Category: Litigation

U.S. Supreme Court Vacates, Dismisses as Moot Decision Holding ADA ‘Tester’ Has Standing to Sue

The U.S. Supreme Court vacated a decision by the U.S. Court of Appeals for the First Circuit holding a self-appointed “tester” has standing to sue under the Americans With Disabilities Act (ADA). Acheson Hotels, LLC v. Laufer, No. 22-429. However, the Court declined to address the merits of whether the tester had a sufficient concrete and particularized injury to establish standing, holding the case had become moot and leaving in place a deep circuit split on the standing issue.

Reservation Rule; Title III

Deborah Laufer had sued Acheson Hotels for alleged violation of the Reservation Rule, a Department of Justice regulation requiring places of lodging to identify and describe accessible features in the hotels and guest rooms offered through their reservations service. The information must have enough details to allow individuals with disabilities to determine whether a given hotel or guest room meets their accessibility needs.

Title III of the ADA requires hotels to make reasonable modifications to reservations policies, practices, or procedures when necessary to ensure that individuals with disabilities can reserve accessible hotel rooms with the same efficiency, immediacy, and convenience as those who do not need accessible guest rooms.

Case of Self-Appointed Tester

As a self-appointed tester, Laufer has sued more than 600 hotels by searching the internet for hotel websites and finding those that lack such accessibility information. Although Laufer has no intention of accessing the hotels she sued, she claims to enforce the law on behalf of other disabled persons.

In response to Laufer’s suits, the hotels argued Laufer lacks standing to bring these lawsuits. Allowing Laufer and other self-appointed testers to sue thousands of hotels across the United States on behalf of every disabled person in the country simply by visiting their websites would cause a flood of litigation from other testers, the hotels warned.

The First Circuit joined the Fourth and Eleventh Circuits to hold that Laufer has standing. In contrast, the Second, Fifth, and Tenth Circuits have held that she lacks standing.

Dismissal Requested

After Acheson Hotels had submitted its merits brief to the Court, but before oral argument, another court sanctioned one of Laufer’s attorneys for misconduct related to some of Laufer’s ADA cases for repeatedly demanding $10,000 in attorneys’ fees after filing boilerplate complaints. Laufer dismissed her lawsuit with prejudice, ostensibly because of that sanction.

Laufer then urged the Supreme Court to dismiss the case on the ground of mootness, arguing “mootness is easy and standing is hard,” so the Court should “refrain from resolving a difficult question in a case that is otherwise over.” Acheson Hotels urged the Court to decide the standing issue, arguing “the standing issue might not come back anytime soon. Acheson Hotels argued, the Court recounted, “While Laufer has disavowed the intention to file any more ADA tester suits, others will file in the circuits that sided with her, and hotels will settle, regarding it as pointless to challenge circuit precedent.” It continued, “‘Why would any hotel take a case this far,’ Acheson asks, ‘if the respondent can evade our review by abandoning a claim rather than risking a loss?’”

Dismissed as Moot

In an 8-1 opinion by Justice Amy Coney Barrett, the Court dismissed the case as moot.

The Court explained, “We are sensitive to Acheson’s concern about litigants manipulating the jurisdiction of this Court. We are not convinced, however, that Laufer abandoned her case in an effort to evade our review.” It continued, “She voluntarily dismissed her pending ADA cases after a lower court sanctioned her lawyer. She represented to this Court that she will not file any others.” Although, the Court said, “Laufer’s case against Acheson is moot, and we dismiss it on that ground, … [w]e emphasize, however, that we might exercise our discretion differently in a future case.”

The Court also vacated the First Circuit’s decision under its practice of “Munsingware vacatur,” meaning the issue is once again open in that circuit.

Dissent

Justice Clarence Thomas filed a lone dissent. He would have reached the standing issue, reasoning “whether Laufer had standing the day she filed her suit is logically antecedent to whether her later actions mooted the case.” Moreover, he continued, “the circumstances strongly suggest strategic behavior on Laufer’s part.” In addition, he wrote, “Laufer’s logic is … that she dismissed her claim—and the Court should no longer address whether she had standing—because an attorney she hired in an entirely different case engaged in misconduct.” According to Justice Thomas, he “would not reward Laufer’s transparent tactic for evading our review.”

Justice Thomas then explained he would have held that Laufer lacked standing. He reasoned, assuming the Reservation Rule creates a right to accessibility information, “Laufer asserts no violation of her own rights with regard to that information.” He continued, “Acheson Hotels’ failure to provide accessibility information on its website is nothing to Laufer, because she disclaimed any intent to visit the hotel.”

Concurrence

In a lone concurrence, Justice Ketanji Brown Jackson explained that, although she agreed that the Court followed its “Munsingware vacatur” precedent, she would instead require a party to show equitable entitlement to such relief.

Takeaway

After Acheson, testers generally lack standing to sue for alleged violation of the Reservation Rule in the Second, Fifth, and Tenth Circuits and have such standing in the Fourth and Eleventh Circuits. The issue is once again open in the First Circuit and remains open in the other circuits. The Supreme Court likely will be called upon again to resolve the circuit split.

Jackson Lewis P.C. © 2023
For more news on Supreme Court ADA Decisions, visit the NLR Litigation / Trial Practice section.

Algorithmic Pricing Agents and Price-Fixing Facilitators: Antitrust Law’s Latest Conundrum

Are machines doing the collaborating that competitors may not?

It is an application of artificial intelligence (“AI”) that many businesses, agencies, legislators, lawyers, and antitrust law enforcers around the world are only beginning to confront. It is also among the top concerns of in-house counsel across industries. Competitors are increasingly setting prices through the use of communal, AI-enhanced algorithms that analyze data that are private, public, or a mix of both.

Allegations in private and public litigation describe “algorithmic price fixing” in which the antitrust violation occurs when competitors feed and access the same database platform and use the same analytical tools. Then, as some allege, the violations continue when competitors agree to the prices produced by the algorithms. Right now, renters and prosecutors are teeing off on the poster child for algorithmic pricing, RealPage Inc., and the many landlords and property managers who use it.

PRIVATE AND PUBLIC LITIGATION

A Nov. 1, 2023 complaint filed by the Washington, DC, Attorney General’s office described RealPage’s offerings this way: “[A] variety of technology-based services to real estate owners and property managers including revenue management products that employ statistical models that use data—including non-public, competitively sensitive data—to estimate supply and demand for multifamily housing that is specific to particular geographic areas and unit types, and then generate a ‘price’ to charge for renting those units that maximizes the landlord’s revenue.”

The complaint alleges that more than 30% of apartments in multifamily buildings and 60% of units in large multifamily buildings nationwide are priced using the RealPage software. In the Washington-Arlington-Alexandria Metropolitan Area that number leaps to more than 90% of units in large buildings. The complaint alleges that landlords have agreed to set their rates using RealPage.

