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The USTR has invited public comments on the proposed list and will hold a public hearing on Aug. 5, 2019.
Requests to appear at the hearing are due to the USTR by July 24, and written comments are due by Aug. 5. The public comment and hearing process will provide importers of goods from the EU, as well as domestic producers that compete with EU producers, the opportunity to be heard with regard to the products that may be subject to tariffs.
In April 2019, the USTR published a preliminary list of goods from the EU that could be targeted with tariffs, which included aircraft, motorcycles and wine. The July 5 list contains additional products, including whiskey, coffee, olives, pasta, cheese, pork, and metals, among other items. The goods on both lists are collectively worth about $25 billion of imports per year.
The EU made certain changes to its subsidy regime in response to the Appellate Body’s decision, but the U.S. later asked the WTO to determine that the EU had not fully complied with the decision. That request led to another Appellate Body decision published in May 2018, in which the Appellate Body agreed with the U.S. that the EU was still not in compliance with the SCM Agreement.
The WTO is expected to determine the amount of retaliatory tariffs the United States can impose sometime this summer, and the April and July 2019 tariffs proposed by the USTR are likely being prepared in anticipation of the WTO decision.
In an attempt to mitigate the devastating effects of being evicted, BYU Law, the University of Arizona James E. Rogers College of Law and SixFifty, a subsidiary of the law firm Wilson Sonsini, created Hello Landlord, a bilingual web-based tool designed to facilitate communication between tenants and landlords. Hello Landlord is the result of a semester-long collaboration between BYU’s LawX Legal Design Lab and University of Arizona Law’s Innovation for Justice program. The Innovation for Justice program challenges law students to think critically about the power of the law and technology, and encouraging students to be disruptive problem-solvers in the changing world of legal services. After time spent studying the issue and problem of eviction, the students helped develop Hello Landlord as a creative, practical solution to landlord-tenant communication problems which ideally will avoid traditional legal mechanisms, such as going to court.
The Problem of Eviction: Law Students Study the Issue from All Angles
In order to create this tool, the students in the BYU Law Design Lab studied evictions from a variety of angles, questioning the assumptions commonly made and interviewing a broad spectrum of individuals involved in the process in order to understand the issue. To do this, the students took their diverse perspective to the problem, observing over 200 eviction court proceedings and speaking with landlords, tenants, social services providers, attorneys, and journalists. The broad net cast by the students enabled them to see the multiple facets of the issue and identify a proactive solution–facilitating communication between landlord and tenant to cut off the eviction procedure before it begins. Because once the eviction process starts, it’s unlikely to stop.
The findings related to the landlords were surprising. Kimball Dean Parker, the President of SixFifty, the technology subsidiary of Wilson Sonsini Goodrich & Rosati, said, “I came in very skeptical of landlords thinking like so many evictions and there must be some issue with landlords. And actually when we looked at it, I think the landlord’s really became very sympathetic characters.” The research pointed out that landlords were open to negotiation. In fact, landlords hated filing for evictions; it was unpleasant and it weighed on the landlords psychologically. Parker said, “One landlord cried on the phone to us talking about the emotional toll of filing an eviction . . . so landlords don’t want to do this and actually will work a lot with a tenant to avoid filing an eviction.”
Evictions can be incredibly damaging with consequences that create a ripple effect. According to EvictionLab.org, beyond the obvious of eviction causing a family to lose their home, it also involves losing possessions, children changing schools and loss of community, and a court record–making it more difficult to find housing as many landlords do a search for past evictions. Evictions can impact employment, with the strain leading to more mistakes on the job, and eviction can impact mental health, leading to higher rates of depression, for example. In short, if landlords and tenants can reach some kind of agreement–even if it involves the tenant leaving voluntarily–the situation would be better for everyone.
Hello Landlord: An Automated Tool to Encourage Communication and Designed to Avoid Eviction Proceedings
The issue, according to Parker is simple: tenants don’t know what to say to their landlord and when faced with the inability to pay the rent, often the first impulse is to duck, hide and avoid the problem. The situation is made more complicated because of embarrassment and shame and the “official” nature of the contractual rental relationship. Parker says, “A lot of tenants we talked to were like, I don’t even know what I’m supposed to say to my landlord.” Enter Hello Landlord. This is a web-based tool available in both English and Spanish, asks the tenant a series of questions about their situation, helping them create a letter which addresses their issues with their landlord, from repairs that need to be taken care of to missed rent payments. By asking a series of direct questions, the tool automatically generates a letter that strikes a professional, business-like tone designed to address the tenant’s issue(s). Kimball says, “We wanted to go upstream with the issue. If we can help the tenants communicate with the landlords, the landlords want the tenant to communicate. And if the tenants do that, then the landlords will work with them.”
