Category: Litigation

U.S. Government Announces One of Its Largest Customs Fraud Settlements

The Department of Justice last week announced a $22.8 million settlement involving customs duty fraud—one of the largest False Claims Act settlements involving customs duties to date. A former company employee reported the alleged violations against German multinational chemical and gas company, Linde AG, and its American subsidiary, Linde Engineering North America, Inc. (collectively, “Linde”). The whistleblower, who will receive $3.78 million for reporting the alleged violations, alleged that Linde fraudulently evaded customs duties by falsifying invoices and incorrectly describing imports in customs documents, both in terms of the characteristics of the imported products and their cost.

Importers are obligated to provide U.S. Customs and Border Protection with accurate reporting information, which allows the government to assess duties properly on U.S. imports. Under the False Claims Act (FCA), any knowing failure to accurately report or pay the full amount of customs duties is a violation of the law. A company that knowingly evades customs duties risks liability under the FCA, potentially resulting in treble damages and penalties. FCA is a powerful and essential tool used to combat fraud against the government, including customs and duties fraud, which is the second-largest source of federal revenue collected by the U.S. Government after taxes.

The complaint alleges that Linde misclassified its imported pipe products under the wrong Harmonized Tariff Schedule (“HTS”) codes to decrease or avoid paying antidumping and countervailing (“AD/CV”) duties. Goods imported into the U.S. are classified by numerical HTS codes tied to specific customs duty rates, including AD/CV duties when applicable. AD/CV duties protect American manufacturers and industries from unfair trade practices, specifically “dumping” of imports into the U.S. market for less than market value. The duties also protect import subsidies by foreign governments, which benefit importers at the expense of U.S. manufacturers. Importers must accurately identify the HTS codes and the amount of AD/CV duties owed in its customs entry documents, including the summary customs, Form 7501, submitted with every import. An FCA violation occurs when an importer knowingly breaks these rules.

The complaint alleges that Linde also understated the value of its imported goods by failing to disclose to the government “assists”—costs that add value to imported goods not reflected in the price paid to the invoicing vendor. In one instance, Linde purchased and shipped raw material to overseas vendors, who manufactured and assembled the product for importation into the U.S. Linde then imported the completed assembled product without including the cost of the foreign raw materials in entry forms or invoices submitted to U.S. Customs. The value of imported goods determines the duties; any knowing undervaluation of imports is a False Claim Act violation. The value of imported goods, including any assists, also must be identified in Form 7501.

The complaint alleged that Linde paid 50 percent less in import duties than similar companies, even while Linde moved its American manufacturing operations overseas and increased its imports from $750,000 to $268 million in four years. Under FCA, a person who reports fraud against the government (a whistleblower) resulting in a qui tam lawsuit that recovers money owed to the government is entitled to an award of between 15% and 30% of the amount recovered.  These awards are a strong incentive to encourage those with knowledge of fraud on the U.S. Government to come forward. Although insiders typically bring cases under the False Claims Act, cases involving customs fraud have been brought by non-insiders, including competitors, who are often well-positioned to identify fraudulent customs practices.

© 2020 by Tycko & Zavareei LLP
ARTICLE BY Tycko & Zavareei Whistleblower Practice Group
For more articles on fraud, visit the National Law Review Criminal Law / Business Crimes section.

Federal Appeals Court Hands Down Important Ruling in Overtime Exemption Lawsuit

A federal appeals court earlier this year handed down an important ruling in an unpaid overtime lawsuit brought by a plaintiff who claims that his employer violated various provisions of federal wage and hour laws, including failure to pay overtime.

With the Fifth Circuit Court of Appeals’ ruling, employers will no longer be able to satisfy the salary basis component required to qualify an employee as overtime-exempt under federal wage and hour laws.

According to the unpaid overtime lawsuit, filed in U.S. District Court for the Southern District of Texas, the defendant Helix Energy Solutions Group violated the Fair Labor Standards Act (FLSA) when the company failed to pay the plaintiff his premium overtime wages.

Under the FLSA, employers must pay overtime-eligible workers premium overtime wages calculated at one and a half times their average hourly rate of pay for the time spent working past the 40-hour per workweek overtime threshold.

The plaintiff’s lawsuit claimed that he was improperly classified as overtime exempt when Helix Energy Solutions paid him a flat daily rate, regardless of the number of hours he put into his job each week.

The plaintiff claimed that he regularly worked more than 40 hours in a week on an oil rig but was not compensated with any additional premium overtime pay.

Helix Energy Solutions claimed that the company satisfied the salary requirements for the plaintiff to be overtime exempt when they paid him a daily salary because his weekly pay was greater than the minimum required under the FLSA.

While the trial court agreed with the defendant and dismissed the plaintiff’s case, the Fifth Circuit Court of Appeals rejected Helix Energy Solutions’ argument on appeal that it satisfied the criteria to classify the plaintiff as an independent contractor.

