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Court Orders Federal Government to Produce Materiality-Related Discovery in False Claims Act Suit

WLF Legal Pulse - Thu, 08/20/2020 - 4:14pm

By Tirzah S. Lollar, a Partner in the Washington, DC office of Arnold & Porter.*

On July 8, 2020, a federal district court judge in ordered the government to produce discovery regarding its treatment of other Medicare providers in the so-called “mine run” of cases under Universal Health Services, Inc. v. U.S. ex rel. Escobar, 136 S. Ct. 1989 (2016), when materiality is a disputed element. United States ex rel. Goodman v. Arriva Medical, LLC, et al., 2020 WL 3840446 (M.D. Tenn. July 8, 2020).

Defendant Arriva Medical, LLC (Arriva) sold diabetes supplies to Medicare beneficiaries. The government intervened in a False Claims Act case filed by an Arriva employee and alleged that the defendants submitted false claims: (1) when the defendants had waived Medicare copayments and deductibles in violation of the Anti-Kickback Statute (AKS); (2) for services provided to deceased individuals; and (3) for glucose meters in violation of the “five-year rule” because Medicare had already paid for a meter for that patient in the last five years. The defendants propounded broad discovery requests to the government, seeking that it identify and provide a significant amount of information about all diabetes-testing supply providers that have offered free supplies or products to Medicare patients. The government resisted, arguing that the discovery sought was irrelevant and disproportionate to the needs of the case, and constituted an extraordinary hardship that would essentially require the government to undertake a complex and expensive investigation of every diabetes testing supplier. The magistrate judge issued an order mostly in the defendants’ favor. The judge, however, limited the defendants’ requests to 25 Medicare suppliers. The government subsequently filed a motion for review of the order.

The district court first determined that after the 2010 amendment to the AKS under the Affordable Care Act, “there is no contestable issue of materiality with regard to the government’s AKS-based claims” and reversed the portion of the magistrate’s ruling that required the government to produce discovery of treatment of Medicare providers alleged to have waived copays and deductibles. It also did not require the government to produce discovery on treatment of claims for services provided to deceased individuals, reasoning that those claims are facially false. But when it came to the claims that allegedly violated the five-year rule, the court held that discovery was appropriate. It reasoned that Escobar had made clear that the federal program at issue’s treatment of the regulation in question is as important as the language of the relevant provisions defendants are alleged to have violated. As the court here put it, “under Escobar, materiality is better demonstrated in both the government’s words and its deeds, rather than through its words alone.”

Because the five-year rule fit “fairly neatly into the Escobar mold,” discovery into Medicare’s actual enforcement of the rule was permissible, so long as other factors did not outweigh the relevance of the information sought. Of particular interest, the court rejected the government’s argument that the materiality of the five-year rule claim was undisputed. The government argued that three Arriva executives had testified during the government’s pre-intervention investigation that they understood that Medicare does not pay claims filed in violation of the rule. The government also presented Medicare claims data indicating that Arriva’s claims were frequently denied on that basis. While the court found that both facts were relevant to materiality, it reasoned that they alone were insufficient to remove the issue from “the realm of dispute.” Even if the cited evidence suggested that the five-year rule was being treated as relevant to Arriva’s claims, it did not automatically follow that Medicare behaved the same with regard to other billers’ claims. The court pointed out that “[i]t would significantly undermine the holding of Escobar if the government could manufacture an illusion of indisputable materiality simply by being extra strict ahead of time with whichever company the government wished to sue.”

Having found that the government would need to produce discovery on the five-year rule claims, the court directed the parties to craft a discovery plan in light of its ruling. It noted that the initial discovery requests, even absent the government’s hardship concerns, were overbroad, “essentially call[ing] on the government to conduct an industry-wide audit of companies providing diabetes testing supplies to Medicare patients.” The court reminded defendants that nothing in Escobar negated the importance of weighing relevance of materiality evidence against hardship, and simultaneously warned the government that, given its lengthy pre-suit investigation of the defendants, it bore a “heavy burden” in its attempt to argue that, when “the defendants have a turn, the government’s means are too scant to cooperate.”

All in all, this is a helpful decision for FCA defendants. It confirms that the government does, in fact, have to produce discovery regarding its conduct in the so-called “mine run” of cases, while also providing some insight into how this particular court viewed requests targeting such information.

*Pamela Safirstein contributed to this Counsel’s Advisory. Ms. Safirstein is a graduate of Georgetown University Law Center and is employed at Arnold & Porter’s New York office. Ms. Safirstein is admitted only in Washington, DC. She is not admitted to the practice of law in New York.

The post Court Orders Federal Government to Produce Materiality-Related Discovery in False Claims Act Suit appeared first on Washington Legal Foundation.

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Greater Transparency Can Expose the Illusion of Medical Receivable Funding in Tort Litigation

WLF Legal Pulse - Thu, 08/20/2020 - 4:11pm

By David I. Spector, a Partner, and Caitlin F. Saladrigas, an Associate, in the West Palm Beach, FL office of Holland & Knight LLP.

Tort claims and litigation continue to represent a meaningful line item for members of the insurance, retail, manufacturing, energy, and pharmaceutical industries.  The various causes of this phenomenon and the potential remedies are the subject of frequent scholarly articles, think-tank surveys, and investigative journalism.  For example, in recent years, the impact of litigation financing on tort claims has captured headlines as well as the attention of industry leaders.1  An emerging issue that has received far less attention is the rise and impact of medical receivable funding companies which purchase “medical receivables” from medical providers who render care to personal-injury plaintiffs.

In principle, medical receivable companies widen access to medical care for underinsured personal-injury plaintiffs who would be unable to afford such care without the assistance.  Yet, some medical receivable funding companies are far from altruistic.  Instead, these companies capitalize on tort claims’ damages awards and settlements by purchasing severely discounted receivables from the treating medical providers who would otherwise be compensated for the services rendered to plaintiffs at the conclusion of a claim or litigation.  Medical receivable funders receive damages and settlement funds that derive not from what the funders paid to purchase the receivables, but rather from the full billed amount of the medical services—an amount that healthcare providers rarely receive.2   

If left unchecked, these companies could fuel a significant increase in tort claims and litigation.  COVID-19’s economic impact is expected to push more financially struggling plaintiffs toward healthcare providers backed by medical receivable funding companies.  This Legal Backgrounder discusses how medical receivable funding companies operate, their operations’ impact on the valuation of claims, and avenues that tortfeasors can pursue to mitigate their exposure.

Beware the Medical Receivable Funder: Background

In a typical personal-injury case, an individual or entity’s negligence causes a plaintiff’s injuries.  A plaintiff’s damages generally consist of economic compensatory damages, which cover medical expenses and other hard costs, non-economic compensatory damages, which cover items like pain and suffering or loss of consortium, and potentially punitive damages.  Medical expenses typically represent the majority of a plaintiff’s economic damages.  In most states, larger medical expenses lead to larger non-economic damages and form the basis for computing punitive damages.  Simply put: increased medical expenses lead to increased damages awards.

The primary challenges for personal-injury plaintiffs and the cottage industry that benefits from tort litigation are the delay in payment and the risk of non-payment.  Many months, and sometimes even years, may elapse between the triggering injury and any award of damages.  For underinsured personal-injury plaintiffs who are unable to privately pay for their medical care, this delay can create an obstacle to accessing medical care in the first place.  Similarly, medical providers who treat personal-injury plaintiffs under these circumstances face cash-flow challenges because of significantly delayed payment or, when a claim is unsuccessful, non-payment.

A vital element of medical receivable funding is letters of protection or LOPs.  Plaintiffs use LOPs to assign their right to recover the cost of their medical care to the treating provider.  In such an arrangement, the primary source of recovery for providers is the proceeds of the plaintiff’s claim.  Historically, LOPs provided access to medical care to underinsured personal-injury plaintiffs because a medical provider utilizing an LOP essentially agrees to provide services up front in exchange for delayed payment.  Personal-injury claims do not always succeed.  Thus, in agreeing to provide services pursuant to an LOP, a medical provider assumes the risk of potential non-payment as well.  To offset this risk, LOP providers frequently charge their full rate for the services rather than the discounted rate associated with private or government-sponsored health insurance—and, at times, even artificially increase their rates.3  The higher cost presented on a medical bill can in turn lead to larger payouts by tortfeasors and insurers, and ultimately a greater return for the provider.