Private actions against RealPage have also been filed in federal courts across the country and have been centralized in multi-district litigation in the Middle District of Tennessee (In re: RealPage, Inc., Rental Software Antitrust Litigation [NO. II], Case No. 3:23-md-3071, MDL No. 3071). The Antitrust Division of the Department of Justice filed a Statement of Interest and a Memorandum in Support in the case urging the court to deny the defendants’ motion to dismiss.

Even before the MDL, RealPage had attracted the Antitrust Division’s attention when the company acquired its largest competitor, Lease Rent Options for $300 million, Axiometrics for $75 million, and On-Site Manager, Inc. for $250 million.

The Antitrust Division has been pursuing the use of algorithms in other industries, including airlines and online retailers. The DOJ and FTC are both studying the issue and reaching out to experts to learn more.

JOURNALISTS AND SENATORS

Additionally, three senators urged DOJ  to investigate RealPage after reporters at ProPublica wrote an investigative report in October 2022. The journalists claim that RealPage’s price-setting software “uses nearby competitors’ nonpublic rent data to feed an algorithm that suggests what landlords should charge for available apartments each day.” ProPublica speculated that the algorithm is enabling landlords to coordinate prices and in the process push rents above competitive levels in violation of the antitrust laws.

Senators Amy Klobuchar (D-MN), Dick Durban (D-IL) and Cory Booker (D-NJ) wrote to the DOJ concerned that the RealPage enables “a cartel to artificially inflate rental rates in multifamily residential buildings.”

Sen. Sherrod Brown (D-OH) also wrote to the Federal Trade Commission with concerns “about collusion in the rental market,” urging the FTC to “review whether rent setting algorithms that analyze rent prices through the use of competitors’ private data … violate antitrust laws.” The Ohio senator specifically mentioned RealPage’s YieldStar and AI Revenue Management programs.

THE EUROPEANS

The European Commission has enacted the Artificial Intelligence Act, which includes provisions on algorithmic pricing, requiring algorithmic pricing systems be transparent, explainable, and non-discriminatory with regard to consumers. Companies that use algorithmic pricing systems will be required to implement compliance procedures, including audits, data governance, and human oversight.

THE LEGAL CONUNDRUM

An essential element of any claimed case of price-fixing under the U.S. antitrust laws is the element of agreement: a plaintiff alleging price-fixing must prove the existence of an agreement between two or more competitors who should be setting their prices independently but aren’t. Consumer harm from collusion occurs when competitors set prices to achieve their maximum joint profit instead of setting prices to maximize individual profits. To condemn algorithmic pricing as collusion, therefore, requires proof of agreement.

It may be difficult for the RealPage plaintiffs to prove that the RealPage’s users agreed among themselves to adhere to any particular price or pricing formula, but not impossible. End users are likely to argue that RealPage’s pricing recommendations are merely aggregate market signals that RealPage is collecting and disseminating. The use of the same information service, their argument will go, does not prove the existence of an agreement for purposes of Section 1 of the Sherman Act.

The parties and courts embroiled in the RealPage litigation are constrained to live under the law as it presently exists, so the solution proposed by Michal Gal, Professor and Director of the Forum on Law and Markets at the University of Haifa, is out of reach. In her 2018 paper, “Algorithms as Illegal Agreements,” Professor Gal confronts the agreement problem when algorithms set prices and concludes that it is time to “rethink our laws and focus on reducing harms to social welfare rather than on what constitutes an agreement.” Academics have been critical of the agreement element of Section 1 for years, but it is unlikely to change anytime soon, even with the added inconvenience it poses where competitors rely on a common vendor of machine-generated pricing recommendations.

Nonetheless, there is some evidence that autonomous machines, just like humans, can learn that collusion allows sellers to charge monopoly prices. In their December 2019 paper, “Artificial Intelligence, Algorithmic Pricing and Collusion,” Emilio Calvano, Giacomo Calzolari, Vincenzo Denicolo, and Sergio Pastorello at the Department of Economics at the University of Bologna showed with computer simulations that machines autonomously analyzing prices can develop collusive strategies “from scratch, engaging in active experimentation and adapting to changing environments.” The authors say indications from their models “suggest that algorithmic collusion is more than a remote theoretical possibility.” They find that “relatively simple [machine learning] pricing algorithms systematically learn to play collusive strategies.” The authors claim to be the first to “clearly document the emergence of collusive strategies among autonomous pricing agents.”

THE AGREEMENT ELEMENT IN THE MACHINE PRICING CASE

For three main reasons, the element of agreement need not be an obstacle to successfully prosecuting a price-fixing claim against competitors that use a common or similar vendor of algorithmic pricing data and software.

First, there is significant precedent for inferring the existence of an agreement among parties that knowingly participate in a collusive arrangement even if they do not directly interact, sometimes imprecisely referred to as a “rimless wheel hub-and-spoke” conspiracy. For example, in Toys “R” Us, Inc. v. F.T.C., 221 F.3d 928 (9th Cir. 2000), the court inferred the necessary concerted action from a series of individual agreements between toy manufacturers and Toys “R” Us in which the manufacturers promised not to sell the toys sold to Toys “R” Us and other toy stores to big box stores in the same packaging. The FTC found that each of the manufacturers entered into the restraint on the condition that the others also did so. The court found that Toys “R” Us had engineered a horizontal boycott against a competitor in violation of Section 1, despite the absence of evidence of any “privity” between the boycotting manufacturers.

The Toys “R” Us case relied on the Supreme Court’s decision in Interstate Circuit v. United States, 306 U.S. 208 (1939), in which movie theater chains sent an identical letter to eight movie studios asking them to restrict secondary runs of certain films. The letter disclosed that each of the eight were receiving the same letter. The Court held that a direct agreement was not a prerequisite for an unlawful conspiracy. “It was enough that, knowing that concerted action was contemplated and invited, the distributors gave their adherence to the scheme and participated in it.”

The analogous issue in the algorithmic pricing scenario is whether the vendor’s end users that their competitors are also end users. If so, the inquiry can consider the agreement element satisfied if the algorithm does, in fact, jointly maximize the end users’ profits.

The second factor overcoming the agreement element is related to the first. Whether software that recommends prices has interacted with the prices set by competitors to achieve joint profit maximization—that is, whether the machines have learned to collude without human intervention—is an empirical question. The same techniques used to uncover machine-learned collusion by simulation can be used to determine the extent of interdependence in historical price setting. If statistical evidence of collusive pricing is available, it is enough that the end users knowingly accepted the offer to set its prices guided by the algorithm. The economics underlying the agreement element in the first place lies in prohibition of joint rather than individual profit maximization, so direct evidence that market participants are jointly profit maximizing should obviate the need for further evidence of agreement.

