, D.C.-based Public Policy Group, and Christopher E. Appel, Of Counsel in Shook, Hardy & Bacon L.L.P.’s Public Policy Group.

Recent verdicts by several California juries in lawsuits by plaintiffs alleging they developed cancer from exposure to glyphosate, the active ingredient in the widely used herbicide Roundup®, highlight a recurring problem in the civil justice system with respect to the use of “expert” scientific evidence: the post hoc ergo propter hoc fallacy.

This fallacy, which is observable in many aspects of daily life, presumes that if one thing follows something else, that first thing must have caused the second thing. For example, a person who develops a fever after eating leftovers the night before might erroneously assume the two are related. A person who lets a friend use her cell phone to make a call and notices the returned phone is not working properly might erroneously assume the friend is to blame. Many superstitions, for instance a black cat crossing a person’s path providing a warning of a subsequently occurring accident or mishap, provide further examples of the post hoc fallacy.

In the area of product liability, the post hoc fallacy refers to a false assumption that if an adverse medical condition follows a person’s use of, or exposure to, a product, the person’s condition must have been caused by that product. Courts generally require expert evidence to establish causation based on sound science, but the courtroom testimony of experts can sometimes cloud unscientific conclusions in the minds of jurors. The Mississippi Supreme Court recognized this potential eighty years ago, stating that although the post hoc fallacy has been repeatedly dispelled by courts, it “has the characteristic of an endless renewal.”1

When juries buy into the post hoc fallacy, it can result in serious adverse consequences for society. Product liability law is replete with unfortunate examples of courts failing to adequately screen expert testimony presented to layperson jurors, allowing the post hoc fallacy to lead jurors down an improper path that jeopardizes the health and welfare of others. This Legal Backgrounder discusses a few of these examples, each of which bear similarities to the current Roundup litigation.

The Morning Sickness Drug Bendectin®  

The Food and Drug Administration (FDA) approved the use of Bendectin in 1956 to treat nausea and vomiting during pregnancy.2 By the 1980s, the product had become the leading treatment for these ailments in the United States and in many other parts of the world.3 Around this time, plaintiffs’ lawyers began bringing lawsuits against Bendectin’s manufacturer, alleging the drug caused birth defects. These lawsuits were predicated on a few studies in the late 1970s and early 1980s associating Bendectin use with specific birth defects.

Hundreds of lawsuits were eventually filed. Faced with enormous potential liability exposure, the manufacturer stopped selling Bendectin worldwide in 1983. Meanwhile, the FDA engaged in continuous study of the drug during the 1980s, concluding at every turn the data failed to show an association between Bendectin use and injury. Some trial court judges, however, allowed juries to hear expert testimony based more on speculation about Bendectin than sound science. Plaintiffs’ lawyers obtained multiple verdicts against the manufacturer, enabling the post hoc fallacy to win the day and keep a safe and effective drug off the market.

Relief in the Bendectin litigation would later come in the way of a landmark U.S. Supreme Court decision, but it came too late as a practical matter. In 1993, the U.S. Supreme Court decided Daubert v. Merrill Dow Pharmaceuticals, Inc.,4 instructing federal judges to act as “gatekeepers” to exclude unreliable expert testimony in a case involving Bendectin. “Expert evidence,” the Court appreciated, “can be both powerful and quite misleading because of the difficulty in evaluating it,” which requires judges to make “a preliminary assessment of whether the reasoning or methodology underlying the testimony is scientifically valid and of whether that reasoning or methodology properly can be applied to the facts in issue.”5

In the case of Bendectin, though, the damage was done. The myriad lawsuits combined with adverse publicity kept this FDA-approved drug off the market. Pregnant women who suffered severe morning sickness were deprived for decades of the leading medicine that could help them.

