Category: Administrative & Regulatory

Civil Rights Lawsuit Filed to Strike Down EO 13950

On October 29, 2020, the National Urban League and the National Fair Housing Alliance (represented by the NAACP Legal Defense and Education Fund, Inc.) filed a complaint challenging the constitutionality of Executive Order (EO) 13950 and asking for injunctive and declaratory relief. The plaintiffs, on behalf of themselves and a proposed class that includes federal contractors that the EO impacts, brought the lawsuit against the president, the secretary of Labor, and the U.S. Department of Labor (DOL).

The plaintiffs summarize the EO 13950 as follows:

In short, EO 13950 prohibits any federal contractor from engaging in speech, including the provision of certain training to its employees, that may foster belief in certain concepts that President Trump has deemed divisive, but which are widely-accepted, historically-based concepts that have been used for years in trainings and programs across the country in corporate, public sector, and educational settings.

They request relief based on several constitutional principles falling under the First and Fifth Amendments to the United States Constitution.

First Amendment Allegations

The plaintiffs contend that the order prohibits and censors protected speech, chills future protected speech, and vests the DOL with unfettered enforcement discretion in violation of the First Amendment to the United States Constitution.

In support of the censorship argument, the plaintiffs focus on the EO’s restrictions on whether and how covered organizations can include certain topics in their diversity and inclusion trainings. What the EO describes as “divisive concepts” and restricts, the plaintiffs contend, are fundamental to the public interest and constitute protected speech. Pointing to vague language in the order that they argue precludes reasonable employers and the DOL, as the enforcement agency, from understanding what speech constitutes noncompliance, the plaintiffs state that the order provides “no objective way to determine which activities are permitted and which are prohibited, creating a broad chilling effect and inviting unpredictable, uneven, and potentially selective enforcement.” The plaintiffs assert that the order lacks necessary parameters and, consequently, chills protected speech and vests the DOL with “unfettered discretion,” which the First Amendment prohibits.

The complaint sets forth a sequence of events leading to the issuance of EO 13950 that the plaintiffs claim is relevant to the First Amendment analysis and “reveal[s] the order’s clear purpose to restrict, if not, prohibit the expression of viewpoints.”

The plaintiffs also identify several post-order actions that they argue have created “uncertainty and confusion” surrounding the order. In this regard, the plaintiffs reference:

  • public statements by the president of the United States and administration officials;
  • the EO’s “radical departure from other executive orders and from [the] usual procedures [for enacting executive orders]”;
  • the executive branch’s action in discontinuing diversity trainings altogether;
  • the Office of Management and Budget’s September 28, 2020, memo, “Ending Employee Trainings that Use Divisive Propaganda to Undermine the Principle of Fair and Equal Treatment for All”;
  • the Office of Federal Contract Compliance Programs’ (OFCCP) October 7, 2020, frequently asked questions and the agency’s October 22, 2020, request for information.

The plaintiffs conclude that the order even threatens to chill speech that the order permits “because many federal contractors will choose to err on the side of caution and decline to discuss any matters that even remotely bear on issues of race or sex, for fear of violating the broad prohibitions in the Order.”

Fifth Amendment Allegations

The plaintiffs contend that the same facts and authorities underlying the First Amendment claim also establish Fifth Amendment violations. The plaintiffs claim that the EO is “unconstitutionally vague” and deprives people of color, women, and the LGBTQ community of equal protection and violates their due process rights. They argue that “[r]ace and sex-based discrimination against individuals who are people of color, women, and/or LGBTQ community were [sic] a substantial or motivating factor behind the issuance of EO 13950, in violation of the Fifth Amendment.” The complaint alleges that the order’s stated rationale is merely “pre-textual and meant to obfuscate its impermissible discriminatory purpose,” pointing to facts supporting the First Amendment analysis, the inconsistency between the order’s stated goals for workforce economy and efficiency and its effect to the contrary, and the foreseeable certainty of its disparate impact on people of color, women, and/or LGBTQ individuals.

Takeaways for Employers

This lawsuit and other potential legal challenges to EO 13950 are significant in a number of respects.

  • The order does not apply to contracts executed before November 22, 2020. In the meantime, lawsuits like this one signal to companies (and their employees) that there is some doubt about the order’s constitutionality, accuracy, enforceability and impact. The present legal challenge also highlights that there is at least some possibility the order will be struck down or modified before OFCCP has a meaningful opportunity to enforce it. To that extent, companies may conclude that overhauling their diversity programs in response to the order would be premature.
  • Constitutional challenges may bring to the surface the level of public concern over a statute, ordinance, or executive order. An organization’s internal departments may benefit from context related to the possible views of EO 13950 of their markets (e.g., customers, clients, communities). To the extent this complaint’s arguments align with company-stated values, this development may address concerns regarding a company’s possible withdrawal from diversity and inclusion efforts.
  • A complaint seeking to strike down the order may result in disclosure of additional information about how the administration intends to apply the order. At a minimum, employers will have more insight than they do now. In addition, the lawsuit may result in an interpretation of the order that clarifies for contractors the scope of their trainings and whether they can continue (even if they require some modifications).

Guidance and legal information about EO 13950 is evolving quickly, and employers can expect many further developments in the coming days and weeks.

© 2020, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.
For more articles on civil rights, visit the National Law Review Civil Rights section.

Lawsuits for Illegal Strip Searches

DETROIT — Strip searches are routinely performed by law enforcement officers of all types. This ranges from police to prison guards, as well as to TSA agents at airports in the United States.

Private security guards also perform strip searches, including in malls and retail stores.

While some strip searches are legal, others violate the person’s constitutional rights. In general, people have a reasonable expectation of privacy.

A public officer or private guard cannot simply conduct a strip search without a proper legal basis. When an illegal strip search occurs, the victim can file a lawsuit seeking compensation for the violation of protected rights.

