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Developments in Added-Sugar Food-and-Beverage Litigation: Cause for Hope, Cause for Concern

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

By Creighton Magid, a Partner with Dorsey & Whitney LLP in the firm’s Washington, DC office.

The plaintiffs’ bar continues to view foods and beverages containing added sugar as prime targets for litigation.  The majority of the lawsuits brought to date have been labeling claims, in which plaintiffs assert that they were duped into buying products portrayed on the label as “healthy” but that, in reality, were laden with “unhealthy” amounts of added sugar.  Some lawsuits have gone further, stealing a page from the tobacco litigation playbook and alleging a conspiracy to suppress evidence of the medical risks posed by excessive amounts of sugar and to elevate fat as the larger health risk.  Recent judicial decisions have been a mixed bag for defendants, offering reasons for both optimism and concern.  The recently proposed $20.25 million settlement of excessive-sugar claims targeting various Kellogg cereals and snack bars suggests that sugar litigation will continue to be attractive to the plaintiffs’ bar.

One of the most notable sugar-labeling cases is Krommenhock v. Post Foods, LLC, a putative class action venued in the U.S. District Court for the Northern District of California.  The Krommenhock plaintiffs allege that Post labels a variety of breakfast cereals with health-and-wellness statements that “suggest its cereals are healthy food choices”—statements such as “nutritious,” “good for you,” “rich in nutrients”—but that, in fact, the cereals contain (according to the complaint), large amounts of added sugar.  This sugar, plaintiffs contend, contributes to overall excess sugar consumption and a resulting increase in the risk of chronic disease.  Judge William Orrick largely denied Post’s motions to dismiss on two occasions.  He held that, with the exception of claims expressly permitted by federal law, whether “overconsumption of cereals with excessive added sugar is unhealthy” or “whether [Post’s] health and wellness statements are false or misleading” are “questions that cannot be resolved at motion to dismiss stage, but may be resolved under a more stringent and evidentiary-based review at summary judgment.”  Krommenhock v. Post Foods, LLC, 2018 U.S. Dist. LEXIS 42938, *11 (N.D. Cal. Mar. 15, 2018).  Post has since taken Judge Orrick up on the suggestion and has moved for summary judgment.  The court held a hearing in early October, but it has yet to issue an opinion.

Two recent Northern District of California decisions offer hope to defendants.  In Clark v. Perfect Bar, LLC, 2018 U.S. Dist. LEXIS 219487 (N.D. Cal. Dec. 21, 2018), Judge William Alsup did not mince words in rejecting plaintiff’s claims that Perfect Bar’s labeling deceived him into thinking the protein bars were “healthy”:

Defendant Perfect Bar, LLC, at all material times in question, remained in compliance with all sugar-disclosure regulations.  It is true that the bars contained honey and thus sugar, but that was disclosed on the packaging as well as the amount of sugar.  Plaintiffs’ grievance is that the packaging led them to believe that the bars would be ‘healthy’ when, in supposed point of fact, the added sugar rendered them unhealthy or, in the alternative, less healthy from what they otherwise had believed.  This is untenable.  The actual ingredients were fully disclosed.  Reasonable purchasers could decide for themselves how healthy or not the sugar content would be. No consumer, on notice of the actual ingredients described on the packing including honey and sugar, could reasonably overestimate the health benefits of the bar merely because the packaging elsewhere refers to it as a health bar and describes its recipe as having been handed down from a health-nut parent.  The honey/sugar content was properly disclosed — that is the end of it — period.

Clark, 2018 U.S. Dist. LEXIS 219487, *1 – *2.

Judge Jeffrey White embraced  Judge Alsup’s reasoning in Truxel v. General Mills Sales, Inc., 2019 U.S. Dist. LEXIS 144871 (N.D. Cal. Aug. 13, 2019), a putative class action alleging that General Mills marketed various sweetened breakfast cereals and snacks with health-and-wellness claims despite the “compelling evidence” of sugar’s role in heart disease, diabetes, and liver disease.  Judge White concluded that the plaintiffs had failed to show that the health-and-wellness claims were likely to deceive a reasonable consumer:

[T]he Court finds that Plaintiffs cannot plausibly claim to be misled about the sugar content of their cereal purchases because Defendant provided them with all truthful and required objective facts about its products, on both the side panel of ingredients and the front of the products’ labeling. . . . [T]he actual ingredients were fully disclosed and it was up to the Plaintiffs, as reasonable consumers, to come to their own conclusions about whether or not the sugar content was healthy for them.

Truxel, 2019 U.S. Dist. LEXIS 144871, *11 – *12.

Although the majority of added-sugar cases focus on product label health-and-wellness claims, some plaintiffs have attempted to replicate the litigation tactics used against the tobacco industry by arguing that consumer product companies conspired to obscure sugar’s health effects.  One such case is The Praxis Project v. The Coca-Cola Co., Case No. 2017 CA 004801 B, venued in the Superior Court for the District of Columbia.  There, two pastors and a non-profit organization brought suit against Coca-Cola and the American Beverage Association, alleging that the defendants “have engaged in a pattern of deception to mislead and confuse the public (and governmental entities that bear responsibility for the public health) about the scientific consensus that consumption of sugar-sweetened beverages is linked to obesity, type 2 diabetes, and cardiovascular disease” and have employed “ongoing campaigns of disinformation and misrepresentation . . . to maintain and increase the sales of sugar-sweetened beverages, and to thwart and delay efforts of government entities to regulate sugar-sweetened beverages through warning labels, taxes, and other measures designed to make consumers aware of the potential for harm.”

In an order issued October 1, 2019, Superior Court Judge Elizabeth Wingo—who had previously dismissed the claims against the American Beverage Association—first addressed standing.  She held that the non-profit organization had failed to establish that its claimed financial expenditures were “beyond those normally expended to carry out their advocacy mission.” (Oct. 1, 2019, Order at 17 (quoting Nat’l Ass’n of Home Builders v. EPA, 667 F.3d 6, 12 (D.C. Cir. 2011).)  Judge Wingo then found that one of the two pastors lacked standing because he had failed to allege that he had purchased one of the products at issue or that he had done so in reliance on Coca-Cola’s advertising.  The other pastor, however, did allege a product purchase made in reliance on Coca-Cola’s alleged disinformation campaign.  Because one plaintiff had standing, the standing of the others became immaterial.  See Watt v. Energy Action Educ. Found., 454 U.S. 151, 160 (1981).

Judge Wingo, however, then held that the statute of limitations precluded plaintiffs from basing their claim on any statements made prior to July 2014.  This was significant:  the ruling prevents plaintiffs from presenting a tobacco-style narrative alleging a decades-long campaign to obscure the health effects of sugar.

In arguing that the discovery rule should prevent the running of the statute of limitations, plaintiffs found themselves hoist on their own petard.  As Judge Wingo noted, the plaintiffs had asserted that the alleged disinformation campaign “ramped up” in 2012 as a result of “growing public perception that sugar-sweetened beverages are linked to obesity, type 2 diabetes, and cardiovascular disease.”  The plaintiffs had also filled their Complaint “with citations to studies and newspaper articles that make clear that the health risks of sugar sweetened beverages was a topic that any educated individual, but in particular individuals who [like plaintiffs], as part of their profession, counsel people about health risks, were on inquiry notice well before 2014.”  (Oct. 1, 2019, Order at 27-29.)  Though Judge Wingo upheld the plaintiffs’ standing to sue, her statute-of-limitations ruling significantly circumscribed their claims.