LOPs remain a vital piece of the puzzle even when medical receivable funders are involved.  When a medical receivable funding company purchases accounts receivable from a provider, the provider further assigns their right to collect from the proceeds of the claim that originates from the LOP.  Effectively, the medical provider passes their assignment from the patient via the LOP to the medical receivable funding company.  Medical receivable funders also typically contract with the individual plaintiff, much like a provider would through an LOP.  In doing so, the medical receivable funder requires the plaintiff to personally guarantee the full amount of their medical expenses.  Thus, if the plaintiff’s claim fails, the plaintiff still owes the full amount of their medical bills to the medical receivable funder.

Although these transactions occur on a plaintiff-by-plaintiff basis, the terms of the arrangement between the medical receivable funder and the provider are generally established in advance.  One common form involves an agreement by the provider to sell their receivables from the care of personal-injury plaintiffs at a dramatic discount.  Medical receivable funders purchase receivables for as low as 20-40% of the medical bill’s stated value.  When the claim is resolved, the medical funding company receives the portion of the proceeds that are attributable to the provider with which the funding company contracted.  Depending on the amount of damages awarded, a medical funder can profit exponentially more than the amount paid to purchase the receivable.  If the claim fails, the funder, in turn, receives nothing.  In such instances, these funders will at times seek to collect the full amount of the medical receivable from the plaintiff.

What’s the Problem? Phantom Damages.

A medical receivable funding company’s involvement in litigation can lead to a spectrum of questionable and even unlawful behavior.  These arrangements suffer from a profound lack of transparency.  The healthcare provider and the funding company do not disclose the amount paid for the medical receivables to the plaintiff or the tortfeasor.  Instead, the tortfeasor receives a medical bill for the provider’s full charge either as part of a pre-suit claim or during litigation.  The tortfeasor and ultimately the jury remain unaware of the significantly discounted amount the provider has already accepted as full compensation for the treatment performed, and instead are led to believe that the full amount of the bill remains due.  The tortfeasor or the jury relies on the medical bill containing the full amount as an accurate and reasonable reflection of the provider’s charges.  As a result, the tortfeasor issues payment or a jury returns a verdict based on a medical bill for exponentially more than what the provider actually accepted as final payment.  Thus the term “phantom damages.”  What critics of tort litigation historically decried as a windfall for plaintiffs in fact becomes a windfall for medical receivable funders. 

The environment that permits the award of phantom damages also creates the following additional complications, which in turn further increase the risk of inflated damages.

Medically Unnecessary Care

First, the presence of a medical funder and the ease of access to guaranteed payment the funder provides can also lead to unnecessary medical treatment.  Depending on the type of case, this could mean the patient receives additional diagnostic testing or excessive physical therapy, but it could also mean surgery that is not medically indicated solely to drive up the total amount of medical expenses.  For example, certain pelvic-mesh class-action plaintiffs reported being lured into surgery to remove their pelvic-mesh implants, even when these procedures were later determined to be unnecessary.  M. Goldstein and J. Silver-Greenberg, How Profiteers Lure Women Into Often-Unneeded Surgery, N.Y. Times (Apr. 14, 2018).  Medically unnecessary services dovetail with the issue of phantom damages.  By performing medically unnecessary services, providers increase their compensation from medical receivable funding companies while simultaneously expanding the pool of medical expenses, thereby increasing the likelihood of larger damages awards.

Unlawful Patient Brokering

Second, medical receivable funders are uniquely positioned to drive patient referrals to the providers from whom they purchase account receivables and thus facilitate the increase of medical expenses.  Much like providers, medical receivable funders frequently have their own relationships with personal-injury lawyers from whom funders receive referrals of plaintiffs who need medical care.  Medical receivable funders also routinely engage in their own marketing efforts including web and radio advertising and distributing brochures.  Further, medical receivable funders often enter into arrangements under which providers agree to purchase receivables in advance at a discounted flat rate with an agreement to mutually refer patients.  Ultimately, funders refer patients to providers willing to accept payment at a severe discount, which in turn permits the funder to potentially recover a windfall in the eventual tort claim.  In many states such an exponential return on investment may constitute an unlawful kickback in exchange for the patient referral. 

Diminished Recovery for Tort Victims

Third, the award of phantom damages undercuts the American tort system’s core tenet, under which the negligent tortfeasor makes the tort victim whole.  Coupled with plaintiffs’ lawyers who overwhelmingly provide legal services pursuant to a contingency-fee agreement, medical receivable funding companies further restrict the plaintiff’s recovery when awarded damages do not exceed or do not sufficiently exceed the value of the hard costs.  For example, an injured plaintiff incurs $50,000 in injury-related medical expenses and, through a personal-injury lawyer working on a 30% contingency, submits a demand to the tortfeasor for $75,000 inclusive of non-economic damages like pain and suffering.  Rather than paying the full amount of the demand, the tortfeasor pays $50,000.  After subtracting the amount of the attorney’s contingency fee, the remaining proceeds are less than the total amount of the plaintiff’s medical expenses.  Assuming the plaintiff contracted with a medical receivable funder to personally guarantee their medical expenses, as is often the case, the plaintiff conceivably exits their claim receiving essentially no reimbursement for their non-economic damages and runs the risk of liability if the medical receivable funder elects to sue the plaintiff, as sometimes occurs.

Increased Transparency Can Minimize Risks

The rise of medical receivable funding companies, and the phantom damages they instigate, are expected to continue for the foreseeable future.  The challenges posed by medical receivable funding in tort litigation cannot be solved by a “one size fits all” approach.  An excellent place for tort defendants to start is by recognizing the risk medical receivable funders pose, assessing their own exposure, and then taking steps to mitigate against that risk internally, in litigation, and through collective action.

Internal Risk Assessment and Education

As a preliminary step, companies facing regular tort claims should consider and assess the extent of applicable insurance coverage for personal-injury claims.  To do so, tortfeasors must educate their personnel at various levels to identify the extent medical receivable funders impact their business.  Businesses’ awareness of funders’ propensity to increase the cost of personal-injury claims will assist decision making on insurance coverage.

Claims Management

Tortfeasors must seize opportunities to expose the involvement of a medical receivable funder at both the pre-suit and at the litigation stage.  From a claims-administration perspective, enterprises subjected to tort litigation must educate and train personnel handling tort claims on the potential involvement of medical receivable funders.  This awareness will allow tort defendants to more diligently defend claims.  During the pre-suit phase, tort defendants should use this awareness to confirm whether the medical providers received payment for the services performed.  To the extent this information is obtained, tort defendants should use it to better negotiate claims payments.

At the litigation stage, tort defendants should retain counsel committed to aggressively seeking to discover whether accounts receivable were sold both through written discovery and depositions aimed at relevant parties and non-parties.  These tactics have succeeded, though such success may hinge on pursuing a motion to compel or defending a motion for protective order.4  Simply put, a tortfeasor cannot obtain this information if its lawyers are not seeking it in discovery.  Similarly, tort defendants should seek an in limine determination of the admissibility of the amount paid to purchase the medical receivable.  Several recent court decisions allowed juries to consider this information.5  Without knowledge of how much a medical receivable funder paid to purchase the receivable, juries are likely to focus on the stated amount of the service on the medical bill and award damages accordingly. 

Collective Action

State laws that mandate disclosure of the sale of any medical receivable forming the basis of a tort claim and the amount paid to purchase it can also expand transparency.  Traditional tort reform efforts have historically failed to address the root of the phantom-damages problem: the medical bill.  Only recently have states considered legislation aimed at limiting damages commensurate with amounts paid to purchase receivables.  For example, Wisconsin passed a law in 2017 that requires parties to disclose any agreement under which a non-attorney has a right to receive compensation contingent on the proceeds of the civil action.  See Wis. Stat. § 804.01(2)(bg) (2017).  Similarly, Iowa passed a law this year that prevents damages for past medical expenses from exceeding what healthcare professionals and hospitals were actually paid or may be owed for the treatment provided.  See I.C.A. §§ 622.4; 668.14 (2020).  In the past decade, Oklahoma and North Carolina enacted legislation that requires the amounts paid for medical expenses, rather than the amount billed, to be admissible at trial.  See 12 OK Stat § 12-3009.1 (2014); N.C.G.S. § 8C-1, Rule 414 (2011).  The plaintiffs’ bar and medical receivable companies will certainly push back on any broader reform effort.  Those forces were no doubt behind a 2019 Colorado bill that sought to bar discovery of the assignment of a healthcare lien from a provider to any other person or entity.  See Colo. Senate Bill 19-217 (2019). 

Conclusion

Tort-litigation defendants must educate themselves and their attorneys on medical receivable funders and their impact, especially as plaintiffs’ need for this type of alternative funding for medical care increases.  Moreover, tortfeasors must manage the risk that medical receivable funders pose both internally and through litigation efforts.  Finally, businesses impacted by medical receivable funders must continue to advocate for legislative reform to ensure transparency in tort claims and litigation.