The basis for most illegal strip search lawsuits is a violation of the Fourth Amendment of the U.S. Constitution. The text of the Fourth Amendment states:

“The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no warrants shall issue, but upon probable cause, supported by oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.”

The key words in the Fourth Amendment as it relates to an unlawful search are “unreasonable” and “probable cause.” Probable cause is a higher standard than reasonable suspicion. An officer does not have the right to search a person simply because there was a basis for stopping that person. In fact, most illegal strip searches are performed on people who are legitimately stopped or apprehended, but there is no legal basis to perform a subsequent search.

The main requirement is if the person being searched had a reasonable or legitimate expectation of privacy. Probable cause is required only when there is a reasonable expectation of privacy. When a search is disputed, what is “reasonable” is often determined by a judge or jury.

There are often even disputes as to what constitutes a strip search in the first place.

Different parties often have varying definitions of what constitutes a strip search. And, the context of each type of search may vary from one person to another.

For example, a prison guard performing a strip search may have one definition in mind that involves a physical search of the inmate’s body.  Others may have broader definitions as to what they define as a strip search.  Case law, both state and federal, have examined a variety of situations and fact patterns and their decisions form the basis of what is legal and what is not.

Some case law holds that complete nudity is required to be constituted as a strip search. Other cases hold that it is a lesser degree, and that a strip search can be illegal without the person being totally naked. There are many cases that also address the degree of the search itself and how invasive it is on the person being searched. This can vary on the type of crime suspected and the urgency to perform the search to preserve potential evidence against the person.

There have been many illegal strip search lawsuits filed throughout the United States. Most are based upon violations of the Fourth Amendment when asserted against a governmental agency, or person acting on behalf of the government. Other claims are brought under an invasion of privacy theory, and this theory is frequently used in cases against private individuals and entities.

In addition, there have been several class action lawsuits filed by prisoners and inmates at correctional facilities.   These cases allege that a large number of inmates were illegal searched by prison staff and correction officers. Several of these lawsuits have resulted in substantial class action settlements, including a $ 53 million settlement against Los Angeles County for illegal strip searches of thousands of women by law enforcement personnel.

Individual lawsuits seek compensatory damages for the harm suffered by the victim.  This includes both physical pain and suffering as well as mental anguish. The damages inflicted upon the victim often cause serious and permanent psychological harm.

Lawsuits hold the wrongdoers accountable for violating a person’s constitutional rights.  They also serve as a deterrence to future unlawful actions.  This helps to protect every person’s right to be free from an unlawful search and curbs systematic illegal actions of law enforcement.

Sources:

https://www.law.umich.edu/facultyhome/margoschlanger/Documents/Publications/Jail_Strip-Search_Cases.pdf

https://buckfirelaw.com/case-types/sexual-abuse/illegal-strip-search/

https://www.aclu.org/blog/criminal-law-reform/reforming-police/supreme-court-says-jails-can-strip-search-you-even-traffic

https://www.americanbar.org/groups/crsj/publications/human_rights_magazine_home/2013_vol_39/may_2013_n2_privacy/upending_human_dignity_fourth_amendment/

Buckfire & Buckfire, P.C. 2020
For more articles on the Fourth Amendment, visit the National Law Review Constitutional Law section.

“Ban the Box” Update: St. Louis Enacts Ordinance; California and Hawaii Expand Existing Laws

Under the St. Louis ban the box Ordinance (the “Ordinance”), which takes effect January 1, 2021, employers in St. Louis with 10 or more employees may not:

  1. Base a decision to hire or promote on an applicant’s criminal history, “unless the employer can demonstrate that the employment-related decision is based on all information available including the frequency, recentness and severity of the criminal history and the history is reasonably related to or bears upon the duties and responsibilities of the job position;”
  2. Inquire about a job applicant’s criminal history until after the employer has determined that the applicant is otherwise qualified for the job position, and interviewed the applicant, “except that such an inquiry may be made of all job applicants who are in the final selection pool from which the position will be filled;”
  3. Publish job advertisements, including electronically, that exclude applicants on the basis of criminal history;
  4. Include statements on job applications and other hiring forms, including electronic documents, that exclude applicants on the basis of criminal history;
  5. Inquire into, or require applicants to disclose their criminal history on initial job applications and other hiring forms, including electronic documents; and
  6. “Seek to obtain publicly available information” concerning job applicants’ criminal history.

With respect to prohibition Nos. 3 through 6, the Ordinance creates an exception where federal, state, or local law prohibits the employer from hiring an individual with a certain criminal history.

California

The California Fair Chance Act (“CFCA”) makes it an unlawful employment practice for an employer with five or more employees to include on an application for employment any question that seeks the disclosure of an applicant’s conviction history, or to inquire into or consider the conviction history of an applicant, until that applicant has received a conditional offer of employment. Additionally, the Act requires employers to: (a) make individualized assessments as to whether the conviction history has a direct adverse relationship with the specific duties of the job; and (b) provide notice under a specific procedure to employees if they intend to deny employment based on the conviction history.

Among other changes, new regulations promulgated by the California Fair Employment and Housing Council, effective October 1, 2020, expand the definition of an “applicant” to include individuals who begin work upon receiving a conditional offer of employment but before the employer has conducted or completed a criminal background check.  Ostensibly prompted by the delay some employers are encountering in obtaining relevant criminal history information due to the COVID-19 pandemic, the new rule ensures that individuals working pursuant to a conditional job offer still enjoy the protections afforded by the CFCA to “applicants.”

Also of note, the California Department of Fair Employment and Housing recently issued Frequently Asked Questions concerning the CFCA, detailing employers’ obligations under the law and providing guidance on how employers may conduct a compliant criminal background check.

Hawaii

Hawaii, which was one of the first states to create a “ban the box” law, recently added a notable amendment to the law. Effective September 15, 2020, SB 2193 prevents most private sector employers from considering felony convictions older than seven years, and misdemeanor convictions older than five years, reducing the look-back period from 10 years.