By ruling in favor of the plaintiff, the Fifth Circuit Court of Appeals, which covers Louisiana, Mississippi, and Texas, now brings its interpretation in line with the Sixth Circuit, which covers Kentucky, Michigan, Ohio, and Tennessee.

Sources:

Buckfire & Buckfire, P.C. 2020
For more articles on employment litigation, visit the National Law Review Labor & Employment section.

ABA Encourages Attorneys and Law Students to Volunteer as Poll Workers

The stakes are high for the 2020 Election.  The nation is deeply divided politically, and a global pandemic is upending daily life. At this time of unrest, a smooth and efficient election process is crucial.  The ABA (American Bar Association) is encouraging lawyers and law students to volunteer as poll workers to perform an important civic duty during a difficult time.

The ABA, though the Standing Commission on Election Law, is working with the National Association of Secretaries of State (NASS) and the National Association of State Election Directors (NASED) to encourage attorneys and law students to volunteer as poll workers.  Patricia Lee Refo, President of the ABA:

 “Long wait lines at polling places or unexpected delays in getting election results counted can add to a distrust of the system . . .We hope lawyers and law students step up to help make this election run smoothly and efficiently.  I have volunteered as a poll worker here in Phoenix, and I hope this initiative inspires others to join me.”

COVID-19 Creates Adds Challenges to Poll-Worker Recruitment

Sylvia Albert Director of Voting and Elections at Common Cause, a watch-dog group focused on ensuring access to the vote and election integrity, points out that poll-workers are usually in short supply. Albert describes the problem of the shortage of poll workers this year as  “exponentially larger.”

Law students and younger attorneys may have an increased role this year. Poll workers in the United States are generally older Americans.  In 2018, 58% of poll workers were 61 or older, according to the Election Assistance Commission, and over 25% are 71 or older. Even without underlying medical conditions, this is an age group that has an increased vulnerability to the Coronavirus.  Many in this age group are choosing to sit 2020 out due to concerns about their health and coming into contact with a large number of people at a polling location, and younger poll workers can help undercut a shortage.  To this end, the ABA Young Lawyers Division and the Law Student Division have joined the initiative.  This could provide many younger attorneys and law students with the opportunity to provide an important civic service and ensure a smooth, efficient election experience for voters.

Law Firm Involvement and Election Day Time Off

Many big law firms are providing a paid day off for their employees and attorneys on election day. Mintz, Jenner & Block,  Hogan Lovells and many more firms have announced plans to make election day a paid holiday to encourage employee voting and volunteering in election-related activities.   Fenwick & West indicated their voting push will include “volunteer and community service opportunities for people to engage in nonpartisan election activities—including get-out-the-vote letter-writing campaigns, hosting and staffing an Election Protection call center, poll monitor training and support, and supporting nonpartisan organizations working for voter protection, registration and outreach.”

The ABA’s Push for Attorneys as Poll-Workers

To encourage the effort, the ABA has released a video (watch it below) which details the sign-up process.  Additionally, a social media campaign on Twitter, Linkedin and Facebook with the hashtag #PollworkerEsq encourages lawyers and law students to volunteer.  Work may include staffing polling places, opening ballot envelopes, comparing signatures and helping election officials tabulate the results.  The requirements and work vary across the country, as elections are managed by local entities, but attorneys and law students may be particularly suited to the work. Additionally, in some instances, poll worker training for lawyers may be eligible for CLE (Continuing Legal Education) Credit.

With all the uncertainty and confusion surrounding the election process, especially with the challenges created by COVID-19, this year is an election like no other in recent memory.  Regardless of the political fights playing out, the ability to cast a vote is a crucial piece, and it is important for everyone.  Refo says, “there is no question that maintaining the integrity and efficiency of our electoral process is important to all lawyers.”

Those interested can go to canivote.org, a website set up by the National Association of Secretaries of State, for more information.  The importance of voting and active bipartisan civic engagement is crucial to a healthy democracy, so if volunteering as a Poll-worker isn’t an option, it’s important to check your voter registration and make sure you have a voting plan in place.  As Thomas Jefferson said, “We do not have government by the majority. We have government by the majority who participate.”

Copyright ©2020 National Law Forum, LLC

ARTICLE BY Eilene Spear of The National Law Review / The National Law Forum LLC
For more articles on election law, visit the National Law Review Election Law / Legislative News section.

Justice Ginsberg’s Multi-Generational Impact

I knew Justice Ginsburg had been seriously ill, so I shouldn’t have been surprised when I heard the news of her passing. But it was still a big shock, and tears started falling. I thought to myself, “I don’t even personally know her—why am I crying?” It was because of all that she represented. She was truly inspirational. She had a tough life—losing her mother at a young age and trying to get her foot in the door and succeed in a male-dominated profession, not to mention numerous serious health issues. Yet she persevered, and she became a “first” in so many ways, even in death—being the first woman and first Jewish American to lie in state at the U.S. Capitol.

