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Legislation Enabling Policyholders to Obtain Insurance Coverage for Coronavirus Claims is Constitutional Part 1

On top of its human toll, the coronavirus pandemic has had massive economic effects.  Stay-at-home orders, which remain in place in much of the United States, have resulted in massive layoffs, spiraling claims for unemployment compensation, and unprecedented federal aid.

Many businesses affected by the pandemic have turned to their insurers seeking “business interruption” coverage.  As its name suggests, this coverage typically reimburses the policyholder for costs incurred when the business is unable to open.  Insurers have denied policyholders’ pandemic-related claims, contending that they only have to cover business interruption that results from a “physical injury” and that the damage that results from infestation with the coronavirus or a governmental shutdown order does not constitute “physical injury.”  Insurers have also cited the exclusions in many of their policies that purport to bar coverage for virus-related injuries.

Legislative Responses to the Crisis

One response to the insurance industry’s position has been introduction of legislation voiding virus exclusions and/or defining physical injury to include coronavirus.  New Jersey, Massachusetts, Ohio, New York, Pennsylvania, and South Carolina are all considering such legislation.  The proposed bills generally provide that, notwithstanding any other law or policy language to the contrary, every insurance policy that insures against loss or damage to property which includes the loss of use and occupancy and business interruption shall be construed to include coverage for business interruption resulting from COVID-19.  The bills typically provide mechanisms for insurers to seek reimbursement from a state established and managed fund for losses paid related to COVID-19.

Insurance Industry Responses to the Proposed Legislation

Predictably, the insurance industry has objected to this legislation.  For example, in a recent interview, Evan Greenberg, CEO of Chubb, said in an interview on CNBC state governments can’t force insurance companies to cover incidents not included in the policy.  “You can’t just retroactively change a contract. That is plainly unconstitutional,” Greenberg told “Mad Money” host Jim Cramer.  See https://www.cnbc.com/2020/04/16/chubb-ceo-making-insurers-cover-pandemic-losses-is-unconstitutional.html.

Law firms that defend insurers have similarly argued that “This proposed legislation …., is unfair and is likely unconstitutional, as it appears to run afoul of the Contracts Clause of the Constitution.”   That Clause prohibits States from “pass[ing] any . . .  Law impairing the Obligation of Contracts . . . .”  U. S. Const., Art. I, Sec. 10.  The insurer lawyers contend that “the proposed legislation would substantially impair insurance policies, as [it] would operate to rewrite policies to cause them to cover a risk they do not currently cover.…”   While acknowledging that the Supreme Court has upheld state laws that impair contracts, so long as they are reasonably tailored to fulfill a legitimate interest, insurer counsel contend that such laws are still unconstitutional.  Counsel claim that the proposed laws do not fulfill a legitimate interest because they “arguably benefit[] only a narrow class of businesses; the public at-large is only an indirect beneficiary.”  Id.  And counsel assert that the proposed laws are not “appropriate and reasonable” because they “attempt[] to shift the responsibility of providing financial assistance to small businesses from the government to certain insurance companies. . . .” Id.

Why the Insurance Industry Is Wrong about the Contracts Clause

This analysis is simply mistaken.  The case law interpreting the Contracts Clause demonstrates that legislation designed to provide relief to policyholders is constitutional.

As discussed below, under the cases, courts have established a balancing test that weighs the extent to which the challenged legislation contravenes contractual expectations against the purpose of the legislation and the means used to achieve that purpose.  Under that test, the proposed legislation is constitutional.

Basic Principles

The range of state legislative actions that can affect contractual relationships is broad. For instance, a state statute may render a contract wholly illegal.  See Stone v. Mississippi, 101 U.S. 814, 819 (1879) (upholding state statute outlawing lottery against claim that it violated contract rights of lottery company).  Or a statute may directly change the term of a contract.  E.g., United States Trust Co. v. New Jersey, 431 U.S. 1, 3 (1977) (state law abrogated covenant in contract with holders of state bonds); Home Bldg. & Loan Ass’n v. Blaisdell, 290 U.S. 398, 416 (1934) (state law modified foreclosure provisions in mortgages).  Even a law that has nothing to do with either the express terms of the contract or its subject matter can affect the parties’ allocation of risk, such as a law that changes the statute of limitations for contract actions.  See J. Ely, Jr., Whatever Happened to the Contract Clause?, 4 Charleston L. Rev. 371, 377 & n.48 (2010) (discussing Contracts Clause cases involving statutes of limitations).

Yet, as the Supreme Court has made clear, “it is not every modification of a contractual promise that impairs the obligation of contract under federal law.”  City of El Paso v. Simmons, 379 U.S. 497, 506–07 (1965).  Even though the language of the Contracts Clause is  “facially absolute,” Energy Reserves Group v. Kansas Power & Light Co., 459 U.S. 400, 410 (1983), “the prohibition against impairing the obligation of contracts is not to be read literally,” Keystone Bituminous Coal Ass’n v. DeBenedictis, 480 U.S. at 502.  Rather, “[t]he States must possess broad power to adopt general regulatory measures without being concerned the private contracts will be impaired, or even destroyed, as a result.”  United States Trust Co. v. New Jersey, 431 U.S. at 22.  In other words, the ban on impairment of contracts “must be accommodated to the inherent police power of the State ‘to safeguard the vital interests of its people.’’’  Energy Reserves Group, 459 U.S. at 410, quoting Home Bldg. & Loan Ass’n v. Blaisdell, 290 U.S. at 434.