Praxis Project sets forth a clear line of attack for defendants in such “sugar conspiracy” cases.  At the same time, defendants should view Judge Wingo’s opinion with caution, as it provides an equally clear roadmap for sugar-conspiracy plaintiffs.  For example, a relatively unsophisticated plaintiff with medical conditions arguably related to excessive sugar intake could potentially dodge the statute of limitations by asserting that a corporate disinformation campaign convinced him to discount the publicly-available information on sugar’s health effects.

The proposed settlement of Hadley v. Kellogg Sales Co., No. 5:16-cv-04955, filed on October 21, 2019 with Northern District of California Judge Lucy H. Koh, is another indication that a defense-bar declaration of victory in the sugar litigation wars is premature.  In Hadley, the plaintiffs alleged that the sugar content of various Kellogg cereals and snack bars rendered health-and-wellness labeling claims misleading under California law.  Judge Koh had previously certified the suit as a class action and the U.S. Court of Appeals for the Ninth Circuit had denied Kellogg’s motion for interlocutory appeal.

The proposed settlement requires Kellogg to create a $20.25 million fund from which class members may seek payment and from which attorneys’ fees will be paid.  Kellogg would also agree to remove or revise health-and-wellness claims on the packaging of the allegedly offending products.

The proposed settlement is significant for several reasons.  First, the process of changing product labeling and associated marketing campaigns requires an enormous amount of time and financial resources.  See Martin J. Hahn and Samantha L. Dietle, State and Federal Food-Labeling Reforms Impose Unappreciated Complexities and Compliance Challenges, WLF Legal Backgrounder, May 18, 2018.  Second, the settlement lends credence to the legal theory that a product’s added sugars render health-and-wellness claims printed on the product label misleading under consumer-protection laws.  At a minimum, the settlement demonstrates both the high cost of fighting such claims and the difficulty defendants face in contesting sugar-related class actions.  At a time when judicial decisions appeared to be tightening the screws on sugar litigation, the proposed Kellogg settlement portends continued litigation in this arena and also sets a benchmark for other plaintiffs’ settlement demands.

The law concerning health-and-wellness claims on labels of products containing added sugar continues to evolve.  Will courts follow Judges Alsup and White and find such claims untenable in light of disclosures on the Nutrition Facts label?  Will courts exhibit a greater willingness to determine the reasonableness of claims on motions to dismiss?  Will the plaintiffs’ bar attempt to expand on Praxis Project and assert industry-wide conspiracy claims?  This rapidly-developing area of law merits close attention.  At the same time, as the proposed Kellogg settlement indicates, sugar litigation is not going away anytime soon.

The post Developments in Added-Sugar Food-and-Beverage Litigation: Cause for Hope, Cause for Concern appeared first on Washington Legal Foundation.

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New Jersey Supreme Court Issues Compelling Precedent Removing Hearsay Bar to Third-Party-Fault Evidence

WLF Legal Pulse - Fri, 11/15/2019 - 8:00am

By Nicholas P. Vari and Michael J. Ross, Partners in the Pittsburgh, PA office of K&L Gates LLP.

Plaintiffs in asbestos-liability lawsuits routinely sue scores of entities whose use of the substance allegedly contributed to their injuries.  Since defendants invariably drop out of such suits through settlements and pre-trial dismissals, asbestos personal-injury trials often involve only one or two of the companies.  Those remaining defendants (“trial defendants”) face enormous financial risk.  One tactic trial defendants can use to reduce their liability exposure is attributing fault to settled entities 1 in the hope that, where permitted, the jury will assign those absent companies a share of the liability.

When attempting to allocate responsibility to a settled or otherwise unavailable defendant, the trial defendant bears the burden of proving the settled defendant’s responsibility. 2  Trial defendants typically meet that burden by using product-exposure evidence obtained during discovery, along with the settled entities’ sworn deposition testimony and written discovery responses from prior cases.  The settled defendant’s prior statements are necessary to establish largely undisputed facts regarding, among other things, (1) the asbestos content of the settled defendant’s product(s) with which or near which the plaintiff may have worked and (2) the type of warnings given for those products.

Because most courts recognize that plaintiffs’ admissions are admissible at trial for all purposes, judges commonly admit into evidence statements of product exposures made by the plaintiff or his co-workers. 3  However, particularly in New York County Asbestos Litigation (“NYCAL”) trials, trial defendants often encounter resistance in the form of hearsay objections when attempting to offer deposition testimony4 from other cases5 about the settled defendants.  The resolution of those objections can significantly impact a trial defendant’s ability to argue for a fair allocation of liability.

Because the settled defendant is often beyond the subpoena power of the trial court, plaintiffs’ hearsay objections, when sustained, effectively block the trial defendant from offering essential, undisputed facts that would enable the jury to assign liability to those not present at trial.  Absent evidence that another entity or other entities may be responsible for the plaintiff’s injuries, the plaintiff is able to create the legal fiction that the remaining trial defendant—often associated with a de minimis exposure product—was the lone or prevailing cause of a particular plaintiff’s disease.  Ultimately, these evidentiary exclusions can lead to verdicts that disproportionately allocate fault to trial defendant(s).

Several potential exceptions to the rule against hearsay could enable trial defendants to offer settled-defendant admissions from other cases into evidence.  No exception stands out more starkly, however, than the “statement-against-interest” exception in Federal Rule of Evidence 804(b)(3) and also recognized by New York common law.6 After all, in this age of runaway verdicts, no entity would concede that (1) it made or sold an asbestos-containing product or (2) it did not issue a warning about that product’s use unless the statements were absolutely true.  A corporation’s admission to either effect, therefore, has an extremely high indicia of truthfulness.  Nevertheless, despite the reliable nature of this evidence, NYCAL judges have repeatedly blocked trial defendants’ use of settled defendants’ deposition testimony to prove alternative liability shares.7

Recently, in Rowe v. Bell & Gossett Co., the highest court of New York City’s neighbor, New Jersey, addressed the use at trial of admissions contained in a settled defendant’s corporate deposition testimony on the asbestos content of products and/or the absence of warnings about those products.  The Supreme Court of New Jersey adopted a common-sense rule that recognizes that because no corporation would make admissions of this nature unless they were true, trial defendants should be permitted to rely upon such reliable and undisputed evidence to prove the fault of settled defendants.  This ruling, and the logic underlying it, should provide a platform for courts across the county, especially those in NYCAL trials, to adopt a similar approach.

The New Jersey Statement-Against-Interest Exception as Applied in Rowe

In Rowe, plaintiffs alleged that Ronald Rowe contracted mesothelioma as a result of his exposure to asbestos-containing products made or sold by more than twenty defendants during his work as an automobile mechanic and boiler repairman.  Prior to trial, plaintiffs settled their claims with eight other defendants, leaving only Hilco,  Inc., an alleged successor in interest to Universal Engineering Co., Inc. (which sold a dry cement product), as the lone defendant at trial.  At trial, Hilco moved to admit into evidence excerpts from the settling defendants’ corporate-representative depositions and answers to interrogatories from other asbestos lawsuits; the settling defendants’ statements pertained primarily to the asbestos content of the settled defendants’ products and the warnings associated with those products.8  The trial court allowed Hilco to introduce many of those statements into evidence.  Ultimately, the jury returned a verdict allocating 20% of the fault to Hilco/Universal and, over plaintiffs’ objection, 80% to the settling defendants.