A third reason the agreement element need not stymie a Section 1 action against defendants engaged in algorithmic pricing is based on the Supreme Court’s decision in American Needle v. NFL, 560 U.S. 183 (2010). In that case the Court made clear that arrangements that remove independent centers of decision-making from the market run afoul of Section 1, if the net effect of the algorithm is to displace individual decision-making with decisions outsourced to a centralized pricing agent, the mechanism should be immaterial.

The rimless wheel of the so-called hub-and-spoke conspiracy is an inadequate analogy because the wheel in these cases does have a rim, i.e., a connection between the conspirators. In the scenarios above in which the courts have found Section 1 liability i) each of the participants knew that its rivals were also entering into the same or similar arrangements, ii) the participants devolved pricing authority away from themselves down to an algorithmic pricing agent, and iii) historical prices could be shown statistically to have exceeded the competitive level in a way consistent with collusive pricing. These elements connect the participants in the scheme, supplying the “rim” to the spokes of the wheel. If the plaintiffs in the RealPage litigation can establish these elements, they will have met their burden of establishing the requisite element of agreement in their Section 1 claim.

© MoginRubin LLP
For more news on AI in the context of Antitrust Law, visit the NLR’s Communications, Media & Internet section.

New Lawsuit Addresses Eligibility Concerns for US Collegiate Athletes

It has been over two years since the National Collegiate Athletic Association (“NCAA”) lifted its prohibition on college athletes being able to profit from their name, image, and likeness (“NIL”). When people traditionally think of NIL, they think of student athletes at the collegiate level receiving payment for their likeness. However, collegiate athletes are not the only student athletes able to avail themselves of the burgeoning world of NIL.

To date, thirty-three states have enacted some form of legislation or executive order permitting high school athletes to profit from their NIL. As the NIL landscape continues to develop, one of the more interesting questions posed as a result of these new policies is whether or how a student athlete’s engagement in NIL at the high school level might affect their NCAA eligibility. A new lawsuit of first impression could address this very issue.

In November 2023, Matt and Ryan Bewley, twin brothers from Fort Lauderdale, Florida, filed a federal lawsuit against the NCAA in the U.S. District Court for the Northern District of Illinois.

The Bewleys are former basketball players at Overtime Elite Academy (“OTE”). OTE is a professional basketball league and training program for high school players. “In addition to basketball training, OTE places equal importance on education. The league offers a fully accredited curriculum, allowing players to pursue their academic goals alongside their basketball aspirations.”[1] OTE players can either make a career playing for the OTE league, or they can play until they satisfy the coursework necessary to graduate and go to college and perhaps play for a college team.

Established mere months before the NCAA lifted their ban on NIL, OTE, coincidentally, was founded in part to offer an alternative path for athletes to receive compensation for their talents.[2] As such, OTE initially offered their athletes only salaries. After the NCAA changed their NIL policies, however, OTE adjusted the options available to their players. Because accepting a salary can threaten college eligibility, OTE today offers their players one of two options: they can either collect a salary or, for those with collegiate-level aspirations, opt for a scholarship instead thus keeping their eligibility intact.

When the Bewleys signed with OTE, they did not have the option to elect a scholarship. Instead, they were paid a salary. The brothers were later awarded and accepted scholarship offers to play for Chicago State University. As a result of their OTE payments, however, the NCAA, citing amateurism rules, deemed the Bewley brothers to be ineligible. The NCAA reasoned that because the Bewleys’ OTE compensation exceeded their “actual and necessary expenses,” they could not be considered amateur players. Additionally, the NCAA “also said the twins competed for a team that considered itself professional.”[3]

In their lawsuit, the Bewleys argue that the NCAA’s amateurism rules are anticompetitive and violate federal antitrust law; specifically, Section 1 of the Sherman Act. They allege that the NCAA is effectively restraining trade by limiting the amount of compensation that student-athletes can receive. This argument is reminiscent of the arguments raised by the Plaintiffs in the Alston case, which opened the door for NIL. In Alston, the Plaintiffs argued that the NCAA violated federal antitrust law by placing limits on the education-related benefits that colleges and universities can provide to student-athletes. The United States Supreme Court ruled in favor of the Plaintiffs in Alston, applying antitrust law directly to the NCAA and finding that the rule was an anti-competitive restriction on interstate commerce.

Both Alston and now Bewley challenge the NCAA’s authority to regulate student-athletes’ compensation. The Bewley brothers are also alleging that the NCAA’s determination violates state law, specifically, the Illinois Student-Athlete Endorsement Rights Act (“ISAEA”). The ISAEA allows student-athletes in Illinois to monetize their NIL by entering into deals with any company or organization.

The NCAA’s primary rebuttal in Bewley is that, while student-athletes can now profit from their NIL, they are still considered “amateurs” and should not be paid to play for professional teams while at the high school level. Specifically, the NCAA provides that “[p]rospective student-athletes may accept compensation from their club team while in high school, provided payments do not exceed costs for the individual to participate on the team.”[4] In other words, the compensation received must be “actual and necessary,” which the NCAA defines as being: meals, lodging, apparel, equipment and supplies, coaching and instruction, health/medical insurance, transportation, medical treatment and physical therapy, facility usage, entry fees, and other reasonable expenses.

The NCAA believes that the Bewleys’ compensation from OTE exceeded these permissible limits, maintaining that it was not related to legitimate educational expenses and that their participation in the OTE program was akin to playing for a professional team.

The outcome of the Bewley case could have a significant impact on the future of compensation in college athletics, and specifically as it relates to the further application of federal antitrust law to the NCCA as well as nuanced circumstances where high school athletes who received payment before the NCAA permitted NIL now face risks relating to their collegiate eligibility.

[1] What is Overtime Elite?, Fan Arch, https://fanarch.com/blogs/fan-arch/what-is-overtime-elite (last visited November 11, 2023).

[2] Overtime Elite: Basketball Leaguge to Pay High School Players Six-Figure Salaries, Boardroom, https://boardroom.tv/overtime-elite-basketball-league-to-pay-high-school-players-six-figure-salaries/ (March 4, 2021):

OTE sees itself as a solution to the lack of compensation for amateur athletes and will offer every player a minimum salary of $100,000 per year, plus bonuses and equity shares in Overtime. Players will also profit from their likeness, a long-disputed issue in college sports, through sales of jerseys, trading cards, video games, and NFT’s.

Athletes will also be able to sign direct sponsorships with sneaker companies, something that is not allowed for collegiate athletes.

“Paying basketball players isn’t radical,” said Overtime President, Zack Weiner. “What’s radical is telling people who put in thousands of hours of work that they have to do it for free.” OTE will change this.

[3] Twin Brothers Suing NCAA in Federal Court Over Eligibility Dispute Involving NIL Compensation, Associated Press News, https://apnews.com/article/ncaa-nil-lawsuit-3f8cd7d2c6f7b73e816f77741663fb24 (November 3, 2023, 9:10 PM) (internal quotations omitted).

[4] Payment from Sports Team, NCAA, http://fs.ncaa.org/Docs/eligibility_center/ECMIP/Amateurism_Certification/Payment_from_team.pdf (last visited November 11, 2023).

