Category: Uncategorized

A New York federal district court dismissed the counterclaims of the defendants in a CFPB enforcement action claiming that, pursuant to the Equal Access to Justice Act (EAJA), they were entitled to fees and expenses incurred.

The CFPB’s complaint alleged that the defendants created and operated an illegal debt collection scheme.  In their answers, the defendants asserted that the CFPB’s investigation and lawsuit were unjustified and in violation of the EAJA and counterclaimed for their “fees, costs, and other further relief.”

The EAJA provides, that subject to any statutory exceptions, a court shall award to “a prevailing party” other than the United States “fees and other expenses” other than non-attorney fees and expenses awarded under the EAJA that such party incurred in a civil action (other than a tort case) brought by the United States “unless the court finds that the position of the United States was substantially justified or that special circumstances make an award unjust.”

The court dismissed the defendants’ counterclaims as procedurally improper because the defendants could not be considered “prevailing parties.”  According to the court, the counterclaims were “premature fee requests” and under the EAJA, “the proper vehicle for a fee request is an application showing eligibility after a party has prevailed—not as a counterclaim within an answer.” (emphasis included)

A party entitled to an award under this provision of the EAJA must be an individual with a net worth that did not exceed $2 million at the time the civil action was filed, or an owner of an unincorporated business, or any partnership, corporation, association, unit of local government, or organization, with a net worth that did not exceed $7 million at the time the civil action was filed, and which did not have more than 500 employees at the time the civil action was filed.  However, a 501(c)(3) tax-exempt organization or a cooperative association as defined in the Agricultural Marketing Act may be a party regardless of its net worth.

This article was written by John L. Culhane, Jr. of Ballard Spahr LLP

Much of the recent discussion regarding Prop 65 has been focused on the regulatory changes going into effect in August of 2018. And that makes sense since there will be significant changes to the warnings, responsibility, and labeling obligations on product websites. There is, however, other activity that may result in a more profound change as to which chemicals require Prop 65 warnings.  As we have discussed in the past (see prior post here), there has been litigation in California state court addressing the appropriateness of adding the pesticide ingredient Glyphosate to the Prop 65 list.

Specifically, a CA Superior Court in Fresno rejected Monsanto’s claim that Glyphosate had no business being on the list because the State Office of Environmental Health Hazard Assessment (OEHHA) as well as the U.S. EPA and other regulators had determined that Glyphosate had not been found to increase the risk of cancer. Despite this development, OEHHA decided to list the chemical and supported this decision on the grounds that in 2015 the International Agency for Research on Cancer (IARC) concluded that Glyphosate is a “probable” carcinogen. Monsanto has appealed the Superior Court ruling, but meanwhile the California Supreme Court refused to stay the obligation of Glyphosate manufacturers to warn under Prop 65 and so those warnings were required as of July 7, 2017.

While the-above summarized State court action appeal is pending, a Federal action (Nat’l Ass’n of Wheat Growers, et al. v. Zeise, et al., No. 2:17-cv-02401WBS) was commenced in the Eastern District of California in November 2017. Plaintiffs, a self-described national coalition of farming interests, food producers, Glyphosate manufacturers, and others (e.g., the Missouri Chamber of Commerce) came together to claim that California, through its mandate of requiring Prop 65 warnings on products that contain listed chemicals – despite as argued in the Monsantocase, that the required warning is factually wrong – has violated and continues to violate the First Amendment’s guarantee of free speech and the Supremacy Clause of the U.S. Constitution.

Plaintiffs argue (1) that the First Amendment prohibits the government from compelling individuals or entities to engage in speech; and (2) that the Supremacy Clause requires State laws that conflict with Federal laws to be preempted. Because Glyphosate is a herbicide, its labeling is governed by certain Federal regulations implemented and enforced by the EPA. They have requested that the Federal court declare OEHHA’s action to be improper and enjoin OEHHA from continuing to list Glyphosate as a chemical that requires a Prop 65 warning.

