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Review of the SBA’s 504/CDC Loan Program

House Small Business Committee News - Tue, 12/10/2019 - 10:00am

The Committee on Small Business Subcommittee on Investigations, Oversight, and Regulations will hold a hearing titled, “Review of the SBA’s 504/CDC Loan Program.” The hearing is scheduled to begin at 10:00 A.M. on Tuesday, December 10, 2019 in Room 2360 of the Rayburn House Office Building.

The hearing will review the United States Small Business Administration’s (SBA) 504/CDC Loan Program. From the role of Certified Development Companies (CDCs) to the economic development requirements that are outlined in the program, the hearing will provide Members of the Subcommittee the opportunity to hear directly from program participants.

To view a livestream of the hearing, please click here. 

Hearing Notice 

Hearing Memo 

Witness List 

Ms. Mary Mansfield
President and Chief Executive Officer
Bay Colony Development Corporation
Waltham, MA

Mr. Wayne Williams
Senior Vice President
Business Finance Group Inc.
Fairfax, VA

Ms. Elaine Fairman
Executive Director
Business Expansion Funding Corporation (BEFCor)
Charlotte, NC

Ms. Brooke Mirenda
President and Chief Executive Officer
Sunshine State Economic Development Corporation
Clearwater, FL

*Witness testimony will be posted within 24 hours after the hearing’s occurrence


November 2019 Month in Review

WLF Legal Pulse - Thu, 12/05/2019 - 10:07am

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


Although some transportation workers are exempt from the Federal Arbitration Act’s mandate that arbitration agreements must be enforced, that exemption should be narrowly construed. (Waithaka v. Amazon)

Pension plan beneficiaries who are uninjured by plan administrators’ alleged misconduct should not be allowed to sue under ERISA for that misconduct. (Thole v. U.S. Bank)

A federal regulation requiring drug manufacturers to include misleading pricing data in their television ads exceeds the agency’s statutory authority and violates manufacturers’ First Amendment rights. (Merck & Co. v. U.S. Dep’t of Health and Human Services)

Congress has not authorized the FTC, when suing companies for allegedly deceptive trade practices, to seek “disgorgement” of allegedly ill-gotten gains. (AMG Capital Management, LLC v. Federal Trade Commission)

The City of Berkeley violates the First Amendment rights of cell-phone retailers when it requires them to post misleading signs about the supposed health dangers of ordinary cell-phone use. (CTIA—The Wireless Ass’n v. City of Berkeley)


U.S. Court of Appeals for the Second Circuit substantially reduces mammoth penalty on UPS for shipping cigarettes for which the owners had not paid all taxes. (New York v. UPS)

U.S. Supreme Court declines to consider whether property owners are entitled to compensation under the Takings Clause when a government arbitrarily delays their building projects. (Bottini v. City of San Diego)

The post November 2019 Month in Review appeared first on Washington Legal Foundation.

Categories: Latest News

Embracing Corporate Social Responsibility: Small Business Best Practices

House Small Business Committee News - Wed, 12/04/2019 - 11:30am

The Committee on Small Business will hold a hearing titled, “Embracing Corporate Social Responsibility: Small Business Best Practices.” The hearing is scheduled to begin at 11:30 A.M. on Wednesday, December 4, 2019 in Room 2360 of the Rayburn House Office Building.

For decades, small businesses have been leaders in delivering value for their communities, but they can face resource constraints in their efforts to scale up their sustainability practices. This hearing will examine how small businesses can integrate best practices that promote social good and sustainability at all stages, either as part of an initial business plan or later in the life of their company, and assess how the federal government can support and empower small business owners to not only make a profit, but be forces for social good.

To view a livestream of the hearing, please click here. 

Hearing Notice 

Hearing Memo 

Witness List 

Dr. Robert Strand
Executive Director, Center for Responsible Business
University of California-Berkeley Haas School of Business
Berkeley, CA

Mr. Vincent Stanley
Director of Philosophy
Ventura, CA

Mr. Sean McElwee
President and Chief Creative Officer
Viejo, CA
Accompanied by:
Ms. Sandra McElwee, Chief Dream Facilitator, Seanese

*Witness testimony will be posted within 24 hours after the hearing’s occurrence


Doubting The AI Mystics: Dramatic Predictions About AI Obscure Its Concrete Benefits

WLF Legal Pulse - Wed, 12/04/2019 - 11:19am

Artificial intelligence is advancing rapidly. In a few decades machines will achieve superintelligence and become self-improving. Soon after that happens we will launch a thousand ships into space. These probes will land on distant planets, moons, asteroids, and comets. Using AI and terabytes of code, they will then nano‑assemble local particles into living organisms. Each probe will, in fact, contain the information needed to create an entire ecosystem. Thanks to AI and advanced biotechnology, the species in each place will be tailored to their particular plot of rock. People will thrive in low temperatures, dim light, high radiation, and weak gravity. “Humanity” will become an incredibly elastic concept. In time our distant progeny will build megastructures that surround stars and capture most of their energy. Then the power of entire galaxies will be harnessed. Then life and AI—long a common entity by this point—will construct a galaxy-sized computer. It will take a mind that large about a hundred-thousand years to have a thought. But those thoughts will pierce the veil of reality. They will grasp things as they really are. All will be one. This is our destiny.

Then again, maybe not.

There are, of course, innumerable reasons to reject this fantastic tale out of hand. Here’s a quick and dirty one built around Copernicus’s discovery that we are not the center of the universe. Most times, places, people, and things are average. But if sentient beings from Earth are destined to spend eons multiplying and spreading across the heavens, then those of us alive today are special. We are among the very few of our kind to live in our cosmic infancy, confined in our planetary cradle. Because we probably are not special, we probably are not at an extreme tip of the human timeline; we’re likely somewhere in the broad middle. Perhaps a hundred-billion modern humans have existed, across a span of around 50,000 years. To claim in the teeth of these figures that our species is on the cusp of spending millions of years spreading trillions of individuals across this galaxy and others, you must engage in some wishful thinking. You must embrace the notion that we today are, in a sense, back at the center of the universe.

It is in any case more fashionable to speculate about imminent catastrophes. Technology again looms large. In the gray goo scenario, runaway self-replicating nanobots consume all of the Earth’s biomass. Thinking along similar lines, philosopher Nick Bostrom imagines an AI-enhanced paperclip machine that, ruthlessly following its prime directive to make paperclips, liquidates mankind and converts the planet into a giant paperclip mill. Elon Musk, when he discusses this hypothetical, replaces paperclips with strawberries, so that he can worry about strawberry fields forever. What Bostrom and Musk are driving at is the fear that an advanced AI being will not share our values. We might accidently give it a bad aim (e.g., paperclips at all costs). Or it might start setting its own aims. As Stephen Hawking noted shortly before his death, a machine that sees your intelligence the way you see a snail’s might decide it has no need for you. Instead of using AI to colonize distant planets, we will use it to destroy ourselves.

When someone mentions AI these days, she is usually referring to deep neural networks. Such networks are far from the only form of AI, but they have been the source of most of the recent successes in the field. A deep neural network can recognize a complex pattern without relying on a large body of pre-set rules. It does this with algorithms that loosely mimic how a human brain tunes neural pathways.

The neurons, or units, in a deep neural network are layered. The first layer is an input layer that breaks incoming data into pieces. In a network that looks at black-and-white images, for instance, each of the first layer’s units might link to a single pixel. Each input unit in this network will translate its pixel’s grayscale brightness into a numer. It might turn a white pixel into zero, a black pixel into one, and a gray pixel into some fraction in between. These numbers will then pass to the next layer of units. Each of the units there will generate a weighted sum of the values coming in from several of the previous layer’s units. The next layer will do the same thing to that second layer, and so on through many layers more. The deeper the layer, the more pixels accounted for in each weighted sum.

An early-layer unit will produce a high weighted sum—it will fire, like a neuron does—for a pattern as simple as a black pixel above a white pixel. A middle-layer unit will fire only when given a more complex pattern, like a line or a curve. An end-layer unit will fire only when the pattern—or, rather, the weighted sums of many other weighted sums—presented to it resembles a chair or a bonfire or a giraffe. At the end of the network is an output layer. If one of the units in this layer reliably fires only when the network has been fed an image with a giraffe in it, the network can be said to recognize giraffes.

