Ark Group/Managing Partner’s 4th Annual – At the Forefront of Diversity WOMEN LEGAL 2011 Forum- June 8th AMA Executive Conference Center ~ New York, NY

The National Law Review is a proud media partner of the ARK Group’s WOMEN LEGAL Forum 2011– June 8th AMA Executive Conference Center ~ New York, NY which is dedicated to advancing the increasingly-important dialog on gender diversity in the American legal profession. 

The Business Imperative for the Retention and Succession of Female Leadership:

Why do so many Fortune 500 companies require their network of law firms to engage in diversity best practices that illustrate growth and change? Because evidence today not only supports that diversity practices are a sign of a well-managed company, but also because women make up almost half of the U.S. workforce and are assuming greater leadership roles in corporations across the board.

Is the “business of law” itself a detriment to the retention and succession of women leadership? Gender-based discrimination that equates to marginalized access to resources and decision-making continues to plague women in law firms.  There should be far more women serving as managing partners, executive and compensation committee members and filling additional critical leadership roles than there are today. Yet with increasing frustration, we continue to bring attention to the institutional impediments to women’s success and advancement.

For More Details and to Register:

China Adopts Amendment to the Criminal Law to Outlaw Bribery of Foreign Officials

Recent guest bloggers at the National Law Review from Squire Sanders & Dempsey (US) LLP.Nicholas ChanZijie (Lesley) Li, Amy L. Sommers, and  Laura Wang outline some of the recent changes in Chinese law related to bribery of foreign officials

On February 25, 2011 the PRC adopted Amendment No. 8 of the PRC Criminal Law, criminalizing bribery of foreign government officials and “international public organizations” to secure illegitimate business benefits. This amendment goes into effect on May 1, 2011.

The PRC did not have any law addressing cross-border bribery before and this law will be the first law to condemn bribery of foreign officials. This amendment is the PRC’s effort to comply with the United Nations Convention Against Corruption to which the PRC is a signatory.

The amendment was made to Article 164 of the PRC Criminal Law prohibiting entities or individuals from offering bribes to employees of companies and enterprises who are not government officials. With the amendment, it is a criminal act to bribe foreign government officials or international public organizations.

According to this Article 164, if the payor is an individual, depending on the value of the bribes, he or she is subject to imprisonment up to 10 years; if the payor is an entity, criminal penalties will be imposed against the violating entity and the supervisor chiefly responsible and other directly responsible personnel may also face imprisonment of up to 10 years. Penalties may be reduced or waived if the violating individual or entity discloses the crime before being charged. According to the PRC Supreme Procuratorate issued in 2001, individuals offering bribes of more than RMB10,000 and entities offering bribes of more than RMB 200,000 may be prosecuted under Article 164.

Unlike other bribery-related crimes in the PRC, which focus on the receipt by the briber of ”illegitimate benefits,” bribery of foreign officials or international organizations prohibits securing illegitimate business benefits. In advance of the release of judicial interpretation of what may be “illegitimate business benefits,” the current legal understanding of what is “to secure illegitimate benefits” means in other bribery-related crimes may provide a reasonable basis for understanding this amendment.

The law refers to “officials of foreign countries and international public organizations,” but does not define these terms. For example, it is not clear whether international public organization includes foreign non-governmental organizations.

As of this Alert, no judicial interpretation or administrative regulations regarding the implementation of this provision has been promulgated. It is not clear whether foreign companies may also be subject to jurisdiction under the PRC Criminal Law with respect to this new amendment. We will continue to closely monitor future development related to this amendment.

©Squire, Sanders & Dempsey All Rights Reserved 2011

Preparing for the Launch of New Generic Top Level Domain Names (gTLDs) in 2011

Recently posted at the National Law Review  by Monica Riva Talley of Sterne, Kessler, Goldstein & Fox P.L.L.C. – a great overview of the upcoming changes to domain names by ICANN:

On June 16, 2008 the Internet Corporation for Assigned Names and Numbers announced that it would allow an unlimited number of new gTLDs (generic top level domain names) to populate the web.  Expanding on the current limited offerings of gTDLs (such as .com, .net, .org., .info, and .mobi), these new gTLDs will be comprised of virtually any possible term — including brand names (“.BRAND”), generic names (e.g., .CAR, .HOME), and city names — opening-up the web to an infinite number of naming possibilities.

Although the process has been delayed several times, the current belief is that ICANN will begin accepting applications for these new gTLDs by July or August 2011.  However, it is likely that the start of the application process will be delayed further, as various trademark organizations have raised concerns about the award and dispute resolution process. 

Why Expanding The Number of gTLDs is a Good Idea

ICANN has stated that its aim in creating more gTLDs is to enhance competition and promote choice and innovation.  Of particular note to companies, not only will it now be possible for  them to register brand names as gTLDs, they  will also have control of second level domain names issued under potential new gTLDs, and can sell these second level domain names to third parties.  Thus, this new system could allow not only for enhanced brand promotion and visibility, but also for secure corporate and client networks (used for purposes such as facilitating the provision of services to clients via a dedicated portal) – which could prevent fraudulent practices such as offers of counterfeit products via the Internet.

And Why it Might Not Be

On the down side, increasing the number of top level domain names means more opportunities for cybersquatters, those who register, traffic in, or use domain names with bad faith intent to profit from the goodwill of a trademark belonging to someone else.  It will  also significantly increase defensive registration and dispute costs.  Many in the trademark community are concerned that this dramatic increase in the number of gTLDs will inevitably cause a considerable burden on trademark owners who will need to carefully consider online strategies.  In particular, not every country makes use of the Uniform Dispute Resolution Policy (UDRP), making it difficult to address abuses that originate abroad.  Moreover, while the variation of domain name dispute mechanisms available worldwide is considered complex today, in a world with only a handful of gTLDs, it will only get more complex as the domain name platform increases exponentially.  Finally, the high cost of obtaining one of these new domains is thought to exclude many worthwhile non-profit organizations and developing countries, for whom such domains might prove a useful resource.

Cost to Apply for a New gTL

As alluded-to above, the cost to apply for one of these new gTLDs is steep — $185,000, a price that ensures only well-financed organizations operate the domains, and involves a lengthy application process and evaluation. 

Will Someone Else be Able to Register My Trademark as a gTLD?

After the application period closes, ICANN will verify all of the applications for completeness and will then release on its website the list of strings, applicant names, and other application data.  ICANN plans to then implement an objection-based process that will enable trademark owners to demonstrate that a proposed gTLD would infringe their legal rights. In the event that the legal rights objection is successful, the application will not proceed.

At this time, ICANN is not contemplating a system that would notify a trademark owner if a third-party applies to register a trademark that does not belong to them.  ICANN is conducting global public outreach to educate the community on what their responsibilities are, as well as what the formal objection mechanism and timeline is, before the program launches.  ICANN will publish the list of all applications received after the application submission period closes, and will continue to publicize the objection process and deadlines. 

For More Information . ..

General information about ICANN can be found at its website.  A discussion from ICANN regarding the new gTLD program (the dates on this document are no longer correct, because of delays) can be found here. Parties interested in providing input or voicing concerns regarding the plan or the process can attend the next ICANN meeting, scheduled to take place in San Francisco, March 13 – 18, 2011.

© 2011 Sterne Kessler

EPA Redefines “Solid Waste” to Incentivize Creative Fuel Technology: Garbage to Gold

Recent Guest Blogger at the National Law Review  Kim K. Burke  of  Taft Stettinius & Hollister LLP highlights how the EPA recently changed the definition of Solid Waste and how this can lead to new fuel technology

Since the Resource Conservation and Recovery Act (RCRA, 42 U.S.C. §6901, et seq.) first became law, consternation among the regulated community has grown as a principal purpose of RCRA, namely, to encourage discarded material reuse as fuel, appears to have been ignored in EPA’s rulemaking.  Perhaps that discouraging trend is coming to an end.  On February 21, 2011, EPA released a pre-publication version of a proposed Final Rule amending the definition of “solid waste.”  What is particularly encouraging about the Final Rule is that innovative technologies for creating fuels from materials that would have previously been characterized as a “solid waste” are excluded from the definition.  This opens the door to creative technologies to transform municipal garbage into useable fuels for utilities and industrial boilers.  Not only does this technology reduce the amount of precious landfill space being consumed by valuable organic material, but it also offers the prospect of reduced and more easily controlled emissions from industrial boilers and fossil-fueled electric utilities that promise to be large consumers of this significantly cheaper, high BTU content fuel.

In this Final Rule, EPA spells out how previously discarded non-hazardous secondary materials may be used in combustion units for fuel.   40 CFR §241.3(b)(4).  The Final Rule is careful to spell out the criteria for assuring the “legitimacy” of the non-hazardous secondary materials which are used as “fuel” or “ingredients” in combustion units.  40 CFR §§241.3(d)(1) and (d)(2).  With this change in approach by EPA to encourage development of fuels from discarded materials, entrepreneurs in the wings with off-the-shelf recycling technologies are now given EPA’s blessing to pursue a green solution to some of our country’s energy and emission reduction problems.

Copyright © 2011 Taft Stettinius & Hollister LLP. All rights reserved.

Defining “Journalist”: Whether and How A Federal Reporter’s Shield Law Should Apply to Bloggers

The National Law Review is proud to announce that  Laura Katherine Layton of  Georgetown University Law Center is one of our Student Legal Writing Contest Winners for March of 2011. Laura’s article focuses on whether there should be a federal reporter’s shield law and whether it should apply to bloggers.

In 2005, New York Times reporter Judith Miller garnered national attention for her refusal to disclose the identity of her source outing Valerie Plame Wilson as an operative of the Central Intelligence Agency. The D.C. Circuit rejected Miller’s claim that the identity of the source was protected by a reporter’s privilege. Her refusal to comply with a grand jury subpoena meant she was in contempt of court, and she spent eighty-five days in jail as a result.[1]

While Miller’s case reignited the public debate of the merits of a reporter’s privilege, the current issue for state and federal courts is defining the scope of the reporter’s shield law. Generally, areporter’s shield law is a “statutory privilege which allows a news gatherer to decline to reveal sources of information”[2] and newsgathering materials. Like the attorney/client and doctor/patient privileges, the reporter’s privilege attempts to foster the flow of information into public discussion.  The aim of the reporter’s privilege is to “increase the flow of information in circumstances in which society wishes to encourage open communication.”[3] The rationale for allowing nondisclosure about a reporter’s confidential source is based on the idea that forcing a reporter to reveal his source will cause  sources to communicate less openly with reporters as a result of  “fear of exposure” and will simultaneously cause “editors and critics to write with more restrained pens” due to “fear of accountability.”[4] The Second Circuit characterized the purpose of shield laws as the “public interest in the maintenance of a vigorous, aggressive and independent press capable of participating in robust, unfettered debate over controversial matters…”[5] To date, thirty-six states and the District of Columbia have enacted reporter shield laws codifying a reporter’s privilege,[6] though the scope of protection varies by state.  Congress has considered adopting a federal shield statute many times in the last forty years but has yet to pass the legislation.[7] Though in Branzburg v. Hayes the Supreme Court refused to recognize a special First Amendment privilege for journalists not to reveal their sources in the grand jury context,[8] it remains unclear whether a reporter’s privilege exists in criminal and civil proceedings.