Senior Judge William B. Shubb has ordered the parties appear for a hearing on February 20, 2018 to argue the plaintiffs’ motion for preliminary injunction.

Judge Shubb also granted a petition of 11 State Attorneys General (representing Missouri, Idaho, Indiana, Iowa, Kansas, Louisiana, Michigan, North Dakota, Oklahoma, South Dakota, and Wisconsin – and it should be noted that all but the Iowa Attorney General are Republications, but Iowa is a major producer of corn) to file a friend of the court brief in the case.  In that amicus brief, the Attorneys General, led by Missouri, pointed out that California’s Prop 65 mandated warnings impede the duty of States to protect their own citizen-consumers as well as States’ economic freedoms to stimulate growth as local policymakers see fit.

It has long been the complaint of businesses not directly selling into California that the Prop 65 warning requirement on their products is fundamentally unfair. The Attorneys General amicus brief also supports these business concerns by explaining:

“The mandate [Prop 65 warnings]  undermines consumer-protection laws passed by other States because it requires nonresident businesses to label products with false, misleading information, contrary to the consumer-protection policies of other States. The requirement encroaches on the equal sovereignty of other States and threatens to inflate food prices for all Americans, especially the neediest, without any plausible justification.

The First Amendment injuries identified by Plaintiffs are heightened because they adversely impact the sovereign interests of other States in at least two ways. First, by requiring false or misleading statements about glyphosate products, California’s speech mandate imposes confusing and potentially inconsistent obligations on nonresident businesses that are bound by other States’ consumer-protection laws not to make false and misleading statements about their own products. Second, the speech mandate impairs consumer-protection efforts of the States that require sensible health-and-safety disclosures by contributing to the well-known phenomenon of disclosure fatigue.”

Proposition 65, routinely criticized for its overbreadth, is the quintessential example of a regulation that causes disclosure fatigue.

The Attorneys General further assert that studies have confirmed what common sense dictates: the more ubiquitous disclosures become, the less effective they are.

Because many businesses cannot readily separate California-bound products from other products, the Prop 65 warning mandate encourages those businesses that do not withdraw entirely from California markets to place the required disclosure on all merchandise, regardless of the ultimate destination. That torrent of additional disclosures in States outside California decreases the efficacy of disclosures already required by those States. When disclosures become the rule, not the exception, consumers tend to ignore them. An otherwise useful tool becomes transformed into nothing more than irritating ambient noise. By providing a strong incentive to print misleading, unnecessary disclosures on products sold in other States, California’s regulation dilutes the effectiveness of other States’ mandated disclosures and undermines consumer-protection efforts in those States.

The amicus brief also argues that by creating a regulation with such a broad adverse economic reach, California has twisted the effect of the consumer-protection laws of other States. The Prop 65 regulation deprives those States of their powers to promote the general welfare of their citizens and therefore encroaches on their sovereignty.

Not all Prop 65 chemicals have the same issues that exist with Glyphosate and the axiom that “bad facts make bad law” may come into play here, such that any ruling by the Federal court may be narrow and will certainly be appealed. Notwithstanding that likelihood, the trial court’s ruling on the preliminary injunction motion will be important and perhaps a first step in getting both the California courts and legislature to take a hard look at where Prop 65 has serious flaws and requires a major overall.

We will be following this case closely and reporting on it accordingly.

This article was written by Daniel J. Herling of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

On January 9, 2017, the Supreme Court denied certiorari in United States ex rel. Purcell v. MWI Corp., No. 16-361, ending one of the longest running False Claims Act cases in history—18 years and 136 days, to be exact. We followed this case closely in previous blog posts here, and here. The case is significant because it held that there is no False Claims Act liability for a contractor’s objectively reasonable interpretation of an ambiguous contract provision. On the one year anniversary of the Supreme Court’s denial of certiorari, this objectively reasonable D.C. Circuit opinion remains good law.