Though not specifically referenced in the Constitution, the “police power” gives state legislatures broad leeway to pass laws to protect the public health, safety, and welfare.  The classic case is Stone v. Mississippi, 101 U.S. 814 (1879).  There, a state statute outlawing lotteries was challenged by a company that had previously obtained a charter from the state to run a lottery.  Rejecting the challenge, the Court held that the state’s power to shield the public from the evils of gambling trumped the contract rights of the lottery company.  Id. at 819.  Over time, the definition of the police power expanded to include a wide variety of laws designed to protect the public.  See, e.g., Home Building & Loan Association v. Blaisdell, 290 U.S. 398, 444 (1934) (Great Depression “furnished a proper occasion for the exercise of the reserved power of the State to protect the vital interests of the community” by providing for mortgage relief for financially strapped homeowners); Manigault v. Springs, 199 U.S. 473, 480 (1905) (even if contract for sale of alcohol was permissible when made, state could later prohibit such sales without violating Contracts Clause).

As we’ll discuss in the next part of this post, since the New Deal, the Supreme Court has generally applied these principles to uphold state legislation against challenges brought under the Contracts Clause.  We’ll also discuss how these basic principles have been applied by lower courts in insurance coverage cases and why we think the proposed legislation passes muster under the Constitution.

© 2020 Gilbert LLP

ARTICLE BY Mark A. Packman of Gilbert LLP.
For more business policies & the coronavirus, see the National Law Review Insurance, Reinsurance, and Surety law section.

Veterans Affairs Case Offers Clarification on WPA Burden of Proof

In Sistek v. Dep’t of Veterans Affairs, 955 F.3d 948, 954 (Fed. Cir. 2020), the Federal Circuit clarified a federal whistleblower’s burden of proving retaliation when the discrimination he alleges is not specifically identified as a prohibited personnel action in the Whistleblower Protection Act of 1989 (“WPA”), 5 U.S.C. § 2302(b)(8). The WPA protects federal employees who disclose evidence of illegal or improper government activities. Under the WPA, an agency may not take or threaten to take certain personnel actions because of a protected disclosure by an employee.

This blog reviews the elements of a WPA claim, then discusses how Sistek affects these proof requirements when the retaliation consists, in part, of subjecting the employee to an internal investigation.

Background on the Whistleblower Protection Act

To state a claim under WPA, an employee must allege that (1) there was a disclosure or activity protected under the WPA; (2) there was a personnel action authorized for relief under the WPA; and (3) the protected disclosure or activity was a contributing factor to the personnel action. See 5 U.S.C. § 1221(e)(1). If the appellant makes out a prima facie case, the agency is given an opportunity to prove, by clear and convincing evidence, that it would have taken the same personnel action in the absence of the protected disclosure. 5 U.S.C. § 1221(e)(2); see Fellhoelter v. Department of Agriculture, 568 F.3d 965, 970–71 (Fed. Cir. 2009). The WPA is a “remedial statute,” and its terms are to be construed “broadly.” Weed v. Soc. Sec. Admin., 113 M.S.P.R. 221, 227 (2010). See also Fishbein v. Dep’t of Health & Human Servs., 102 M.S.P.R. 4, 8 (2006) (“Because the WPA is remedial legislation, the Board will construe its provisions liberally to embrace all cases fairly within its scope, so as to effectuate the purpose of the Act.”).

A. Protected Disclosures

An employee engages in a protected disclosure when he or she makes a formal or informal communication of information that he or she reasonably believes evidences “any violation of any law, rule, or regulation” or “gross mismanagement, a gross waste of funds, an abuse of authority, or a substantial and specific danger to public health and safety.” 5 U.S.C. § 2302(b)(8)(A). The WPA also protects disclosures that an employee reasonably believes are evidence of censorship related to research, analysis, or technical information that the employee believes is, or will cause, either a “violation of law, rule or regulation” or “gross mismanagement, a gross waste of funds, an abuse of authority, or a substantial and specific danger to public health or safety.” Pub. L. No. 112-199, sec. 110, 126 Stat. 1465 (Nov. 27, 2012). Protected disclosures include those made to a supervisor or to a person who participated in the activity that was the subject of the disclosure, as well as those made “during the normal course of duties of an employee.” Id.; Day v. Dep’t of Homeland Sec., 119 M.S.P.R. 589, 599 (2013).

The WPA defines a “disclosure” very broadly. See 5 U.S.C. § 2302(a)(2)(D) (“‘disclosure’ means a formal or informal communication or transmission”). The relevant inquiry is whether an employee “reasonably believed” that the disclosure evinces a violation of any law, rule, or regulation; gross mismanagement; gross waste of funds; abuse of authority, or; a substantial and specific danger to public health or safety. See, e.g., Miller v. Dep’t of Homeland Sec., 2009 WL 1445346 (M.S.P.B. May 4, 2009) (employee’s criticisms of new policies were protected disclosures under WPA because he reasonably believed that these policy changes would pose a substantial and specific danger to public safety).

B. Personnel Action

Under the Whistleblower Protection Act, a “personnel action” may refer to:

  1. an appointment;

  2. a promotion;
  3. an action under chapter 75 of this title or other disciplinary or corrective action;
  4. a detail, transfer, or reassignment;
  5. a reinstatement;
  6. a restoration;
  7. a reemployment;
  8. a performance evaluation under chapter 43 of this title or under title 38;
  9. a decision concerning pay, benefits, or awards, or concerning education or training if the education or training may reasonably be expected to lead to an appointment, promotion, performance evaluation, or other action described in this subparagraph;
  10. a decision to order psychiatric testing or examination;
  11. the implementation or enforcement of any nondisclosure policy, form, or agreement; and
  12. any other significant change in duties, responsibilities, or working conditions;
  13. 5 USCA § 2302(a)(2)(A). The list is comprehensive, and covers a wide swath of adverse personnel actions.

C. Contributing Factor

Under the “knowledge/timing test,” an individual may demonstrate that a protected disclosure was a contributing factor to a personnel action through circumstantial evidence, such as evidence that the official taking the personnel action knew of the whistleblowing disclosure and took the personnel action within a period of time such that a reasonable person could conclude that the disclosure was a contributing factor in the personnel action. See Atkinson v. Dep’t of State, 107 M.S.P.R. 136, 141 (2007) (citing 5 U.S.C. § 1221(e)(1)).