Notes

The post Greater Transparency Can Expose the Illusion of Medical Receivable Funding in Tort Litigation appeared first on Washington Legal Foundation.

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FCC vs. State and Local Governments in Court: Preemption in the Name of Broadband Deployment

WLF Legal Pulse - Tue, 08/18/2020 - 2:58pm

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.

Last week, the Federal Communications Commission (“FCC”) once again largely prevailed over state and local governments using its preemption authority under the Communications Act of 1934 (the “Act”)  to remove perceived barriers to deployment of broadband infrastructure.  In City of Portland v. United States, ___ F.3d ___ (9th Cir. 2020)(Case No. 18-72689, Aug. 12, 2020), the Ninth Circuit turned away several challenges to two FCC Orders which had restricted how state/local governments managed their rights-of-way (“ROW”) when accessed by broadband service providers (while remanding one aspect of the Small Cell Order).1

In the “Moratoria Order,” the FCC ruled that municipal actions which specifically  halt 5G deployment violate Section 253(a) of the Act when they effectively prohibit deployment of 5G technology for extended periods of time.  In the “Small Cell Order,” the FCC placed restrictions on the fees that state and/or local governments can charge for access to rights-of-way, and on the “aesthetic requirements that could be imposed on carriers as a condition to constructing 5G technology.”  The Small Cell Order also a) broadened the FCC’s pre-existing shot-clock rules for municipalities to act on applications for zoning permits to now include all telecommunications permits; and b) shortened the timeframes in which a municipality must act on those applications.

The Small Cell Order took the agency into areas it had not previously ventured: ROW fees charged by municipalities for accessing municipal infrastructure. While several courts have addressed ROW fees,2 the FCC had never restricted a municipality’s ROW fee structure.  In the Small Cell Order, however, the FCC found that ROW fees must represent a reasonable approximation of costs involved, with only objectively reasonable costs included, and that the ROW fee could be no higher than fees charged to similarly situated competitors in similar situations.  In addition, the agency created a safe-harbor; below which the fees were deemed to be reasonable—$500 for an application fee and recurring fees less than $270 per year.  In a potentially ominous turn for the industry, given an election year, the vote on this issue was split along party lines with the Democrat Commissioners dissenting.3  Despite the partisan nature of the action, the FCC largely prevailed on appeal.

At the outset, the Ninth Circuit noted the long litigious history of Section 253(a).  That section dictates that no “State or local regulation, or other State or local legal requirement, may prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service.”  While the Act preserves local zoning authority, Section 253(a) (as well as its Title III counterpart for wireless services, Section 332(c)(7)) provides the FCC with a tool to ensure that state/local actions in zoning and permitting do not constitute a barrier to the construction of communications infrastructure.  The court observed that the controlling Ninth Circuit interpretation for the meaning of the phrase “may prohibit or have the effect of prohibiting” was similar to the standard articulated by the FCC: that the requirement materially inhibits the deployment of 5G services.4 The court also stated that as the expert agency charged with interpreting an ambiguous statute, the FCC was entitled to Chevron deference; meaning that so long as the FCC statutory interpretation was reasonable and supported by evidence, the court must defer to the agency’s judgment.

The Ninth Circuit bucketed the state/local objections into three categories: fees, timeframes, and aesthetics.  On fees, the court first noted that even where a state/local fee exceeded the safe-harbor, the fee was not automatically preempted but that the state/local entity had the opportunity to demonstrate the fee was cost-based.  Next, it accepted the FCC’s arguments that above-cost ROW fees were having a prohibitive effect on the national deployment of broadband infrastructure and that the record contained evidence that high costs had led carriers to stop deploying in certain cities.5   The court also observed that given limited capital budgets, excessive fees charged in one area could deplete the capital budgets of carriers, such that they would not be able to build in other areas.  Further, the court accepted the FCC’s argument that there was no administrable, non-cost-based, alternative approach.  Given the totality of the FCC’s arguments, the court accepted the proposition that excessive ROW fees could materially inhibit the deployment of 5G technology nationally and affirmed the framework set forth by the FCC.

On shot clocks, the court similarly noted that the FCC shot clock structure simply created a series of presumptions rather than, for example, a “deemed granted” permit, as the telecommunications carriers had argued.  A carrier would still have to sue the local entity to obtain the appropriate permit.  The court thus rejected the argument that a shortened clock would deprive a local entity from conducting a traditional zoning review.  Additionally, it accepted the FCC’s argument and evidence that showed it was possible for some state and local entities to complete permit reviews faster today than when the original shot clock was enacted in 2009.  Finally, the court also agreed that the scope of Section 253(a) was broader than “zoning” alone and supported the FCC’s expansion of the shot clock to all permitting decisions.

It was not a compete victory for the FCC, however, given that the Ninth Circuit disagreed with the Commission’s determination that “aesthetic requirements” be reasonable; no more burdensome than those applied to other types of infrastructure deployments; and that they be objective and published in advance. The court noted that the language of Section 332(c)6 only requires that state regulation of personal wireless services not “unreasonably discriminate against providers of functionally equivalent services.”  Given that FCC’s standard did not permit any discrimination, even between physically different services, the Ninth Circuit found the standard inconsistent with the statute.  In addition, because the statue only governed distinctions with “functionally equivalent services,” the court found that FCC’s comparative standard—which assesses 5G deployments against all other types of infrastructure deployments—was also overly broad as well.  Finally, the court took issue with the requirement that the aesthetic standard be objective.  It noted that the FCC’s  justification that all subjective requirements substantially increase providers’ cost without providing any public benefit was “unexplained and unexplainable” and remanded that section of the Order.7

Local ROW policies have long been a source of contention between and communications companies and local/state governments.  Some municipalities have used ROW fees as a source of revenue which has resulted in litigation over the years.8 Other municipalities’ permitting and zoning processes have delayed construction; raising costs and delaying deployment.  The FCC’s continued intervention in this area has been a boon to communications carriers and the deployment of broadband infrastructure.  Given this an election year, the question becomes whether the FCC will continue these pro-deployment policies in a post-pandemic environment, where recent decisions have been drawn along party lines, and local governments are historically strapped for cash.  No doubt, more to come.

Notes

The post FCC vs. State and Local Governments in Court: Preemption in the Name of Broadband Deployment appeared first on Washington Legal Foundation.

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WLF Urges Missouri High Court to Rein in Expansive View of Personal Jurisdiction

WLF Legal Pulse - Fri, 08/14/2020 - 9:18am

“If far-flung plaintiffs from all over the country may now sue in Missouri based solely on a defendant’s third-party contacts there, then nationwide firms may soon need to rethink doing business in Missouri.”
—Cory Andrews, WLF Vice President of Litigation

Click here for WLF’s brief.

WASHINGTON, DC—Yesterday Washington Legal Foundation (WLF) asked the Supreme Court of Missouri to review a decision that would give a Missouri court specific jurisdiction over the claims of 17 out-of-state plaintiffs—based solely on the defendant’s business contacts with a third party in Missouri.

In Ingham v. Johnson & Johnson, a Missouri trial court jointly tried the claims of 22 plaintiffs from around the country. Each plaintiff alleged that using the defendant’s talcum powder caused her to develop cancer. The appeals court affirmed, holding that the defendant’s third-party contacts with a Missouri entity supplied Missouri courts with the needed jurisdictional hook—even though all relevant corporate decision-making about the defendant’s product occurred in New Jersey.

In its amicus curiae brief urging the court to grant review, WLF argues that the appeals court’s decision improperly expands specific jurisdiction to allow suit virtually anywhere a company engages a third party as part of the manufacturing or distribution process. That is too grasping and impractical a rule, WLF contends, especially in the modern global economy, where manufacturing and distribution chains run across state and national borders. Such a rule, if allowed to stand, would deprive all litigants of much-needed certainty.

WLF’s amicus brief was submitted with the pro bono assistance of Mark Sableman of Thompson Coburn LLP.

Celebrating its 43rd year, WLF is America’s premier public-interest law firm and policy center advocating for free-market principles, limited government, individual liberty, and the rule of law.

The post WLF Urges Missouri High Court to Rein in Expansive View of Personal Jurisdiction appeared first on Washington Legal Foundation.

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FY2021 Per Diem Rates for Federal Travelers Released

GSA news releases - Fri, 08/14/2020 - 12:00am
WASHINGTON — The U.S. General Services Administration (GSA) today released the fiscal year (FY) 2021 travel per diem rates, which will take effect on October 1, 2020. For FY 2021, the standard Continental United States (CONUS) lodging rate will remain unchanged at $96, and 319 locations will...