© Copyright 2023 Squire Patton Boggs (US) LLP
For more news on NIL Eligibility Concerns for US Collegiate Athletes, visit the NLR Entertainment, Art & Sports section.

States Continue to Adopt the “Continuous-Trigger” Theory of “Occurrence” Under Commercial General Liability Insurance Policies

A growing number of states, including Ohio, Pennsylvania, and Virginia, and most recently, West Virginia, now follow the “continuous-trigger” theory when examining coverage under an occurrence-based Commercial General Liability (CGL) insurance policy.
The West Virginia Supreme Court of Appeals recently confirmed in Westfield Ins. Co. v. Sistersville Tank Works, Inc., No. 22-848 (Nov. 8, 2023), that West Virginia law recognizes the “continuous trigger” theory to determine when insurance coverage is activated under a CGL policy that is ambiguous as to when coverage is triggered.
In 2016 and 2017, former employees of Sistersville Tank Works, Inc. (STW), filed three separate civil lawsuits West Virginia state court alleging personal injuries as the result of exposure to various cancer-causing chemicals while working around tanks that STW supposedly installed, manufactured, inspected, repaired or maintained between 1960 and 2006. STW purchased CGL policies from Westfield each year for the period 1985 to 2010. Typical of virtually all CGL policies, the Westfield CGL policies issued to STW were occurrence-based and provided coverage for bodily injury and property damage “which occurs during the policy period.”  Under the Westfield CGL policies, the bodily injury or property damage must be caused by an “occurrence,” defined under the policy as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”
Westfield denied coverage for the three underlying lawsuits and filed a declaratory judgment complaint in the United States District Court for the Northern District of West Virginia seeking a declaration that it owed no duty to provide a defense or indemnification to STW because the former employees were diagnosed after the expiration of the last CGL policy, and, therefore, STW could not establish that an “occurrence” happened within the policy period.
The District Court granted summary judgment to STW and found that Westfield owed a duty to defend and indemnify under all the Westfield CGL policies in effect between 1985 and 2010. Specifically, the District Court concluded that Westfield’s obligation to cover a bodily injury that “occurs during the policy period” was ambiguous because the language in Westfield’s CGL policies did not clearly identify when coverage was “triggered” when a claimant alleged repeated chemical exposures and the gradual development of a disease over numerous policy periods. The District Court predicted that the West Virginia Supreme Court of Appeals would apply the continuous-trigger theory to clarify the ambiguous language in the policies at issue, which resulted in each occurrence-based CGL policy insuring the risk from the initial exposure through the date of manifestation being triggered.
Westfield appealed to the United Stated Court of Appeals for the Fourth Circuit and argued that a “manifestation trigger” of coverage should apply to determine coverage, under which only the CGL policy in effect when an injury is diagnosed, discovered, or manifested provides coverage for the claim. The Fourth Circuit, recognizing that West Virginia had not address the issue, then certified the following question to the West Virginia Supreme Court of Appeals:

At what point in time does bodily injury occur to trigger insurance coverage for claims stemming from chemical exposure or other analogous harm that contributed to development of a latent illness?

The West Virginia Supreme Court began its analysis of the certified question by observing that “in the context of latent or progressive diseases,” the definition of “occurrence” was ambiguous and subject to interpretation by the Court. The Court then examined the history of the insurance industry’s adoption of “occurrence” language in CGL policies in the 1960s including the specific intent of drafters of the “occurrence” language to include “cases involving progressive or repeated injury” in which “multiple policies could be called into play.”
The Court also observed that most courts that have examined the “continuous-trigger” theory have expressly adopted it, including Ohio (Owens-Corning Fiberglas Corp. v. Am. Centennial Ins. Co., 660 N.E.2d 770, 791 (Ohio Com. Pl. 1995); Pennsylvania (J.H. France Refractories Co. v. Allstate Ins. Co., 626 A.2d 502, 506 (Pa. 1993); and Virginia (C.E. Thurston & Sons, Inc. v. Chi. Ins. Co., No. 2:97 CV 1034 (E.D. Va., Oct. 2, 1998)). Conversely, the Court noted that no jurisdiction has adopted the “manifestation” trigger advocated by Westfield.
The Court concluded by expressly adopting the “continuous-trigger” theory of coverage to determine when coverage is activated under the insuring agreement of an occurrence-based CGL policy “if the policy is ambiguous as to when coverage is triggered.”  In doing so, the Court observed that the continuous trigger theory of coverage “has the effect of spreading the risk of loss widely to all of the occurrence-based insurance policies in effect during the entire process of injury or damage[,]” which includes the time of “the initial exposure, through the latency and development period, and up to the manifestation of the bodily injury, sickness, or disease[.]”
The Westfield decision ensures that West Virginia law concerning the activation of coverage under occurrence-based CGL policies aligns with the law in other states around the country. It also should be a reminder to businesses that purchase occurrence-based CGL policies to establish and maintain a repository of insurance policies for as long as possible, and especially for businesses that may be subject to personal injury claims that involve long latency periods between exposure and manifestation. Having copies of those policies will increase the chance of finding at least one insurer (and potentially more) that owes a defense and indemnification for such claims.
© Copyright Babst, Calland, Clements and Zomnir, P.C.
For more news on Commercial General Liability (CGL) insurance policies, visit the NLR Insurance Reinsurance & Surety section.

PFAS State AG Lawsuits Update: Delaware Enters the Fray

2023 has proven to be an extremely busy year for PFAS state AG lawsuits seeking environmental pollution remediation costs from PFAS manufacturers and AFFF manufacturers. We previously wrote that Illinois (February), Maine (April), Kentucky (April),  Rhode Island, Arizona, Maryland, Oregon, and Washington (all in May), South Carolina (July), and Tennessee and Washington DC (August)  were the latest states seeking hundreds of millions of dollars in PFAS remediation costs. Now, Delaware has joined the fray, bringing the number of state PFAS lawsuits to close to 25 cases, with more expected to be filed. While the lawsuits target a narrowly tailored set of companies, lawsuits in other states have already demonstrated that downstream commerce corporations are at risk of being involved in lawsuits seeking hundreds of millions of dollars.

PFAS State AG Lawsuits

The Delaware Attorney General lawsuit seeks PFAS remediation costs from 3M and various AFFF manufacturers. The lawsuit specifically details the extent to which several types of PFAS are found in groundwater, surface water, drinking water, waste treatment byproducts, and various other environmental impact avenues. There is one unique aspect of the Delaware lawsuit as compared to other state lawsuits in that the Delaware case only specifically mentions PFAS contamination at New Castle County Airport and at the Dover Air Force Base. Other state AG lawsuits have more broadly claimed that PFAS contamination is widespread throughout the states. Delaware is seeking costs “in excess of $1,000,000” related to investigating, cleaning up, restoring, treating, and monitoring the state’s contaminated groundwater, surface water, soil and other natural resources.