The D.C. Circuit opinion has been cited with approval in multiple cases. E.g., United States v. Celgene Corp., 226 F. Supp. 3d 1032, 1051 (C.D. Cal. 2016); United States ex rel. Johnson v. Golden Gate Nat’l Senior Care, L.L.C., 223 F. Supp. 3d 882, 891 (D. Minn. 2016). See also United States ex rel. Donegan v. Anesthesia Assocs. of Kansas City, PC, 833 F.3d 874, 879 (8th Cir. 2016). The full circuit and district court breakdown of citations is as follows:

• 6th Circuit – 1

• 8th Circuit – 1

• N.D. Alabama – 1

• C.D. California – 1

• D.C. District Court – 5

• S.D. Florida – 2

• S.D. Iowa – 1

• D. Minnesota – 1

• S.D.N.Y. – 1

• N.D. Ohio – 1

• D.S.C. – 1

• N.D. Texas – 1

• S.D. Texas – 1

In MWI, the government sought to put a small, family-owned company out of business simply because it interpreted an undefined term on a certificate different than how the Department of Justice defined the term decades after the fact. We anticipate the MWI decision will remain front-and-center in implied certification cases involving ambiguous or unclear statutes, regulations, or contractual provisions

This article was written by Matt Turetzky of Sheppard, Mullin, Richter & Hampton LLP

Unfortunately, union corruption continues across the country. According to a recent report by the Detroit Free Press, “U.S. Department of Labor documents obtained by the Free Press show embezzlement from hundreds of union offices nationwide over the past decade. In just the past two years, more than 300 union locations have discovered theft, often resulting in more than one person charged in each instance, the records show. Two UAW incidents uncovered in 2017, one in Michigan and the other in New Jersey, exceed the $1-million mark, among the biggest labor theft cases in a decade.”

The cases examined in the report involved thefts/embezzlement ranging from thousands to millions of dollars – usually of members’ dues funds. The problem was not isolated to any particular union or industry, as unions involved with everything from healthcare to government services to manufacturing are implicated.  The report states, “The Labor Department records show that union theft happens in big cities and tiny towns in all corners of the country. Usually, the crimes are committed by the union local’s bookkeeper, president or treasurer. Gambling addiction is an issue at times. Frequently, money goes to buy luxury items.”

Events such as these are uncovered almost weekly. The report is a somber reminder that for better or worse, union members’ dues money is not always used in a way the workers had intended.

This article was written by David J. Pryzbylski of Barnes & Thornburg LLP

For more union news, check out our Labor and Employment Law Page.

One source of reluctance on the part of lawyers to engage in social media for business purposes is the fear of running afoul of ethics rules. To me, this is more an excuse given by those who don’t want to join the 21^st century marketing game to justify their fear of the unknown.

But like the first guy who climbed off his horse and into a car, you’ll find that using social media can get you where you want to go much faster. Your clients are already there, which means you should be, too.

Fear of technology is easily overcome with knowledge. Or, if you don’t have the slightest inclination to become knowledgeable about social media, there are several good law firm marketing companies that work specifically with attorneys and are well aware of the ethics rules we must all abide by. Hire one of them.

But don’t think you can hide from technology forever. Bar associations are starting to require attorneys to have basic knowledge of technology and social media. In 2015, the New York Bar issued new guidelines requiring attorneys to “be conversant with, at a minimum, the basics of each social media network that a lawyer or his or her client may use.” In South Carolina, an attorney was suspended because she refused to have an email address.

The Big 4

In general, concern about ethics and social media focus on four areas: advertising, confidentiality, discovery and solicitation. While every state’s bar rules are unique, here’s how you can avoid committing some common mistakes in these areas:

Advertising. A good rule of thumb for attorney advertising is that if it’s not allowed by your state bar in traditional media channels, it’s probably not going to fly on social media either. Be sure you know the rules that govern commercial speech when it comes to attorney advertising. You can avoid any potential conflicts by avoiding commercial speech altogether in your posts — and really, that’s not the purpose of being on social media anyway. It’s all about building a connection by sharing the knowledge you already have with people who need that knowledge. They will find you.

