Category: Uncategorized

Your Presence Is Required: Employee Unable to Travel to Job Site Was Not “Qualified” Within the Meaning of the ADA

In recent years, particularly with technology making it easier for employees to work remotely, courts have struggled to determine whether onsite attendance is an essential job function under the Americans with Disabilities Act (“ADA”).  This question is often dispositive because only qualified individuals—those who can perform a job’s essential functions with or without a reasonable accommodation—are protected by the ADA.  A federal court in South Carolina recently ruled that an employee who could not get to his worksite for a six-month period could not perform the essential functions of his job and thus his employer did not run afoul of the ADA in terminating his employment.  Dunn v. Faithful+Gould Inc., Case No. 6:15-cv-04382 (June 18, 2018).

Dunn worked as a chief scheduler for Faithful+Gould (“FG”) from 2011 until his termination in August 2014.  For the first eighteen (18) months of his employment, Dunn worked remotely from his house because no local office had been established.  In 2013, a local office was formed, and Dunn changed supervisors.  Dunn’s new supervisor did not allow Dunn or other schedulers to work from home.  In the summer of 2014, Dunn had two epileptic seizures.  According to his doctor, Dunn had no restrictions and could return to work, but he could not drive for six months because South Carolina law prohibits someone from driving within six months of an epileptic seizure.  Dunn requested that he be permitted to work from home until his driving privileges were restored.  While FG was willing to allow Dunn to work from home one day a week for a four-week period while Dunn figured out a long-term transportation solution, FG refused to allow Dunn to work from home daily for an extended period.  In September 2014, Dunn’s employment was terminated after he exhausted all leave available under the FMLA and company policy.

Despite the fact that Dunn’s job description made no reference to onsite attendance and despite the fact that he worked from home for the first eighteen months on the job, the court concluded that onsite attendance was an essential function of Dunn’s job.  The court gave significant weight to the judgment of Dunn’s supervisor that onsite attendance was essential and Dunn’s statements to his doctor that he could not perform his job from home.  The court also noted that Dunn’s job had changed, and while onsite attendance may not have been essential during his first eighteen months on the job, it was at the relevant time.  The court rejected Dunn’s argument that FG should have granted him extended leave as a reasonable accommodation while he waited the six months to be able to legally drive again.  The court ruled extended leave was not a reasonable accommodation because it would have required FG to reallocate Dunn’s essential job duties to other employees for an extended period of time.

Dunn illustrates well the case-by-case analysis required in determining whether a job function such as onsite attendance is essential and that the essential nature of a function can actually change over time.  Thus, in considering potential accommodations, employers should always conduct an individualized assessment to determine whether any job function, including onsite attendance, is an essential function of a particular position.

Dunn is consistent with the Sixth Circuit’s en banc decision in EEOC v. Ford Motor Company, discussed in a previous blog.

 

Jackson Lewis P.C. © 2018
This post was written by Jonathan A. Roth of Jackson Lewis P.C. 

Are you Afraid of What Lurks in the Deep Water of your ERISA Plan?

Fear of creatures that lurk in deep water is pretty universal – for confirmation, look no further than the numerous summer movies featuring unexpected attacks by fierce underwater predators with sharp teeth. Inevitably, none of the victims seem to have any tools that will actually save them.  One after another, their tools break, and their escape attempts fail pitifully.  Unfortunately, such movies give the impression that the only protection from these predators is staying out of the water altogether.

If sponsoring and administering ERISA employee benefit plans seems as dangerous to you as swimming in deep water, be assured that there are tools and approaches that can be vital to risk management. Amending your ERISA plan document and summary plan description to include appropriate plan provisions, for instance, can minimize your exposure as a plan administrator.  For example:

  • Does your plan reserve discretionary authority to the plan administrator? Explicitly reserving discretionary authority to the plan administrator can prevent a court from exercising its own discretion to your detriment. Almost thirty years ago, the Supreme Court of the United States recognized the effectiveness of such language; court opinions continue to highlight the importance of this provision, as was done in a recent opinion issued by the Sixth Circuit in Clemons v. Norton Healthcare Inc. Retirement Plan, 890 F.3d 254 (May 10, 2018). Because it is so important, you should not assume that it is automatically included in every plan document and summary plan description. Work with benefits counsel to have your documents reviewed to make sure this provision is included.
  • Does your plan invalidate assignments of claims? Sometimes, a doctor or hospital asks a participant to sign a document that assigns to the provider the participant’s claim for benefits, meaning that the provider can stand in the shoes of the participant in bringing suit against your plan for coverage of claims. An anti-assignment clause invalidates such an assignment. Your plan’s participants and beneficiaries can still bring claims (and suit, if necessary), but they cannot assign such claims to their providers. Such a clause was upheld recently by the Third Circuit in American Orthopedic & Sports Medicine v. Independence Blue Cross & Blue Shield, 2018 WL 2224394 (May 16, 2018).
  • Does your plan contain a plan-based statute of limitations? In ERISA cases, a question about which statute of limitations applies (which, as a practical matter, means how many years later a plaintiff can sue you) can be a complicated issue, involving both state and federal law. Short-circuit those disagreements by amending your plan and summary plan description to establish a reasonable plan-based statute of limitations. Make sure your claims and appeal provisions, and all claim or appeal denial notices, discuss the statute of limitations. For example, a properly drafted plan-based statute of limitations resulted in a dismissal of a lawsuit because a plaintiff failed to bring suit within 3 years of his claim – without that plan provision, the court would have applied Puerto Rico’s default statute of limitations for contract claims, which would have permitted suit within 15 years of the claim. Santaliz-Rioz v. Met. Life Ins. Co., 693 F.3d 57 (1stCir. 2012), cert. denied., 569 U.S. 904 (2013).

When it comes to health and welfare plans, note that, if you do not yet have a plan document and summary plan description, now is the time to get one. Benefit summaries provided by your insurer are helpful and important documents, but they may not contain all the elements required by ERISA.  Moreover, by adopting a plan document and summary plan description, you will have a document to include provisions like those highlighted above.

Having an ERISA attorney review (or draft) your plan document and summary plan description can save you money and headaches down the line. After all, a lawsuit may not be quite as scary as staring into a 75-foot-long prehistoric shark’s open jaws – but do you really want to find out through personal experience?

 

© Steptoe & Johnson PLLC. All Rights Reserved.

SAS Indirectly Strengthens the Impact of Estoppel

The Supreme Court decision in SAS Institute v. Iancu[i]will likely strengthen a patent owner’s ability to argue in favor of estoppel and keep a petitioner from getting multiple bites at the invalidity apple in parallel PTAB and district court proceedings. At first glance the Supreme Court’s recent decision appears to be another setback to patent owners. Instead of quickly defeating post grant challenges to at least some challenged claims pursuant to a denial of institution, patent owners will now have to fight petitions even if the Board finds merit with only a single ground challenging patentability. Upon closer examination, however, SAS’s implications for estoppel are favorable and may even resolve a split concerning the scope of estoppel.