Reading about her life has been fascinating, but two parts I especially enjoyed were her sense of humor and her friendship with the late Justice Antonin Scalia. The two justices were on opposite ends of the law but close friends. I love the picture of the two of them in India on an elephant. She was behind him, and when asked why she, an advocate of women’s rights, would agree to sit behind a man, she explained that it was for weight distribution purposes! It also just goes to show that you can be on polar opposite ends of important and often contentious issues, but still be respectful and mindful of others and their opinions.

Justice Ginsburg’s cachet was appealing to multiple generations—young, old, and everyone in between. I was surprised that even my 17-year-old twins knew of her and something about her life even if only because of “Notorious RBG” mania! That’s something special that not many public personas are able to achieve. She fought for equality and opened doors for the rest of us so that we could also succeed in professions previously dominated by men. Not only have I managed to succeed as an attorney and working mother because women like Ruth Bader Ginsburg paved the way, but I know that my daughter will have fewer challenges as a result. For that, I am so grateful to Justice Ginsburg, and she will be missed so very much.

©2020 Epstein Becker & Green, P.C. All rights reserved.
For more articles on RBG, visit the National Law Review Litigation / Trial Practice section.

President Trump Nominates Amy Coney Barrett to U.S. Supreme Court

In the wake of Justice Ruth Bader Ginsburg’s death, President Donald Trump has nominated the Honorable Amy Coney Barrett, who sits on the federal U.S. Court of Appeals for the Seventh Circuit, to the U.S. Supreme Court. A conservative jurist and self-described “originalist” and “textualist,” Barrett previously clerked for the late-Justice Antonin Scalia of the U.S. Supreme Court.

Barrett was widely considered to be a leading candidate to succeed Justice Scalia in 2018, but the nomination ultimately went to Justice Brett Kavanaugh. Her name quickly resurfaced as a top contender for Trump’s third Supreme Court appointment.

President Trump announced the selection on September 26, 2020. The Republican-majority Senate is expected to move quickly to a confirmation vote. If confirmed by the Senate, Judge Barrett will be one of the youngest Justice to ever sit on the Supreme Court.

Barrett’s Career

A deeply religious conservative, Barrett attended St. Mary’s Dominican High School, an all-girls Catholic school in New Orleans, before receiving a B.A., magna cum laude, from Rhodes College in 1994 and her J.D., summa cum laude, from Notre Dame Law School in 1997. She went on to clerk for Judge Laurence H. Silberman of the U.S. Court of Appeals for the District of Columbia Circuit from 1997 to 1998, and for the late-Justice Scalia of the U.S. Supreme Court from 1998 to 1999.

After her clerkships, Barrett worked briefly in private practice at Miller Cassidy Larroca & Lewin in Washington, D.C., from 1999 to 2001. She then taught successively at George Washington University Law School, Notre Dame Law School, and University of Virginia Law School.

President Trump nominated Barrett to the Seventh Circuit on May 8, 2017, and she was confirmed by the Senate on October 31, 2017. The 55-43 Senate vote fell largely along party lines with three Democrats voting to confirm Barrett and two not voting.

Barrett has been prolific in her short tenure at the Seventh Circuit, issuing nearly 100 written opinions. Her numerous employment law opinions provide a solid roadmap to how a Justice Barrett likely would address these matters on the high court. Combined, the decisions reflect a nuanced approach to workplace law, shaped less by dogma than by the text of the relevant employment law statutes.

Employment Law Decisions

Arbitration and Class Actions

Class action waivers contained in arbitration agreements governed by the Federal Arbitration Act (FAA) have been a focus of several Supreme Court decisions in recent years. The decisions affirmed by the high court have focused on the right of parties to enter into contracts that provide for individual arbitration of disputes.

A related question has been the subject of much litigation in the lower courts: Who can decide whether the parties, through their arbitration agreements, have consented to class or collective arbitration? Judge Barrett contributed to the growing body of case law on this question, which was a matter of first impression for the Seventh Circuit, by authoring the opinion in Herrington v. Waterstone Mortgage Corp., No. 17-3609 (Oct. 22, 2018), which held that a court, not an arbitrator, must decide.

In Herrington, the district court had invalidated a class waiver in the parties’ arbitration agreement and then ordered the employees to arbitrate. The arbitrator conducted a collective arbitration over the employer’s objections and issued a $10 million award to the employees. Writing for the appeals court, however, Judge Barrett stated the district court erred in striking the class waiver, noting that the Supreme Court had upheld the validity of such provisions in its landmark decision in Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018), and held the court must conduct the threshold inquiry of whether the arbitration agreement authorized class arbitration as this question involves a foundational question of arbitrability. In arriving at this opinion, Judge Barrett explained that this threshold question is of great importance as it could sacrifice the advantages of arbitration.

