Category: Transportation

Airbus to Pay Unprecedented $3.9 Billion for Multinational Bribery, FCPA Violations

Last week, the Department of Justice (DOJ) announced the largest deferred prosecution agreement for violations of the Arms Export Control Act (AECA), International Traffic in Arms Regulations (ITAR), and Foreign Corrupt Practices Act (FCPA) in history. Airbus SE, a French aircraft company, agreed to pay over a combined $3.9 billion to the DOJ as well as authorities in France and the UK for foreign corruption and bribery charges. The penalty is the largest of its sort and is the result of anti-fraud efforts across the three countries.

Airbus engaged in corruption for several years, offering bribes to foreign officials and misreporting to authorities to conceal the bribes. These violations of the Arms Export Control, International Traffic in Arms, and FCPA encompass activities in the United States, UK, France, and China. The crimes also include corruption in defense contracts.

According to a DOJ Press Release, Airbus will pay $527 million to the United States for the company’s violations of the International Traffic in Arms and Foreign Corrupt Practices Acts. In this case, Airbus self-reported and voluntarily cooperated with law enforcement after uncovering violations in an internal audit. It is possible an internal report initiated the audit. Cooperation and remedial measures by Airbus were taken into consideration in the settlement terms of the deferred prosecution agreement and benefitted Airbus.

International whistleblowers are crucial to the detection of large-scale corruption and fraud around the world. The SEC and DOJ rely on individuals who decide to anonymously and confidentially blow the whistle on violations of the FCPA. The FCPA allows for foreign nationals to file whistleblower claims in the US and receive an award between 10 and 30 percent of the total amount recovered by the government if a successful enforcement action follows their disclosures.

Copyright Kohn, Kohn & Colapinto, LLP 2020. All Rights Reserved.
For more bribery cases, see the National Law Review Criminal Law & Business Crimes section.

The Promise and Peril of Autonomous Vehicles

The possibility of self-driving cars on our roads is prompting both excitement and anxiety. Advocates point to the possibility of increased safety, lower pollution, even less congestion. Critics aren’t sold on many of the supposed advantages.

So, what happens when driverless vehicles start hitting our roads? As with so many innovations, there are likely to be pluses and minuses.

Let’s consider safety. The United States Department of Transportation estimates that roughly 95% of road accidents are caused by human mistakes; driving too fast for conditions, not paying attention to the road, or illegal maneuvers such as driving through red lights. Given human tendencies to get distracted, one would expect that autonomous vehicles will be safer.

Autonomous vehicles are outfitted with sensors and cameras, which enable them to “see” their surroundings and react to traffic and pedestrians. Companies working on these vehicles have been testing these vehicles in simulated settings as well as on real roads. There is much to tout about their safety aspects: they’re not distracted like humans, they obey speed limits and traffic signs, they don’t drive fatigued.

But driving in traffic has turned out to be more challenging than expected, and a few well-publicized accidents – one involving a Tesla and one an Uber vehicle that killed a pedestrian – have prompted concerns the self-driving technology is not ready for prime time. In particular, that sensors and cameras may not be able to react in real-time to cope with humans who behave like, well, humans.

More choices or less?

“We’re moving to a future where people don’t own cars,” says Dr. Daniel Sperling, director of the Institute of Transportation Studies at the University of California, Davis. “You’ll have a subscription service, maybe, that emphasizes smaller vehicles, or you might want a cheaper service where it’s a van,” he adds.

Dr. Alain Kornhauser, director of the program in transportation at Princeton University, agrees to a point, saying privately owned cars are not likely to vanish completely — especially in rural areas, where getting a driverless taxi may be more challenging. Still, he says, the number of people who own cars — and the number of cars owned per family — will drop sharply.

In many cities with ridesharing services like Lyft or Uber, owning a vehicle has become less urgent. Autonomous vehicles could multiply ridesharing options.

But what if you’re in a rural area without these services? Should rural communities consider investing in self-driving vehicles as a form of public transport? What if you’re in a major city but can’t afford to either own an autonomous vehicle or even subscribe to the service?

There’s also the question of what happens to public transport as self-driving vehicles increase. Will we continue to support and improve the infrastructure for public transportation?

Public transport systems in the U.S. are not as robust as in some European nations. One of the main concerns for Seleta Reynolds, General Manager of Department of Transportation for Los Angeles, is managing access for people in different parts of Los Angeles because she understands how much that can impact one’s financial well-being.

“You can get to about 12 times as many jobs in an hour in a car as you can by transit in L.A.,” she said.

If autonomous vehicles end up reducing access, the financial and social impact could ripple across communities.

Then there is the question of what autonomous vehicles will do to people who drive for a living. According to the U.S. Bureau of Labor Statistics, more than 2.5 million people earn their living from driving – employed as tractor-trailer truck drivers, taxi and delivery drivers, and as bus drivers. If those jobs disappear, that could represent a potential loss of employment equal to what we saw during the Great Recession of 2008.

Many of the people driving vehicles for a living are classified as low-skilled workers. It will be difficult for such unemployed workers to quickly find new work, and the cost of re-training them could be high.

