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Legal Industry News: Law Firm Hires, Mergers, Accomplishments and Legal Technology Companies Give Back

Summer is in full swing, and the legal industry continues to adapt to the challenges of the Coronavirus, and business continues to roll forward.

Law Firm Hires and Leadership Changes

Even with the disruption of COVID-19, law firms continue to hire and make leadership adjustments, adapting to the new normal.

Below is a quick rundown of some law firm hires and promotions over the past two weeks.

Steptoe & Johnson PLLC elected Christopher L. Slaughter as the law firm’s new CEO. Slaughter took over the position July 1st, succeeding Susan S. Brewer, who became Steptoe & Johnson’s CEO in 2009.

Slaughter began his career as a labor and employment attorney at Steptoe & Johnson (S&J) over 20 years ago, focusing his practice on litigation and counseling, including contract administration and labor negotiations. Slaughter was previously a managing member of S& J’s Huntington, West Virginia office.

“I am honored to be elected to this position by my partners. I look forward to carrying on our tradition of excellent client service and upholding the core values that have sustained Steptoe & Johnson for 107 years,” Slaughter said.

Brewer will remain with Steptoe & Johnson to assist with Slaughter’s transition and to provide project leadership.

Former Nashville Mayor Bill Purcell joined Frost Brown Todd (FBT) as a counsel in the firm’s Government Services practice group.

Purcell has practiced law in Nashville for over 30 years, serving as a courtroom advocate and CEO advisor for companies that work with municipalities and other governmental entities. In 2006, he received the John C. Tune award from the Nashville Bar Association for public service.

“I have had the same goal from the very start of my law practice and public life—to work with the smartest, most ethical people to solve challenging issues,” Purcell said. “From the first time I walked into the Frost Brown Todd offices, I knew I was home.”

Purcell was elected mayor of Nashville in 1999 and re-elected in 2003. During his tenure, he increased public education funding by 50 percent and built 26,000 affordable housing units.

“As we enter a time when our public and private sectors are challenged like never before, there could not be a better time to bring aboard someone with Bill’s talents,” said FBT Chairman Robert Sartin, who also is based in the firm’s Nashville office. “We are in this with our clients to win—Mayor Purcell is going to be a difference-maker for our clients.”’

Dino Hadzibegovic joined the Silicon Valley Office of Dickinson Wright as Of Counsel. Hadzibegovic’s practice focuses on trademark and patent litigation, due diligence and patent portfolio analysis. He has represented both plaintiffs and defendants in cases involving mobile platform architectures, networking, semiconductors, wireless technology and telecommunication standards.

Before joining Dickinson Wright, Hadzibegovic was the IP Counsel for JUUL Labs, where he carried out patent and trademark litigation in federal courts, international courts and the ITC.

Shanlon Wu and Julie Grohovsky joined Cohen Seglias Pallas Greenhall & Furman (Cohen Seglias) as partners in the firm’s Washington, D.C. office. Wu will lead the Cohen Seglias’ new White Collar Defense & Government Investigations Group. Grohovsky will lead the firm’s new False Claims Act & Whistleblower Group, where Wu will also practice. Both Wu and Grohovsky previously had their own firm, Wu Grohovsky.

“Shan and Julie are highly regarded for their knowledge and experience with white-collar defense, college student defense, as well as government investigations. Their practices are in line with our firm’s growth, and we are excited to build our Washington, D.C. footprint with them on board,” said Cohen Seglias Managing Partner George Pallas.

Wu is a former federal prosecutor, handling student defense and high profile white-collar matters involving companies and individuals facing prosecutions and investigations for health care fraud, defrauding the government and bribery allegations.

Grohovsky’s practice focuses on whistleblowers who bring cases under the qui tam provisions of the False Claims Act, as well as representing victims in civil and criminal cases and Title IX proceedings.

Grohovsky previously served as an attorney-advisor to the Office of the Inspector General for the Department of Justice, investigating fraud allegations, abuse, and waste in the department. She also served as an Assistant U.S. Attorney in the District of Columbia, training lawyers and support staff.

