Tag: Litigation

Only two more weeks until the Retail Law 2014 Conference – October 15-17, 2014, Charlotte, NC

The National Law Review is pleased to bring you information about the upcoming Retail Law Conference:

Retail Law 2014: At the Intersection of Technology and Retail Law
Retail Law 2014: At the Intersection of Technology and Retail Law

Register Today!

When

October 15-17, 2014

Where

Charlotte, NC

The 2014 Retail Law Conference takes place October 15-17 in Charlotte, NC. This year’s program is stronger than ever with relevant, compelling and interactive sessions focused on the legal issues affecting retailers. In partnership with the Retail Litigation Center (RLC), RILA will host legal counsel from leaders in the retail industry for the fifth annual event.

This year’s Retail Law Conference will feature issues at the intersection of technology and law, how the two spaces interact and the impact that they have on retailers. Topics will likely include:

  • Anatomy of a Data Breach: Prevention & Response
  • Privacy: Understanding New Technologies & Data Collection
  • Advertising Practices: Enforcement & Social Media
  • ADA Implications for New Technologies
  • Legal Implications for Future Payment Technologies
  • Policies & Procedures of The “Omnichannel” Age
  • Patent Litigation “Heat Maps”
  • Union Organizing Campaigns
  • Wage & Hour Litigation
  • EEOC Enforcement
  • Foreign Corrupt Practices Act
  • Corporate Governance & Disclosure
  • Election 2014
  • Dueling Views of The U.S. Supreme Court
  • Legal Ethics

The Retail Law Conference is open to executives from retail and consumer goods product manufacturing companies. All others, such as law firms and service providres, must sponsor in order to attend, and can do so by contacting Tripp Taylor at tripp.taylor@rila.org.

Attend the Retail Law 2014 Conference – October 15-17, 2014, Charlotte, North Carolina

The National Law Review is pleased to bring you information about the upcoming Retail Law Conference:

Retail Law 2014: At the Intersection of Technology and Retail Law
Retail Law 2014: At the Intersection of Technology and Retail Law

Register Today!

When

October 15-17, 2014

Where

Charlotte, NC

The 2014 Retail Law Conference takes place October 15-17 in Charlotte, NC. This year’s program is stronger than ever with relevant, compelling and interactive sessions focused on the legal issues affecting retailers. In partnership with the Retail Litigation Center (RLC), RILA will host legal counsel from leaders in the retail industry for the fifth annual event.

This year’s Retail Law Conference will feature issues at the intersection of technology and law, how the two spaces interact and the impact that they have on retailers. Topics will likely include:

  • Anatomy of a Data Breach: Prevention & Response
  • Privacy: Understanding New Technologies & Data Collection
  • Advertising Practices: Enforcement & Social Media
  • ADA Implications for New Technologies
  • Legal Implications for Future Payment Technologies
  • Policies & Procedures of The “Omnichannel” Age
  • Patent Litigation “Heat Maps”
  • Union Organizing Campaigns
  • Wage & Hour Litigation
  • EEOC Enforcement
  • Foreign Corrupt Practices Act
  • Corporate Governance & Disclosure
  • Election 2014
  • Dueling Views of The U.S. Supreme Court
  • Legal Ethics

The Retail Law Conference is open to executives from retail and consumer goods product manufacturing companies. All others, such as law firms and service providres, must sponsor in order to attend, and can do so by contacting Tripp Taylor at tripp.taylor@rila.org.

Dodd-Frank Whistleblower Litigation Heating Up

Barnes Thornburg

The past few months have been busy for courts and the SEC dealing with securities whistleblowers. The Supreme Court’s potentially landmark decision in Lawson v. FMR LLC back in March already seems like almost ancient history.  In that decision, the Supreme Court concluded that Sarbanes-Oxley’s whistleblower protection provision (18 U.S.C. §1514A) protected not simply employees of public companies but also employees of private contractors and subcontractors, like law firms, accounting firms, and the like, who worked for public companies. (And according to Justice Sotomayor’s dissent, it might even extend to housekeepers and gardeners of employees of public companies).

Since then, a lot has happened in the world of whistleblowers. Much of the activity has focused on Dodd-Frank’s whistleblower-protection provisions, rather than Sarbanes-Oxley. This may be because Dodd-Frank has greater financial incentives for plaintiffs, or because some courts have concluded that it does not require an employee to report first to an enforcement agency. The following are some interesting developments:

What is a “whistleblower” under Dodd-Frank?

This seemingly straightforward question has generated a number of opinions from courts and the SEC. The Dodd-Frank Act’s whistleblower-protection provision, enacted in 2010, focuses on a potentially different “whistleblower” population than Sarbanes-Oxley does. Sarbanes-Oxley’s provision focuses particularly on whistleblower disclosures regarding certain enumerated activities (securities fraud, bank fraud, mail or wire fraud, or any violation of an SEC rule or regulation), and it protects those who disclose to a person with supervisory authority over the employee, or to the SEC, or to Congress.

On the other hand, Dodd-Frank’s provision (15 U.S.C. §78u-6 or Section 21F) defines a “whistleblower” as “any individual who provides . . . information relating to a violation of the securities laws to the Commission.”  15 U.S.C. §78u-6(a)(6).  It then prohibits, and provides a private cause of action for, adverse employment actions against a whistleblower for acts done by him or her in “provid[ing] information to the Commission,” “initiat[ing], testif[ing] in, or assist[ing] in” any investigation or action of the Commission, or in making disclosures required or protected under Sarbanes-Oxley, the Exchange Act or the Commission’s rules.  15 U.S.C. §78u-6(h)(1). A textual reading of these provisions suggests that a “whistleblower” has to provide information relating to a violation of the securities laws to the SEC.  If the whistleblower does so, an employer cannot discriminate against the whistleblower for engaging in those protected actions.