Autonomous vehicles have the potential to spur a massive and exciting paradigm shift. But there are darker clouds on the horizon too. The question is: will we be able to manage the changes wrought by self-driving vehicles in a positive way?

Copyright © 2020 Godfrey & Kahn S.C.

For more on autonomous vehicle developments, see the National Law Review Utilities & Transport Law section.

Federal Court Issues Eleventh-Hour TRO to Enjoin Enforcement of California’s Controversial New Independent Contractor Law for 70,000 Independent Truckers

On January 1, 2020, California’s new independent contractor statute, known as AB 5, went into effect.  The law codifies the use of an “ABC” test to determine if an individual may be classified as an independent contractor.

The hastily passed and controversial statute has been challenged by a number of groups as being unconstitutional and/or preempted by federal law, including ride-share and delivery companies and freelance writers.

Just hours before AB 5 went into effect, a California federal court in San Diego enjoined enforcement of the statute as to some individuals – approximately 70,000 independent truckers, many of whom have invested substantial sums of money to purchase their own trucks and to work as “owner-operators.”

In the lawsuit, the California Trucking Association (“CTA”) has alleged that the “ABC” test set forth in AB 5 is preempted by the Federal Aviation Administration Authorization Act of 1994 (“FAAAA”).

The CTA asserts that the FAAA preempts the “B” prong because it will effectively operate as a de facto prohibition on motor carriers contracting with independent owner-operators, and will therefore directly impact motor carriers’ services, routes, and prices, in contravention of the FAAA’s preemption provision.

The CTA further contends that the test imposes an impermissible burden on interstate commerce, in violation of the Commerce Clause of the U.S. Constitution.  The CTA asserts that the test would deprive motor carriers of the right to engage in the interstate transportation of property free of unreasonable burdens, as motor carriers would be precluded from contracting with a single owner-operator to transport an interstate load that originates or terminates in California.  Instead, motor carriers would be forced to hire an employee driver to perform the leg of the trip that takes place in California.

©2020 Epstein Becker & Green, P.C. All rights reserved.

Apollo Settles Alleged Sanctions Violations: Aircraft Lessors Pay Attention

The Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury has broad delegated authority to administer and enforce the sanctions laws and related sanctions programs of the United States. As a key component of its enforcement authority, OFAC may investigate “apparent violations” of sanctions laws and assess civil monetary penalties against violators pursuant to five statutes, including the Trading with the Enemy Act and the International Emergency Economic Powers Act.1

An “apparent violation” involves “conduct that constitutes an actual or possible violation of U.S. economic sanctions laws.”2 An OFAC investigation of an “apparent violation” may lead to one or more administrative actions, including a “no action” determination, a request for additional information, the issuance of a cautionary letter or finding of violation, the imposition of a civil monetary penalty and, in extreme cases, a criminal referral.3 Investigations of apparent violations by OFAC often lead to negotiated settlements where a final determination is not made as to whether a sanctions violation has actually occurred.4

Upon the conclusion of a proceeding that “results in the imposition of a civil penalty or an informal settlement” against or with an entity (as opposed to an individual), OFAC is required to make certain basic information available to the public.5 In addition, OFAC may release on a “case-by-case” basis “additional information” concerning the penalty proceeding,6 and it often does. Such additional information will sometimes include informal compliance guidance, cautionary reminders and best practices recommendations. Such information is routinely consumed by corporate compliance officers seeking fresh insight on ever-evolving compliance and enforcement trends, particularly in the context of proceedings relating to industries with which they are involved.

On November 7, 2019, OFAC released enforcement information that has caught the attention of the aircraft leasing community, particularly U.S. aircraft lessors and their owned or controlled Irish lessor subsidiaries.7 The matter involved a settlement by Apollo Aviation Group, LLC8 of its potential civil liability for apparent violations of OFAC’s Sudanese Sanctions Regulations (SSR) that existed in 2014–5.9 Although the amount of the settlement was relatively modest, the enforcement activity by OFAC in the proceeding has attracted scrutiny by aircraft lessors because, for the first time in recent memory, a U.S. aircraft lessor has paid a civil penalty to OFAC for alleged sanctions violations.

At the time of the apparent violations, Apollo was a U.S. aircraft lessor which became involved in two engine leasing transactions that came back to haunt it.

In the first transaction, Apollo leased two jet engines to a UAE lessee which subleased them to a Ukrainian airline with which it was apparently affiliated. The sublessee, in turn, installed both engines on an aircraft that it “wet leased”10 to Sudan Airways, which was on OFAC’s List of Specially Designated Nationals and Blocked Persons within the meaning of the “Government of Sudan.” Sudan Airways used the engines on flights to and from Sudan for approximately four months before they were returned to Apollo when the lease ended. Meanwhile, in a separate transaction, Apollo leased a third jet engine to the same UAE lessee, which subleased the engine to the same Ukrainian airline, which installed the engine on an aircraft that it also wet leased to Sudan Airways. Sudan Airways used the third engine on flights to and from Sudan until such time as Apollo discovered how it was being used and demanded that the engine be removed from the aircraft.