Eric J. Peterman joined Sugar Felsenthal Grais & Helsinger (Sugar Felsenthal) as a partner in the firm’s newly opened New York office.

Peterman has over two decades of corporate restructuring, corporate transactional and structured finance experience. He previously served as a Senior Counsel, Finance Department at DLA Piper, advising on insurance-related securities transactions.

“Coming to Sugar Felsenthal has been the best move of my career,” Peterman said. “The energy with which my new partners take on clients’ issues is electric; their intellectual horsepower, tremendous, and the creative and practical lawyering I have already seen is among the best I’ve ever encountered.”

Law Firm Mergers, Accomplishments and Attorney Honors

Troutman Sanders and Pepper Hamilton became Troutman Pepper (Troutman Pepper Hamilton Sanders LLP) July 1. The new firm, which has 1,100 attorneys across 23 offices, is led by Steve Lewis, chair and CEO.

The merger was previously scheduled to take place April 1, but was postponed until July due to the coronavirus crisis. Both firms worked together to launch a COVID-19 resource center to provide detailed guidance on legal and business issues related to the pandemic.

“The combining of the two storied firms presented an opportunity to seamlessly merge different but complementary strengths of each,” Lewis said.

Pepper Hamilton focuses on life sciences, health care and private equity practices, while Troutman Sanders focuses on the insurance, finance, banking and energy industries.

The Grand Rapids Symphony Board of Directors named Varnum Partner Luis Avila as the chair of its executive committee. Avila has served on the board for the past three years. In addition to his position with the Grand Rapids Symphony Board of Directors, he serves on the boards of the Grand Rapids Art Museum, Grand Rapids Downtown Development Authority and the Michigan Hispanic Chamber of Commerce.

Avila represents clients in labor matters before Michigan Employment Relations Commission and National Labor Relations Board (NLRB), and advises employers on workplace matters and represents clients addressing matters involving federal and state laws. He also serves as the co-chair of Varnum’s Diversity and Inclusion Committee.

Solar Panels K&L Gates advised solar energy systems developer Unico Solar Investors on a long term joint venture with renewable energy investor Excelsior Energy Capital to build, operate and own commercial and industrial solar projects across the U.S.

Unico Solar will develop and manage the portfolio of projects, which includes ground-mount, rooftop, and carport solar projects, providing clean electric to municipalities and property owners and educational institutions. Construction is expected to begin later this year.

K&L Gates advisory team was led by Seattle partner David Benson and included Seattle partner Elizabeth Crouse, Houston partner Edmundo de la Fuente and Portland partner William Holmes. Seattle associates Adam Heyd and Brad Lewis, Orange County associate Lana Le Hir, Houston associate Olivia Mora, and Boston associate Mike O’Neill were also part of the advisory team.

Erin Clifford Clifford Law — Erin Clifford, Clifford Law Offices

Erin Clifford, partner at Clifford Law Offices, was unanimously elected to the WTTW/WFMT Board of Directors at its June 30 Board meeting. She joins her father, Robert A. Clifford, founder and senior partner at Clifford Law Offices, on the Board. This is just the latest in Clifford’s philanthropic activities, as she has an extensive resume of service in Chicago. Ms. Clifford serves as board chair of Lawyers Lend-A-Hand, which devotes resources and provides mentoring opportunities in disadvantaged Chicago communities through volunteer work and grant distributions. Erin Clifford also serves on the board of Friends of Prentice Board, working to provide excellent health care for women. Additionally, she supports ChiArts, the Chicago High School for the Arts, and many other civic activities in Chicago.

Legal Technology News

In our previous column, we discussed the legal industry response to the Black Lives Matter movement. This week, legal companies are finding ways to empower the social justice movement in concrete ways, providing access to resources to further the fight for justice in courtrooms across the country.