Circuit Split Emerges on Injunctive Relief for Class of Past Product Purchasers

WLF Legal Pulse - Tue, 08/11/2020 - 2:33pm

Frank Cruz-Alvarez is a Partner with Shook, Hardy & Bacon L.L.P. in the firm’s Miami, FL office, and Britta Stamps is an Associate in the firm’s Kansas City, Mo office. 

Certain types of cases warrant injunctive relief for a class, but according to the Second Circuit, a group of past purchasers of a product are not the “class” that Federal Rule of Civil Procedure Rule 23(b)(2) was intended to protect.  In Berni v. Barilla S.P.A., et al., the Second Circuit cemented its position that “past purchasers of a product . . . are not eligible for class certification under Rule 23(b)(2).” 964 F.3d 141, 149 (2d Cir. 2020). 

The named plaintiffs in Berni brought a putative class action against the manufacturers of Barilla pasta after they purchased one of Barilla’s new pasta products.  The plaintiffs alleged that Barilla sold the newer pastas—specialty pastas such as whole grain, gluten free, added fiber, or added protein—in the same size boxes as the older, traditional pastas, yet the boxes of the newer pastas did not contain as much pasta as the older boxes.  Because the boxes were the same size, the plaintiffs alleged that consumers would be deceived by the new packaging and believe that all Barilla boxes of the same size would contain the same amount of pasta.

In their slack-fill class action, the named plaintiffs sought, among other things, damages, restitution, and injunctive relief.  Before the District Court ruled on Barilla’s motion to dismiss, the parties reached a settlement agreement providing the following relief:  (1) Barilla would pay up to $450,000 in fees to class counsel and the named plaintiffs; (2) all class members would release Barilla from future claims; and (3) Barilla would include a minimum “fill-line” on its boxes in the future, showing how much pasta was contained inside, along with language on the boxes about how its pasta is sold by weight rather than volume.  Under the agreement, then, the only relief provided to the entire class was the “fill-line” and disclaimer language changes to Barilla’s boxes, both of which constitute injunctive relief.

An objector argued during the Final Approval hearing that a group of past purchasers are not eligible for injunctive relief.  The District Court rejected the objector’s arguments and certified the class of past pasta purchasers under Rule 23(b)(2).  The objector appealed the certification decision, asking the Second Circuit to determine whether “each of the pasta purchasers [are] likely to be harmed by Barilla in the imminent future absent injunctive relief.”  Id. at 147.

The Second Circuit sided with the objector and “conclude[d] that such future harm is not likely, and that, as a result, the injunctive relief sought would not provide a remedy for all members of the class.”  Id.  The court first determined that the plaintiffs alleged a past harm in light of the fact that they were allegedly deceived by the product packaging in the past.  Building on that conclusion, the court reasoned that past purchasers are not likely to “encounter future harm of the kind that makes injunctive relief appropriate.”  Id.  The court pointed out that past purchasers will not necessarily buy the product again, and even if they do, they will not again be deceived by the size of the boxes.  Therefore, at least some (and perhaps all) of the class members would receive no actual benefit from the relief provided by the settlement, which did nothing to redress their past harms despite paying class counsel $450,000.  While the relief to each class member in a Rule 23(b)(2) class action need not be identical, the court noted that each class member must receive some benefit.

Recognizing that lower courts have attempted to delineate exceptions to allow similar putative classes to proceed, the Second Circuit addressed the “Catch-22” that only allows a consumer to bring suit after she has suffered an injury, but precludes the consumer from obtaining an injunction to stop the deceptive conduct in the future.  Nevertheless, the court held that “an equitable exception to Rule 23(b)(2) simply does not exist, and courts cannot create one to achieve a policy objective, no matter how commendable that objective.”  Id. at 149.

This crossroads of Article III standing and certification of an injunctive-relief class look different depending on which Circuit examines the question.  Like the Second Circuit, the Third Circuit held that a past purchaser of a product was well aware of the risks associated with the product, and therefore did not have standing to seek injunctive relief.  In re Johnson & Johnson Talcum Powder Products Mktg. Sales Practices and Liab. Litig., 903 F.3d 278, 293 (3d Cir. 2018).

In contrast, the Ninth Circuit has held that “misled consumers may properly allege a threat of imminent or actual harm sufficient to confer standing to seek injunctive relief.  A consumer’s inability to rely on a representation made on a package, even if the consumer knows or believes the same representation was false in the past, is an ongoing injury that may justify an order barring the false advertising.”  Davidson v. Kimberly-Clark Corp., 889 F.3d 956, 961 (9th Cir. 2018).  Although Davidson did not explicitly contemplate this question through the lens of a Rule 23(b)(2) class, lower courts in the Ninth Circuit have applied Davidson to certify Rule 23(b)(2) classes of past purchasers.  See, e.g., In re Coca-Cola Prods. Mktg. and Sales Practices Litig., 2020 WL 759388, at *6-7 (Feb. 14, 2020); Hilsley v. Ocean Spray Cranberries, Inc., 2018 WL 6300479, at *20 (S.D. Cal. Nov. 29, 2018). 

Although the Supreme Court declined to review Davidson in 2018, the Second Circuit’s latest Berni decision could once again bring Article III standing in the context of a Rule 23(b)(2) class to the Supreme Court’s attention.  In the meantime, settling parties should steer clear of settlements that provide only “corrective advertising” to class members, and focus instead on redress of the alleged past harm to those consumers.

The post Circuit Split Emerges on Injunctive Relief for Class of Past Product Purchasers appeared first on Washington Legal Foundation.

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In IMDb.com, Ninth Circuit Rejects Using Speech Regulation as Commercial Weapon

WLF Legal Pulse - Mon, 08/10/2020 - 10:11am

Megan L. Brown is a Partner in the Wiley’s Telecom Media and Technology practice, who helps clients with technology law and government regulation, including the First Amendment, and serves as the WLF Legal Pulse’s Featured Expert Contributor, First Amendment. Ashlyn Roberts is a summer associate at Wiley and 3L at George Washington University Law school.

In June, a three-judge panel of the Ninth Circuit unanimously held in IMDb.com Inc. v. Becerra & Screen Actors Guild that a California state law prohibiting IMDb from publishing an actor’s age on its public website was an unconstitutional content-based restriction on speech.  Speech by commercial actors has long been regulated to address the economic and policy goals of various constituencies.  Such speech has been subjected to lesser protection by some courts, but its status under the First Amendment is in flux.  The Supreme Court has been increasingly protective of free speech and has rejected content-based restrictions, but the IMDb decision shows that commercial speech regulations will continue to be pursued by governments until the Supreme Court clarifies the appropriate level of scrutiny for content-based restrictions on the speech of commercial actors.

The Internet Movie Database, or IMDb, is a free, publicly available website that provides information about cast and crew members of various movies, television shows, and video games.  The database contains over 6 million entries, and the Ninth Circuit noted that it is the 54th most visited website in the world.  Like Wikipedia, anyone can update the information on an actor’s profile, and IMDb has a “Database Content Team” that monitors the site and reviews the entries for accuracy.

In addition to the public database, IMDb recently started offering a subscription-based service for industry professionals called IMDbPro, which the court described as “Hollywood’s version of LinkedIn.”  Unfortunately, the state of California viewed this innovation as an opportunity for greater speech regulation. 

At the behest of some in the entertainment industry and in the name of curbing age discrimination, the California state legislature passed AB 1687.  This law required any “commercial online entertainment employment service provider” that offers a paid subscription service to remove, upon the subscriber’s request, any birthdate and age information of the subscriber from both the subscription website and “on any companion internet Web sites under its control.”  Not surprisingly, the Screen Actors Guild assisted the state in defending the speech restriction which benefitted its members.

Before the new law took effect, IMDb challenged the new law as an unconstitutional restriction on its speech.  The Ninth Circuit concluded that, “[o]n its face, AB 1687 restricts speech because of its content.”  It rejected the State of California and the Screen Actors Guild’s argument “that the statute merely regulates contractual obligations between IMDb and subscribers to IMDbPro.”

The Ninth Circuit declined to categorize the speech as commercial speech, reasoning that “[t]he content is encyclopedic, not transactional.”  It also rejected arguments that the speech could be categorized as speech that facilitates illegal conduct or speech that implicates privacy concerns.  “We set a high bar for cordoning off new types of speech for diminished protection,” wrote the court.  