Implications For Downstream Manufacturers

While the latest state PFAS lawsuit targets PFAS manufacturers and AFFF manufacturers, companies should not dismiss the lawsuits as events unlikely to impact them in any way. On the contrary, in other states, including California, companies have been directly named as defendants in lawsuits seeking billions of dollars in PFAS remediation costs. Corporations should not ignore the pollution and environmental contamination issues that PFAS pose, as states, federal and state regulatory agencies, and even private citizens are actively seeking damages from companies that they believe placed PFAS into the environment. All companies of all types would be well advised to conduct a complete compliance audit to best understand areas of concern for PFAS liability issues, and ways to mitigate PFAS concerns.

©2023 CMBG3 Law, LLC. All rights reserved.
By John Gardella of CMBG3 Law
For more news on PFAS state AG lawsuits, visit the NLR Environmental, Energy & Resources section.

WOTUS Whiplash 4.3: The Revision to the Revised Definition of “Waters of the United States”

The third major development of 2023 for defining “Waters of the United States” (“WOTUS”) has arrived.

First, in early 2023, the United States Environmental Protection Agency (“EPA”) and the United States Army Corps of Engineers (“USACE”)(together, the “Agencies”) revised the definition of “Waters of the United States” (the “2023 Rule”). This definition controls which water resources qualify for federal protection under the Clean Water Act (“CWA”) (see WOTUS Whiplash 4.0 for a description of the 2023 Rule). Second, in May, the United States Supreme Court released its Sackett v. EPA decision. Third (and likely the final WOTUS milestone of the year), the Agencies recently issued yet another revised WOTUS definition in light of Sackett.  This article breaks down the Supreme Court’s impactful Sackett decision, the Agencies’ corresponding 2023 Rule revision, and the consequences of such changes for states like North Carolina – which is simultaneously undergoing state environmental statutory changes.

The Regulatory Landscape Pre-Sackett

Before Sackett, the Supreme Court’s Rapanos decision controlled whether wetlands separated from a recognized WOTUS by a natural or man-made barrier fell under CWA jurisdiction.  If they did, impacts to those wetlands required a permit from the USACE under Section 404 of the CWA.  In Rapanos, the Court failed to reach a coherent majority decision.  Justice Scalia drafted the four-justice plurality opinion, holding that WOTUS included: (1) only those waters that are “relatively permanent, standing, or continuous[ly] flowing” such as streams, rivers, and lakes; and (2) only those wetlands that share a continuous surface connection with such waters.  But Justice Kennedy, who cast the deciding vote in Rapanos, created a different test. This test, which became the most commonly cited rule for WOTUS, assessed whether a wetland possessed a “significant nexus” to a recognized WOTUS.  This “significant nexus” test extended CWA protections to wetlands that “either alone or in combination with similarly situated lands in the region, significantly affect the chemical, physical, and biological integrity of other covered waters . . . .”

In addition, pre-Sackett, the Agencies adopted WOTUS definitions in various rules, manuals and policies that, like Justice Kennedy’s “significant nexus” test, considered “adjacent wetlands” to be jurisdictional—including those that are “separated from other waters of the United States by man-made dikes or barriers, natural river berms, beach dunes and the like.”  When the Agencies issued the 2023 Rule, they basically combined Scalia’s Rapanos approach (putting relatively permanent tributaries and streams back under federal jurisdiction through continuous surface connections) with Kennedy’s Rapanos approach (applying the “significant nexus” test to non-navigable tributaries and adjacent wetlands).  The Agencies published the 2023 Rule knowing that the Supreme Court would soon thereafter issue an opinion in Sackett, which was argued in October 2022.

Sackett v. EPA

The Sacketts sued the EPA in 2008 over whether they had violated the CWA by backfilling a wetland on their property without a Section 404 permit from USACE.  The EPA argued that this wetland shared a significant nexus with Priest Lake, a WOTUS separated from the Sacketts’ property by a 30-foot road.  On May 25, 2023, a five-justice majority issued its opinion in Sackett, which greatly limited federal CWA jurisdiction over wetlands nationwide.  The Court found that the Agencies’ rules were inconsistent with the CWA’s text and structure and held that the CWA extends only to those “‘wetlands with a continuous surface connection to bodies that are ‘waters of the United States’ in their own right, so that they are ‘indistinguishable’ from those waters.”  Writing for the majority, Justice Alito concluded that “the CWA’s use of ‘waters’ encompasses ‘only those relatively permanent, standing or continuously flowing bodies of water ‘forming geographic[al] features’ that are described in ordinary parlance as ‘streams, oceans, rivers, and lakes.'”

Under the 2023 Rule, which was not at issue in Sackett, wetlands without a continuous surface connection to a body of water could still be federally protected WOTUS if the wetland had a “significant nexus” to surface waters.  But Sackett  rejected the “significant nexus” test in favor of defining covered wetlands as those that are wet or “wet-lands.” Thus, any WOTUS definition using “adjacency” or “adjoining” to define CWA-protected waters is irrelevant. Instead, there must now be a continuous surface water connection between “wet lands” and the open, navigable-in-fact WOTUS for the federal government to claim jurisdiction.  Wetlands that qualify as WOTUS must be “indistinguishable” from WOTUS and “have a continuous surface connection to bodies that are” WOTUS.

The Regulatory Landscape Post-Sackett

The Agencies responded to Sackett by announcing they would develop new guidelines for determining federal jurisdiction by September 1, 2023.  And they met that unprecedented deadline, taking a scalpel to the 2023 Rule to conform it to Sackett (the “Sackett Rule”). The Agencies removed from the 2023 Rule references to the “significant nexus” test, including deleting from the WOTUS definition interstate wetlands and those tributaries, streams, and wetlands containing a significant nexus to other WOTUS.  They also redefined “adjacent” within the 2023 Rule to no longer include those wetlands separated from WOTUS by certain geographic features and limiting the meaning of “adjacent” to those waters “having a continuous surface connection” to another.

Despite these precise revisions, the Agencies did not define a “continuous surface connection” or a “relatively permanent” body of water under the Sackett Rule.  Thus, lawyers and consultants must make this initial interpretation by picking through the preamble to the 2023 Rule.  And they must wait to see how the Agencies, primarily the USACE, implement the Sackett Rule to wetlands in the field.

Challenges for State Law and Regulation

Although the Sackett Court removed federal protection from wetlands, it acknowledged that the states could provide that protection. Justice Alito pointedly noted that “[r]egulation of land and water use lies at the core of traditional state authority”; because the CWA anticipates a partnership between the states and the federal government, the states “can and will continue to exercise their primary authority to combat water pollution by regulating land and water use.”