Plaintiffs appealed the trial court’s ruling to the New Jersey Superior Court, Appellate Division, which reversed the trial court and remanded the case for a new trial on allocation of fault only, holding that the settling defendants’ answers to interrogatories and corporate-representative deposition testimony excerpts were inadmissible hearsay.  According to the Appellate Division, the proffered evidence did not meet any exception to the general rule against hearsay, because the admission-against-interest exception did not apply when the defendant offered the statement against a party other than the one that made it.  The Appellate Division also found that the statements were not against the declarants’ interests, because they “comprised only one piece of the broader picture required to establish liability.”  The Appellate Division further suggested that the settling defendants’ statements were not “admissions,” because they consisted of “well-known historical facts.”

The Supreme Court of New Jersey reversed and reinstated the jury’s verdict.  The Supreme Court first held that courts should analyze each statement separately when applying the statement-against-interest exception.  Next, the court noted that the statements at issue were, in all but two instances, so clearly against the settling defendants’ interests as to render them admissible.  Moreover, the Supreme Court rejected the Appellate Division’s suggestions that (1) a statement against interest must, in and of itself, establish a complete basis for the declarant’s liability and (2) the statement-against-interest exception applies only when the statement is offered against the declarant who made it.  Rather, the Supreme Court focused on the critical point that, so long as the statement is so far contrary to the declarant’s interest that no reasonable person would have made it unless true, the statement is an admission against interest, and is admissible under the exception to the rule against hearsay.

The Application of Rowe’s Rationale in Other States

New Jersey’s statement-against-interest exception to the hearsay rule is essentially the same rule that exists under the Federal Rules of Evidence and the common law.9  The rule in all its forms essentially permits the admission of an unavailable declarant’s out-of-court statements that “a reasonable person in the declarant’s position would have been made only if the person believed it to be true because, when made, it was so contrary to the declarant’s proprietary or pecuniary interest or had so great a tendency to invalidate the declarant’s claim against someone else or to expose the declarant to civil or criminal liability.”10  As stated under New York common law, an unavailable person’s admission is admissible where “(1) the declarant is unavailable, (2) the declaration when made was against the pecuniary, proprietary or penal interest of the declarant, (3) the declarant had competent knowledge of the facts, and (4) there is no probable motive to misrepresent the facts.”11  Under the logic of Rowe, third-parties’ corporate-representative depositions from prior lawsuits unquestionably meet the requisite standard of admissibility under either of these formulations.

As a threshold matter, citizens of foreign states and corporations immune to suit are certainly “unavailable” at trial.  Moreover, New York precedents correctly hold that settled defendants are no longer parties and should not be forced to testify at trial, so they, too, are unavailable.12  Accordingly, settled defendants and bankrupt entities meet the definition of “unavailable.”13  Moreover, given the substantial liability an entity faces when its corporate representative admits that the entity manufactured or sold asbestos-containing products and did not provide sufficient warnings, those statements are against the corporation’s pecuniary or proprietary interest.14  Under those circumstances, the possibility of misrepresentation is low to non-existent.

Currently, section XIII.A of the NYCAL Case Management Order (“CMO”) provides that answers to the NYCAL standard interrogatories by non-parties may be admitted into evidence in a NYCAL asbestos trial to show (1) that a product contained asbestos or was used in conjunction with asbestos and/or (2) that the answering entity failed to warn about the asbestos content of the product at issue.  However, the NYCAL CMO inexplicably applies only to written discovery responses, and does not mention deposition testimony, trial testimony, or other forms of corporate admissions made in other lawsuits.  Nevertheless, regardless of the form in which they are made, those statements are precisely the sort of statements against interest that the Rowe court correctly recognized fall squarely within the letter and spirit of the hearsay exception for such statements.  Arbitrary restraints on the form of evidence that should be admissible to establish settled-defendant shares cannot be justified.

Conclusion

In many cases, hearsay objections to reliable evidence have enabled plaintiffs to unduly focus fault and causation arguments on a trial defendant, and to avoid reliable evidence pointing to myriad other potential causes of an asbestos-related injury.  When sustained, those objections deprive jurors of the chance to fairly allocate fault among all potentially responsible entities.  Removing arbitrary evidentiary hurdles to the admission of those important and undisputed facts—as did the Supreme Court of New Jersey in Rowe—will level the playing field and create a better opportunity for jurors to fairly allocate respective entities’ fault in future asbestos trials.

The post New Jersey Supreme Court Issues Compelling Precedent Removing Hearsay Bar to Third-Party-Fault Evidence appeared first on Washington Legal Foundation.

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State vs. Federal Clash over National “Fintech Charter” Set for 2020 Appellate Showdown?

WLF Legal Pulse - Thu, 11/14/2019 - 1:05pm

On October 21, Judge Victor Marrero of the Southern District of New York entered a final order in a clash between federal and state financial-services regulators, Lacewell v. OCC. The order sets the stage for what could be one of financial services’ most significant courtroom disputes in 2020. In Lacewell, the New York Department of Financial Services (DFS) challenges a federal Office of the Comptroller of the Currency’s regulation under which the OCC can charter financial technology (“fintech”) companies as special purpose national banks. The case will turn on statutory interpretation and Chevron deference, but it has broader implications for the dual banking system, fintech businesses’ growth, and the sustainability of federal banking laws in the 21st century.

OCC and Fintech Chartering

The National Bank Act (NBA) authorizes OCC to issue national bank charters. In 2003, OCC amended one of the regulations it promulgated for NBA implementation, 12 C.F.R. § 520, to allow chartering of “special purpose national banks.” That type of entity, according to  § 520(e)(1), “conducts activities other than fiduciary activities,” and in order to be nationally chartered, it must receive deposits, pay checks, or lend money.

In March 2016, an OCC white paper initiated a discussion over whether fintech companies that pays checks or lends money, but didn’t accept deposits, could obtain a special purpose national bank charter. On July 31, 2018, OCC issued a press release announcing that it would be accepting applications from non-depository fintech companies.

New York Department of Financial Services’ (DFS) Suit

DFS filed suit in the Southern District of New York on September 14, 2018, alleging that OCC’s fintech charter decision exceeds its authority under the Administrative Procedure Act (APA) and violates the Tenth Amendment. The plaintiff agency argues that OCC’s decision to issue national charters poses an imminent threat of harm to DFS and New York citizens. OCC’s award of a national charter to a fintech company would preempt state regulation, an outcome DFS asserts will deprive state citizens of “critical financial protections.” The state regulators informed the court that OCC’s fintech charter decision would nullify regulations for over 600 non-bank financial services firms. DFS also claims that because its operating expenses are funded by fines lodged on entities like fintech companies, it will suffer financial harm if its authority is curtailed.

May 2, 2019 District Court Ruling

On May 2, the court granted OCC’s motion to dismiss DFS’s Tenth Amendment claim, but denied the federal agency’s motion to dismiss the APA claim. Vullo v. OCC. In his analysis of the APA claim, Judge Marrero first rejected OCC’s argument that DFS lacked Article III standing to sue, and that its claim was unripe and untimely. He next turned to whether the OCC’s interpretation of the National Banking Act merits deference under Chevron U.S.A. v. NRDC

DFS argues that OCC’s actions to nationally charter fintech entities exceeds the agency’s authority under NBA § 27(a), which limits the agency’s award of national bank charters to entities that are “lawfully entitled to commence the business of banking.” In order to be in the “business of banking,” DFS argues, the NBA unambiguously requires the charter-seeking entity to accept deposits. OCC argues that the statute is ambiguous, in part because the NBA does not explicitly mandate deposit acceptance as a condition precedent for lawful national banking.