Both leases between Apollo and its UAE lessee contained restrictive covenants “prohibiting the lessee from maintaining, operating, flying, or transferring the engines to any countries subject to United States or United Nations sanctions.”11 Thus, by allowing the engines to be installed by its sublessee on aircraft that were eventually wetleased to Sudan Airways, and flown to and from Sudan during the country’s embargo, the lessee presumably breached the operating restrictions and covenants imposed by Apollo in the leases. Moreover, once Apollo learned that the first two engines had been used, and the third engine was being used, for the benefit of Sudan Airways, it demanded that the third engine be removed from the aircraft that the sub-lessee had wet-leased to Sudan Airways, and this was done.12

One might reasonably conclude from these facts that Apollo acted like a good corporate citizen. So what did Apollo do wrong from a sanctions compliance standpoint?

OFAC stated that Apollo may have violated section 538.201 of the SSR, which at the time “prohibited U.S. persons from dealing in any property or interests in property of the Government of Sudan,”13 as well as section 538.205 of the SSR, which at the time “prohibited the exportation or re-exportation, directly or indirectly, of goods, technology or services, from the United States or by U.S. persons to Sudan.”14

What are the takeaways and possible lessons to be drawn by aircraft lessors from this settlement based upon these alleged violations and the facts upon which they were based?

First, according to OFAC, Apollo did not “ensure” that the engines “were utilized in a manner that complied with OFAC’s regulations,” notwithstanding lease language that effectively required its lessee to comply.15 OFAC is clearly suggesting here that aircraft lessors have a duty to require sanctions compliance by their lessees. And, in view of the fact that many sanctions programs are enforced on a strict liability basis, OFAC’s comment that Apollo failed to “ensure” compliance by its lessee and sublessees makes sense. Apollo was not in a position to avoid civil liability by hiding behind the well-drafted language of its two leases. If a sanctions violation occurred for which Apollo was strictly liable, the mere fact that its lessee’s breach of the lease was the proximate cause of the violation would not provide a safe harbor.

As an example of Apollo’s alleged failure to “ensure” legal compliance, OFAC observed that Apollo did not obtain “U.S. law export compliance certificates from lessees and sublessees,”16 a comment which is somewhat puzzling. To our knowledge, there is nothing in the law requiring a lessor to obtain export compliance certificates, at least not in circumstances where an export or re-export license is not otherwise required in connection with the underlying lease transaction. Moreover, as a practical matter, it would be difficult, at best, for an aircraft lessor to force the direct delivery of certificates from a sublessee or sub-sub-lessee with whom it lacks privity of contract. In view of the foregoing, one assumes that OFAC was looking for Apollo to install procedures by which its lessee would self-report on a regular basis its own compliance (and compliance by downstream sublessees) with applicable export control laws and the relevant sanctions restrictions contained in the lease.

Second, OFAC found that Apollo “did not periodically monitor or otherwise verify its lessee’s and sublessee’s adherence to the lease provisions requiring compliance with U.S. sanctions laws during the life of the lease.”17 In this regard, OFAC observed that Apollo never learned how and where its engines were being used until after the first two engines were returned following lease expiration and a post-lease review of engine records, including “specific information regarding their use and destinations,” actually conducted.

In view of the foregoing, OFAC stressed the importance of “companies operating in high-risk industries to implement effective, thorough and on-going, risk-based compliance measures, especially when engaging in transactions concerning the aviation industry.”18 OFAC also reminded aircraft and engine lessors of its July 23, 2019, advisory warning of deceptive practices “employed by Iran with respect to aviation matters.”19 While the advisory focused on Iran, OFAC noted that “participants in the civil aviation industry should be aware that other jurisdictions subject to OFAC sanctions may engage in similar deception practices.”20 Thus, according to OFAC, companies operating internationally should implement Know Your Customer screening procedures and “compliance measures that extend beyond the point-of-sale and function throughout the entire business of lease period.”21

As a matter of best practices, aircraft lessors should implement risk-based sanctions compliance measures throughout the entirety of a lease period, and most do. Continuous KYC screening by lessors of their lessees and sublessees is a common compliance practice. Periodic reporting by lessees as to the use and destination of leased aircraft and engines appears to be a practice encouraged by OFAC.22 Lessors can also make it a regular internal practice to spot check the movement of their leased aircraft through such web-based platforms as Flight Tracker and Flight Aware. If implemented by lessors, such practices may enable early detection of nascent sanctions risks and violations by their lessees and sublessees.

Finally, OFAC reminded lessors that they “can mitigate sanctions risk by conducting risk assessments and exercising caution when doing business with entities that are affiliated with, or known to transact business with, OFAC-sanctioned persons or jurisdictions, or that otherwise pose high risks due to their joint ventures, affiliates, subsidiaries, customers, suppliers, geographic location, or the products and services they offer.” Such risk assessment is an integral part of the risk-based sanctions compliance program routinely encouraged by OFAC, as outlined in its Framework for OFAC Compliance Commitments on May 2, 2019.23 For aircraft and engine lessors, conducting pre-lease due diligence on the ownership and control of prospective lessees and sublessees, as well as the business they conduct, the markets they serve, the equipment they use and the aviation partners with whom they engage, are key to identifying and understanding the sanctions risks that a prospective business opportunity presents.