In celebration of the U.S. Supreme Court’s decision in Bostock v . Clayton County, legal technology company Casetext announced they are providing free access to the Compose brief automation for Title VII motions for the rest of the summer. Bostock v. Clayton County extended Title VII protections to lesbian, gay, bisexual, and transgender workers. Jake Heller, Casetext’s CEO and co-founder, indicated the company was thrilled at the court’s landmark decision on Title VII rights and its impact on the LGBTQIA community, saying,

As part of transforming the legal research space, we want to be part of making it the norm and not the exception for legal technology companies to become active participants in issues of social justice. It is our responsibility to make sure the technology we develop is in the hands of those who can use it to expand access to justice, particularly to marginalized and disadvantaged communities.

Casetext, whose technology uses machine learning on key elements of legal practice and powers CARA A.I. and Compose litigation automation, had previously made their legal research materials complimentary for attorneys working on pro bono representation to victims of excessive police force as well as protestors and journalists exercising First Amendment rights in response to the Black Lives Matter protests. (Attorneys interested in that service can request it here)

Casetext technology enables lawyers to focus on strategy and persuasion by removing the rote, repetitive elements of brief writing. Now, their technology is helping attorneys find justice for their clients. Heller says, “We hope that access to this technology will empower the attorneys who are on the ground in the fight against discrimination.”

In a several vein, Thomson Reuters announced last week a Civil Rights Legal Materials and News webpage available at civilrights.westlaw.com. The news page lives outside the paywall, and contains news coverage and Westlaw legal content, including statutes and case law, divided into three major categories: police conduct, unwarranted criminal prosecution and the right to protest. Additionally, the page offers ways to find Civil Rights attorneys.

Steele Compliance Solutions, a global leader in Ethics & Compliance Management, recently announced the worldwide launch of “Risk Intelligence Data,” an Enterprise Data as a Service (DaaS) platform delivering real-time, high-quality risk and compliance data. In the current climate, amidst a global COVID-19 pandemic and economic downturn, companies need access to data to properly vet partnerships while making decisions quickly. Christian Focacci, VP of Product Development at Steele Compliance solutions points to the need for better tech to help compliance professionals sort through the publicly identifiable data to identify risk. He says,

We are providing compliance teams with unmatched levels of data coverage through our proprietary datasets and continuous media monitoring. In particular, our business disruption data set will be critical in helping our clients proactively mitigate risk during the COVID-19 pandemic, by helping to identify customer and vendor risk through early detection of business deficiencies.

Steele’s Risk Intelligence Data delivers information on adverse media and negative news, watchlist and sanction lists, Politically Exposed Persons (PEP), OFAC related ownership and state owned entities, integrating information into third-party platforms to provide greater insights into risk information with fewer false positives.

That’s an overview of what’s happening in the legal industry. We’ll be back soon with more updates.

ARTICLE BY Eilene Spear and Rachel Popa at The National Law Review / The National Law Forum LLC.

For more legal industry news see the National Law Review Law Office Management section.

DHS Rules Effective August 2020 Will Push Asylum Seekers Further into Poverty and Marginalization

In late June 2020, the Department of Homeland Security (DHS) announced two regulatory changes intended to deprive asylum applicants of the ability to work lawfully in the United States while they await the adjudication of their asylum applications. By increasing the obstacles asylum seekers overcome to obtain an Employment Authorization Document, commonly known as a “work permit,” the new rules endanger the health and safety of asylum seekers and their families.

The first rule change, effective August 21, 2020, eliminates the requirement that USCIS must process employment authorization applications within 30 days of receiving the application. This rule change allows USCIS to adjudicate work permit applications for an indeterminate period of time, which will inevitably result in delays. The government claims this move will deter immigrants from filing “frivolous, fraudulent, or otherwise non-meritorious [asylum] claims.” But the rule change is more likely to force asylum seekers further into poverty and informal economies, thereby making it more difficult for them to meet their basic needs.