However, after the passage of Dodd-Frank, the SEC promulgated rules explicating its interpretation of Section 21F. Some of these rules might require providing information to the SEC, but others could be construed more broadly to encompass those who simply report internally or report to some other entity.  Compare Rule 21F-2(a)(1), (b)(1), and (c)(3), 17 C.F.R. §240.21F-2(a)(1), (b)(1), and (c)(3). The SEC’s comments to these rules also said that they apply to “individuals who report to persons or governmental authorities other than the Commission.”

Therefore, one issue beginning to percolate up to the appellate courts is whether Dodd-Frank’s anti-retaliation provisions consider someone who reports alleged misconduct to their employers or other entities, but not the SEC, to be a “whistleblower.” The only circuit court to have squarely addressed the issue (the Fifth Circuit in Asadi v. G.E. Energy (USA) LLC) concluded that Dodd-Frank’s provision only applies to those who actually provide information to the SEC.

In doing so, the Fifth Circuit relied heavily on the “plain language and structure” of the statutory text, concluding that it unambiguously required the employee to provide information to the SEC.  Several district courts, including in Colorado, Florida and the Northern District of California, have concurred with this analysis.

More, however, have concluded that Dodd-Frank is ambiguous on this point and therefore have given Chevrondeference to the SEC’s interpretation as set forth in its own regulations. District courts, including in the Southern District of New York, New Jersey, Massachusetts, Tennessee and Connecticut, have adopted this view. The SEC has also weighed in, arguing (in an amicus brief to the Second Circuit) that whistleblowers should be entitled to protection regardless of whether they disclose to their employers or the SEC.  The agency said that Asadi was wrongly decided and, under its view, employees that report internally should get the same protections that those who report to the SEC receive. The Second Circuit’s decision in that case (Liu v. Siemens AG) did not address this issue at all.

Finally, last week, the Eighth Circuit also decided not to take on this question. It opted not to hear an interlocutory appeal, in Bussing v. COR Securities Holdings Inc., in which an employee at a securities clearing firm provided information about possible FINRA violations to her employer and to FINRA, rather than the SEC, and was allegedly fired for it. The district court concluded that the fact that she failed to report to the SEC did not exclude her from the whistleblower protections under Dodd-Frank. It reasoned that Congress did not intend, in enacting Dodd-Frank, to encourage employees to circumvent internal reporting channels in order to obtain the protections of Dodd-Frank’s whistleblower protection.  In doing so, however, the district court did not conclude that the statute was ambiguous and rely on the SEC’s interpretation.

A related question is what must an employee report to be a “whistleblower” under Dodd-Frank. Thus far, if a whistleblower reports something other than a violation of the securities laws, that is not protected. So, for example, an alleged TILA violation or an alleged violation of certain banking laws have been found to be not protected.

These issues will take time to shake out. While more courts thus far have adopted, or ruled consistently with, the SEC’s interpretation, as the Florida district court stated, “[t]he fact that numerous courts have interpreted the same statutory language differently does not render the statute ambiguous.”

Does Dodd-Frank’s whistleblower protection apply extraterritorially?

In August, the Second Circuit decided Liu. Rather than focus on who can be a whistleblower, the Court concluded that Dodd-Frank’s whistleblower-protection provisions do not apply to conduct occurring exclusively extraterritorially. In Liu, a former Siemens employee alleged that he was terminated for reporting alleged violations of the FCPA at a Siemens subsidiary in China.  The Second Circuit relied extensively on the Supreme Court’s Morrison v. Nat’l Aust. Bank case in reaching its decision. In Morrison, the Court reaffirmed the presumption that federal statutes do not apply extraterritorially absent clear direction from Congress.

The Second Circuit in Liu, despite Liu’s argument that other Dodd-Frank provisions applied extraterritorially and SEC regulations interpreting the whistleblower provisions at least suggested that the bounty provisions applied extraterritorially, disag
reed. The court concluded that it need not defer to the SEC’s interpretation of who can be a whistleblower because it believed that Section 21F was not ambiguous.  It also concluded that the anti-retaliation provisions would be more burdensome if applied outside the country than the bounty provisions, so it did not feel the need to construe the two different aspects of the whistleblower provisions identically.  And finally, the SEC , in its amicus brief, did not address either the extraterritorial reach of the provisions or Morrison, so the Second Circuit apparently felt no need to defer to the agency’s view on extraterritoriality.

Liu involved facts that occurred entirely extraterritorially. He was a foreign worker employed abroad by a foreign corporation, where the alleged wrongdoing, the alleged disclosures, and the alleged discrimination all occurred abroad. Whether adding some domestic connection changes this result remains for future courts to consider.

The SEC’s Use Of The Anti-Retaliation Provision In An Enforcement Action

In June, the SEC filed, and settled, its first Dodd-Frank anti-retaliation enforcement action. The Commission filed an action against Paradigm Capital Management, Inc., and its principal Candace Weir, asserting that they retaliated against a Paradigm employee who reported certain principal transactions, prohibited under the Investment Advisers Act, to the SEC. Notably, that alleged retaliation did not include terminating the whistleblower’s employment or diminishing his compensation; it did, however, include removing him as the firm’s head trader, reconfiguring his job responsibilities and stripping him of supervisory responsibility. Without admitting or denying the SEC’s allegations, both respondents agreed to cease and desist from committing any future Exchange Act violations, retain an independent compliance consultant, and pay $2.2 million in fines and penalties.  This matter marks the first time the Commission has asserted Dodd-Frank’s whistleblower provisions in an enforcement action, rather than a private party doing so in civil litigation.

The SEC Announces Several Interesting Dodd-Frank Bounties

Under Dodd-Frank, whistleblowers who provide the SEC with “high-quality,” “original” information that leads to an enforcement action netting over $1 million in sanctions can receive an award of 10-30 percent of the amount collected. The SEC recently awarded bounties to whistleblowers in circumstances suggesting the agency wants to encourage a broad range of whistleblowers with credible, inside information.