A deep neural network is not born recognizing objects. The network just described would have to learn from pre-labeled examples. At first the network would produce random outputs. Each time the network did this, however, the correct answers for the labeled image would be run backward through the network. An algorithm would be used, in other words, to move the network’s unit weighting functions closer to what they would need to be to recognize a given object. The more samples a network is fed, the more finely tuned and accurate it becomes.

Some deep neural networks do not need spoon-fed examples. Say you want a program equipped with such networks to play chess. Give it the rules of the game, instruct it to seek points, and tell it that a checkmate is worth a hundred points. Then have it use a Monte Carlo method to randomly simulate games. Through trial and error, the program will stumble on moves that lead to a checkmate, and then on moves that lead to moves that lead to a checkmate, and so on. Over time the program will assign value to moves that simply tend to lead toward a checkmate. It will do this by constantly adjusting its networks’ unit weighting functions; it will just use points instead of correctly labeled images. Once the networks are trained, the program can win discrete contests in much the way it learned to play in the first place. At each of its turns, the program will simulate games for each potential move it is considering. It will then choose the move that does best in the simulations. Thanks to constant fine-tuning, even these in-game simulations will get better and better.

There is a chess program that operates more or less this way. It is called AlphaZero, and at present it is the best chess player on the planet. Unlike other chess supercomputers, it has never seen a game between humans. It learned to play by spending just a few hours simulating moves with itself. In 2017 it played a hundred games against Stockfish 8, one of the best chess programs to that point. Stockfish 8 examined 70 million moves per second. AlphaZero examined only 80,000. AlphaZero won 28 games, drew 72, and lost zero. It sometimes made baffling moves (to humans) that turned out to be masterstrokes. AlphaZero is not just a chess genius; it is an alien chess genius.

AlphaZero is at the cutting edge of AI, and it is very impressive. But its success is not a sign that AI will take us to the stars—or enslave us—any time soon. In Artificial Intelligence: A Guide For Thinking Humans, computer scientist Melanie Mitchell makes the case for AI sobriety. AI currently excels, she notes, only when there are “clear rules, straightforward reward functions (for example, rewards for points gained or for winning), and relatively few possible actions (moves).” Take IBM’s Watson program. In 2011 it crushed the best human competitors on the quiz show Jeopardy!, leading IBM executives to declare that its successors would soon be making legal arguments and medical diagnoses. It has not worked out that way. “Real-world questions and answers in real-world domains,” Mitchell explains, “have neither the simple short structure of Jeopardy! clues nor their well-defined responses.”

Even in the narrow domains that most suit it, AI is brittle. A program that is a chess grandmaster cannot compete on a board with a slightly different configuration of squares or pieces. “Unlike humans,” Mitchell observes, “none of these programs can ‘transfer’ anything it has learned about one game to help it learn a different game.” Because the programs cannot generalize or abstract from what they know, they can function only within the exactparameters in which they have been trained.

A related point is that current AI does not understand even basic aspects of how the world works. Consider this sentence: “The city council refused the demonstrators a permit because they feared violence.” Who feared violence, the city council or the demonstrators? Using what she knows about bureaucrats, protestors, and riots, a human can spot at once that the fear resides in the city council. When AI-driven language-processing programs are asked this kind of question, however, their responses are little better than random guesses. “When AI can’t determine what ‘it’ refers to in a sentence,” Mitchell writes, quoting computer scientist Oren Etzioni, “it’s hard to believe that it will take over the world.”

And it is not accurate to say, as many journalists do, that a program like AlphaZero learns “by itself.” Humans must painstakingly decide how many layers a network should have, how much incoming data should link to each input unit, how fast data should aggregate as it passes through the layers, how much each unit weighting function should change in response to feedback, and much else. “These settings and designs,” adds Mitchell, “must typically be decided anew for each task a network is trained on.” It is hard to see nefarious unsupervised AI on the horizon.

The doom camp (AI will murder us) and the rapture camp (it will take us into the mind of God) share a common premise. Both groups extrapolate from past trends of exponential progress. Moore’s law—which is not really a law, but an observation—says that the number of transistors we can fit on a computer chip doubles every two years or so. This enables computer processing speeds to increase at an exponential rate. The futurist Ray Kurzweil asserts that this trend of accelerating improvement stretches back to the emergence of life, the appearance of Eukaryotic cells, and the Cambrian Explosion. Looking forward, Kurzweil sees an AI singularity—the rise of self-improving machine superintelligence—on the trendline around 2045.

The political scientist Philip Tetlock has looked closely at whether experts are any good at predicting the future. The short answer is that they’re terrible at it. But they’re not hopeless. Borrowing an analogy from Isaiah Berlin, Tetlock divides thinkers into hedgehogs and foxes. A hedgehog knows one big thing, whereas a fox knows many small things. A hedgehog tries to fit what he sees into a sweeping theory. A fox is skeptical of such theories. He looks for facts that will show he is wrong. A hedgehog gives answers and says “moreover” a lot. A fox asks questions and says “however” a lot. Tetlock has found that foxes are better forecasters than hedgehogs. The more distant the subject of the prediction, the more the hedgehogs’ performance lags.

Using a theory of exponential growth to predict an impending AI singularity is classic hedgehog thinking. It is a bit like basing a prediction about human extinction on nothing more than the Copernican principle. Kurzweil’s vision of the future is clever and provocative, but it is also hollow. It is almost as if huge obstacles to general AI will soon be overcome because the theory says so, rather than because the scientists on the ground will perform the necessary miracles. Gordon Moore himself acknowledges that his law will not hold much longer. (Quantum computers might pick up the baton. We’ll see.) Regardless, increased processing capacity might be just a small piece of what’s needed for the next big leaps in machine thinking.

When at Thanksgiving dinner you see Aunt Jane sigh after Uncle Bob tells a blue joke, you can form an understanding of what Jane thinks about what Bob thinks. For that matter, you get the joke, and you can imagine analogous jokes that would also annoy Jane. You can infer that your cousin Mary, who normally likes such jokes but is not laughing now, is probably still angry at Bob for spilling the gravy earlier. You know that although you can’t see Bob’s feet, they exist, under the table. No deep neural network can do any of this, and it’s not at all clear that more layers or faster chips or larger training sets will close the gap. We probably need further advances that we have only just begun to contemplate. “Enabling machines to form humanlike conceptual abstractions,” Mitchell declares, “is still an almost completely unsolved problem.”

There has been some concern lately about the demise of the corporate laboratory. Mitchell gives the impression that, at least in the technology sector, the corporate basic-research division is alive and well. Over the course of her narrative, labs at Google, Microsoft, Facebook, and Uber make major breakthroughs in computer image recognition, decision making, and translation. In 2013, for example, researchers at Google trained a network to create vectors among a vast array of words. A vector set of this sort enables a language-processing program to define and use a word based on the other words with which it tends to appear. The researchers put their vector set online for public use. Google is in some ways the protagonist of Mitchell’s story. It is now “an applied AI company,” in Mitchell’s words, that has placed machine thinking at the center of “diverse products, services, and blue-sky research.”

Google has hired Ray Kurzweil, a move that might be taken as an implicit endorsement of his views. It is pleasing to think that many Google engineers earnestly want to bring on the singularity. The grand theory may be illusory, but the treasures produced in pursuit of it will be real.

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

The post Doubting The AI Mystics: Dramatic Predictions About AI Obscure Its Concrete Benefits appeared first on Washington Legal Foundation.

Categories: Latest News

To Seal or Not to Seal—The Government’s Abuse of the Sealing Prerogative in False Claims Act Qui Tam Cases

WLF Legal Pulse - Tue, 12/03/2019 - 9:00am

Stephen A. Wood is a Partner with Chuhak & Tecson, P.C. in Chicago, IL and serves as the WLF Legal Pulse’s Featured Expert Contributor on the False Claims Act.

The docket in virtually every False Claims Act qui tam case reveals an unusual feature, one unique to these cases.  Several docket entries pre-dating the government’s Notice of Election to either intervene or decline intervention remain under seal, shielded not only from public eyes, but from the eyes of the defendant and defense counsel.  The government’s notice typically requests that “only the complaint, this notice, and the Court’s Order be unsealed and served upon the Defendant. All other contents of the Court’s file in this matter . . . should remain under seal and not be made public or served upon the Defendant.”  Just as typically, the government offers no justification or supporting rationale for its unusual request for complete confidentiality. 