The Supreme Court Directive in SAS

SAS addressed the PTAB’s “partial institution” policy, under which the PTAB claimed the power to institute an IPR with respect to only some of the claims challenged in a petition. In SAS, the Supreme Court rejected that policy. The Court explained that if the PTAB decides to institute an IPR, 35 U.S.C. § 318(a) provides that PTAB “shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner.” Emphasizing the statute’s use of the phrase “any patent claim,” the Court held that PTAB cannot pick and choose which claims to address, but must instead take the petition as it finds it.[ii] The Court found further support for its interpretation in the structure of the inter partes review process “in which it’s the petitioner, not the Director, who gets to define the contours of the proceeding.”[iii]

The Split on Estoppel

The partial institution policy that SAS rejected has created a split in the interpretation of estoppel under 35 U.S.C. § 315(e). Section 315(e)(2) provides that “[t]he petitioner in an inter partes review . . . that results in a final written decision under section 318(a) . . . may not assert . . . in a civil action . . . that the claim is invalid on any ground that the petitioner raised or reasonably could have raised during that inter partes review.” Congress intended this provision to preclude the same party from re-litigating invalidity in the district court once it had chosen to do so through an IPR. As then-Director of the PTO David Kappos testified, the “estoppel provisions mean that your patent is largely unchallengeable by the same party.”[iv] Similarly, Senator Grassley stated that IPR review “will completely substitute for at least the patents-and-printed-publications portion of the civil litigation.”[v]

Notwithstanding the apparently broad estoppel envisioned by Congress, some courts have interpreted § 315(e) more narrowly. For example, in Shaw Industries Group, Inc. v. Automated Creel Systems, Inc., the Federal Circuit explained that where PTAB partially instituted an IPR, the petitioner was not estopped from raising a ground in district court that it had included in its IPR petition but on which PTAB did not institute. The court reasoned that the non-instituted ground was not raised “during th[e] inter partes review.”[vi] Similarly, in HP Inc. v. MPHJ Technology Investment, LLC, the Federal Circuit explained that “noninstituted grounds do not become a part of the IPR,” and “[a]ccordingly, the noninstituted grounds were not raised and, as review was denied, could not be raised in the IPR.” The court therefore held that “the estoppel provisions of § 315(e)(1) do not apply.”[vii] Other courts have followed suit and even extended that holding.[viii]

A broader interpretation of estoppel tracks what many believe to be the statutory intent, however, as a party should not get two bites at the apple and be able to seek review at both the PTAB and in the district court. Adopting this view, the court in Biscotti Inc. v. Microsoft Corp. cabined Shaw and HP to their facts, holding that they “exempt an IPR petitioner from § 315(e)’s estoppel provision only if the PTAB precludes the petitioner from raising a ground during the IPR proceeding for purely procedural reasons.”[ix] Thus, the court held that § 315(e) estopped the petitioner from asserting any ground that (1) was included in PTAB’s final written decision, (2) was not instituted for non-procedural reasons, or (3) was not included in the petition.[x] Any other decision would result in needlessly protracted litigation as petitioners would re-litigate arguments similar to those that it had already lost or strategically chose not to include in a petition.[xi] The court in Douglas Dynamics, LLC v. Meyer Products LLCtook a similar view with respect to non-petitioned grounds, holding that estoppel applies “to grounds not asserted in the IPR petition, so long as they are based on prior art that could have been found by a skilled searcher’s diligent search.”[xii]

SAS Strengthens Patent Owners’ Estoppel Arguments Because a Petitioner is Deemed to be the “Master of its Complaint”

While SAS had nothing to do with estoppel on its face, much of the disagreement regarding the scope of estoppel arose out of the PTAB’s partial institution policy and the effect of estoppel on non-instituted claims. Because the PTAB no longer has discretion as to partial institution, courts will no longer have to struggle with whether a petitioner is estopped from raising non-instituted grounds for unpatentability in a subsequent or parallel district court proceeding. While a few open issues remain, the patent owner will still be able to argue that SAS supports the idea that petitioners should only get one opportunity to challenge patentability—either at the PTAB or before a jury. The Supreme Court directive from SAS, coupled with recent guidance from the PTAB, suggests that the divide between the broad (Biscotti and Douglas Dynamics) and narrow (Shaw and HP) interpretations of estoppel—at least with respect to pre-institution decisions from the PTAB—may be merging.

Moreover, while SAS does not explicitly resolve whether a petitioner is estopped from arguing non-petitionedclaims in a parallel district court case, the premise behind the Supreme Court’s decision—that the petitioner is the master of its own petition—suggests that estoppel should apply. Some commentators have predicted that because PTAB must now choose between full institution and full denial, “petitioners [will] have an incentive to focus their petitions even further—when choosing claims to challenge, grounds to assert, and prior art to cite—in order to ensure that the likelihood of full institution is greater than the likelihood of full denial.”[xiii] But filing a targeted (and therefore stronger) petition may run the risk of estoppel on any non-petitioned claim. As Biscotti and Douglas Dynamics indicate, petitioners should not be permitted to hold arguments in reserve in case of an unfavorable result at the PTAB. Moreover, SAS supports Biscotti’s and Douglas Dynamic’s interpretation of the meaning of “during” the IPR. While Shaw characterized an IPR as not beginning until institution,[xiv]SAS depicts post grant review as a single process that begins with petitioner defining the scope of the proceeding in its petition.[xv]Applying estoppel to non-petitioned claims would not be inconsistent with a courts’ concern “that estoppel applies only to those arguments, or potential arguments, that received (or reasonably could have received) proper judicial attention.”[xvi]

 Further, SAS will still enable patent owners to rely on the same line of cases to argue for procedural estoppel. Before SAS, the PTAB frequently denied institution in view of procedural deficiencies.[xvii] Now, however, the PTAB will be faced with either denying institution for failure to comply with PTAB rules or allowing institution on all grounds even where some of the challenges are procedurally improper. For example, petitioners could present a single procedurally proper argument to open the door to review and evade page limit requirements by packing the remainder of the petition with grounds that must also be instituted under SAS but that are supported only by improper incorporations by reference.[xviii] While denying institution because of procedural failings could preclude the petitioner from filing another (procedurally proper) petition making the same arguments,[xix] the petitioner, as “master of its complaint,” could have drafted its petition correctly from the start.[xx] In short, the petitioner’s failure to follow the rules should not justify a second bite at the validity apple.

 Finally, pending petitions subject to partial institution could have the same consequences depending on the action of the petitioner post-SAS. PTAB guidance indicates that in such cases, “the panel may issue an order supplementing the institution decision to institute on all challenges raised in the petition.”[xxi] If a petitioner fails to seek supplemental institution or fails to appeal the PTAB’s refusal to supplement, estoppel could apply. While some courts might continue following Shaw and HP by holding that non-instituted claims were not raised “during” the IPR, petitioner “could have raised” those claims and arguments “during” the IPR—even under Shaw’s interpretation—given SAS’s holding because the petitioner should have sought to remedy the non-institution.

The Takeaway

While not obvious at first glance, SAS follows recent decisions like General Plastics that tend to protect patent owners’ rights. While the focus of SAS was on institution and the scope of institution, the Court has armed patent owners with another weapon with which they can challenge serial review of the same patent on the same grounds in multiple petitions and district court proceedings.

[i] No. 16-969 (Apr. 24, 2018).