Most states define the shield law protection by referring to a reporter or traditional news gatherer based on employment with an established media entity.[9] Currently, many courts are grappling with the scope of reporter’s shield laws due to the difficulty of defining who qualifies as a reporter, which is because of the changing nature of journalism—including the rise of internet publication of news by citizen journalists. There is a growing concern on how to define “journalist” so that current, unemployed, or freelance journalists are covered by the shield laws while “pajama-clad bloggers” are not entitled to invoke such a privilege.[10] There must be some limitation on the scope of the privilege; a shield law cannot apply to anyone with the ability to publish a blog on the internet.  As renowned media attorney Floyd Abrams stated, “If everybody’s entitled to the privilege, nobody will get it.”[11] Congress should pass a shield law granting a qualified privilege to persons who gather and disseminate information to the public with a true intent to do so at the outset of the newsgathering process.

If Congress were to draft a federal shield law, the main issue would be centered on how to define journalists. Implicit in that debate would be whether to include bloggers as persons covered by the privilege. Part I examines how state statutes have traditionally defined the privilege and how state courts have determined its scope. Part II analyzes the changing nature of journalism. Part III discusses the arguments in favor of and against including bloggers as journalists for shield law purposes, concluding that bloggers should qualify for protection. Part IV recommends how to appropriately tailor the privilege for citizen journalists publishing online. Part V weighs the costs and benefits of enacting a federal reporter’s shield law. Part VI recommends that Congress adopt a two-part test for a federal shield law for reporters that includes nontraditional journalists.

I.  Defining “Journalist”: Who is covered by Reporter’s Shield Laws

The struggle to define exactly who should be covered by reporter’s shield laws is not new.  Since state shield laws have existed since 1896, few shield laws explicitly include electronic news media. Courts have extended the scope of shield laws beyond only covering reporters working at newspapers to people working in magazines, radio, and television. Because many antiquated state shield laws define the privilege by medium, courts have decided whether publishing electronically meets the statutory definition. For example, California courts had to decide whether a website that conveyed confidential information about new Apple products was protected from divulging its sources by the shield law, which is codified in the state constitution.[12] The appellate court held the online publication constituted a “periodical publication” entitled to protection of the shield law because it published regularly.[13] States have amended their shield laws for advancing technologies of radio, television, and now the internet. Because the medium of communication is constantly changing, the medium of communication should not determine the scope of the privilege.

Instead of defining who qualifies to invoke the reporter’s privilege based upon a particular medium, some states embrace a definition of reporter based on the function of journalism. While some state statutes only provide the reporter’s privilege to persons employed by an established media entity, other states apply to any “person who is or has been directly engaged in the gathering, procuring, compiling, editing, or publishing of information for the purpose of transmission, dissemination, or publication to the public.”[14] State legislatures have rightly extended the privilege to all persons who gather and disseminate news to the public rather than limiting protection to only professional journalists.

Some courts have also embraced an intent standard based upon the function of journalism. In von Bulow, the Second Circuit held the privilege only protected a person who has the intent to disseminate the information to the public at the inception of the newsgathering process.[15] In this case, Andrea Reynolds invoked the reporter’s shield law to cover an unpublished manuscript of a book based on the notes she took as a paralegal to Claus von Bulow, who was charged with murdering his wife. The court rejected the claim that Reynolds’ manuscript and notes were privileged since she had not indicia of a freelance author and did not demonstrate that her intent to use the materials to disseminate the information to the public existed at the beginning of the newsgathering process.[16] The court emphasized a person invoking a journalist’s privileged need not be “associated with the institutionalized press because the ‘informative function asserted by representatives of the organized press is also performed by lecturers, political pollsters, novelists, academic researchers, and dramatists.’”[17] The privilege can be invoked by a novice, according to the Second Circuit; it is not limited to those who have a history of journalism, although “prior experience as a professional journalist may be persuasive evidence of present intent to gather for the purpose of dissemination.”[18]

Other courts have adopted the intent-based test when deciding whether a person protected by a journalist’s privilege. The First Circuit and the Ninth Circuit applied the von Bulow intent test when extending the privilege to a professor[19] and to a non-fiction writer of investigative books. [20] In determining whether the persons invoking the privilege were covered, both circuits analogized the function of an academic or of an author to the reporter’s role—the ultimate purposes are to aid investigative newsgathering. According to the Ninth Circuit: “[t]he journalist’s privilege is designed to protect investigative reporting, regardless of the medium used to report the news to the public. Investigative book authors, like more conventional reporters, have historically played a vital role in bringing to light ‘newsworthy’ facts on topical and controversial matters of great public importance.”[21] Basing its decision on the intent-based inquiry, the First Circuit extended the privilege to academic researchers because they “too are information gatherers and disseminators. Just as a journalist, stripped of sources, would write fewer, less incisive articles, an academician, stripped of sources, would be able to provide fewer, less cogent analyses.”[22]

State courts have also wrestled with whether a reporter’s privilege covers non-traditional journalists, including freelance writers,[23] authors,[24] documentary filmmakers,[25] academics,[26] and independent research consultants.[27] Hawaii is the only state to specifically include whether bloggers are protected by its shield law if certain conditions are met: “Non-traditional news gatherers, e.g., bloggers, are protected if (1) the individual invoking the privilege regularly participates in reporting or publishing news of significant public interest, (2) the person holds a position similar to a traditional journalist or newscaster, and (3) the public interest is served by extending the protection of the statute.” [28]

II.  Defining “Journalist”: The Changing Nature of Journalism

The Supreme’s Courts rejection of the press as the “fourth estate” of government in Branzburg was “remarkably (although unintentionally) prescient. As means of communication become more interactive and accessible to the public the ‘press’ of the twenty-first century is rapidly becoming more difficult to define.”[29] Because of the advent and ubiquity of the Internet, more people are able to contribute to the public discourse. The number of people contributing their ideas and opinions on the Internet has grown exponentially, including the number of blogs and blog-readers. There were over 34.5 million blogs at last count.[30]

While blogs blur the line between online diaries and news reporting, the influence of blogs on the mainstream media and the public dialogue cannot be overemphasized. Matt Drudge, the author of the Drudge Report, is but one example of a person setting the trend of breaking news by blogging.  He does not consider himself a journalist, but his website was the first to break the story of President Clinton’s affair with Monica Lewinsky. His blog also was the first to report that presidential candidate Bob Dole chose Jack Kemp as his running mate in the 1996 election, as well as that CBS fired Connie Chung. Other examples of blogs leading the national discussion include: bloggers recognized Senator Trent Lott’s controversial comments at Strom Thurmond’s one-hundredth birthday celebration, which led Lott’s resignation as Senate Majority Leader; bloggers revealed Dan Rather’s documents about President George W. Bush’s National Guard service were forged;  bloggers uncovered James Frey fictionalized portions of his memoir and also exposed the contents of inappropriate emails sent to House pages by Representative Mark Foley.[31]

Moreover, mainstream media outlets are embracing the changing nature of technology by incorporating the citizen journalism into reporting. Many mainstream media companies support blogs, and many reporters have their own blogs.[32] Most every news website encourages readers to leave comments online, and many mainstream media websites provide links to surveys and responses as well.[33] News organizations encourage members of the public to contribute content for publication by sharing photographs and stories of current events.  CNN promotes citizen journalism by asking viewers to submit pictures and videos of catastrophic weather events such as Hurricane Dennis.[34] Most recently, CNN encouraged people in Egypt to report on the uprisings in the country using Twitter, photographs, or videos.  CNN.com also created iReport, a section of its website “where people take part in the news with CNN. Your voice, together with other iReporters, helps shape how and what CNN covers every day.”[35]When one enters the site, the disclaimer pop-up on the browser declares: “So you know: iReport is the way people like you report the news. The stories in this section are not edited, fact-checked or screened before they post. Only ones marked ‘CNN iReport’ have been vetted by CNN.” [36] As part of a conscious effort to increase its circulation numbers by capitalizing on the popularity of blogs, Gannett, which owns over eighty newspapers around the United States, announced in November 2006 it was preparing to use non-journalists to develop content for its publications.[37]

The nature journalism is evolving; in fact, the notion of an institutional press is diminishing, if not vanishing. The inclusion of citizens as reporters of the news changes the role the mainstream media plays in our democracy.

III.  Should Bloggers Be Included as Journalists?

The purpose of a reporter’s shield law indicates that citizen journalists should be able to invoke the privilege. By allowing bloggers who disseminate information to the public to invoke a privilege to keep sources confidential, the purpose of the privilege is served: “to encourage sources to come forward with information for public debate while, at the same time, preventing both professional and non-profession journalists from becoming agents of the government, criminal defendants, or civil litigants.”[38] The purpose of the First Amendment, and thus journalists, is to enhance democracy through open, free debate. Citizen journalists who publish their content for the general public should qualify for the privilege. Because bloggers serve the essential purpose of disseminating news to the public, Mr. Abrams thinks many should be able to invoke privilege of traditional publishers:“I think a blogger…is not less deserving than a journalist who may communicate with a smaller audience through a small-town newspaper.”[39] According to the media attorney, “There should be protection so long as information was obtained for the purpose of dissemination to the public at large in some sort of analogous way to what journalists do.”[40]

In addition, Supreme Court precedent suggests bloggers should qualify for the privilege. Though at the time of Branzburg the Internet did not exist, the Court stated freedom of the press is “not confined to newspapers and periodicals” or “the large metropolitan publisher” but “necessarily embraces pamphlets and leaflets” and “every sort of publication which affords a vehicle of information and opinion.”[41] Indeed, the Court expressed a special concern for the “lonely pamphleteer who uses carbon paper or a mimeograph…”[42] Today’s version of the lonely pamphleteer is the “pajama-clad” blogger expressing his ideas and opinions in an online publication.