These documents were filed during ex parte proceedings.  And courts almost uniformly accommodate these one-sided, secretive endeavors, even though they come without justification.  And on those few occasions when there is defense pushback, the government usually responds by invoking a claim of privilege, or by claiming that the information is either not relevant or, even if arguably relevant, release would somehow harm the government.  The government’s arguments are varied.  Often, it is claimed that secrecy supports the government’s need for confidentiality regarding its investigative or deliberative processes.  See, e.g., United States v. Education Mgmt, LLC, No. 2007-cv-461, 2013 WL 4591317 at *2 (W.D. Pa. Aug. 28, 2013).  It also insists that sealing promotes candor with the court. 

As noted in one of my earlier WLF Legal Pulse posts, the government regularly exploits the False Claims Act sealing provisions, first by seeking multiple extensions of the 60-day seal period—lasting several years in many cases—and again by insisting that all pre-Notice of Election filings remain under seal.  The latter abuse, the subject of this post, should be opposed for several reasons.  These actions have the potential to deprive the defendant of important information about the government’s case.  Second, they undermine the public’s interest in transparent operation of our government.  And third, they undermine the public’s interest in access to the court system.  Of its varied justifications, only the government’s privilege claims may potentially hold water.  Even then, defendants should force the government to do what any civil litigant must—establish its claims of privilege with facts and authority.

The Deliberative Process and Investigatory Privileges

The Deliberative Process Privilege

One rationale offered by the government is that sealed information should be protected by the deliberative process privilege.  This privilege applies to advisory opinions, recommendations, and deliberations which represent the foundation of government decisions and policy-making.  Department of the Interior v. Klamath Water Users Protective Ass’n, 532 U.S. 1, 8 (2001).  The privilege rests on the “obvious realization that officials will not communicate candidly among themselves if each remark is a potential item of discovery and front-page news, and its object is to enhance the quality of agency decisions by protecting open and frank discussion among those who make them within the government.”  Id. at 8-9; Environmental Prot. Agency v. Mink, 410 U.S. 73, 87-88 (1973) superseded by statute, Freedom of Information Act, 5 U.S.C. § 552, as recognized in Central Intelligence Agency v. Sims, 471 U.S. 159 (1985).  One court has stated that the purpose of the privilege is to allow agencies freely to explore possibilities, engage in internal debates, or play devil’s advocate without fear of public scrutiny.  Carter v. United States Dept. of Commerce, 307 F.3d 1084, 1089 (9th Cir. 2002). 

To qualify for the privilege, the document must be both (1) “predecisional,” meaning that it precedes the adoption of agency policy, and (2) “deliberative” or related to the policy-making process.  Texaco P.R. Inc. v. Department of Consumer Affairs, 60 F.3d 867, 884 (1st Cir. 1995).  A document may be “predecisional” if it is intended to assist agency decision-makers in carrying out those duties.  Formaldehyde Inst. v. Department of Health and Human Services, 889 F.2d 1118, 1122 (D.C. Cir. 1989).  An agency can support its claim if it can pinpoint the specific decision to which the document relates, establish that its author prepared the document for the purpose of assisting agency decision-making, and verify that the document precedes the decision to which it relates.  The foregoing requirements have been summarized as follows: a document is “predecisional” if it precedes the actual agency decision and it is “deliberative” if it is a statement of opinion regarding final policy rather than a description of the ultimate policy itself.  See United States ex rel. Williams v. Renal Care Group, Inc., 696 F.3d 518, 527 (6th Cir. 2012). 

The Investigatory Privilege

Another privilege invoked to forestall disclosure of sealed filings is the investigatory privilege, “a judge-fashioned evidentiary privilege.”  Dellwood Farms, Inc. v. Cargill, Inc., 128 F.3d 1122, 1124 (7th Cir. 1997).  The privilege protects against the release of information that would harm a government’s civil or criminal investigative efforts.  In re Sealed Case, 856 F.2d 268, 272 (D.C. Cir. 1988).  To sustain the privilege, the head of the department having control over the requested information must formally assert the privilege, the assertion must be based on the “actual personal consideration” of that official, and the claim must identify specifically the information subject to the privilege along with the reason it falls within the privilege’s scope.  Id. at 271. These requirements ensure that the privilege will be asserted in a deliberate, considered, and reasonably specific manner.  Id.

The privilege is not absolute, however, and can be overcome by a showing of need.  Dellwood Farms, 128 F.2d at 1125.  What’s more, this privilege, like any other, “can be waived and, once waived, is lost.”  Id. at 1126.  Waiver arises not only by voluntary disclosure, but also by way of forfeiture, where, for example, the government selectively discloses certain information leading to a broader finding of waiver.  Id. at 1127.  In the end, the court must balance the government’s interest in confidentiality against the individual litigant’s interest in access to the information.  United States ex rel. Health Outcomes Technologies v. Hallmark Health System, Inc., 349 F. Supp. 2d 170, 174 (D. Mass. 2004).  Several factors bear on that balancing test, including (1) the extent to which disclosure will discourage citizens from providing information to government, (2) the impact disclosure of identities may have on the interests of informants, and (3) the extent to which disclosure will chill government self-evaluation.  In re Sealed Case, 856 F.2d at 272.

The government’s invocation of these narrow privileges is frequently too broad.  Yet, in this instance, as with any claim of privilege, the burden falls upon the party asserting it to establish the claim with evidence and authority.  The starting point should be the production of a log identifying the particular documents, the applicable privilege, and further information establishing the elements of the privilege in sufficient detail to permit the defendant to make an independent assessment of the assertion’s validity.  Thereafter, if a dispute remains, the matter should be submitted to the court for resolution.

A Word About Attorney Work Product Claims

Apart from the foregoing privileges, the government often invokes the work product doctrine in an effort to maintain the seal on records it has filed with the court.  Some courts have held that work product is inapplicable in this instance, since this is not about discovery.  See Health Outcomes, 349 F. Supp. 2d at 174 (work product inapplicable in opposing motion to unseal, because motion was not aimed at discovery).  As set forth in Rule 26(b)(3) of the Federal Rules of Civil Procedure, the work product protection prevents party discovery of information gathered or prepared in anticipation of litigation.  Materials filed under seal by the government do not represent trial preparation materials prepared by a party that a party-opponent is seeking to discover.  See, e.g., United States ex rel. Goodstein v. Mclaren Regional Medical Ctr., No. 97-cv-72992, 2001 WL 34091259 at *3 (E. D. Mich. Jan. 24, 2001) (“[The] work product doctrine is inapplicable here, as a discovery request is not at issue.  Rather, the Defendants are simply requesting ‘access to materials filed with the Court in a normally public record.’”). 

The distinction is not merely one of form, but of substance.  The concept of work product arose in the context of civil litigation with one party seeking the fruits of a party-opponent’s trial preparation labors, including information reflecting litigation strategies and plans, so-called mental impressions, and so forth.  See Hickman v. Taylor, 329 U.S. 495 (1947).  These materials should be shielded from discovery, except upon a showing of need, that the information sought cannot reasonably be obtained elsewhere and is essential to the requesting party’s trial preparation.  A motion aimed at unsealing records on a court’s docket that were sealed at the request of the government is different.  The filing of documents with a court in this instance is not part of the discovery process, but something typically intended to satisfy a statutory requirement.  The request to unseal is about access to materials already produced by the government, but only to the court.  This is by definition not discovery, and the rules governing discovery, including the work product doctrine, should not come into play. 

Additional Government Arguments for Maintaining the Seal

The False Claims Act Commands It

The government may argue that the FCA commands that all filings will remain sealed except the complaint.  See, e.g., Plaintiff’s Response in Opposition to Defendants’ Motion to Amend Seal Orders at 4-5, United States v. Education Management Corp., ECF No. 283 (“Congress clearly considered whether the seal could harm defendants’ interests by keeping from them necessary information, and drafted the FCA to exclusively provide for the complaint to be served on defendants. The detailed legislative balancing that is evident in the FCA’s seal provisions should not be lightly set aside.”)  The complaint, the government argues, is the only document the statute specifically requires to be unsealed and served upon the defendant when the court so orders.  See 31 U.S.C. § 3730(b)(2).  In addition, the statute specifically provides for the “in camera” filing of “affidavits or other submissions” in support of requests for extension of the 60-day statutory seal period.  Thus, the argument goes, the (silent?) command of the False Claims Act is that any paper that is to be sealed and is not specifically required to be unsealed, should remain permanently sealed. 