The second rule change, effective August 25, 2020, severely restricts eligibility for work permits while simultaneously increasing the waiting time for work permits. This too will have dire consequences for asylum seekers struggling to survive while their asylum applications remain pending. The new measures mandate the government to:

substantially delay the issuance of work permits by more than doubling the waiting period to apply from 150 days to 365 days;
bar asylum seekers from receiving a work permit if they attempt to enter the United States without inspection on or after August 25, 2020, unless they qualify for very limited exceptions;
deny employment authorization for asylum seekers who file their asylum application after the one-year filing deadline, unless granted an exception;
prohibit employment authorization for applicants who have been convicted of certain crimes or who are “believed” to have committed a serious non-political crime outside the United States;
deny employment authorization applications if the underlying asylum application has experienced “unresolved applicant-caused delays,” such as a request to amend or supplement the asylum application or if the application is being transferred to a different asylum office due to a change in the applicant’s address;
automatically terminate an asylum seeker’s work permit without provision for renewal if an immigration judge denies the asylum case and the applicant does not appeal to the Board of Immigration Appeals (BIA) within 30 days, or if the applicant does appeal but the BIA denies the appeal; and
limit the employment authorization validity period to a maximum of two years.

The effects of these new directives will be devastating. Currently, the inability to work lawfully for at least six months after seeking asylum often leaves applicants homeless, hungry, and without access to health care. Because federal law does not provide support such as income, housing, or food assistance to asylum applicants, dramatically increasing the waiting period for a work permit will exacerbate the conditions of poverty in which many asylum applicants find themselves. Without employment authorization, asylum seekers cannot obtain health insurance under the Affordable Care Act, and often cannot apply for a driver’s license or benefit from public assistance programs that offer safe housing and access to food. Federal law permits states to provide state-funded benefits to asylum seekers, but only about half of the states have extended benefits to that population. Even when states do provide some public benefits to asylum applicants, it is often only for children, the elderly, or asylum seekers with specific health conditions.

Given these consequences, pro bono attorneys representing asylum seekers who are eligible to apply for a new work permit or to renew an existing work permit now should consider filing employment authorization applications before August 21, when the first of these rules goes into effect.

ARTICLE BY Erin M. Meyer and Angela Gichinga at Proskauer Rose LLP.

For more on the topic, see the National Law Review Immigration Law section.

Reactions to the U.S. Supreme Court’s Rulings in Trump v. Vance & Trump v. Mazars

In Trump v. Vance and Trump v. Mazars the Supreme Court issued opinions in two cases concerning the release of President Trump’s financial records. Reactions to the July 9^th rulings have varied, with opinions differing on whether or not Trump’s reputation and presidency will be significantly impacted by what his financial records may reveal.

Below, we outline the details of each case and the reactions to the Supreme Court’s decisions.

Background Trump v. Vance

In Trump v. Vance, the court stated that Trump had no absolute right to block the Manhattan District attorney’s access to Trump’s financial records for the purposes of a grand jury investigation. The court held in a 7-2 decision that “Article II and the Supremacy Clause do not categorically preclude, or require a heightened standard for, the issuance of a state criminal subpoena to a sitting President.” The court’s opinion was written by Chief Justice John Roberts for the majority including Justices Ginsburg, Breyer, Sotomayor and Kagan with Justice Kavanaugh filing a concurring opinion joined by Justice Gorsuch, and Justice Thomas and Justice Alito writing separate dissenting opinions.

Trump v. Vance involves a state criminal grand jury subpoena not served on President Trump, but on two banks and an accounting firm that were custodians of the records. The subpoenaed records are for eight years of Trump’s personal and business tax returns and other banking documents in the years leading up to the 2016 election served on behalf of New York District Attorney Cyrus Vance., Jr. Vance’s investigation centered around payments made to two women — Karen McDougal and Stormy Daniels — who alleged they had affairs with Trump before he entered office.

The Supreme Court considered state criminal subpoenas could threaten “the independence and effectiveness” of the president as well as undermining the president’s leadership and reputation, weighing Trump’s circumstances against those in Clinton v. Jones, the 1997 case where President Bill Clinton sought to have a civil suit filed against him by Paula Corbin Jones dismissed on the grounds of presidential immunity, and that the case would be a distraction to his presidency.