However, whistleblowing activities may still be a contributing factor in the taking or failure to take a personnel action, even absent evidence that the deciding official had knowledge of the whistleblowing activities. See Dorney v. Dep’t of Army, 117 M.S.P.R. 480, 485–86 (2012). If the deciding official was influenced by one with knowledge of the whistleblowing activities, then such activities may be a contributing factor to personnel actions under the WPA. Id.

Sistek v. Dep’t of Veterans Affairs

A. Facts and Procedural History

Between 2012 and 2014, Leonard Sistek, Jr., then-director at the Department of Veterans Affairs (“VA”), disclosed information to agency staff, one of his supervisors, and the VA’s Office of the Inspector General (“OIG”) about inappropriate financial practice within the VA. Shortly thereafter, his supervisor appointed an Administrative Investigation Board (“AIB”) to investigate unrelated misconduct within the organization. His supervisor formally added Mr. Sistek as a subject of the investigation.

The AIB investigation found that the management team, which included Mr. Sistek, failed to report allegations about an inappropriate sexual relationship between two other staff members, and it recommended that Mr. Sistek receive “an admonishment or reprimand.” Consistent with the recommendation, Mr. Sistek’s supervisor issued a letter of reprimand in August 2014. In January 2015, without explanation, Mr. Sistek’s second-level supervisor rescinded the letter of reprimand and expunged it from Mr. Sistek’s record. In March 2015, the OIG confirmed that the concerns previously raised by Mr. Sistek were justified, and that the VA had violated appropriations law and used funds in unauthorized ways.

Mr. Sistek filed a complaint with the U.S. Office of Special Counsel (“OSC”), alleging whistleblower reprisal. After OSC issued a closure letter, Mr. Sistek filed an individual right of action appeal.

The Administrative Judge (“AJ”), considered whether the investigation and resulting letter of reprimand constituted prohibited personnel actions. The AJ determined that a retaliatory investigation is not a personnel action under the WPA and declined to order corrective action in favor of Mr. Sistek. See Sistek v. Dep’t of Veterans Affairs, 2018 MSPB LEXIS 3010 (M.S.P.B. Aug. 8, 2018). The AJ’s initial decision became the final decision of the MSPB, and Mr. Sistek petitioned the Federal Circuit for review.

B. The Federal Circuit’s Finding of Harmless Error

The Federal Circuit affirmed the Board’s decision. First, it reasoned that the WPA’s list of eleven specific personnel actions does not mention a “retaliatory investigation,” or indeed, “any investigation at all.” Sistek v. Dep’t of Veterans Affairs, 955 F.3d 948, 954 (Fed. Cir. 2020). Second, the court found that the investigation against Mr. Sistek did not significantly alter his job or working conditions, and thus did not fall within the last catchall provision of the WPA’s list of personnel actions. “[I]nvestigations may qualify as personnel actions ‘if they result in a significant change in job duties, responsibilities, or working conditions.’” Sistek, 955 F.3d at 955 (quoting S. Rep. No. 112-155, at 20 (2012)). The court elaborated that in certain circumstances, “an investigation alone could constitute a significant change in working condition,” or “a retaliatory investigation could contribute toward the creation of a hostile work environment that is actionable as a significant change in working conditions.” Id. In such circumstances, a retaliatory investigation would be a qualifying personnel action under the WPA. The Sistek Court held, however, that the investigation did not establish a significant change in working conditions because Mr. Sistek was interviewed once, did not offer evidence of a hostile work environment, and the resulting letter of reprimand was later rescinded and expunged. See id. at 956.

Third, the court considered Mr. Sistek’s effort to bring his claim within the rationale of controlling precedent on retaliatory investigations. See Russell v. Dep’t of Justice, 76 M.S.P.R. 317 (1997). In Russell, a whistleblower disclosed misconduct by two of his superiors, after which, one of the superiors initiated an investigation of the whistleblower’s conduct, resulting in disciplinary charges against the whistleblower and the whistleblower’s demotion. Id. at 321. The Board held that the agency investigation was evidence of prohibited retaliation because the investigation was “so closely related to the personnel action that it could have been a pretext for gathering evidence to retaliate, and the agency [did] not show by clear and convincing evidence that the evidence would have been gathered absent the protected disclosure.” Id. at 324. “That the investigation itself is conducted in a fair and impartial manner, or that certain acts of misconduct are discovered during the investigation, does not relieve an agency of its obligation to demonstrate by clear and convincing evidence that it would have taken the same personnel action in the absence of the protected disclosure.” Id. (citing 5 U.S.C. § 1221(e)(2)). In other words, if an agency investigation leads to an adverse personnel action, that investigation—coupled with the ensuing personnel action—is prohibited retaliation, unless the agency can demonstrate that it would have commenced the same investigation and taken the same personnel action absent the protected disclosure. “To here hold otherwise would sanction the use of a purely retaliatory tool, selective investigations.” Id. at 325.

The Sistek court acknowledged that Russell is “the Board’s foundational decision in this area,” and that the drafters of the Whistleblower Protection Enhancement Act (“WPEA”), Pub. L. No. 112-199, 126 Stat. 1465 (2012), intended that Russell would remain “governing law.” Sistek, 955 F.3d at 955. Applying Russell, the Sistek court found that the Board erred by failing to consider Mr. Sistek’s allegedly retaliatory investigation as part of its evaluation of the letter of reprimand. See id. at 957. Applying Russell, the VA’s investigation into Mr. Sistek was “so closely related” to the letter of reprimand “that it could have been a pretext for gathering evidence to retaliate.” Russell, 76 M.S.P.R. at 324. By “fail[ing] to apply Russell in evaluating the letter of reprimand,” the Board committed error. Sistek, 955 F.3d at 957.