This argument lacks logic and ascribes a purpose to the law neither stated nor fairly implied by the statutory text.  While it is true that the False Claims Act requires sealing of qui tam complaints upon filing, the law doesn’t require any other document to be sealed.  As for affidavits or other submissions related to motions to extend the sealing of the complaint, the statute states that “such motions may be supported by affidavits or other submissions in camera.”  31 U.S.C. § 3730(b)((3) (emphasis added).   The filing under seal of such documents, by law, is therefore optional.  That the statute is silent on the matter of unsealing documents other than the complaint does not mean, ipso facto, that such documents must never be seen by defendants or their counsel.  Since the statute provides no clear guidance one way or the other, the court must be guided by common-law rules and procedures in determining whether to maintain or lift the seal on other filings by the government.

To Promote Candor with the Court

The government has argued that the continued sealing of docket entries, including motions for extension and supporting papers, promotes candor with the court.  Conversely, if the court were to unseal these filings, it would in effect penalize the government for its candor.  In other words, the sealing of documents other than the complaint is necessary to encourage prosecutors to be open and forthcoming in their arguments to the court without fear that these arguments, documents, and information will be shared with the object of the complaint. 

On its face, the argument is dubious for more than one reason.  To begin with, in every jurisdiction in this country, attorneys, even those employed by the government, are considered officers of the court and thus owe the court a duty of candor.  Rule 3.3 of the American Bar Association Model Rules of Professional Conduct sets forth the attorney-advocate’s obligations in dealings with the court, mandating honesty in communication.  Even more pertinent and notable, the rule imposes special duties in the event of ex parte proceedings: “In an ex parte proceeding, a lawyer shall inform the tribunal of all material facts known to the lawyer that will enable the tribunal to make an informed decision, whether or not the facts are adverse.”  ABA Model Rules of Professional Conduct, R. 3.3(d).  The comments to the Rule expand on this duty:

Ordinarily, an advocate has the limited responsibility of presenting one side of the matters that a tribunal should consider in reaching a decision; the conflicting position is expected to be presented by the opposing party. However, in any ex parte proceeding, such as an application for a temporary restraining order, there is no balance of presentation by opposing advocates. The object of an ex parte proceeding is nevertheless to yield a substantially just result. The judge has an affirmative responsibility to accord the absent party just consideration. The lawyer for the represented party has the correlative duty to make disclosures of material facts known to the lawyer and that the lawyer reasonably believes are necessary to an informed decision.

ABA Model Rule 3.3, Comments (emphasis added).  In light of the independent duty of candor owed the court, the notion that the seal is necessary to promote candor rings hollow.  The Rule does not provide the government with the special option of withholding information on the possibility that it could be made known to the defendant.  The government’s lawyers should not receive a special incentive or reward for merely fulfilling their ethical obligations.  

Even apart from professional responsibilities owed to the courts by their officers, the False Claims Act imposes on the government in the particular instance of a request for extension of the seal period a duty to establish “good cause.”  See 31 U.S.C. §3730(b)(3).  The government needs no more independent rationale to disclose all material facts in support of requests to extend the seal period in light of this requirement.  Importantly, the statute lacks a corresponding mandate to maintain the seal on papers supporting a good cause showing.  It is, as noted, silent on the matter. 

The Information under Seal is Not Relevant

The government may also argue that the seal should remain in place because the documents do not concern the substantive issues in the case.  They reflect at most investigative techniques and deliberative processes, which must remain hidden from defendants’ and the public’s view.  The government’s typically conclusory argument is that a defendant need look no further than the complaint to understand the claims and supporting facts.  Alternatively, any information contained in the sealed government filings would likely be duplicative of any information obtained in discovery of the affected agency. 

Simply because documents from the involved agency may be separately discoverable is no reason to maintain the same documents under seal.  In fact, that the documents are otherwise discoverable would seem to undermine the government’s argument against unsealing.  And no defendant should be required to take the government at its word that documents under seal are not relevant to the issues in the case.  The argument, again, seems to allude to rules of discovery, (even though the scope of discovery is not limited by relevance).  As noted supra, unsealing of sealed documents in this instance is not governed by Rule 26. 


The concerns of defendants rightly grow with the length of time a qui tam complaint remains under seal.  Longer typically means more sealed filings, more information conveyed to the court that should be shared with the defendant once the government has made its intervention decision.  Given that many qui tam cases can remain under seal for years (despite the statutory limit of 60 days), the total number of sealed proceedings can be significant.  See, e.g., United States ex rel. Yannacopolos v. General Dynamics, 457 F. Supp. 2d 854, 857 (N. D. Ill. 2006) (qui tam complaint remained under seal for 7 years; court unsealed 11 ex parte motions to extend the seal period over the government’s objection).  In Yannacopolos, for example, among other reasons, the defendant sought the sealed materials because they might support a statute of limitations defense. 

As noted above, the government’s policy on sealing court records in False Claims Act cases raises several concerns, not the least of which is that it conflicts with the public’s interest in an open judicial process: “In considering the appropriateness of sealing court records, the Seventh Circuit has given great weight to the strong public interest in disclosure. Concealing judicial records ‘disserves the values protected by the free-speech and free-press clauses of the First Amendment … [and prevents] the public [from] monitor[ing] judicial performance adequately.’” Id. at 858 (citations omitted). 

Consistent with the Seventh Circuit’s approach, courts should presume that ex parte filings will be unsealed once the government announces its decision on intervention.  The sealing of records on the docket, concealing them from defense counsel, should be an option of last resort for the court.  Before this, if unsealing to provide public access is not appropriate, the court should consider unsealing for the benefit of defendant and defense counsel.  If the information is of the sort that should not be shared with the defendant, then review can be limited to defense counsel only, as is often done in the case of trade secret information.  Finally, redactions may be appropriate, but in that event the redacted documents should be accompanied by a privilege log that allows defendants to assess the propriety of the redactions. 

Lastly, a legislative proposal may be in order here.  Congress could consider an amendment requiring the unsealing of all matters preceding the government’s election decision, except those where the government establishes that the information is subject to a claim of privilege or other showing that disclosure would be contrary to the public interest.  This would in essence represent a codification of the common law, but it would eliminate any question about whether the drafters of the False Claims Act intended that ex parte proceedings should be concealed indefinitely from the public and the defendant. 

The post To Seal or Not to Seal—The Government’s Abuse of the Sealing Prerogative in False Claims Act <em>Qui Tam</em> Cases appeared first on Washington Legal Foundation.

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Cordoba v. DIRECTV, LLC: When Class-Member Standing Matters for Class Certification

WLF Legal Pulse - Mon, 12/02/2019 - 9:00am

By Frank Cruz-Alvarez, a Partner in the Miami, FL office of Shook, Hardy & Bacon L.L.P., with Melissa Madsen, Of Counsel to Shook, Hardy & Bacon L.L.P. in its Miami, FL office. Mr. Cruz-Alvarez is the WLF Legal Pulse’s Featured Expert Contributor on Civil Justice/Class Actions.

In a recent decision vacating a class certification in an action against DIRECTV, the Eleventh Circuit explained that the issue of class-member standing may, in some instances, “be exceedingly relevant to the class certification analysis required by Federal Rule of Civil Procedure 23.” Cordoba v. DIRECTV, LLC, No. 18-12077 (Nov. 15, 2019 11th Cir. Ct.).  In Cordoba, the Eleventh Circuit concluded that the District Court for the Northern District of Georgia abused its discretion when it certified a class under Rule 23(b)(3) without first considering “the standing problem that arguably affected the bulk of the unnamed members of the class it had drawn.”  The Eleventh Circuit remanded the case back to the district court to determine whether “common issues predominate” under Rule 23(b)(3), when it appears that a large portion of the class does not have standing.