Confidentiality. Breaching confidentiality doesn’t happen that often, but when it does, it’s usually because a lawyer got a little ahead of themselves (or full of themselves?) and posted too many details about a client or a case. Never use client names in your post — in fact, don’t talk about clients at all. Use general terms when you want to post about a huge jury verdict or settlement — “Congratulations to our trial team on winning a $10 million jury verdict in a talcum powder ovarian cancer case.” That’s all you need to say. Anyone seeing that who thinks they have a similar claim will be in touch. You need to use legal disclaimers on all of your social media accounts.

Discovery. Gaining access to social media information can be highly beneficial to your case. But how you can obtain that information varies by state. In many instances, you must “friend” someone to get access to their posts on Facebook. The New York Bar allows you to do this for the purposes of discovery. However, Pennsylvania does not. Before you make a friend request in order to gain information for a case, check with your state bar association to see if it’s allowed or if you must disclose certain information when making the request.

Solicitation. Whenever you ask someone to contact you in a post, you are generally considered to be engaging in commercial speech for the purpose of soliciting business. The State Bar of California draws a fine distinction here, categorizing general statements like “check out my website” or “call me for a free consultation” as solicitation. However, if you post that you have just written an e-book on a particular legal subject, you can ask people to contact you for a free copy. Best practice here is to know your state bar’s restrictions on commercial speech and examine your posts before you put them up for any gray areas. You are responsible for everything that is posted on your social media accounts, so be sure to read and edit all information before it is posted.

This article was written by Stephen Fairley of The Rainmaker Institute

Retiree benefits are a huge issue for many employers – from pure economic cost to administrative burdens. Accordingly, some companies have moved to limit or cut such benefits entirely. Of course, when doing so, companies need to navigate various legal issues, including under the Employee Retirement Income Security Act (ERISA) and, to the extent a union is in the picture, the National Labor Relations Act and/or Labor Management Relations Act (LMRA). A federal court decision this month illustrates some of the complexities a company may encounter when attempting to reduce or eliminate retiree benefit costs.

In a case that was initiated against PPG Industries, Inc. back in 2005, numerous retirees of various unions – including the United Steelworkers and United Automobile Workers – allege that PPG violated ERISA and the LMRA by breaching collective bargaining agreements that provided lifetime health insurance benefits to the retirees with the company bearing the full cost of the benefits. Specifically, the plaintiffs allege that PPG violated the agreements by shifting some of the cost away from the company and to the retirees. On Jan. 5, the plaintiffs scored a win when a federal judge certified the plaintiffs as a class. That is, the lawsuit is formally progressing as a class action.

PPG is hardly the only company facing litigation like this. For example, just last year the Steelworkers union secured a victory when it defeated a motion to dismiss and forced a company to arbitration over claims the employer slashed benefits for retirees in violation of a labor agreement.

Accordingly, companies considering or implementing modifications to retiree benefits must thoroughly account for the myriad of legal issues that may be implicated by such changes. Developing a thoughtful strategy around the various laws in play may help limit possible legal obstacles or exposure.

This article was written by David J. Pryzbylski of Barnes & Thornburg LLP

Recently, we have seen several news stories discussing a rumored government proposal to eliminate H-1B extensions beyond the standard six-year limit. No such action has yet been taken, and to date H-1B visa holders may continue to request extensions based on the provisions of the American Competitiveness in the Twenty-First Century Act (AC21). Under current law, extensions beyond the initial H-1B period of six years are available to foreign nationals with pending green card petitions. The law that enables beyond-limit extensions, commonly known as AC21, mainly benefits persons born in India and China, who are subject to lengthy green card backlogs.

The proposal has been reported by the press, often with attention-grabbing headlines. The articles report that the Trump administration and Department of Homeland Security (DHS) are evaluating whether language used in sections of AC21 allows the government to stop granting H-1B extensions beyond the six-year limit.