Judge Marrero pointedly rejected OCC’s assertion that § 27(a)’s failure to specifically reference deposit acceptance rendered the “business of banking” term ambiguous. “The relevant inquiry here,” he explained, “is not whether the NBA explicitly expresses such a definition but whether it unambiguously does so.” Judge Marrero concluded that Congress clearly meant that for an entity to be lawfully engaged in the “business of banking,” it must accept deposits. He reached that conclusion after examining predecessor statutes, dictionary definitions, § 27(a) in the broader context of the overall NBA, and OCC’s history of chartering non-depository entities.

Congress’s reliance on New York’s experiences in defining and regulating the “business of banking” factored heavily in the court’s statutory analysis and conclusion on the question of ambiguity. We’d be remiss if we didn’t note that this blog’s Featured Expert Contributor on digital-asset legal issues, Daniel Alter, made some of the same points that Judge Marrero did on New York’s influence in a Yale Journal on Regulation blog post published two years ago. In drafting NBA § 27(a), Alter wrote, Congress “incorporated the phrase ‘business of banking’ into the NBA from the [1838] New York law as a term of art.” Alter goes on to explain that the meaning of that term, through its common usage and New York state judicial interpretation, embraced acceptance of deposits as an essential banking activity. 

Two other points in the court’s statutory analysis are worth noting. First, OCC has never relied upon the NBA’s general “business of banking” clause to nationally charter a non-depository institution. In past years, OCC had twice chartered non-depository institutions, but only after Congress amended the NBA to formally provide that authority. 

Second, Judge Marrero applied “the cannon of construction under which the plausibility of an agency’s interpretation of statutory text that would confer new power upon that agency bears inverse relation to the size of that putative power and the belatedness of the putative discovery.” Congress first adopted § 27(a) in 1863 and 140 years later, OCC announces through a regulatory amendment that the NBA’s general chartering language empowers it to charter non-depository institutions. That delay “casts doubt on OCC’s interpretation.” The size of that power—OCC’s preemption of state laws and that action’s impact on the dual-banking system—lends further weight to the court’s conclusion. As Judge Marrero put it, 

“OCC’s reading [of § 27(a)] is not so much an ‘interpretation’ as ‘a fundamental revision’ of the NBA — essentially exercise of a legislative function by administrative fiat.”

Because the court concluded that “business of banking” unambiguously includes acceptance of deposits, OCC’s contrary interpretation merits no deference under Chevron. Judge Marrero left the question of remedy, however, for later consideration. 

October 21 Final Order and Judgment 

The court’s final order in Lacewell followed a period of intense negotiation between OCC and DFS. The parties agreed that the order should stipulate final judgment in DFS’s favor, but they disagreed on the remedy. OCC asked Judge Marrero to set aside the 2003 regulation only as it applies to fintech applicants that are seeking a national bank charter and that have a nexus to New York. DFS sought invalidation of the rule for all non-depository fintech institutions.

Judge Marrero entered judgment for DFS and vacated OCC’s regulation in its entirety. OCC made no compelling arguments, he explained, supporting the court’s deviation from the normal remedy when a plaintiff prevails on its APA abuse-of-authority claim. While OCC accepted the decision, the final judgment stipulates that the agency reserves its right to appeal.

On to the Second Circuit?

OCC must decide within the next week whether to appeal. The importance of the fintech chartering plan and the larger implications of the district court’s interpretation of § 27(a) arguably compel an appeal. The district court’s analysis was thorough and well reasoned. But Chevron deference is a fickle legal doctrine, one open to disparate interpretation and application. 

It’s possible that a Second Circuit panel could find “business of banking” to be an ambiguous term in the context of DFS’s suit, which focuses on an activity—deposit acceptance—on which § 27(a) is silent. The appeals court, under Chevron, would then assess whether OCC’s interpretation is “reasonable.” The Supreme Court has indicated that “ambiguity constitute an implicit delegation from Congress” for agencies to fill in the gaps. With that in mind, courts generally lower the government’s burden of persuasion and leave the plaintiff trying to show that the government acted unreasonably. DFS, then, could have more of an uphill battle on appeal winning a Chevron “step 2” argument than it did at the district court on the question of ambiguity. 

The broader policy stakes in this case are very high. State bank regulators like New York’s DFS likely consider OCC’s action as a targeted erosion of states’ role in America’s dual banking system. On the other hand, fintech companies would much prefer the efficiency and predictability a national charter system provides. OCC, for its part, has stated that its approach can help modernize the financial system and improve consumers’ access to financial services. The agency, of course, wouldn’t mind expanding its regulatory turf in the process.

For now, all eyes will be on the Office of the Comptroller of the Currency as it determines its next move.

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

The post State vs. Federal Clash over National “Fintech Charter” Set for 2020 Appellate Showdown? appeared first on Washington Legal Foundation.

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A Fair Playing Field? Investigating Big Tech’s Impact on Small Business

House Small Business Committee News - Thu, 11/14/2019 - 1:00pm

The Committee on Small Business will hold a hearing titled, “A Fair Playing Field? Investigating Big Tech’s Impact on Small Business.” The hearing is scheduled to begin at 1:00 P.M. on Thursday, November 14, 2019 in Room 2360 of the Rayburn House Office Building.

Over the last decade, digital platforms have transformed American commerce through the rapid development of innovative business solutions that have helped small businesses reach and serve new customers. However, the boundless influence of Big Tech has raised concerns about how these platforms impact small firms that have come to rely on their business models. This hearing will give Members the opportunity to hear from large tech companies and small business about their perspectives on how to ensure that main street businesses have an equitable opportunity to compete in the information age.


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


Hearing Notice 







 
 
 

Assessing the Government’s Role in Serving Rural American Small Businesses (Part One)

House Small Business Committee News - Thu, 11/14/2019 - 10:00am

The Committee on Small Business Subcommittee on Rural Development, Agriculture, Trade, and Entrepreneurship will hold a hearing titled, “Assessing the Government’s Role in Serving Rural American Small Businesses (Part One).” The hearing is scheduled to begin at 10:00 A.M. on Thursday, November 14, 2019 in Room 2360 of the Rayburn House Office Building.

Rural America, encompassing about 72% of our nation’s total land and about 46 million residents, plays a critical role in our economy. Yet, rural businesses face many unique challenges, such as access to capital, training, and technology. The hearing will examine the U.S. Department of Agriculture’s Rural Business-Cooperative Service programs and Small Business Administration’s programs, and how these agencies can work together to support entrepreneurship, economic growth and business development in rural communities.


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


Hearing Notice 

Hearing Memo 

Witness List 

Witnesses 
Ms. Michelle Christian
National Director, Office of Rural Affairs
United States Small Business Administration
Washington, DC
Testimony

Ms. Bette Brand
Administrator
Rural Business-Cooperative Service
USDA-Rural Development
Washington, DC
Testimony 



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





 
 

After DOJ Letter on Website Compliance, the ADA Guessing Game Continues

WLF Legal Pulse - Wed, 11/13/2019 - 4:23pm

John D. McMickle is co-founder of North South Government Strategies, a Washington, DC-based consulting firm. He was previously a Judiciary Committee Counsel for Senator Charles Grassley and a Partner with Winston & Strawn, LLP. He is the author of a September 21, 2018 WLF Legal Backgrounder, The Americans with Disabilities Act and Cyberspace: Who Will Provide Sorely Needed Guidance?