Sebastian Cordoba sued DIRECTV and the company it used for telemarketing services, Telecel Marketing Solutions, Inc., for violating the Telephone Consumer Protection Act (TCPA), 47 U.S.C. § 227—a federal statute that limits telemarketing calls and “grants individuals who unlawfully receive calls permission to sue.”  Among other consumer protection measures, the TCPA authorizes the Federal Communications Commission to promulgate regulations creating a national “do-not-call list” and requiring individual telemarketers to maintain their own “do-not-call lists” based on consumer requests not to receive telemarketing calls.  Cordoba alleged that despite his repeated demands that he not be contacted, DIRECTV and Telecel failed to maintain their internal do-not-call lists and continued to call him.

The U.S. District Court for the Northern District of Georgia certified two classes that Cordoba sought to represent: The first class was defined as “all individuals who received more than one telemarketing call from Telecel on behalf of DIRECTV on or after October 27, 2011.”  The second class included “all individuals whose telephone numbers were on the National Do Not Call Registry” but still received the marketing calls.

After the District Court certified both classes, DIRECTV sought an interlocutory appeal, challenging only the first class certification.  The sole question addressed by the Eleventh Circuit was whether a recipient of a telemarketing call who did not request to be placed on the caller’s internal do-not-call (DNC) list “has standing under Article III to maintain a claim that the caller failed to institute appropriate internal DNC list procedures.”  Recall that in order to have Article III standing, a plaintiff must allege an “injury in fact” that is “concrete and particularized” and “actual or imminent,” that must be “fairly traceable to the challenged action of the defendant” and must likely “be redressed by a favorable decision.”  The Eleventh Circuit concluded that this category of call recipient did not, in fact, have standing.

First, the Eleventh Circuit held that Cordoba and all of the absent class members who received more than one unwanted call from Telecel sufficiently satisfy the “injury in fact” prong of Article III standing.  After all, the court noted, “a phone call intrudes upon the seclusion of the home, fully occupies the recipient’s device for a period of time, and demands the recipient’s immediate attention.”

Notwithstanding that analysis, the court held that this category of absent class members—recipients who did not request to be placed on a telemarketer’s internal DNC list—cannot meet the traceability requirement of Article III standing.  These call recipients cannot show a causal connection between their injury and the challenged action of DIRECTV and Telecel.  As the court explained, “if an individual not on the National Do Not Call Registry was called by Telecel and never asked Telecel not to call them again, it doesn’t make any difference that Telecel hadn’t maintained an internal do-not-call list.”  Because even if Telecel had carefully followed the regulations, it would have continued to call these individuals.  Since “there’s no remotely plausible causal chain linking the failure to maintain an internal do-not-call list to the phone calls received by class members who never said to Telecel they didn’t want to be called again,” those plaintiffs lack Article III standing to sue.

The Eleventh Circuit then went on to explain that for a class action to be justiciable under Article III of the U.S. Constitution, all that is required is that a named plaintiff have standing.  Cordoba, the named plaintiff in this action, meets that minimum requirement for a justiciable claim.  Federal Rule of Civil Procedure 23(b)(3), however, requires the court in certifying the class to find that “the questions of law or fact common to class members predominate over any questions affecting only individual members.” Here, the Eleventh Circuit concluded, the unnamed class members’ standing “poses a powerful problem under Rule 23(b)(3)’s predominance factor.”

The Eleventh Circuit concluded that the district court failed to consider an individualized issue that may predominate over common issues: namely, that “at some time in the course of the litigation the district court will have to determine whether each of the absent class members has standing before they could be granted any relief.”  Because each individual plaintiff will have to show his or her injury is traceable to Telecel’s violation of the law, he or she will have to show that they communicated to Telecel that they did not wish to be called.  The Eleventh Circuit pointed out that the district court would be in a better position to determine (1) how many class members actually asked Telecel not to contact them and (2) how the class members intend to prove that they made such a request.  If few class members actually made these requests, or if it would be difficult to identify those who did, “then the class would be overbroad and these individualized determinations might overwhelm issues common to the class.”

The Eleventh Circuit’s decision does not require plaintiffs in a class action to now prove that every member of a proposed class has standing prior to certification.  But it does expressly highlight that “there is a meaningful difference between a class with a few members who might not have suffered an injury traceable to the defendants and a class with potentially many more, even a majority, who do not have Article III standing.”

Accordingly, going forward, targets of proposed class actions, will want to take a close look at the “standing” of proposed class members during the certification stage to determine if there is a viable argument to defeat certification based on the lack of standing of large portions of the proposed class.  In the end, this decision is another tool for counsel defending against proposed class actions—but one that can have significant ramifications.

The post <em>Cordoba v. DIRECTV, LLC</em>: When Class-Member Standing Matters for Class Certification appeared first on Washington Legal Foundation.

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Fourth Circuit Limits DOJ’s Use of Filter Teams for Review of Potentially Privileged Documents

WLF Legal Pulse - Mon, 11/25/2019 - 11:03am

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.

In a much-anticipated decision, the U.S. Court of Appeals for the  Fourth Circuit recently reversed a district court’s refusal to enjoin a U.S. Department of Justice filter team’s review of materials seized from a law firm during a criminal investigation.  A unanimous three-judge panel ruled that the use of a magistrate judge-approved filter team was improper for several reasons, including that the creation of the filter team “inappropriately assigned judicial functions to the executive branch.”  This ruling has the potential to upend longstanding and well-established processes routinely utilized, with judicial approval, by DOJ to allow for the expeditious review of seized records that are likely to include attorney-client communications and attorney work-product.

This dispute arose out of an IRS criminal investigation in which the target’s law firm came under suspicion of assisting the target in breaking the law.  This led to an investigation of the law firm, which eventually led to a government application for a warrant to search the law firm’s office.  The presiding magistrate judge found requisite probable cause for the search and, at the same time the warrant was issued, the judge also authorized a filter team protocol proposed by DOJ.  As always, the filter-team process would enable a review of the seized documents for potentially privileged or work product documents performed by a team that did not include anyone involved in the underlying investigation.  

The specific filter protocol approved by the magistrate judge in this case provided that the filter team should review the seized records, identify and set aside any privileged and potentially privileged materials, and forward all other records to the investigative/prosecutive team. The team was to then evaluate the records identified as privileged or potentially privileged for responsiveness, and then discuss with the law firm whether those documents could be forwarded to the investigative/prosecutive team or be submitted to the court for decision.  The protocol also authorized the filter team to contact other clients of the law firm whose records were seized in order to request privilege waivers. As noted above, DOJ proposed this protocol, which the magistrate judge adopted contemporaneous with the issuance of the warrant on an ex parte basis.

The subject search resulted in the seizure of all of the law firm’s email correspondence, including emails relating to the target of the investigation, and emails relating to numerous other clients, some of whom DOJ was also investigating or prosecuting for unrelated crimes.  Following the seizure of the records, the law firm sought an injunction from a district court to secure the return of the records so as to allow them to do their own privilege review before the government could review the records.  The district court denied this request, explaining that the protocol provided that the filter team would be operating under the court’s direction, and could be neutral.  The district court further observed that “absent a finding that there has been some breach of [their] ethical responsibilities and duties in this case, which rarely occurs,” the filter protocol was not inappropriate. The court also noted that there was no “per se rule that law firms are to be treated so differently that neutral examiners must be appointed in every case.”  The law firm appealed, and the Fourth Circuit reversed.

The Fourth Circuit’s opinion quickly cut to what the judges considered to be the core issue, deciding that the filter team’s unilateral discretion to decide what records were privileged and what records were not meant that the protocol was not fair.  The court explained that the magistrate judge erred by failing to consider that fewer than 1% of the seized records were actually responsive to the warrant and that, as a result, the filter team would be receiving emails concerning other ongoing federal investigations of other related clients.  Thus, while the filter team did not include any personnel who were involved in the underlying investigation, because that was not necessarily true for the other investigations of which the other clients might be targets, the protocol was flawed.  The court further decided that the magistrate judge should have conducted an adversarial, i.e. not an ex parte, hearing on the filter team protocol issue.

While this case arguably presented some unique factors that particularly troubled this panel, the decision is nevertheless likely to have broader implications.  One likely result is that magistrate judges may agree to specific filter team protocols only after a search has been conducted and before any government review, and only after conducting a hearing that includes counsel for the target of the search. While such an approach will slow down the government’s review process, it would not create any significant additional burdens for the court. 