The Vaccine Preservative Thimerosal

Thimerosal is a compound used in medicines and vaccines, as well as various other products, to prevent spoilage and the growth of bacteria. It was developed in the 1920s and became a widely used preservative in vaccines for children. The Centers for Disease Control and Prevention (CDC) states that “Thimerosal use in medical products has a record of being very safe” and that “Data from many studies show no evidence of harm caused by the low doses of thimerosal in vaccines.”6

Nevertheless, in the 1990s, a rise in the number of diagnoses of autism, which coincided with an expanded vaccine schedule for infants, resulted in parents and plaintiffs’ lawyers asserting thimerosal caused autism in children. In the courts, plaintiffs’ lawyers supported these allegations through experts’ pseudoscience that perpetuated this post hoc fallacy. The claims attracted significant media attention, which prompted many parents to reject vaccinating their children. In 1999, the U.S. Public Health Service responded to the public’s concern and confusion by recommending thimerosal be removed as a preservative from most vaccines “as a precautionary measure” in spite of “no evidence that thimerosal in vaccines was dangerous.”7

This public health scare rooted in the post hoc fallacy has had lasting impacts in society. It gave rise to an anti-vaccination campaign in which many parents––to this day––refuse to vaccinate their children based on the unsupported belief that vaccines cause autism. The result is that unvaccinated children needlessly suffer from disease.

The Anti-Depressant Zoloft®

Litigation involving the drug Zoloft provides a helpful contrast to courts’ failure to recognize the post hoc fallacy in the Bendectin and thimerosal examples. Zoloft is approved by the FDA to treat depression and other mental health disorders, and can provide critical benefits to a vulnerable population. During the past decade, plaintiffs’ lawyers filed hundreds of lawsuits against Zoloft’s manufacturer, alleging the medication caused birth defects.

In 2016, the Washington Legal Foundation highlighted a decision by Judge Cynthia M. Rufe in In re Zoloft Products Liability Litigation,8 the multi-district litigation (MDL) in the U.S. District Court for the Eastern District of Pennsylvania that consolidated birth defect claims against the manufacturer.9 Judge Rufe painstakingly reviewed the plaintiffs’ counsel’s proposed expert testimony, each time recognizing that the evidence could not overcome the hurdle of showing that ingesting Zoloft® caused birth defects, and was therefore inadmissible.”10 She dismissed all of the MDL claims alleging the medication caused birth defects.

As a result, patients suffering from depression and other mental health disorders could continue taking Zoloft without the threat of unwarranted litigation leading to the drug’s withdrawal from the market. Judge Rufe’s ruling underscores the importance of judges faithfully exercising their “gatekeeping” rule to exclude unreliable expert evidence that perpetuates the post hoc fallacy.

The Herbicide Roundup® 

The current litigation alleging glyphosate in Roundup causes Non-Hodgkin’s Lymphoma (NHL) contains several earmarks of the examples discussed involving the post hoc fallacy. Like these other products, glyphosate provides important societal benefits––namely, protection against devastating crop losses––and has been studied extensively for decades. In fact, more than 800 studies have been submitted to the Environmental Protection Agency (EPA) and European and other regulators that support the safety of using glyphosate-based herbicides.11

In particular, the EPA, National Cancer Institute, Institute of Environmental Health Sciences, and National Institute for Occupational Safety and Health have found no association between glyphosate-based herbicides such as Roundup and cancer.12 An outlier, which plaintiffs’ lawyers have seized upon to support the more than 18,000 cases filed involving Roundup, is a 2015 listing by the International Agency for Research on Cancer (IARC) of glyphosate as “probably carcinogenic.”

Importantly, IARC did not conduct an independent study to support its conclusions. The organization’s reputation has also come into question in the past based on determinations that red meat, beer, cell phones, and hot beverages such as coffee and tea are probably carcinogenic. It is also telling that after IARC’s listing (and after the influx of litigation), the EPA and other regulatory authorities around the world reaffirmed that glyphosate-based herbicides do not pose a cancer risk.