Regardless, the Sistek Court held that the Board’s error was harmless. Id. The Court distinguished the present facts from the facts of Russell “because here there is no evidence that the official who initiated the allegedly retaliatory investigation had knowledge of any protected disclosures.” Id. The Court held that the supervisor who initiated the investigation lacked both actual and constructive knowledge of Mr. Sistek’s protected disclosures, and further, Mr. Sistek did not allege such knowledge. By failing to allege knowledge, Mr. Sistek could not demonstrate that his protected disclosure was a contributing factor to the alleged personnel action. In other words, even if the investigation and letter of reprimand were an adverse action, the WPA claim would have nonetheless failed because Mr. Sistek did not present sufficient evidence that his whistleblowing was a contributing factor in his adverse action.

Significance of Sistek

Sistek reaffirmed the holding of Russell, that a retaliatory investigation may be a prohibited personnel action if it leads to a significant change in job duties, responsibilities or working conditions; if it creates a hostile working environment, or; if it is “closely related” to a personnel action under the WPA. If Mr. Sistek had demonstrated facts to meet the knowledge/timing causation test, then the Court would have remanded the case to the Board to consider whether the investigation and letter together were qualifying personnel actions. And Russell would mandate that the answer is yes.

Further, if an employee can demonstrate that an investigation was undertaken in retaliation for a protected disclosure, the WPA provides that the Board may order corrective action that includes “fees, costs, or damages reasonably incurred due to an agency investigation” that is “commenced, expanded, or extended in retaliation” for a protected disclosure or activity—i.e., a retaliatory investigation. 5 U.S.C. §§ 1214(h), 1221(g)(4).

“So long as a protected disclosure is a contributing factor to the contested personnel action, and the agency cannot prove its affirmative defense, no harm can come to the whistleblower.” Marano v. Dep’t of Justice, 2 F.3d 1137, 1142 (Fed. Cir. 1993). The WPA thus continues to protect federal whistleblowers from retaliatory investigations, and Sistek merely provides a cautionary note about establishing the causation element of such a claim.

© Katz, Marshall & Banks, LLP
For more on whistleblower protections, see the National Law Review Criminal Law & Business Crimes section.

How Outdoor Sports and Recreation Operations Can Legally Protect Themselves in a Post COVID-19 Environment

There is a world history of pandemics that, at one point or another, crippled civilizations or dynasties.  In America’s more recent history, our country has experienced the Spanish Flu (1918 – 1920), the Asian Flu (1957 – 1958), and the H1N1 Swine Flu (2009 – 2010).  Though the Swine Flu is in our society’s most recent memory, the current Coronavirus infection and death numbers have already surpassed the total Swine Flu infection and death numbers.  The Coronavirus (COVID-19) has wreaked havoc on Americans and their interactions with each other because of the rapid rate at which the virus spreads.  Businesses have been impacted due to governmental orders to temporarily close or greatly reduce their services.  But with proper action, the spread of the virus will slow, the economy will rebound, and people will return to the extracurricular activities they enjoy.

As our country presses forward, the Coronavirus will change the way business owners conduct business – including operators in the outdoor sports and recreation business.

On May 5, 2020, North Carolina Governor Roy Cooper signed Executive Order No. 138 (the “Order”), which modifies Executive Order No. 121 (also known as The North Carolina “Stay at Home” Order).  The Order signaled the beginning of Phase 1, effective 5:00 p.m. on May 8, 2020, and the gradual reopening of North Carolina.  On May 20, 2020, Governor Cooper signed Executive Order No. 141, which outlines “Phase 2” of reopening North Carolina and will begin on May 22, 2020, at 5:00 p.m. (also known as the North Carolina “Safer at Home” Order).  The Order removes the distinction between essential and non-essential businesses, which were defined in Executive Order No. 121, thus allowing many businesses originally deemed non-essential to reopen.  Additionally, the Order explicitly provides that outdoor activities are allowed and that day camps and programs for children and teens are permitted to resume if they are able to adhere to certain guidelines and social distancing requirements.  Phase 2 allows for overnight camps for children and teens to resume, also as long as requirements are met.  As North Carolina moves through Phase 1 and into Phase 2, several state parks will reopen to the public.  Phase 2 does not permit Mass Gatherings of more than ten people indoors or more than twenty-five people outdoors nor does it allow for indoor fitness facilities to reopen.  Please click HERE for a summary of what Phase 2 allows and does not allow.

As outdoor sports and recreation businesses prepare to eventually reopen, business owners should evaluate their legal documents to determine if the business is adequately protected in the event of this continuing pandemic or another pandemic.  Two items to consider are the contractual language in event contracts and liability waivers.

Update Contractual Language Regarding Event Cancellation or Postponement

Outdoor sports and recreation businesses that provide services such as race organization, adventure vacations, guided excursions, exhibition management, or outdoor recreation conference organization have been forced to cancel or postpone events if the event was scheduled to take place during one of the many state or local government orders to shut down.

Businesses that plan these events often expend costs associated with the event as the planning progresses.  In light of the Coronavirus, most businesses should revise their contractual language involving event production, especially in cases where there is a “no refund” policy.

If the current contractual language does not address governmental orders related to government-ordered shutdowns, pandemics, or does not contain a force majeure provision, then the contract likely should be revised to include such provisions.

The contractual language that addresses pandemics and governmental orders to shut down can help limit the business’s financial liability in the event of event cancellation or postponement due to a future pandemic or governmental order to shut down.

Update Liability Waivers

Outdoor sports and recreational activities come with inherent risks for participants and sometimes even for event spectators.  When a participant or spectator gets injured during the activity, there is potential liability exposure to the other participants, the event organizers, and the activity providers.  Liability exposure is greatly reduced with a proper liability waiver signed by the participant or agreed to by the spectator before the activity begins.

There are several key components to an effective liability waiver.  One such component is the assumption of risk provision.  This provision identifies (1) the activity at hand, (2) the inherent risks associated with engaging in or observing such activity, and (3) that these risks cannot be eliminated no matter the level of care taken to avoid injury.