A tenant can use Hello Landlord to explain that an unforeseen medical expense, for example, leaves them unable to pay their rent, and the tool will ask a series of questions about how much rent the tenant can pay, and on what timeline–then constructs a letter offering the alternative schedule to the landlord. Importantly, Hello Landlord crafts the response in such a way to indicate that the tenant is proposing a solution, but is also open to discussion, creating a dialogue that will hopefully lead to a successful resolution instead of an eviction. Kimball says, “ the real work was to get the tone right in the letter. . . we really zeroed in on what a landlord wants to hear, which is like, they want an explanation that makes sense and, and that, that creates empathy for the tenant. ” In fact, Kimball relates that of the landlords surveyed, 95% indicated they would work with tenants who presented them a letter like the one generated by Hello Landlord.
Another aspect of Hello Landlord, according to Kimball is “that these letters are not jurisdiction specific. Somebody in South Carolina or somebody in Seattle could use this.” This greatly enhances its usefulness, and since it lives on the internet, it is available to all who know the URL.
During the testing process, tenants responded very positively. A lot of the tenants were so enthusiastic, and they wanted to jump right in. Kimball said, “we ended up like generating letters, in real time that they could use.” The founders were encouraged by this reaction, as it demonstrates the urgency of the problem Hello Landlord was designed to address. To more systematically test out the program, the Innovation for Justice program received grant funding from the Agnese Nelms Haury Program in Environment and Social Justice to conduct further research and implement Hello Landlord.
While further research and testing play out, anecdotally it’s hard to see the downside of this creative and practical solution. Hello Landlord is widely available, easy to use and provides an important service, making it a great opportunity for everyone involved.
Launched more than a decade ago, the #MeToo movement made its way into the national (and international) conversation in 2017, and, by 2018, the movement had such momentum that it spurred a cornucopia of new state laws. One of these new laws, which became effective July 11, 2018, is a New York State statute that prohibits employers from requiring employees to submit sexual harassment claims to mandatory arbitration. This new law is codified in Section 7515 of the Civil Practice Law & Rules of the State of New York (“C.P.L.R.”), entitled “Mandatory arbitration clauses; prohibited.” Section 7515 reflects the New York State Legislature’s (which consists of the New York State Assembly and the New York State Senate) determination that employees should be allowed to have their sexual harassment claims adjudicated in a court of law, if that is their preference. The introductory clause of Section 7515 also indicates, however, that legislators understood that an unqualified prohibition of mandatory arbitration might not pass muster under federal law:
Prohibition. Except where inconsistent with federal law, no written contract, entered into on or after the effective date of this section shall contain a prohibited clause as defined in paragraph two of subdivision (a) of this section. (C.P.L.R. § 7515(b)(i).)
Hence, the statute engendered substantial uncertainty among employers. Now, almost one year after C.P.L.R. § 7515 became law, a U.S. District Court Judge, the Hon. Denise Cote of the Southern District of New York, has addressed this confusion by opining on whether New York State may outlaw privately negotiated agreements to submit all disputes, inclusive of claims for sexual harassment, to arbitration. In Latif v. Morgan Stanley & Co. LLC, et al., No. 1:18-cv-11528 (S.D.N.Y. June 26, 2019), Judge Cote delivered a clear message about the collision of C.P.L.R. § 7515, which operates to constrain parties’ rights to agree to arbitrate claims, and the Federal Arbitration Act (the “FAA”), which, as repeatedly reinforced by the U.S. Supreme Court in recent years, mandates substantial deference to private arbitration agreements. Employers, especially those in the financial services industry, have reason to cheer Judge Cote’s opinion in Latif, which restores a degree of certainty about whether a mandatory arbitration clause governing an employment relationship may still be enforced—at least in some courts.
The essential facts are as follows: Mahmoud Latif (“Latif”) signed an employment agreement (the “Offer Letter”) that incorporated by reference Morgan Stanley’s mandatory arbitration program. Read together, these documents formed the “Arbitration Agreement” between Latif and Morgan Stanley. The Arbitration Agreement provided that any “covered claim” that arose between Latif and Morgan Stanley would be resolved by final and binding arbitration, and that “covered claims” included, among other causes of action, discrimination and harassment claims. Nevertheless, Latif commenced an action against Morgan Stanley in federal court, asserting, among other charges, claims of sexual harassment under federal, state and municipal law. The Morgan Stanley defendants moved to compel arbitration of the entire case, inclusive of the sexual harassment claims. Latif opposed that motion on the basis of C.P.L.R. §7515, which, according to Latif, expressed New York State’s “general intent to protect victims of sexual harassment,” and required the Court to retain jurisdiction over the sexual harassment claims—even though those claims fell clearly within the ambit of the Arbitration Agreement.