In July, the agency awarded more than $400,000 to a whistleblower who appears not to have provided his information to the SEC voluntarily.  Instead, the whistleblower had attempted to encourage his employer to correct various compliance issues internally. Those efforts apparently resulted in a third-party apprising an SRO of the employer’s issues and the whistleblower’s efforts to correct them. The SEC’s subsequent follow-up on the SRO’s inquiry resulted in the enforcement action. Even though the “whistleblower” did not initiate communication with the SEC about these compliance issues, for his efforts, the agency nonetheless awarded him a bounty.

Then, just recently, the SEC announced its first whistleblower award to a company employee who performed audit and compliance functions. The agency awarded the compliance staffer more than $300,000 after the employee first reported wrongdoing internally, and then, when the company failed to take remedial action after 120 days, reported the activity to the SEC. Compliance personnel, unlike most employees, generally have a waiting period before they can report out, unless they have a reasonable basis to believe investors or the company have a substantial risk of harm.

With a statute as sprawling as Dodd-Frank, and potentially significant bounty awards at stake, opinions interpreting Dodd-Frank’s whistleblower provisions are bound to proliferate. Check back soon for further developments.

 
ARTICLE BY

Brian E. Casey
 
OF 
Barnes & Thornburg LLP

Indian Nations Law Focus – August 2014

In Cayuga Indian Nation of New York v. Seneca County, N.Y., 2014 WL 3746795 (2d. Cir. 2014), the Cayuga Indian Nation had refused to pay taxes on land that had been alienated in the early 19th century in violation of the Indian Non-Intercourse Act but reacquired by the nation in the modern era and held in fee simple title. The district court held that, even though the county had the right to impose a property tax on the property, it could not foreclose for non-payment because of the Nation’s sovereign immunity. The Second Circuit affirmed, rejecting the county’s argument that a foreclosure action was in rem (against the property) rather than against the nation: “In Michigan v. Bay Mills Indian Community, [cite omitted], the Supreme Court once again held that tribes retain, as a necessary corollary to Indian sovereignty and self-governance, a common-law immunity from suit. This treatment of tribal sovereign immunity from suit is an avowedly broad principle, and the Supreme Court (like this Court) has thought it improper suddenly to start carving out exceptions to that immunity, opting instead to defer to the plenary power of Congress to define and otherwise abrogate tribal sovereign immunity from suit.” (Internal cites and quotes omitted.)

In Alabama-Coushatta Tribe of Texas v. United States, 2014 WL 3360472 (5th Cir. 2014), the Tribe sued various Department of Agriculture agencies, challenging the National Park Service’s issuance of permits to drill for oil or gas in the Big Thicket National Preserve; (2) the Forest Service’s issuance of drilling permits for privately owned mineral estates located under the Sam Houston and Davy Crockett National Forests; (3) the Bureau of Land Management’s issuance of oil and gas leases for land in the Sam Houston and Davy Crockett National Forests, and the collection of royalties and rent payments from these leases; and (4) the National Forest Service’s exploitation and sale of timber resources from the Davy Crockett and Sam Houston National Forests. The Tribe contended that it heldaboriginal title to the subject lands and that the federal permits violated the federal government’s obligations under the common law trust doctrine and the Non-Intercourse Act. The district dismissed for lack of subject matter jurisdiction and the Fifth Circuit affirmed, holding that the tribe had failed to allege “agency action” sufficient to meet the standards required for waiver of the Government’s sovereign immunity under the Administrative Procedure Act: “[T]he tribe’s lawsuit is an impermissible programmatic challenge, and therefore, we lack jurisdiction over these claims. The Tribe’s complaint fails to point to any identifiable action or event. Instead, the complaint brings a challenge to the federal management of the natural resources on the land in question. The complaint contends only that all of the leases, permits, and sales administered by multiple federal agencies, including any ongoing action by these agencies that encroach on the Tribe’s aboriginal title, are unlawful. These are allegations of past, ongoing, and future harms, seeking ‘wholesale improvement’ and cover actions that have yet to occur. Such allegations do not challenge specific ‘agency action.’” 

In U.S. v. Whiteagle, 2014 WL 3562716 (7th Cir. 2014), Timothy Whiteagle was convicted of 12 federal offenses under 18 U.S.C.A. §§ 371 and 666, including conspiracy, corruption, bribery, tax evasion and perjury, arising out of his scheme to bribe Pettibone, a Ho-Chunk nation legislator, into using his influence to cause the nation to award tribal business to three different vendors that had hired Whiteagle. After the court sentenced Whiteagle to 10 year’s imprisonment, he appealed, arguing that there was insufficient evidence of Pettibone’s knowing participation in the charged conspiracy and acts of bribery, that the district court erred in permitting the introduction of certain evidence, that the court erred in estimating amounts lost to the nation and that the moneys conveyed to Pettibone were incorrectly characterized as bribes rather than gratuities. The Seventh Circuit rejected all of Whiteagle’s arguments and affirmed: “It was reasonable to infer, as the district court did, that the three companies were willing to pay Whiteagle such large sums of money specifically because of his relationship with Pettibone and his professed ability to deliver Pettibone’s vote and influence within the Ho-Chunk legislature. Moreover, Whiteagle’s insistence that his role be kept quiet (recall MCA’s laundering of his compensation through Support Consultants, and Whiteagle’s suggestions that Trinity hide the proposed consulting fees meant for Atherton and himself in other expenses) supported an inference that his compensation was not legitimately earned. It is also a fair inference, given the evidence presented at trial, that it was the bribes Whiteagle transmitted to Pettibone, rather than Whiteagle’s persuasiveness as a lobbyist, that secured Pettibone’s favorable action as a legislator:” 

In Narula v. Delbert Services Corporation, _____ F.Supp.2d ___, (E.D. Mich. 2014), Narula had borrowed $5,000 from Western Sky Financial, LLC (Western Sky), a reservation-based payday lender. Western Sky transferred the loan to Delbert Services Corporation. After defaulting, Narula sued in federal court, alleging that the loan violated the Fair Debt Collection Practices Act and the Telephone Consumer Protection Act. Delbert contended that the plaintiff was required by the loan agreement to arbitrate her claims and, further, that the loan agreement provided for exclusive jurisdiction in the Cheyenne River Sioux Tribe Court. The district court dismissed, holding that the tribal court had no jurisdiction over the parties “because neither party has any ties whatsoever to the tribal nation,” but that the arbitration clause was enforceable: “Allegations of fraudulent schemes are not sufficient to overcome the strong federal policy in favor of arbitration. The central question is whether the plaintiff’s claim of fraud, as stated in the complaint, relates to the making of the Arbitration Agreement itself. Here, there are no allegations in the complaint that Defendant fraudulently induced Plaintiff to agree to an arbitration clause.” 