In the end, the court applied strict scrutiny, a standard of review that traditionally requires a court to determine if (1) there is a compelling governmental interest supporting the restriction on speech, (2) the restriction is the least restrictive means of accomplishing that end, and (3) the restriction is narrowly tailored to target the governmental interest.  If a law fails any of these prongs, the government has not met its burden to justify the regulation.  Here, although the court noted that fighting age discrimination is a compelling governmental interest, the law failed both the least restrictive means and narrow tailoring prongs.  

The State “fail[ed] to show that the law is the least restrictive means to protect its compelling interest” because other “speech-neutral remedies” existed.  Additionally, the Court found that the law was underinclusive because it only protects subscribers to IMDbPro who request the removal of their age information, and not all actors who have their age information publicly revealed on the site.  

In an amicus brief, the Electronic Frontier Foundation noted that “the denial of age information deemed contraband by the challenged statute hinders the public’s ability to engage in the very debate the statute aims to address regarding age discrimination in the movie industry.”  An amicus brief written by First Amendment scholars and the Reporters Committee for Freedom of the Press echoed those sentiments:  “The proper remedy is not to suppress speech, but rather to enforce laws against age discrimination.”

This case is part of an ongoing battle over what level of scrutiny courts should apply to restrictions on speech, particularly when the restrictions apply to commercial actors. 

In 2015, the Supreme Court held that the First Amendment prohibits content-based restrictions on speech.  Applying strict scrutiny, the Court struck down a Sign Code as unconstitutional because it allowed some billboards but prohibited others based on the content of the sign and with no compelling governmental interest.  The Ninth Circuit relied on this opinion in evaluating the California law regarding publication of age information.  

Although the application of strict scrutiny to content-based restrictions seems straightforward, discrepancies continue to arise when there is debate over whether something is “commercial speech.”  For example, in 2015, the D.C. Circuit heard a case involving restrictions on the type of advertisements airlines could run regarding government taxes.  The court upheld the restrictions, and the Supreme Court declined to hear any appeal.

In a closely watched case earlier this year, the Supreme Court rejected a statutory exception for government-backed debt collectors to a general ban on robocalls.  Writing for a divided court, Justice Kavanaugh explained that distinguishing between different kinds of robocalls is the very definition of a content-based restriction.  The full majority did not share his view that strict scrutiny should be applied to all content-based restrictions.  Justice Sotomayor disagreed with the application of strict scrutiny to the exception but found that the content-based distinction in that case failed intermediate scrutiny anyway.  In contrast, while supporting the overall robocall ban, Justice Breyer broadly advocated for the survival of the exception for government-back debt collecting, contending that the exception was merely “ordinary commercial regulation” that was not entitled to strict scrutiny. 

Here, the Ninth Circuit did not address or decide what level of scrutiny applies to commercial speech by declining to categorize California’s law as a regulation on commercial speech.  But the lack of certainty on the proper level of scrutiny to apply to these types of speech regulations is problematic.  This case provides yet another example of how the absence of clarity from the Supreme Court about the rights of speakers that have an economic motive encourages government actors to restrict speech to advance policy or economic agendas.

The clock is running for the State of California to seek certiorari in the Supreme Court.  Parties have 90 days after the Circuit Court’s judgment to petition the Supreme Court for a writ of certiorari.  Should the State choose to appeal this case, it may be time for the Supreme Court to address this unsettled part of First Amendment law.

The post In <em>IMDb.com</em>, Ninth Circuit Rejects Using Speech Regulation as Commercial Weapon appeared first on Washington Legal Foundation.

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GSA to launch virtual Technology Transformation Services Impact Summit Series

GSA news releases - Mon, 08/10/2020 - 12:00am
Kickoff will include executive keynotes, panels and success stories WASHINGTON -- The U.S. General Services Administration’s Technology Transformation Services (TTS) will kick off its Impact Summit Series on Wednesday, August 12, 2020, with a two-hour virtual event focused on the impact of...

GSA Set to Auction Former Veterans Administration Housing in New Haven, Connecticut

GSA news releases - Mon, 08/10/2020 - 12:00am
BOSTON – The U.S. General Services Administration (GSA) announces the auction for a former Veterans Administration (VA) house at 121-123 Brownell Street, New Haven, Connecticut, 06511, as part of its mission to deliver value and savings in real estate, acquisition, technology, and other mission...

Bill to Authorize PHMSA Pipeline Safety Program Clears Senate

WASHINGTON – U.S. Sens. Roger Wicker, R-Miss., chairman of the Senate Committee on Commerce, Science, and Transportation, along with Deb Fischer, R-Neb., and Tammy Duckworth, D-Ill., chairman and ranking member of the Subcommittee on Transportation and Safety, today released the following statements upon the unanimous Senate passage of  S. 2299, the Protecting Our Infrastructure of Pipelines Enhancing Safety (PIPES) Act of 2019. The legislation would reauthorize the Pipeline and Hazardous Materials Safety Administration (PHMSA) pipeline safety program for four years and provide important advances in new safety technology and regulatory reform.

“Improving the safe and reliable transportation of energy is essential to keeping our businesses and homes running,” said Wicker. “The PIPES Act would provide the necessary resources to ensure the safety of our pipeline system. It would also allow PHMSA to conduct pilot programs to evaluate and carry out innovative pipeline safety programs and technologies. I thank my colleagues Senators Fischer and Duckworth for their work on this bipartisan legislation, and I look forward to seeing it pass the House.”

“I am pleased that our bipartisan legislation reauthorizing PHMSA to advance pipeline safety passed the Senate. It will ensure that PHMSA has the necessary resources and Congressional direction it needs to do its job,” said Fischer. 

“Pipelines carry much of the energy that powers our nation, and helping ensure the safe transportation of that energy is critical for homeowners and businesses across Illinois and our nation,” said Duckworth. “I am thankful for Senator Fischer’s partnership throughout this process and am glad to see the Senate pass this important bipartisan legislation that reauthorizes PHMSA’s pipeline safety programs and invests in emerging technologies that will make the operation of pipelines even safer and more efficient.”

The PIPES Act of 2019 would:

  • Provide a four-year authorization of PHMSA’s pipeline safety program with greater resources allocated to state and local pipeline safety officials.
  • Allow PHMSA to conduct pilot programs to evaluate innovative pipeline safety technologies to enhance pipeline safety.
  • Provide greater Congressional oversight on pending PHMSA rulemakings.
  • Direct PHMSA to update its current regulations for large-scale liquefied natural gas (LNG) facilities.
  • Establish LNG Center of Excellence to promote and facilitate safety, education, training, and technological advancements for LNG operations.

Click here to read the bill.

 

Wicker, Peters Introduce FLOODS Act

U.S. Sens. Roger Wicker, R-Miss., chairman of the Senate Committee on Commerce, Science, and Transportation, and Gary Peters, D-Mich., today introduced the Flood Level Observation, Operations, and Decision Support (FLOODS) Act to establish a National Integrated Flood Information System. The legislation would improve the National Oceanic and Atmospheric Administration’s (NOAA) forecasting and communication of flood, tornado, and hurricane events.

“Flooding is a common and deadly natural disaster in the U.S., resulting in over $25 billion in annual economic losses,” said Wicker. “Recent events in my home state of Mississippi, such as the prolonged opening of the Bonnet Carré spillway and the Pearl River and Yazoo backwater floods, underscore the importance of an effective understanding and response to high water. This legislation would protect lives and property by directing NOAA to improve its flood monitoring, forecasting, and communication efforts. I am eager to see the measure advance for Mississippians and all Americans who face dangers caused by flooding.”

“Unexpected severe flooding has too often upended the lives of families and hard-working men and women across the U.S., including in Michigan,” said Peters. “This bipartisan legislation would help protect families and small businesses along high-risk shorelines and other communities by modernizing flood forecasts to provide more timely, actionable information, and I look forward to building additional support for this bill.”

The Flood Level Observation, Operations, and Decision Support Act would:

  • Establish a “National Integrated Flood Information System” to coordinate and integrate flood research at NOAA;
  • Establish partnerships with institutions of higher education and federal agencies to improve total water predictions;
  • Designate a service coordination hydrologist at each National Weather Service River Forecast Center to increase impact-based decision support services at State and local level;
  • Evaluate and improve flood watches and warnings and communication of information to support coordinated flood management;
  • Encourage NOAA to evaluate acoustic tracking and measuring of windstorms, use aerial surveys of floodwaters to improve flood mapping, and improve modeling of freshwater outflow into the ocean;
  • Establish a Committee to ensure coordination of Federal Departments with joint or overlapping responsibilities in water management.

Click here to read the bill.