In granting Morgan Stanley’s motion to compel arbitration, inclusive of the sexual harassment claims, Judge Cote held that C.P.L.R. §7515 could not serve as the basis to invalidate the Arbitration Agreement. The Court’s rationale is straightforward: C.P.L.R. §7515 purports to nullify agreements to arbitrate sexual harassment claims “except where inconsistent with federal law,” and the statute is indeed inconsistent with the FAA’s “strong presumption that arbitration agreements are enforceable.” Judge Cote therefore stayed Latif’s court action pending the outcome of arbitration proceedings.
In light of the foregoing, to maximize the likelihood of full enforcement of an arbitration agreement, inclusive of claims for sexual harassment, employers should promptly consider the prospect of removal of a New York State court action to federal court, if circumstances otherwise permit such removal.
Finally, employers also should note that, on June 19, 2019, the New York State Legislature voted to amend Section 7515 to prohibit not only the mandatory arbitration of sexual harassment claims, but also the mandatory arbitration of anyallegation or claim of discrimination. While, as of this writing, the amendment has not yet been signed into law by the executive, it appears safe to predict that states will continue, in the near future, to attempt to prohibit or constrain mandatory arbitration of discrimination/harassment claims in a way that generates apparent conflict with federal law. The Supreme Court’s adjudication of a constitutional challenge to C.P.L.R. §7515, and/or like statutes, under the Supremacy Clause of the U.S. Constitution seems to be a likely end-game.
The legal industry is continuously changing and we want to share the good news about strategic hires and notable industry achievements. We’re also looking to pass on interesting legal tech developments that aid lawyers and law firms in streamlining and growing their practices.
Notable Legal Industry Recognitions
The law firm of Frost, Brown & Todd was honored by the Women in Law Empowerment Forum (WILEF) for their diversity and inclusion efforts with a 2019 Gold Standard Certification, and the firm was only one of 45 firms to receive this honor. In order to be recognized firms had to meet a variety of criteria, including the mandatory criterion that at least 20% of all equity partners are female, or 33% or more of attorneys who became equity partners during the last year were women. Additionally, there are other criteria that must be met, some incorporating other diversity measures including LGBT attorneys or women of color in equity partner roles. FBT has been honored with this designation by WILEF seven times.
Carlton Fields and K&L Gates both ranked in the Construction Executive’s inaugural “The Top 50 Construction Law Firms” list. Carlton Fields’ Construction practice has received multiple accolades, including being named by Chambers USA as the No 1. Construction practice in Florida for 17 years straight. K&L Gates has over 2,000 attorneys in offices on five continents, and was named one of the top 5 firms in the inaugural edition of the list. The list considered the number of attorneys working in the area, as well as the number of states where the firm is licensed to practice, the year the practice was established and percentage of the firm’s total revenue that comes from the Construction practice.
Wiggin and Dana LLP Corporate M&A practice was recently recognized by IFLR 1000 US 2019 edition as a Tier 1 firm for Corporate M&A work in Connecticut. Additionally, five attorneys with Wiggin and Dana were specifically recognized: Paul Hughes, William Perrone, and Mark Kaduboski were named as Highly Regarded, while Evan Kipperman and James Greifzu were designated as Future Rising Stars.
For the fourth time, Chambers USA named McDermott Will & Emery the 2019 Healthcare Team of the Year. The health practice at McDermott earned a Band 1 ranking in the Healthcare category for the 10th year in a row earlier this year, and it is the only firm to hold that distinction. In fact, the practice group has picked up a variety of accolades over the years, including commendations from US News and World Report and The Legal 500. Practice Chair Eric Zimmerman says, “Our team is dedicated to helping health care companies push the boundaries of what it means to be innovative.”
Per Alan S. Kaplinsky, Practice Leader of Ballard Spahr’s Consumer Financial Services Group. “Judy represents the best that our legal profession has to offer—she has a sophisticated understanding of the payments ecosystem, she leads by example, and she fosters an inclusive environment.”
Steptoe & Johnson PLLC announced that Thomas J. Sengewalt has rejoined the firm’s Denver litigation practice. Sengewalt has experience in energy litigation and energy transactions. Steptoe & Johnson CEO Susan S. Brewer expressed excitement for Tom’s return to Steptoe & Johnson, saying, “His work in litigation and transactions helped some of the Appalachian region’s largest energy producers, and we know he will bring the same skill and passion to our clients in the Rockies.”