In recent years, Congress had demonstrated a continuing interest in addressing litigation abuses under Title III of the Americans with Disabilities Act (“ADA”).  According to a document from the Administrative Office of the United States Courts (the administrative body of the federal judiciary which, among other things, tracks trends in federal litigation), civil rights cases filed in federal courts between 2005-2017 decreased by 12 percent while ADA cases during the same period increased by an astounding 395 percent.  Much of the recent uptick in ADA litigation can be attributed to lawsuits regarding websites.  As the Washington Legal Foundation has argued in a Supreme Court amicus brief, it is not clear that the ADA, enacted by Congress before the World Wide Web even existed, applies to websites.  And the Supreme Court recently declined to hear an appeal from Domino’s Pizza that could have harmonized conflicting circuit court decisions.

In 2018, the House of Representatives passed legislation, the ADA Education and Reform Act.  Although the Senate failed to consider this measure, which would have required potential litigants to give notice of an ADA violation before filing a lawsuit, a similar bill is expected to be introduced in late 2019 or early 2020.  As the law stands now, any prudent business with a public-facing website has to guess how to make it compliant with the ADA.

Meanwhile, interested Senators have focused on the power of the Department of Justice to provide legal clarity around whether and how the ADA applies to websites. In response to a July, 2019 letter from several U.S. Senators, the Department of Justice recently reiterated its “longstanding interpretation that the ADA applies to the websites of public accommodations.” 

This way of stating the issue—that the ADA applies to websites of public accommodations—could be significant.  One of the issues that the Supreme Court could have resolved in the Domino’s Pizza case is whether the ADA applies to web-only business.  There is currently a circuit split on this question.  It is the rule in some federal circuits that the ADA applies only to websites that are related to a physical space that is also covered by Title III of the ADA.  In other circuits, websites are classified as public accommodations whether or not connected to a physical place.  One wonders whether DOJ intended to communicate a view on this point.

The letter is also noteworthy for stating, yet again, that absent a formal rulemaking, DOJ will not establish “specific technical requirements” for making websites compliant with the ADA.  This aspect of the letter is perhaps the most disingenuous and frustrating for stakeholders.  In fact, DOJ has used “specific technical requirements” to settle ADA lawsuits when DOJ is the plaintiff.  In 2104, for instance, when DOJ settled a Title III ADA action against Peapod (the web grocery ordering and delivery service for Giant Foods) for failure to make its website accessible, the settlement agreement required that Peapod use a certain technical protocol known as WCAG 2.0.  The settlement agreement (available here) stated that “[u]under the agreement, Peapod is required to…ensure that www.peapod.com and its mobile applications conform to, at minimum, the Web Content Accessibility Guidelines 2.0 Level AA Success Criteria (WCAG 2.0 AA), except for certain third party content.”  Similarly, in 2015, the Department required the municipality of Cedar Rapids, Iowa to comply with WCAG 2.0

In other words, DOJ actually imposes a standard for website accessibility in litigation but refuses to do so through rulemaking.  DOJ maintains that the failure to announce a binding regulatory standard is actually good news—website owners have flexibility to comply with the ADA in various ways.  The letter does not point to any specific compliance strategy, merely stating that the “touchstone for compliance with the ADA with respect to the websites of public accommodations remains the requirements of nondiscrimination and effective communication.”  Given the predatory litigation environment surrounding Title III of the ADA, the absence of any binding standard of general application leaves website operators to the tender mercies of serial plaintiffs.

An alternative approach to the issue of website accessibility could look to the standards the federal government applies to itself for its own websites. Rules issued under Section 508 of the Rehabilitation Act of 1973 use the WCAG 2.0 standard for federal websites.  Further, the Section 508 rule contains several “safe harbors” to ensure that compliance with WCAG 2.0 does not unduly burden federal agency resources.   Applying this regulatory approach to private sector websites covered by the ADA would promote accessibility while ensuring that the private sector benefits from similar safe harbors.

DOJ also notes that websites associated with a physical space could be considered “auxiliary aids” designed to assist the disabled in the use and enjoyment of a public accommodation.  Under this view, DOJ seems to leave open the possibility that a website owner could satisfy its obligations under Title III if the owner provided access to information through an alternative means.  Thus, for instance, a customer service telephone number that provides a blind customer with assistance with ordering from a retailer might satisfy the ADA.  

Interestingly, the 2019 Senate letter also asked Attorney General Barr whether “the Department considered intervening in pending litigation to provide clarity on these issues, or to push back against any identified litigation abuses?” (emphasis added.)  Such a federal effort would provide a much-needed supplement to state and local efforts.  For instance, the Attorney General of Arizona and the District Attorney of Riverside, California have sought to dismiss apparently non-meritorious ADA lawsuits.  And in August, 2019, a federal court sanctioned a Miami attorney and his client for a litigation strategy “to dishonestly line their pockets with attorney’s fees from hapless defendants under the sanctimonious guise of serving the interests of the disabled community.”

In sum, the position of the Department of Justice remains untenable.  DOJ believes the ADA applies to at least some websites but will not provide guidance to stakeholders—except in the course of a specific enforcement action. Such a stance is a dereliction that could undermine public confidence in the laudable purposes of the ADA.  The business community has to guess how to ensure a website complies with the ADA, and hope it guessed correctly.  Surely it is more beneficial—for all involved—for businesses to spend time and resources complying with meaningful standards.  Perhaps DOJ will at least target litigation abuses to mitigate the financial jeopardy that flows from the legal uncertainty that DOJ itself has created.

The post After DOJ Letter on Website Compliance, the ADA Guessing Game Continues appeared first on Washington Legal Foundation.

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Upskilling the Medical Workforce: Opportunities in Health Innovation

House Small Business Committee News - Wed, 11/13/2019 - 11:30am

The Committee on Small Business will meet for a hearing titled, “Upskilling the Medical Workforce: Opportunities in Health Innovation.” The hearing is scheduled to begin at 11:30 A.M. on Wednesday, November 13, 2019 in Room 2360 of the Rayburn House Office Building.

It is predicted that America faces a doctor shortage upwards of 100,000 doctors by 2030, which could disproportionately affect rural and underserved communities. Beyond training more doctors, opportunities in innovative healthcare practices offers another method to proactively address the shortage. Telehealth and HealthIT have the potential to help many small medical practices manage patient information, be more efficient, and provide the most effective treatment. This hearing will analyze ways the health care workforce can be trained to leverage these new technologies to lower costs, incentivize start-ups, and provide quality care.