Bidding now open on former FAA property in High Point

GSA news releases - Fri, 08/07/2020 - 12:00am
ATLANTA—The U.S. General Services Administration announces a public online auction sale of a former Federal Aviation Administration property in High Point, North Carolina. Located in High Point’s Hampton Park community, the approximately 1.4 acre property consists of four residentially zoned...

Follow Louisiana’s Lead: The Case for Eliminating State Gag Rules on Motorists’ Failure to Buckle Up

WLF Legal Pulse - Thu, 08/06/2020 - 2:55pm

By Lee Mickus, a Partner in the Denver, CO office of Evans Fears & Schuttert LLP.

Click on button above for full publication

Executive Summary

Laws in three-quarters of U.S. states and the District of Columbia prohibit or severely restrict defendants in motor-vehicle accident jury trials from introducing evidence that injured drivers or passengers had not buckled their seatbelt. For more than three decades, these gag rules have unfairly rewarded unbelted plaintiffs by allowing them to avoid the legal consequences of not buckling up.

The Louisiana legislature’s recent repeal of the state’s evidentiary gag rule creates a timely context within which Evans Fears & Schuttert LLP attorney Lee Mickus examines the history of these laws and makes the case for their elimination.

These laws, Mickus explains, were a product of both the different attitudes about seat belt use motorists held in the 1980s and states’ resentment of the federal government’s attempt to dictate seat belt standards as part of an air-bag rulemaking. Vehicle drivers and passengers felt seat belts restricted their freedom of movement and could entrap them if an accident occurred. Those opinions have shifted dramatically in three decades, a change that Mickus concludes inspired Louisiana to repeal its gag rule.

Louisiana courts should take advantage of the law’s repeal, Mickus argues, and allow jurors to consider seat belt nonuse evidence for proof of comparative fault and for setting damages. The author discusses the numerous public-policy reasons that support seat-belt evidence, including the oddity of rejecting as evidence in a civil trial information that would subject the unbelted motorist to criminal sanctions under state law.

The Working Paper concludes with a brief overview of the status of the evidentiary gag rule in other states. A number of states, including most recently Iowa and Missouri, have allowed courts to admit information about seat belt use at trial. A large majority of states—38 plus D.C.—however, cling to outdated gag rules. Mickus concludes by urging state lawmakers to consider Louisiana’s actions and the compelling arguments that support their legislative repeal in future legislative sessions.

The post Follow Louisiana’s Lead: The Case for Eliminating State Gag Rules on Motorists’ Failure to Buckle Up appeared first on Washington Legal Foundation.

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DOJ and SEC’s Updated Resource Guide: What FCPA Enforcement Targets Need to Know

WLF Legal Pulse - Thu, 08/06/2020 - 2:54pm

By Gregory A. Brower and Carrie E. Johnson, Shareholders, and Courtney E. Bartkus, an Associate, with Brownstein Hyatt Farber Schreck, LLP. Mr. Brower is a member of WLF’s Legal Policy Advisory Board.

Earlier last month, the U.S. Department of Justice (“DOJ”)  and the U.S. Securities and Exchange Commission (“SEC”) released an updated edition of their joint Foreign Corrupt Practices Act (“FCPA”) guidance document.  Entitled “A Resource Guide to the U.S. Foreign Corrupt Practices Act” (the “Guide”), this second edition includes several important updates to the original version published in 2012. This new edition reflects a continuing effort by both the DOJ and SEC to transparently provide as much information as possible to companies and their counsel on how to effectively navigate FCPA issues. The Guide is intended to provide users detailed information about the requirements of the FCPA, while also offering insight into DOJ and SEC enforcement practices. In the words of those agencies, the Guide “represents one of the most thorough compilations of information about any criminal statute….”1

This Legal Backgrounder provides an overview of certain new material in the second edition, including both updates on caselaw interpreting the FCPA and changes to DOJ and SEC policies applicable to FCPA enforcement.

Before discussing some of the new information included in the Guide, we note the Government’s ongoing focus on corruption as a global problem.  The Government set records in 2019 for anti-corruption enforcement, led by the DOJ and SEC.  U.S. monetary sanctions reached an all-time high of $2.65 billion, including two of the largest corporate settlements since the FCPA’s passage in 1977.  One of these settlements is the largest ever under the law. Swedish multinational telecom company Ericsson agreed to a $1.06 billion resolution of alleged violations of both the FCPA bribery and accounting provisions.  In addition, a record five FCPA cases went to trial during 2019, with the Government obtaining convictions in four of those cases and the defendant winning an acquittal in one.  The trend toward more FCPA enforcement against foreign companies continued in 2019, with U.S.-based companies accounting for less than half of those targeted for prosecution.  Finally, despite ongoing DOJ and SEC efforts to encourage self-reporting, only three companies took advantage of the benefits of doing so, with two obtaining declinations.

The Guide’s introduction emphasizes that FCPA enforcement is a government-wide effort, with many other federal agencies and law enforcement partners working together with the DOJ and SEC.  The Guide also mentions the increasingly international nature of FCPA enforcement efforts, with a growing number of countries joining the fight against corruption. 

The bottom line is that FCPA enforcement remains a focus for the U.S. and its allies abroad, and this trend is likely to only continue and grow.  Domestic and foreign companies must understand what the FCPA permits and prohibits, as well as how the DOJ and SEC interpret the law and prioritize their respective efforts at enforcing the law.  Perhaps most importantly, regulated entities must know what the agencies expect from businesses and individuals on detecting and preventing violations, and designing and implementing effective compliance programs.

Below we summarize and comment on five of the more interesting and relevant changes contained in the Guide’s latest edition.  We will focus on the following:

  • Recent caselaw on the definition of the term “foreign official,” the limitations periods applicable to FCPA actions, and the FCPA’s foreign written-laws defense;
  • New DOJ and SEC criminal enforcement policies and their applicability to FCPA actions;
  • Updated guidance on corporate successor-liability issues in the context of the FCPA due diligence for mergers and acquisitions, as well as new commentary on corporate compliance programs;
  • Revised policy concerning disgorgement of profits applicable to SEC actions to enforce certain provisions of the FCPA; and
  • Clarification of the mens rea standard for liability under the books-and-records and internal-controls provisions of the FCPA.

Definition of “Foreign Official” 

In 2018, the U.S. Court of Appeals for the Second Circuit held in United States v. Hoskins that a foreign national who does not otherwise fall under “the categories of persons directly covered” by the FCPA cannot be held liable for conspiring to violate the statute.2 While the Guide continues to address the potential criminal liability of a foreign national who attends a meeting in the U.S. that furthers a foreign bribery scheme, it no longer states that “any co-conspirator” can also be liable, “even if they did not themselves attend the meeting.”  In Hoskins, the Second Circuit rejected the DOJ’s broad theory of liability for co-conspirators, explaining that the FCPA does not reach nonresident foreign nationals who are not officers, directors, employees, or stockholders of American companies, and concluding that the government’s over-expansive view “would transform the FCPA into a law that purports to rule the world.”3  The Guide clarifies the DOJ’s current view that “(u)nlike the FCPA anti-bribery provisions, the accounting provisions apply to ‘any person,’ and thus are not subject to the reasoning in the Second Circuit’s decision in United States v. Hoskins limiting conspiracy and aiding and abetting liability under the FCPA anti-bribery provisions.”  The Hoskins decision arose from one of the few cases in which a defendant has challenged the scope of the government’s ability to prosecute a nonresident foreign national under the FCPA.  While this decision’s impact is limited to the Second Circuit, the DOJ and SEC seem to have adjusted their position in response, at least for now.

Statutes of Limitation

As the Guide clarifies, the FCPA itself does not specify a statute of limitations for criminal enforcement actions, and therefore, the general statutes-of-limitations periods apply.  Accordingly, the five-year period in 18 U.S.C. § 3282 applies to substantive violations, while a six-year period applies to securities fraud offenses found in 18 U.S.C. § 3301.  The Guide makes clear that in cases involving alleged conspiracies, the government may be able to reach conduct occurring before the general limitations period under 18 U.S.C. § 71. 

Foreign Written-Laws Defense

The Guide provides updated discussion of the local-law defense under the FCPA.  It first explains that in practice, “the local law defense arises infrequently, as the written laws and regulations of countries rarely, if ever, permit corrupt payments.”  The Guide goes on to say, however, that “if a defendant can establish that conduct that otherwise falls within the scope of the FCPA’s anti-bribery provisions was lawful under written, local law, he or she would have a defense to prosecution.”