Other 2020 “Ban the Box” Developments

Maryland: As we previously reported, Maryland’s “ban the box” law, effective February 29, 2020, prohibits private employers with fifteen or more full-time employees from asking job applicants to disclose any criminal records or criminal accusations prior to the first in-person interview.

Virginia: Effective July 1, 2020, a new law that decriminalizes simple possession of marijuana also contains a “ban the box” provision prohibiting employers from requiring job applicants to disclose information concerning criminal charges, arrests, or convictions for simple possession of marijuana.

Suffolk County, New York: As we discuss here, effective August 25, 2020, Suffolk County employers with fifteen or more employees are prohibited from inquiring about a job applicant’s criminal convictions during the application process or before a first interview.

Waterloo, Iowa: Effective July 1, 2020, a new City ordinance prohibits employers with fifteen or more employees within the City of Waterloo from, among other acts, requiring applicants to disclose arrests, convictions, or pending criminal charges during the application process, including, but not limited to, any interview.  An employer, however, may “discuss” such information with an applicant if the applicant voluntarily discloses it.

*                            *                                  *

Employers covered by a “ban the box” law in one or more of the jurisdictions discussed above should review and, if necessary, update their policies and procedures, including job advertisements, applications, and other hiring (and where relevant, promotion) forms to ensure they are compliant with all applicable mandates.  Employers should also consider training personnel involved in the hiring process, particularly recruiters, human resources personnel, and those tasked with interviewing applicants and conducting criminal background checks.

©2020 Epstein Becker & Green, P.C. All rights reserved.
For more articles on labor law, visit the National Law Review Labor & Employment section.

172 Immigrants Arrested in Sanctuary Cities by ICE in Six Days

The Department of Homeland Security (DHS) and United States Immigration Customs and Enforcement (ICE) concluded a targeted enforcement operation, which lasted for a week. The operation resulted in 170+ at-large illegal immigrants arrested throughout the United States in states with sanctuary policies.

About the Immigrants Arrested

ICE officers from the field offices of New York; Seattle; Denver; Philadelphia; Baltimore; and Washington, D.C., conducted the enforcement actions from October 3 through October 9. The arrests were targeted on aliens who have criminal convictions and were arrested but released by state or local law enforcement agencies despite having immigration detainers placed on the immigrants. In a press release, ICE announced that out of the 170+ arrested, more than 80% of the aliens arrested had criminal convictions or pending criminal charges at the time of the arrest.

The immigrants arrested include 54 in New York; 35 in Seattle; 34 in Denver; 26 in Philadelphia; 12 in Baltimore; and 11 in Washington, D.C. Just at the end of September, ICE announced the arrest of 128 aliens in California from where the operation was conducted from September 28 to October 2, as part of immigration enforcement actions. The news released by ICE also had data of the arrested aliens in the fiscal year 2019: ICE arrested more than 1,900 convictions and charges for homicide, 1,800 for kidnapping, 12,000 sex offenses, 5, 000 sexual assaults, 45,000 assaults, 67,000 crimes involving drugs, 10,000 weapons offenses, and 74,000 DUIs.

Acting DHS Secretary Chad F. Wolf said, “Last fiscal year, 86 percent of people arrested by ICE had criminal convictions or pending charges. ICE focuses its resources on those who pose the greatest threat to public safety. The men and women of ICE put their lives on the line every day to keep these individuals off the streets,” He further stated that, “The Department will continue to carry out lawful enforcement actions in order to keep our communities safe, regardless of whether or not we have cooperation from state and local officials. Politics will not come before safety when enforcing the law and keeping our citizens safe.”

Though the arrests made by ICE hints that it primarily targets immigrants with a criminal record, the press release by ICE stated that it does not exempt classes or categories of removable aliens from potential enforcement.

About Sanctuary States

Sanctuary states are states with immigrant-friendly laws, that restrict cooperation with federal immigration authorities. The non-cooperation by the state or local law enforcement agencies acts as an impediment in ICE’s ability to arrest criminal aliens in such communities. It further stated that all those in violation of immigration laws can be subject to arrest, detention, and subsequently removable based on a removal order. Additionally, ICE stated that cooperation with local law enforcement is essential to maintaining public safety.

©2020 Norris McLaughlin P.A., All Rights Reserved
For more articles on ICE, visit the National Law Review Immigration section.

Amazon Ruling Impacts Prop 65 Issues

The 2020 Prop. 65 Clearinghouse conference marked another year of thought-provoking discussion on the current state of Proposition 65 regulations and litigation.  Although the Act is nearly 35 years old, trends in enforcement litigation and defenses are continuously evolving.  The Prop. 65 Clearinghouse does an excellent job of combining perspectives from the various stakeholders and litigants in the field.

Among the panels at this year’s conference, discussing topics from acrylamide litigation to warnings on marijuana products, was an excellent and lively discussion on the affirmative defense under the compelled speech doctrines of the First Amendment.  Briefly mentioned in that discussion was whether we may see an emergence of other protections from the Constitution invoked as defense to Prop. 65 actions.  Due Process and Commerce Clause were briefly mentioned among those other potential areas where we may see further constitutional defenses.

This discussion brought to mind other areas where federal law may preempt California’s Prop. 65.  In particular, and on the heals of the California Court of Appeal’s August 2020 decision in Bolger v. Amazon, the applicability of the federal Communications Decency Act of 1996.  To be clear, Bolger was not a Prop. 65 case.  However, the decision did briefly touch an area of federal preemption that can be used as a defense to Prop. 65 actions brought against Amazon and other online third-party seller platforms.

In Bolger, a woman was severely hurt following an explosion of a replacement laptop battery she purchased on Amazon from a third-party seller.  Amazon raised a number of defenses, including immunity from liability under title 47 U.S.C. section 230 – part of the Communications Decency Act (CDA).