Trump argued that the burden state criminal subpoenas would put on his presidency would be even greater than in Clinton because “criminal litigation poses unique burdens on the President’s time and will generate a considerable if not overwhelming degree of mental preoccupation” and would make him a target for harassment.

The Court addressed Trump’s argument, stating that they “rejected a nearly identical argument in Clinton, concluding that the risk posed by harassing civil litigation was not ‘serious’ because federal courts have the tools to deter and dismiss vexatious lawsuits. Harassing state criminal subpoenas could, under certain circumstances, threaten the independence or effectiveness of the Executive. But here again the law already seeks to protect against such abuse … Grand juries are prohibited from engaging in ‘arbitrary fishing expeditions’ or initiating investigations ‘out of malice or an intent to harass.’”

The Court also considered that Vance is a case addressing state law issues where Clinton was a case addressing federal law issues. Trump argued that the Supremacy Clause gives a sitting president absolute immunity from state criminal proceedings because compliance with subpoenas would impair his performance of his Article II functions. Arguing on behalf of the United States, the Solicitor General claimed state grand jury subpoenas should fulfill a higher need standard. In response, the Court ruled, “A state grand jury subpoena seeking a President’s private papers need not satisfy a heightened need standard … there has been no showing here that heightened protection against state subpoenas is necessary for the Executive to fulfill his Article II functions.”

Notably, the Supreme Court decision does not allow for public access to Trump’s tax returns; they will be part of a Grand Jury investigation, which is confidential. However, many took away the message that the majority’s decision–bolstered by Gorsuch and Kavanaugh, Trump appointees, who concurred–that the law applies to everyone.

Reactions to SCOTUS Decision from Jay Sekulow and Cyrus Vance, Jr.

Both Vance and Trump’s attorney Jay Sekulow expressed they were content with the Court’s ruling, albeit for different reasons.

“We are pleased that in the decisions issued today, the Supreme Court has temporarily blocked both Congress and New York prosecutors from obtaining the President’s financial records. We will now proceed to raise additional Constitutional and legal issues in the lower courts,” Sekulow tweeted.

We are pleased that in the decisions issued today, the Supreme Court has temporarily blocked both Congress and New York prosecutors from obtaining the President’s financial records. We will now proceed to raise additional Constitutional and legal issues in the lower courts.

— Jay Sekulow (@JaySekulow) July 9, 2020

“This is a tremendous victory for our nation’s system of justice and its founding principle that no one – not even a president – is above the law. Our investigation, which was delayed for almost a year by this lawsuit, will resume, guided as always by the grand jury’s solemn obligation to follow the law and the facts, wherever they may lead,” Vance said in a statement.

**Other Reactions to the Supreme Court’s Trump v. Vance Ruling**

Following the Supreme Court’s arguments in Vance, lawyers and legal scholars commented about what the decision could mean for the presidency.

In a C-SPAN interview with National Constitution Center President and CEO Jeffrey Rosen, Columbia Law School Professor Gillian Metzger spoke about the issue of burden on the president in Vance, “A lot of what is being shown in these cases is who bears the burden when. Clinton v. Jones said that first, you have to show the burden on the presidency…already the Solicitor General is trying to move us beyond where we had been in Clinton vs. Jones. Among the justices on the court, my sense is that they are really trying to figure out what the standards should be…I didn’t get the sense of a stark ideological divide on this.”

In agreement with seeing the ruling as a victory for the rule of law, David Cole, the ACLU National Legal Director said: “The Supreme Court today confirmed that the president is not above the law. The court ruled that President Trump must follow the law, like the rest of us. And that includes responding to subpoenas for his tax records.”

Harvard Law professor Laurence Tribe, a frequent Trump critic, highlighted the victory on Twitter, saying: “No absolute immunity from state and local grand jury subpoenas for Trump’s financial records to investigate his crimes as a private citizen. Being president doesn’t confer the kind of categorical shield Trump claimed.”

Of a practical matter, though, Mark Zaid, the Washington attorney who represented the whistleblower who set the stage for Trump’s impeachment proceedings, tweeted:

Even if Trump’s tax returns reveal fraud, I find it doubtful that this fact would finally be straw that broke his supporters’ back on election day.