However, others predict that the impact of this decision could go so far as to cause the elimination of filter teams altogether, giving way to a judicial review process for every search that potentially includes privileged materials. This approach would mark a significant change in the way filter teams have always worked, and would impose a burden on the judiciary that would not only significantly slow the review process, but also increase the costs of the process with no clear concomitant increase in the protection of the search target’s rights. 

Finally, some have even suggested that this decision could make judges, prosecutors, and agents so uneasy about the potential complications associated with searches of attorneys’ offices that such warrants will only be rarely sought or issued, even when based on clear probable cause. All of this could have the effect of significantly chilling DOJ’s enthusiasm for pursuing some types of white-collar investigations.

The post Fourth Circuit Limits DOJ’s Use of Filter Teams for Review of Potentially Privileged Documents appeared first on Washington Legal Foundation.

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Federal Court Reminds Defendants that Dismissal for Lack of Standing Can Be a Pyrrhic Victory

WLF Legal Pulse - Fri, 11/22/2019 - 11:44am

Pyrrhus and his Elephants

A plaintiff’s lack of standing to sue is about as close to a silver-bullet defense as civil-litigation defendants have at their disposal in federal court. The doctrine is based in Article III of the U.S. Constitution, which limits federal courts to hearing only “cases and controversies.” The doctrine puts the onus on a plaintiff to prove, among other factors, that she suffered an actual harm, and if she can’t, the court has no jurisdiction over the case. Because standing is a jurisdictional question, defendants can raise it at any point in the litigation. And as the Petitioner in the Supreme Court case Frank v Gaos learned in October Term 2018, courts can raise it sua sponte as well. 

There are also times, however, when a business defendant would prefer to be in federal court. When facing claims in a plaintiff-friendly state court, for instance, business defendants often seek the lawsuit’s removal to federal court. But what happens when a defendant in a successfully removed case successfully argues that the plaintiff lacks standing to sue? The result, as an October 18 district court ruling in Pitre v. Wal-Mart Stores, Inc. illustrates, will almost certainly be a Pyrrhic victory.

Yet Another FCRA Class Action

Claiming to represent over 6.5 million similarly harmed individuals,  three named plaintiffs applied for and obtained jobs at Wal-Mart. In a suit filed in Orange County Superior Court, they allege that when Wal-Mart violated the Fair Credit Reporting Act (FCRA) when it procured consumer reports on employment applicants.  Wal-Mart successfully sought to remove  the case to the U.S. District Court for the Central District of California. The federal court subsequently granted the plaintiffs’ motion to certify their class. Wal-Mart moved for summary judgment.

A Win on Standing 

The court first examined Wal-Mart’s argument that the plaintiffs lacked standing to sue because they lacked a real-world injury. It quickly dispensed with the plaintiffs’ claim that Wal-Mart, before procuring their  consumer report, failed to give the plaintiffs a written summary of their rights. But the FCRA requires a written summary for only an investigative consumer report. Because the FCRA doesn’t require a prospective employer to give a written summary to an applicant when obtaining a generic consumer report, the plaintiffs could not establish standing.

The court then assessed the plaintiffs’ standing to allege that extraneous information contained in Wal-Mart’s disclosure notices  rendered them not “clear and conspicuous” as the FCRA requires. The court explained that even if Wal-Mart didn’t provide perfectly compliant disclosures, a mere procedural defect doesn’t constitute a harm under Article III.  The U.S. Supreme Court established this principle in Spokeo, Inc. v. Robins, a case in which the plaintiff alleged FCRA violations. The plaintiffs in Pitre thus had to prove they suffered a concrete injury or faced an imminent risk of harm.

Depositions of the Pitre plaintiffs revealed that each plaintiff was aware that Wal-Mart “might conduct a background check . . . and did not object thereto.” Each plaintiff understood background checks were a necessary part of the application process, and each testified that they wanted to work for Wal-Mart. Because none of the plaintiffs were unaware of the background checks and each of them got what they wanted—a job offer—the court concluded that Pitre and his fellow plaintiffs suffered no actual or imminent harm.

A Loss on Remand

The court then had to decide the fate of the plaintiffs’ suit. Wal-Mart asked the court to enter judgment in the company’s favor. Pitre argued that the court must remand the case to Orange County Superior Court. The court concluded Pitre must be remanded back to state court.

Under federal statutory and case law, when a federal court ultimately concludes that it lacks jurisdiction over claims remanded from state to federal court, that court must send the claims back to state court. The Pitre court also noted that it could not grant Wal-Mart’s request because the plaintiffs’ lack of standing deprived the court of its authority to enter judgment.

State courts can exercise concurrent jurisdiction over federal statutory claims, and because state courts are not bound by Article III doctrine, the court explained, remand in this case would not be “futile” as Wal-Mart had argued. “The nature of our federalist system,” the court reasoned, dictates that a California court, applying state jurisdictional principles, should have the opportunity to determine the plaintiffs’ standing to sue.

What’s a Defendant to Do?

For most defendants, dismissal of a class action for lack of standing would be a resounding victory. But for Wal-Mart in Pitre, that outcome thrust them back into Orange County. The California constitution doesn’t feature a “case or controversy” requirement for court jurisdiction, so the Superior Court will likely find that the plaintiffs have standing to sue Wal-Mart.

Decisions like Pitre leave defendants in quite a bind. The U.S. Supreme Court held in 1981 that “absent provision by Congress to the contrary” states have concurrent jurisdiction to enforce federal statutes. That principle sets an extremely high bar for defendants trying to stop a lawsuit to enforce a federal statute from returning to state court. Some federal laws, like the FCRA, even explicitly authorize state-court jurisdiction.

Rather than risk a ruling on jurisdiction, perhaps defendants in a Pitre-like bind could simply ignore standing and ask the court to dismiss on other grounds, such as a plaintiff’s failure to prove their case. But as we explain above, judges at any point in civil litigation can question whether a plaintiff has standing to sue. Federal district court judges, especially those in class-action-heavy jurisdictions, actively look for ways to thin their dockets, and asking a plaintiff to demonstrate standing is certainly one of the most effective methods.

State-court defendants should also analyze that particular state’s standing doctrine before seeking removal to federal court. As noted in a recent Washington Legal Foundation paper, Wal-Mart successfully challenged a plaintiff’s standing to bring claims under the FCRA in Missouri state court because Missouri’s constitution has an analogue to Article III. On the other hand, an Illinois state court rejected FedEx’s motion to dismiss a suit under the federal Fair and Accurate Credit Transactions Act for lack of standing. The court reasoned that “Illinois courts are not required to follow federal law on issues of justiciability and standing.”

If a defendant concludes that it has as much of a chance to win on standing grounds in state court as it has in federal court, the economical choice could be to remain in state court. That choice, ironically, may also be the most financially prudent one when, upon removal to federal court, a standing challenge represents the defendant’s best chance of dismissal. If your path to victory is a Pyrrhic circle, perhaps the best strategy is to stand still. 

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

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Innovations in the School to Small Business Pipeline

House Small Business Committee News - Fri, 11/22/2019 - 11:00am

The Committee on Small Business Subcommittee on Innovation and Workforce Development will hold a hearing titled, “Innovations in the School to Small Business Pipeline.” The hearing is scheduled to begin at 11:00 A.M. (MST) on Friday, November 22, 2019 at Cherry Creek Innovation Campus, 8000 S Chambers Road, Centennial, CO 80112.

Small businesses remain in need of employees, particularly in highly skilled positions. While traditional academic institutions play an important role in helping to fill the workforce development gap, they often do not provide adequate job training outside the classroom. To fill the gap, Colorado is embracing new and innovative approaches towards educating young people and creating a school-to-business pipeline. This hearing will explore how schools are changing their priorities to supply a much needed workforce and what policies can help promote these efforts.

Hearing Notice 

Hearing Memo 

Witness List 

Ms. Sarah LC Grobbel
Assistant Superintendent, Career & Innovation
Cherry Creek Schools
Greenwood Village, CO

Mr. Noel Ginsburg
Founder & CEO
CareerWise Colorado
Denver, CO

Mr. Matthew Kaplan
Vice President, Business Development and Membership
Outdoor Industry Association
Boulder, CO

*Witness testimony will be posted within 24 hours after the hearing’s occurrence


WLF Urges First Circuit to Read FAA § 1 Exemption in Line with Statutory Text and Context

WLF Legal Pulse - Wed, 11/20/2019 - 12:34pm

“The text and context of FAA § 1 establish that it covers only workers who transport goods in bulk across borders.”
—Corbin K. Barthold, WLF Senior Litigation Counsel

Click here for WLF’s brief.