In Blue Lake Rancheria v. Morgenstern, 2014 WL 3695734 (E.D. Cal. 2014), a federally recognized tribe, Blue Lake Rancheria Economic Development Corporation (EDC), a corporation owned by the tribe and chartered under Section 17 of the Indian Reorganization Act, and Mainstay Business Solutions, a subsidiary of the EDC (collectively, “Plaintiffs”) provided employee staffing services to businesses. Plaintiffs sued California officials seeking declaratory and injunctive relief related to the defendants’ enforcement of state unemployment taxes mandated by the Federal Unemployment Tax Act, 26 U.S.C. § 3301 et seq. (FUTA), including encumbering tribal lands and assets, in violation of Plaintiffs’ alleged tribal sovereignty. Plaintiffs sought to amend their complaint to add a claim under the Civil Rights Act of 1871, 42 U.S.C. § 1983, for injunctive relief. Citing the Supreme Court’s 2003 decision in Inyo County, California v. Paiute–Shoshone Indians, the Court denied the motion, holding that the the Plaintiffs were seeking to vindicate sovereign rights and, therefore, were not “persons” with standing to sue under Section 1983: “Plaintiffs are not seeking to protect individual rights from government encroachment, but to protect the communal interests of the tribe in a financial relationship with the State of California. This special relationship is the direct result of Plaintiffs exercising their ‘prerogative’ to become a reimbursable employer, a choice afforded to them as a federally recogn
ized Indian tribe.” 

In Navajo Nation v. U.S. Dept. of the Interior, 2014 WL 3610948, not reported in F.Supp.2d (D. Ariz. 2014), the United States had, in 1954, intervened in a water rights suit in its role as trustee in order to assert federally reserved Winters water rights in the Lower Colorado River on behalf of a number of entities. On behalf of the Navajo Nation, the government asserted a claim only with respect to water from the Little Colorado River, a tributary of the Colorado. The litigation ultimately resulted in no allocation of water rights for the nation but allocations did occur in a number of subsequent federal actions. In the instant case, the Navajo Nation sought to establish rights to Colorado River Lower Basin water, arguing that, under the Winters doctrine, the United States “impliedly reserved for the benefit of the Navajo Nation a sufficient amount of water to carry out the purposes for which the Reservation was created, specifically to make the Reservation a livable homeland for the nation’s present and future generations.” The nation further asserted that the government was required by its trust obligation to assure sufficient water for the nation. Specifically, the nation contended that various interim rules administered by the federal government were adopted in violation of the National Environmental Protection Act (NEPA). The United States conceded that the nation has reserved water rights under the Winters doctrine but contended that it had assisted the nation with acquisition of water supply in the San Juan Settlement and that it was pursuing the nation’s Winters rights in the ongoing general adjudication of the Little Colorado River System. The district court dismissed the nation’s claims, holding that the nation had no standing to bring the NEPA-based claims because it could not demonstrate that the federal regulations prejudiced its Winters rights. The court acknowledged that “the United States owes a generaltrust responsibility to Indian tribes,” but held that “unless there is a specific duty that has been placed on the government with respect to Indians, the government’s general trust obligation is discharged by the government’s compliance with general regulations and statutes not specifically aimed at protecting Indian tribes.” 

In Black v. U.S., 2014 WL 3337466 (W.D. Wash. 2014), police officers of the Suquamish and Port Gamble S’Klallam Indian Tribes (PGST), with the assistance of county sheriff’s deputies, sought to arrest PGST member Callihoo at a home owned by Anthony Black, a non-Indian, on fee land within the boundaries of the Suquamish reservation. In the ensuing confrontation, officers shot and killed Black. Black’s sister, who also resided at the home, brought a civil rights action pursuant to 42 U.S.C. § 1983 against the tribes and the tribal police officers. The court dismissed the claims against the tribes, but not the officers, on sovereign immunity grounds, holding that the officers acted in concert with sheriff’s deputies and, therefore, arguably under “color of state law” for Section 1983 purposes: “Tribal sovereign immunity, like other types of sovereign immunity, extends to officers acting in their official capacity and within the scope of their authority. However, this does not alter ‘the rule that individual capacity suits related to an officer’s official duties are generally permissible.’ Since Black is suing the officers in their individual capacities for actions taken within the scope of their employment under the color of state law, she has established a cognizable claim under § 1983 that may proceed under the jurisdiction of this Court.” 

In Harvey v. Ute Indian Tribe of Uintah and Ouray Reservation, 2014 WL 2967468, not reported in F.Supp.2d. (D. Utah 2014), plaintiffs initially sued four defendants in state court, including the Ute Indian Tribe of the Uintah and Ouray Reservation and officials of the Ute Tribal Employment Rights Office (UTERO), seeking a declaration with respect to the tribe’s and UTERO’s exercise of authority over non-Indians in certain categories of land based on principles of federal Indian law and also alleging two state-law causes of action, tortious interference with economic relations and extortion, against the UTERO defendants. Two of the defendants consented to state court jurisdiction. Later, the tribe removed the case to federal court, but that court remanded for lack of federal jurisdiction, holding that the removal required unanimity among the defendants, which could not be obtained: “Because the Initial Defendants manifested an intent to litigate in state court, and because they failed to remove soon after they became aware of possible federal-question issues, they waived their right to removal and their right to consent to removal. Removal to this court was therefore improper.” 