The issue of whether reliable evidence exists that could demonstrate to a jury that glyphosate can cause cancer came before the Roundup MDL Judge Vince Chhabria of the U.S. District Court for the Northern District of California in 2018. He concluded that the “evidence, viewed in its totality, seems too equivocal to support any firm conclusion that glyphosate causes NHL.”13  Nevertheless, he allowed plaintiffs’ to present evidence of a cancer risk to a jury, reasoning “a trial judge should not exclude an expert opinion merely because he thinks it’s shaky.”14

Several large verdicts followed, threatening the continued use of glyphosate-based herbicides worldwide. Discontinuing use of these products could have catastrophic impacts on agriculture and food production around the world. Up to 40 percent of the world’s potential crop population is lost annually due to weeds, pests, and diseases. Glyphosate-based herbicides are an indispensable tool for farmers to prevent such losses and make the most effective use of farmland.

Juries are still out, so to speak, with respect to how they view scientific evidence involving glyphosate. Lay jurors, however, may not fully appreciate differences in the reliability of expert evidence or the real-life societal consequences of imposing massive liability related to Roundup use. It is up to judges to act as gatekeepers in evaluating the reliability of the available science and not allow this litigation to become the latest example of the “endless renewal” of the post hoc fallacy.


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U.S. v. Davis: The Supreme Court Provides Further Clarity on How It Will Remedy Vague Laws

Thu, 08/08/2019 - 4:06pm

By David Debold, a Partner in the Washington, DC office of Gibson, Dunn & Crutcher LLP.  He practices in the Appellate and White Collar practice groups.  He and other Gibson Dunn attorneys filed an amicus brief in support of the Respondents in U.S. v. Davis on behalf of FAMM.

Sometimes it takes the actions of some pretty unsympathetic characters to test judicial resolve to strike down vaguely written statutes as opposed to trying to “save” them.  The Supreme Court’s recent decision in United States v. Davis, 588 U.S. ___ (June 24, 2019), shows that a majority is willing to stick to that constitutionally required approach.  The outcome is a good sign that the current Court will resist the temptation to write a “better” law when the statute Congress drafted fails to give fair warning of the line between criminal and innocent conduct.

The defendants in Davis committed a string of gas station robberies.  Federal prosecutors charged them with several counts of robbery under the Hobbs Act, plus a Hobbs Act conspiracy count.  At issue were additional charges under 18 U.S.C. § 924(c), which imposes a mandatory minimum sentence of at least five years for using or carrying a firearm during and in relation to a federal crime of violence or drug trafficking crime.  A crime of violence is a felony offense that either (i) has as an element the use, attempted use, or threatened use of physical force against the person or property of another (the “elements clause”), or (ii) “by its nature, involves a substantial risk that physical force against the person or property of another may be used in the course of committing the offense” (the “residual clause”).

Nobody disputed that carrying a firearm during and in relation to each Hobbs Act robbery was a crime of violence under the elements clause.  An element of robbery is the threatened use of force against another person.  But because the conspiracy charge did not have such an element—the statute applies to conduct that does not ripen into an actual robbery—the government had to invoke the definition’s residual clause.  The government contended that the “nature” of this conspiracy involved a substantial risk of physical force against others because these conspirators carried through on their agreement to commit robberies.  Nobody seriously disputed that the requisite risk was shown if that is the test.

The problem was that the Court had previously struck down as impermissibly vague nearly identical residual clauses in two other statutes.  In those earlier cases the Supreme Court applied its longstanding practice of interpreting the residual clauses at issue using what is called a “categorical approach.”  This means that instead of looking at how the defendant actually committed the offense in question, the court should consider whether the hypothesized “ordinary case” for committing the offense presented a substantial risk of physical force or injury to another. 

In one of these two statutes, a prior conviction for a violent felony could increase a defendant’s sentence for possession of a firearm by a convicted felon.  The Court struggled for years trying to give clear meaning to that statute’s residual clause.  After four tries the Court finally threw up its hands over the clause’s “unpredictability and arbitrariness.”  The Court found no good way for judges to decide what the “ordinary case” for various offenses entailed, much less whether the risk of physical force or injury was substantial in a hypothesized case.  The residual clause in each statute was stricken as void for vagueness.