[ii] Id., slip op. at 1, 4-5.

[iii] Id., slip op. at 12.

[iv] Hr’g on H.R. 1249 Before the Subcomm. on Intell. Prop., Competition and the Internet of the H. Comm. on the Judiciary, 112th Cong. (2011) (statement of David Kappos, Dir., USPTO) (“Those estoppel provisions mean that your patent is largely unchallengeable by the same party.”)

[v] 157 Cong. Rec. S1360-94 (daily ed. Mar. 8, 2011) (statement of Sen. Grassley) (claiming that the estoppel provision “ensures that if aninter partes review is instituted while litigation is pending, that review will completely substitute for at least the patents-and-printed-publications portion of the civil litigation”).

[vi] 817 F.3d 1293, 1300 (Fed. Cir. 2016) (quoting 35 U.S.C. § 315(e)(2)).

[vii] 817 F.3d 1339, 1347 (Fed. Cir. 2016).

[ See, e.g., Verinata Health, Inc. v. Ariosa Diagnostics, Inc., 2017 U.S. Dist. LEXIS 7728, at *8-10 (N.D. Cal. Jan. 19, 2017); Illumina, Inc. v. Qiagen N.V., 207 F. Supp. 3d 1081, 1089 (N.D. Cal. 2016).viii]

[ix] 2017 U.S. Dist. LEXIS 144164, at *21-22 (E.D. Tex. May 11, 2017).

[x] Id. at *22.

[xi] Id. at *17-18, *20-21.

[xii] 2017 U.S. Dist. LEXIS 58773, at *15.

[xiii] Saurabh Vishnubhakat, First Steps After SAS Institute, Patently-O (Apr. 27, 2018), https://patentlyo.com/patent/2018/04/first-steps-institute.html

[xiv] 817 F.3d at 1300.

[xv] Slip op. at 6, 9.

[xvi] Verinata, 2017 U.S. Dist. LEXIS 7728, at *10.

[xvii] See, e.g., Shenzhen Huiding Technology Co., Ltd. v. Synaptics Incorporated, IPR2015-01741, Paper 8 at 29-31 (PTAB Aug. 7, 2015) (partially denying institution due to improper incorporation by reference); Bomtech Elec., Co. Ltd. v. Medium-Tech Medizingeräte GmbH, Case No. IPR2014-00138, Paper No. 8 at 32-33 (PTAB Apr. 22, 2014) (same).

[xviii] See 37 C.F.R. § 42.6(a)(3).

[xix] General Plastic Industrial Co., Ltd. v. Canon Kabushiki Kaisha, IPR2016-01357, Paper 19 (PTAB Sept. 6, 2017).

[xx] Id.

[xxi] Guidance on the Impact of SAS on AIA Trial Proceedings (Apr. 26, 2018) (emphasis added). 

 

© McKool Smith
This post was written by Scott W. Hejny and Chelsea Priest of McKool Smith.

Fake Apps Find Their Way to Google Play!

Over the last two months a string of fake banking apps have hit the Google Play store, leaving many customers wondering whether they have been affected by the scam. A report by security firm ESET found users of three Indian banks were targeted by the apps which all claimed to increase credit card limits, only to convince customers to divulge their personal data, including credit card and internet banking details. The impact of this scam was heightened as the data stolen from unsuspecting customers was then leaked online by way of an exposed server.

The report claims these apps all utilise the same process:

  1. Once the app is downloaded and launched a form appears which asks the user to fill in credit card details (including credit card number, expiry date, CVV and login credentials)
  2. Once the form is completed and submitted a pop up customer service box is displayed
  3. The pop up box thanks users for their interest in the bank and indicates a ‘Customer Service Executive’ will be in contact shortly
  4. In the meantime, no representative makes contact with the customer and the data entered into the form is sent back to the attacker’s server – IN PLAIN TEXT.

The ESET report alarming revealed that the listing of stolen data on the attacker’s server is accessible to anyone with the link to the data, this means sensitive stolen personal data was available to absolutely anyone who happens to comes across it.

Whilst, the reality is any app on your personal smartphone may place your phone and personal data at risk, (as discussed here ‘Research Reports say risks to smartphone security aren’t phoney‘)

Customers can mitigate risk by:

  • only using their financial institutions official banking apps, these are downloadable from the relevant institution’s official website;
  • paying attention to the ratings, customer reviews when downloading from Google Play;
  • implementing security controls on your smartphone device from a reputable mobile security provider; and
  • contracting their financial institution directly to seek further guidance on the particular banking apps in use.

It cannot be overlooked, whilst Google Play moved quickly to remove the apps we query how it was so easy for cyber criminals to launch fake apps on Google Play in the first place.

Copyright 2018 K & L Gates.

This post was written by Cameron Abbott  and Jessica McIntosh of K & L Gates.

Read more stories like this on the National Law Review’s Cybersecurity legal news page.

You’ve Got Mail: NLRB Requests Briefing on Standard for Employee Use of Employer Owned Electronic Communication Systems

In what could signify the beginning of the end for Purple Communications, Inc., 361 NLRB 1050 (2014) and guaranteed employee access to Employer computer systems for union organizing purposes, the NLRB issued a notice on August 1 inviting the filing of briefs on whether the Board should uphold, modify or overrule the decision.  Under Purple Communications (which we previously covered here), employees have a presumptive right to use their employer’s e-mail system to engage in protected activity under Section 7 of the NLRA on nonworking time, unless the employer can demonstrate circumstances allowing it to restrict such use.  Overturning Purple Communications could return the Board to the standard under Register Guard, 351 NLRB 1110 (2007), which permitted employers to impose Section 7-neutral restrictions on an employee’s non-work use of their e-mail systems, even if those restrictions ultimately limited the employee’s use of the employer’s e-mail for communications involving protected activity.

The NLRB issued the notice in response to a 2016 ALJ decision finding that an employer’s computer usage policy did not comply with Purple Communications standard, because it prohibited employees from using their work e-mail for any nonbusiness purpose.  Board Members Pearce (who was in the Purple Communicationsmajority) and McFerran dissented from the decision to solicit briefs.  Both dissenting Members contended that issuing the notice was inappropriate in light of the pending appeal of Purple Communications before the Ninth Circuit and their view that there has been no change in workplace trends or evidence showing that Purple Communications has created significant challenges for employers, employees, unions or the Board.

Perhaps in recognition that workplace communication technology has clearly expanded beyond e-mail, the notice welcomes briefing on what standard the Board should apply to other methods of employee communication on employer-owned equipment (e.g., instant messages, text messages, and social media postings). While the Board has limited its holdings in the area of computer usage to employer e-mail systems, this notice may indicate a move by the Board to apply a consistent standard to all forms of workplace communication platforms.

 

© 2018 Proskauer Rose LLP.
This post was written by Michael J Lebowich and Jordan Simon of Proskauer Rose LLP.
For more labor and employment news, check out the National Law Review’s Labor and Employment Page.