Some people argue that bloggers do not actually engage in journalism, but they are the next extension of the expanding categories of non-traditional journalists. State and federal courts have already found that the journalist’s shield law covers student journalists, professors, authors, and freelancers because these professions perform essentially the function as reporters: to gather and disseminate information to the public. Additionally, freedom of the press “is a right which belongs to the public; it is not the private preserve of those possess the implements of publishing.”[43] Moreover, claiming bloggers should not be able to invoke the privilege because they are “not trained,” do not “work as journalists full-time,” and/or are not “sufficiently dedicated to contributing to the public debate,” seems like a empty criticism at a time when “mainstream media organizations have substantially eroded their own credibility” with scandals such as Jayson Blair’s fabrication of sources and Dan Rather’s report based on inaccurate records. [44]

Many people criticize blogs as “opinion without expertise, without resources, without reporting.”[45] Blogs are often criticized as unreliable since bloggers, unlike journalists, do not have to submit their work to editors for approval before publication.  David Shaw, of the Los Angeles Times, complained “[m]any bloggers…don’t seem to worry much about being accurate. Or fair. They just want to get their opinions—and their ‘scoops’—out there as fast as they pop into their brains.”[46] Other critics carp that it is difficult for readers to differentiate between accurate and inaccurate blogs.[47]

Advocates of citizen journalism respond that many bloggers have incentives to report accurately, and mistakes are corrected as soon as they are posted.[48] Bloggers, like journalists, are liable for defamation; the threat of litigation “has a civilizing influence on the Internet communications by improving the quality of the discourse.”[49] In addition, blogs have the advantage of mustering the knowledge of millions of people, drawing upon the “wisdom of the crowds.” [50] Blogs certainly do not have a “monopoly on error”[51] as demonstrated by defamation suits filed against mainstream media companies.  Bloggers, like journalists, are concerned about their reputations with their readers. When interviewed by the Wall Street Journal, blogger Jeff Jarvis said, “[w]hen I make a mistake, people jump on me like white blood cells on a germ. If I don’t correct it, my reputation’s going to suffer.”[52] Additionally, conditioning the protection of a reporter’s shield on the accuracy of the individual claiming the privilege would be contrary to First Amendment principles espoused in New York Times v. Sullivan as “accuracy is relevant only in defamation actions, and even then there is no strict liability for falsehoods.” [53] Requiring accuracy would be “particularly troubling in the context of blogging, where the benefits of the medium do not come from complete accuracy of each posting but rather in its interactive nature with readers and critics.”[54]

Furthermore, blogs are not the only publications that are regarded with differing levels of trust; mainstream media outlets are subject to the same criticism.[55] Many critics object that major media entities are “too close to the corporations and politicians they cover to be trusted as watchdogs.”[56] Ironically, it may be that the escalation in the number and popularity of blogs is due to the public’s lack of confidence in mainstream journalism.[57] While the USA Today may be a more trusted source than the National Enquirer, reporters working for either publication “equally claim the title of ‘journalist.’”[58] Courts have refused “to segregate the media into tiers based on perceived quality or trustworthiness”[59] and should continue to do so when analyzing whether the reporter’s privilege applies to citizen journalists. The O’Grady court recognized the danger of a court evaluating the quality of journalism and thus “decline[d] the implicit invitation to embroil ourselves in questions of what constitutes ‘legitimate journalis[m]. The shield law is intended to protect the gathering and dissemination of news.”[60] Because the court could “think of no workable test or principle that would distinguish ‘legitimate’ from ‘illegitimate’ news,” it rejected “[a]ny attempt by courts to draw such a distinction” and warned that an attempt to draw such a distinction “would imperil a fundamental purpose of the First Amendment, which is to identify the best, most important, and most valuable ideas not by any sociological or economic formula, rule of law, or process of government, but through the rough and tumble competition of the memetic marketplace.”[61]

In its discussion of journalism, the California court also denied limiting the privilege to publications on matters of public concern. Though some have proposed a reporter’s privilege be available only to persons who publish information involving matters of public concern, the “administrative and theoretical difficulties”[62]of this approach are overwhelming. In the context of defamation law, the Supreme Court spent over fifteen years endeavoring to make a legal distinction based on “whether the content is a matter of public concern or newsworthy.”[63] According to Justice Douglas, “‘[P]ublic affairs’ includes a great deal more than merely political affairs. Matters of science, economics, business, art, literature, etc., are all matters of interest to the general public. Indeed, any matter of sufficient general interest to prompt media coverage may be said to be a public affair.”[64]It is imprudent to adopt an amorphous standard to limit the scope of a reporter’s privilege since it has been unworkable in the defamation context.

IV.  Defining “Journalist”: How to Include Bloggers in a Federal Shield Law

Since it is “neither possible nor prudent to limit a reporter’s privilege to professional journalists,”[65] a qualified privilege should be available to persons who disseminate information to the public with a real intent to do so at the inception of the newsgathering process.  Bloggers should be protected by reporter’s shield laws based on the function of journalism. Courts should examine the evidence of a blogger’s intent to publish in the same fact-specific manner as the court in von Bulow when it found no indicia that Andrea Reynolds was a freelance author.

In the 2009 version of a federal shield law, the Senate rightly defined “covered person” as a person

(i) with the primary intent to investigate events and procure material in order to disseminate to the public news or information…or other matters of public interest, [who] regularly gathers, prepares, …writes, edits, reports or publishes on such matters…

(ii) has such intent at the inception of the process of gathering the news or information sought; and

(iii) obtains the news or information sought in order to disseminate the news or information by [any] means…[66]

The “intent to disseminate” test is grounded in the rationale of the privilege— “to provide protection for the unfettered dissemination of information to the public.”[67] Those who contribute to the public discourse should be able to avail the privilege. However, one weakness of the standard is that it “focuses on the intent of the reporter at the time it was received.” [68] Most veteran reporters in the nation would “admit that many of their stories come to them when they are not even looking for them…Reporters often have no idea at the time they are collecting information whether they will in fact share that information with the public.”[69] Using the intent test alone, it is unclear whether a “reporter who has a friendly conversation with an acquaintance and then later decides to pursue a story based on what she learned in that conversation”[70] would be protected by the privilege. Although intended to disqualify a savvy person who “conveniently” characterizes herself as a journalist in order to invoke the privilege,  the von Bulow intent test could also have the “effect of denying the privilege to even the most established and dedicated full-time journalists.”[71]

This is why the federal statute should include a two-part test for the definition of a journalist: the traditional definition and the function test.[72] The first definition of a journalist should be the traditional definition that includes an association with a media entity, which would avoid the aforementioned problem of professional journalists possibly not being able to invoke the privilege. The second definition of journalist should be the intent-based test based on the function of journalism, which would cover bloggers and other non-traditional journalists. The test would be a fact-based inquiry like the close examination of Reynolds’s intent to publish in von Bulow. This tough standard would ensure limitations on the privilege rather than extending it to anyone with a computer and an Internet connection.

The qualified privilege could be overcome by showing three elements: “(1) the desired information is critical to the maintenance of a party’s claim, defense, or proof of an issue; (2) the information sought cannot be obtained by alternative means; and (3) there is a compelling interest in the information that outweighs the public’s interest in the free flow of information.”[73] The Senate essentially created the same parameters for a qualified privilege in its proposed legislation in 2009.[74] A qualified privilege would “soften the blow of an expansive definition of those persons and entities entitled to invoke it.”[75]

The federal reporter’s shield law should also include narrow exceptions to the privilege for “circumstances in which countervailing societal interests outweigh any societal interest in preserving the privilege.” This includes circumstances when a subpoena is “directed to someone who witnessed or participated in a criminal or tortious activity (exclud[ing] ‘leaks’ of classified or national security information).” [76] Another exception would include times when a “direct and imminent threat to national security warrants compelling testimony”[77] or when “reasonably certain death or substantial bodily harm” may occur.[78] These three basic exceptions were also outlined in the Senate’s most recent attempt to pass a federal reporter shield law.[79]

Most courts have held that journalists who participate in a crime are barred from invoking the privilege.[80] Accordingly, this exception does not harm the underlying purpose of the privilege since there is “no value in encouraging sources to commit crimes in front of journalists.”[81] Leaking classified information should not fall under the crime exception since “leaks of government information, whether classified or not, have become an essential means by which the public learns about government activities.” [82] Since current protection is inadequate for whistleblowers, and “as a result, leaking information to the press is often the only realistic means of shedding light on questionable or illegal government practices,”[83] a privilege protecting whistleblowers encourages such persons to come forward serves the public interest. Prosecuting those who leak national security or other classified information is not hindered by a reporter shield law.[84]

Though most fears that a federal shield law would undermine national security are misplaced, there should be an exception to the privilege “if the reporter’s testimony would help prevent a direct and imminent threat to national security.” [85] The Supreme Court recognized an exception  for “imminent threat” to national security in the Pentagon Papers case, which concluded that the “presumption against prior restraints could not be overridden absent an immediate and serious threat to national security.” [86] This is a reasonable standard that should apply to the reporter’s privilege.

Finally, an exception for preventing “death or bodily harm to another human being applies to other testimonial privileges, including the attorney-client privilege.”[87] It is prudent to extend this exception to the reporter’s privilege “because in such cases the public’s interest in the information far outweighs the public’s interest in encouraging anonymous sources from coming forward.”[88]

V.  The Costs and Benefits of a Federal Reporter Shield Law

The most significant cost of any privilege is that it deprives courts of evidence. Critics claim that a privilege closes the courts for individuals harmed as a result of the free press, that a shield creates an exception to courts as a place to redress injury.[89] However, defamatory statements are actionable regardless of the enactment of a shield law.  There is no privilege if the media caused the damage.[90]Moreover, some states “explicitly reject the privilege when a media entity is a party to the litigation, a situation that typically occurs in defamation cases,” while others supply the media with some “protection by requiring a plaintiff to demonstrate that the information is important for her case and that she has attempted to obtain the information through other means.”[91]

According to opponents of the privilege, it benefits the media; enacting a federal shield law would lead to accountability problems if reporters are not forced to reveal anonymous sources.[92] The purpose of the privilege is to help the free flow of information to the public rather than aid the press. The privilege benefits the public and whistleblowers and does not hinder law enforcement. In fact, adopting a reporter’s privilege is viewed “as a necessary component of a larger criminal law reform, based on the hope that with this new protection reporters would be more willing to publish stories revealing criminal activity. The states’ enthusiasm for shield laws suggests that such laws enhance rather than detract from the ability of law enforcement to fight crime.” [93] Not having a federal privilege actually hinders attorneys general. Federal and state privileges should mirror each other since reporters do not know where a subpoena will come from. A federal reporter shield law creates certainty for reporters and attorneys. [94]Thirty-five states with shield laws submitted an amici curiae brief to the Supreme Court of the United States arguing for a grant of certiorari in Judith Miller’s case because the lack of a federal  privilege undermines the judicial and legislative determinations of forty-nine states and the District of Columbia.[95]

The irony of not enacting a federal shield law in an age of Wikileaks means that websites such as Wikileaks are more likely to receive information and documents than a reporter, who would verify the information, edit statements, and redact necessary portions. Without a reporter’s shield law, it is likely that sources will go to Wikileaks, which sends information directly to the public and is not subject to professional ethics. Wikileaks is empowered if reporters are not allowed to protect their sources. [96]

VI.  Conclusion

A federal shield law for reporters and citizen journalists would benefit the public by protecting whistleblowers and encouraging anonymous sources to reveal information to responsible disseminators of the news. Because the purpose of the privilege is to help the flow of information to the public, Congress should pass a federal shield reporter’s shield law that protects traditional and citizen journalists. The privilege should not simply cover members of the traditional press, for “[t]he First Amendment does not guarantee the press a constitutional right… not available to the public generally.”[97] Congress should combine the traditional definition of a reporter associated with a media entity with an intent-based inquiry based on the function of journalism to create a federal reporter’s shield law to enhance the First Amendment and encourage the free flow of information in our democracy.