In Davis, the government seized on a difference between those residual clauses and the one in § 924(c).  Under § 924(c) a jury decides if the charged offense is a crime of violence, whereas the other two statutes required looking back to whether a prior offense of conviction qualified.  And when the Court adopted the categorical approach in its earlier cases, it noted how hard it is to reconstruct, often years later, how a prior offense was actually committed.  Invoking the canon of construction to avoid unconstitutional interpretations of statutes where possible, the government argued that the categorical approach should be abandoned in applying § 924(c)’s residual clause.  The jury should instead focus on the offense as the defendant committed it to decide if the risk of physical force was substantial.

The Court rejected that invitation in a 5-4 opinion written by Justice Gorsuch.  All agreed that if Congress had written the residual clause in § 924(c) to focus on how the defendant actually committed the offense, there would be no vagueness.  But the Court had already interpreted nearly identical language in the other statutes to mean the “ordinary case” of an offense.   

The Court’s discussion of the “constitutional avoidance” canon of construction provides helpful clues for the fate of future void-for-vagueness claims.  It stated that while the Court has sometimes adopted a narrower construction of a statute to cure vagueness, the government here was asking the Court to expand the reach of the statute (turning more offenses into crime of violence) to save it.  The Court found no precedent for doing so, explaining that this would risk offending the very same due process and separation-of-powers principles on which the vagueness doctrine rests.  The Court further noted that using the avoidance canon to adopt a more expansive reading of the statute would place the doctrine at war with the rule of lenity.

There are two important take-aways from the Court’s willingness in Davis to strike down a criminal prohibition as unconstitutionally vague, rather than try to save it under the guise of interpretation.  First, no matter how clearly some conduct seems to fit what Congress had in mind when it drafted a law, and no matter how objectionable that conduct might be, the Court will not go out of its way to “clarify” a poorly written statute so that such conduct is covered.  Here, all agreed that the defendants engaged in a conspiracy that fit the common understanding of a violent offense, but because Congress failed to give fair warning of which other conduct crossed the line, the whole provision needed to go. 

Second, when a statute’s problem is not so much “overbreadth” as fuzzy lines, the government cannot save the statute by proposing a line that gives clarity while sweeping in more conduct.  Imagine, for example, a federal law with enhanced penalties for committing an offense affecting commerce that is punishable under the law of the state where it occurred and by its nature threatens senior citizens with a disproportionate amount of loss.  As written it would present the same problem as the statute in Davis:  there is too much ambiguity in a law that requires examining myriad state laws to determine whether they pose the specified risk “by their nature.”  One option might be interpreting that law to require proof that a defendant’s actual conduct targeted the elderly.  Even though Congress undoubtedly would have wanted the statute to reach at least that group of offenders, under the approach in Davis the Court would tell Congress:  this law is no good, and we’re not fixing it for you.  By doing so, the Court would be honoring the separation of powers and sparing everyone the need to guess at what fix a court might choose for the ambiguous line Congress drew. 

The post <em>U.S. v. Davis</em>: The Supreme Court Provides Further Clarity on How It Will Remedy Vague Laws appeared first on Washington Legal Foundation.

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The ACA’s Future Awaits Fifth Circuit Resolution

Wed, 08/07/2019 - 12:06pm

Allyson Pettus is a 2019 Judge K.K. Legett Fellow at Washington Legal Foundation. She will be completing a dual MPA/JD degree this fall at the Texas Tech University School of Law.

“If you like your healthcare plan, you can keep it” was the promise made to millions of Americans when Congress passed the Patient Protection and Affordable Care Act (“ACA”) in 2010. Sounded promising enough. But, the ACA also imposed a burden on some Americans, forcing those who chose not to have health insurance to purchase it or pay a penalty (a.k.a. the Individual Mandate). In 2017 Congress passed the Tax Cuts and Jobs Act (“TCJA”), 26 U.S.C. § 5000A, reducing to zero the fine for failing to purchase insurance. That action essentially rendered the Individual Mandate portion of the ACA unenforceable. Whether the TCJA put an end to the entire ACA is now being fought in federal court, a battle discussed below. 