But importance of ruling is that criminal investigation continues & will exist past expiration of Trump’s presidential immunity. https://t.co/dn3GIJ9CRj

— Mark S. Zaid (@MarkSZaidEsq) July 9, 2020

“Even if Trump’s tax returns reveal fraud, I find it doubtful that this fact would finally be straw that broke his supporters’ back on election day. But importance of ruling is that criminal investigation continues & will exist past expiration of Trump’s presidential immunity.” (Should we embed the tweet?)

Background for the Supreme Court’s Ruling in Trump v. Mazars

The Supreme Court remanded back to the lower courts the second case, Trump v. Mazars in a 7-2 decision. The Mazars case involved three committees of the U. S. House of Representatives attempting to secure Trump’s financial documents, and the financial documents of his children and affiliated businesses for investigative purposes. Each of the committees sought overlapping sets of financial documents, supplying different justifications for the requests, explaining that the information would help guide legislative reform in areas ranging from money laundering and terrorism to foreign involvement in U. S. elections.

Additionally, the President in his personal capacity, along with his children and affiliated businesses—contested subpoenas issued by the House Financial Services and Intelligence Committees in the Southern District of New York. Trump and the other petitioners argued in the United States Court of Appeals for the Second Circuit that the subpoenas violated separation of powers. The President did not, however, argue that any of the requested records were protected by executive privilege. Justice Roberts wrote the majority opinion, with Thomas and Alito filing dissenting opinions.

In Mazars, the District Court for the District of Columbia upheld the Congressional subpoenas, indicating the investigations served a “legislative purpose” as they could provide insight on reforming presidential candidate’s financial disclosure requirements. However, Roberts writes: “the courts below did not take adequate account of the significant separation of powers concerns implicated by congressional subpoenas for the President’s information.”

In the opinion, Roberts sets out a list of items the lower courts need to consider involving Congress’s powers of investigation and subpoena, noting that previously these disagreements had been settled via arbitration, and not litigation. Additionally, Roberts summarizes the argument before the court, drawing on the Watergate era Senate Select Committee D. C. Circuit made by the President and the Solicitor General, saying the House must demonstrate the information sought is “demonstrably critical” to its legislative purpose did not apply here. Roberts, stated that this standard applies to Executive privilege, which, while crucial, does not extend to “nonprivileged, private information.” He writes: “We decline to transplant that protection root and branch to cases involving nonprivileged, private information, which by definition does not implicate sensitive Executive Branch deliberations.”

However, Roberts detailed that earlier legal analysis ignored the “significant separation of powers issues raised by congressional subpoenas” and that congressional subpoenas “for the President’s information unavoidably pit the political branches against one another.” With these constraints in mind, Roberts charged the lower court to consider the following in regards to congressional investigations and subpoenas:

Does the legislative purpose warrant the involvement of the President and his papers?
Is the subpoena appropriately narrow to accomplish the congressional objective?
Does the evidence requested by Congress in the subpoena further a valid legislative aim?
Is the burden on the president justified?

Reactions to Trump v. Mazars

Nikolas Bowie, an assistant Harvard Law Professor, turning to Robert’s analysis in the opinion on Congressional investigations opinion discussing Congressional investigations indicated the decision “introduces new limits on Congress’s power to obtain the information that it needs to legislate effectively on behalf of the American people . . . the Supreme Court authorized federal courts to block future subpoenas using a balancing test that weighs ‘the asserted legislative purpose’ of the subpoenas against amorphous burdens they might impose on the President.”

Additionally, Bowie points out, “it seems unlikely that the American people will see the information Congress requested until after the November election.”