[1] See In re Grand Jury Subpoena, Judith Miller, 397 F.3d 964, 976-980 (D.C. Cir. 2005); Key Players in the CIA Leak Investigation, http://www.washingtonpost.com/wp-srv/politics/special/plame/Plame_KeyPla…

[2]81 Am. Jur. 2d Witnesses § 526 (2010).

[3] Mary-Rose Papandrea, Citizen Journalism and the Reporter’s Privilege, 91 Minn. L. Rev. 515, 535-36 (2007) (discussing the purpose of the privilege).

[4] Branzburg v. Hayes, 408 U.S. 665, 721 (1972) (Douglas, J., dissenting).

[5] von Bulow v. von Bulow, 811 F.2d 136, 144 (2d Cir. 1987).

[6] David Kohler & Lee Levine, Media and the Law 529 (Matthew Bender 2009).

[7] See, e.g.,Free Flow of Information Act of 2009, S.448, 111th Cong. § 1-11 (2009); Free Flow of Information Act of 2007, S.2035, 110th Cong. § 1-8 (2007).

[8] Branzburg, 408 U.S. at 682.

[9] See, e.g., Ala. Code § 12-21-142 ; 10 Del.C. § 4320 (4).

[10] See In re Grand Jury Subpoena, Judith Miller, 397 F.3d  at  976-980 (Sentelle, J., concurring) (noting the difficulties of determining who qualifies as a reporter and expressing concern about “whether the stereotypical ‘blogger’ sitting in his pajamas at his personal computer posting on the World Wide Web” would be entitled to invoke the privilege).

[11] Floyd Abrams Explains Why He Should Lose, http://www.pajamasmedia.com/instapundit-archive/archives/019677.php

[12] Cal. Const. art. I, § 2(b).

[13] O’Grady v. Superior Court, 44 Cal.Rptr.3d 72 (Cal. Ct. App. 2006).

[14] Minn. Stat. § 595.023 (2004).

[15] von Bulow, 811 F.2d  at 143.

[16] Id. at 145.

[17] Id. at 145 (quoting Branzburg v. Hayes, 408 U.S. 665, 705 (1972)).

[18] Id. at 144.

[19] Cusumano v. Microsoft Corp., 162 F.3d 708, 714 (1st Cir. 1998).

[20] Shoen v. Shoen, 5 F.3d 1289, 1293 (9th Cir. 1993).

[21] Id. at 1293.

[22] Cusumano, 162 F.3d at 714.

[23] See People v. Von Villas, 13 Cal. Rptr. 2d 62, 78-79 (Cal. Ct. App. 1992) (holding California privilege applied to freelance author ).

[24] See e.g., Shoen, 5 F. 3d at 1290-91.

[25] See Silkwood v. Kerr-McGee Corp., 563 F.2d 433, 436-37 (10th Cir. 1977) (holding privilege applied to documentary filmmaker whose “mission…was to carry out investigative reporting for use in the preparation of a documentary film”).

[26] See Cusumano, 162 F.3d at 714.

[27] See Summit Tech., Inc. v. Healthcare Capital Group, Inc., 141 F.R.D. 381, 384 (D. Mass. 1992)(holding independent research consultant was “engaged in the dissemination of investigative information to the investing business community” on “matters of public concern,” and was therefore “entitled to raise the claim of privilege”).

[28] See Privilege Compendium, http://www.rcfp.org/privilege/index.php?op=browse&state=HI

[29] Papandrea, supra note 3, at 523.

[30] Id.

[31] See id.

[32] See e.g, Ezra Klein’s blog, Economic Policy, and Lots of It, http://voices.washingtonpost.com/ezra-klein/.

[33] See e.g., http://www.nytimes.com/; http://www.washingtonpost.com/.

[34] See cnn.com/.

[35] http://ireport.cnn.com/.

[36] See id.

[37] See Papandrea, supra note 3, at 532.

[38] Id. at 585.

[39] Floyd Abrams, supra note 13.

[40] Id.

[41] Branzburg, 408 U.S. at 704.

[42] Id.

[43] State v. Buchanan, 436 P.2d 729, 731(Or. 1967).

[44] Papandrea, supra note 3, at 573-74.

[45] See id., at 528.

[46] Id.

[47] Id.

[48] See id.

[49] Id.at 530.

[50] See Papandrea, supra note 3, at 529.

[51] See id. at 530.

[52] See id. at 529.

[53] Id., at 576.

[54] Id.

[55] Id.at 530.

[56] See Papandrea, supra note 3,at 524.

[57] Id.

[58] Id.at 530.

[59] Id.

[60] O’Grady, 44 Cal.Rptr.3d at 97.

[61] Id.

[62] Papandrea, supra note 3, at 578.

[63] Id.

[64] Gertz v. Robert Welch, 418 U.S. 323, 357 (1974) Douglas, J. dissenting).

[65] Papandrea, supra note 3, at 520.

[66] Free Flow of Information Act of 2009, supra note 7.

[67] Papandrea, supra note 3, at 572.

[68] Id.

[69] Id.

[70] Id.

[71] Id.at 573.

[72] Interview with Kurt Wimmer, partner, Covington & Burling, in Washington, D.C. (Dec.17, 2010).

[73]Papandrea, supra note 3,  at 584.

[74] See Free Flow of Information Act of 2009, supra note 7.

[75] Papandrea, supra note 3, at 585.

[76] Id.

[77] Id.at 520-21.

[78] Id. at 588.

[79] See Free Flow of Information Act of 2009, supra note 7.

[80] Papandrea, supra note 3, at 587.

[81] Id.

[82] Id. at 588.

[83] Id.

[84] See id.

[85] Id.at 588-89.

[86] Papandrea, supra note 3, at 589.

[87] Id.

[88] Id.at 589-90.

[89] Interview with Mark Grannis, managing partner, Wiltshire & Grannis, in Washington, D.C. (Dec. 8, 2010).

[90] Interview with Kurt Wimmer, supra note 79.

[91] Papandrea, supra note 3, at 548.

[92] Interview with Mark Grannis, supra note 96.

[93] Papandrea, supra note 3, at 535.

[94] Interview with Kurt Wimmer, supra note 79.

[95] Brief of the States of Oklahoma, et al. as Amici Curiae in Support of the Petitions for Writs of Certiorari, Cooper v. United States, 545 U.S. 1150 (2005), denying cert. to In re Grand Jury Subpoena, Judith Miller, 397 F.3d 964 (D.C. Cir. 2005).

[96]Interview with Kurt Wimmer, supra note 79.

[97] Branzburg, 408 U.S. at  684.

© Copyright 2011 Laura Katherine Layton

Seeking CAFA Clarity: A Summary of Recent Case Law Addressing Challenges to Jurisdiction Under the Class Action Fairness Act

Very comprehensive article explaining intracacies of  CAFA  – the Class Action Fairness Act recently posted at the National Law Review by James A. Comodeca and M. Gabrielle Hils of Dinsmore & Shohl LLP

I.          The Class Action Fairness Act (“CAFA”)

In 2005, CAFA was enacted to assure fair and prompt recoveries for class members with legitimate claims, restore the intent of the framers of the United States Constitution by providing for Federal court consideration of interstate cases of national importance under diversity jurisdiction, and benefit society by encouraging innovation and lowering consumer prices.  Pub. L. No. 109-2, 119 Stat. 4 (2005), LEXSEE 109 PL 2.

To achieve these stated purposes, 28 U.S.C. §1332 was amended to expand diversity jurisdiction in class action litigation.  Subsection (d)(2) of §1332 provides that in class action cases involving 100 or more class members:

(2)        The district courts shall have original jurisdiction of any civil action in which the matter in controversy exceeds the sum or value of $ 5,000,000, exclusive of interest and costs, and is a class action in which–

(A)        any member of a class of plaintiffs is a citizen of a State different from any defendant;

(B)        any member of a class of plaintiffs is a foreign state or a citizen or subject of a foreign state and any defendant is a citizen of a State; or

(C)       any member of a class of plaintiffs is a citizen of a State and any defendant is a foreign state or a citizen or subject of a foreign state.

CAFA eliminates some of the traditional procedural impediments to removal by no longer placing a 1 year limit on removal, allowing removal even if the defendant is a citizen of the state where the suit was initiated, and no longer requiring the removing defendant to obtain consent to removal from the co-defendants.  28 U.S.C. §1453(b).

Pursuant to 28 U.S.C. §1332(d)(11), mass actions also may be removed to federal court.  A mass action is a civil action in which monetary relief claims of 100 or more persons are proposed to be tried jointly on the ground that the plaintiffs’ claims involve common questions of law or fact.  Jurisdiction shall exist only over those plaintiffs whose claims in a mass action satisfy the $75,000 jurisdictional amount found in of §1332(a), and if the other requirements of CAFA removal are met, including minimal diversity and an aggregate amount in controversy in excess of $5 million.

Even thought CAFA expands diversity jurisdiction, the removing party still has the burden to establish the court’s jurisdiction by demonstrating that the requisite number of plaintiffs exist, that there is minimal diversity, and that the amount in controversy is sufficient to meet the statutory requirements.

II.        Exceptions to CAFA Jurisdiction

Certain class actions are specifically excluded from CAFA’s reach.  The exceptions to CAFA jurisdiction are fertile territory for plaintiffs trying to keep their class actions cases in state court.  CAFA’s exceptions are found in 28 U.S.C. §1332(d)(3) through (5) and include the following:

 

·       the discretionary/interests of justice exception,

·       the local controversy exception,

·       the home state exception, and

·       the state action exception.