The CDA is extremely important to the free flow of information on the internet as it shields online content platforms from being held liable as the speaker or publisher of third-party content.  Plaintiffs pursuing lawsuits based on state law “may hold liable the person who creates or develops unlawful [online] content, but not the interactive computer service provider who merely enables that content to be posted online.” (Nemet Chevrolet, Ltd. v. Consumeraffairs.com, Inc. (4th Cir. 2009) 591 F.3d 250, 254; see also, HomeAway.com, Inc. v. City of Santa Monica (9th Cir. 2019) 918 F.3d 676, 681.)

The Bolger Court found that the CDA did not protect Amazon from strict liability for the battery purchased on its website because speech was not the issue.  Liability was not rooted in a failure to adequately warn, for example.  The Court stated that Amazon’s liability in the case did not turn whether Amazon was classified as a speaker/publisher of content on amazon.com that had been provided by the third-party seller.  Instead, Amazon was found liable in Bolger because of its role in the transaction itself that was more akin to that of a “conventional retailer” and the Court subjected Amazon to strict liability as it would have for any other “conventional retailer.”  (In a future CMBG3 post, we will be discussing the ramifications of that retailer label, as well as the split among courts around the country on the issue.)

From a Prop. 65 perspective, the take-away from seemingly unrelated cases like Bolger and HomeAway.com is that CDA immunity may extend to lawsuits where a plaintiff is seeking to pursue a state law cause of action (i.e., enforcement of California’s Prop. 65) against an online platform for content provided by another.  In other words, the CDA could shield a company like Amazon from content-based lawsuits stemming from the alleged absence or inadequacy of a Prop. 65 warning that the third-party seller either neglected to post on the product page, or failed to provide the proper warning under Prop. 65.

For the third-party seller, not only should this be a reminder to review your obligations under regulations like Prop. 65, but also to read your vendor agreements with Amazon, Etsy, Walmart, Shopify and the like.  To keep the theme on Amazon, the Amazon Business Solutions Agreement includes indemnity provisions and regulatory compliance provisions (that specifically call out Prop. 65 compliance) that every vendor should understand.

©2020 CMBG3 Law, LLC. All rights reserved.
ARTICLE BY Gilliam F. Stewart of CMBG3 Law
For more articles on Prop 65, visit the National Law Review Environmental, Energy & Resources section.

Commerce, Culture, and Compliance

Banking, at least since the passage of the Federal Reserve Act in 1913 and the creation of Federal Deposit Insurance under the Glass-Steagall Act of 1933 (FDIC insurance actually became effective January 1, 1934), has been seen (at least in popular portrayals in books and movies) as a rather staid business conducted in marble edifices by men (although that is changing) who were reserved and rather aloof. All that changed in 1973 in the South Jersey town of Cherry Hill, less than 10 miles from Center City, Philadelphia. Vernon Hill, a Wharton School graduate and fast-food restaurant franchise owner (McDonald’s), decided to turn banking “on its ear,” by bringing fast-food convenience to banking.

Commerce Bank

Over the ensuing 33 years, he expanded Commerce Bank from one to over 435 locations, with each branch (internally called a “store”) having a standard and almost identical design. Commerce called itself, with good reason, the most convenient bank in America. Commerce was open 7 days a week (except in Bergen County, New Jersey). Commerce was known for its ”penny arcade” coin counting machines for customers and non-customers alike. It offered no-fee Visa gift cards, reimbursement of foreign ATM fees, and lollipops and dog biscuits in lobbies and drive-throughs. Commerce’s slogan was “No Stupid Fees, No Stupid Hours,” and it became known as “Mc-Bank.” Commerce Bank had “stores” from Florida to New York. The rapid growth and successes of Commerce Bank even led to a Harvard Business Review article in 2002, Frei, Francis X., Hajim, Corey, “Case Study: Commerce Bank” (2002-12-02).

Commerce Bank was a financial institution that placed a premium on market-driven entrepreneurship and innovation. But sometimes it moved too far, too fast for regulators. That culminated in a settlement by Commerce with both the Office of the Controller of the Currency (“OCC”) (the regulator of national banks, i.e., banks incorporated under the National Bank Act of 1863, as amended) and the Board of Governors of the Federal Reserve System (“FRB”), pursuant to which Commerce was substantially restricted in its ability to expand. That led Vernon Hill to retire in 2007 (with significant subsequent litigation between him and the bank). In late 2007, TD Bank, N.A., entered into an agreement to buy Commerce Bank in a transaction that closed March 31, 2008, just in time for the Great Recession of 2007-2009. After 2008, Commerce Bank became TD Bank, N.A., or did it? Who exactly is TD Bank, N.A., and where did IT come from?

TD Bank, N.A.

TD Bank, N.A., is an American subsidiary (incorporated under the National Bank Act) of Toronto-Dominion Bank, one of the so-called “Big Five” Canadian banks (and in fact the second-largest Canadian bank after Royal Bank of Canada). The Big Five have found it difficult to expand within Canada for both regulatory and political reasons. For example, the Bank of Montreal acquired Harris Trust Company of Chicago in 1984, and the Canadian Imperial Bank of Commerce purchased the U.S. investment banking firm Oppenheim & Co. in 1997. Accordingly, Toronto-Dominion cast its eyes south of the border as the 21st century arrived. [It is noteworthy that Toronto-Dominion also looked to the U.S. to grow in capital market services when it acquired Waterhouse Securities in 1996, which, in a later merger, led to Toronto-Dominion becoming the largest owner of TD Ameritrade].

In 1852, the Portland Savings Bank opened its doors in Portland, Maine, and then grew through mergers and acquisitions to become Peoples Heritage Bank in 1983. Around 2000, that institution expanded further throughout New England and became Banknorth. In 2004, Toronto-Dominion, looking for opportunities in the U.S., acquired majority ownership of Banknorth, with the American operation becoming TD Banknorth in 2007. By September 2009 all of the Commerce Bank “stores” and all of the TD Banknorth branches had been rebranded as “TD Bank, N.A.” Subsequent acquisitions in September 2010 in North and South Carolina filled in the reach of TD Bank, N.A., branches, which now stretched from Florida to Maine. It is noteworthy that TD Bank, N.A., adopted, by 2009, the slogan that it was “America’s Most Convenient Bank.”