The Guide then references two recent cases in which the defendant unsuccessfully sought to assert the local-law defense.  In United States v. Kozeny, the court decided that the defendant could not assert this defense because the local law in question did not actually legalize the bribe payment.4  In the second case, United States v. Ng Lap Seng, the defendant requested a jury instruction under the local-law defense based on the argument that the subject payments were not specifically unlawful under the written laws of the relevant countries.5  The court rejected this argument, explaining that it was inconsistent with the plain meaning of the statute, which provides for the defense only when local law specifically allows the conduct.6  The Guide confirms the agencies’ interpretation of this decision as a judicial narrowing of the local-law defense.

New DOJ/SEC Policies Applicable to FCPA Enforcement

The Guide acknowledges various recent DOJ and SEC policy updates.  These include a discussion of the DOJ’s new FCPA Corporate Enforcement Policy, updated in March 2019, which mentions the DOJ’s presumption against prosecution when a company “voluntarily self-discloses misconduct, fully cooperates, and timely and appropriately remediates” that misconduct absent “aggravating circumstances.”  The Guide also refers to recent investigations in which the DOJ announced declinations, i.e. instances in which the DOJ has declined to prosecute an alleged FCPA violation due to policy and other considerations.  It further includes a discussion of the new DOJ and SEC policy on coordinated resolutions intended to avoid “piling on” situations when assessing punishment for violations.  The Guide mentions the DOJ’s new policy on corporate monitors, which are often an important component of FCPA resolutions. 

Finally, the Guide addresses current SEC enforcement policies based on the most recent version of its Enforcement Manual as well as a variety of other SEC publications that address the impact cooperation by individuals or companies have on enforcement decisions.  The SEC’s considerations in opening an investigation and pursuing enforcement for potential FCPA violations have not been materially updated, but the Guide does include a lengthy discussion of the SEC’s focus on self-reporting, cooperation, and remedial efforts.  The Guide makes clear that both the DOJ and SEC place particular emphasis on the strength of a company’s compliance and ethics program, including as it relates to diligence of third-party business practices.  The Guide also reiterates the DOJ/SEC view that the “truest measure of an effective compliance program is how it responds to misconduct.”  This serves as a reminder of the Government’s opinion that the effectiveness of a compliance program hinges not only on how a company responds to specific instances of misconduct, but also how it integrates lessons learned from that misconduct into company policies, training, and controls.

Corporate Successor Liability and Compliance

The Guide expands upon on the Government’s view of corporate successor liability for FCPA violations.  Specifically, the updates include advice on what constitutes adequate due diligence, and offer practical tips for practitioners, while discussing real-life examples and suggested solutions to hypothetical problems.  The Guide affirms that the law “prevents companies from avoiding liability by reorganizing,” but also acknowledges that, “[a]t the same time, DOJ and SEC recognize the potential benefits of corporate mergers and acquisitions, particularly when the acquiring entity has a robust compliance program in place and implements that program as quickly as practicable at the merged or acquired entity.”  The Guide goes further, stating:  “DOJ and SEC also recognize that, in certain instances, robust pre-acquisition due diligence may not be possible.  In such instances, DOJ and SEC will look to the timeliness and thoroughness of the acquiring company’s post-acquisition due diligence and compliance integration efforts.”  The  Guide also includes a detailed discussion of compliance-program best practices, including internal investigations, confidential reporting, and remediation of misconduct, all of which can obviously be critical to preventing problems, and to effectively responding to problems that are discovered. 

Disgorgement in SEC Actions

In two recent decisions, Kokesh v. SEC and SEC v. Liu, the U.S. Supreme Court clarified that the civil remedy of disgorgement is subject to a five-year statute of limitations, and critically, that disgorgement is available as equitable relief in certain circumstances.7  In Kokesh, the Supreme Court concluded that disgorgement constitutes a “penalty,” and as a consequence, is subject to the same five-year statute of limitations set forth in 28 U.S.C. § 2462.8  Following Kokesh, the Court again addressed the disgorgement remedy in Liu and upheld its use as an enforcement weapon, stating, “[e]quity courts have routinely deprived wrongdoers of their net profits from unlawful activity,” and holding that disgorgement is permissible equitable relief when it does not exceed a wrongdoer’s net profits and is awarded for the benefit of victims.

Mens Rea Standard

Previously, the government had operated under the assumption that in a criminal case based on the books and records part of the FCPA, the government need not prove that the violation was willful.  The Guide now acknowledges that the term “willfully” is not defined in the FCPA, but “has been generally construed by the courts to connote an act committed voluntarily and purposefully, and with a bad purpose.”  Pointing to 15 U.S.C. § 78ff(a) which references “willful violations” of the FCPA’s accounting provisions, the Guide now clarifies that a criminal violation does indeed require a “knowing and willful” failure to maintain accurate books and records or implement an adequate system of internal accounting controls.

* * *

Of course, as comprehensive as it is, the second edition of the Guide includes the same caveat  as did the 2012 edition, i.e. that it is “non-binding, informal, and summary in nature.”  This Legal Backgrounder is subject to the same disclaimer.  Despite its now more than four decades of history, there remains a dearth of reported cases interpreting the FCPA.  Therefore, many of the statute’s provisions continue to be subject to varying interpretations notwithstanding the best efforts of the DOJ and SEC to articulate their views on the law and influence those subject to the FCPA to adopt the same interpretations.  However, despite the Guide’s 86 pages of content, including more than 400 endnotes, it is inevitable that questions, ambiguities, and different interpretations by business people, lawyers, and judges will continue to persist.  Nevertheless, this latest edition of the Guide continues to be  an incredibly useful starting place for not only understanding the details of the FCPA, but also understanding how the DOJ and SEC interpret every detail of the law and prioritize their enforcement of it.  

Notes

The post DOJ and SEC’s Updated Resource Guide: What FCPA Enforcement Targets Need to Know appeared first on Washington Legal Foundation.

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Consumer-Fraud Suits Against Retailers a Harbinger of New PFAS Class-Action Wave?

WLF Legal Pulse - Thu, 08/06/2020 - 2:54pm

By Thomas R. Waskom, a Partner with Hunton Andrews Kurth in the firm’s Richmond, VA office.

Three putative class actions recently filed in the Northern District of California—DiGiacinto v. Albertsons Cos., Ambrose v. Kroger Co., and Nguyen v. Amazon.com, Inc.—preview a new theory of consumer claims relating to per- and polyfluoroalkyl substances (PFAS). Rather than rely on alleged omissions or representations about health risks, the plaintiffs claim that they relied on marketing statements that indicated the products they purchased (“compostable” disposable dinnerware) were disposable and would completely degrade over time and that the presence of PFAS in the products means those marketing statements were false. That focus on the environmental persistence of PFAS, rather than the substances’ alleged health effects, marks a new approach to PFAS consumer class actions.

PFAS are a family of organic compounds with a carbon-fluorine bond, the strongest bond in nature, which enables them to repel both oil and water. This unique characteristic makes PFAS useful in a wide array of industries and applications, including stain and water-repellent fabric, chemical-and oil-resistant coatings, mist suppressants, food packaging materials, plastics, firefighting foam, solar panels, and many others. PFAS’s solubility and extreme durability also make the compounds highly persistent in the environment. It should be noted, however, that PFAS has also been linked to some health concerns, even though the scientific validity of those links is highly debated.

To date, PFAS litigation has focused almost exclusively on occupational exposure, environmental contamination, and personal exposure allegedly arising from that contamination. For example, the thousands of cases currently pending in an MDL in South Carolina relate to the use of PFAS in firefighting foam, thus resulting in groundwater contamination. A rare exception was a 2019 putative class action based on the alleged presence of PFAS in dental floss. The plaintiff’s claims arose under consumer protection statutes, but they were premised on the purported health risk posed by the dental floss, and the case was quickly dismissed.

DiGiacinto, Ambrose, and Nguyen represent a new avenue for PFAS litigation—consumer class actions based on the persistence of PFAS in the environment, rather than any purported health risk to the consumer. In all three cases, the plaintiffs allege that they bought a product based on the representation that after its disposal, the product would decompose in the environment over time. The plaintiffs claim that the purported presence of PFAS in the product renders that representation false. Each plaintiff asserts claims for breach of express warranty, unjust enrichment, and violation of California Unfair Competition Law, Cal. Bus. & Prof. Code § 17200 et seq. (under the unfair, unlawful, and fraudulent prongs).

The plaintiffs’ focus on the environmental persistence of PFAS rather than the substances’ alleged health effects is a subtle but significant reframing. The plaintiffs claim to have found a confluence of two critical facts: the alleged presence of PFAS in a product, and a marketing claim that is incompatible with the presence of PFAS. The plaintiffs’ complaints and theories are still vulnerable to several defenses—the pleadings are remarkably vague about exactly which products the plaintiffs bought, when, and for how much. Even still, the shift away from health risks avoids the ongoing debate about what those health risks actually are. Instead, the plaintiffs can focus on environmental persistence which is not widely disputed.