A 2010 lawsuit first called the ACA’s constitutionality into question. One question that arose in this legal challenge was whether the Constitution authorized Congress to impose the penalty that enforced the Individual Mandate. In 2012, the U.S. Supreme Court held in National Federation of Independent Business v. Sebelius, 567 U.S. 519 (2012), that the Individual Mandate constituted a tax that Congress had the authority to impose.

In 2018, another lawsuit questioned the ACA’s constitutionality. The cast of combatants in Texas v. United States, 352 F.Supp.3d 665 (N.D. Tex. 2018) is both interesting and complex. The federal defendants consist of the United States, the Department of Health and Human Services and its Secretary, and the Internal Revenue Service and its Acting Commissioner. In addition to the federal defendants, sixteen States and the District of Columbia intervened as defendants in the matter. The plaintiffs were two individuals and eighteen States. During the appeals process, when it became apparent that the Department of Justice would not be defending the ACA on behalf of the U.S., the U.S. House of Representatives submitted a Motion to Intervene and join with the federal defendants.

In the trial court, the plaintiffs argued that when the TCJA eliminated the penalty for those not complying with the Individual Mandate, that part of the law was no longer a “tax,” and because Congress lacks the authority to impose a penalty, the mandate became unconstitutional. The plaintiffs also argued that without the Individual Mandate, which cannot be severed from the rest of the law, the entire ACA collapsed upon itself and was unconstitutional. The defendants argued that the Individual Mandate was severable from the entirety of the ACA. A Northern District of Texas judge agreed with the plaintiffs and held that the Individual Mandate is unconstitutional and inseverable from the ACA.

The defendants appealed the district court’s ruling to the U.S. Court of Appeals for the Fifth Circuit. During oral argument, held on Tuesday, July 9, 2019, a three-judge panel with Judges Carolyn Dineen King, Jennifer Walker Elrod, and Kurt D. Engelhardt, verified that several threshold issues of jurisdiction would play a role in the case’s ultimate outcome.


For a plaintiff to have standing, it must suffer an injury caused by the defendant’s acts or omissions that the court can redress with a favorable judgment. The defendants argue in the Fifth Circuit that because the Individual Mandate is no longer in effect, the plaintiffs have not suffered a redressable injury and thus lack standing. However, the state plaintiffs argue a classic pocketbook injury and the individual plaintiffs claim injury from having to apply for health insurance, even if the penalty is zero.

The attorney for the intervenor defendants indicated during oral argument that no party possesses standing to bring the issue of the Individual Mandate into the court system because currently there are no negative legal consequences for failing to purchase health insurance. Yet, Judge Engelhardt stated that not allowing court proceedings over such an issue was resolved over two hundred years ago during a war with our neighbors across the Atlantic. The injury suffered, the plaintiffs argue, occurred from having to comply with the ACA in its entirety, not simply the Individual Mandate.

Non-Justiciable Political Question  

The Fifth Circuit panel also questioned during oral argument whether the ongoing battle over the ACA should be fought not in the courts but in the legislature, and is thus a non-justiciable political question. Judge Engelhardt stated during oral argument; “Why does Congress want the Article III Judiciary to become the taxidermist for every legisla[tion]… Congress achieves?”

One party that was noticeably absent from the discussion of Congressional intent during oral arguments was the United States Senate. Judge Engelhardt stated, the Senate is the “eight-hundred pound gorilla that is not in the room.” Unlike the House, the Senate chose not to intervene in the ACA challenge. That legislative body’s views, Judge Engelhardt seemed to intimate, are quite relevant, given that the Senate, along with the House of Representatives, not only voted to pass the ACA in 2010 but also voted to pass the TCJA.