So, to answer the second question posed above, TD Bank, N.A., is a major financial bank in the U.S. that can trace its origins to the “Down-East” of the rocky shores of Maine as a thrift institution. As of 2009, it “OWNED” the remnants of “Mc-Bank.” It has long been recognized that a key factor in mergers or acquisitions is the divergence (if any) between the cultures of the merging entities, and the ability to manage overcoming that divergence. Clearly, the “Banknorth” origins of TD Bank, N.A., are startlingly different from the entrepreneurial “fast-food” focus of “Mc-Bank.” The Harvard Business Review published a lengthy analysis of the Amazon 2017 acquisition of Whole Foods in the October 2, 2018, issue, “One Reason Mergers Fail: The Two Cultures Aren’t Compatible.” The more encyclopediac March 26, 2019, work from Oliver Engert, Becky Kaetzler, Kameron Kordestani, and Andy MacLean of McKinsey & Company, entitled “Organizational Culture in Mergers: Addressing the Unseen Forces,” defines culture, “… as the vision or mission that drives a company, the values that guide the behavior of its people, and the management practices, working norms, and mindsets that characterize how work actually gets done.”

Culture and Bank Mergers

On August 19, 2020, TD Bank, N.A., accepted a Consent Order from the Bureau of Consumer Financial Protection (“CFPB”) requiring the bank to pay to the bureau (or its agent), within ten days, both a $25 million civil penalty AND $97 million to fund “redress payments” to approximately 1.42 million present and former customers of the bank, who from January 1, 2014, through December 31, 2018, were wrongly charged overdraft fees in violation of the Electronic Fund Transfer Act and Regulation E. In addition, the bank was determined to have failed to meet its obligations under the Fair Credit Reporcting Act by refusing to investigate customer claims of error in the information provided to Credit Reporting Agencies. In relation to the Regulation E violations, the bank was found to have repeatedly falsely described the scope, timing, and costs of the various overdraft protection plans. The bank did not provide customers with a full description of overdraft plans and their costs until after a customer had orally “signed up” for a particular coverage (or declined it), although Regulation E requires written consent to be obtained from a customer to pay overdraft fees BEFORE such fees may be charged. Indeed in off-site locations, not a regular “store,” the bank employees frequently failed to bring the overdraft coverage disclosure forms to the places where those employees sought to enroll new customers. The Consent Order also prevents the bank from seeking any tax reduction or offset because of the civil money penalty, and forbids the bank from referring to the payment of that penalty in response to any other civil litigation brought by any bank customer against the bank (for example, a defamation claim based on the bank’s refusal to investigate customer claims of error with respect to credit information furnished by the bank to a credit reporting agency). One cannot help but note, given the institutional histories set out above, that the CFPB in the Consent Order consistently quotes bank employees who refer to the bank’s “stores.”

The Fair Credit Reporting Act, which dates from 1970, has long required furnishers of credit information to timely investigate and respond to claims of error. Regulation E as it relates to overdraft protection plans and fees dates from 2005. Yet these were apparently “foreign requirements” to the staff and management of TD Bank, N.A., a kind of willful blindness unexpected in a large (the seventh-largest in the U.S. by deposits and the eighth largest by total assets), sophisticated financial institution that styles itself as catering to individual customers; i.e., a truly sizable retail bank. Did the lapses in compliance – including flat-out material misstatements – stem from the cultural disparities between Commerce Bank and Banknorth? That is a question that only careful sociological and economic analysis can answer, but the August 19, 2020, Consent Order certainly suggests that bank examiners ought to look beyond the immediacy of files and financial statements.

©2020 Norris McLaughlin P.A., All Rights Reserved
For more articles on finance, visit the National Law Review Financial Institutions & Banking section.

Is A Corporation’s Address A Trade Secret?

“Cryptocurrency” is a hybrid word form from the Greek adjective, κρυπτός, meaning hidden, and the Latin participle, currens, mean running or flowing.  The word “currency” is also derived from currens, perhaps based on the idea that money flows from one person to the next in an economy.  Literally, cryptocurrency, is secret money.  But there are secrets and there a secrets.

Recently, a cryptocurrency exchange sued one of its employees for violating the Defend Trade Secrets Act of 2016, 18 U.S.C. § 1831-39.  Among other things, the company alleged that the erstwhile employee had disclosed the “physical address” of the company in a complaint filed in a state court action.  Until now, I had never considered that a company’s physical address might be a secret.  The company argued that “keeping its physical address secret serves to protect it from ‘physical security threats,’ providing as an example of such threats ‘a recent spate of kidnappings’ of persons who work for cryptocurrency exchanges”.  Payward, Inc. v. Runyon, U.S. Dist.

Judge Maxine M. Chesney ruled for the defendant, finding that the plaintiff had failed to allege how its competitors would gain an economic advantage by knowing the company’s address.  Accordingly, Judge Chesney found that the plaintiff had not pled that the address met the definition of a trade secret under the DTSA.

I was somewhat nonplussed by the idea of an office address being a secret (trade or otherwise).  After all, the plaintiff, a Delaware corporation, had filed a Statement of Information with the California Secretary of State disclosing the address of its principal executive office (which is the same as its principal executive office in California).  That filing is a readily accessible public record.  It may be, however, that the address disclosed by the defendant was for another location not disclosed in the Statement of Information.

Etymologists use the term “hybrid word” to refer to a word that is formed by the combination of words from two different languages.  Greek-Latin hybrids are the most common form of hybrids in English.  English does have hybrids formed from other languages.  For example, “chocoholic” is a hybrid formed from New and Old World languages – Nahuatl, xocolatl, and Arabic, اَلْكُحُول (al-kuḥūl).  