Former Commissioner of the California Department of Business Oversight, Jan Lynn Owen joined Manatt, Phelps & Phillips, LLP as a senior advisor in the financial services group. Owen is known for her embrace of technology and using technology to foster innovation, and she worked to find banking solutions for the cannabis retail industry, working with state regulators and business owners to innovate practical and safe solutions for these businesses. Additionally, she worked to develop fintech start-ups, working to reduce regulatory burdens in this industry while safeguarding consumer privacy. Owen says, “I knew Manatt’s financial services group would be the ideal place for me to advise and counsel businesses that face a number of complex regulatory and marketplace challenges in today’s rapidly evolving new economy.”
Feinberg Day Alberti Lim & Belloli LLP in Menlo Park, California is increasing its intellectual property punch with the addition of five intellectual property attorneys, including two new Partners Robert Kramer and Russell Tonkovich. The firm will undergo a name change and be called: Feinberg Day Kramer Alberti Lim Tonkovich & Belloli LLP. Kramer and Tonkovich each have assembled an impressive resume of awards and a history of winning verdicts in significant patent infringement cases. Tonkovich is a medical doctor as well as an attorney. Additionally, Feinberg Day is also adding attorneys Kate Hart, Aidan Brewster and Nick Martini to their IP focused law firm. Feinberg Day was founded in 2011, and has a reputation for assisting clients in monetizing their patent portfolios.
Winston Strawn announced the addition of Christopher B. Monahan to their Washington DC office. Monahan works with clients on compliance with International Traffic in Arms regulations, the Export Administration Regulations and sanctions programs under OFAC and FCPA. He assists clients with internal investigations and compliance reviews, and he helps clients in determining jurisdiction and export control classification of their products and technology. Monahan will join the firm as a partner in the White Collar, Regulatory Defense & Investigations Practice.
Legal Technology News
Legal Services Link recently launched ioRefer™ Referral Software designed to streamline the referral process within law firms, bar associations, legal networks and corporate law departments. ioRefer’s interactive database helps attorneys looking for assistance on particular projects to quickly post and distribute staffing needs notices either within their law firm or within a broader legal network. Conversely, law firm attorneys or network professionals with extra capacity can search the database for staffing needs on specific projects. ioRefer for Corporate law departments simplifies the process of retaining qualified law firm talent via targeted matter postings or by searching an intuitive, current directory of qualified professionals.
Attorney and co-founder, Matthew Horn: “ioRefer solves the ineffective, outdated, manual processes used to refer and staff client matters and helps balance the workload distribution of matters to qualified professionals who are looking to take on more work. For law firms, it keeps client matters from being sent outside the firm and at the same time helps lawyers become more interconnected with their colleagues.”
Alliance Legal Solutions recently launched Fundafi.com, a technology-enabled lending platform that improves access to financing for small U.S.law firms. Fundafi’s business model is designed to nurture a law firm’s growth much like a private equity firm would do for an emerging business. Fundafi has deep knowledge of small law firm practices gained during 8 years of experience working with thousands of law firms. Alliance Legal Solutions was founded in 2011, by Cheryl Kaufman, a graduate of Wake Forest School of Law.
Over three billion images are shared online each day, and around 85% of them are unlicensed, with estimated revenue lost at more than $600 million daily, as reported by COPYTRACK and summarized in its recently released 2019 Global Infringement Report.
Some of the more interesting findings from the 2019 report reveal that the U.S. is the world leader in image theft comprising 22.96% of worldwide theft. But less obvious is the #2 offender, Panama, a country with four million inhabitants, comprising a 6.76% share of global image theft. This anomaly is likely the result of “Privacy Protection Services,” who registers site domains in Panama to mask the owners’ personal information. China, considered by many to be the world leader in authorized use, comes in third place with a surprisingly small 6.57%.
Cyber Special Ops, LLC, recently announced a new delivery model for cyber services called Concierge Cyber™ which is modeled after the growing practice of concierge medicine. It includes à la carte or bundled service offerings. same day appointments, phone or email access on evenings and weekends, and pre- and post-breach services as needed at pre-negotiated rates. Breach response services are provided by My-CERT™, a team of highly credentialed legal, information security, credit and identity restoration, and public relations specialists
Per Kurtis Suhs, founder and managing director of Cyber Special Ops, LLC: “Currently only 2 of 10 organizations have purchased cyber insurance, and their policies may not cover theft of monies. So, who do organizations call in the event of a wire fraud loss on a Friday evening? Concierge Cyber makes it possible for organizations of all sizes and budgets to have immediate access to world-class cyber risk management support. The My-CERT™ team provides expertise, experience and agility to effectively respond to a cyber incident under the protection of attorney-client privilege.”