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


Hearing Notice 

Hearing Memo 

Witness List 

Witnesses 
Dr. Matthew Conti
Orthopaedic Surgery Resident
Hospital for Special Surgery (HSS)
New York, NY
*Testifying on behalf of the American Academy of Orthopaedic Surgeons (AAOS)
Testimony 

Dr. Ingrid Zimmer-Galler
Associate Professor of Ophthalmology
Founding Clinical Director of the Office of Telemedicine
Johns Hopkins University School of Medicine
Baltimore, MD
*Testifying on behalf of the American Academy of Ophthalmology
Testimony 

Dr. Nancy Fahrenwald, PhD, RN, PHNA-BC, FAAN
Dean and Professor
Texas A&M University, College of Nursing
Bryan, TX
*Testifying on behalf of the American Association of Colleges of Nursing
Testimony 

Mr. Michael Hopkins
CEO & Founder
True Concepts Medical
Centerville, OH
Testimony 

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





 

The PTAB Is Here to Stay, but Individual Administrative Patent Judges May Not Be

WLF Legal Pulse - Tue, 11/12/2019 - 8:00am

Jeffri A. Kaminski is a Partner with Venable LLP in its Washington, DC office and is the WLF Legal Pulse’s Featured Expert Contributor, Intellectual Property—Patents

On October 31, 2019, the Federal Circuit, in Arthrex, Inc. v. Smith & Nephew, Inc., No. 2018-2140, ruled that the current structure of the Patent & Trial Appeal Board (PTAB) violated the Appointments Clause of Article II of the U.S. Constitution. Rather than eliminate the PTAB as some feared (or hoped for), the Federal Circuit remedied this constitutional violation by divesting the more than 200 Administrative Patent Judges (APJs), who decide cases before the PTAB, from the protections of “the statutory removal provisions.” In doing so, the Federal Circuit reclassified the APJs as “inferior officers” who could be removed from their positions without cause by the Secretary of Commerce and the Director of the USPTO.

The Federal Circuit also vacated and remanded the Board’s decision without reaching the merits of the case, holding that a “new panel of APJs must be designated and a new hearing granted.” However, the Federal Circuit specifically limited this holding only to those cases where “final written decisions were issued and where litigants present an Appointment Clause challenge on appeal.” Thus, other PTAB decisions cannot be reviewed or vacated on this basis.

In Arthrex, Smith & Nephew, Inc. filed a petition to the PTAB requesting an inter partes review to challenge the patentability of certain claims of U.S. Patent No. 9,179,907, directed to a knotless suture securing assembly, which Arthrex owns. The PTAB issued a final written decision finding those specific claims of ʼ907 unpatentable. Arthrex appealed the PTAB’s decision to the Federal Circuit and raised the issue that APJs were not constitutionally appointed but were acting as principal officers, not “appointed by the President with the advice and consent of the Senate” as the Appointments Clause of the U.S. Constitution requires.

The Federal Circuit agreed with Arthrex because neither the Secretary of Commerce nor the Director—the only two presidentially-appointed officers that provide direction to the USPTO—“exercised sufficient direction and supervision over APJs to render them inferior officers.” Under the flawed structure, the Secretary of Commerce appoints the APJs to the PTAB. When a petitioner requests an inter partes review, the APJs then serve on a three-judge panel to consider the patentability of challenged claims and issue final written decisions determining the patentability of challenged claims “on behalf of the Executive Branch.” The Federal Circuit held that this significant exercise of authority along with the limitations on removal from service only for “such cause as will promote the efficiency of the service” gave the APJs status as principal officers instead of inferior officers.

Rather than eliminating the three-APJ panels or completely altering the method of appointing APJs, the Federal Circuit “partially severed” the APJs from the statutory provision that applies to other officers and employees of the USPTO—classifying APJs as “inferior officers” and subjecting them to at-will removal by the Director. The Federal Circuit thought this to be the “narrowest viable approach to remedying the violation of the Appointment Clause” and “the proper course of action and the action Congress would have undertaken.”

Now that APJs are “at-will” officers, the finality of their issued decisions is checked by the fact that the Director can dismiss them for any reason. It remains to be seen, however, if this will shape their day-to-day practices at the PTAB. Will the Director involve himself in the details of every appeal, which can be highly complex and technical, now that he can remove any APJ he disagrees with? Likely no. However, if a case is high-profile, could APJs feel compelled to rule a certain way to stay in the good graces of their Director who may have other objectives, whether political or policy-driven? Perhaps yes. Whether or not individual APJs may come and go, what is certain is that the PTAB still remains a legitimate administrative law body that will continue to review and cancel patent claims it deems unpatentable.

The post The PTAB Is Here to Stay, but Individual Administrative Patent Judges May Not Be appeared first on Washington Legal Foundation.

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SCOTUS County of Maui Argument: Whiskey, Septic Tanks, and Limiting Principles

WLF Legal Pulse - Mon, 11/11/2019 - 9:28am

Samuel B. Boxerman is a Partner with Sidley Austin LLP in the firm’s Washington, DC office and is the WLF Legal Pulse’s Featured Expert Contributor on Environmental Law and Policy.

Whether whiskey being poured from a bottle to a flask and then to a punch bowl would be regulated—whether the groceries you buy come from the store, or from your car, as that is the last place they were before you enter your house—and whether releases from one septic tank would have to be permitted, but not from a housing development with hundreds of septic tanks.  These are among the analogies discussed at oral argument before the U.S. Supreme Court as the Justices questioned counsel about how to interpret the Clean Water Act (CWA) in County of Maui vs. Hawaii Wildlife Fund.

As reported here previously, the case concerns a wastewater treatment plant operated by the County of Maui.  The plant is permitted to inject treated wastewater into underground injection wells—and some of that wastewater travels from the wells through groundwater to the Pacific Ocean, a half mile away.  At issue is whether the County needed a permit for the injected wastewater leaving the wells and reaching the ocean:  Does the CWA require a permit when pollutants originate from a point source (the wells) but are conveyed to a navigable water (the Pacific) via a nonpoint source (the groundwater).  The County has argued no, a discernible, confined, and discrete conveyance must carry the pollutant to be regulated.  The Ninth Circuit disagreed, holding that a permit would be required, so long as pollutants were “fairly traceable” from the wells to the ocean so that it was “the functional equivalent” of a discharge to a navigable water.  The respondent environmental groups support the lower court’s approach.

At argument, Justice Breyer, in questioning Maui’s attorney, asked whether the County’s reading would provide a “road map” for avoiding regulation, as a source could “just cut off” the discharge pipe before the stream.  Justice Kagan echoed that, stating that “nobody would ever have to get a permit” under petitioner’s approach.  Justice Sotomayor’s questioning also appeared to support respondent, suggesting the other laws petitioner pointed to are “remedial” while the CWA is “preventative” and “that’s why we give them a permit.”  Justice Ginsburg, meanwhile, asked how the respondent’s test differed from “direct hydrological connection” test adopted by the Fourth Circuit in the Upstate Forever case (also discuss previously here) that is also before the Court (but on hold for now).

Justice Kavanaugh questioned whether the County’s test was akin to the test rejected by late Justice Scalia in Rapanos, but also sought “some clear line for property owners” that would be objectively clear “up front” and not after much litigation.  In questioning respondent’s counsel, Justice Alito expressed concern “whether there is any limiting principle that can be found in the text and is workable and does not lead to absurd results.”  Chief Justice Roberts and Justice Gorsuch likewise each asked respondent to define a “limiting principle” on their approach, with Chief Justice Roberts noting the respondent’s “proximate cause” approach was “notoriously manipulable.”

It is often perilous to read the tea leaves of oral argument and predict how the Court might rule.  This case is no different, as the Justices revealed a range of views and much uncertainty about how they might interpret the Act.  The Court took the case, which often does signal an interest in reversing the lower court.  Yet, if Justice Kavanaugh’s reference to Rapanos suggests some inclination to find a middle ground, it could be the case that they are headed towards a ruling that would require permitting in certain circumstances beyond the scope advanced by Maui, provided a majority can coalesce around an appropriate limiting principle.  Stay tuned.