We anticipate that the Trump administration and DHS will ultimately conclude that they do not have the authority to halt H-1B extensions under the parameters of AC21. While the immigration authorities have broad discretion to grant immigration benefits, they cannot act in contradiction to the intent of the law.

According to press reports, the rumored proposal would contradict the clear language of AC21. If the administration does move forward with the proposal—which, again, is only a rumor at present—we anticipate significant litigation in defense of AC21.

This article was written by Miguel A. Manna of Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

The Commodity Futures Trading Commission (CFTC or Commission) Chairman J. Christopher Giancarlo issued a statement this week on virtual currencies.  The CFTC also released a backgrounder on its oversight of and approach to cryptocurrency futures markets.

In his statement, Chairman Giancarlo noted that the Market Risk Advisory Committee will meet on January 31, 2018 to consider the process of self-certification of new products and operational rules by Designated Contract Markets (DCMs) under the Commodity Exchange Act (CEA) and the rules and regulations thereunder.  The meeting will take place the week after a January 23, 2018 meeting of the CFTC Technology Advisory Committee, which will consider the related challenges, opportunities and market developments of virtual currencies.

Chairman Giancarlo noted that the CFTC declared virtual currencies to be a “commodity” subject to oversight under its authority under the CEA in 2014. Since then, the CFTC has taken enforcement action, issued proposed guidance and warnings, addressed a Ponzi scheme and produced consumer information in the virtual currency context.  He reinforced that the CFTC continues to have an important role to play in the regulation of virtual currencies, and will seek to promote responsible innovation in a manner consistent with its statutory mission to enhance derivative trading markets and prohibit fraud involving commodities in interstate commerce.

The CFTC backgrounder includes an overview of the regulatory oversight of and jurisdiction over cryptocurrencies, noting that U.S. regulation of cryptocurrencies has evolved into a multifaceted, multi-regulatory approach.  It confirms the CFTC’s belief that the responsible regulatory response to virtual currencies involves fostering consumer education, asserting its legal authority over virtual currency derivatives to prevent fraud and manipulation, gathering market intelligence, enforcing the law and prosecuting fraud, abuse, manipulation or false solicitation in markets for virtual currency derivatives and underlying spot trading, and coordinating with other federal regulatory bodies.

After noting that the Chicago Mercantile Exchange Inc. (CME) and the CBOE Futures Exchange (CFE) self-certified new contracts for Bitcoin futures and the Cantor Exchange self-certified a new contract for Bitcoin binary options, the backgrounder unpacks the self-certification process, which was designed by Congress to give DCMs the initiative to certify new products, consistent with a DCM’s role as a self-regulatory organization. The self-certification process, however, does not provide for public input, the creation of separate guaranty funds for clearing or value judgments about the underlying spot market, and there are limited grounds for the CFTC to “stay” self-certification.  In regard to the CME’s and CFE’s self-certifications, the backgrounder notes that no grounds for “staying” self-certification were evident, but had it even been possible, blocking self-certification would not have stemmed interest in virtual currency derivatives and would have ensured that the underlying spot markets operated without federal regulatory surveillance.

The backgrounder confirms, however, that the CFTC staff has engaged in a “heightened review” with the DCMs and worked collaboratively through drafts of the terms of the CME and CBOE Bitcoin futures contracts to address issues.  Heightened review involves derivatives clearing organizations setting substantially high margin for cash-settled futures, DCMs setting large trader reporting thresholds, DCMs entering into information sharing agreements with spot market platforms, DCMs monitoring data from cash markets with respect to price settlements and identifying anomalous moves in the cash markets compared to the futures markets, DCMs agreeing to engage in inquiries, DCMs agreeing to coordinate with CFTC surveillance staff on trade activities, and DCMs coordinating product launches so that the CFTC’s market surveillance branch can monitor developments.  The backgrounder notes that while engaging in this heightened review, the CFTC seeks to look out for virtual currency market participants and consumers and protect the public interest, while recognizing that major global banks and brokerages that are clearing members can look out for their own commercial interests in choosing what to trade, how much margin to require and how actively to participate in derivatives clearing organization risk committees.