In light of the Coronavirus, outdoor sports and recreation business owners should examine the assumption of risk provision in their liability waivers.  They should seek legal guidance in adding language to provide that participants are at risk of coming into contact with certain communicable diseases or viruses similar to COVID-19.  The waiver should also be updated to reflect that participants agree to waive claims arising from injury, illness, or death associated with these assumed risks.

Many runners and tri-athletes are looking eagerly to the day when they will once again be allowed to sign up for and compete in races and events. Others are awaiting the return of guided white-water rafting trips, lazy days floating on a tube down a local river, or visiting an adventure center to challenge themselves on a ropes or zip line course.  Owners of these outdoor sports and recreation operations should use this time to get their documents in order to protect themselves against potential future lost revenue or liability in the event of another pandemic or if a government order to shut down occurs.

© 2020 Ward and Smith, P.A.. All Rights Reserved.

For more on the return of sports, see the National Law Review Entertainment, Art & Sports law section.

Good News for Companies: Seventh Circuit Holds Removal of Plaintiffs’ Biometrics Privacy Claims to Federal Court OK

In a widely watched case, the Seventh Circuit decided last week that companies that collect individuals’ biometric data may be able to defend their cases in federal court when plaintiffs allege a procedural violation of Illinois’ Biometric Information Privacy Act (BIPA).

In Bryant v. Compass Group USA, Inc., the Seventh Circuit held that certain procedural violations of Illinois’ BIPA constituted actual injuries and therefore satisfied the requirements for federal court standing. Relying on Spokeo, the seminal U.S. Supreme Court case addressing what constitutes an actual injury for standing purposes, the court held that the plaintiff’s allegations, if proven, would demonstrate that she suffered an actual injury based on the fact that Compass did not obtain her consent before obtaining her private information. Therefore, the case could remain in federal court.

The decision now gives defendants that want to defend BIPA claims in federal court a roadmap for their arguments, including access to a larger jury pool, the Federal Rules of Procedure, and other federal court-related advantages. It is also notable because BIPA defendants have attempted to remove BIPA cases to federal court and then file motions to dismiss them for lack of standing. However, the federal courts have typically remanded these cases, forcing defendants back into state court and sometimes even requiring them to pay just costs and any actual expenses, including attorney fees, incurred as a result of the removal.[1]

What Happened in Bryant v. Compass Group USA

In Compass Group USA, a customer sued a vending machine manufacturer after she scanned her fingerprint into a vending machine to set up an account during her employer’s orientation. She then used her fingerprint to buy items from the vending machine.

The plaintiff filed a putative class action lawsuit on behalf of herself and all other persons similarly situated in state court alleging that Compass violated her statutory rights under BIPA by 1) obtaining her fingerprint without her written consent and 2) not establishing a publicly available data retention schedule or destruction guidelines for possession of biometric data as required by the statute.

Shortly after the plaintiff filed suit in Cook County Circuit Court, Compass filed a notice to remove the case to the Northern District of Illinois. Opposing the motion, the plaintiff argued that she did not have federal standing for her BIPA claims because she had not alleged an injury-in-fact as required by Article III.

Compass argued that the plaintiff had alleged an injury-in-fact under Article III, pointing to the recent Illinois Supreme Court case, Rosenbach v. Six Flags Ent. Corp., which held that plaintiffs can bring BIPA claims based on procedural violations, even if they have suffered no actual injury. Rosenbach held that, if a company, for example, fails to comply with BIPA’s requirement of establishing destruction guidelines for possession of biometric data, that violation alone – without any actual pecuniary or other injury – creates an actual injury.

The district court sided with the plaintiff and concluded that Rosenbach merely established “the policy of the Illinois courts” to allow plaintiffs to bring BIPA claims without alleging an actual injury. Rosenbach did not interpret procedural BIPA violations to be actual injuries.

Because the plaintiff’s claims did not establish Article III standing, the district court granted the plaintiff’s motion to remand the case back to state court.

The Seventh Circuit reversed, relying on Spokeo. It interpreted Spokeo as holding that injuries may still be particularized and concrete – i.e., actual – even if they are intangible or hard to prove. The court also cited Justice Thomas’ concurrence in Spokeo that distinguished between private rights (which courts have historically presumed to cause actual injuries) and public rights (which require a further showing of injury).

The court held that the plaintiff had alleged that she suffered an actual injury when Compass collected her biometric data without obtaining her informed consent because this was a private right. The court also relied on Fed. Election Comm’n v. Atkins, 525 U.S. 11 (1998).  In Atkins, the Supreme Court held that nondisclosure can be an actual injury if plaintiffs can show an impairment of their ability to use information in a way intended by the statute. The court in Compass similarly held that the defendant had denied the plaintiff the opportunity — and statutory right — to consider whether the terms of the defendant’s data collection and usage were acceptable. As a result, the court held that the plaintiff alleged an actual injury.

By contrast, the court determined that the plaintiff’s other claim – that the defendant violated BIPA by failing to make publicly available a data retention schedule and destruction guidelines for possession of biometric data – implicated a public right and did not cause the plaintiff an actual injury.

[1] See, e.g. Mocek v. Allsaints USA Ltd., 220 F. Supp. 3d 910, 914 (N.D. Ill. 2016) (“Defendant’s professed strategy of removing the case on the basis of federal jurisdiction, only to turn around and seek dismissal with prejudice—a remedy not supported by any of defendant’s cases—on the ground that federal jurisdiction was lacking, unnecessarily prolonged the proceedings. . . . For the foregoing reasons, I grant plaintiff’s motion for remand and attorneys’ fees and deny as moot defendant’s motion to dismiss. Because defendant has not objected to the specific fee amount plaintiff claims, which she supports with evidence in the form of affidavits and billing records, I find that plaintiff is entitled to payment in the amount of $58,112.50 pursuant to § 1447(c).”)

© 2020 Schiff Hardin LLP
For more on BIPA, see the National Law Review Communications, Internet, and Media Law section.