Judge Barrett’s opinion on a court’s ability to determine significant threshold questions of arbitrability may affect another key issue in arbitration that is winding its way through the federal courts: whether delivery drivers, including drivers in the expanding “gig” economy, fall under the narrow “transportation worker” exception or exemption in Section 1 of the FAA. If the exception is held to apply, drivers cannot be compelled to arbitrate disputes with their employer and would be entitled to pursue their class or collective claims in court. Judge Barrett’s opinion in Wallace v. Grubhub Holdings, Inc., Nos. 19-1564 & 19-2156 (Aug. 4, 2020), held that the transportation worker exception did not apply to drivers who make local food deliveries from restaurants to homes and thus they could be compelled to arbitrate their claims. To determine whether the exception applies, Judge Barrett explained that “transportation workers” are those who are “actually engaged in the movement of goods in interstate commerce,” which is determined by whether the interstate movement of goods is a central part of the drivers’ job description. While the Grubhub drivers argued they carried goods that had moved across state lines, Judge Barrett explained that this was insufficient to bring these drivers into the Section 1 exception, which must be “afforded a narrow construction.”

Both the First and Ninth Circuits have also ruled on the transportation worker exception in recent months; the First Circuit held the exception applied thereby foreclosing arbitration, while the Ninth Circuit found it inapplicable, allowing arbitration. Given the growing significance of the gig economy and the circuit split on a key issue arising under the FAA, the Supreme Court may soon take up the question, where Judge Barrett may apply her reasoning in Grubhub to any decision.

Employment Discrimination

Judge Barrett’s decisions in cases alleging discrimination reflect a restrained approach to statutory interpretation, a careful adherence to procedural rules, and a straightforward application of law to facts. The result has been a fairly balanced win rate for employers and employees. For example, her opinion in Smith v. Rosebud Farm, Inc., No. 17-2626 (Aug. 2, 2018), held that a reasonable jury could find a male employee was sexually harassed by male coworkers based on sex, given the “ample” evidence that only male employees, and not female employees, had been subjected to the harassing conduct.

In Vega v. Chicago Park District, Nos. 19-1926 & 19-1939 (Apr. 7, 2020) (one of Judge Barrett’s lengthier opinions, at 21 pages), the Seventh Circuit upheld a jury verdict in favor of a Hispanic park district employee on her Title VII claim for national origin discrimination. Judge Barrett rejected the park district’s contention that there was insufficient circumstantial evidence for the jury to find for the employee on her Title VII claim.” Judge Barrett wrote, “What matters is whether she presented enough evidence to allow the jury to find in her favor—and she did.” Judge Barrett wrote in similarly lenient terms about an employee’s burden to establish causation with respect to claims under Title VII of the Civil Rights Act. She explained that a plaintiff “has ‘plenty of room’ to convince the jury that a causal link exists,” and that the employee did so here. She emphasized, however, that the standard for proving a “widespread custom” of discrimination under Section 1983, is a good deal higher, and dismissed the Section 1983 claim as the employee did not meet this higher burden.

In Judge Barrett’s opinion in Purtue v. Wisconsin Department of Corrections, No. 19-2706 (June 26, 2020), the Seventh Circuit affirmed a district court ruling dismissing the discrimination claims by a corrections employee who was fired after she falsely claimed that a prisoner had struck her with an empty snack-cake box he had thrown from his cell. Again, Judge Barrett stressed that employees have numerous avenues to make their case. The familiar McDonnell Douglas burden-shifting approach is not the only way to establish a discrimination claim, she wrote, and an employee may have other available evidence to establish intentional discrimination. No such evidence existed in this case, Judge Barrett ultimately concluded, and no reasonable jury would find that the employee was subjected to gender discrimination.

Religion and LGBTQ Rights

When President Trump first floated Barrett’s name as a candidate to fill the seat vacated by Justice Scalia, her opponents feared that her conservative Catholicism would unduly shape her views on abortion and LGBTQ rights. In response, Republican leaders accused Democrats of applying a religious test to her nomination, which Article VI of the U.S. Constitution forbids. During her confirmation hearing before the Senate Judiciary Committee for her Seventh Circuit nomination, Barrett was questioned directly about how her personal religious convictions would affect her impartiality as a judge. Barrett confirmed her deeply held religious beliefs, but assured the Committee that she would separate her personal beliefs from her jurist role. Nonetheless, she quickly drew opposition from a broad coalition of LGBTQ rights organizations.

In its decision in Bostock v. Clayton County, Georgia, 140 S. Ct. 1731 (2020), the Supreme Court held that Title VII’s proscription against sex discrimination in employment was applicable to discrimination based on sexual orientation and transgender status. The landmark holding was heralded as a significant advancement for LGBTQ rights. Still, Bostock was a divided decision, and other cases (such as under Title IX of the Education Amendments Act, restroom and locker room usage, Affordable Care Act, and sex segregation) are likely to land before the Supreme Court to round out the jurisprudence in this area. In addition, Bostock left open the issue of religious exemptions, religious and religious-affiliated employers. Given Barrett’s deeply held Catholic beliefs and her commitment to a textualist interpretation of the law, her presence on the Court will be impactful in securing a conservative majority on these issues.