1 See U.S. Department of the Treasury, Office of Foreign Assets Control, Inflation Adjustment of Civil Monetary Penalties, Final Rule, 84 Fed. Reg. 27714, 27715 (June 14, 2019).

2 31 C.F.R. Part 501, Appendix A, Section I.A.

3 31 C.F.R. Part 501, Appendix A, Section II.

4 31 C.F.R. Part 501, Appendix A, Section V.C.

5 31 C.F.R. §501.805(d)(1). Such information includes “(A) [t]he name and address of the entity involved, (B) [t]he sanctions program involved, (C) A brief description of the violation or alleged violation, (D) [a] clear indication whether the proceeding resulted in an informal settlement or in the imposition of a penalty, (E) [a]n indication whether the entity voluntarily disclosed the violation or alleged violation to OFAC, and (F) [t]he amount of the penalty imposed or the amount of the agreed settlement.” Id. OFAC communicates all such information through its website. 31 C.F.R. § 501.805(d)(2).

6 31 C.F.R. § 501.805(d)(4).

7 See OFAC Resource Center, Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and Apollo Aviation Group, LLC (Nov. 7, 2019) (https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Page…) (the Settlement Announcement).

8 In December 2018, Apollo was acquired by The Carlyle Group and currently operates as Carlyle Aviation Partners Ltd. According to the Settlement Announcement, neither The Carlyle Group nor its affiliated funds were involved in the apparent violations at issue. See id. at 1 n.1.

9 See 31 C.F.R. Part 538, Sudanese Sanctions Regulations (7-1-15 Edition). Note that most sanctions with respect to Sudan were effectively revoked by general license as of October 2, 2017, thereby authorizing transactions previously prohibited by the SSR during the time period of the apparent violations by Apollo. However, as is true when most sanctions programs are lifted, the general license issued in the SSR program did not “affect past, present of future OFAC enforcements or actions related to any apparent violations of the SSR relating to activities that occurred prior to the date of the general license.” Settlement Announcement at 1 n.2. See also OFAC FAQ 532 (https://www.treasury.gov/resource-center/faqs/Sanctions/Pages/faq_other.aspx#sudan_whole). 

10 A “wet lease” is “an aviation leasing arrangement whereby the lessor operates the aircraft on behalf of the lessee, with the lessor typically providing the crew, maintenance and insurance, as well as the aircraft itself.” See Settlement Announcement at 1 n.3.

11 Id. at 1.

12 Unfortunately, Apollo did not learn that the first two engines were used in violation of lease restrictions until they were returned following lease expiration and it conducted a post-lease review of the relevant engine records. 

13 The alleged application of section 538.201 to Apollo in the circumstances confirms the broad interpretive meaning that OFAC often ascribes to terms such as “interest,” “property,” “property interest” and “dealings,” which appear in many sanctions programs.

14 The alleged application of section 538.205 to Apollo in the circumstances suggests that a U.S. lessor of aircraft and jet engines may be tagged with the “re-export” of such goods and related services from one foreign country to another, notwithstanding the existence of a contractual daisy-chain of lessees, sub-lessees, and/or wetlessees that actually direct and control such flight decisions. In the context of U.S. export control laws, the Export Administration Regulations (EAR) define the term “re-export” to include the “actual shipment or transmission of an item subject to the EAR from one foreign country to another foreign country, including the sending or taking of an item to or from such countries in any manner.” 15 C.F.R. § 734.14(a)(1). Thus, for export control purposes, the flight of an aircraft subject to the EAR from one foreign county to another foreign country constitutes a “re-export” of the aircraft to that country. 

15 Settlement Announcement at 1.

16 Id.

17 Id., at 1–2.

18 Id. at 3. (emphasis added).

19 Id. See OFAC, Iran-Related Civil Aviation Industry Advisory (July 23, 2019) (https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20190723.aspx)

20 Id.

21 Id. (emphasis added).

22 In Apollo, OFAC reacted favorably to certain steps alleged to have been taken by Apollo to minimize the risk of the recurrence of similar conduct, including the implementation of procedures by which Apollo began “obtaining U.S. law export compliance certificates from lessees and sublessees.” Id.

23 See https://www.treasury.gov/resource-center/sanctions/Documents/framework_ofac_cc.pdf.

© 2019 Vedder Price

ARTICLE BY John E. Bradley of Vedder Price.
More sanctions actions on the National Law Review Antitrust & Trade Regulation law page.

Court to Consider Whether California Ride Share Drivers Who Make Airport Runs Are Exempt from the Federal Arbitration Act

On November 26, 2019, San Francisco Superior Court Judge Richard B. Ulmer ruled that the Federal Arbitration Act (“FAA”) might not apply to Uber drivers who are engaged in interstate commerce while driving passengers to or from international airports.