In Wells Fargo Bank, N.A. v. Chukchansi Economic, 118 A.D.3d 550 2014 WL 2721993, — N.Y.S.2d —- (N.Y. App. 2014), Chukchansi Economic Development Authority (CEDA), an agency of the Picayune Rancheria of Chukchansi (tribe), had issued $310 million in bonds to finance construction of a casino resort. The bond indenture Agreement required that CEDA deposit all revenues from the Casino’s operation into deposit accounts at Rabobank, and also required that CEDA, Wells Fargo, and Rabobank execute a Deposit Account Control Agreement (DACA). Competition between two factions, each purporting to be the tribe’s official government, triggered litigation over control of casino revenues in multiple jurisdictions, including New York. The trial court had granted a preliminary injunction ordering the CEDA to maintain deposits at Rabobank and, later, had granted plaintiff’s motion to dismiss appellants’ counterclaim, granted defendants-respondents’ motion to dismiss appellants’ cross claims, and denied appellants’ motions to modify the court’s July 2, 2013 preliminary injunction. Appellants subsequently appealed from the court’s refusal to modify the preliminary injunction. The appellate court held that the state court lacked jurisdiction over an intra-tribal dispute: “Appellants seek a declaration that defendant Chukchansi Economic Development Authority (CEDA) is lawfully governed by a board composed of seven named individuals; however, appellants themselves allege in their counterclaim and cross claims that the members of the CEDA Board are the same as the members of defendant Tribal Council of the Tribe of Picayune Rancheria of the Chukchansi Indians. The jurisdiction conferred on the New York courts by 25 USC § 233 “does not extend beyond the borders of this State” The tribe in the instant action is located in California, not New York. Furthermore, 25 USC § 233 “does not authorize courts of the State of New York to become embroiled in internal political disputes amongst officials of [an Indian tribe]’s government” (Bowen, 880 F Supp at 118; see also id. at 116, 120, 122–123). However, to decide whether the Ayala faction’s actions were illegal, a court would have to determine whether the Ayala faction was the legitimate Tribal Council; this it may not do.” 

In Simmonds v. Parks, (Alaska 2014), the Minto Tribal Court had terminated the parental rights of Edward Parks, a member of the Native Village of Stevens, and Bessie Stearman, a member of the Native Village of Minto, to their daughter S.P. The tribal court did not permit the attorney for Parks and Stearman to argue orally at the hearing that the court lacked jurisdiction due to Parks’ non-membership in the Minto Native Village. Parks did not file an appeal with the Minto Court of Appeals but instead sued S.P.’s foster parents, the Simmondses, in state court to regain custody of S.P. The Simmondses moved to dismiss Parks’s state lawsuit on the basis that the tribal
court judgment terminating parental rights was entitled to full faith and credit under the Indian Child Welfare Act(ICWA). The superior court denied the motion to dismiss, concluding that full faith and credit was not warranted because the tribal court had denied Parks minimum due process by prohibiting his attorney from presenting oral argument. The Alaska Supreme Court reversed, holding that Parks was required to exhaust his tribal court remedies and that the state court lacked jurisdiction: “Through ICWA’s full faith and credit clause, Congress mandates that states respect a tribe’s vital and sovereign interests in its children. This requires that we give the same respect to tribal court judgments that we give to judgments from a sister state. As a measure of that respect, we have refused to allow a party to collaterally attack a sister state’s judgment when the party failed to appeal in that state’s courts. Looking to federal law to interpret ICWA’s full faith and credit mandate, we find persuasive the policies underlying the federal doctrine of exhaustion of tribal remedies, and we adopt that doctrine in this context. Unless one of the exceptions to the exhaustion doctrine discussed below applies, we will not allow a party to challenge a tribal court’s judgment in an ICWA-defined child custody proceeding in Alaska state court without first exhausting available tribal court appellate remedies.”

Special Discount: Register for the Women, Influence & Power in Law Conference – September 17-19, Washington D.C.

The National Law Review is pleased to bring you information about Inside Counsel’s Women, Influence & Power in Law Conference.

Women, Influence & Power In Law Conference

September 17-19, 2014
The Capital Hilton
Washington, DC

A Unique Conference with a Fresh Format

The Only National Forum Facilitating Women-to-Women Exchange on Current Legal Issues.The second annual Women, Influence & Power in Law Conference has a uniquely substantive focus, covering the topics that matter most to corporate counsel, outside counsel, and public sector attorneys. The event is comprised of three distinct and executive level events.

 

This unique event is the only national forum facilitating women-to-women exchange on current legal issues. This conference is led and facilitated almost exclusively by women, encouraging an exchange between women in-house counsel and women outside counsel on the day’s most pressing legal challenges. With 30 sessions, the event will have a substantive focus, covering topics that matter most to corporate counsel, outside counsel, and public sector attorneys.

The Women, Influence & Power in Law Conference is not a forum for lawyers to discuss so-called “women’s issues.” It is a conference for women in-house and outside counsel to discuss current legal topics, bringing their individual experience and perspectives on issues of:

  • Governance & Compliance
  • Litigation & Investigations
  • Intellectual Property
  • Government Relations & Public Policy
  • Global Litigation & Transactions
  • Labor & Employment

“STOP”: Four Tips For Document Preservation When Facing Potential Litigation

In today’s digital environment, it is crucial that employers act fast when faced with a suit (or the threat of suit) by an employee or ex-employee. When potential litigation is on the horizon, the first step should always be to contact legal counsel. The next step should protecting documentation that might be relevant to the dispute. Keep in mind this acronym to make sure you are following that right steps for documentation preservation:

document preservationSearch for employees that might possess information pertaining to the dispute. This might include supervisors, managers, or people who shared a workspace with the claimant, but it might also include others not under the direct supervision of the company, such as independent contractors or consultants that worked with the claimant.