The post SCOTUS <em>County of Maui</em> Argument: Whiskey, Septic Tanks, and Limiting Principles appeared first on Washington Legal Foundation.

Categories: Latest News

Fostering the American Dream: How SBA Can Empower Immigrant Small Business Owners

House Small Business Committee News - Fri, 11/08/2019 - 10:00am
The Committee on Small Business Subcommittee on Investigations, Oversight, and Regulations will hold a hearing titled, “Fostering the American Dream: How SBA Can Empower Immigrant Small Business Owners.” The hearing is scheduled to begin at 10:00 A.M. (PST) on Friday, November 8, 2019 at Rosemead City Hall, 8838 East Valley Boulevard, Rosemead, CA 91770.

The United States is currently home to over 43 million immigrants and over 3 million have started small businesses. These companies pay an estimated $126 billion in wages to six million people and generate over $65 billion in income. Recognizing their economic contributions, the hearing will focus on how the federal government can better assist immigrant entrepreneurs desiring to start a small business. Members will learn why immigrants are more likely to start new businesses but less likely to have access to traditional sources of capital, and how the Small Business Administration’s programs, such as entrepreneurial development and lending programs like the Community Advantage program can help immigrant business owners succeed.

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


Hearing Notice 

Hearing Memo 

Witness List 

Witnesses 
Ms. Rachelle Arizmendi
Vice-President and Chief Operations Officer
Pacific Asian Consortium in Employment (PACE)
Los Angeles, CA
Testimony 

Mr. Donald J. Loewel, MBA
Director
Small Business Development Center
Pasadena City College
Pasadena, CA
Testimony

Ms. Tatiana Bonilla
President
Andrew Design Group, Inc.
Pasadena, CA
Testimony 


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




 

NAAAOM v. Comcast Corp.: Civil Rights Laws Should Protect Minorities, Not Frivolous Litigators

WLF Legal Pulse - Thu, 11/07/2019 - 11:33am

Comedian-turned-Hollywood-mogul Byron Allen is bringing his contract dispute with Comcast Corp. to the Supreme Court next week. To hear Allen tell it, Comcast is trying to turn back the civil-rights clock and make it harder for minorities to redress racial discrimination. But that’s a distortion of the case. Comcast is simply asking the Supreme Court to rule—in line with the vast majority of courts that have addressed the question before the justices—that proving racial discrimination in contracting requires proving that one has actually suffered an injury. The actual-injury requirement allows courts to differentiate between meritorious claims and those (such as Allen’s) filed simply to force a defendant to settle in order to avoid unwanted publicity.

Allen’s media empire includes ESN, which operates seven cable networks that are available in a limited number of U.S. media markets. Over the past decade, Comcast has declined ESN’s requests that Comcast carry the networks, citing low consumer demand for ESN’s programming. Other cable operators declined similar requests from ESN for similar reasons.

In response to the refusals to carry its programming, ESN sued Comcast as well as Charter Communications, Time Warner Cable, DirecTV, and AT&T. The suits alleged that the defendants violated the Civil Rights Act of 1866, which prohibits racial discrimination in making and enforcing contracts. Several of the defendants settled the claims by agreeing to carry ESN programming, but Comcast chose to fight—and its case is now before the Supreme Court.

There is no direct evidence of racial discrimination here. But Allen alleges that Comcast offered carriage contracts to white-owned networks that had less viewers than ESN’s networks; he asserts that racial discrimination can be inferred from that allegedly disparate treatment. Comcast denies that it treated white-owned businesses more favorably and notes that its cable offerings include many minority-owned networks. Among those offerings is the Weather Channel, which Allen himself purchased in 2018 for $300 million.

The trial court gave Allen three chances to submit a complaint that stated an adequate racial-discrimination claim. The court found each complaint insufficient and dismissed the lawsuit. It ruled that Allen failed to show that racial discrimination, not other, race-neutral reasons, motivated Comcast’s refusal to offer a carriage contract. The trial court’s ruling adopted the approach taken by every federal appeals court in analogous racial-discrimination suits; those courts held that the plaintiff must show that it would have received the desired contract “but for” the alleged discrimination.

Allen appealed, and the U.S. Court of Appeals for the Ninth Circuit reinstated his case. It ruled that under the federal law governing contract discrimination, it is enough to allege that race was “a factor” in the decision not to sign a contract, even if no contract would have been made if race had played no role. The Supreme Court last June agreed to review Allen’s case, as it often does when two or more federal appeals courts disagree about how to interpret a federal law.

The standard of proof applied by a trial court makes a difference in discrimination claims of this sort. Allen’s claim is thin at best. Nothing in his complaint suggests that Comcast considered Allen’s race when it declined to offer his networks a carriage contract. But if the Supreme Court adopts the lenient standard Allen proposes—that a plaintiff need only allege that race was “a factor” in the contracting decision—it will become extremely difficult for a defendant to win early dismissal of even the most frivolous claims. And once a plaintiff survives a motion to dismiss on the pleadings, the high cost of litigation (including the cost of responding to endless depositions and document requests) will virtually force the defendant to settle the lawsuit without regard to its merits.

That may well be what Allen is counting on. But Congress adopted the civil rights laws to eliminate racial discrimination in the making of contracts, not as a litigation tool that unhappy plaintiffs can use to browbeat others into making unwanted deals. Byron Allen should not be permitted to besmirch Comcast’s civil-rights record for the purpose of expanding his own business.

Also published by Forbes.com on WLF’s Contributor Site

The post <em>NAAAOM v. Comcast Corp.</em>: Civil Rights Laws Should Protect Minorities, Not Frivolous Litigators appeared first on Washington Legal Foundation.

Categories: Latest News

October 2019 Month in Review

WLF Legal Pulse - Tue, 11/05/2019 - 8:15am

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

NEW FILINGS

  • The Alien Tort Statute does not permit human-rights activists to file federal-court claims based on a defendant’s conduct in foreign countries. (Nestle USA, Inc. v. Doe I)
  • The Federal Trade Commission improperly held that drug companies’ settlement of patent-infringement litigation violated antitrust laws, without evidence that the settlement harmed competition. (Impax Laboratories, Inc. v. FTC)
  • Regulations proposed by the Department of Housing and Urban Development appropriately limit the scope of disparate-impact liability under the Fair Housing Act. (In re FHA Disparate-Impact Liability)
  • Proposed Food and Drug Administration regulations violate the First Amendment by compelling cigarette manufacturers to place controversial statements on product labeling. (In re Required Warnings for Cigarette Packaging and Advertisements)
  • Property owners are entitled to compensation under the Takings Clause when a government arbitrarily delays their building permit. (Bottini v. City of San Diego)
  • Antitrust law is designed to protect competition, not competitors; it does not concern itself with evidence that a defendant may have desired to harm a competitor. (Swisher Int’l v. Trendsettah USA)