Notable legal industry news? Submit your stories for consideration in the National Law Review’s Legal Talent and Tech Update.
Like countless other states, earlier this year, Mississippi passedSB 2922, which stipulates that cell-based, plant-based, or insect-based foods cannot be labeled as “meat” or “a meat food product” (e.g., “hamburgers,” “hot dogs,” “sausages,” “jerky”, etc.). Specifically, SB 2922 amended Section 75-35-15(4) of the Mississippi Code to state “[a] food product that contains cultured animal tissue produced from animal cell cultures outside of the organism from which it is derived shall not be labeled as meat or a meat food product. A plant-based or insect-based food product shall not be labeled as meat or a meat food-product.” Such products still run afoul of the law even if the labels include claims like “100% vegan,” “plant-based,” or “meatless.”
SB 2922 came into effect on July 1, 2019. On that same day, vegan “meat” producer, Upton’s Naturals Co. and the Plant Based Foods Association (PBFA) filed suit in federal court against Mississippi’s Governor and Commissioner of the Department of Agriculture and Commerce arguing that the label restrictions violate their First Amendment right to free speech, among other claims. Upton’s and PBFA are seeking a declaratory judgment that SB 2922 violates the First and Fourteenth Amendments to the U.S. Constitution, a preliminary injunction prohibiting enforcement of SB 2922 throughout the duration of the litigation, a permanent injunction, and an award of nominal damages in the amount of $1.00.
Mississippi’s Department of Agriculture and Commerce, along with the state’s cattle and poultry associations, supported the state law. Indeed, in response to the lawsuit, the Department said it has a “duty and obligation to enforce the law” and that it wanted to ensure the consumer has “clear information on the meat and non-meat products they purchase.” However, supporters of the lawsuit, like the Good Food Institute, argued that “Mississippi is acting as word police” and that the law is a “slippery slope” that could open the door to restrictive labeling.
The New York Senate and Assembly recently passed Senate BillS2844B to strengthen current laws for employees who are victim of wage theft to secure and collect unpaid wages for work already performed from their employers. This bill would amend five sections of the law (Lien Law; Labor Law; Attachment under the Civil Practice Law and Rules; the Business Corporations Law; and the Limited Liability Law). If signed by the Governor, this bill would create a broad right for any employee to obtain a lien on an employer’s property based on the allegation of a wage claim and would significantly increase employee power in such disputes.
This bill would expand on current lien remedies and create an “employee lien,” that would allow an employee who has a wage claim to place a lien on his or her employer’s interest in property (real or personal property) for the value of that employee’s wage claim, plus liquidated damages. “Wage claim” is defined as any claim constituting a violation of New York Labor Law § 170 (overtime), § 193 (improper deductions), § 196-d (gratuities) , or § 652 and § 673 (minimum wage). Wage claims also include claims for breach of employment contract where wages are not payed under the contract, and Federal minimum wage claims pursuant to 29 U.S.C. § 206 and § 207. The employee’s lien cannot be placed on an employer’s deposit accounts or goods.
Notice of the lien must be filed within three years of the end of employment which gave rise to the wage claim. Real property notice must be filed in the clerk’s office of the county where the property is located. Personal property notice must be filed with a financing statement pursuant to section 9-501 of the Uniform Commercial Code. Employee’s liens may be filed by the employee or the New York State Department of Labor and the New York Attorney General for wage claims that are subject of their investigations, court actions or administrative agency actions. Notice of an employee’s lien must be served upon the employer within five days before or 30 days after filing notice. The lien is valid for one year unless extension is filed with the county clerk. If no action is commenced during the extension period, the lien will be automatically extinguished unless extended by a court order.
If passed, this bill would also streamline the procedures to which employees may hold the ten largest shareholders of a non-publicly traded corporation and the ten members with the largest ownership interests in a limited liability company personally liable for wage theft. The bill also contains a provision that would allow employees to examine a business corporation’s and limited liability company’s records to obtain the shareholders’ or members’ (as the case may be) names, addresses, and ownership value in the company.
Once the bill is signed by the Governor, it will take effect 30 days after becoming law and will apply to all claims for liabilities that arose prior to its passage.
The rule provides for a new “coach’s challenge” during a game. Coaches will be entitled to one challenge per game. Once used, even if successful, the coach has used their challenge for the entire game. The challenge may be used for called fouls, goal-tending, basket interference and instances where the ball is out of bounds. The challenge cannot be used where referees have missed calls.