Battery Companies Drive Innovation in Energy Efficiency Storage Technology

A hot new area for the development of energy efficiency storage technology is refrigeration. Last month, this blog covered the recent success of Mintz Levin client Axiom Exergy. Axiom’s focus on lowering the costs of refrigeration through their Refrigeration Battery has caught the attention of major investors such as Shell Investors, and has led to deals with major chains, including Wal-Mart and Whole Foods. The battery, which is described in more detail in the June 12th post, generates and stores excess refrigeration by freezing tanks of salt water during off-peak hours and releasing the refrigeration during peak hours to avoid high peak energy costs. The Refrigeration Battery is especially useful for supermarkets, which dedicate nearly 60% of their energy consumption towards refrigeration, and can help reduce peak energy consumption by up to 40%.

Of course, energy efficiency storage technology holds promise for more than just supermarkets. Ice Energy’s Ice Bear battery creates and stores ice during off-peak hours. It can then use that stored ice during peak hours to cool the building in which it is installed. The battery, which makes air conditioning more efficient in commercial, industrial, and residential buildings, has received significant attention in the efficient energy storage space. In fact, the Southern California Power Public Authority (SCPPA) announced its plan to purchase up to 100 Ice Bear battery units. As a result, Ice Energy could add nearly one Megawatt of energy for residential cooling systems back into the SCPPA network.

In the opposite direction of water-based technologies, lie companies like Ambri and VionX. Ambri uses liquid metals in its batteries, which can each supply one day’s worth of electricity to 30 average Massachusetts homes. The current passing between the electrodes during the charge-discharge cycle generates enough heat to keep the battery at temperature. Because the battery operates at an elevated temperature, which is maintained through the normal cycle of the battery, the battery does not require a cooling system, resulting in low-cost and efficient storage technology. VionX, another Mintz Levin client, developed a Vanadium Redox Flow Battery. Their battery does not suffer from degradation through the charge-discharge cycle like traditional lithium ion batteries do. This unique design allows the battery to run through its cycle indefinitely. As a result, VionX batteries increase their storage efficiency over the course of their life cycle, and they pass this benefit on to clients in the form of reliability and cost effectiveness.

This explosion in innovation demonstrates the potential for energy efficiency storage technology to expand into different areas. One opportunity for such expansion is the electric grid. Advances in battery technology have the potential to significantly impact the grid’s storage capacity. Scaling energy efficiency storage technology to meet the demands of the United States’ electric grid would pave the way for connecting more clean energy sources to the grid. Efficient batteries with high storage capacities allow energy from clean sources–which often fluctuate seasonally and hourly in level of output–to be stored during times of high output. This increased storage capacity would provide the missing link between clean energy sources and energy output from the grid. The energy stored from clean energy sources during peak hours of energy output would be able to provide those connected to the grid with constant energy during times of low-production with advances in efficient storage technology.

Investors have taken notice of these opportunities for innovation. Ambri has secured a combined $50 million from Bill Gates and other investors, while VionX recently raised $26 million in financing to add to the $79 million in venture capital financing that it had already raised. Ice Energy entered into a long-term agreement in June 2018 for $40 million in funding after securing series C funding in 2010. Mercom Capital Group found that venture capital funding for battery storage, smart grid, and efficiency companies was 12 percent higher in the first half of 2018 than in the first half of 2017, rising from $480 million to $539 million. The recent increase in innovation and investment may indicate that there are new opportunities in store for efficient storage technologies and cleantech as a whole.

 

©1994-2018 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.

What You Should Know About Special Focus Facility Nursing Homes

The Center for Medicare Advocacy (CMA) recently issued a Special Report focusing on progressively ineffective enforcement actions against nursing-home facilities that have demonstrated a pattern of serious noncompliance with federal nursing-home care standards meant to ensure quality care and resident safety.

The report concludes that in addition to a noncompliant nursing home’s ability to mislead consumers about its quality of care by masking staffing levels and self-reporting quality-care measures to the federal government, penalties in the form of monetary fines—imposed on the most unsafe nursing homes—are declining, and thus, are likely ineffective in improving the care provided to residents.

In cooperation with state surveyors, the Centers for Medicare & Medicaid (CMS) regularly visits nursing homes to determine whether they are ensuring resident safety by complying with federal nursing-home care standards: The standards also determine whether nursing homes may participate in Medicare and Medicaid reimbursement programs. And while most nursing homes have some deficiencies, most of them correct those problems within a reasonable period of time. But for nursing homes with (1) a history of having twice the average number of deficiencies, (2) deficiencies resulting in serious quality and safety issues, and (3) those issues persisting over a long period of time, CMS identifies them as Special Focus Facilities (SFF) and subjects them to additional surveys and fines.

CMS attempts to notify the public about identified SFF’s by publishing a monthly report providing the status of SFF’s by grouping them into categories separated by the following Tables:

Table Category
A Newly Added
B Not Improved
C Improving
D Recently Graduated
E No Longer in Medicare and Medicaid

The report also contains the number months the nursing home has operated as SFF.

As of the most recent SFF Update, July 19, 2018, CMS identified or had identified the following New Jersey Nursing Homes as Special Focus Facilities:

Nursing Home Location Status Months as SFF
New Grove Manor East Orange Newly Added 4 months
Cooper River West Pennsauken Improving 12 months
Meadowview Nursing & Respiratory Care Williamstown Recently Graduated 15 months

CMS also attempts to notify the public about the quality of care provided by all Medicare- and Medicaid-certified nursing homes in the country through its Nursing Home Compare Five-Star Rating website. The star-rating system gives each nursing home a rating from 1 to 5 stars in three categories: (1) health inspections, (2) staffing, and (3) quality of resident care measures (collected on each patient). Based on those ratings, CMS also calculates an overall rating.

However, while all three categories help provide a snapshot of a nursing home’s quality, a New York Times article faulted the five-star rating system for being susceptible to manipulation, and thus capable of misleading the public. That is because CMS allowed nursing homes to self-report data for two of the three categories: staffing and quality of resident care measures.  Only the health inspections category provided an independent window into the quality of a nursing home, because CMS conducts the inspections onsite and reports the results of the inspections.

Healthcare professionals have traditionally viewed the level of staffing as indicative of the nursing home’s ability to provide quality care and ensure patient safety. But even after the 2015 revision to the 5-Star Rating System to, in part, improve the accuracy of reporting staffing levels, nursing homes have continued mask the erratic levels of individuals working from day to day.

So while an unsafe nursing home may report a high-quality star rating (4 or 5 stars) in staffing and quality care measures, the health inspections category provides a more accurate assessment of how well the nursing home protects residents from harm.

For example, as of July 30, 2018, the Nursing Home Compare website reports the following quality star ratings for New Grove Manor nursing home, listed above:

The CMS website shows that despite CMS (1) assigning a Much Below Averagerating (1 star) for health inspections, (2) assigning a Below Average rating (2 stars) for overall quality, and (3) identifying New Grove Manor as a Special Focus Facility—CMS permits New Grove Manor to report an Above Average rating (4 stars) for staffing levels and to self-report an Above Average rating (4 stars) for quality measures..

Moreover, the CMA Special Report suggests that despite the poor performance of the 18 Newly Added nursing homes in the SFF Update, July 19, 2018, enforcement actions against those nursing homes are relatively minor. The Special Report notes that when attributing the total amount fines ($992,325) to all 18 Newly Added facilities, covering the prior 3-years, the average fine per year for each SFF is $18,375. However, as the Special Report notes, CMS imposed fines on only 12 of the 18 nursing homes over the prior three years. Thus, for those 12 nursing homes, the average fine per year was merely $27,562.