And North Carolina exercised its authority to provide greater state protection for its wetlands until June 27, 2023.  On that date, the North Carolina General Assembly overrode a gubernatorial veto to pass Senate Bill 582, entitled “An Act to Make Various Changes to the Agricultural and Wastewater Laws of the State” (the “2023 NC Farm Act”). The 2023 NC Farm Act restricts the state definition of “wetlands” to those “that are waters of the United States as defined by 33 C.F.R. § 328.3 and 40 C.F.R. § 230.3,” i.e., only those WOTUS regulated by the Agencies. The General Assembly directed the Environmental Management Commission (“EMC”), the state rule-making authority, to implement this definition of “wetlands” until the EMC formally adopts a permanent rule to amend the existing definition of wetlands. Until then, wetlands in North Carolina are only those the federal government recognizes and protects as WOTUS, unless a state statute (for example, the Coastal Area Management Act) specifically provides otherwise.

The combination of the Sackett opinion, the 2023 NC Farm Act, and the Sackett Rule cast doubt as to whether the state’s isolated wetlands rules remained in effect, despite having a separate regulatory definition that was not by the 2023 Farm Act.  The EMC Chair requested the North Carolina Department of Environmental Quality (“NCDEQ”) to advise on the assimilation of federal and state definitions.  At the EMC’s meeting in September, the NCDEQ Division of Water Resources (“DWR”) provided an update to the regulated community. It also issued a public notice regarding the implementation of the revised definition of wetlands in the 2023 NC Farm Act, including the following:

  • Where the USACE and a 404 Permit applicant agree that all features on the property are potentially jurisdictional, DWR will process the related state certification required by Section 401 of the CWA.
  • Where there are questions regarding the jurisdictional status of the wetlands, the USACE will evaluate those wetlands under the Sackett Rule. DWR will move forward on these projects once it has a decision from USACE.
  • Isolated wetlands and non-jurisdictional wetland permits will not be necessary for properties that have received Approved Jurisdictional Determinations from the USACE confirming the wetlands are not under the Sackett Rule.

Questions remain as to the specifics of North Carolina’s regulatory jurisdiction of wetlands as State waters. The 2023 NC Farm Bill was introduced before the Sackett opinion was released.  And given the breadth of Sackett, the Bill’s proponents may not have intended the resulting consequences. The filling of unregulated wetlands may result in reduced floodwater mitigation and stormwater filtration, affecting surface water quality and other ecological functions. Counties bearing the brunt of storm impacts increasingly caused by climate change have made gains in resiliency planning.  But those gains may be reduced or eliminated if policymakers do not address the potential loss of wetlands in those counties.

Navigating Uncharted WOTUS

Despite the uncertainty cast over wetlands by Sackett, the 2023 NC Farm Act, and the Sackett Rule, it’s important to remember that the CWA has four other categories of protected waters. And several state laws continue to apply to activities impacting wetlands even if CWA Section 404 permit requirements do not. These include the Sedimentation and Pollution Control Act with respect to enforcement actions for land-disturbing activities and the Coastal Area Management Act for development activities in coastal counties. Since the 2023 Rule was not before the Sackett Court, the conforming Sackett Rule may be exposed to challenges.  Expect to see more guidance from the Agencies as the USACE makes jurisdictional determinations in the field.  Landowners will need to identify the water features on their property to understand what federal and state regulatory programs are at play beyond Section 404 of the CWA. Strategies to manage uncertainty include working with a professional team to consider: preliminary versus approved jurisdictional determinations; state and local requirements; avoidance opportunities; and development plans with built-in flexibility.

© 2023 Ward and Smith, P.A.. All Rights Reserved.
For more news on Defining WOTUS, visit the NLR Environmental, Energy & Resources section.

Probate & Fiduciary Litigation Newsletter – November 2023

Voluntary Personal Representative Is a “Prior Appointment” For Purposes of the Limitation Period for Commencing Formal Probate

In The Matter of the Estate of Patricia Ann Slavin, 492 Mass. 551 (2023)

Does the position of voluntary personal representative under G. L. c. 190B, § 3-1201 constitute a “prior appointment,” which operates to exempt an estate from the requirement contained in G. L. c. 190B, § 3-108 that probate, testacy, and appointment proceedings be filed within three years of a decedent’s death? The Massachusetts Supreme Judicial Court answered this question in the affirmative In The Matter of the Estate of Patricia Ann Slavin, 492 Mass. 551 (2023).

This case arose out of the murder of Patricia Slavin in May 2016 in circumstances allegedly giving rise to claims for wrongful death. A few months after her death, the decedent’s daughter (petitioner) filed a voluntary administration statement in the Probate and Family Court pursuant to § 3-1201 and thereafter became the voluntary personal representative of her mother’s estate. The petitioner’s status as voluntary personal representative allowed her to administer her mother’s small estate without initiating probate proceedings.

More than three years later, the petitioner—having realized her position as voluntary personal representative did not grant her authority to pursue a wrongful death claim—filed a petition for formal probate in the Probate and Family Court seeking court appointment as personal representative. The petitioner argued that the three-year statute of limitations governing probate proceedings was inapplicable because it excepts otherwise untimely filings for estates in which there has been a “prior appointment.” The Probate and Family Court dismissed the petition as untimely, finding that her position as voluntary personal representative did not qualify as a “prior appointment” under the statute. The judge’s decision relied on a procedural guide published by an administrative office of the Probate and Family Court which provided that the authority of a voluntary personal representative does not result in an official appointment by the court.

The SJC granted the petitioner’s application for direct appellate review and held that both the plain language of G. L. c. 190B, §§ 3-108 and 3-1201 and the purpose of the MUPC support the conclusion that the position of voluntary personal representative is indeed a “prior appointment.” The SJC reversed the judgment of dismissal and remanded for further proceedings.

First, the SJC concluded that the plain language of § 3-1201 constitutes an “appointment” given that the register of probate may “issue a certificate of appointment to [a] voluntary personal representative”—language that the SJC refused to consider as mere surplusage. This language plainly contradicted the administrative guide the Probate and Family Court judge relied on. The SJC also considered the plain language of § 3-108, which does not limit the type of “prior appointment” that qualifies for an exception from the statute of limitations.

Second, the SJC held that this conclusion was consistent with the purpose of the ultimate time limit. Section 3-108 is intended to establish a basic limitation period within which it may be determined whether a decedent left a will and to commence administration of an estate. Where a voluntary personal representative has been named, the determination of whether a will exists has been made, and administration of the estate has commenced.

Finally, the SJC held that this interpretation was consistent with the legislature’s goal of “flexible and efficient administration” of estates in that it incentivizes people to continue to utilize voluntary administration for smaller estates without fear that they could not increase their authority beyond three years.

Takeaway: Voluntary administration can be used for administration of smaller estates without risk that the three-year limitation period for commencing formal probate proceedings will bar future probate, testacy, or appointment proceedings, if necessary.