A.  Discretionary/Interests of Justice Exception – 28 U.S.C. §1332(d)(3)

The discretionary/interests of justice exception allows a district court to decline jurisdiction in the interests of justice and looking a the totality of the circumstances if greater than one third but less than two-thirds of the members of all proposed plaintiff classes in the aggregate and the primary defendants are citizens of the State in which the action was originally filed.  In exercising this discretion the court must consider: whether the claims asserted involve matters of national or interstate interest; whether the claims asserted will be governed by laws of the State in which the action was originally filed or by the laws of other States; whether the class action has been pleaded in a manner that seeks to avoid Federal jurisdiction; whether the action was brought in a forum with a distinct nexus with the class members, the alleged harm, or the defendants; whether the number of citizens of the State in which the action was originally filed in all proposed plaintiff classes in the aggregate is substantially larger than the number of citizens from any other State, and the citizenship of the other members of the proposed class is dispersed among a substantial number of States; and whether, during the 3-year period preceding the filing of that class action, 1 or more other class actions asserting the same or similar claims on behalf of the same or other persons have been filed.

B.         Local Controversy Exception – 28 U.S.C. §1332(d)(4)(A)

Under the local controversy exception, a district court shall decline to exercise jurisdiction over a class action which meets the following three criteria.  First, greater than two-thirds of the members of all proposed plaintiff classes in the aggregate are citizens of the State in which the action was originally filed.  Second at least one defendant is a defendant from whom significant relief is sought by members of the plaintiff class; whose alleged conduct forms a significant basis for the claims asserted by the proposed plaintiff class; and who is a citizen of the State in which the action was originally filed; and principal injuries resulting from the alleged conduct or any related conduct of each defendant were incurred in the State in which the action was originally filed.  Third, during the 3-year period preceding the filing of that class action, no other class action has been filed asserting the same or similar factual allegations against any of the defendants on behalf of the same or other persons.

C.  Home State Exception – 28 U.S.C. §1332(d)(4)(B)

The home state exception applies when two-thirds or more of the members of all proposed plaintiff classes in the aggregate, and the primary defendants, are citizens of the State in which the action was originally filed.

D. State Action Exception – 28 U.S.C. §1332(d)(5)(A)

If the primary defendants are States, State officials, or other governmental entities against whom the district court may be foreclosed from ordering relief then the case falls within the state action exception to CAFA jurisdiction.

III.  Arguments raised to defeat CAFA jurisdiction

A. Is this case a class action?

CAFA applies to class actions and  a class action is defined in 28 U.S.C. §1332 (d)(1) (B) as an civil action filed under Rule 23 of the Federal Rules of Civil Procedure or similar State statute or rule of judicial procedure authorizing action to be brought by 1 or more representative persons as a class action.  But does CAFA apply if the complaint does not specifically define a proposed class?

In College of Dental Surgeons of Puerto Rico v. Connecticut Gen. Life Ins. Co.,585 F. 3d 33 (1st Cir. 2009) the First Circuit grappled with this issue.  The plaintiff, the College of Dental Surgeons of Puerto Rico, brought suit on behalf of its members, consisting of licensed dentists in Puerto Rico, against multiple defendants claiming that the defendants’ claims handling practices were questionable, fraudulent and economically detrimental to the members.  Two defendants removed the case to federal court pursuant to CAFA.  The district court remanded the case on the basis that the complaint did not sufficiently define the plaintiff class.  On appeal, the remand order was vacated.  The First Circuit noted that the complaint plausibly alleged claims for class-wide relief and consistently alleged harm to the members as a professional group.  The appellate court rejected the argument that remand was appropriate because the case could never be certified since an association cannot be a member of a certifiable class.  The Court found that the association met the standing requirements to sue on behalf of its members because the members had standing to sue in their own right, the interests the association sought to protect were germane to its purposes; and neither the claim asserted nor the declaratory relief requested required the participation of individual members in the suit.  More importantly, the Court stated that class composition was not the issue at the inception of a class action.  Review of the complaint alone typically is insufficient for determining if the class can be certified, so the district court’s ruling on the inadequacy of the class definition was premature.

B.  Is this case a mass action under 28 U.S.C. §1332(d)(11)?

In a series of cases brought in California, the plaintiffs were able to avoid CAFA jurisdiction by pleading around both the jurisdictional amount and the number of persons necessary to satisfy a mass action under §1332(d)(11).

In Tanoh v. Dow Chemical, Co, 561 F.3d 945 (9th Cir. 2009), cert. denied, 130 S. Ct. 187, 175 L. Ed. 2d 236 (2009) the defendant removed seven state court actions involving over 600 foreign nationals who claimed that they had been injured by exposure to the chemical DBCP while working on banana and pineapple plantations in the Ivory Coast.  In each case of the seven cases there were fewer than 100 plaintiffs.  The cases were removed to federal court on the basis of diversity jurisdiction and the mass action provisions of CAFA.  Dow Chemical argued that the seven actions, taken together, constituted a mass action and that the cases had been filed separately just to frustrate the purposes of CAFA jurisdiction.

The district court disagreed and remanded the actions.  Specifically, the court looked at the language in 28 U.S.C. §1332(d)(11) which specifically states that a mass action shall not include claims that are joined upon the motion of a defendant.  It found that Dow Chemical’s attempt to aggregate the actions for purposes of CAFA, was tantamount to doing an end-run around this limitation in the statute.  On appeal, the Ninth Circuit upheld remand of the actions to state court.  It rejected Dow Chemical’s argument that the plaintiffs should not be allowed to structure the complaints in order to defeat CAFA jurisdiction.  The appellate court did not consider cases decided under provisions other than CAFA’s mass action provision to be persuasive.    See alsoVenegas v. Dole Food Co., Inc., 2009 U.S. Dist. LEXIS 22885 (C.D. Cal. Mar. 9, 2009), where approximately 2500 plaintiffs, banana plantation workers, filed multiple lawsuits against the same defendants alleging damages from exposure to a chemical used in banana farming operations in Costa Rica, Panama, Honduras and Guatemala. The plaintiffs were divided into groups alphabetically and by country so that each case had less than 100 plaintiffs. Defendants removed the cases to federal court on CAFA jurisdictional grounds asserting that all the actions should be considered one action because the plaintiffs divided their claims solely for purposes of avoiding federal court jurisdiction.  The motion for remand was granted.  Remand was granted, in part, because nothing in CAFA suggests that the plaintiffs, as the masters of their own complaint, may not file multiple actions each with fewer than 100 plaintiffs.  The court also held that the defendant had not met its burden of demonstrating that amount in controversy exceeded $75,000 individually or $5 million in the aggregate.

C.  Is there minimal diversity?

1.  For purposes of federal diversity jurisdiction, a corporation is considered a citizen of the state where it is incorporated and of the state where it has its principal place of business. 28 U.S.C. §1332(c)(1).  But what constitutes a corporation’s principal place of business?

In Hertz Corp. v. Friend, 130 S. Ct. 1181, 175 L. Ed. 2d 1029 (2010), the U.S. Supreme Court addressed the meaning of principal place of business (“PPB”) for diversity jurisdiction purposes.  Plaintiffs, California citizens sued their employer, Hertz, in state court alleging California wage and hour law violations.  They brought the suit on behalf of themselves and a class of California citizens suffering similar harms.  Hertz removed the case to federal court on the basis of diversity jurisdiction, asserting that its PPB was in New Jersey.  The plaintiffs moved for remand alleging that Hertz’s PPB was in California.  Hertz submitted a declaration to establish that its PPB was in New Jersey.  In the declaration, Hertz stated that it had facilities in 44 states, that its corporate headquarters was in New Jersey, and that its core executive and administrative functions were carried out in New Jersey.  With respect to the state of California, Hertz stated that it had 273 of its 1606 car rental locations there, that about 2300 of its 11,230 full time employees were in California and that its business in California amounted to about $811 million of its $4.371 billion in annual revenue.  Based on these facts, the district court found that Hertz’s PPB was in California under the Ninth’s Circuit’s test which required the court to examine Hertz’s business on a state-by-state basis.  If the amount of activity in one state is significantly larger or substantially predominates, then that is the company’s PPB, but if there is no such state, then the PPB is the corporation’s nerve center, i.e., the place where the majority of its executive and administrative functions are performed.  After examining the plurality of Hertz’s business activity in various states, the district court found that its activity in California was significant and so Hertz’s PPB was in California.  The Ninth Circuit affirmed the remand order and Hertz appealed.

The United States Supreme Court reversed.  Noting that there were many different ways in which the various circuit courts over the years had determined what constitutes a company’s PPB, the Supreme Court thought it necessary to find a single, more uniform interpretation of this statutory phrase. The Court adopted the nerve center test, holding that PPB is best read as referring to the place where a corporation’s officers direct control, and coordinate the corporation’s activities.  In practice this should normally be the place where the corporation maintains its headquarters — provided that the headquarters is the actual center of direction, control, and coordination, i.e., the nerve center, and not simply an office where the corporation holds its board meetings.

2. What if the plaintiffs sue a limited liability company instead of a corporation.  What is the citizenship of an LLC under CAFA?

In Ferrell v. Express Check Advance of SC LLC, 591 F. 3d 698, (4th Cir. 2010), the plaintiffs filed a class action on behalf of South Carolina citizens against a payday lender for alleged violations of South Carolina law. The lender removed the case under CAFA.  Following a long line of case law holding that the citizenship of an unincorporated association is determined based upon the citizenship of each of the association’s members, the lender argued that there was diversity based on the citizenship of its sole member, a Missouri corporation with its PPB in Kansas.

Alternatively, the lender argued that if it was deemed an unincorporated association within the meaning of 28 U.S.C. §1332(d)(10), it was a citizen of Tennessee, under whose laws it was organized, and of Kansas where it had its PPB.

The plaintiff moved to remand, arguing that the defendant’s PPB really was South Carolina, the place where it made all its loans and where all of its employees, but for its top four officers were located. The district court held that the defendant, a limited liability company, was an unincorporated association under 28 U.S.C. §1332(d)(10).  Consequently, it was a citizen of the state under whose laws it is organized and of the state where it has its PPB.  The district court found that the lender’s PPB was in South Carolina, not Kansas, and therefore the case should be remanded.

On appeal, the Fourth Circuit affirmed.  It examined the citizenship language in 28 U.S.C. §1332.  Section 1332 (c)(1) provides that a corporation is a citizen of the state of its incorporation and the state of it PPB.  Section 1332(d)(10) provides that the citizenship of an unincorporated association is determined by the state under whose laws it is organized and the state where it has it PPB.  However, the court observed that the because the provisions relating to the citizenship of corporations and of unincorporated associations are found in different sections of the statute, the provision relating to unincorporated associations in §1332(d)(10) applies only to class actions covered by CAFA.  The court concluded that the term “unincorporated association” found in §1332(d)(10) refers to all non-corporate business entities.  The appellate court agreed with the district court’s analysis that the defendant’s PPB was in South Carolina so the case was remanded.