 

COPYRIGHT © 2018, STARK & STARK
This post was written by Eric D. Dakhari of Stark & Stark Law Firm.

National Aging and Law Conference

Save The Date for NALC 2018!

Save the date for the National Aging and Law Conference in historic Old Town Alexandria, Virginia. NALC 2018 will be held at the Crowne Plaza Old Town Alexandria, on October 24-26, 2018.

For the fifth year, the ABA Commission on Law and Aging is proud to host the National Aging and Law Conference. The 2018 National Aging and Law Conference will focus on a theme of Advocating for Aging with Dignity.

Registration Brochure

Online Registration Now Open

Mail Order Form Registration

Register by Phone

800-285-2221
Monday – Friday
9:00 AM – 6:00 PM Eastern

Pre-Conference Information and Registration

Ground Transportation

This year’s conference will be at the Crowne Plaza Old TownAlexandria, about 3 miles directly south of Reagan National Airport (the hotel offers shuttle service to and from DCA.)

Crowne Plaza Old Town

901 N. Fairfax Street

Alexandria, VA  22314

(703) 683-6000

The group rate is $165 plus tax, reservations can be made by calling 877-666-3243. The group rate code is G6U.  

Ground Transportation

The Crowne Plaza Old Town Alexandria offers FREE shuttle service to and from Ronald Reagan Washington National Airport.  The shuttle runs about every 30 minutes, picking up at the airport at 15 and 45 minutes after the hour, and at the hotel on the hour and half-hour.  The airport terminal is being expanded, the pickup location for airport shuttles will change as work progresses, it is best to ask at the information desk for the pickup location for hotel shuttles.

This nearest Metro (subway) station to the hotel is Braddock Road.  The distance from the Braddock road station to the hotel is 8/10ths of a mile, about a 20-minute walk.  You can avoid this walk by exiting the Metro at Washington National Airport, and taking the hotel shuttle.

A taxi from the airport to the hotel will cost between $15 and $20 each way.

Will Your Company’s Insurance Cover Losses Due to Phishing and Social Engineering Fraud?

Six Tips for Evaluating and Seeking Coverage for Business Email Compromises

If your company fell victim to a business email compromise – a scam that frequently involves hackers fraudulently impersonating a corporate officer, vendor, business partner, or others, getting companies to wire money to the hackers – would your insurance cover your loss?  There is reason to be concerned about this sort of attack, as the FBI has explained that the “scam continues to grow and evolve, targeting small, medium, and large business and personal transactions. Between December 2016 and May 2018, there was a 136% increase in identified global exposed losses” in actual and attempted losses in U.S. dollars.  The good news for policyholders is that courts across the country have been ruling that crime insurance policies should provide coverage for this sort of loss, at least where it is not specifically excluded.

How do business email compromises work?

In early versions of business email compromises, the hackers send emails that appear to be from company executives, discussing corporate acquisitions, or other financial transactions, and are received by company employees in the finance department.  See, e.g., Medidata Sols., Inc. v. Federal Ins. Co., 268 F. Supp. 3d 471 (S.D.N.Y. 2017), aff’d, — F. App’x — (2d Cir. 2018).  The employee is told that the transaction is highly confidential, and that the employee should work closely with an attorney or other financial advisor to help close the deal.  The employee then is told to wire money to cover the costs of the transaction, very often to a foreign country.  Having been defrauded, the employee logs in to an online banking site, and approves a wire transfer.

In other versions of a business email compromise, hackers get access to email accounts of one party, sometimes via a brute force attack where an attacker breaks into a system by guessing a password, or via a phishing attackwhere a user is fooled into typing a username and password into a fraudulent site.  Then, the hacker sends out emails from the compromised account, pretending to be a vendor, and asking for payment to be sent to a different bank account.  See, e.g., Am. Tooling Center, Inc. v. Travelers Cas. & Sur. Co. of Am., — F.3d — (6th Cir. 2018).  Again, having been defrauded, the employee has money wired to the fraudster, instead of to the vendor.

Will insurance cover losses due to business email compromises?

The answer to whether insurance carriers will cover these losses – without court intervention – is “it depends.”  Recent decisions have ordered insurance carriers to provide coverage.  And the insurance industry has been scrambling to write new endorsements for their insurance policies that the insurance companies say provide coverage for business email compromises.

A common place for seeking coverage for these losses is under crime insurance policies.  Many crime insurance policies include coverage for “computer fraud,” “funds transfer fraud,” or even “computer and funds transfer fraud.”  Exemplar “computer fraud” coverage applies to “direct loss” of money resulting from the fraudulent entry, change, or deletion of computer data, or when a computer is used to cause money to be transferred fraudulently.  Exemplar “funds transfer fraud” coverage applies to “direct loss” of money caused by a message that was received initially by the policyholder, which purports to have been sent by an employee, but was sent fraudulently by someone else, that directs a financial institution to transfer money.  A reasonable policyholder, which fell victim to a fraudulent scheme via a computer, or transferred funds because of a fraudulent scheme, likely would think that computer and funds transfer fraud coverages would apply to the losses.

What have courts said?

Two recent decisions from federal courts of appeal have resulted in coverage under crime policies for business email compromise losses.

The first is the July 6, 2018 opinion issued in Medidata Solutions, Inc. v. Federal Insurance Co., No. 17-2492 (2d Cir.).  The Medidata trial court ruled that a crime insurance policy provides coverage for a fraudulent scheme and wire transfer.  The Court of Appeals for the Second Circuit affirmed the trial court’s decision.  In Medidata, the policyholder’s employees received emails that purported and appeared to be from high level company personnel but were, in fact, sent by fraudsters.  Based on those emails, and messages from purported outside counsel, Medidata wired nearly $5 million to the fraudsters.  It sought coverage under a crime policy that it bought from Chubb that had computer fraud, funds transfer fraud, and other coverages.  The trial court ruled that computer fraud and funds transfer fraud coverages both applied.  It rejected the arguments that the loss was not “direct” because there were steps in between the original fraudulent message and the wiring of funds.

On appeal, the Second Circuit ruled that Medidata’s loss was “direct” under the insurance policy language.  “Federal Insurance further argue[d],” as carriers have done in many business email compromise cases, “that Medidata did not sustain a ‘direct loss’ as a result of the spoofing attack, within the meaning of the policy.”  Slip op. at 3.  The Court of Appeals held that because “[t]he spoofed emails directed Medidata employees to transfer funds in accordance with an acquisition, and the employees made the transfer that same day,” the loss wasdirect.  Id.  The court rejected the insurance carrier’s argument that the loss was not direct because “the Medidata employees themselves had to take action to effectuate the transfer”; the employees’ actions were not “sufficient to sever the causal relationship between the spoofing attack and the losses incurred.”  Slip op. at 3.  The Court of Appeals did not address the trial court’s ruling that funds transfer fraud coverage applied, “[h]aving concluded the Medidata’s losses were covered under the computer fraud provision.”  Id.