DECISIONS

  • The Ninth Circuit declines to reconsider its certification of a class of Facebook users despite no evidence that they suffered any injury. (In re Facebook Biometric Information Privacy Litig.)
  • U.S. Supreme Court declines to review a Ninth Circuit decision barring removal to federal court (under the Class Action Fairness Act) of a “mass action” in which a single state-court judge is coordinating thousands of identical claims. (Pfizer, Inc. v. Adamyan)
  • The U.S. Supreme Court declines to review a Ninth Circuit decision holding that the Americans with Disabilities Act extends to cyberspace and requires companies to revamp their web sites to accommodate the needs of the visually impaired. (Domino’s Pizza, LLC v. Robles)
  • The U.S. Supreme Court declines to review a California court decision that, in conflict with the Federal Arbitration Act, refuses to enforce an arbitration agreement. (Winston & Strawn LLP v. Ramos)
  • The U.S. Court of Appeals for the District of Columbia Circuit upholds a decision by the Federal Communications Commission to rescind its 2015 “net neutrality” rules, which imposed burdensome regulations on Internet providers. (Mozilla Corp. v. FCC)

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

Categories: Latest News

WLF Asks U.S. Supreme Court to Clarify When Government May Compel Speech

WLF Legal Pulse - Fri, 11/01/2019 - 8:00am

“The decision below, if left to stand, would allow government regulators to transform a First Amendment test created to correct false or misleading speech into a justification for foisting false or misleading speech onto the public.”
—Cory Andrews, Vice President of Litigation

Click here for WLFs brief.

(Washington, D.C.)—Washington Legal Foundation (WLF) today filed an amicus curiae brief urging the U.S. Supreme Court to review—and ultimately to strike down—a Berkeley, California ordinance that requires all cell-phone retailers to warn their customers about the supposed dangers of ordinary cell-phone use.

The petition marks CTIA’s second time asking the high court to review the Berkeley ordinance. The Court granted an earlier petition without opinion in 2018, vacating a decision of the U.S. Court of Appeals for the Ninth Circuit that upheld the ordinance and remanding the case for reconsideration in light of National Institute of Family and Life Advocates v. Becerra (2018). Even so, the Ninth Circuit once again sustained the ordinance against a First Amendment challenge, holding that the city’s mandated warning qualifies as a purely factual and noncontroversial disclosure under Zauderer v. Office of Disciplinary Counsel of Supreme Court of Ohio (1985). 

Berkeley’s mandated warning informs cell-phone users how to avoid the purported dangers of being overexposed to radiofrequency (RF) from their cell phones. But the Federal Communications Commission (FCC), in concert with other federal agencies responsible for ensuring health and safety, already ensures that U.S. cell phones have RF-exposure limits 50 times below the level of any adverse biological effect. As a result, the FCC has determined that any cell phone legally sold in the United States is a “safe phone.”

In its brief, WLF explains that by divorcing the government’s authority to compel speech from any need to remedy pre-existing commercial speech, the decision below grants Berkeley a roving commission to compel speech entirely on its own terms. The city’s mandated warning is thus not a traditional commercial-speech disclosure under Zauderer, but a freestanding speech compulsion subject to strict scrutiny. And even if Zauderer applies, WLF’s brief argues, Berkeley’s mandated warning misleads readers into believing that ordinary cell-phone use may be dangerous. Not only is that message intentionally misleading, it is highly controversial and thus cannot pass constitutional muster under Zauderer.

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 Asks U.S. Supreme Court to Clarify When Government May Compel Speech appeared first on Washington Legal Foundation.

Categories: Latest News

Playing Nice in a No-Action Sandbox: The SEC’s Careful Approach to a Blockchain System for Clearing and Settling Equity Trades

WLF Legal Pulse - Thu, 10/31/2019 - 12:53pm

Daniel S. Alter is a Shareholder in the New York, NY office of Murphy & McGonigle P.C. and is the WLF Legal Pulse’s Featured Expert Contributor, Legal & Regulatory Challenges for Digital Assets.

Three cheers for the Securities and Exchange Commission!  On October 28, 2019, the SEC’s Division of Trading and Markets issued a no-action letter to Paxos Trust Company, LLC, a New York State chartered trust company (Paxos), essentially permitting Paxos to operate a blockchain-based settlement system without first registering as a clearing agency under Section 17 of the Securities Exchange Act of 1934 (“No-Action Letter”).  This may be a baby step for the agency, but it’s nevertheless a very big one.

The No-Action Letter is a baby step because it gives Paxos a license to test its blockchain prototype for only two years and under very limited conditions.  Described by the SEC, these conditions are “reasonably designed to ensure that activity remains de minimis through operating parameters designed to limit the scope of operations and manage financial and settlement risk, using, among other things, participation requirements and limits, securities eligibility criteria, margin collection, volume limits, ongoing monitoring, and regular reporting to [SEC] Staff.”  In other words, the agency will be keeping a tight rein on the project.

But that’s great!  It’s exactly what the SEC should be doing—and much more of it.  As with anything else, blockchain applications will improve through trial and error.  Given how high the stakes are for the proper clearing and settlement of trades in the securities market, however, it’s critical to work out the kinks of any new technology before handing over the keys.  Although entrepreneurs may find excitement in the concept of disruption, the idea of it is pure dread for regulators.

Viewed from that perspective, the SEC’s decision finally to go down this path at all is a very big baby step.  And for others looking to make similar headway with the agency, there are at least two important lessons to be learned here:

First, packaging matters.  In its request for no action relief, Paxos sought permission from the SEC to conduct a short-term “Feasibility Study.”  This was an invitation for the SEC to become proactively involved in determining whether the Paxos system can work to the agency’s satisfaction.  It was not a declaration of theoretical superiority with an implicit charge of Luddism.  A little humility can go a long way.

The second point is simultaneously both subtle and glaring.  So far, commentators have not focused on the fact that the No-Action Letter hinges on a Paxos account at the Depository Trust Company or DTC.  The DTC is a “central securities depository”—a common utility that holds securities in certificated or uncertificated form so that they can be transferred between buyers and sellers more quickly via book entries rather than through physical delivery.  It is one of the cornerstones of our present market infrastructure.

Paxos proposes to use its own DTC account to hold its clients’ securities in subaccounts.  Once a client deposits its securities into the Paxos subaccount, Paxos will create “a digitized security entitlement, which is a digital representation” of the clients’ assets.  Paxos will then use those digital representations to clear and settle securities trades on a blockchain, thereby allowing the instantaneous swap of assets for cash in those client subaccounts.  The Paxos system purports to reduce clearing and settlement time to 0—an accomplishment that would vastly reduce financial risk in the market and release significant amounts of capital held in reserve pending trade completion.

Ironically, to the blockchain evangelist preaching the good news of disintermediation, this solution is the devil’s design.  Instead of removing the inefficiencies and risks associated with trusted financial middleman (like DTC)—which is the fundamental peer-to-peer promise of blockchain technology—Paxos intends to add itself as another layer to the clearing and settlement process.  Heresy.

Or is it faithful pragmatism?  This model may be a necessary step in the infrastructure evolution.  Surely, the SEC found comfort in the idea that client securities will remain at the DTC, a familiar and reliable custodian.  And perhaps that backstop convinced the agency to take a big baby step.

Consider, also, there may be other existing market structures onto which blockchain technology might be grafted—at least at first—to accomplish a great benefit.  The No-Action Letter reaffirms something obvious yet important; perhaps innovators not so much, but Commissioners need to walk before they can run.

The post Playing Nice in a No-Action Sandbox: The SEC’s Careful Approach to a Blockchain System for Clearing and Settling Equity Trades appeared first on Washington Legal Foundation.

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