To use a challenge, coaches must have a timeout remaining. This means that coaches may start to retain a timeout tactically in particularly important games in order to be able to use their challenge, especially in the dying seconds of a close contest. However, only challenges for personal fouls are permitted in the last two minutes of the fourth quarter or the last two minutes of overtime. To use the challenge, the head coach will call a timeout and indicate they are challenging the call. If successful, the team retains their timeout. If not, the timeout is used.
The NBA’s sister league, the G League, has implemented this rule for the past two seasons. In its first season, there were 232 challenges of which 75 original calls were overturned, representing a 32.3% success rate. The following season saw 81 successful challenges from 249 challenges, representing a similar success rate of 32.5%.
The League anticipates that the challenge rule will be rolled out next season on a trial basis and reviewed at the end of the season. For the rule to be implemented, two-thirds of the League’s teams must vote in its favour during a formal vote expected to take place this summer. If the vote goes ahead, it is likely to succeed. Coaches are generally in favour of the rule as it provides another tool for them to use in-game. Coaches gain greater powers of intervention whilst more decisions are ultimately correct due to incorrect calls being overturned. It could also ease tensions between referees and players. Sports Shorts recently addressed the heightening tensions between NBA players and match officials during the Playoffs this season.
Last week, three Capital One cardholders filed a putative class action in the Eastern District of New York, Cohen v. Capital One Funding, LLC,1 alleging that the rates of interest they paid to a securitization trust unlawfully exceed the sixteen percent threshold in New York’s usury statutes. The Plaintiffs seek to recoup the allegedly excessive interest payments and an injunction to cap the interest rates going forward.
The Plaintiffs seek to leverage the Second Circuit’s decision in Madden v. Midland Funding, LLC.2 There are factual differences between the current lawsuit and Madden. In Madden, the loan in question was a nonperforming credit card account that Bank of America’s Delaware-based credit card bank had assigned to Midland Funding, which sought to enforce the past-due loan. In Cohen, the loans involve credit card receivables from otherwise performing loans that have been deposited into securitization trusts. Another distinction is that Cohen, unlike Madden, is a putative class action. The legal theory in both cases, however, is the same: the Plaintiffs argue that the holders—here, securitization vehicles—do not have the originating national bank’s right to collect interest at rates above the limits of New York’s usury laws. And any usurious interest collected, the Plaintiffs argue, must be disgorged.
As we discussed in our prior C&F Memorandum, “It’s a Mad, Mad, Madden World” (June 29, 2016), the Second Circuit’s Madden ruling is unsound. Under the Second Circuit’s Madden theory, the usury rate applicable to a given loan—and thus its enforceability—turns on the identity of the loan’s holder. The notion that the enforceability of a loan originated by a national bank turns on who holds the loan from time-to-time conflicts with the well-settled valid-when-made doctrine—a doctrine that provides that whether a loan is usurious is determined at the loan’s inception. This approach was abandoned in Madden. As a result, under Madden, bank-originated consumer loans can be less valuable if sold, thus devaluing the loans on the books of the originating bank. Banks, then, are discouraged from originating such loans or, once originated, from selling them. The net result is—at least in theory—a tightened consumer credit market.
In many corners, Madden is viewed to be “bad law.” Even so, the Office of the Comptroller of the Currency recommended against petitioning the Supreme Court for a writ of certiorari in Madden. Nor did Congress produce a legislative fix, despite such a bill being introduced in 2018. Both the OCC and Congress faced political headwinds over the practice by some marketplace and payday lenders that originate high-rate consumer loans through banks under the so-called bank origination model; the concern was that reversing Madden could enshrine such practices and could be potentially harmful to consumers. (For a discussion of the bank origination model, see our prior C&F Memorandum, “Marketplace Lending Update: Who’s My Lender?” (Mar. 14, 2018).) But that concern is not present in Cohen, where the Plaintiffs rely on Madden to attack traditional, currently performing credit card receivables that were originated by a national bank—a structure unrelated to the bank-origination model used by some marketplace lenders.
Cohen is the second Madden-related lawsuit brought against securitization trusts; the first is proceeding in Colorado against marketplace-lending receivables originated by Avant and Marlette. See “Marketplace Lending #5: The Very Long Arm of Colorado Law” (Apr. 24, 2019). Until Madden is reversed, we continue to recommend that clients exercise caution when acquiring, securitizing, or accepting as collateral consumer loans (or asset-backed securities backed by such loans), when the loans were originated to residents of a state in the Second Circuit (New York, Connecticut, and Vermont) and carry a rate above the applicable general usury rate (generally, sixteen percent in New York, twelve percent in Connecticut, and eighteen percent in Vermont).