Shortly after Medidata was issued, the Sixth Circuit decided on July 13, 2018 that computer fraud coverage applies to losses resulting from a business email compromise in American Tooling Center, Inc. v. Travelers Casualty & Surety Co., No. 17-2014 (6th Cir.).  There, the policyholder (ATC) wired money to fraudsters, instead of a vendor, because of a business email compromise.  The Sixth Circuit reversed the district court, ruling that the losses are “direct,” covered by crime insurance.

In a decision that will be published, the Court of Appeals held there was “‘direct loss’ [that] was ‘directly caused’ by the computer fraud,” even though the policyholder had engaged in “multiple internal actions” and “signed into the banking portal and manually entered the fraudulent banking information emailed by the impersonator” after receiving the initial fraudulent emails.  Id.

Holding that coverage applied, the Sixth Circuit distinguished the Eleventh Circuit’s decision regarding computer fraud coverage in Interactive Communications v. Great American, No. 17-11712, ___ F. App’x ___, 2018 WL 2149769 (11th Cir. May 10, 2018).  Id. at 9-10.  After the policyholder in American Tooling had “received the fraudulent email at step one,” it “conducted a series of internal actions, all induced by the fraudulent email, which led to the transfer of the money to the impersonator at step two.”  The loss occurred at step two; as such, “the computer fraud ‘directly caused’ [the policyholder’s] ‘direct loss.’”  Id. at 10.  By contrast, the Sixth Circuit explained, the policyholder in Interactive Communications only suffered losses at step four in a significantly more complicated chain of events.  See id. at 9-10.

These decisions are great news for policyholders pursuing coverage under crime policies for losses resulting from business email compromises.  And, in light of this new authority, policyholders would be well-advised to examine denial letters carefully, giving due consideration to whether these decisions could be used to argue in favor of coverage.

What options are available to policyholders going forward?

Cynical viewers of insurance history might view the state of coverage as similar to what the industry has done in the past.  That is, initially, cover new claims under “old” policies.  Then, after claims get expensive, hire coverage counsel to tell courts why the carriers must not have meant to cover these new claims (whether the drafting history reflects such an intent or not).  Next, get insurance regulators to approve exclusions purportedly tailored explicitly to the risk, and, at the same time, sell new policy endorsements (often for additional premium) that provide lower limits of coverage for the risk.

That’s what is happening in connection with insurance for business email compromises.  At least one insurance group that drafts crime insurance policies has asked for a definition of computer and funds transfer fraud to be changed, and a new social engineering fraud endorsement to be approved for sale.  Insurers have rolled out these endorsements with limits of coverage that often are capped at low amounts, and might also have high retentions.  These endorsements frequently are available for crime policies and, sometimes, are available for cyberinsurance policies as well.

So what are some options for policyholders trying to structure an insurance program for these risks?  These questions should provide helpful tips:

1. What does the insurance policy include? Policyholders would be well-advised to see whether the insurance program includes social engineering fraud endorsements or coverage parts.

2. What are the applicable limits? Policyholders would be well-advised to check the policy limits that would apply to those coverages.  Binder letters might not disclose a sublimit, and the policyholder might not realize the limit of coverage is lower than the full policy limit until it is too late.

3. Are coverages available under more than one policy? At the time of policy renewal, policyholders would be well-advised to consider asking whether social engineering fraud coverage can be added to a crime program and a cyberinsurance program.

4. Will excess coverage apply, and, if so, when? Policyholders would be well-advised to explore whether excess policies will provide this coverage, and, if so, will “drop down” to attach at the level of any sublimit, to avoid donut holes in the coverage.

5. Will other policy provisions provide coverage, beyond narrow endorsements? If the policyholder faces a claim, policyholders would be well-advised to determine whether other coverages might apply to the losses, notwithstanding a social engineering fraud endorsement.

6. What happens if the insurance carrier says, “no,” or that sublimits apply? If the insurance carrier denies coverage, or tries to apply a sublimit, policyholders would be well-advised to be mindful of the interpretation that two Courts of Appeals have used for computer fraud coverage in similar contexts.

 

© 2018 BARNES & THORNBURG LLP
This post was written by Scott N. Godes of Barnes & Thornburg LLP.

Automatic Renewals of Consumer Contracts: Everything You Ever Wanted to Know But Were Afraid to Ask

Automatic renewals of consumer contracts are governed by overlapping federal and state laws. Such renewals should be used with care, particularly in light of recent changes to state automatic renewal laws (ARLs) and increased scrutiny from government officials and class action lawyers. In this Q&A, members of Drinker Biddle’s Class Actions Team and Consumer Contracts Team provide an overview of the laws governing automatic renewals, with a particular focus on California’s ARL, which is broad in scope, strict in application, and invoked with increasing frequency in class action litigation. See, e.g., Siciliano v. Apple Inc., No. 2013-1-CV-257676 (Cal. Super Ct.) ($16.5 million settlement); Habelito v. Guthy-Renker LLC, No. BC499558 (Cal. Super. Ct.) ($15.2 million settlement). Of course, no alert can capture every nuance of even one ARL, let alone every ARL. Businesses that use automatic renewals would therefore be well-advised to consult counsel and review the statutes directly.

Automatic Renewals Generally

How Are Automatic Renewals Regulated?

Automatic renewals are regulated at both the state and federal levels. At the state level, they are governed by a growing number of ARLs. At the federal level, they implicate Section 5 of the FTC Act, 15 U.S.C. § 45(a), which regulates unfair or deceptive practices, and the Restore Online Shopper’s Confidence Act (ROSCA), 15 U.S.C. § 8403 et seq., which prohibits charging customers unless there has been clear disclosure of, and express consent to, the material terms.

What Does the FTC Act Require?

Federal regulations define a “negative option feature” as “an offer or agreement to sell or provide any goods or services, a provision under which the customer’s silence or failure to take an affirmative action to reject goods or services or to cancel the agreement is interpreted by the seller as acceptance of the offer.” 16 C.F.R. § 310.2(w). The FTC considers automatic renewals to be a type of negative option feature. See, e.g., Negative Options: A Report by the Staff of the FTC’s Division of Enforcement, 2009 WL 356592, at *1. It has also outlined five “principles . . . to guide marketers in complying with Section 5 of the FTC Act when marketing online negative option offers.” Id. at *4. Specifically, it has instructed marketers to:

  1. “[D]isclose the material terms of the offer,” which include the “existence of the offer,” the “offer’s total cost,” the “transfer of a consumer’s billing information to a third party (if applicable),” and “how to cancel the offer.”

  2. “[M]ake the appearance of disclosures clear and conspicuous,” which means that they should “place them in locations on webpages where they are likely to be seen, label the disclosures (and any links to them) to indicate the importance and relevance of the information, and use text that is easy to read on the screen.”

  3. “[D]isclose the offer’s material terms before consumers pay or incur a financial obligation,” for example before consumers “agree to an offer by clicking a ‘submit’ button.”

  4. “[O]btain consumers’ affirmative consent to the offer” rather than “rely on a pre-checked box as evidence of consent.”

  5. “[N]ot impede the effective operation of promised cancellation procedures” by “mak[ing] cancellation burdensome for consumers, such as requiring consumers to wait on hold for unreasonably long periods of time.”