In his claims before the Division of Labor Standards and Enforcement (“DLSE”), driver Sangam Patel (“Patel”) seeks recovery of unpaid wages, overtime pay, vacation pay, meal and rest break premiums, and unpaid business expenses allegedly owed by Uber. Uber petitioned to compel arbitration of Patel’s (“Patel”) claims under the FAA.

The Labor Code provides a right to bring an action to collect wages notwithstanding the existence of an arbitration agreement. Cal. Lab. Code § 229. If the FAA applies, a written arbitration agreement “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. The FAA applies to any “contract evidencing a transaction involving commerce” that contains an arbitration provision. Id. The FAA does not apply, however, to “contracts of…workers engaged in foreign or interstate commerce.” Id., at § 1.

Notably, there is a distinction between the term “involving” for purposes of section 2 and the term “engaged in” for purposes of section 1.

As the California Court of Appeal explained earlier this year in Muller v. Roy Miller Freight Lines, LLC (2019) 34 Cal.App.5th 1056, 1062, “the [United States] Supreme Court reasoned the plain meaning of ‘engaged in’ interstate commerce in section 1 is narrower in scope than the open-ended phrase ‘involving’ commerce in section 2. Unlike section 2’s reference to ‘involving commerce,’ which ‘indicates Congress’ intent to regulate to the outer limits of its authority under the Commerce Clause’ and thus is afforded an ‘expansive reading,’ section 1’s reference to ‘engaged in commerce’ is ‘narrower,’ and therefore ‘understood to have a more limited reach,’ requiring ‘a narrow construction’ and a ‘precise reading.’” (Internal citations omitted.)

Uber argued that the FAA applies to its arbitration provision because it involves commerce as the Uber app is available to riders and transportation providers in over 175 cities across the United States. Relying on precedent that stands for the proposition that workers need only engage in activities that affect interstate commerce to be considered “engaged in interstate commerce,” the Labor Commissioner argued that Uber drivers such as Patel engage in interstate commerce when they transport passengers to and from international airports, thus rendering the FAA inapplicable.

The argument is similar to that raised Singh v. Uber Techs. Inc. earlier this year, where the U.S. Court of Appeals for the Third Circuit rejected Uber’s argument that a group of New Jersey drivers suing for unpaid overtime wages were required to arbitrate their claims. The Singh Court found that transportation workers who transport passengers may be exempt from the FAA if they are engaged in interstate commerce. Singh claimed that he frequently transported passengers on the highway across state lines, between New York and New Jersey. In light of the factual dispute as to whether Uber drivers engaged in interstate commerce, the Third Circuit sent the case back to the district court to decide, after discovery on the issue, whether Singh and the proposed class of Uber drivers engaged in interstate commerce. If they did, the FAA would not apply.

Consistent with the Third Circuit in Singh, Judge Ulmer granted the Commissioner’s request for limited discovery on the issue of whether Uber drivers engage in interstate commerce. Following that discovery, Uber may then re-calendar its petition for hearing.

The case bears watching as it may provide employees in some industries with arguments to try to circumvent the otherwise enforceable arbitration agreements that they signed with their employers. Ultimately, if Uber drivers are found to be engaged in interstate commerce such that the FAA is inapplicable, the FAA would not preempt their right to file suit under Labor Code section 229 notwithstanding any private agreement to arbitrate. But section 229 only applies to actions to collect due and unpaid wages. Any other claims – such as claims for missed meal or rest periods, failure to reimburse business expenses, or failure to provide accurate wage statements – would not be covered and, thus, should still be subject to a valid and enforceable arbitration agreement. It will be interesting to see if and how that issue is addressed.

©2019 Epstein Becker & Green, P.C. All rights reserved.

More on the Federal Arbitration Act can be found on the National Law Review ADR, Arbitration and Mediation law page.

Legal Alert: Not So Fast: National Labor Relations Board Rejects Boeing S.C. Micro Unit

On September 9, 2019, the National Labor Relations Board (the “Board”) clarified its test for unionizing “micro units” of employees within larger workforces, and prevented the International Association of Machinists from representing a small group of Boeing Co. technicians at a plant in South Carolina. The Boeing Company, 368 NLRB No. 67 (2019). In a three-to-one vote, the Board said a proposed bargaining unit consisting of about 175 flight-readiness technicians at Boeing’s Charleston Final Assembly operation does not meet federal standards for appropriate units, because the workers are not distinct from the site’s larger workforce of approximately 2,700 maintenance and production workers.

The International Association of Machinists won an election in May of 2018 to become the bargaining representative of this smaller unit of employees. This election followed an earlier election where a large unit of production and maintenance workers rejected the Union in a 2,087 – 731 vote. After the May 2018 election, the Company appealed the certification of the smaller unit of Boeing employees, arguing that the NLRB Regional Director had improperly approved the small unit of flight-readiness technicians.