(Washington, DC)—Washington Legal Foundation today filed an amicus curiae brief urging the First Circuit to read section 1 of the Federal Arbitration Act, known as the “transportation worker exemption,” in line with its text and context.

The FAA establishes a federal policy favoring arbitration. It requires, in section 2, that most people comply with their arbitration agreements. It contains a discrete exception, in section 1, for “seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” The district court ruled that a driver who delivered packages locally for Amazon fits within this exemption.

In its brief, WLF explains that section 1 is not the product of a legislative intent to excuse a few transportation workers—and, for some peculiar reason, them alone—from honoring arbitration agreements. Section 1 exists, rather, because Congress expected shipping-industry workers to engage in arbitration governed by other federal laws. And because section 1 fulfills this one focused purpose, there is no principled way to stretch its application. Although some judge-made tests purport to expand the exception beyond national and international transportation of goods, these contrived standards defy statutory text and context, produce inconsistent results, and serve no end set forth by Congress.

Because the plaintiff in this case made only local deliveries intrastate, he falls outside the section 1 exemption. The district court’s contrary ruling should therefore be reversed.

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 First Circuit to Read FAA § 1 Exemption in Line with Statutory Text and Context appeared first on Washington Legal Foundation.

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<p>The Committee on Small Business will

House Small Business Committee News - Wed, 11/20/2019 - 11:30am

The Committee on Small Business will hold a markup of legislation to amend the Small Business Act. The markup will be held at 11:30 A.M. on Wednesday, November 20, 2019, in Room 2360 of the Rayburn House Office Building. The items that will be marked up include:

Markup Notice

H.R. 5078, “Prison to Proprietorship Act”

H.R. 5065, “Prison to Proprietorship for Formerly Incarcerated Act”

H.R. XXXX, “Capturing All Small Businesses Act of 2019”

H.R. XXXX, “Unlocking Opportunities for Small Businesses Act of 2019”

WLF Urges Supreme Court to Uphold Dismissal of Uninjured Pension-Plan Participants’ Claims

WLF Legal Pulse - Tue, 11/19/2019 - 3:57pm

“Plaintiffs are not permitted to seek relief in a federal court unless they have been injured by the defendant’s alleged misconduct. Here, the plaintiffs object to the way the defendants invested pension-plan assets, but they have not shown that the defendants’ conduct caused them any harm.”
—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 affirm an appeals court’s dismissal of claims filed against administrators of a pension plan by two participants in the plan. The plaintiffs argued that the administrators acted imprudently by investing all of the pension plan’s assets in common stock, with the result that the value of plan assets decreased 27% in 2008 following the stock-market crash that year. WLF argues that the plaintiffs lack standing to sue under the Employee Retirement Income Security Act (ERISA) because they were uninjured by the alleged misconduct—their receipt of future pension benefits was never at risk.

The case involves U.S. Bank’s employee pension plan, which has more than 100,000 participants. The plan is a “defined-benefit plan,” which means that employees, upon retirement, are entitled to fixed periodic payments for the remainders of their lives. The employer bears the entire risk that plan assets may prove inadequate to cover all promised payments; it must pay into the plan the funds needed to cover any shortfall arising from an inadequate return on invested funds. If, on the other hand, a plan becomes overfunded, the employer need not make any contributions that year. Following the 2008 stock-market crash, the U.S. Bank plan was deemed somewhat “underfunded” (as measured by ERISA), and U.S. Bank made significant contributions to the plan for the next five years until the plan was once again overfunded.

WLF argues that the plaintiffs lack standing to invoke the jurisdiction of the federal courts because they were not injured by the defendants’ allegedly imprudent investment strategy. WLF notes that the plaintiffs have no ownership interest in the plan’s assets; their only interest is in receipt of their fixed pension benefits. In the absence of evidence that the alleged misconduct created any risk of nonpayment (particularly given U.S. Bank’s $87 billion in liquid assets that were available as a back-up if the plan’s assets ever proved inadequate), the plaintiffs failed to show the injury-in-fact necessary for federal-court standing.

Celebrating its 42nd 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 Supreme Court to Uphold Dismissal of Uninjured Pension-Plan Participants’ Claims appeared first on Washington Legal Foundation.

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WLF Asks DC Circuit to Uphold Block on List-Price-Disclosure Mandate for Drug Makers’ TV Ads

WLF Legal Pulse - Tue, 11/19/2019 - 10:46am

“Not only does HHS lack the statutory authority to compel drug makers to display irrelevant and misleading list prices for drugs in their television ads, but doing so would run roughshod over manufacturers’ well-established First Amendment right not to speak.”
—Cory Andrews, WLF Vice President of Litigation

Click here for WLF’s brief.

WASHINGTON, DC—Washington Legal Foundation (WLF) today urged the U.S. Court of Appeals for the D.C. Circuit to affirm a decision blocking an agency rule that would allow the Secretary of Health and Human Services (HHS) to require drug makers to convey the wholesale acquisition cost, or “list price,” of any prescription drug advertised in direct-to-consumer (DTC) television ads. WLF was joined on its amicus curiae brief by the Allied Educational Foundation.

The DTC Rule is touted as part of the administration’s effort to reduce overall healthcare costs. But as WLF’s brief makes clear, no matter how well-meaning its intentions, HHS may exercise only the limited regulatory authority that Congress granted it by statute. Yet no statute authorizes the Centers for Medicare and Medicaid Services (CMS) to require disclosure of list prices in DTC television ads.

Its lack of statutory authority is not the only fatal flaw in the DTC Rule. The list-price-disclosure mandate would also violate drug makers’ First Amendment rights. The First Amendment protects a speaker’s choices about both what to say and what not to say. And by compelling drug makers to speak a particular message in their DTC ads, the proposed rule seeks to alter the content of their speech. Under Supreme Court precedent, HHS’s controversial DTC Rule violates the First Amendment because it misleads consumers about their likely out-of-pocket costs for prescription drugs.

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 DC Circuit to Uphold Block on List-Price-Disclosure Mandate for Drug Makers’ TV Ads appeared first on Washington Legal Foundation.

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Smart Construction: Increasing Opportunities for Small Businesses in Infrastructure

House Small Business Committee News - Tue, 11/19/2019 - 10:00am

The Committee on Small Business Subcommittee on Contracting and Infrastructure will hold a hearing titled, “Smart Construction: Increasing Opportunities for Small Businesses in Infrastructure.” The hearing is scheduled to begin at 10:00 A.M. on Tuesday, November 19, 2019 in Room 2360 of the Rayburn House Office Building.

Advanced construction technology like GPS enabled equipment, 3D digital design software like Building Information Modeling, and proptech enable construction companies, civil engineers, and developers to build infrastructure that is safer, energy efficient, and sustainable at lower costs. The hearing will explore advancements in smart construction technology and opportunities for small businesses to play a major role in improving America’s infrastructure.

To view a livestream of the hearing, please click here. 

Hearing Notice 

Hearing Memo 

Witness List 

Mr. Lennart Anderssen, RA
Director of Virtual Design, Construction & Operations (VDCO), LiRo Group
Professor, Pratt Institute
New York, NY
*Testifying  on  behalf  of  the  American  Society  of  Civil  Engineers  (ASCE),  the Construction Institute (CI), LiRo Group, and Pratt Institute

Mr. Ryan Forrestel
Cold Springs Construction
Akron, NY
*Testifying on behalf of the GPS Innovation Alliance

Mr. Bryn Fosburgh
Senior Vice President
Trimble, Inc.
Westminster, CO

Mr. Phillip Ogilby
CEO and Co-founder
STACK Construction Technologies
Cincinnati, OH

*Witness testimony will be posted within 24 hours after the hearing’s occurrence


WLF Urges Supreme Court to Correct Widespread Misreading of FTC Act Remedy Provision

WLF Legal Pulse - Mon, 11/18/2019 - 2:18pm

“The Supreme Court should direct the lower courts to reconnect their reading of the FTC Act to what the FTC Act actually says.”
—Corbin K. Barthold, WLF Senior Litigation Counsel

Click here for WLF’s brief. 