© 2010-2020 Allen Matkins Leck Gamble Mallory & Natsis LLP
For more articles on corporate law, visit the National Law Review Corporate & Business Organizations section.

SEC Adopts Final Rules Amending Its Whistleblower Program

On September 23, 2020, the U.S. Securities and Exchange Commission (SEC) voted 3-2 to pass the final rules amending its whistleblower program. The five following changes will have the most impact on SEC whistleblowers who report potential violations of securities law:

  1. Creation of a presumption in favor of awarding the maximum statutory award to whistleblowers who face a maximum potential award of $5 million or less;
  2. Providing for the SEC’s broad discretion in evaluating and applying award criteria, including explicitly the SEC’s consideration of dollar amounts of awards;
  3. Expanding the definition of successful enforcement actions to include deferred prosecution and non-prosecution agreements, as well as any settlement agreements that the SEC enters into outside of a formal proceeding;
  4. Limiting recovery from the program where a whistleblower may be able to recover from another program; and
  5. Revising the definition of whistleblower in light of Digital Realty Trust, Inc. v. Somers, 138 S. Ct. 767 (2018).

The details of these changes and their potential impact on whistleblowers are discussed in more detail below. In passing the rules, the SEC emphasized its intention “to provide greater transparency, efficiency and clarity to whistleblowers.”  Final Rules at 2. In implementing the final rules, some of which require greater clarity, the SEC should keep in mind these goals.

Background on the SEC Whistleblower Program

First established in 2010 under the Dodd-Frank Act, the SEC whistleblower program allows the Commission to award individuals who have provided the SEC original information about fraud and securities violations between 10% and 30% of the monetary sanctions recovered from a successful SEC enforcement action. The program has been very successful thus far. Since its inception, the SEC has obtained more than $2.5 billion in monetary sanctions as a result of whistleblower tips and has awarded approximately $521 million to 96 whistleblowers. In July 2018, the SEC voted 3-2 to propose amendments to the whistleblower program. Over two years later, the SEC passed the final rules, which largely adopt the proposed amendments with some important modifications. The new rules will take effect 30 days after publication in the Federal Register.

Changes to Whistleblower Award Payouts

The regulations implementing the SEC whistleblower program set criteria for determining the appropriate amount of an award under Rule 21F-6.[1]  These include factors that may increase the whistleblower’s award, such as the significance of the information provided by the whistleblower, the whistleblower’s level of assistance to the SEC and his or her participation in internal compliance systems,[2] and the extent to which the whistleblower’s information advanced law enforcement goals of the Commission. The regulations also allow the SEC to decrease an award based on various factors, such as the whistleblower’s level of culpability regarding the securities violations, whether the whistleblower unreasonably delayed reporting, and whether the whistleblower interfered in internal compliance systems.

In the final rules, the SEC voted not to pass one of the more controversial proposed amendments, which would have allowed the SEC to cap a total payout for any whistleblower award at $30 million based solely on the size of the award. Id. at 61-62. The proposal received numerous comments in opposition that argued that the rule would discourage whistleblowers from coming forward and that it would arbitrarily penalize whistleblowers. See id. at 60-61 (summarizing comments in opposition to the proposed amendment). Instead of adopting a bright line rule as initially proposed, the SEC instead modified language of Rule 21F-6. Id. at 48. The modified provision explicitly folds in consideration of the potential dollar amount of an award into the SEC’s analysis of award criteria. Id. at 48-49. The SEC framed this provision as a clarification of its broad discretion; however, whistleblowers and their advocates are left with little clarity. While not explicitly adopting the rule as proposed, the SEC instead has adopted a more expansive rule that would allow for discretionary downward adjustments of any award amount.

One significant positive change for whistleblowers was the SEC’s adoption of a presumption in favor of awarding the maximum statutory award of 30% of recovered proceeds to whistleblowers who are eligible to receive a maximum award of $5 million or less. The final rule benefits more whistleblowers than the proposed amendment, which would have allowed such a presumption for cases involving maximum awards of $2 million or less. The majority of whistleblowers, 75% according to the SEC’s data, will benefit from this new rule. Once the SEC determines that no negative factors exist, such as engaging in culpable conduct with regards to an internal compliance program or securities law, the presumption applies, and the whistleblower should receive the maximum award of 30%. Id. at 52-53. The new rule helps to streamline the awards process. It also represents a positive step towards encouraging more whistleblowers, especially those who may be concerned about jeopardizing their careers for relatively low potential awards, to come forward.

Final Rule Expanding “Successful Enforcement”

Another rule beneficial to whistleblowers is the expansion of the meaning of “successful enforcement.” Because whistleblowers cannot control the law enforcement mechanism chosen by the Department of Justice (DOJ) or the SEC, this new rule allows whistleblowers to collect awards should the DOJ or SEC choose to pursue specific types of enforcement actions; however, the final rule is narrower than the one initially proposed. Under the new final rule, “successful enforcement” includes deferred prosecution and non-prosecution agreements entered into by the DOJ in a criminal case and settlement agreements entered into by the SEC in actions outside of a judicial or administrative proceeding that involve violations of securities laws. Id. at 13-14, 17. Such actions would be deemed “administrative actions,” and any money recovered would be considered a “monetary sanction,” which would allow the whistleblower to recover a percentage of that monetary sanction. Id. The final rule eliminated the extension of “successful enforcement” to include deferred prosecution and non-prosecution agreements entered into by state attorneys general. Id. at 17. One commenter argued persuasively to the SEC that securities violations under state law may differ considerably from those under federal law and warned of inconsistency in determining whistleblowers’ eligibility across states. Id. at 20-21. While not as expansive as initially proposed, the rule nonetheless benefits whistleblowers who provide information that results in these specific forms of law enforcement action.