Judge Barrett is expected to favor a broad interpretation of the First Amendment’s religious freedom guarantees, to staunchly uphold protections from employment discrimination based on religion, and to safeguard the rights of religiously affiliated employers to hire and fire free from government interference. The Supreme Court has significantly expanded the scope of the ministerial exception in Our Lady of Guadalupe School v. Morrissey-Berru, 140 S.Ct. 2049 (2020). What remains to be seen is just how expansive this exception may be, such that it becomes the majority rule in cases involving religious affiliated employers. Will it continue to expand on the fourth factor in the Hosanna case — whether the employee’s job duties included “important religious functions” and not apply the remaining three factors with the emphasis on the job title of “minister”? To what extent could the exception be cited by some employers as a defense to discrimination claims brought by LGBTQ employees? Given Justice Barrett’s religious beliefs, she is expected to play a pivotal role in limiting the reach of Bostock and broadening the scope of religious-based protections.

Employee Benefits

The survival of the Affordable Care Act (ACA) is one of the largest issues teed up at the Supreme Court in the coming term. California v. Texas (No. 19-840), cons. with Texas v. California (No. 19-1019), the latest ACA challenge pending at the Court, is scheduled for oral argument on November 10. At issue is the ability of the ACA itself to survive after lower court rulings that the individual mandate portion of the ACA is unconstitutional following the elimination of any penalty associated with a failure of individuals to maintain minimum essential coverage. Judge Barrett has publicly criticized the ACA, as well as the high court’s 2012 decision upholding the law’s constitutionality. Were Barrett to be seated before November 10, she will likely participate in a highly divided decision that could invalidate much, if not all, of the ACA and lead to a complex reaction in the nation’s healthcare system, including significant impacts for employer-sponsored group health plans.

Confirmation Battle Looms

The latest political indicators, however, suggest that absent extraordinary circumstances, President Trump has the votes to confirm Judge Barrett swiftly.

Regardless of how Judge Barrett’s nomination fares, or whether President Trump will secure four more years to nominate judges, he will have left an indelible mark on the federal judiciary, including the nation’s highest court impacting every aspect of workplace law.

Jackson Lewis P.C. © 2020
For more articles on litigation, visit the National Law Review Litigation / Trial Practice section.

The Death of RBG…and the ACA?

The death of Supreme Court Justice Ruth Bader Ginsburg, and alongside it the high probability of a conservative successor to the open seat she left behind, is likely to shift the Court substantially to the right. Among the most notable cases that will likely be presented before the newly constituted Court is the pending challenge to the Affordable Care Act (the “ACA”).

We have previously examined the case history of Texas v. the United States (the “Case”), from the initial district court opinion, to its appeal to the Fifth Circuit, the Department of Justice’s brief in support of eliminating the ACA through this case, and the final decision from the Fifth Circuit, which can be seen here and here.

With Justice Ginsburg on the Court, stakeholders anticipated that the ACA would likely survive. While there was a conservative majority on the Court, consisting of Chief Justice Roberts, and Justices Alito, Gorsuch, Thomas and Kavanaugh, Chief Justice Roberts has consistently come to the ACA’s rescue. With Justice Ginsburg gone, the outlook seems a bit different.

By way of background, under the District Court ruling the judge determined that the ACA’s individual mandate, which was reduced to $0 as a result of the Tax Cuts and Jobs Act of 2017, was no longer considered a tax – meaning Congress no longer had the authority to enforce it. The District Court then held the individual mandate inseverable from the ACA, such that the whole law was unconstitutional. In a controversial turn of events, the Fifth Circuit, while upholding the unenforceability of the individual mandate, remanded the case back to the same District Court judge without ruling on the severability of the mandate. Now the time has come for the Supreme Court to take up the question of the ACA’s continuing viability.

Currently, the Supreme Court is set to hear arguments for the Case after elections, on November 10th. There are a few scenarios that may play out here. First, if no replacement is sworn in by that time to hear this case, there is a chance that one of the conservative justices, most likely Chief Justice Roberts, joins the liberals in their support of the ACA – resulting in a 4-4 deadlock that keeps the Fifth Circuit’s decision as is. There is a chance that the law will then continue on through the judicial process and eventually make its way back up to the Supreme Court. On the other hand, if the conservative justices band together on their decision, or if a conservative justice is appointed by then, it could very well be the end of the ACA as we know it. There’s a third option – Justice Kavanaugh has previously privately indicated that he may not support the argument that the mandate is inseverable, suggesting that holding one piece of the ACA invalid may not invalidate the ACA in its entirety.  A chance remains that more than one conservative will break ranks and prevent the entirety of the ACA from being held unconstitutional. The most likely outcome, however, appears that the Fifth Circuit decision will be upheld in a 5-4 decision, with Justice Roberts siding with the Court’s liberal wing against a 5 Justice conservative majority.