In Boeing, the Board indicated that the standard it set forth for unionizing smaller bargaining units of employees in the PCC Structurals decision from December of 2017 was being misapplied. The standard for unionizing micro units of employees, as set forth in Boeing, requires a three-step legal analysis to determine the appropriateness of the proposed bargaining unit. First, the proposed unit must share an internal community of interest. Second, the interests of those within the proposed unit and the shared and distinct interests of those excluded from that unit must be comparatively analyzed and weighed. Third, consideration must be given to the Board’s decisions on appropriate units in the particular industry involved.

Moving forward, unions will have to demonstrate a sufficiently distinct community of interest among the proposed bargaining unit as compared to excluded employees. And, excluded employees’ distinct interests will have to outweigh the similarity of interests that excluded employees share with members of the proposed bargaining unit. This decision strikes a strong blow against unions’ efforts to organize and represent smaller bargaining units.

Copyright © 2019 Ryley Carlock & Applewhite. A Professional Association. All Rights Reserved.

For more NLRB decision-making, see the Labor & Employment law page on the National Law Review.

When Birds Finally Find a Nest

If you’ve walked outside your office building or downtown condo over the past few months, you’ve probably seen electric scooters parked on sidewalks, in bike racks, in the street, on the steps, or even in a local tree. To some, their presence in the urban landscape is but a mere inconvenience, simply ignored as they walk to their car parked a few feet away. To others, their presence generates a hatred so powerful residents find their cause worthy of protesting to their local city council, recklessly throwing the scooters into local waterways, and even starting an Instagram account with over 100,000 followers dedicated to their destruction. But cities around the globe have come to realize that although their presence can be alarming and uncomfortable to some, finding a solution to make them coexist with residents, pedestrians, and commuters will be an essential component of their urban fabric.

As we mentioned in our September 20, 2018 blog post, Have Electric Scooters Pushed Cities Too Far?, many scooter companies have taken the “dark of night” approach when arriving in new cities, often arriving without notice or much consult with local regulators. In response to this strategy, cities like Ann Arbor, Michigan and Indianapolis, Indiana instituted outright bans on the presence of ride-sharing scooters entirely. In some cases, after negotiations with these cities, Birds, Limes, and Spins were allowed back to the cities in small numbers and in highly regulated instances. In other cases, the scooters remained banned with no relief for the companies or residents in sight.

In many cities which opted to ban and continue to ban these scooters, the biggest issue has been parking and reckless driving by commuters and joyriders alike. Understandably, the presence of this new form of transit, intermixed with pedestrian walking space in a seemingly overnight fashion has made some pedestrians cautious and warry while walking to their favorite restaurants. If you read the local news in cities and towns where scooters are abundant, you might think that accidents are commonplace and injuries abundant. A recent UCLA study concluded that over a one year period, scooters contributed to almost 250 injuries with only 4% of riders wearing a helmet. On the other hand, a recent CDC study concluded that only one in every 5,000 scooter rides results in injury. A similar study conducted by the City of Portland found bicycles were involved in more accidents over a four month period compared to scooters, but the study conceded that bike rides often are in greater abundance and longer distance, making the comparison a bit more difficult to verify.

In an effort to build in a ground-up change in rider behavior, many scooter companies have looked to incentivize responsible riders for proper parking and penalize irresponsible riders for poor parking and riding between trips. Bird has recently started rolling out a per-ride credit to riders who park their scooters in geofenced parking areas designated for scooters. Similarly, scooter companies Lime, Bird, and Spin have allowed non-riders to report improperly parked scooters or reckless riders. In an effort to work in tandem with the scooter companies, many cities are encouraging riders to share the road with cars by incorporating protected bike lanes and resurfacing roadways to accommodate scooters and bikers alike. Similarly, some cities like Kansas City, Missouri and Santa Monica, California have repurposed on street parking spaces capable of holding one car with scooter specific parking, capable of holding up to 20 scooters each. Incorporating these parking solutions into the city scape has resulted in 46% greater compliance with parking ordinances than prior to their implementation.

© 2019 Foley & Lardner LLP
For more urban transportation issues, see the National Law Review Utilities & Transport law page.

Politics Trumps Economics? Trump’s Revocation of California’s Waiver Under the Clean Air Act

Today President Trump announced on Twitter that the U.S. was revoking California’s waiver under the Clean Air Act (CAA) which allowed it to impose stricter tailpipe emission standards than the federal ones. California’s Governor Newsom and Attorney General Becerra immediately announced that the state would file suit to challenge the revocation.

While the revocation has been characterized as an immediate rollback, the federal corporate average fuel economy (CAFE) standards[1] established under the previous administration, which are consistent with California’s, remain in place. Last year the Trump administration proposed to rollback those standards, freezing the efficiency and emission rules in 2021 and canceling further increases in stringency set through 2028. The final rule has not yet been issued. It is rumored that it will not be, as the administrative record supporting it has many problems and most acknowledge that it faces significant legal hurdles.