Think about all sources of information – smart phones, tablets, cloud-based servers, thumb drives, work email accounts, etc. Once the sources are identified, consider whether you have and can maintain access to them. In some cases, it may require notifying the claimant that he must turn over password information or relinquish his work-issued devices, but it is highly suggested you contact legal counsel before proceeding with this step.

Order a litigation hold on relevant information. Instruct employees to not destruct, forward or edit the relevant documentation in any way. In-house destruction procedures (such as shredding or the automatic email deletion) should be cancelled until further notice from counsel. Litigation hold instructions should be made in writing and provide explicit instructions. The instructions should identify the type of materials and date ranges that are subject to the hold. A litigation hold should also identify to whom questions or concerns about the hold can be directed.

Present all information to counsel. He or she will then determine exactly what information needs to be preserved and for how long. Do not think that you, as an employer, know what information is important. By getting rid of documentation, even without ill intent, you may be hurting your ability to present a defense to the claims.

No employer likes facing employee-related litigation, but it is important to “STOP” and take time to ensure document preservation in the wake or threat of a suit.

Attend the Retail Law 2014 Conference – October 15-17, 2014, Charlotte, North Carolina

The National Law Review is pleased to bring you information about the upcoming Retail Law Conference:

Retail Law 2014: At the Intersection of Technology and Retail Law
Retail Law 2014: At the Intersection of Technology and Retail Law

Register Today!

When

October 15-17, 2014

Where

Charlotte, NC

The 2014 Retail Law Conference takes place October 15-17 in Charlotte, NC. This year’s program is stronger than ever with relevant, compelling and interactive sessions focused on the legal issues affecting retailers. In partnership with the Retail Litigation Center (RLC), RILA will host legal counsel from leaders in the retail industry for the fifth annual event.

This year’s Retail Law Conference will feature issues at the intersection of technology and law, how the two spaces interact and the impact that they have on retailers. Topics will likely include:

  • Anatomy of a Data Breach: Prevention & Response
  • Privacy: Understanding New Technologies & Data Collection
  • Advertising Practices: Enforcement & Social Media
  • ADA Implications for New Technologies
  • Legal Implications for Future Payment Technologies
  • Policies & Procedures of The “Omnichannel” Age
  • Patent Litigation “Heat Maps”
  • Union Organizing Campaigns
  • Wage & Hour Litigation
  • EEOC Enforcement
  • Foreign Corrupt Practices Act
  • Corporate Governance & Disclosure
  • Election 2014
  • Dueling Views of The U.S. Supreme Court
  • Legal Ethics

The Retail Law Conference is open to executives from retail and consumer goods product manufacturing companies. All others, such as law firms and service providres, must sponsor in order to attend, and can do so by contacting Tripp Taylor at tripp.taylor@rila.org.

SawStop Dismissal Explained: Opinion Crosscutting SawStop’s Antitrust Lawsuit Released

Mintz Levin Law Firm

Judge Claude M. Hilton of the Eastern District of Virginia recently issued a Memorandum Opinion following up on his June 27, 2014 order (on which we previously wrote here and here) dismissing the complaint filed against the power tool industry bySawStop, LLC.

To recap, according to the February 2014 complaint, in 2000, Stephen Gass, inventor of “SawStop” and a patent attorney, began licensing negotiations with several companies now named as defendants in the lawsuit. As a result, the companies allegedly held a vote on how to respond to SawStop and shortly thereafter ended their individual licensing negotiations with Gass. The complaint also alleges the companies conspired to alter voluntary standards to prevent SawStop technology from becoming an industry standard.

In his opinion dismissing SawStop’s antitrust claims, Judge Hilton wrote:

An alleged antitrust conspiracy is not established simply by lumping ‘the defendants’ together.

Judge Hilton found no evidence that any of the named manufacturer defendants conspired through their industry organization, the Power Tool Institute, Inc. (PTI), not to license SawStop’s safety technology. Judge Hilton also found that the conspiracy allegations were belied by SawStop’s admissions in the complaint that it was actively negotiating with Emerson, Ryobi, and Black & Decker “well after the alleged group boycott began in October 2001,” concluding that “[s]uch history fails to show an agreement to restrain trade.”

The judge also pointed to other contradictions in SawStop’s complaint, including evidence that Ryobi signed an agreement with SawStop regarding royalties related to SawStop’s technology licensing during the time period of the alleged conspiracy. In addition, the judge ruled that Black & Decker’s proposed a licensing agreement with the SawStop, which was negotiated 6 to 8 months after the alleged conspiracy was formed, similarly contradicted SawStop’s allegations. The judge further dismissed SawStop’s arguments that Black & Decker’s 1% royalty payment offer was disingenuous, noting that even if that were the case, such actions do “not sufficiently infer conspiratorial conduct” and cannot be characterized as refusals to deal.

Finally, the judge found that SawStop failed to adequately plead that the defendants corrupted the standard setting process or otherwise agreed to a boycott, pointing out that the complaint alleged that only 5 of the 24 defendants had representatives on the relevant standards-setting committee. Moreover, the court found SawStop’s allegations of competitive harm resulting from the conspiracy (lost sales and profits from UL failing to mandate its safety technology on the market) insufficient, stating:

‘Lost sales’ do not amount to competitive harm because [users] were not ‘in some way constrained from buying [SawStop’s] products’ . . . and failing to mandate [SawStop’s] proposed safety standard does not thereby harm their market access.

Finding no support for an inference that defendants had entered into an agreement to boycott SawStop’s product or otherwise restrain trade, the court dismissed SawStop’s complaint in its entirety.