New Definition of “Related Action” and Its Limitations on Recovery

The final rule amends the definition of “related action,” which effectively limits recovery under the SEC program where the whistleblower is eligible to recover under a different whistleblower program in addition to the SEC’s. Prior to this rule, where another enforcement agency in addition to the SEC brings an action based on the information the whistleblower provided—a “related action” under the whistleblower program rules—the individual can also receive from the SEC whistleblower award fund a percentage of the other agency’s recovery. The new rule does not provide a bright line; rather, the SEC will evaluate the facts and circumstances of the action to determine whether the SEC whistleblower program has the “more direct or relevant connection to the action.” Id. at 43-44. The SEC was not persuaded by commenters who opposed the proposed amendment, including some who argued that the rule would undermine the program’s goal of encouraging whistleblowers to come forward. Id. at 41-43.

Changes to Definition of “Whistleblower Status” and Anti-Retaliation Provisions

The SEC adopted the new definition of “whistleblower” as proposed. The new definition, articulated in the Supreme Court case, Digital Realty Trust, Inc. v. Somers, 138 S. Ct. 767 (2018), confers “whistleblower status” to “(i) an individual (ii) who provides the Commission with information ‘in writing’ and only if (iii) the information relates to a possible violation of the federal securities law (including any law, rule, or regulation subject to the jurisdiction of the Commission) that has occurred, is ongoing, or is about to occur.” Id. at 65-66.

Under the new rule, anti-retaliation protections under the Dodd-Frank Act are available only if the individual first qualifies for “whistleblower status” by having reported the information to the SEC. This was the holding of Digital Realty. In its definition, the SEC goes farther than the Supreme Court, specifying that the information be presented to the Commission “in writing.”  The SEC justified the “in writing” requirement by noting it imposes “a minimal burden to individuals who want to report potential securities violations” and provides greater “efficiency and reliability” to the Commission in processing both internal and external reports of possible violations. Id. at 75-76. The SEC assured commenters who expressed concerns that this new definition would generate uncertainty for whistleblowers by noting that the “in writing” requirement “will be applied in a flexible manner to accommodate whistleblowers who make a good-faith effort to comply with our rules in seeking retaliation protection.” Id. at 79-80. Individuals who report securities violations only within their companies have no protection under Dodd-Frank. If an individual reports internally and then reports to the Commission in writing, then that individual is protected only for retaliation experienced after, but not before, the SEC report. Id. at 78.

Change to Reporting Requirements

The final rule concerning reporting requirements for award eligibility was modified in order to address commenters’ concerns that, in practice, an individual’s initial communication with the SEC does not typically meet those requirements. Id. at 94-97. The final rule requires that whistleblowers submit either a tip through the SEC’s online portal or a specific form, a Form TCR, by mail or fax to the SEC; however, recognizing that many individuals initially contact SEC officials informally prior to submitting a form, the SEC clarified that “an individual need not in the first instance provide original information to the Commission” through filing a specific form, though that individual must comply with the form reporting requirements within 30 days of first providing information to the SEC. Id. at 97. Consequently, an individual’s first contact with the SEC need not meet the form requirements, as long as the individual follows those requirements within 30 days. This modification relieves some fears generated by the initial proposal that whistleblowers would have been penalized for filing with the incorrect agency or making a procedural error in the initial report, or by contacting SEC enforcement staff before the Office of the Whistleblower.

While the final rules will not substantially hinder the progress of the program, some of the rules create additional hurdles for whistleblowers and leave some lingering questions about implementation in practice. The SEC should implement the rules consistently with the agency’s intentions in the rules’ passage, specifically to improve transparency, efficiency and clarity for whistleblowers. The SEC must keep the program’s ultimate goals in mind—to award whistleblowers who present meritorious claims because they provided information that led to enforcement actions, and to encourage future whistleblowers to come forward.

[1] See 17 C.F.R. § 240.21F-6.

[2] Notably, the final rules maintain that a whistleblower’s participation in internal compliance systems is one factor that the SEC considers in awarding an upward adjustment. Id. at 81.

Katz, Marshall & Banks, LLP
For more articles on the SEC,  visit the National Law Review Securities & SEC section.

Advocating for Transgender, Intersex, and Gender Nonconforming People’s Equal Access to Homeless Shelters

Nearly one-third of transgender individuals experience homelessness at some point in their life, and 70% of those who have stayed in a homeless shelter have reported some form of mistreatment, including harassment and refusal of service, due to their gender identity.  Transgender individuals are significantly more likely to end up homeless than the general population because they often face rejection by their family members and discrimination in employment and housing.  The levels of discrimination and income inequality are even higher for transgender women of color, and the COVID-19 pandemic has further exacerbated the rates of unemployment, poverty, and homelessness among the transgender population.

On September 22, 2020, pro bono attorneys filed a public comment letter on behalf of The National LGBT Bar Association and Foundation urging the withdrawal of a Proposed Rule issued by the U.S. Department of Housing and Urban Development (HUD) that would severely harm homeless transgender, intersex, and gender nonconforming individuals by allowing federally funded homeless shelters to discriminate against them on the basis of their gender identity.  The Proposed Rule would eliminate key non-discrimination protections previously afforded to transgender shelter-seekers under HUD’s 2016 Equal Access Rule and would permit single-sex shelters to turn away transgender, intersex, and gender nonconforming individuals if the shelter operator determines that the individual is not of the same “biological sex” as the other shelter residents.

The Proposed Rule is premised on the medically and legally indefensible presumption that an individual’s sex can be determined solely on the basis of their external physical characteristics.   In reality, an individual’s “biological sex” is complex, multi-faceted, and primarily determined not by external physical characteristics, but by an individual’s gender identity—which is sometimes referred to as one’s “brain sex.”  The Proposed Rule’s reduction of “biological sex” to physical sex stereotypes such as “height, the presence (but not the absence) of facial hair, the presence of an Adam’s apple, and other physical characteristics,” would not only result in discrimination on the basis of gender identity and transgender status, but would also enable single-sex shelters to arbitrarily provide or deny shelter based solely on a shelter worker’s assessment of whether an individual appears sufficiently “male” or “female” enough to enter.   Denying shelter to transgender, intersex, or gender nonconforming individuals on the basis of such physical sex stereotypes constitutes a type of gender discrimination that numerous courts have found unlawful.