Sweeping Executive Order on Deregulation Seeks to Spur Post-Pandemic Economy

President Trump signed an Executive Order (Order) this week to alter or eliminate regulations that the Administration maintains hamper economic recovery as the nation emerges from the COVID-19 pandemic.

The Regulatory Relief to Support Economic Recovery Order calls on agencies across the federal government to use emergency authorities provided under the Administrative Procedures Act to swiftly rescind, modify, waive or provide exemptions from regulations and other requirements that inhibit job creation and economic growth.  It further calls on agencies to consider permanently rescinding or modifying any regulations that were temporarily halted in response to COVID-19. The Order notes that it does not change agencies’ statutory obligations.

The Order also directs enforcement discretion by agencies for businesses that make good-faith attempts to follow agency guidance and regulations during the pandemic.  It establishes the following “principles of fairness” that are to be followed in enforcement and adjudication:

  • The Government should bear the burden of proving an alleged violation of law; the subject of enforcement should not bear the burden of proving compliance.
  • Administrative enforcement should be prompt and fair.
  • Administrative adjudicators should be independent of enforcement staff.
  • Consistent with any executive branch confidentiality interests, the Government should provide favorable relevant evidence in possession of the agency to the subject of an administrative enforcement action.
  • All rules of evidence and procedure should be public, clear, and effective.
  • Penalties should be proportionate, transparent, and imposed in adherence to consistent standards and only as authorized by law.
  • Administrative enforcement should be free of improper Government coercion.
  • Liability should be imposed only for violations of statutes or duly issued regulations, after notice and an opportunity to respond.
  • Administrative enforcement should be free of unfair surprise.
  • Agencies must be accountable for their administrative enforcement decisions.

Finally, the Order instructs agencies to provide pre-enforcement rulings, permitting businesses to ask an agency for a determination on whether some proposed conduct in the business’s response to COVID-19 is allowable.

IMPLICATIONS AND OUTLOOK

The Order is consistent with the longstanding stated desire by the Administration to reduce regulatory burdens.  It has the potential to alter the regulatory landscape across a wide array of industries. The Order could impact virtually any regulation from the numerous government agencies that promulgate rules, including financial regulations, environmental protections, and agricultural production and distribution guidelines, among many others.

In addition to ordering the rescission or modification of current regulations, the White House is calling on agencies to speed up the rulemaking process, including moving proposed rulemakings to interim final rules with immediate effect. This will likely draw resistance and possibly litigation from organizations that have already opposed the Administration’s approach on regulatory reforms.

The Order’s provisions on pre-enforcement rulings supersedes the provisions contained in Section 6 of Executive Order 13892, which establishes principles for using guidance in civil administrative enforcement, in an effort to provide faster compliance feedback to companies looking to reopen so they can proceed with the confidence that doing so will not trigger violations of the governing laws or regulations.

The “principles of fairness” detailed above seek to provide another level of legal cover for regulated entities. However, the extent to which the Order would provide protection for businesses against pandemic-related liability would be limited.  This has been a particularly challenging issue among lawmakers as the next legislative response package is developed.  While Senate Majority Leader Mitch McConnell (R-KY) has stated that liability protections for business must be included in the next relief bill, House Speaker Nancy Pelosi (D-CA) opposes such provisions.

Although it remains to be seen how agencies will respond to the Order, it is likely that they will look to the businesses and industries they regulate to assist them in identifying regulations that should be rescinded or modified.

© 2020 Van Ness Feldman LLP

For more on government regulations, see the National Law Review Administrative and Regulatory law section.

Michigan Ramps Up Workplace Safety Regulations and Enforcement Powers Under New Executive Order

Gov. Whitmer released detailed new workplace safety regulations on Monday, May 18, 2020 through Executive Order 2020-91 (Order). The Order also provides the State of Michigan with enhanced enforcement capabilities and greater consequences for employers who disregard the rules. The Order does not identify an expiration date for the new workplace rules.

New Workplace Safety Rules

The Order sets out 17 general workplace safety rules that apply to all employers who are conducting in-person operations during the coronavirus pandemic, pursuant to Executive Order 2020-92. While some of these workplace safety rules are restated from previous executive orders, others – such as the requirement that employers designate one or more workplace supervisors to oversee COVID-19 control strategies – are new. New rules include mandated COVID-19 employee training and the development of a daily entry self-screening protocol for all employers.

In addition to the general workplace safety rules, the Order identifies numerous industry-specific workplace safety rules to combat the spread of COVID-19. Industries that must comply with these specific rules are: employers whose work is performed outdoors; construction; manufacturing; research laboratories (excluding labs that perform diagnostic testing); retail stores that are open for in person sales; offices; and restaurants and bars.

Enhanced Enforcement Powers

Previously, employers who failed to follow COVID-19 workplace safety rules were subject to a misdemeanor punishable by up to a $500 fine and/or 90 days in jail. The Order now provides two new routes for enforcement. First, the workplace safety rules are given the force and effect of regulations adopted by the state agencies that oversee workplace health and safety. Such agencies are given full authority to enforce the rules, and any challenges to penalties must move through the agencies’ administrative appeals process. Second, the Order states that violations of the workplace safety rules are also violations of the Michigan Occupational Health and Safety Act (MIOSHA). As a result, Michigan’s Occupational Safety and Health Administration will have the authority to conduct investigations into violations, issue penalties and distribute cease operation orders.

In addition, because the Order mandates employee training on how to report unsafe working conditions, employers should anticipate the possibility of such internal reports or MIOSHA investigations. Employers should also be mindful not to retaliate against employees who file such complaints.

© 2020 Varnum LLP

For more on worker safety measures in states and federally, see the National Law Review Labor & Employment Law section.

WEDC Small Business Grant Programs

Wisconsin Gov. Evers announced a new $75 million grant program for small businesses that will provide $2,500 grants to assist with the costs of business interruption, health and safety improvements, salaries, rent, mortgages, or inventory. The grants will be available to businesses impacted by COVID-19 with 20 or fewer full-time employees who have not already received COVID-19 assistance from the Wisconsin Economic Development Corporation (WEDC).