Manufacturers and retailers should consider which of their products or packaging contain PFAS and check whether those products’ labels make any claims about degradability. Marketing teams may need to reconsider some claims if PFAS are present.

The post Consumer-Fraud Suits Against Retailers a Harbinger of New PFAS Class-Action Wave? appeared first on Washington Legal Foundation.

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Update: EPA Settles Suit by Utah over Massive Gold King Mine Waste Spill

WLF Legal Pulse - Thu, 08/06/2020 - 10:39am

Almost five years to the day after its own employees’ and contractors’ negligence caused 3,000,000 gallons of toxic waste to spill out of an abandoned mine and into the Animas River, the Environmental Protection Agency has agreed to a $360 million settlement of a suit Utah filed against the agency. A February 2016 WLF Legal Pulse post discussed the accident and contrasted it to a waste spill in West Virginia of significantly less magnitude that led EPA to pursue criminal charges against the alleged perpetrators.

As discussed in our post, “evidence abounds that the Gold King Mine spill resulted from the negligence of EPA employees and contractors and the agency’s disregard of serious pollution risks” The post continues:

Prior to commencing work on August 5, the on-site EPA team failed to conduct a routine water pressure reading, the result of which would (or should) have forestalled further action. No such reading was taken, and contractors proceeded to dig into the mine’s floor with a backhoe, blowing out a plug and triggering the deluge of yellow sludge into Cement Creek, which feeds the Animas and San Juan Rivers.

EPA’s on-site coordinator, Hays Griswold, remarked at the time of the spill that “nobody expected [the water in the mine] to be that high.” Once the spill occurred, the agency delayed informing the governments of downstream states for nearly a full day. New Mexico’s environmental secretary remarked that EPA “[was] really downplaying the issue.”

Local media reported that “Utah will reap million of dollars’ worth of environmental cleanup and monitoring benefits in a ‘landmark’ agreement”— as if the settlement provided a windfall benefit to the state and its residents. The $360 million is less than a quarter of what Utah demanded to cover cleanup and remediation.

And five years later, not a single criminal charge has been filed against responsible agency or contractor employees for the type of conduct and resulting harm that routinely inspires the federal government to prosecute private businesses. We’re gratified that EPA took some responsibility for its actions, but the fact remains that federal regulators are continuing, as our 2016 blog post’s title declared, to demand accountability for thee but not for me.

The post Update: EPA Settles Suit by Utah over Massive Gold King Mine Waste Spill appeared first on Washington Legal Foundation.

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Nominations Hearing

U.S. Sen. Roger Wicker, R-Miss., chairman of the Committee on Commerce, Science, and Transportation, will convene a nominations hearing at 10:00 a.m. on Thursday, August 6, 2020. The hearing will consider presidential nominations to the Department of Transportation, Surface Transportation Board, and Amtrak Board of Directors.

Click here for additional information on nominees. 

Witnesses:

  • Mr. Eric Soskin, of Virginia, to be Inspector General, Department of Transportation
  • Mr. Robert Primus, of New Jersey, to be a Member of the Surface Transportation Board
  • Ms. Sarah Feinberg, of West Virginia, to be a Director of the Amtrak Board of Directors
  • Mr. Chris Koos, of Illinois, to be a Director of the Amtrak Board of Directors

*Witness list subject to change

Hearing Details:

Thursday, August 6, 2020
10:00 a.m.
Full Committee Hearing

This hearing will take place in the Russell Senate Office Building 253. Witness testimony, opening statements, and a live video of the hearing will be available on www.commerce.senate.gov

*In order to maintain physical distancing as advised by the Office of the Attending Physician, seating for credentialed press will be limited throughout the course of the hearing. Due to current limited access to the Capitol complex, the general public is encouraged to view this hearing via the live stream.

Despite Temporary Route Reductions, Cantwell Gets Commitment from Amtrak Board of Director Nominees to Maintain Long-Distance Service

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Coast Starlight and Empire Builder Amtrak routes to be reduced to 3 days a week to mitigate losses from COVID-19; Cantwell presses nominees to make sure service will still be maintained long-term

Nominees also pledge to strengthen safety culture in light of 2017 DuPont train crash

WASHINGTON, D.C. – In today’s Senate Committee on Commerce, Science, and Transportation nominations hearing, Ranking Member U.S. Senator Maria Cantwell (D-WA) addressed the challenges facing Amtrak during the COVID-19 pandemic, the proposal to temporarily cut daily long-distance service to three days a week as a result, and the need to provide support for Amtrak in the next COVID package so Amtrak can maintain its service, including long-distance routes critical to communities throughout the Pacific Northwest.

“Amtrak faces a series of critical challenges in the near future as we deal with the severe decline in travel as a result of the COVID 19 pandemic,” Cantwell said. “In an effort to address these challenges, Amtrak's management has proposed severe cuts in service, including reducing long distance train to three days a week and deep staffing reductions. I'm very concerned that these cuts may significantly harm communities served by Amtrak and threaten the long term viability of our national rail network. I hope that my colleagues will step up in this next COVID package and make sure that there is support for Amtrak, the communities, and the workforce.”

In addition to supporting more money for Amtrak to help stave off layoffs and reductions, Cantwell called on Amtrak Board of Director nominees Sarah Feinberg and Chris Koos to commit to maintaining long-distance rail service.

“Amtrak is critical for millions of people and for us, the two lines in Washington state – the Coast Starlight and the Empire Builder – they serve 15 communities and a majority of them being small and rural communities. So, I would like to ask the nominees, do you--what kind of commitment can we get that you're going to preserve the Amtrak long distance service, and the economic lifeline that it provides to rural communities?”

The Coast Starlight route is daily between Seattle and Los Angeles, and the Empire Builder route goes from Chicago to Portland and Seattle. Between the two, there are stops in 15 different Washington towns and cities.  Both nominees pledged to preserve long-distance service:

I'm very committed to the national network of long distance trains. Without those trains, we don't have a national network. And I think it's crucial for the function of Amtrak,” said Mr. Koos. “I think people sometimes gloss over the long distance routes, as saying they’re from point A to point Z, but a lot of people don't realize the use those trains get for shorter distances along that corridor, and it’s a critical part of our daily operations. I understand the need right now to be prudent about the frequency of those routes in a COVID-19 world, but I'm strongly committed to, at such time as we can safely travel through this country without the fear of COVID-19, to returning to daily service on the long distance routes.”

Ms. Feinberg agreed, saying: “You have my commitment. I'm from a small town in a rural state myself, I’m from West Virginia, and I’m well aware of the importance of that long distance service to those communities, and also just the station and the employees there acting as touch points to the community. You have my commitment.”

Amtrak has proposed labor and service cuts for fiscal year 2021, which would reduce long distance routes from seven days a week to three days a week, cut state-supported routes by 24 percent, and cut the Northeast Corridor by 32 percent. In an attempt to save money, Amtrak plans to cut their workforce by up to 20 percent. In terms of the COVID-19 crisis, as of May of this year Amtrak ridership was down 95 percent compared to 2019 levels. As states have begun to re-open, in response to increased demand, Amtrak has restored service on some lines, such as the Northeast Corridor.

Senator Cantwell also questioned the nominees on Amtrak’s safety culture:

“I think you probably are both aware of the DuPont accident that happened when the train derailed onto I-5 and shut down I-5,” said Cantwell. “It was a maiden voyage through a new route that speed control and awareness just didn't seem to be there, and it was a very costly accident, both to life and to property. So will you ensure that reforming the safety culture--I get positive train control, it’s going to help us--but that we have a safety culture that remains top priority at Amtrak?”

Ms. Feinberg replied, “Absolutely.”

Mr. Koos said, “Safety culture is critical for an effective and safe system.”

Senator Cantwell has long advocated for transportation safety. In March 2018, after calling for a hearing in the wake of the DuPont derailment, Cantwell pressed Amtrak CEO Richard Anderson on rail safety and PTC implementation. In July of 2019, Cantwell wrote a letter to the FRA calling for an analysis of gaps in the nationwide implementation of Positive Train Control (PTC). And this June, Cantwell introduced legislation to ensure transportation worker safety among the COVID-19 pandemic.

Video of Ranking Member Cantwell’s opening statement can be found HERE and audio is HERE.

Video of Cantwell’s Q&A with witnesses can be found HERE and audio is HERE.

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