This article was written by Michael F Mavrides and Divya Taneja of Proskauer Rose LLP

On December 27, 2017, the CFPB released its biennial report on the state of the credit card market. The CFPB’s report found the market to be stable and growing steadily. In particular, the Bureau found that the cost of credit card credit to consumers remains stable overall, in terms of both total costs and the structure of those costs. Some trends noted in the report include the growing use of secured credit cards – which require a cash security deposit and are often used by consumers to build credit history – and the significant proportion of consumers who are interacting with their credit card accounts online and through mobile applications. The report does not make specific recommendations or signal any intent by the CFPB to pursue major regulatory initiatives with regard to credit cards.

The report’s findings included the following.

• Card costs remain stable: Consistent with its previous biennial credit card reports, the CFPB’s report discussed costs to consumers in terms of a total cost of credit (“TCC”) metric first used in the Bureau’s 2013 report. The report found that in 2015 and 2016, TCC remained “broadly stable” for network-branded and private label credit cards overall. The report noted an exception in the case of interest rates on variable rate accounts, which it attributed to increases in background index rates over the past two years. The overall composition of consumer costs remained “stable” as well, with 18% of TCC consisting of fees and 82% consisting of interest charges. The Bureau’s previous 2015 report had found 20% and 80%, respectively.
• Total amount of available card credit lines has increased post-crisis: According to the report, consumers had more than $4 trillion in card credit lines as of mid-2017. This figure is the product of steady increases in total credit line – both overall and for every credit tier – since the end of the financial crisis of 2008–09.  However, this total remains below the peak of $4.4 trillion in mid-2008.
• New credit card originations have increased by approximately 50 percent since 2010: The report found that consumers opened approximately 110 million new credit card accounts in 2016, roughly 50 percent higher than 2010 and a higher number than in any year since 2007.  However, account originations have not yet returned to pre-crisis levels.
• Average credit card debt increased 9 percent over the last two years: According to the CFPB, the per-consumer credit card debt of cardholding consumers increased by 9 percent since the Bureau’s 2015 report. The report noted that average balances of consumers with “lower” credit scores (660 or below) have increased “substantially more” than they have for other consumers, with an increase of 26 percent in average balances for cardholders with “deep subprime” scores of 579 or less in the past two years.
• More than 60 percent of active credit card accounts are enrolled in online services: The report found that increasing numbers of consumers are engaging with their credit card accounts online, including by going online to track spending and pay their credit card bills. According to the Bureau, over 60 percent of active accounts issued by mass market issuers were enrolled in online account servicing portals in 2016. The report also found that one-fifth of active accounts in the CFPB’s data set were enrolled in smartphone-based account servicing applications; among the network-branded card accounts in the data set, one-third were enrolled in mobile servicing apps.
• Cardholding by consumers with lower credit scores remains below pre-crisis levels: The CFPB found that around 169 million consumers had at least one credit card open as of mid-2017, and the average number of cards held by cardholders has increased in recent years for all credit tiers except the report’s “superprime” tier (scores of 720 or greater). As a group, consumers with “higher” credit scores (above 660) have returned to pre-crisis rates of network-branded cardholding. However, the report noted that cardholding remains below pre-crisis levels among consumers with lower credit scores, despite “significant recent growth.”
• Secured card originations have increased significantly: Secured credit cards accounted for roughly 7 percent of all cards originated by consumers between the ages of 21 and 34. According to the CFPB, card issuers represented in the CFPB’s data set originated 7 percent more new secured cards in 2016 than in 2015. Much of this growth was attributable to consumers with lower credit scores; issuers originated roughly 25 percent of new network-branded secured cards to consumers with a deep subprime score or no score. 

This article was written by Luis Urbina of Covington & Burling LLP