The grant program will be administered by the WEDC as part of its its “We’re All In” initiative, and will begin taking applications in June. Grant recipients will also commit to using safety protocols for their customers and employees. WEDC will provide additional guidance on the program later this month. The grant program is primarily funded by the federal government through the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

WEDC has also created the Ethnic Minority Emergency Grant (EMEG) initiative to award grants of $2,000 to ethnic-minority owned businesses with five or fewer full-time employees in the retail, service, or hospitality sectors. Eligible businesses must not have received funds through WEDC’s Small Business 20/20 program, the CARES Act, or the Paycheck Protection Program (PPP). The business must also have started before 2020, and will need to provide proof of being in business as of February 29, 2020.

The EMEG initiative will accept applications from May 18-24, 2020. A total of $2 million will be available to 1,000 Wisconsin micro-businesses. If the applications received exceed the funds available, companies that meet the program criterial will be selected at random. For more information on this program and a link to the application page, please see WEDC’s Minority Business Development page.

©2020 von Briesen & Roper, s.c

For more on small business loans amid the COVID-19 pandemic, see the National Law Review Coronavirus News section.

Reporters Are Pushing to Reveal CARES Act Beneficiaries. Is Your Firm Prepared for Tough Questions?

As law firms continue to announce restructuring, furloughs and layoffs in response to the economic emergency caused by the coronavirus, CMOs and marketing directors of small to midsize firms are quickly realizing they may have to contend with a corresponding PR crisis: their firms’ financials are under increased media scrutiny.

That’s because reporters across the legal and mainstream media are pushing the Small Business Administration and Treasury Department to make public the names of companies that accepted assistance through the various programs created through the Coronavirus Aid, Relief, and Economic Security (CARES) Act, including the Payroll Protection Program and Economic Injury Disaster Loans.

We all saw the stories back in March of billion-dollar-plus companies whose bailouts depleted the PPP fund within days, only to be forced, sheepishly, to return the money after the public outcry. Obviously, midmarket firms are far smaller than those companies in both staff and revenue, but seeing so many powerful corporations take advantage of government support that was intended to help the little guy has made the public skeptical and even hostile toward any business larger than the corner hardware store who received government help.

Add to this inhospitable climate the lack of clear guidance for borrowers and grant recipients on how the money can be used, and all law firms who participated, even those working in good faith to stay well within the bounds of eligibility requirements, could face damage to their reputations. This is particularly true for law firms that predominantly serve small business clients. How will those clients respond if they learn their lawyers received the funding when they themselves struggled to secure it to protect their own business?

One thing we know for sure: this information eventually will be made public, whether the government releases it or it is leaked to reporters at the Washington Post or ALM. Therefore it is critical for CMOs and marketing directors to create a plan for how they will respond if their firm’s name is likely to show up on the list.

Anytime negative media coverage hits, firms have a few options:

  1. Say nothing. Hope for the best. Maybe your firm will show up so far down the list that no one will notice?
  2. Wait for the information to become public and then issue a statement confirming the barest set of facts.
  3. Confirm the facts and make a spokesperson available for interviews.
  4. Proactively disclose your participation in CARES Act programs, explaining why you did so, focusing on the jobs you’re protecting and describing your firm’s plans for weathering the coming months.

While many firms are banking on option #1 and hoping to benefit from chaotic news cycles and short attention spans, there is a risk that they could be underestimating the blowback they may face. If you remain silent while reporters write stories about your firm, your clients and prospects will tend to fill the information vacuum with their own speculation.

The smarter play is to deploy some combination of the other three options, and what that plan looks like will depend on strategic coordination with firm leadership and your answers to a few key questions, such as:

How will your most important clients react to the news that your firm received CARES Act support? Some clients will be relieved to know their law firm is on solid ground and can continue to provide uninterrupted service. Others might question the firm’s underlying financials or, as mentioned above, react with resentment that a business with revenue in the nine figures is displacing a small business. Predicting key clients’ responses to the news will allow you to create a media strategy that defuses criticism and shapes a more positive narrative about why the firm accepted the government support. Think about all the messages you’ve sent over the years about who you are and what you value as a firm. If leadership’s decision-making here was consistent with those messages and values, you’re in good shape.

Has your firm eliminated jobs, and does it plan to? One of the most important and well publicized terms of the PPP is that, in order for the loans to be forgivable, 75% of the funding must be used to cover payroll. This is intended to protect as many jobs as possible. That doesn’t necessarily mean that moving ahead with job eliminations violates the terms of the loan, which can be repaid, in full or in part, at a 1% interest rate. But taking PPP funds and cutting jobs will raise eyebrows. Timing here is key. Did your firm lay people off and then take the funding? Could that be perceived as funneling the benefits to members of the firm who already receive the highest compensation? These are the kinds of questions reporters will be asking; leaders need to be prepared to answer them.

Has your managing partner and other members of the c-suite agreed to sacrifice some of their own compensation? If your firm decides to take the most proactive course and disclose its status, it’s crucial to use that opportunity to tell the most compelling story of why you did so. Of course, every managing partner has sent out a reassuring email to the firm in the past few weeks that says some version of “We’re all in this together,” but this message is a lot more meaningful when leadership can point to actual sacrifices they’ve made to try to save people’s jobs.

One positive development around the CARES Act programs is that now, some weeks after the disastrous rollout and the better-managed second round of PPP loans, businesses are no longer in competition with each other to get needed support. The sense that this is a zero-sum game has subsided, and that’s good news for midsize law firms that may need to disclose their participation. Still, marketers must think carefully about how to engage with the media on this sensitive and still-evolving issue. Don’t wait until a reporter calls to decide what you’re going to say.

© 2020 Page2 Communications. All rights reserved.

For more on the SBA PPP Loan, see the National Law Review Coronavirus News section.