In addition to the antitrust lawsuit, SawStop technology is at the center of an ongoing rulemaking by the U.S. Consumer Product Safety Commission (CPSC). You can read more about the CPSC’s rulemaking here.

Article By:

Helen J. Kim
Charles A. Samuels
Of:
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

Hostile Work Environment Case Gets Additional Fourth Circuit Scrutiny

Poyner Spruill Law firm

​The Fourth Circuit Court of Appeals has agreed to an en banc rehearing (in which all judges on the court will hear the case) of Boyer-Liberto v. Fountainebleau Corp. after a three-judge panel of the court ruled in May 2014 that the factual allegations in the case did not rise to the level of a hostile work environment. The three-judge panel ruled that because a racial slur used inh the workplace was limited to two occasions arising from a single incident, the plaintiff had not been subjected to a hostile work environment based on her race.

Ms. Boyer-Liberto based her EEOC Charge of Discrimination and subsequent lawsuit against her former employer on two conversations she had with a coworker about an incident that occurred on September 14, 2010. During those conversations, which were on two consecutive days, the coworker twice directed a racial slur at Ms. Boyer-Liberto. One week after the incident, Ms. Boyer-Liberto was terminated from her job. The United States District Court for the District of Maryland granted summary judgment to the former employer, holding the offensive conduct was too isolated to support the plaintiff’s claims for discrimination and retaliation, and the three-judge panel of the Fourth Circuit affirmed that decision. Although the appeals court agreed the term used was “derogatory and highly offensive,” it held “a co-worker’s use of that term twice in a period of two days in discussions about a single incident was not, as a matter of law, so severe or pervasive as to change the terms and conditions of Liberto’s employment so as to be legally discriminatory.”

The Fourth Circuit has agreed to rehear the case, but it is not clear Ms. Boyer-Liberto will fare better on the rehearing although she argued in her petition for rehearing that the three-judge panel’s decision was inconsistent with other court rulings. That panel had specifically addressed the other cases Ms. Boyer-Liberto argued supported her claim and distinguished each as involving a greater number of incidents occurring over a longer time period or involving conduct having long-term, ongoing consequences.

As the panel noted in this case, a hostile work environment exists when “the workplace is permeated with discriminatory intimidation, ridicule, and insult that is sufficiently severe or pervasive to alter the conditions of the victim’s employment and create an abusive working environment.” The Fourth Circuit’s upcoming decision in this case bears watching to see if the court takes the opportunity to expand what has been a relatively narrow definition of hostile work environment. Regardless, employers should promptly investigate any claims of harassment or discrimination, document those investigations, and act quickly to address any harassment or discrimination uncovered in the investigations.

Article By:

Kevin M. Ceglowski
Of:
Poyner Spruill LLP

The Supreme Court of the United States Holds that ESOP Fiduciaries are not Entitled to a Presumption of Prudence, Clarifies Standards for Stock Drop Claims

Dickinson Wright Logo

On June 25, 2014, the Supreme Court of the United States unanimously held that there is no special presumption of prudence for fiduciaries of employee stock ownership plans (“ESOPs”). Fifth Third Bancorp v. Dudenhoeffer, No. 12-751, 573 U.S. ___ (June 25, 2014) (slip op.).

Background

The Employee Retirement Income Security Act of 1974, as amended (“ERISA”) imposes legal duties on fiduciaries of employee benefit plans, including ESOPs.[1] Specifically, ERISA requires the fiduciary of an employee benefit plan to act prudently in managing the plan’s assets.[2] In addition, ERISA requires the fiduciary to diversify plan assets.[3]

ESOPs are designed to be invested primarily in employer securities.[4] ERISA exempts ESOP fiduciaries from the duty of diversify plan assets and from the duty to prudently manage plan assets, but only to the extent that prudence requires diversification of plan assets.[5]

The recent financial crisis generated a wave of ERISA “stock drop” cases, which were filed after a precipitous drop in the value of employer securities held in an ESOP. Generally, the plaintiff alleged that the ESOP fiduciary breached its duty of prudence by investing in employer securities or continuing to offer employer securities as an investment alternative. Defendant fiduciaries defended on the ground that the plaintiff failed to rebut the legal presumption that the fiduciary acted prudently by investing in employer securities or continuing to offer employer securities as an investment alternative.

The Federal Circuit Courts of Appeals that had considered the issue adopted the rebuttable presumption of prudence but split on the issues of (1) whether the legal presumption applied at the pleadings stage of litigation or whether the legal presumption was evidentiary in nature and did not apply at the pleadings stage of litigation and (2) the rebuttal standard that the plaintiff of a stock drop action must satisfy.[6]

Dudenhoeffer held that ESOP fiduciaries are not entitled to a legal presumption that they acted prudently by investing in employer securities or continuing to offer employer securities as an investment alternative.[7]

The Dudenhoeffer Case

Fifth Third Bancorp maintained a defined contribution plan, which offered participants a number of investment alternatives, including the company’s ESOP. The terms of the ESOP required that its assets be “invested primarily in shares of common stock of Fifth Third [Bancorp].”[8] The company offered a matching contribution that was initially invested in the ESOP. In addition, participants could make elective deferrals to the ESOP.

ESOP participants alleged that the ESOP fiduciaries knew or should have known on the basis of public information that the employer securities were overvalued and an excessively risky investment. In addition, the ESOP fiduciaries knew or should have known on the basis of non-public information that the employer securities were overvalued. Plaintiffs contended that a prudent ESOP fiduciary would have responded to this public and non-public information by (1) divesting the ESOP of employer securities, (2) refraining from investing in employer securities, (3) cancelling the ESOP investment alternative, and (4) disclosing non-public information to adjust the market price of the employer securities.