Top Contenders

Of course, the outcome also depends on the potential new conservative pick’s view on the ACA and particularly whether the nominee falls more in the Justice Roberts camp or aligns more fully with Court’s more conservative majority.

A top contender is Judge Amy Coney Barett, who has been particularly vocal in her criticisms of elements of the ACA. For one, she has previously signed a petition against the ACA’s mandate for employers to provide birth control access through their insurance plans, arguing it infringed on religious freedom. For another, she has previously written an article against the 2012 Supreme Court ruling that upheld the ability for Congress to enforce the requirement that Americans obtain health insurance or then face the tax penalty. Her rationale was that this was not a tax, and thus the statute should have been invalidated as it fell outside of Congress’ power to enforce. In this article, she was particularly critical of Chief Justice Roberts and what she noted as a “deference to democratic majorities.” Given Judge Barett’s history in speaking out against the ACA, and in particular against Chief Justice Roberts’ decisions in this arena, as well her previous willingness to see the ACA invalidated as a whole, it seems particularly likely that if chosen she will vote to uphold the Fifth Circuit’s decision.

Barbara Lagoa, another candidate at the top of the list, has been far less vocal about her stance on the ACA. However, she has previously referred to Roe v. Wade as “settled law” and “binding precedent of the Supreme Court.” Given this precedent, there’s a chance she may be more likely to break ranks with the conservative majority. Moreover, she was confirmed by the Senate in a bipartisan vote with a far less narrow margin than Judge Barett, making her an attractive choice to put forward.

Other Options?

On the other hand, if Vice President Biden wins the election in November and Democrats are able to take control of both houses of Congress, he would be able to simply replace the ACA with a new law that meets the legal challenges the ACA is currently facing (although to achieve this objective in the Senate, the budget reconciliation process would likely need to be utilized or, in the alternative, the filibuster eliminated, which would be a highly controversial move). If this were to happen, the new law could be more extensive than the ACA in its current form (e.g., by including a public option).

The idea of eliminating the filibuster in the Senate and expanding the size of the Supreme Court has been a subject of recent discussion in Democratic circles, and if such were to occur it would be reasonable to assume that President Biden and a Democratic Senate would likely fill the newly created seats with Justices sympathetic to the ACA and other Democratic causes.  However, this outcome seems unlikely given the current political environment and various on-the-record statements of stakeholders who would have to drive this process.

The Future 

As we have speculated in prior analyses of the Case, the impact of the ACA’s repeal or invalidation would be sure to be great. Not only would there be a massive loss in coverage by tens of millions of Americans, but absent a legislative fix, the ACA’s protections for those with pre-existing conditions would could find insurance difficult or impossible to procure,and children between the ages of 18 – 26 would no longer be able to remain on their parents insurance. We will monitor and provide updates as they come.

Copyright © 2020, Sheppard Mullin Richter & Hampton LLP.
For more articles on the ACA, visit the National Law Review Health Law & Managed Care section.

SEC Adopts Final Rules Amending Its Whistleblower Program

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

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

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

Background on the SEC Whistleblower Program

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

Changes to Whistleblower Award Payouts

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

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

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

Final Rule Expanding “Successful Enforcement”

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

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

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

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

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

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

Change to Reporting Requirements

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

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

[1] See 17 C.F.R. § 240.21F-6.

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

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

Coronavirus and the Constitutional Rights of Businesses: Butler v. Wolf

In Butler v. Wolf, Judge Stickman of the Western District of Pennsylvania issued an important ruling on Pennsylvania Governor Wolf’s coronavirus lockdown orders which impacts the Governor’s ability to re-impose some of the more draconian restrictions that he, and governors in New York, New Jersey, and elsewhere, put in place between March and June. Whether or not you agree with the result from a political standpoint, the decision is a must-read for anyone interested in the constitutionality of the ongoing, and unprecedented, government intervention in citizens’ daily lives in response to the coronavirus pandemic. Judge Stickman’s ruling touches on many civil liberties, including the First Amendment’s right to assemble, as well as the Fourteenth Amendment’s protection of the right to travel, the right to leave one’s home for any reason or no reason, the right to support oneself by pursuing a chosen occupation, and other rights.

This firm has litigated the constitutional rights of businesses —particularly the Fourteenth Amendment right to due process—on behalf of its clients, and readers of this blog will be most interested in Judge Stickman’s ruling that the orders shutting down non “life sustaining” businesses violated businesses’ rights to due process and equal protection under the Fourteenth Amendment. “An economy is not a machine that can be shut down and restarted at will by government. It is an organic system made up of free people,” and “[t]he ability to support oneself is essential to free people in a free economy.” Small businesses should also take comfort in this ruling, which prohibits the re-imposition of blanket closures of all businesses.