To Promote Innovation, Congress Should Lessen Restrictions on Injunctive Relief for Patent Owners

Under the U.S. Constitution, a patent conveys an “exclusive right” to inventors so they can prevent others from stealing their inventions. And since the enactment of the Patent Act of 1790, the law has deemed patents to be a form of personal property and specifically provided for injunctive relief, a court order stopping a proven infringer from continuing to use or sell someone else’s invention. Yet, today in the United States, despite this constitutional mandate and grounding in law, many patent holders no longer have exclusive rights to their inventions, nor the ability to obtain iinjunctions.

For much of our country’s history, permanent injunctions were the norm once patent infringement and validity were proven at trial by the patent owner. And getting an injunction depended on facts, not the patent owner’s business model – for example, whether they manufactured or licensed their invention. The practice was stable for all of that time – until recently.

In 2006, in the Supreme Court’s eBay Inc. v. MercExchange, L.L.C. decision, the Court upended this settled practice, ruling that injunctions should not be automatically issued in patent cases and clarifying that courts must apply a four-part test to determine whether an injunction should be granted. The opinion of the Court, authored by Justice Thomas, said little more than that the four factors should determine when an injunction is allowed. However, two concurring opinions expanded on the role of injunctions in patent cases – one, written by Chief Justice Roberts, defended the historic practice of allowing injunctions in most cases, while the other, by Justice Kennedy, pushed in the opposite direction, basing the injunction determination on who the patent owner was and how they used the patent.

For some years after, the pattern of injunction grants changed little. But eventually, it shifted greatly, as lower courts began to make injunction determinations based primarily on the patent owner’s identity. Those who manufacture products continued to get injunctions, while those who chose to license their patents instead, no longer did. This misapplication of the ruling by lower courts has become so widespread that it is now almost impossible for inventors who license their patents to obtain an injunction, even in the face of proven infringement.

It was almost as if the Kennedy minority concurrence became the majority opinion.  And the Roberts concurrence was mostly ignored by the lower courts – even though that opinion highlighted the settled historical practice of granting injunctions for most cases of infringement.

It may not be entirely coincidental that such an outcome was implored by a massive lobbying and public relations campaign conducted by a group of Big Tech mega corporations, mostly based in Silicon Valley. In an effort to reduce patent licensing fees for using technology created by other inventors in their products, these Big Tech companies set out to demonize the patent licensing business model and undermine the ability of inventors to defend patents against infringement. Among their asks, they specifically urged that injunctions should be largely limited to companies “practicing” their inventions by making products and denied to those following the licensing business model, so-called “non-practicing entities,” or NPEs.

Well, this campaign and its complaints about patent licensing, though lacking in evidence, apparently caught the eye of Justice Kennedy, who wrote in his concurring eBay opinion: “An industry has developed in which firms use patents not as a basis for producing and selling products but, instead, primarily for obtaining licensing fees… For these firms, an injunction, and the potentially serious sanctions from its violation, can be employed as a bargaining tool to charge exorbitant fees to companies that seek to buy licenses to practice the patent.”

This line of reasoning overlooks the fact that the patent licensing business model is not a new phenomenon in the commercialization of patented innovation, but has been around since our country’s founding and has served a key role in advancing U.S. innovation. Iconic American inventors, such as Thomas Edison, Alexander Graham Bell, the Wright Brothers, Charles Goodyear and Elias Howe Jr., all licensed their patented inventions to others, who then manufactured the final product and brought it to the masses. And today, many of our nation’s best innovators license their inventions, including universities, hospitals, startups, engineering firms and independent inventors.

What is most striking is that while the U.S. no longer provides injunctive relief to many patent holders, our competitors in Europe and Asia, including China, routinely grant injunctions in similar cases of patent infringement. This is undermining our competitiveness as innovative companies in the U.S. and around the world have an incentive to conduct R&D and patent inventions outside the U.S., where patent protections are now stronger.

Fortunately, Senator Chris Coons (D-DE) and Representative Steve Stivers (R-OH) are sponsoring bipartisan legislation, known as the STRONGER Patents Act, that would restore the traditional right of injunctions to all patent owners, including those who license their innovations. If we have learned nothing else from the Covid-19 crisis, it is the need to incentivize all the technological advances we can, especially the development of new human health technologies. That incentive system works best when all patent owners can equally and fairly use their constitutional “exclusive right” to their innovations. Let’s hope that insight will help jumpstart the legislative advance of the STRONGER Patents Act or other measures to strengthen patent rights and restore injunctive relief.

The opinions and views stated herein are the sole opinions of the author and do not reflect the views or opinions of the National Law Review or any of its affiliates.

© The National Law Forum. LLC
ARTICLE BY Chief Judge Paul Michel (ret.) US Court of Appeals for the Federal Circuit
For more on patenting inventions, see the National Law Review Intellectual Property law section.

IMS Insights Episode 11: COVID-19 Analysts Briefing on Litigation Impacts

To better understand how the COVID-19 pandemic is impacting the commercial litigation community, IMS ExpertServices conducted analysis and gathered input during the first half of April from more than 400 attorneys, in-house counsel, experts, and stakeholders throughout the commercial litigation community.

In this special podcast feature, you’ll hear commentary from the April 30 Analysts Briefing hosted by IMS on the study’s top findings and other key trends for commercial litigators, with discussion from a panel of thought leaders including:·

·         James Crane, Chief Revenue Officer at IMS ExpertServices

·         Rudhir Krishtel, Certified Co-Active Coach and Facilitator with Krishtel Coaching, Former Senior Patent Counsel at Apple, Former Partner at Fish & Richardson, and IMS Thought Leader and Contributor

·         Nate Robson, Litigation Editor at The American Lawyer

·         Eilene Spear, Operations and Project Manager at The National Law Review

·         Ty Sagalow, Commercial insurance expert and IMS thought leader and contributor

© Copyright 2002-2020 IMS ExpertServices, All Rights Reserved.

For more on COVID-19 litigation, see the National Law Review Coronavirus News section.