D.   Is the amount in controversy greater than $5 million?

1.    Has the plaintiff alleged any amount in controversy?

When a plaintiff does not allege an amount in controversy in the complaint, the defendant must prove by a preponderance of the evidence that CAFA’s in excess of $5 million amount in controversy has been met.  As the following cases demonstrate, this is not always an easy task.

Berniard v. Dow Chemical Co., 2010 U.S. App. LEXIS 16515 (5th Cir. 2010), involved the remand of seven class actions stemming from a single incident, the sudden accidental release of ethyl acrylate, a potentially noxious chemical.  The release resulted in the evacuation of residents and businesses with a 2 mile area east of the facility where the release had occurred.  On the day of the release, two class actions were filed in state court.  Eventually, three more state court class actions were filed and two class actions were filed in federal court.

The district court examined the allegations in the pleadings to determine if it had jurisdiction under CAFA.  It examined the geographical reach of the chemicals, the number of persons affected, the seriousness and extent of the injuries suffered, and the potential monetary value of the damages, including punitive damages.  Upon removal, defendants had a choice to either sustain removal by: (1) adducing summary judgment evidence of the amount in controversy; or (2) demonstrating that it is facially apparent from the pleadings alone that the amount in controversy has been met.  The defendants chose the latter approach.

To meet the amount in controversy requirement, the defendants offered census data of the geographical areas at issue, and compared the quantum recovery in previously reported cases involving similar incidents and injuries. This was held to be insufficient. The court noted that the defendants had improperly equated the geographic areas in which potential plaintiffs might reside with the population of the class itself.  The comparison to damage recoveries in similar cases was found to be speculative.  It did not matter that the plaintiffs were claiming compensatory damages, pain and suffering, psychological and long term future damages, and even punitive or exemplary damages.

In Pretka v. Kolter City Plaza II, Inc., 608 F. 3d 744, (11th Cir. 2010), the court addressed what types of evidence the defendant could present to establish the jurisdictional amount in controversy.  The seven plaintiffs brought a putative class action on behalf of themselves and all other similarly situated depositors who had placed deposits on the purchase of luxury condominiums in the defendant’s development in West Palm Beach, Florida.  The complaint alleged breach of contract and violation of Florida’s Condominium Act, and sought rescission of the purchase contracts and return of the deposits, but did not state an amount in controversy.  Attached to the complaint were the plaintiffs purchase contracts showing an average deposit amount of roughly $105,000. The complaint stated that the class was believed to consist of over 300 members.

The defendant removed the case under CAFA.  In support of the removal, defendant attached a declaration of the CFO of its parent company indicating that the company had collected over $5 million in deposits from more than 100 prospective purchasers.  The plaintiffs moved for remand arguing that the court could not consider the CFO’s declaration because it was not a paper received from the plaintiffs. In its opposition brief, the defendant attached another declaration from its parent company’s closing manager who had reviewed the closing contracts.  She stated that those contracts showed that the defendant possessed purchase deposits totaling over $41 million.

The district court, relying on the 11th Circuit’s decision in a prior case, Lowery, held that it could not consider either the declaration evidence in support of the amount in controversy, or the contracts of other putative class members because such documents had not been supplied by the plaintiffs.  The district court also found that the first declaration impermissibly speculated as to the potential damage claim of all putative class members and the second declaration could not be considered because it had not been submitted with the notice of removal.  The district court remanded the case.

The defendant appealed, and the 11th Circuit held that district court had erred in rejecting the defendant’s evidence of the amount in controversy.  In reaching this conclusion, it distinguished its holding in Lowery, and disavowed any statements in the dicta of Lowery that could be considered contradictory to its holding inPretka.  The Circuit Court held that when a case is removed under the first paragraph of 28 U.S.C. §1446(b), i.e., within 30 days of receipt of an initial pleading setting forth a claim for relief, that statutory language does not restrict the type of evidence that a defendant may use to satisfy the jurisdictional requirements for removal.  This is in contrast, however, to removal under the second paragraph of 28 U.S.C. §1446(b) i.e., within 30 days of receipt of an amended pleading, motion or other paper, upon which it may first be ascertained that the case is removable. In the latter instance, the evidence to be considered is limited to reliance on receipt of an “other paper” due to a voluntary act of the plaintiff.

Contrary to the district court’s ruling, the appellate court recognized that documents generated by a defendant do not necessarily involve impermissible speculation.  In the instant case, the CFO’s declaration contained non-speculative knowledge of the amount of every putative class member’s claim which could be considered, since the claims of the individual class members could be aggregated to determine the amount in controversy.  The court stated that evidence added post-removal also could be considered by the court.  Consequently, upon consideration of all of the defendant’s amount in controversy evidence, the remand order was rescinded.

In McGee v. Sentinel Offender Services LLC, 2010 U.S. Dist. LEXIS 126842 (S.D. Ga. Nov. 30, 2010), the plaintiff challenged the defendant’s CAFA removal on several grounds, including whether the amount in controversy requirement had been met. The Plaintiff filed a putative class action on behalf of all individuals previously convicted of a misdemeanor or ordinance violation in Georgia who were under probation supervised by Sentinel, a private probation company.  The plaintiff sued for alleged violation of Georgia’s RICO statute and sought reimbursement in an amount equal to times the amount paid to Sentinel for supervision of the class members in private probation.

Sentinel supported its CAFA removal with a declaration from its COO and Vice President, who stated that there were 35,753 individuals convicted of misdemeanors or ordinance violations in the State of Georgia under probation supervised by Sentinel, and that Sentinel had collected $5,675,639.20 from these individuals in supervision fees.  Plaintiff challenged the declaration because it did not specify when the fees were collected, whether they were collected within the statute of limitations period, or if they had been paid by persons who were class members.  The court rejected this challenge and retained jurisdiction.  The court noted that the declaration set forth an amount reflective of the damages sought by the plaintiff in the complaint.  The RICO claim sought the divestiture of any interest in the enterprise or personal property, including all fees collected by Sentinel. As for plaintiff’s statute of limitations argument, the court noted that when determining the amount in controversy for jurisdictional purposes, it could not look past the complaint to the merits of a defense that had not yet been established.

2. Has the plaintiff alleged an amount in controversy less than $5 million?

While some plaintiffs may allege no amount in controversy in the complaint, other plaintiffs may disavow an amount that meets the jurisdictional requisite.  For instance, in Freeman v. Blue Ridge Paper Products, Inc., 551 F. 3d 405 (6th Cir. 2008), the plaintiffs made every effort to avoid CAFA jurisdiction.

The claims involved 300 landowners who sued a paper mill for nuisance created by water pollution.  In their first class action suit filed in 2005 in Tennessee state court, the plaintiffs asserted claims covering a 6-year period from 6/1/99 to 8/17/05.  At trial in that case, they recovered an aggregate award of $2 million.

Thereafter, plaintiffs filed an additional class action lawsuit in state court, in which they sought damages accruing after 8/17/05 until the date of trial.  The name plaintiff disavowed individual damages above $74,000 or aggregate damages above $4.9 million.  The defendant removed the suit to federal court, but it was remanded for failure to satisfy the jurisdictional amount.

After remand, the plaintiffs amended the complaint to seek damages from 8/17/05 to 2/17/06.  The state court orally granted the motion to amend in December of 2007, but the written order was not entered until February of 2008.  In the interim, the plaintiffs filed four more lawsuits in state court , each suit covering a different six month time period.  Each complaint was essentially identical and pled the same damage limitations as the initial complaint. On February 4, 2008, the defendant removed all five cases to federal court where they were consolidated and subsequently remanded.  Defendant appealed.

On appeal, the Sixth Circuit found that the CAFA threshold had been met because the $4.9 million sought in each complaint had to be aggregated.  In so holding, the court noted that the complaints were identical, except for the artificially broken up time periods, and the plaintiffs offered no colorable reason for breaking up the lawsuits other than to avoid CAFA jurisdiction.  The court limited its holding to the situation where no colorable basis exists for dividing up the sought-for retrospective relief into separate time periods, other than to frustrate the purposes of CAFA. The Sixth Circuit recognized that generally a plaintiff could avoid CAFA jurisdiction by seeking amounts less than the threshold, “but where recovery is expanded, rather than limited, by virtue of splintering of lawsuits for no colorable reason, the total of such identical splintered lawsuits may be aggregated.”  Id. at 409.

E.  Arguments for exceptions to CAFA jurisdiction

While the party removing a case has the burden to establish that the federal court has jurisdiction under CAFA, once that burden has been met, the burden then shifts to the party seeking to remand the case to establish that a CAFA exception applies.

1.  The Home State Exception.

In Jackson v. Sprint Nextel Corp., 2011 U.S. Dist. LEXIS 7005, (N.D. Ill. Jan. 21, 2011) the plaintiffs sued Sprint, a Kansas Corporation alleging that Sprint conspired with other cell phone providers to impose artificially high prices for text messaging.  The action was brought on behalf of a putative class of all individuals who purchased texting from Sprint or an alleged co-conspirator from 1/1/05 to the present, had a Kansas cell phone number, received their cell phone bill at a Kansas mailing address, and paid a Kansas USF fee.  Sprint removed based on CAFA jurisdiction and the plaintiffs sought remand on the basis of the home state exception.

The lower court granted remand, finding that the plaintiffs had met their burden of establishing the existence of the home state exception because Sprint was a resident of Kansas and at least two thirds of the members of the proposed class were citizens of Kansas since the class only included members with Kansas billing addresses and cell phone numbers.  Sprint appealed.

On appeal the Seventh Circuit reversed, finding that the lower court could not draw conclusions about the citizenship of the class members based on information like the class members cell phone numbers and mailing addresses.  Instead, the district court could have relied on evidence of citizenship obtained through affidavits or survey responses in which putative class members revealed whether they intended to remain in Kansas or were a Kansas business. Using statistical principles, the plaintiffs could then establish the two thirds number required under the home state exception. Alternatively, the court noted that the plaintiffs could have defined their class as “all Kansas citizens who purchased text messaging from Sprint Nextel or an alleged co-conspirator. The case was remanded for further proceedings.

On remand, the parties conducted jurisdictional discovery.  Following the evidentiary roadmap set forth in the Seventh Circuit’s opinion, the plaintiffs obtained updated customer information from Sprint and its alleged co-conspirators.  The plaintiffs conducted a telephone survey of a random sample of putative class members.  They searched voter registration, driver license and secretary of state records and collected Internet information to determine the citizenship of those individuals and businesses who had not answered the survey. Using this new data, the Plaintiffs renewed their motion for remand.  While Sprint challenged the survey results on various grounds, in the end the court found that the plaintiffs had met their burden of establishing the elements of the home state exception. Hence the case was remanded.