The Ruling

The plaintiffs in Butler v. Wolf included small businesses that sold furniture and health and beauty products; these businesses were shut down by the Governor’s orders, while Walmart, Lowes, and The Home Depot stayed open and sold the exact same products. The judge found that the lockdown orders unfairly favored these big-box retailers over the plaintiff small businesses because it “treated these retailers differently than their larger competitors, which were permitted to remain open and continue offering the same products that Plaintiffs were forbidden from selling.” The court noted it was “paradoxical that in an effort to keep people apart, [the Governor’s] business closure orders permitted to remain in business the largest retailers with the highest occupancy limits.” The Governor’s order, therefore, was not rationally related to combatting the virus, because closing a small furniture store “did not keep at home a consumer looking to buy a new chair or lamp, it just sent him to Walmart.” “In fact, while attempting to limit interactions, the arbitrary method of distinction used by [the Governor] almost universally favored businesses which offered more, rather than fewer products,” and which also, therefore “attract large crowds.”

Because the business closures treated two types of businesses differently, and that different treatment did not actually accomplish the stated goal of limiting interpersonal interactions to combat the virus, Judge Stickman found the lockdown order violated the Equal Protection Clause of the Fourteenth Amendment. Right now, this ruling applies only in the Western District of Pennsylvania (Pittsburgh and its surrounding areas), but once Judge Stickman’s ruling is appealed to the Third Circuit, the decision of that court (whether they agree with Judge Stickman or overrule him), will become binding in New Jersey, all of Pennsylvania, and Delaware.

The Big Picture

The ruling issued on September 14, 2020, only a few days shy of the 233rd anniversary of the founding fathers’ signing of the Constitution on September 17, 1787. It is fitting that the Judge wrote a lengthy and well-written opinion reminding us of the importance of the rule of law, and role of courts, even in times of crisis. As he stated, “[t]he liberties protected by the Constitution are not fair-weather freedoms—in place when times are good but able to be cast aside in times of trouble. . . . Rather, the Constitution sets certain lines that may not be crossed, even in an emergency.” Anticipating what will most certainly be many peoples’ reactions to the ruling—i.e., that we must do whatever it takes to protect ourselves from the virus—the Judge wrote:

[G]ood intentions toward a laudable end are not alone enough to uphold government action against a constitutional challenge. Indeed, the greatest threats to our system of constitutional liberties may arise when the ends are laudable, and the intent is good—especially in a time of emergency. In an emergency, even a vigilant public may let down its guard over its constitutional liberties only to find that liberties, once relinquished, are hard to recoup and that restrictions—while expedient in the face of an emergency situation—may persist long after immediate danger has passed.

As this author said in March, people following China’s response to the outbreak would have seen references to the idea that a democracy, like the United States, could not impose such severe restrictions on its own citizens. Then governors here did impose extreme restrictions as the virus spread and have openly stated that these restrictions will become the “new normal.” Judge Stickman noted the incongruity created by states adopting the same approach as China: “[i]t appears as though the imposition of lockdowns in Wuhan and other areas of China—a nation unconstrained by concern for civil liberties and constitutional norms—started a domino effect where one country, and state, after another imposed draconian and hitherto untried measures on their citizens.” But, the Judge found, “the Constitution cannot accept the concept of a ‘new normal’ where the basic liberties of the people can be subordinated to open-ended emergency mitigation measures.” That is why, as this author also predicted in March, the constitutionality of restrictions here, unlike in China, will be subject to judicial review if and when they go too far. Judge Stickman’s ruling in Butler v. Wolf came in one of the many cases now winding their way through the courts raising these exact types of challenges.

Nothing is certain, but it is likely that this case, and others like it, limit future “blanket” type orders, and force governments to take a more nuanced approach to combatting the virus (which includes deeper consideration of constitutional freedoms). Businesses trying to navigate the uncertainty created by government orders that have been ruled unconstitutional should consult experienced attorneys.

©2020 Norris McLaughlin P.A., All Rights Reserved
For more articles on COVID-19, visit the National Law Review Coronavirus News section.

Blue Bell Fined Record $17.25 Million in Post-Conviction Criminal Penalties for Listeria Outbreak

As previously reported on this blog, a multi-state listeriosis outbreak in 2015 linked to Blue Bell Creameries LP’s ice cream products contaminated with Listeria monocytogenes led to recalls, state regulatory enforcement actions (discussed here), civil litigation (including shareholder lawsuits), and criminal prosecution of the company and its former president. According to the Centers for Disease Control and Prevention, at least 10 people were sickened with listeriosis and hospitalized in Arizona, Kansas, Oklahoma, and Texas, and three people in Kansas died.