Id. The FTC has filed suit in related contexts to enforce these guidelines. See FTC v. DirecTV, No. 15-1129 (N.D. Cal.) (alleging violations of Section 5 of the FTC Act and ROSCA).

What Does ROSCA Require?

ROSCA contains requirements for negative option features in online transactions. Specifically, it prohibits charging or trying to charge a consumer unless the business:

  1. Provides text that clearly and conspicuously discloses all material terms of the transaction before obtaining the consumer’s billing information.

  2. Obtains a consumer’s express informed consent before charging the consumer’s credit card, debit card, bank account, or other financial account for products or services through such transaction.

  3. [P]rovides simple mechanisms for a consumer to stop recurring charges from being placed on the consumer’s credit card, debit card, bank account, or other financial account.

Id. at §§ 8403(1)-(3).

What Do State ARLs Require?

While their specific requirements vary, ARLs often require: (1) “clear and conspicuous” disclosure of certain terms before the agreement is fulfilled; (2) consent—which in some states must be affirmative and in other states may be passive—to the agreement containing those terms; (3) retainable acknowledgments of those terms; (4) notice of “material” changes to the automatic renewal; and/or (5) reminders in advance of certain renewals.

How Many States Have ARLs?

Twenty-five states have ARLs: Arkansas, California, Colorado, Connecticut, Florida, Georgia, Hawaii, Illinois, Iowa, Louisiana, Maryland, Missouri, Nevada, New Hampshire, New Mexico, New York, North Carolina, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Utah and Wisconsin. Three of those—Connecticut; New York; and Pennsylvania—are considering amending their ARLs. Eight other states—Alabama, Massachusetts, Minnesota, New Jersey, Vermont, Virginia, West Virginia and Wyoming—are considering enacting ARLs.

Are All ARLs Generally the Same?

ARLs differ not only in terms of what they cover (with some applying to virtually any consumer contract and others applying only to certain categories of contracts) but also in what they require (with, for example, some requiring clear and conspicuous disclosures before a contract is accepted and others requiring an additional reminder before it renews).

What States Have Narrow ARLs?

Fifteen states—Arkansas, Colorado, Iowa, Maryland, Missouri, Nevada, New Hampshire, New York, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Utah and Wisconsin—have narrow ARLs. These focus on professional home security contracts; health club or dance studio contracts; service contracts for repair of real or personal property; leases of personal property or business equipment; certain telecommunications contracts; and/or buyers’ clubs.

What States Have Broad ARLs?

Ten states—California, Connecticut, Florida, Georgia, Hawaii, Illinois, Louisiana, New Mexico, North Carolina, and Oregon—have broad ARLs that apply more generally to consumer and/or service contracts.

How Can Businesses Comply With Every ARL?

Some businesses tailor their practices to what is (and is not) required in a given state. Others use the strictest requirements from each ARL as the highest common denominators for their entire footprints. Although California’s ARL is generally regarded as one of the broadest and strictest, other ARLs have requirements that California’s does not. In light of the substantial volume of litigation in California, however, we will focus on its requirements for the remainder of this alert.

Automatic Renewals in California

What Does California’s ARL Require?

California’s ARL requires (1) “clear and conspicuous” disclosure, before an agreement is fulfilled, of “automatic renewal offer terms” or “continuous service offer terms”; (2) “affirmative consent” to “the agreement containing” those terms; (3) a retainable acknowledgment of those terms and any cancellation policy; and (4) a retainable notice of any “material changes” to those terms. See Cal. Bus. & Prof. Code § 17600 et seq. Recent amendments also added requirements regarding free gifts and trials and the ability to cancel agreements that are accepted online. See infra.

What Terms Must Be Disclosed?

California’s ARL requires that “automatic renewal offer terms” and “continuous service offer terms” be disclosed in a “clear and conspicuous manner.” Id. § 17602(a)(1). “Automatic renewal” is defined as “a paid subscription or purchasing agreement [that] is automatically renewed at the end of a definite term for a subsequent term,” and “continuous service” is defined as “a subscription or purchasing agreement [that] continues until the consumer cancels the service.” Id. §§ 17601(a), (e).

The “terms” of an “automatic renewal offer”—i.e., the terms that must be disclosed in a “clear and conspicuous manner”—are defined as follows:

  1. That the subscription or purchasing agreement will continue until the consumer cancels.

  2. The description of the cancellation policy that applies to the offer.

  3. The recurring charges that will be charged to the consumer’s credit or debit card or payment account with a third party as part of the automatic renewal plan or arrangement, and that the amount of the charge may change, if that is the case, and the amount to which the charge will change, if known.

  4. The length of the automatic renewal term or that the service is continuous, unless the length of the term is chosen by the consumer.

  5. The minimum purchase obligation, if any.

Id. §§ 17601(b)(1)–(5). Although there is no corresponding definition for the “terms” of a “continuous service offer,” it would be prudent to disclose, in a “clear and conspicuous manner,” the fact that the “subscription or purchasing agreement . . . continues until the consumer cancels the service.” Id. § 17601(e).

In addition, effective July 1, 2018, “[i]f the offer also includes a free gift or trial, the offer shall include a clear and conspicuous explanation of the price that will be charged after the trial ends or the manner in which the subscription or purchasing agreement pricing will change upon conclusion of the trial.” Id. § 17602(a)(1).

When Must Those Terms Be Disclosed?

The terms must be disclosed “before the subscription or purchasing agreement is fulfilled and in visual proximity, or in the case of an offer conveyed by voice, in temporal proximity, to the request for consent to the offer.” Id. § 17602(a)(1).

How Must Those Terms Be Disclosed?

Whether terms are disclosed in writing or orally, the disclosure must be “clear and conspicuous.” Id. § 17601(b). In the case of written disclosures, “clear and conspicuous” means “in larger type than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same size, or set off from the surrounding text of the same size by symbols or other marks, in a manner that clearly calls attention to the language.” Id. § 17601(c). And in the case of audio disclosures, “clear and conspicuous” means “in a volume and cadence sufficient to be readily audible and understandable.” Id.

What Kind of Consent Must Be Obtained?

California requires that consumers give “affirmative consent” to “the agreement containing” the automatic renewal or continuous service terms. As of July 1, 2018, that requirement was amended to make clear that it extends to “terms of an automatic renewal offer or continuous service offer that is made at a promotional or discounted price for a limited period of time.” Id. § 17602(a)(2). It should be noted that some states’ ARLs require disclosure but do not require an affirmative act of consent.

What Qualifies as “Affirmative Consent”?

Although California’s ARL does not define “affirmative consent,” the legislative history and recent enforcement actions are instructive. As can be seen in the California Senate’s Bill Analysis, two avenues for securing affirmative consent for purposes of California’s ARL were contemplated:

[I]n any automatic renewal offer made on an Internet Web page, the business [must] clearly and conspicuously disclose the automatic renewal offer terms prior to the button or icon on which the customer must click to submit the order. In any automatic renewal offer made on an Internet Web page where the automatic renewal terms do not appear immediately above the submit button, the customer must be required to affirmatively consent to the automatic renewal offer terms.

Analysis of 2009 Cal. S.B. No. 340 (Apr. 14, 2009).