2.  The Local Controversy Exception.

Under the local controversy exception, plaintiffs may name a local defendant from whom significant relief is sought and whose alleged conduct forms a significant basis for the claims asserted by the class, and who has not been sued in a class action in the previous three years.

Case in point, LaFalier v. State Farm Fire & Cas. Co., 2010 U.S. App. LEXIS 17588 (10th Cir. 2010), where the plaintiffs owned properties located in an environmentally contaminated town in Oklahoma.  The state established a Trust to purchase the properties and assist the homeowners in relocating.  During the purchase/relocation process, many homes were damaged by a tornado.  The Trust then offset any amounts the plaintiffs might receive from insurance against the amounts the plaintiffs would receive under the Trust.  The plaintiffs eventually brought suit against two individuals responsible for administering the Trust, and two appraisal companies, alleging that the defendants deliberately used appraisals that undervalued the properties, and conducted secret proceedings concerning the appraisals. The plaintiffs also sued ten insurance companies, three from Oklahoma and ten from out of state, alleging that the insurers paid only cash value for the tornado damage because they knew the properties would not be repaired or replaced, failed to reveal all coverage available, and improperly leveraged Trust offsets to urge the insureds to accept lower payments.

State Farm removed the case pursuant to CAFA.  The plaintiffs moved for remand under the local controversy exception and the case was remanded.  The insurers appealed, but remand was upheld.  The insurers argued that the claims against the Trust defendants had been misjoined with the claims against the insurers, consequently, the Trust defendant claims should have been ignored for purposes of analyzing the local controversy exception.  The district court disagreed.  Every plaintiff had a claim against the Trust defendants, but not every plaintiff had a claim against each named defendant insurer.  The Trust defendants were local defendants from whom significant relief was sought and whose conduct formed a significant basis for the claims asserted.  The doctrine of procedural misjoinder had not been adopted in the Tenth Circuit, and even if it had, it was not clear that the severed claims against the insurers would meet CAFA’s jurisdictional requirements of over 100 class members and in excess of $5,000,0000.

The lower court also rejected the insurers’ contention that an earlier lawsuit filed by these plaintiffs against the Trust itself, and not against the current named Trust defendants, meant that the plaintiffs could not satisfy the last prong of the local controversy exception.  On appeal the Tenth Circuit agreed with the district court, noting that the plain language of 28 U.S.C. §1332(d)(4)(A(ii) says there must be a prior action “against any of the defendants” and not “against any of the defendantsor parties in privity with them” as the insurers would have had the court interpret the statute.  The Tenth Circuit also noted that State Farm had admitted that not every plaintiff had a claim against an insurer, and there was nothing before the court to demonstrate that at least 100 plaintiffs had claims against the insurers.

3.  The Discretionary/Interests of Justice exception

If greater than one third but less than two-thirds of the members of all proposed plaintiff classes in the aggregate and the primary defendants are citizens of the State in which the action was originally filed the discretionary exception may apply.  One of the difficulties in addressing this exception is that the term “primary defendant” is not defined in CAFA.  The definition is important because the statute requires that “all” of the primary defendants be residents of the state where the suit was filed.

In Powell v. Tosh, 40 Envtl. L. Rep. 20251, 2009 U.S. Dist. LEXIS 98564 (W.D. Ky. Oct. 21, 2009), the plaintiffs sought to remand their case to state court based, in part, on CAFA’s discretionary exception.  The plaintiffs, 28 Kentucky landowners, brought a class action nuisance lawsuit against nine defendants alleging that noxious fumes from the defendants’ hog farm operations were negatively impacting the value of the plaintiffs’ property and causing personal injuries.  Among the defendants were the local operators of the hog farms as well as some diverse defendants who were the owners of the hogs on those farms.

While it was undisputed that the CAFA’s jurisdictional requirements had been met, the plaintiffs argued that the case should be remanded pursuant to two of CAFA’s mandatory exceptions, the local controversy exception and the discretionary exception.  With respect to the discretionary exception, the plaintiffs argued that greater than one third but less than two-thirds of the members of the proposed class were citizens of Kentucky and the court agreed.  Next, the plaintiffs argued that the primary defendants were citizens of Kentucky.  The court disagreed.

The court looked at the language of the exception and determined that the requirement that the primary defendants be citizens of the state where the suit was filed, meant “all” of the primary defendants.  Next, the court examined the complaint and noted that all members of the plaintiff class had claims against the diverse defendants.  Accordingly, those defendants appeared to be the real targets of the class action.  Also indicative of their status as primary defendants was the fact that the diverse defendants had been sued directly and were the subject of a significant portion of the claims asserted by the plaintiffs.

4.  The State Action Exception

One of the least argued exceptions to CAFA jurisdiction is the state action exception which applies if the primary defendants are States, State officials, or other governmental entities against whom the district court may be foreclosed from ordering relief.  Like the discretionary exception, the state action exception also contains the language “primary defendants” which has been interpreted to mean “all” the primary defendants must be state actors.

The question then turns on whether the defendants can be considered States, State officials or other governmental entities against whom the district court may be foreclosed from ordering relief.  The purpose behind the enactment of 28 U.S.C. §1332(d)(5)(A) was to prevent states, state officials or governmental entities from removing a case to federal court, and then arguing that due to immunity the federal court would be prohibited from ordering the relief requested by the plaintiff.

The issue was addressed in Frazier v. Pioneer Americas LLC, 455 F.3d 542 (5thCir. 2006) where the plaintiffs brought a class action against the operator of hydrogen processing equipment and the Louisiana Department of Environmental Quality (“DEQ”) for damages allegedly caused by seeping mercury.  Pioneer removed the case pursuant to CAFA.  The plaintiffs moved for remand on multiple grounds including that CAFA’s state action exception applied.  The district court denied remand and the plaintiffs appealed.  On appeal, the plaintiffs argued that the DEQ was both a primary defendant and a state entity so remand was appropriate.  The Fifth Circuit disagreed because the statute requires “all” primary defendants to be States, State Officials or other governmental entities and Pioneer also was a primary defendant. The court rejected the plaintiffs’ argument that such a result violated the 11th Amendment and the principles of state sovereign immunity. The appellate court noted that unless the state joins in the removal, which it is not required to do so under CAFA, it does not waive its right to assert sovereign immunity.  Furthermore, the court may ignore sovereign immunity until the state asserts it.  The fact that absent waiver of the immunity, the court may not be able to order relief against the state, does not mean the court cannot assume jurisdiction over a case involving a state.

CONCLUSION
In the six years since CAFA’s enactment, the courts have seen many arguments against CAFA jurisdiction.  Several of these arguments could not have been foreseen by the drafters of the legislation.  In the coming year, we should expect to see more arguments relating to calculation of the amount in controversy, interpretation of the “mass action” provisions, and interpretation of CAFA exceptions containing undefined phrases such as “primary defendant” and “significant relief.”

© 2011 Dinsmore & Shohl LLP. All rights reserved.

 

Social Media Posts by a Third Party: Florida Bar Rules

From Business of Law Guest Blogger at the National Law Review Margaret Grisdela of  Legal Expert Connections – a great quick  overview of those tricky Florida State Bar rules concerning social media:  

Ethics in Blogging was the topic of a presentation I made this morning at the Broward County Bar Association, with co-presenter Alan Anthony Pascal, Esq. of The Florida Bar.

Posts to a lawyer’s social media page by a third party was one of the topics we covered. Below please find some highlights from the Florida Bar Guidelines for Networking Sites, which applies to Florida attorneys as well as lawyers from other states who are soliciting business in Florida.

Third Party Posts

“Although lawyers are responsible for all content that the lawyers post on their own pages, a lawyer is not responsible for information posted on the lawyer’s page by a third party, unless the lawyer prompts the third party to post the information or the lawyer uses the third party to circumvent the lawyer advertising rules.”

Removal of Non-Compliant Information from a Lawyer’s Page

“If a third party posts information on the lawyer’s page about the lawyer’s services that does not comply with the lawyer advertising rules, the lawyer must remove the information from the lawyer’s page.”

Request for Removal of Info on a Page Not Controlled by the Attorney

“If the lawyer becomes aware that a third party has posted information about the lawyer’s services on a page not controlled by the lawyer that does not comply with the lawyer advertising rules, the lawyer should ask the third party to remove the non-complying information. In such a situation, however, the lawyer is not responsible if the third party does not comply with the lawyer’s request.”

Lawyer Social Media Pages are Exempt from Filing

“Finally, the Standing Committee on Advertising is of the opinion that a page on a networking site is sufficiently similar to a website of a lawyer or law firm that pages on networking sites are not required to be filed with The Florida Bar for review.”

Page references in these guidelines can include a LinkedIn profile, a blog comment, Twitter profile, Facebook page, etc.

Read the Florida Bar Guidelines for Networking Sites here.

© Legal Expert Connections, Inc.

 

 

A Brave New World for Commercial Buildings: ASTM's "BEPA" Standard

Recently posted at the National Law Review by Douglas J. Feichtner of Dinsmore & Shohl LLP –   ASTM BEPA standard is expected to become the standard for building energy use data collection. 

On February 10, 2011, ASTM formally published its Building Energy Performance Assessment (BEPA) Standard – E 2797-11. This standard will enable users to measure the energy performance of a commercial building in connection with a real estate transaction. Regulatory drivers spurred the development of the BEPA standard, even in the midst of a construction recession. In the past few years, several states and local governments passed mandatory building energy labeling and transactional disclosure regulations. These disclosure regulations, combined with some building codes that are now requiring specific energy-efficiency improvements, triggered the development of a standardized methodology to assess and report on a commercial building’s energy use. The BEPA’s passage arrives at a crucial time when building certification standards face increased scrutiny, both in the market and the courtroom.

The ASTM BEPA standard includes the following five components: (1) site visit; (2) records collection; (3) review and analysis; (4) interviews; and (5) preparation of a report. ASTM is not creating or implying the existence of a legal obligation for the reporting of energy performance or other building-related information. Rather, the BEPA offers certain guidelines to the industry to promote consistency when collecting (and perhaps reporting) buildings’ energy usage data, such as:

 

  • collecting building characteristic data (i.e., gross floor area, monthly occupancy, occupancy hours)
  • collecting a building’s energy use over the previous three years (with a minimum of one year) – including weather data representative of the area where the building is located;
  • analyzing variables to determine what constitutes the average, upper limit, and lower limit of a building’s energy use and cost conditions;
  • determining pro forma building energy use and cost; and
  • communicating a building’s energy use and cost information in a report

One of the options available to users of the BEPA standard is to identify government-sponsored energy efficiency grant and incentive programs that may be available for any energy efficiency improvements that could be installed at the building (thereby increasing its value, and making it more attractive to potential buyers).