Pursuant to a plea agreement filed in federal court in Austin, Texas, in May 2020, the company pled guilty to two misdemeanor counts under the Federal Food, Drug, and Cosmetic Act of distributing adulterated ice cream products through interstate commerce. After conviction, Blue Bell was recently sentenced to pay $17.25 million in criminal penalties ($9.35 million in criminal fines and $7.9 million in forfeiture). According to the U.S. Department of Justice (DOJ), this represents the largest-ever criminal penalty following a conviction in a food safety case.

Blue Bell also agreed to pay an additional $2.1 million to resolve civil False Claims Act allegations regarding ice cream products manufactured under insanitary conditions and sold to federal facilities. According to DOJ, the combined total of $19.35 million in fine, forfeiture, and civil settlement payments constitutes the second largest-ever amount paid in resolution of a food-safety matter (the largest to date is a $25 million fine paid by Chipotle Mexican Grill Inc. in connection with a three-year deferred prosecution agreement to avoid conviction through implementation of an improved food safety program). According to the U.S. Department of Justice’s (DOJ) press release announcing the Blue Bell plea agreement, since reopening its facilities in late 2015, Blue Bell has taken significant steps to enhance sanitation processes and enact a program to test products for listeria prior to shipment.

In a related federal action in the same court, Blue Bell’s former president, Paul Kruse, was charged with seven felony counts (including attempt and conspiracy to commit mail fraud, wire fraud, and attempted wire fraud) for his alleged efforts to conceal from customers what the company knew about the listeria contamination. Among other allegations, Kruse allegedly directed Blue Bell employees to remove potentially contaminated products from store freezers without notifying retailers or consumers about the real reason, directed employees to tell customers who inquired that there was an unspecified issue with a manufacturing machine instead of informing them that samples of the products had tested positive for listeria, and directed employees to conceal and destroy evidence. In July 2020, the court dismissed the felony charges for lack of subject-matter jurisdiction, after Kruse successfully argued that while prosecutors had filed an information to charge him, they had failed to properly secure the required indictment or, in the alternative, a waiver of the right of indictment.

© 2020 Keller and Heckman LLP
For more articles on food and drug law, visit the National Law Review Biotech, Food, Drug section.

When Increasing Productivity Can Backfire

Time theft, especially in an age of booming remote work, is a serious concern for employers.

Time theft’s cost on productivity motivates many companies to explore ways to reduce it.  In a recent case, time theft motivated a company to implement a timekeeping system that clocked employees through their fingerprints instead of the usual badges or employee numbers.  As this case illustrates, however, an attempt to increase productivity by decreasing time theft can quickly lead to bleeding resources into litigation.  Further, in some circumstances, the bleeding can turn into hemorrhaging, such as when a defendant finds itself simultaneously litigating in state and federal court.

In Burlinski v. Top Golf USA, Inc., No. 19-cv-06700, 2020 U.S. Dist. LEXIS 161371 (N.D. Ill. Sep. 3, 2020), the defendant faced a class action lawsuit by former employees over alleged timekeeping practices.  It allegedly required its employees to record their time by scanning their fingerprints.  The defendant’s purpose for using fingerprints in lieu of timecards or unique employee numbers was to prevent time theft by precluding employees from recording time for anyone but themselves.

The plaintiffs were employed in Illinois, which implicated state privacy laws.  Illinois is one of a few states with laws regulating the collection of fingerprints and other biometric data.  A company may be liable under the Illinois Biometric Privacy Act (“BIPA”) if it does not:  (1) maintain a public retention and destruction schedule before collecting biometric data; or (2) acquire written consent prior to collecting biometric data or disclosing such data to third parties.

Procedural trouble began when the defendant removed the suit.  While the district court was evaluating the defendant’s motion to dismiss and the plaintiffs’ motion to remand, the Seventh Circuit issued an opinion that changed everything.  In Bryant v. Compass Grp. USA, Inc., 958 F.3d 617, 624-26 (7th Cir. 2020), the Seventh Circuit ruled on whether district courts had Article III jurisdiction over BIPA claims.  The court found there was jurisdiction over claims alleging that a company failed to obtain written consent prior to collecting biometric data.  The court, however, found there was no jurisdiction over claims alleging a failure to maintain a public retention and destruction schedule prior to collecting biometric data.  In other words, federal courts have jurisdiction over some BIPA claims, but not others.  Burlinski contained both types of claims.

Bryant had an immediate effect in Burlinski.  The court remanded one claim to state court and kept the remaining claims.  The court then rejected the defendant’s arguments to dismiss the removed claims, and the defendant found itself simultaneously litigating in state and federal courts.

To sum it up, Burlinski serves as a reminder for companies to vigorously ensure their own compliance with any applicable privacy statutes.  With many services now turning remote, time theft will likely become only a larger problem.  Before implementing a new timekeeping system, however, companies should recall the tale of Burlinski and its double litigation.

© Copyright 2020 Squire Patton Boggs (US) LLP
For more articles on employment, visit the National Law Review Labor & Employment section.