Two recent cases filed by the City of Santa Monica are also noteworthy. See People v. Beachbody, LLC, No. 55029222 (Cal. Super. Ct.); People v. eHarmony, No. 17-cv-03314 (Cal. Super. Ct.). These cases resulted in consent decrees that require changes to the companies’ website disclosures, which are now required to include “check-boxes” to enable consumers to affirmatively consent to the automatic renewal terms. In this way, the consent decrees appear to reach even further than the California Bill Analysis requires, as the Bill Analysis suggests that placing the terms “above the submit button” would suffice. See S.B. 340 Sen., 4/14/2009.

A recent FTC action also bears mention. See FTC v. AdoreMe, Inc., No. 1:17-cv-09083-ALC, Dkt. No. 4 (S.D.N.Y. Nov. 30, 2017). Like California’s ARL, ROSCA is silent on what constitutes “express” consent. Nevertheless, in settling the action, AdoreMe agreed to obtain consent to any negative option feature “through a check box, signature, or other substantially similar method, which the consumer must affirmatively select or sign to accept the Negative Option Feature, and no other portion of the offer.”

Must an Acknowledgement Be Sent to Consumers?

California’s ARL requires that consumers receive acknowledgments of automatic renewal or continuous service terms. See id. § 17602(a)(3). The acknowledgment may be sent “after completion of the initial order.” Id. § 17602(e)(1).

What Must That Acknowledgement Look Like?

The acknowledgment must be in a format that is “capable of being retained by the consumer” and must include “the automatic renewal or continuous service offer terms, cancellation policy, and information regarding how to cancel.” Id. § 17602(a)(3). With respect to the cancellation policy, the acknowledgement must also “provide a toll-free telephone number, electronic mail address, a postal address if the seller directly bills the consumer, or it shall provide another cost-effective, timely, and easy-to-use mechanism for cancellation. . . .” Id. § 17602(b). Finally, as of July 1, 2018, “[i]f the automatic renewal offer or continuous service offer includes a free gift or trial, the business shall also disclose in the acknowledgment how to cancel, and allow the consumer to cancel, the automatic renewal or continuous service before the consumer pays for the goods or services.” Id. § 17602(a)(3).

Do Customers Have Specific Cancellation Rights?

As of July 1, 2018, where a consumer accepts an automatic renewal or continuous service offer online, that consumer “shall be allowed to terminate the automatic renewal or continuous service exclusively online, which may include a termination email formatted and provided by the business that a consumer can send to the business without additional information.” Id. § 17602(c) (emphasis added).

Do Customers Need to Receive Renewal Reminders?

California’s ARL does not require that businesses remind customers that contracts are about to renew. It should be noted, however, that several of the other broad ARLs do require renewal reminders in certain circumstances.

Can Businesses Change the Terms of the Agreement?

California’s ARL does not prohibit businesses from changing the terms of covered agreements, but it does require that businesses provide notice of any “material change in the terms of the automatic renewal or continuous service that has been accepted by a consumer in [California.]” Id. § 17602(d). Notably, the plain language of the statute does not purport to require notice of changes—even material changes—to the agreement generally. Rather, it appears to require notice only of material changes to “the terms of the automatic renewal or continuous service.” Id. Where such a change is made, the statute requires that businesses “provide the consumer with a clear and conspicuous notice of the material change and provide information regarding how to cancel in a manner that is capable of being retained by the consumer.” Id. Importantly, that notice must be “clear and conspicuous,” id., which as noted above is defined in a way that imposes specific requirements for the presentation of the changed terms.

Is There a Safe Harbor Under the California ARL?

There is a safe harbor from the ARL’s civil remedies for “good faith” compliance with the ARL’s provisions. See id.§ 17604(b). Courts have yet to address what does (or does not) constitute “good faith” compliance under the statute, and at least one court has held that the issue presents a question of fact not amenable to dismissal at summary judgment. See Roz v. Nestlé Waters N. Am., Inc., No. 16-4418, 2017 WL 6942661, at *3 (C.D. Cal. Dec. 6, 2017).

Are Any Contracts Excluded from California’s ARL?

California’s ARL has several exemptions, including ones for services that are provided by businesses that are (a) “doing business pursuant to a franchise issued by a political subdivision of the state or a license, franchise, certificate, or other authorization issued by the California Public Utilities Commission”; (b) “regulated by the CPUC, the Federal Communications Commission, or the Federal Energy Regulatory Commission”; (c) “regulated by the Department of Insurance”; (d) certain regulated “[a]larm company operators”; (e) “[a] bank, bank holding company, or the subsidiary or affiliate of either, or a credit union or other financial institution, licensed under state or federal law”; and (f) certain regulated “[s]ervice contract sellers and service contract administrators[.]” Cal. Bus. & Prof. Code §§ 17605(a)–(f).

Is There a Private Right of Action under California’s ARL?

Strictly speaking, there is no private right of action under California’s ARL. See Johnson v. Pluralsight, LLC, 728 F. App’x 674, 677 (9th Cir. Mar. 29, 2018) (“Because there is no private cause of action under the ARL, the district court properly dismissed Johnson’s ARL claim.”). However, private litigants can sue under California’s other consumer protection statutes for conduct that violates the ARL. See id. (“Permitting consumers to sue under the [Unfair Competition Law] for ARL violations fulfills [the ARL’s] objective.”).

What Remedies Are Available under California’s ARL?

Goods sent to consumers in violation of the ARL’s affirmative consent requirements are deemed “unconditional gifts.” Specifically, the statute provides:

In any case in which a business sends any goods, wares, merchandise, or products to a consumer, under a continuous service agreement or automatic renewal of a purchase, without first obtaining the consumer’s affirmative consent as described in Section 17602, the goods, wares, merchandise, or products shall for all purposes be deemed an unconditional gift to the consumer, who may use or dispose of the same in any manner he or she sees fit without any obligation whatsoever on the consumer’s part to the business, including, but not limited to, bearing the cost of, or responsibility for, shipping any goods, wares, merchandise, or products to the business.

Cal. Bus. & Prof. Code § 17603.

As the language of Section 17603 suggests, the “unconditional gift” remedy appears limited on its face to instances where fungible “goods, wares, merchandise, or products” are sent to customers. Id. As one court observed, “a consumer could keep a good or product that is sent in violation of the Automatic Renewal Law, but there is nothing to keep when it is only a service that is provided.” Mayron v. Google, Inc., No. 1-15-CV-275940, 2016 WL 1059373, at *3 (Cal. Super. Ct. 2016). Drawing the line between tangible goods and intangible services will be a point of contention in automatic renewal cases going forward. See, e.g., Johnson, 728 F. App’x at 677 (“Assuming arguendo that section 17603 is limited to tangible products, [defendant]’s course slides and sample codes amply qualify as tangible products.”).

Has There Been Litigation under the California ARL?

California’s ARL has been a significant source of class action litigation that has targeted a broad range of industries, including retailers, food distributors, technology companies, and entertainment enterprises. New cases are threatened or filed regularly, including by federal and state regulators. In light of the recent statutory amendments and several seven-figure class action settlements, we expect to see continued interest in these archetypal “gotcha” class actions.

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