HUD’s justifications for the Proposed Rule are rooted not in fact, but in transphobia and harmful gender stereotyping.  HUD claims that the Equal Access Rule burdens faith-based shelter providers, but provides no evidence of this.  HUD also claims that the Proposed Rule is necessary to protect the privacy and safety of cisgender (that is, non-transgender) shelter residents, again with no evidence that the Equal Access Rule has resulted in any harm to these residents.  Rather, HUD posits a hypothetical fear that “non-transgender, biological men” may pretend to be transgender women “to obtain access to women’s shelters” where they will harm cisgender women.  In so doing, HUD perpetuates what courts have identified as the “transgender predator myth,” a harmful, false, and unsubstantiated belief that laws protecting the rights of transgender people to access public accommodations such as restrooms will cause cisgender men to pose as transgender women to enter women’s facilities and assault cisgender women.

If enacted, the Proposed Rule will present transgender, intersex, and gender nonconforming individuals with the untenable “choice” of either being placed in a homeless shelter inconsistent with their gender identity or sleeping on the street.  Those who opt for shelter at a single-sex facility that does not match their gender identity will be subjected to the psychological trauma of being misgendered and will face the high risk of physical violence that has been documented in various settings in which transgender people have been forced into facilities inconsistent with their gender identities.  Those who opt to go unsheltered will also face a serious risk of harm, as studies have found as many as 66% of homeless transgender individuals have experienced a physical assault, and 33% have experienced sexual violence.  While a staggering 47% of transgender people report being sexually assaulted during their lifetime, the number climbs to 65% among transgender individuals who have experienced homelessness.  These grim statistics are symptomatic of a growing epidemic of violence against transgender individuals, as recent FBI data shows hate crimes against transgender people are on the rise.

We are proud to support The National LGBT Bar Association and Foundation in challenging this Proposed Rule and championing the rights of transgender, intersex, and gender nonconforming people who need access to emergency shelter.  HUD must protect homeless transgender individuals, who are among the most vulnerable members of the LGBTQ community, by ensuring that homeless shelters provide them with safe and equal access in accordance with their gender identities.

To read the public comment letter in full, click here.

© 2020 Proskauer Rose LLP.
ARTICLE BY Erin M. Meyer  of Proskauer Rose LLP
For more articles on civil rights, visit the National Law Review Civil Rights section.

Breaking News: President Trump Issues Executive Order on Combating Race and Sex Stereotyping

On September 22, 2020 President Trump issued an Executive Order “on Combating Race and Sex Stereotyping” (“September 22 EO”) covering government contractors and certain grant recipients that outlines what those organizations cannot include in employee training. It appears, the September 22 EO covers all federal contractors and subcontractors and will require contracting agencies to insert a contract clause in contracts (presumably, from the language of the EO new contracts only) entered into 60 days from September 22, 2020 addressing race and sex stereotyping.

Stemming from the belief that

[i]nstructors and materials teaching that men and members of certain races, as well as our most venerable institutions, are inherently sexist and racist are appearing in workplace diversity trainings across the country

the Order establishes a requirement that contractors and grant recipients not use any workplace training that

“inculcates in its employees” any form of race or sex stereotyping or any form of race or sex “scapegoating”

This includes prohibition on the following concepts:

  • one race or sex is inherently superior to another race or sex;
  • an individual, by virtue of his or her race or sex, is inherently racist, sexist, or oppressive, whether consciously or unconsciously;
  • an individual should be discriminated against or receive adverse treatment solely or partly because of his or her race or sex;
  • members of one race or sex cannot and should not attempt to treat others without respect to race or sex;
  • an individual’s moral character is necessarily determined by his or her race or sex;
  • an individual, by virtue of his or her race or sex, bears responsibility for actions committed in the past by other members of the same race or sex;
  • any individual should feel discomfort, guilt, anguish, or any other form of psychological distress on account of his or her race or sex; or
  • meritocracy or traits such as a hard work ethic are racist or sexist, or were created by a particular race to oppress another race.

Given this, the Executive Order could severely limit and curtail diversity and inclusion, sexual harassment, and related EEO training contractors and government grant recipients are allowed to provide to their employees.

Interesting, the September 22 EO does not include a provision that regulations be issued to implement its requirements.   However, importantly, the Office of Federal Contract Compliance Programs has been tapped as the Agency to enforce the Executive Order.  Per the Order, the Director of OFCCP is required to publish a request for information within 30 days of September 22 seeking from federal contractors and subcontractors information regarding training, workshops or “similar programming” provided to employees, and interesting, that those materials, as well as information about the expense, frequency, duration of the trainings be provided to OFCCP.  There is no detail or instruction as to what OFCCP is required to do with the submissions. However, the executive order states violators can be subject to contract suspension or termination and the contractor may be subject to suspension or debarment.

In addition, the September 22 EO requires all federal agency heads to review their grant programs, and identify in a report to be provided to the Director of the Office of Management and Budget (“OMB”) within 60 days of issuance of September 22, programs that the agency determines as a condition of receiving grant monies that the recipient certify that it will not use federal funds to “promote the concepts” identified above with respect to federal government contractor prohibitions in training and related materials.

If fully implemented, the requirements of the Executive Order could require significant modifications to the content of trainings on race and sex including, diversity and inclusion and unconscious bias, that have become the mainstay for many employers, including contractors and grant recipients.  Some of these trainings are, or may be, required by other federal or state requirements, which could pose a conflict for contractors.

We anticipate challenges to this Executive Order.  We will be following this closely and will be back with future insights and developments.

Jackson Lewis P.C. © 2020
For more articles on Trump, visit the National Law Review Election Law / Legislative News section.