Yesterday was the first of several deadlines under California’s unprecedented legislation, SB 826, imposing gender quota requirements on all publicly-held domestic or foreign corporations whose principal executive offices are located in California. This legislation also required the Secretary of State’s office to publish a report on its website no later than July 1, 2019 documenting those corporations subject to the law “who [sic] have at least one female director”.
The Secretary of State did, in fact, publish a report yesterday listing 538 corporations, their jurisdiction of incorporation, street address, phone number and stock exchange. Oddly missing from the list was any indication of the number of female directors (if any) even though the law clearly requires that information. It is also unclear why the Secretary of State chose to publish address and telephone information when that information was not required to be in the report.
The Secretary of State’s office did publish an explanation of its methodology that basically consisted of searches of Securities and Exchange Commission and other public filings. The explanation includes this warning as well:
“Note that federal filing deadlines for filing the annual SEC Form 10-K (60, 75 or 90 days after the end of the fiscal year) differ from the California deadline for filing the Publicly Traded Disclosure Statement (150 days from the end of the fiscal year) so there may be gaps in available data.”
The Secretary of State has modified its corporate disclosure statement to require publicly traded companies to disclose if they have one or more female directors on their current Boards of Directors. Given the definition of “female” in the statute (an individual who self-identifies her gender as a woman, without regard to the individual’s designated sex at birth), I wouldn’t be surprised to see a question concerning gender identification appearing on Directors and Officer questionnaires.
“Run a Google search for the phrase ‘minimum advertised price policy’ and you will find hundreds of policies, posted on a variety of manufacturers’ websites. Interest in minimum advertised price (‘MAP’) policies has skyrocketed in recent years.” That is what one of my colleagues wrote in a prescient article in 2013.[i] Since 2013, the interest in MAP policies has exploded. But much of the online guidance regarding MAP policies is misguided and clearly has not been crafted or vetted by antitrust counsel. Manufacturers should proceed with caution and consult with antitrust counsel before adopting a MAP policy.
What is a MAP Policy?
MAP policies impose restrictions on the price at which a product or service may be advertised without restricting the actual sales price. In the context of print advertising, MAP policies usually concern only off-site advertising, such as in flyers or brochures. They do not restrict the in-store advertising or sales price offered at the retailer’s “brick and mortar” locations. In the context of internet advertising, MAP policies often concern pricing advertised by an internet retailer on its website. But with internet advertising, the distinction between an advertised price and a sales price is often blurry and requires special attention.
What has been driving all the recent interest in MAP?
The e-commerce boom has been one key driver. Although e-commerce has been a financial boon for some by allowing products to reach broader audiences and conveniently connecting consumers to highly discounted and diversified products, other manufacturers are concerned that they are losing control over their brands and the advertising of their products. Once premium branded products might be discounted to the point of being considered cheap. As margins are squeezed, service may suffer and consumers ultimately lose out.
This phenomenon, and how to address it, has attracted massive recent attention, including from the popular press. In 2017, the Wall Street Journal published an article headlined, Brands Strike Back: Seven Strategies to Loosen Amazon’s Grip, reporting that a growing number of brands are pushing back on large online retailers by adopting MAP policies.[ii] The article reported that instituting MAP policies can be effective in decreasing online discounting. A recent Forbes article similarly recommended that manufacturers adopt MAP policies in response to the emergence of e-commerce sites.[iii]
Popular Misconceptions About MAP.
Public interest in MAP has been great for drawing attention to the usefulness of MAP policies in addressing brand dilution. But much of the popular discourse about MAP fails to account for the critical legal considerations attendant to adopting and enforcing a MAP policy, and would steer the unwary into legally risky territory. For example, a sampling of articles online—which will go unattributed—offer the following characterizations in promoting MAP policies:
A “MAP policy is an agreement between manufacturers and distributors or retailers”;
In a MAP policy, “authorized sellers agree to the policy and in return, the brand agrees to enforce their pricing”;
To prevent “margin erosion,” “manufacturers and retailers work together to set a minimum advertised price”;
MAP should be “enforced by both” the manufacturer and reseller; and
Brands should “control sellers” through “enforceable agreements.”
These suggestions to implement MAP through an “agreement” or in “cooperation” with resellers, and to use MAP to enforce product pricing, may have intuitive appeal. And in fact, several MAP templates available online are styled as “agreements” between the manufacturer and reseller. But be warned—these suggestions, if carried out, could pose significant antitrust risk that could subject companies to serious and expensive liability. The next section explains why.