Conformed Copy of Will Not Admitted to Probate

In Matter of Estate of Slezak, 218 A.D.3d 946 (3rd Dep’t July 13, 2023)

Where a conformed copy of a will was located where the decedent said his will could be found, no potential heir contested the validity of the will and testimony established that the will was not revoked, should the conformed copy of the will be admitted to probate? In Matter of Estate of Slezak, 218 A.D.3d 946 (3rd Dep’t July 13, 2023), New York’s Appellate Division, Third Department, answered that question in the negative, indicating how difficult it can be to probate a copy of a will rather than the original

In Slezak, testimony established that the decedent told a witness that his will was in a lockbox under his bed, and that he had left everything to a certain beneficiary. When the lockbox was opened, there was a conformed copy of the will, with the decedent’s and the witnesses’ signatures indicated with “s/[names].” The will left everything to the beneficiary indicated by the testimony. No potential heir contested the validity of the conformed copy. Nonetheless, the Surrogate denied probate and the Appellate Division affirmed.

New York SPCA § 1407 and Third Department case law provide that “A lost or destroyed will may be admitted to probate only if [1] It is established that the will has not been revoked, and [2] Execution of the will is proved in the manner required for the probate of an existing will, and [3] All of the provisions of the will are clearly and distinctly proved by each of at least two credible witnesses or by a copy or draft of the will proved to be true and complete.” The Surrogate found that petitioner had established the first two elements, but had fallen short on the third. The Appellate Division agreed that “petitioner failed to show that the conformed copy of decedent’s will was ‘true and complete,’” stating that “[a]lthough petitioner tendered a conformed copy of decedent’s will, there was no other proof from the hearing confirming that the conformed copy was identical to decedent’s original will.”

Takeaway: Slezak reinforces the importance of being sure that the original version of a will is available. While there appears to have been no contest to the validity of the conformed copy of the will, the courts followed the statute strictly and denied probate when one of the statutory elements for admitting the conformed copy was lacking.

Beneficiary Has a Right to an Accounting Despite the Trustee’s Return of Funds

Kaylie v. Kaylie, 2023 WL 6395345 (1st Dep’t October 3, 2023)

Can the beneficiary of a trust require a trustee to provide an accounting despite the trustee’s return to the trust of the funds said to have been diverted? In Kaylie v. Kaylie, 2023 WL 6395345 (1st Dep’t October 3, 2023), New York’s Appellate Division, First Department, answered that question in the affirmative, reversing the trial court’s determination that no accounting was necessary under the circumstances.

In Kaylie, a beneficiary of a family trust commenced an Article 77 proceeding in Supreme Court upon learning that trust bank accounts unexpectedly had zero balances. In response, the trustee argued, among other things, that the trust “irrefutably has been made whole by the restoration of those funds, thus obviating any purported need on the part of [the beneficiary] for an accounting of those funds.” The trustee also argued that she had been removed as trustee since the dispute arose, limiting her access to the bank records of the trust. The trial court agreed, holding that since the beneficiary had not “show[n] misappropriation of funds” and the trustee no longer held that position, “the intrusion of an [accounting] is not warranted….”

The Appellate Division disagreed and reversed, in a decision reaffirming the principle that a beneficiary “is entitled to a judicial accounting by reason of the fiduciary relationship between” the beneficiary and the trustee. The court stated: “The fact that respondent has returned the trust’s funds with interest does not affect petitioner’s right to an accounting.”

Takeaway: The Kaylie decision confirms the primacy of a beneficiary’s right to an accounting from the trustee of a trust, even where the trustee has a “no harm, no foul” argument based on the return of funds to a trust and the trustee’s departure as trustee.

2023 Goulston & Storrs PC.

By Charles R. Jacob III , Jennifer L. Mikels , Molly Quinn , Gary M. Ronan , Nora A. Saunders of Goulston & Storrs

For more news on Probate & Fiduciary Updates, visit the NLR Estates & Trusts section.

Taxpayer Makes Offer, But IRS Refused

James E. Caan, the movie actor most famous for playing Sonny Corleone in The Godfather, got into IRS trouble regarding the attempted tax-free rollover of his IRA.

Caan had two IRA accounts at UBS, a multinational investment bank and financial services company. One account held cash, mutual funds and exchange-traded funds (ETF) and the other account held a partnership interest in a hedge fund called P&A Multi-Sector Fund, L.P.

Because the hedge fund was a non-publicly traded investment, UBS required Caan to provide UBS with the year-end fair market value to prepare IRS Form 5498. Caan never provided the fair market value as of December 31, 2014. UBS issued a number of notices and warnings to Caan and finally on November 25, 2015, UBS resigned as custodian of the P&A Interest. UBS issued Caan a 2015 Form 1099-R reporting a distribution of $1,910,903, which was the value of the P&A Interest, used as of December 31, 2013. Caan’s 2015 tax return reported the distribution as nontaxable.

In June 2015, Caan’s investment advisor Michael Margiotta resigned from UBS and began working for Merrill Lynch. In October 2015, Margiotta got all UBS IRA assets to transfer to a Merrill Lynch IRA, except for the P&A Interest. The P&A Interest was ineligible to transfer through the Automated Customer Account Transfer Service. In December 2016, Mr. Margiotta directed the P&A Fund to liquidate the P&A Interest and the cash was transferred to Caan’s Merrill Lynch IRA in three separate wires between January 23 and June 21, 2017.

In April 2018, the IRS issued a Notice of Deficiency for the 2015 tax year asserting that distribution of the P&A Interest was taxable. On July 27, 2018, Caan requested a private letter ruling asking the IRS to waive the requirement that a rollover of an IRA distribution be made within 60 days. In September 2018, the IRS declined to issue the ruling.

Caan died July 6, 2022. In the Estate of Caan v. Commissioner, 161 T.C. No. 6 (October 18, 2023), the Tax Court ruled that Caan was not eligible for a tax-free IRA rollover of the P&A Interest for three reasons. First, to be a nontaxable rollover the taxpayer may not change the character of any noncash distributed property, but here, the P&A Interest was changed to cash before being rolled-over. Second, the contribution of the cash occurred long after the 60-day deadline. Third, only one rollover contribution is allowed in any one-year period, but Caan had three contributions. The Court also determined the 2015 fair market value of the P&A Interest.

Finally, the Tax Court determined that it has jurisdiction to review the IRS denial of the 60-day waiver request and that the applicable standard of review is an abuse of discretion. The Court ruled there was no abuse of discretion because Caan changed the character of the rollover property and even if the IRS waived the 60-day requirement, the rollover would still not be tax-free.

The case highlights some of the potential dangers in holding non-traditional, non-publicly traded assets in an IRA.

© 2023 Chuhak & Tecson P.C.
For more news on IRA rollovers, visit the NLR Tax section.

The Supreme Court to Further Clarify “Transportation Worker” Exemption to the FAA

On September 29, 2023, the U.S. Supreme Court granted certiorari in Bissonnette v. LePage Bakeries Park St. LLC, a case from the Second Circuit Court of Appeals involving application of the Federal Arbitration Act’s (“FAA”) exemption for transportation workers.