Building benchmarking (i.e., comparing a building’s energy output to its peers) is not part of the ASTM BEPA standard’s primary scope of work, but rather a “non-scope consideration.” The BEPA certainly could be used in conjunction with building certification tools already in the marketplace, such as ASHRAE, Green Globes, and U.S. Green Building Council (LEED), to name a few.

However, as the economic noose has tightened in recent years, green building standards have received increased scrutiny. Indeed, builders and landlords who sell their properties with the promise that they have some green certification (which can be expensive to obtain), and that promise for whatever reason fails to translate to the economic savings contracted for, could face liability.

The Gifford v. USGBC lawsuit currently pending in the United States District Court for the Southern District of New York crystallizes the debate over green building certification (in this case – LEED). The core allegations in the lawsuit prompt this author to see significant value for stakeholders to use ASTM’s BEPA as a supplement to applying rating and benchmarking systems like LEED.

Gifford’s primary complaint is that LEED-certified buildings are not as energy-efficient as advertised. Support for this contention rests on Gifford’s analysis of a 2008 New Buildings Institute (NBI) study comparing predicted energy use in LEED-certified buildings with actual energy use. In the study, NBI concluded that LEED buildings are 25-30% more energy-efficient compared to the national average. To the contrary, Gifford concluded that LEED-certified buildings use 29% more energy than the national average. He further emphasized that the NBI results were skewed in part because the NBI study compared the median energy use of LEED buildings to the mean energy use of non-LEED buildings.

The purpose of this article is not to comment on the merits of the Gifford lawsuit or criticize LEED. But this apples-to-oranges argument articulated by Gifford magnifies the proverbial elephant in the “green” room – the need for sufficient objective data to accurately compare the energy use and energy cost of buildings against their relevant peer groups. With such data in hand, the benchmarking and rating systems already in place can be buttressed with a greater measure of consistency and transparency (a big issue for detractors of green building certification, like Gifford). Furthermore, the more stakeholders in the real estate industry (buyers, sellers, lenders) understand how a building’s energy performance was determined, the better equipped they will be to put a price on the economic and environmental benefits of green buildings.

In sum, the ASTM BEPA standard is expected to become the standard for building energy use data collection. It can be used to quantify a building’s energy use as well as its projected energy use and cost ranges, factoring in a number of independent variables (i.e., weather, occupancy rates), by way of a transparent process. Finally, the BEPA building energy use determination can complement compliance reporting under applicable building energy labeling or disclosure obligations. In the end, ASTM’s BEPA can provide the foundation by which an apples-to-apples comparison can take place in evaluating commercial building energy performance determinations and certifications.

© 2011 Dinsmore & Shohl LLP. All rights reserved.

Ice Inspection Hits Close to Home – Guilty of I-9 Form Violations

Recently posted by Jennifer G. Parser of Poyner Spruill LLP at the National Law Review – details about a recent employer immigration fine – where the employer had a legal workforce…..

Fast Food Franchisee In Fayetteville, NC Fined Over $27,000 — Despite Legal Workforce

In a decision dated December 22, 2010, the US Department of Justice Executive Office for Immigration Review’s Office of the Chief Administrative Hearing Officer (OCAHO) found a fast food franchisee in Fayetteville, North Carolina, guilty of I-9 violations and fined the company $27,150. Count I alleged that the franchisee hired 11 individuals from 2006 through early 2009, yet failed to ensure that they properly completed Section 1 of the I-9 Form and/or failed itself to properly complete Section 2 or Section 3. Count II alleged that the franchisee hired 97 individuals during the same time period for whom it failed to prepare any I-9s. Penalties were sought in the amount of $1,028.50 for each violation, for a total of $111,078. OCAHO found that, based upon a visual inspection, the I-9 Forms for the 11 individuals named in Count I contained substantive violations, and no I-9 Forms could be produced for any of the 97 employees named in Count II. For reasons discussed below, OCAHO ultimately fined the franchisee $27,150, approximately 25% of the penalties sought by ICE.

Never Backdate I-9 Forms

Employers should be aware that the substantive violations found in Count I were caused in part by the ICE auditor subtly marking a Form I-9 to determine if it was later tampered with, something that the franchisee tried to do, demonstrating bad faith. In this case, the ICE auditor made “three subtle marks” to determine later whether the forms produced were backdated or completed after service of the Notice of Inspection on the franchisee in the context of the auditor simultaneously providing a sample I-9 Form and a copy of the Handbook for Employers (M-274). At that time, the ICE auditor expressly warned the franchisee’s employee not to backdate the I-9 Form if new ones were prepared. When the I-9s were subsequently reviewed by ICE, however, it was determined that they had all been completed after the Notice, and that 7 of the 11 forms were backdated with the employer attestation at Section 2 still left blank.

Factors Used by OCAHO in Setting Penalties

Turning to assessing the amount of fines to be levied, OCAHO considered the following five factors which were not given equal weight:

  • Size of the business,
  • Good faith of the employer,
  • Seriousness of the violation(s),
  • Whether or not the individuals involved were unauthorized aliens, and
  • Any history of previous violations of the employer.

 Each factor will be reviewed in light of the fines levied against the franchisee.

Size of Employer

OCAHO found the franchisee’s relatively small size to be a mitigating factor in assessing the fines. Analyzing its number of employees, OCAHO determined that despite being part of a national fast food franchise, the franchisee was in fact a small employer with a large turnover common in the fast food industry, hence the 97 former employees.

Good Faith

Any analysis of an employer’s good faith focuses first on whether or not the employer reasonably attempted to comply with its obligations prior to issuance of the Notice of Inspection. Here, OCAHO determined that:

“…there is not a scintilla of evidence that suggests [the franchisee] made any effort whatsoever to ascertain the requirements of the law…[The franchisee] made no effort at all to ascertain what the law required and lacked the reasonable diligence required: there was simply no attempt at compliance prior to the Notice of Inspection. [The franchisee’s] subsequent attempts at compliance have minimal bearing on an analysis of its good faith because conduct occurring after the investigation is over is ordinarily outside the permissible scope of consideration.”

It is important for employers to note that mistakes found in Section 1 completed by the employee can be attributable to the employer as the employer is obligated to ensure that the employee properly completes Section 1: “[The franchisee] not only made no effort at all to ascertain what the law requires or to conform its conduct to it, it also attempted deception by permitting employees to backdate I-9 forms, and this is sufficient to support an assessment of bad faith.”

Further, the franchisee’s belated and disingenuous attempt to complete the I-9s by failing to attest to its own compliance in Section 2 implies an avoidance of liability for perjury.

Seriousness of the Violation(s)

OCAHO noted that a failure to prepare an I-9 at all is among the most serious of paperwork violations. As described above as a demonstration of a lack of good faith, OCAHO found the franchisee’s failure to complete Section 2 to imply an avoidance of liability for perjury.

Employees were not Unauthorized and Employer had no History of Previous Violations
None of the employees whose I-9s were involved was an unauthorized to work, nor had the franchisee a history of violations, probably mitigating the fines levied.

Mitigating or Exacerbating Factors in Assessing Penalties

Here, OCAHO took into account the depressed state of the economy and the difficulty any displaced employee would have in finding other work and reduced the penalties accordingly. As a result, the franchisee was directed to pay $27,150 in civil money penalties and not the $111,078 sought by ICE.

Conclusion

Employers should be aware that they will be blamed by ICE and penalized accordingly for failing to ensure their employees are properly completing Section 1, for permitting backdating or tampering with incomplete or missing I-9s for failing to complete its Section 2. Merely employing a legal workforce will not absolve an employer from imposition of penalties if Section 1 of its I-9 Forms are not meticulously completed by the employee on day one of hire for pay and Section 2 by the employer by day three.  

© 2011 Poyner Spruill LLP. All rights reserved.

Discrimination Charges Against Employers Hit Record High in 2010

Posted yesterday at the National Law Review by Laura Broughton Russell and David L. Woodard of Poyner Spruill LLP – EEOC statistics recently released  revealing a record-breaking number of charges of workplace discrimination filed against private sector employers in 2010. 

The Equal Employment Opportunity Commission (EEOC) has recently released its charge statistics for fiscal year 2010 (which ended September 30, 2010). The EEOC enforces federal laws prohibiting employment discrimination, which includes Title VII of the Civil Rights Act of 1964, the Equal Pay Act, the Age Discrimination in Employment Act, the Americans with Disabilities Act, and the Genetic Information Nondiscrimination Act.

Not surprisingly, these statistics reveal a record-breaking number of charges of workplace discrimination filed against private sector employers in 2010. The number of charges filed hit 99,922, an unprecedented number which amounts to a more than 7% increase over the previous year’s filings. The somber economy and the accompanying layoffs in 2009 and 2010 may be behind this increase, as well as the EEOC’s expansion of educational training and other outreach efforts to approximately 250,000 persons.

What the Statistics Foreshadow for 2011 

  • In its release, the EEOC noted its “concerted effort to build a strong national systemic enforcement program,” which resulted in 465 systemic investigations, involving more than 2,000 charges, being undertaken. This emphasis on systemic or class-wide discrimination means the EEOC is devoting more of its resources to bringing more multiple plaintiff cases against employers. This trend is expected to continue.

  • The new Genetic Information Nondiscrimination Act resulted in 201 charges being filed. Significantly more charges are expected in this area in 2011, due to the release of the accompanying regulations at the end of 2010 and the continuing publicity about and public awareness of this law.
     
  • Disability discrimination claims numbered 25,165 in 2010, which constituted slightly more than 25% of all claims filed with the EEOC. With the recent expansion of the Americans with Disabilities Act (ADA) by the ADA Amendments Act, and the anticipated 2011 release of the accompanying regulations, claims in this area are expected to continue to increase.

Some Final Observations 

The EEOC has been energized by the December 2010 Senate confirmations of its new Chair, as well as its General Counsel and two new Commissioners. The EEOC now has a full complement of members, which it has been lacking for quite some time. In addition, the EEOC recently has added to its front-line staff. Notably, the EEOC recently has held two significant Commission meetings during which it explored the use of credit histories as employment screening devices, and the impact of the economic situation on older workers. By reviewing their employment decisions in advance with counsel, as well as generally reviewing their employment policies and practices to ensure compliance with the law, employers can lower the risk of expensive and onerous legal proceedings filed by individuals and by the EEOC.
 

© 2011 Poyner Spruill LLP. All rights reserved.