A little historical context is helpful. California began regulating tailpipe emissions in the 1960’s under then-Governor Reagan to combat air pollution. When the CAA was signed by President Nixon in 1970 it included a provision, Section 209, that allows California to establish stricter standards by obtaining a waiver of the normal federal preemption rules from U.S. Environmental Protection Agency (EPA). Once granted, other states then can adopt California’s standards. Thirteen states and the District of Columbia have adopted California’s current standards.

For 30 years, under both Republican and Democratic administrations, Section 209 waivers to combat air pollution were routinely granted. In April 2007, the U.S. Supreme Court decided Massachusetts v. EPA, 549 U.S. 497 (2007), ruling that greenhouse gases (GHGs) are pollutants under the CAA. In December 2007, the Bush administration denied California’s request for a waiver to impose tailpipe emission standards aimed at reducing GHGs. California promptly sued in January 2008, joined by 11 other states. That case was pending before the U.S. Supreme Court when President Obama took office. In 2009, the parties settled the case before the Court issued its decision, and in 2010 the U.S. and California reached an agreement that aligned the state and federal standards. Those standards were subsequently expanded and a new waiver was granted in January 2013. It is that waiver that is now being revoked.

While litigation is inherently uncertain, it appears that California has a good case for challenging the revocation. Not only is the revocation unprecedented, there is no provision in the CAA providing for it. Section 209 only establishes the criteria for granting a waiver; it’s silent as to revocation. In 2013, the U.S. determined that the criteria for the waiver had been met, and both the states and the industry have acted in reliance on that determination for more than 6 years. The U.S. has also asserted that the federal Energy Policy and Conservation Act (EPCA) preempts California’s standards. However, in Massachusetts v. EPA, the Supreme Court ruled that EPCA does not displace EPA’s authority to regulate GHGs, and courts subsequently have extended that rationale to hold that EPCA does not preempt states’ regulation of GHGs under the waiver.

Just as it was in the late aughts, the automobile industry has been put in an extremely difficult position by this dispute. California has the 5th largest economy in the world, and when one adds in the 13 other states that have adopted its standards – states like New York and Pennsylvania – that equates to a large segment of the auto market. Having to produce vehicles to meet two different sets of emission standards would be extremely costly. The industry desperately needs regulatory certainty. Reflecting this, in June, 17 automakers sent a letter to President Trump calling for one national standard that included California, and in July, four automakers reached an agreement of sorts with California on emission standards.

Instead of the regulatory certainty that is needed for the economy to operate efficiently, it appears that this dispute will move into a phase of protracted litigation and years of regulatory uncertainty. The dispute may be good politics for those that want to motivate their base on each side, both Republicans in Washington D.C. and Democrats in Sacramento, but it is pretty clearly bad economics.

[1]   CAFE is, essentially, the average fuel efficiency of an automaker’s fleet of vehicles.

Copyright © 2019, Sheppard Mullin Richter & Hampton LLP.

For more on the Clean Air Act, see the National Law Review Environmental, Energy & Resources law page.

Not So Fast And Furious – Executive Indicted for Stealing Self-Driving Car Trade Secrets

Back in March, 2017, we posted about a civil lawsuit against Anthony Levandowski, who allegedly sped off with a trove of trade secrets after resigning from Waymo LLC, Google’s self-driving technology company. Waymo not only sued Levandowski, but also his new employer, Uber, and another co-conspirator, Lior Ron. Since our initial post, things have gotten progressively worse for the Not So Fast and Furious trio: (1) Levandowski was fired in May, 2017; (2) Uber settled, giving up 5% of its stock, which totaled $245 million dollar;  and (3) the case against Levandowski and Ron was sent to arbitration, where the arbitration panel reportedly issued a $128 million interim award to Waymo.

Just when things couldn’t seem to get any worse, they did.

On August 15, 2019, a federal grand jury indicted Levandowski on 33 counts relating to trade secret theft. Levandowski has pled not guilty, has been released on $2 million dollars bail, and  is currently wearing an ankle monitor.

This legal saga is a reminder that trade secret theft is serious… it not only has civil consequences, but also criminal ones.  Unfortunately, trade secret theft happens every day.  And regardless of whether your company has trade secrets regarding self-driving car technology, worth hundreds of millions of dollars, or customer information worth less than a hundred thousand dollars, it’s important to make sure your company’s information is protected.

Equally important is knowing how to investigate potential trade secret theft. Some helpful tips as you launch your investigation:

1. Secure and preserve all relevant computing devices and email/file-sharing accounts.

2. Consider enlisting the help of outside computer forensic experts.

3. Analyze the employee’s computing activities on company computers and accounts.

4. Determine whether there is any abnormal file access, including during non-business hours.

5. Examine the employee’s use of external storage devices and whether those devices have been returned.

6. Review text message and call history from the employee’s company issued cell phone (and never instruct anyone to factory reset cell phones).

7. Enlist the help of outside counsel to set the parameters of the investigation.

© 2019 Jones Walker LLP
For more on trade secret law, see the National Law Review Intellectual Property law page.

Heavy Metal Murder Machines and the People Who Love Them

What is the heaviest computer you own?  Chances are, you are driving it.