The ACA’s status remains up in the air at a time when health insurance seems to be part of every election debate, and closely connected issues—such as the affordability of healthcare—are front and center on the Executive Branch’s policy agenda. Whether it should be in the hands of a three-judge panel of the Fifth Circuit, or be fought out in Congress is, ironically, up to that three-judge panel. Rather than rule on the merits of the plaintiffs’ claim, the panel could hold that the courts lack jurisdiction due to lack of Article III standing or because, for prudential reasons, the law’s fate is a non-justiciable political question.

Now, it is a waiting game for the Fifth Circuit’s holding. Regardless of its decision, the constitutionality of the ACA will continue to be of utmost importance for millions of Americans. Americans will have to wait and see if this action will accumulate in the end of the ACA as a whole or if the battle has just begun.

The post The ACA’s Future Awaits Fifth Circuit Resolution appeared first on Washington Legal Foundation.

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Taking Stock of FTC Cybersecurity Enforcement after the Equifax Settlement

Wed, 08/07/2019 - 10:06am

M. Sean Royall is a Partner with Gibson, Dunn & Crutcher LLP and the WLF Legal Pulse’s Featured Expert Contributor, Antitrust & Competition Policy — Federal Trade Commission. Richard H. Cunningham is a Partner with the firm and Bennett Rawicki is an Associate. The authors would like to thank Bryan Sohn, summer associate, with Gibson Dunn for his contributions to this article.

Click on the button above for a reader-friendly PDF of this post.

If the Northern District of Georgia approves its proposed settlement with the Federal Trade Commission, Equifax will pay at least $575 million to resolve allegations that its cybersecurity measures violated Section 5 of the FTC Act in the wake of one of the most significant data breaches on record.  The settlement reflects that the agency remains committed to enforcing the Federal Trade Commission Act in the context of commercial data breaches, and entering into consent order settlements, notwithstanding that the Eleventh Circuit last year in LabMD v. FTC rejected an FTC consent order as being unenforceably vague.

Equifax Data Breach Settlement

On July 22, 2019, the FTC announced that Equifax had agreed to settle suits brought by the FTC, a consolidated class of consumers, the Consumer Financial Protection Bureau (“CFPB”), and 48 states, Puerto Rico, and the District of Columbia.  Lawsuits filed by Indiana and Massachusetts remain unresolved.

As a result of the settlement, the FTC projects Equifax will pay between $575 million and $700 million: (i) at least $300 million to a fund for consumers affected by the breach (and up to an additional $125 million more); (ii) $175 million to the states and territories that were party to the settlement; and (iii) $100 million in penalties to the CFPB.

The settlement amount is the largest FTC cybersecurity remedy to date, and undoubtedly this is due in significant part to the seriousness of the data breach.  The FTC’s complaint alleges that, for three months in mid-2017, hackers exploited vulnerabilities in Equifax’s cybersecurity to steal sensitive personal information of more than 145 million individuals, including names, dates of birth, social security numbers, and payment card numbers.  Moreover, Equifax allegedly received an alert about a new critical threat two months before the breach.

According to the FTC, Equifax ran an automated scan to identify gaps within its network, but the scan overlooked key vulnerabilities, and hackers had been stealing data for three months before Equifax detected suspicious traffic.  The FTC also alleges that Equifax did not announce the data breach until September 2017, several more months after detecting the anomalous activity on its systems.

The complaint faulted Equifax for numerous security failures, including:

  • Failing to patch the vulnerability detected two months prior to the hack, which allowed the hack to occur;
  • Storing administrative log-in credentials, and personal information of more than 145 million individuals, in unencrypted text;
  • Failing to segment the database servers containing personal information, which allowed hackers to move more easily through Equifax’s network;
  • Failing to implement sufficient protections to detect the hack; and
  • Failing to provide adequate cybersecurity training to employees.

Compl. at 8-14.

In addition to the monetary remedy, as part of the settlement, Equifax is required to maintain a comprehensive information security program for twenty years.  The prescribed program requires, among other things, annual assessments of security risks and written documentation of those risks and the safeguards Equifax designs and implements to control for them.  Equifax must also obtain initial and biennial assessments of its information security program, submit timely reports to the FTC of future data breaches, and provide the FTC with an annual certification from the board of directors or senior company officer stating that Equifax has complied with the information security program.