(Washington, DC)—Washington Legal Foundation today filed an amicus curiae brief urging the U.S. Supreme Court to correct a widespread misreading of an FTC Act remedy provision.

Section 13(b) of the FTC Act empowers the FTC to sue, in federal court, to obtain an injunction against deceptive trade practices. At least seven courts of appeals have said, however, that the word “injunction” in section 13(b) unlocks the entire vault of equitable remedies.

WLF’s brief urges the Supreme Court to review two Ninth Circuit decisions that affirm restitution awards meted out under section 13(b). WLF argues that the lower courts’ rewriting of section 13(b) resembles the English common-law courts’ use of the “equity of the statute,” a doctrine that empowered a judge to enforce his subjective sense of justice rather than a law’s text. The “equity of the statute” arose in the Late Middle Ages. It gradually died out, however, as judges came to realize that it is inconsistent with democratic governance.

In the mid-twentieth century the Supreme Court briefly adopted a new version of the equity of the statute to “imply” new rights and remedies into laws. The courts of appeals relied on that mid-twentieth century jurisprudence to justify stretching section 13(b). But as WLF explains in its brief, the Supreme Court later reversed course. It came to recognize that it is solely for Congress to decide how, and by whom, its statutes are enforced.

The Supreme Court should instruct the lower courts to align their interpretation of section 13(b) with the modern and binding rules of statutory interpretation.

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 Supreme Court to Correct Widespread Misreading of FTC Act Remedy Provision appeared first on Washington Legal Foundation.

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D.C. Circuit Fortifies Predominance Challenges in No-Injury Class Action Lawsuits

WLF Legal Pulse - Fri, 11/15/2019 - 8:30am

By Andrew J. Trask, Of Counsel with Shook, Hardy & Bacon L.L.P. in its San Francisco, CA office.

Following on the heels of the U.S. Court of Appeals for the First Circuit’s groundbreaking opinion in In re Asacol Antitrust Litigation, 907 F.3d 42 (1st Cir. 2018), the District of Columbia Circuit has also held that classes that contain definite numbers of non-injured members cannot be certified, because individual questions related to injury will predominate over common issues.

In re Rail Freight Fuel Surcharge Antitrust Litigation, 934 F.3d 619 (D.C. Cir. 2019), was part of a multi-district litigation in which the plaintiffs alleged that alleged that railway companies had engaged in a price-fixing conspiracy.  The alleged conspiracy concerned “fuel surcharges,” imposed above the base shipping price when the cost of fuel rises sufficiently high.

The putative class contained roughly 16,000 shippers.  At certification (in the U.S. District Court for the District of Columbia), the plaintiffs had sought to show common issues would predominate over individualized issues by hiring an economics expert to perform a regression analysis.  Id. at 621.  Regression analysis—for those of us who went to law school to avoid taking statistics—takes different variables (like supply, demand, weather) that contribute to a result (like a price), and measures the effect of each variable.  It is a common way to show relationships between causes and effects.  In this case, the plaintiff’s regression model, which sought to measure the effect of the alleged conspiracy, resulted in “negative damages” for 2,000 members (an eighth, or about 12.5%) of the proposed class.  “Negative damages” as a result meant that a large part of the class either were simply not damaged at all, or somehow made money on the challenged transactions.

The plaintiffs’ regression model had a checkered history: the plaintiffs had been using this model to seek certification of this class since 2012.  Originally, the defendants had challenged certification because the model had serious flaws, but the district court had certified a class anyway, finding the model was both “plausible” and “workable.” In re Rail Freight Fuel Surcharge Antitrust Litig., 287 F.R.D. 1, 43 (D.D.C. 2012).  The D.C. Circuit had vacated that certification on interlocutory review, because the model’s “propensity toward false positives” made it difficult to tell whether individual class members had actually been harmed.  In re Rail Freight Fuel Surcharge Antitrust Litig., 725 F.3d 244. 254 (D.C. Cir. 2013). Common questions, it reasoned, “cannot predominate where there exists no reliable means of proving classwide injury in fact.” Id. at 253.  As a result, Rule 23 requires a “hard look at the soundness of statistical models that purport to show predominance.” Id. at 255.

On remand from that first appeal, the district court ordered supplemental discovery.  In re Rail Freight Fuel Surcharge Antitrust Litigation,  934 F.3d at 621.  Then it denied certification, finding three flaws with the model: (1) it measured “highly inflated damages” for traffic with additional modes of travel (e.g., a train and a ship); (2) it erroneously measured damages for shipments under legacy contracts (a flaw the defendants had complained about since the first certification battle); and finally (3) it had measured “negative damages” for 2,000 class members.  In re Rail Freight Fuel Surcharge Antitrust Litig., 292 F. Supp. 3d 1,4, 122-41 (D.D.C. 2017).

This time, the plaintiffs filed interlocutory appeal under Rule 23(f).  But the existence of these uninjured class members placed the plaintiffs in a strategic bind.  In briefing the issue, they launched two lines of argument.  First, they attacked the credibility of their own damages model, arguing that the negative damages were a result of “normal prediction error.”  In re Rail Freight Fuel Surcharge Antitrust Litigation,  934 F.3d at 624.  They also argued that “predominance does not require common evidence extending to all class members.”  Id.

The D.C. Circuit took the case again.  Quoting Tyson Foods, Inc. v. Bouaphakeo, the panel identified an “individual question” as “one for which ‘members of a proposed class will need to present evidence that varies from member to member.’”  Id. at 622, quoting 136 S. Ct. 1036, 1045 (2016).  For the sake of argument, the panel assumed the damages model was sufficiently reliable—even though that was one of the most hotly contested issues at certification.  Id. at 623.  Then it noted that, even assuming the model was reliable, “that still leaves the plaintiffs with no common proof of those essential elements of liability for the remaining 12.7 percent” of the proposed class.  Id. at 624.

The panel did not find either of plaintiffs’ arguments persuasive.  It noted that the district court did not believe the model was flawed, and if it had, that would make the model too inaccurate to calculate classwide damages.  Id. 

The panel also rejected the plaintiffs’ argument that predominance does not need to reach all members of the proposed class as inconsistent with its prior ruling.  It held that “[u]ninjured class members cannot prevail on the merits, so their claims must be winnowed away as part of the liability determination.  And that prospect raises the —when does the need for individualized proof of injury and causation destroy predominance?”  Id.  It noted the district court’s observation that the “few reported opinions” tackling this question “suggest that 5% to 6% constitutes the outer limits of a de minimis number” of uninjured class members.  Id. at 625, quoting Rail Freight II, 292 F. Supp. 3d at 137.  That was a problem for certification, because “the 12.7 percent figure in this case is more than twice that approximate upper bound.”  Id.

Equally important, the plaintiffs had shown no way to separate that 12.7 percent from the 87.3 percent of allegedly injured class members.  “The absence of any winnowing mechanism sharply distinguishes Nexium, the plaintiffs’ best case.”  Id.  (In re Nexium Antitrust Litigation, 777 F. 3d 9 (1st Cir. 2015), was the case that the First Circuit distinguished when it held that a class with 10 percent uninjured members could not establish a predominance of common issues. See In re Asacol.)  Since the regression analysis establishing damages was “essential” to the plaintiffs’ case, this meant they were out of luck.  The panel affirmed the denial of certification.

This case, combined with the First Circuit’s In re Asacol, shows a burgeoning trend against significant no-injury cases.  Two circuit courts of appeal have now held that proposed classes with significant percentages of non-injured members cannot be certified under Rule 23(b)(3), because too many individual inquiries are required to separate the actually injured from the non-injured.  There is a countervailing trend, however.  Jurisdictions like the Ninth Circuit still allow no-injury cases by invoking different logic, pushing off the question of whether anyone has been injured as part of a “merits” determination they refuse to engage in.  Nguyen v. Nissan North America, Inc., 932 F. 3d 811 (9th Cir. 2019).  However, the clear logic of In re Asacol and now In re Rail Freight Surcharge provides practitioners with powerful tools to fight no-injury cases at the certification stage.  And, given the Supreme Court’s clear interest in the intersection between class certification and merits inquiries, it is likely we could see this issue resolved once and for all in the near future.

The post D.C. Circuit Fortifies Predominance Challenges in No-Injury Class Action Lawsuits appeared first on Washington Legal Foundation.

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