Procedural Posture

The United States District Court for the Southern District of Ohio dismissed the complaint for failure to state a claim, holding that ESOP fiduciaries were entitled to a presumption of prudence with respect to their collective decisions to invest in employer securities and continue to offer employer securities as an investment alternative.[9] The District Court concluded that presumption of prudence applied at the pleadings stage of litigation and that the plaintiffs failed to rebut the presumption.[10]

The United States Court of Appeals for the Sixth Circuit reversed the District Court judgment, holding that the presumption of prudence is evidentiary in nature and does not apply at the pleadings stage of litigation.[11] The Sixth Circuit concluded that the complaint stated a claim for a breach of the fiduciary duty of prudence.[12]

ESOP Fiduciaries Not Entitled to Presumption of Prudence

In a unanimous decision, the Supreme Court of the United States held that ESOP fiduciaries are not entitled to a presumption of prudence with regard to their decisions to invest in employer securities and continue to offer employer securities as an investment alternative; rather, ESOP fiduciaries are subject to the same duty of prudence that applies to other ERISA fiduciaries, except that ESOP fiduciaries need not diversify plan assets.[13]

The Court began its analysis b
y acknowledging a tension within the statutory framework of ERISA. On the one hand, ERISA imposes a duty on all fiduciaries to discharge their duties prudently, which includes an obligation to diversify plan assets. On the other hand, ERISA recognizes that ESOPs are designed to invest primarily in employer securities and are not intended to hold diversified assets. The Court concluded that an ESOP fiduciary is not subject to the duty of prudence to the extent that the legal obligation requires the ESOP fiduciary to diversify plan assets. The Court found no special legal presumption favoring ESOP fiduciaries.

New Standards for Stock Drop Claims

Although the Court rejected the presumption of prudence, it vacated the judgment of the Sixth Circuit Court of Appeals (which held that the complaint properly stated a claim) and announced new standards for lower courts to observe in evaluating whether a complaint properly pleads a claim that an ESOP fiduciary breached its fiduciary duty of prudence by investing in employer securities or continuing to offer employer securities as an investment alternative.

Public Information

First, the Court concluded that “where a stock is publicly traded, allegations that a fiduciary should have recognized from publicly available information alone that the market was over- or undervaluing the stock are implausible as a general rule, at least in the absence of special circumstances.”[14] In other words, a plaintiff generally cannot state a plausible claim of imprudence based solely on publicly available information. An ESOP fiduciary does not necessarily act imprudently by observing the efficient market theory, which holds that a major stock market provides the best estimate of the value of employer securities. To be clear, the Court did not rule out the possibility that a plaintiff could properly plead imprudence based on publicly available information indicating special circumstances affecting the reliability of the market price.

Non-Public Information

Second, the Court concluded that “[t]o state a claim for breach of the duty of prudence on the basis of inside information, a plaintiff must plausibly allege an alternative action that the [fiduciary] could have taken that would have been consistent with [applicable Federal and state securities laws] and that a prudent fiduciary in the same circumstances would not have viewed as more likely to harm the [ESOP] than to help it.”[15]

The Court reasoned that where a complaint alleges imprudence based on an ESOP fiduciary’s failure to act on non-public information, a lower court’s analysis should be guided by three considerations. First, ERISA does not require a fiduciary to violate applicable Federal and state securities laws. In other words, an ESOP fiduciary does not act imprudently by declining to divest the ESOP of employer securities or by prohibiting investments in employer securities on the basis of non-public information. Second, where a complaint faults fiduciaries for failing to decide, on the basis of non-public information, to refrain from making additional investments in employer securities or for failing to disclose non-public information to correct the valuation of the employer securities, lower courts should consider the extent to which the duty of prudence conflicts with complex insider trading and corporate disclosure requirements imposed by Federal securities laws or the objectives of such laws. Third, lower courts should consider whether the complaint has plausibly alleged that a prudent fiduciary could not have concluded that discontinuing investments in employer securities or disclosing adverse, non-public information to the public, or taking any other action suggested by the plaintiff would result in more harm than good to the ESOP by causing a drop in the value of the employer securities.

Quantifying the Unknowns

Fifth Third Bancorp v. Dudenhoeffer will undoubtedly reshape the landscape of ERISA litigation and, specifically, stock drop litigation. To fully understand the decision’s impact, a number of questions must still be answered, including the correct application of the standards espoused by the Court. In addition, Dudenhoeffer involved a publicly-traded company; it is unclear what application, if any, the decision will have in the context of employer securities of a privately held company.

Article By:

Christopher T. Horner
Eric W. Gregory
 
Of: 
Dickinson Wright PLLC

 

[1] See generally, ERISA § 404(a).

[2] ERISA § 404(a)(1)(B).

[3] ERISA § 404(a)(1)(C).

[4] Code § 4975(e)(7)(A).

[5] ERISA § 404(a)(2).

[6] See e.g. Moench v. Robertson, 62 F.3d 553, 571 (3d Cir. 1995); In re Citigroup ERISA Litig., 662 F.3d 128, 138 (2d Cir. 2011); Kirschbaum v. Reliant Energy, Inc., 526 F.3d 243, 254 (5th Cir. 2008); Kuper v. Iovenko, 66 F.3d 1447 (6th Cir. 1995); White v. Marshall & Ilsley Corp., Case No. 11-2660, 2013 WL 1688918 (7th Cir. Apr. 19, 2013); Quan v. Computer Sciences Corp., 623 F.3d 870, 881 (9th Cir. 2010);Lanfear v. Home Depot, Inc., 679 F.3d 1267 (11th Cir. 2012).

[7] No. 12-751, 573 U.S. ____ at 1-2.

[8] Id.

[9] Dudenhoeffer v. Fifth Third Bancorp, Inc., 757 F. Supp. 2d 753, 759 (S.D. Ohio 2010).

[10] Id. At 762.

[11] Dudenhoeffer v. Fifth Third Bancorp, 692 F. 3d 410, 418-19 (2012).

[12] Id. At 423.

[13] Fifth Third Bancorp v. Dudenhoeffer, No. 12-751, 573 U.S. ___ at 1-2.

[14] Id. At 16.

[15] Id. At 18.