Quick Antitrust Legal Guide to MAP.
When most people think of illegal antitrust conspiracies, they think of agreements among competitors to fix prices or restrict competition, which are per se illegal. But in general, manufacturers also may not require their resellers—either distributors or retailers—to resell at (or above) a set price. This is known as minimum resale price maintenance (“RPM”) and it is also per seillegal under antitrust laws in several states.
Although RPM may be per se illegal under certain state laws, MAP policies are generally analyzed under a more lenient legal framework called the “rule of reason.” But a MAP policy must be crafted with care to avoid being treated as RPM. For example, agreements with resellers concerning the minimum advertised price may be viewed, depending on the circumstances, as actually having the effect of setting the minimum sales price, converting the MAP policy into RPM. A MAP policy also must be adopted free from any agreement with a manufacturer’s horizontal competitors, which could be found to be an unlawful horizontal conspiracy. In one prominent example, the Federal Trade Commission (“FTC”) brought an enforcement action against five major competing compact disk (“CD”) distributors challenging their MAP policies as violating federal antitrust laws.[iv] All five major CD distributors had adopted MAP policies around the same time, allegedly at the urging of retailers, and the policies each prohibited all advertising below a certain price, including in-store advertising. The FTC viewed the policies under those circumstances as horizontal agreements among the distributors, and thus per se illegal.
Practical Antitrust Pointers for MAP.
Several guiding principles can help minimize antitrust risk in adopting a MAP policy:
Advertising Only. A retailer should remain free to sell a product at any price, so that the restriction on advertising is deemed to be a non-price restraint. In the context of online sales, adhering to this principle can require special care, as some might try to argue that there is little distinction between an advertised price and a sales price. MAP policies that concern internet advertising thus often include provisions that allow internet retailers to communicate an actual sales price in a different manner—such as “Call for Pricing” or “Add to Cart to See Price.”
No Agreement. A MAP policy should be drafted as a unilateral policy—i.e., a policy that the manufacturer creates on its own (in consultation with antitrust counsel), without input from or agreement with its own competitors or with its downstream resellers. The policy should expressly state that it is a unilateral policy that does not constitute an agreement.
Broad Application. Policies that apply to all off-site advertising, no matter the form, are more likely to be upheld than policies that are specifically directed at internet retailers.
Clarity. A MAP policy should be user-friendly and easy to understand. One best practice is to include a Frequently Asked Questions guide to clarify how the policy works.
Antitrust risk must be kept in mind not just when a MAP policy is created, but throughout its implementation and enforcement. The manner in which a MAP policy is enforced could risk converting the unilateral policy into conduct that could be viewed as a tacit agreement, even if no written agreement is ever signed. For example, enlisting or “working with” resellers to enforce the policy, as suggested by articles online, could be viewed as evidence that a manufacturer is coordinating with resellers as part of an overall agreement. Working with competitors to coordinate strategies for MAP enforcement would also pose significant legal risk. For that reason, manufacturers that are adopting MAP policies should resist communications with resellers or competitors about MAP and continue to work with antitrust counsel through implementation and enforcement.
To be sure, some may believe that coordination, for example, between manufacturers and retailers, is helpful in stamping out e-commerce discounting. But even if such coordination between manufacturers and retailers could be effective in addressing such discounting, it carries significant legal risks. And potentially risky agreements with resellers are not a manufacturer’s only option in addressing how its products are advertised in e-commerce. Other tools are also available and can be adopted in conjunction with MAP and other policies. As just one example, a unilateral distribution policy, in which a manufacturer unilaterally suspends resellers that sell through unauthorized e-commerce sites, can be a powerful complement to a MAP policy. It also may present a more direct way to address the e-commerce channels through which goods are (or are not) sold. Because such policies do not involve prices, if appropriately created and implemented, U.S. courts are likely to also assess them under the lenient “rule of reason.” It is therefore unsurprising that such policies are gaining in popularity. One recent study surveying over 1,000 European retailers found that policies precluding or limiting e-commerce sales are widely in place with approximately 18% of respondents reporting that manufacturers limit their ability to sell through online marketplaces or platforms and 11% reporting that manufacturers restrict their online sales to their own website.[v]
Ultimately, addressing brand dilution is critical in the e-commerce age. It is also highly fact specific and typically requires custom solutions tailored to a company’s commercial and legal objectives. Adopting an “off the rack” MAP policy and simply hoping for the best is unwise and could lead to expensive litigation or, worse yet, liability and costly penalties. But antitrust lawyers are here to help companies navigate the legal landscape to come up with commonsense solutions that work while minimizing legal risk.
Carlton Fields