Specifically, Section 1 of the FAA exempts from arbitration “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce”—the third category commonly referred to as the “transportation worker” exemption.

In the case below, the plaintiffs—a group of delivery drivers for a bakery—filed various wage and hour claims against the defendant, whom they claimed was their employer.  When the defendant moved to compel arbitration, the plaintiffs argued that, as bakery delivery drivers, they were exempt from arbitration as a “class of workers engaged in foreign or interstate commerce.”

The Second Circuit concluded that the plaintiffs were not exempt from arbitration because they were in the bakery industry, not in the transportation industry.  Therefore, the Second Circuit concluded that the plaintiffs were not transportation workers subject to exemption under Section 1 of the FAA. The Second Circuit’s decision turned, in part, on the interpretation of the U.S. Supreme Court’s decision in Saxon—a case that we previously reported on from last term.

In the Saxon case, the U.S. Supreme Court unanimously held that a ramp supervisor who frequently handled cargo for an interstate airline company was exempt under Section 1 of the FAA as a transportation worker.  In reaching that conclusion, the U.S. Supreme Court’s analysis focused on the “actual work” the worker performed, rather than the industry in which the employer operated—holding that “[the worker] is . . . a member of a ‘class of workers’ based on what she does at Southwest, not what Southwest does generally.”

Though the Second Circuit in Bissonnette acknowledged Saxon, the Second Circuit, in a split decision, held that Saxon did not come into play, stating that “those who work in the bakery industry are not transportation workers, even those who drive a truck from which they sell and deliver the breads and cakes”—essentially establishing a threshold requirement that the individual work in the “transportation industry” in order to be covered by the exemption.

In a pointed dissent, Judge Pooler wrote: “Of course these truckers are transportation workers,” and, “[b]y focusing on the nature of the defendants’ business, and not on the nature of the plaintiffs’ work, the majority offers the sort of industrywide approach Saxon proscribes.”

The U.S. Supreme Court’s forthcoming decision will likely clarify whether the FAA’s exemption contains an industry requirement or whether the analysis turns purely on the nature of the work the individual worker performs without regard to the underlying industry in which they work.  Regardless of the outcome, the U.S. Supreme Court’s decision will provide much-needed guidance at a time when more and more businesses are bringing transportation services in-house—opting to ship and deliver their own products as opposed to relying exclusively on traditional transportation companies.

Copyright © 2023, Hunton Andrews Kurth LLP. All Rights Reserved.
For more articles on employment, visit the NLR labor and employment section.

Emojis in eDiscovery

Emojis Pose Challenges to Lawyers, Juries & Discovery Specialists

We have all used emojis.  Whether in our text messages or in our IMs, these wordless communications are commonplace.  In fact, by some estimates, more than 10 billion emojis are sent every day in various electronic messaging mediums. With the use of chat and mobile platforms only increasing, what do lawyers and eDiscovery professionals need to know about these marks and how they impact the discovery process and the courtroom?

What is an Emoji?

Emojis are small cartoon images that are interpreted and supported at the discretion of each application developer.  The predecessor to the emoji was the emoticon.

Why Are Emojis Complicated?

Anyone reading eDiscovery content knows that these tiny little carton pictures while often playful and cute, can be a challenge to identify, collect and process.  Part of the challenge is volume driven but part is platform driven.  Specifically, the Unicode Consortium, which is the standards body that allows software to recognize text characters and display them uniformly, acknowledges thousands of different emojis. But that number includes variables of the same image – for example different genders and skin tonality. And while much work has been done to standardize emojis, different systems support different emojis.  For example, while a slice of pizza is likely recognized universally, in reality a slice from the popular Domino’s® franchise looks different from a slice bought at the local brick oven pizza parlor.  Similarly, when dealing in emojis, a slice of pizza viewed on one device will look different than one viewed on a device by a different company.  For those of you who have ever shared a text among different phone operating system users, you have undoubtedly learned this lesson before now.  Indeed, if you ever received the question mark inside the rectangular shaped box – which appears when the recipient’s application does not support the sender’s application – the emoji image is indecipherable.   Complicating this phenomenon is that different instant messaging systems have proprietary emojis and additionally allow users to create their own emojis – none of which are acknowledged by Unicode.org. Add to that the fact that emojis often evolve.  For example, the “pistol” emoji was changed in 2016 by one operating system to a less dangerous version of itself (i.e., a “water pistol” or “toy gun”).  But, when received by a different platform, that water pistol or toy gun emoji might still appear to be a regular “gun” or “pistol” emoji.

Emojis in Litigation

Assuming you have been able to secure during discovery relevant emojis, use during litigation can be paved with surprises.  In fact, once a wordless communication (i.e., an emoji) is admitted into the record, courts and juries will look to the surrounding circumstances to interpret the communication.  And, while this analysis generally includes scrutiny of the accompanying text and whether the emoji alters the meaning of the message, how does one account for platform interpretation issues?  Meaning – what if the water gun I sent from my device is received by another device in a way that reflects a menacing weapon thereby manifesting a different intent to the recipient than what was intended by the sender.  At first glance, the emoji may seem innocuous, such as a simple smile to communicate happiness but taken in the context or community in which the communication is used, the meaning may be interpreted differently by the sender and/or recipient.  Indeed, emojis should not be considered a universal language having universal meaning and, like certain physical actions, the meaning of symbols can vary by community or culture.  Consider for example that the “thumbs up” emoji is considered vulgar in many countries in the Middle East yet typically considered a positive expression in most other countries.[1]

Because the complexities of interpreting the meaning and intent of the emoji in court is exacerbated by competing platforms, focused inquiry on the sender’s and recipient’s intent, surrounding circumstances and accompanying text may be critical. Unfortunately, 1 + 1 does not always equal 2 and things may not be as they may appear merely because of a certain electronically generated animated face.

[1] A few cases involving emojis include Ghanam v. Does (where the Michigan Court of Appeals had to analyze the circumstances surrounding the use of the emoji “sticking out its tongue” within a communication in a defamation case); Commonwealth v. Danzey, (smile face embedded in social media did not immunize claims defendant stalked and harassed victim where wording demonstrated criminal intent); Kryzac v. State, (Tennessee case where “frowning face” emoji used as evidence of relationship between defendant and victim); State v. Disabato, (defendant in Ohio was convicted of telecommunications harassment for sending unwanted text messages, some of which included “rodent” emojis); Commonwealth v. Foster (Pennsylvania defendant on probation for a drug-related conviction raised the suspicion of his probation officer when he posted photographs depicting guns and money along with three “pill” emoji).

©2023 Greenberg Traurig, LLP. All rights reserved.
Article by Kathryn C. Cole of Greenberg Traurig, LLP
For more articles on eDiscovery, visit the NLR Litigation section.