Taking Stock of the FTC’s Post-LabMD Approach to Cybersecurity Enforcement

In June 2018, the Eleventh Circuit vacated an FTC cybersecurity consent order in LabMD, Inc. v. FTC.  The Commission had found that LabMD’s “data security practices were unfair under Section 5” and ordered LabMD to implement and maintain a data security program “reasonably designed” to protect the security of personal information.  LabMD at 7 & App’x § I.  As noted previously on this blog, the LabMD court held the FTC’s order unenforceable because enforcing an order requires clear and convincing evidence that the defendant violated the order, and the “reasonableness” standard used in the FTC’s order was too vague for the FTC ever to be able to prove that a practice was unreasonable by clear and convincing evidence.  LabMD at 28-29.

That decision also called into question the FTC’s interpretation of what constitutes “unfair” data security practices under Section 5 of the FTC Act.  The FTC had argued in LabMD that the Commission need only show that the challenged conduct satisfies Section 5(n) in order to prove “unfair” conduct., Section 5(n) prohibits the FTC from finding conduct unfair unless it causes substantial injury that was not reasonably avoidable by consumers or outweighed by countervailing benefits.

The Eleventh Circuit expressly rejected the FTC’s position, explaining that “[t]he act or practice alleged to have caused the injury must still be unfair under a well-established legal standard, whether grounded in statute, the common law, or the Constitution.”  LabMD at 13, n.24.  The court presumed that the “well-established legal standard” for determining whether data security practices were unfair “is the common law of negligence.”  Id. at 16-17.  The FTC has not litigated this issue in another matter to date, and the Equifax litigation is unlikely to yield a judicial decision addressing this issue given that the parties are jointly proposing the settlement to the court.

Since LabMD, the FTC has not pulled back from bringing cases challenging cybersecurity practices it views as inadequate under Section 5.  Instead, the FTC has pursued seven enforcement actions that mandated information security programs.  And the Equifax matter and the recent proposed $5 billion settlement with Facebook reflect that the agency is now ratcheting up the monetary component of its settlement demands.

One clear change, however, in the agency’s post-LabMD practices is the notable removal of the word “reasonable” in the provisions of its cybersecurity consent orders.  Most of the FTC’s post-LabMD orders in this area require the respondent to maintain an information security program “that is designed” to protect the security of personal information, rather than “reasonably designed” to do so.  See Equifax; Facebook; D-Link; ClixSense.com; and Unixiz.

How the FTC will police this standard in practice remains to be seen, but the current language is arguably more lenient to companies than the “reasonableness” requirement that the FTC used before LabMD.  Although the orders pre- and post-LabMD prescribe similar detail for the information security program—such as assessing and documenting cybersecurity risks and the safeguards implemented to control those risks—now the orders say only that such programs must be designed to protect security, not reasonably designed to protect security.  Thus, post-LabMD, a company can defend against claims it violated a consent order by arguing that it designed an information-security program that included the FTC-prescribed criteria, without further consideration of whether the company’s design was “reasonable.”

At the same time, if a company’s design of its information security program were shown by a breach (or otherwise) to be so ineffective as being tantamount to negligence, we strongly suspect that the FTC would take the position that the program was not “designed” to protect sensitive data, and the FTC, in addition to pursuing de novo Section 5 claims, could bring an action alleging that the program constituted unfair cybersecurity practices under the order.

The post Taking Stock of FTC Cybersecurity Enforcement after the Equifax Settlement appeared first on Washington Legal Foundation.