And with all of the hacking news flying past us day after day, our imaginations have not even begun to grasp what could happen if a hostile person decided to hack our automotive computers – individually or en masse. What better way to attack the American way of life but disable and crash armies of cars, stranding them on the road, killing tens of thousands, shutting down functionality of every city? Set every Ford F-150 to accelerated to 80 miles an hour at the same time on the same day and don’t stick around to clean up the mess.

We learned the cyberwarfare could turn corporal with the US/Israeli STUXNET bug forcing Iran’s nuclear centrifuges to overwork and physically break themselves (along with a few stray Indian centrifuges caught in the crossfire). This seems like a classic solution for terror attacks – slip malicious code into machines that will actually kill people. Imagine if the World Trade Center attack was carried out from a distance by simply taking over the airplanes’ computer operations and programing them to fly into public buildings.  Spectacular mission achieved and no terrorist would be at risk.

This would be easy to do with automobiles. For example, buy a recent year used car on credit at most U.S. lots and the car comes with a remote operation tool that allows the lender to shut off the car, to keep it from starting up, and to home in on its location so the car can either be “bricked” or grabbed by agents of the lender due to non-payment. We know that a luxury car includes more than 100 million lines of code, where a Boeing 787 Dreamliner contains merely 6.5 million lines of code and a U.S. Airforce F-22 Raptor Jet holds only 1.7 million lines of code.  Such complexity leads to further vulnerability.

The diaphanous separation between the real and electronic worlds is thinning every day, and not enough people are concentrating on the problem of keeping enormous, powerful machines from being hijacked from afar. We are a society that loves its freedom machines, but that love may lead to our downfall.

An organization called Consumer Watchdog has issued a report subtly titled KILL SWITCH: WHY CONNECTED CARS CAN BE KILLING MACHINES AND HOW TO TURN THEM OFF, which urges auto manufacturers to install physical kill switches in cars and trucks that would allow the vehicles to be disconnected from the internet. The switch would cost about fifty cents and could prevent an apocalyptic loss of control for nearly every vehicle on the road at the same time. (The IoT definition of a bad day)

“Experts agree that connecting safety-critical components to the internet through a complex information and entertainment device is a security flaw. This design allows hackers to control a vehicle’s operations and take it over from across the internet. . . . By 2022, no less than two-thirds of new cars on American roads will have online connections to the cars’ safety-critical system, putting them at risk of deadly hacks.”

And if that isn’t frightening enough, the report continued,

“Millions of cars on the internet running the same software means a single exploit can affect millions of vehicles simultaneously. A hacker with only modest resources could launch a massive attack against our automotive infrastructure, potentially causing thousands of fatalities and disrupting our most critical form of transportation,”

If the government dictates seat belts and auto emissions standards, why on earth wouldn’t the Transportation Department require a certain level of security of connectivity and software invulnerability from the auto industry.  We send millions of multi-ton killing machines capable of blinding speeds out on our roads every day, and there seems to be no standard for securing the hackability of these machines.  Why not?

And why not require the 50 cent kill switch that can isolate each vehicle from the internet?

50 years ago, when Ralph Nader’s Unsafe at Any Speed demonstrated the need for government regulation of the auto industry so that car companies’ raw greed would not override customer safety concerns.  Soon after, Lee Iacocca led a Ford design team that calculated it was worth the horrific flaming deaths of 180 Ford customers each year in 2,100 vehicle explosions due to flawed gas tank design that was eventually fixed with a tool costing less than one dollar per car.

Granted that safety is a much more important issue for auto manufacturers now than in the 1970s, but if so, why have we not seen industry teams meeting to devise safety standards in auto electronics the same way standards have been accepted in auto mechanics? If the industry won’t take this standard-setting task seriously, then the government should force them to do so.

And the government should be providing help in this space anyway. Vehicle manufacturers have only a commercially reasonable amount of money to spend addressing this electronic safety problem.  The Russian and Iranian governments have a commercially unreasonable amount of money to spend attacking us. Who makes up the difference in this crital infrastructure space? Recognizing our current state of cyber warfare – hostile government sponsored hackers are already attacking our banking and power systems on a regular basis, not to mention attempting to manipulate our electorate – our government should be rushing in to bolster electronic and software security for the automotive and trucking sectors. Why doesn’t the TSB regulate the area and provide professional assistance to build better protections based on military grade standards?

Nothing in our daily lives is more dangerous than our vehicles out of control. Nearly 1.25 million people die in road crashes each year, on average 3,287 deaths a day. An additional 20-50 million per year are injured or disabled. A terrorist or hostile government attack on the electronic infrastructure controlling our cars would easily multiply this number as well as shutting down the US roads, economy and health care system for all practical purposes.

We are not addressing the issue now with nearly the seriousness that it demands.

How many true car–mageddons will need to occur before we all take electric security seriously?

Copyright © 2019 Womble Bond Dickinson (US) LLP All Rights Reserved.

This article was written by Theodore F. Claypoole of Womble Bond Dickinson (US) LLP.
For more on vehicle security, please see the National Law Review Consumer Protection law page.