Categories: Latest News

WLF Urges Second Circuit to Correct Wayward Commercial-Speech Ruling

Tue, 08/06/2019 - 12:00pm

“The panel’s decision is simply the latest example of the Second Circuit’s refusal to take seriously the Supreme Court landmark commercial-speech decision in Sorrell v. IMS Health, Inc.”—Cory Andrews, Vice President of Litigation

Click HERE for WLF brief 

(Washington, D.C.)—Washington Legal Foundation filed an amicus curiae brief today in the U.S. Court of Appeals for the Second Circuit, supporting Appellee Vugo, Inc.’s petition for rehearing or rehearing en banc. The case involves a First Amendment challenge to a New York City ordinance banning all advertising in private ride-share vehicles.

Vugo, a technology company, sells Internet-connected tablets to for-hire vehicle drivers, who then mount the tablet on the front seat’s headrest for passengers to view.  Advertisers pay Vugo, which splits the proceeds with the for-hire vehicle drivers. Although New York City bans all advertisements in for-hire vehicles, it permits taxicabs to run advertisements on a platform called “Taxi TV.” Because Vugo’s business is illegal under New York’s advertising ban, it brought a First Amendment challenge. Vugo prevailed in the U.S. District Court for the Southern District of New York, but the City appealed.

The Second Circuit reversed. Purporting to apply intermediate scrutiny, the panel held that the City has a substantial interest in protecting passengers from “annoying” in-ride advertising. Although the City’s ban may appear to be underinclusive by excepting ads for Taxi TV, the appeals court held that the exception is rationally related to defraying costs for the City’s mandate requiring taxis to adopt the Taxi TV platform. As for whether the City’s ban was more extensive than necessary to serve the City’s interest, the court concluded that the City’s regulation was “reasonable.”

It its brief urging rehearing or reharing en banc, WLF addresses the panel’s erroneous reading of the Supreme Court’s landmark decision in Sorrell v. IMS Health. Contrary to the panel’s opinion, Sorrell mandates scrutiny stricter than intermediate scrutiny for all content- and speaker-based restrictions on truthful commercial speech. As WLF’s brief shows, the panel’s misreading of Sorrell in this case counsels strongly in favor of rehearing en banc.

Celebrating its 42nd year as America’s premier public-interest law firm and policy center, WLF’s mission is to preserve and defend America’s free-enterprise system by litigating, educating, and advocating for free-market principles, a limited and accountable government, individual and business civil liberties, and the rule of law.

The post WLF Urges Second Circuit to Correct Wayward Commercial-Speech Ruling appeared first on Washington Legal Foundation.

Categories: Latest News

July WLF Month in Review

Mon, 08/05/2019 - 8:00am

To read more about the items below, click the link above for a PDF of the newsletter.

WLF News

In July, WLF and the Chairman of its Legal Policy Advisory Board, Jay B. Stephens, announced the appointment of six new legal professionals to the Board:

  • Lisa S. Blatt, Williams & Connolly LLP
  • Michael J. Lotito, Littler Mendelson P.C.
  • Leah L. Lorber, GlaxoSmithKline
  • Stephen McManus, State Farm Mutual Automobile Insurance Co.
  • Maureen K. Ohlhausen, Baker Botts L.L.P.
  • Joshua D. Wright, George Mason University, Antonin Scalia School of Law

Click here  for our press release on the appointments.

WLF New Filings

  • Class-action status is inappropriate when half of the proposed class members in an antitrust suit never purchased products from the defendants and thus lack antitrust standing. (Ahold U.S.A., Inc. v. Warner Chilcott PLC)
  • The Class Action Fairness Act permits removal of “mass actions” in which thousands of identical claims are coordinated by a single state-court judge, even if the decision to coordinate the cases was made by the judge, not by the plaintiffs’ lawyers. (Pfizer, Inc. v. Adamyan)
  • Indirect purchasers may not evade limits on antitrust standing simply by alleging that everyone else in the supply chain conspired with the manufacturer to restrain trade. (Marion Healthcare LLC v. Becton Dickinson & Co.)
  • The Americans with Disabilities Act does not require companies to ensure that their websites are accessible to the visually impaired. (Domino’s Pizza, LLC v. Robles)


The post July WLF Month in Review appeared first on Washington Legal Foundation.

Categories: Latest News


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