Writing for the nonprofit public policy organization, The Brookings Institution, Richard Lempert, Eric Stein Distinguished University Professor of Law and Sociology Emeritus at the University of Michigan, concurs with Bowie’s point, writing that the Mazars decision may set a new standard for Congressional subpoenas moving forward:

“The genius of Robert’s opinion in Mazars is that while endorsing the longstanding precedent that congressional subpoenas must have a legislative purpose and without repudiating the notion that courts should not render judgments based on motives they impute to Congress, the opinion lays down principles which form a more or less objective test for determining whether material Congress seeks from a president is essential to a legislative task Congress is engaged in … Congress should be able to spell out in a subpoena why it needs the documents it seeks.”

Looking Ahead to What’s Next

There is a lot of information in these decisions to unpack, especially in relation to Congressional investigations and subpoenas. Additionally, questions remain on how the lower courts may interpret Roberts’ directive to examine “congressional legislative purpose and whether it rises to the step of involving the President’s documents” and how Congress will “assess the burdens imposed on the President by a subpoena.”

ARTICLE BY Rachel Popa, Eilene Spear and Jennifer Schaller at The National Law Review / The National Law Forum LLC.

For more on this case, see the National Law Review Litigation and Trial Practice type-of-law section.

Severance: To Pay or Not To Pay

As the economic downturn from the COVID-19 pandemic continues to impact businesses throughout the United States, many employers face the prospect of implementing reductions in force or other employee terminations. Common questions include whether employers are legally obligated to pay severance, whether offering severance is advisable in the absence of a requirement to do so, and how much to offer. As explained below, severance payments are generally optional and can be used by employers to achieve a number of important goals, including risk mitigation and litigation avoidance.

Are Employers Required to Pay Severance?

As of this writing, no federal or state law obligates employers to pay severance to employees upon termination. Under the federal Worker Adjustment and Retraining Notification (“WARN”) Act and some state equivalents, employers may be required to pay terminated employees wages and benefits for a certain period if they fail to provide adequate notice to those employees as part of a qualifying mass layoff or plant closing. However, these payments under the WARN Act are penalties for non-compliance with the notice requirement rather than true severance and, moreover, can easily be avoided by providing the required notice.

New Jersey will become the first state in the nation to require employers to pay severance in certain circumstances when amendments to its WARN Act equivalent become effective. As part of a series of employer-unfriendly laws enacted in January 2020, New Jersey will require large employers—even those who comply with WARN notice requirements—to pay one week of severance for each full year of service to employees who are terminated as part of a qualifying mass layoff or plant closing. Employers who fail to provide adequate notice must pay an additional four weeks as a penalty. Fortunately, New Jersey has delayed the effective date of this new severance requirement to 90 days after termination of the COVID-19-related state of emergency.

Although no law currently requires the payment of severance, an employer may legally obligate itself to provide severance in a number of scenarios, including:

An employment agreement, especially for an executive, may guarantee some amount of severance in the event of a termination without cause.
A company policy, whether contained in an employee handbook or not, may provide for severance for employees who are terminated through no fault of their own.
A collective bargaining agreement may contain a severance guarantee.
Federal, state, and local anti-discrimination laws may compel an employer to offer severance to similarly situated employees in order to avoid a disparate treatment claim.

A practice of paying severance may be viewed under some circumstances to create a plan under the federal Employee Retirement Income Security Act (“ERISA”), with attendant requirements.

Should an Employer Offer Severance?

Absent a requirement or obligation to pay severance, an employer may nonetheless choose to offer severance in order to avoid claims or litigation, to obtain other benefits, or as a matter of goodwill. Indeed, whenever an employer offers severance, the offer should be conditioned upon the employee’s signing a general release of claims against the employer, affiliated entities, and associated personnel. This is true whether there is a specific concern about a claim or lawsuit—for example, where the terminated employee has previously complained about alleged discrimination—or not. Note that certain claims and rights cannot be released by an employee even in exchange for severance, such as claims for unemployment and worker’s compensation and the right to file a discrimination charge with a government enforcement agency.

Employers can also use severance to obtain strategic benefits from terminated employees beyond the release of claims, including confidentiality and restrictive covenants such as non-competition, non-solicitation, and non-disparagement provisions. In some situations, employers may wish to include other provisions as part of the exchange, such as a requirement that terminated employees cooperate with post-termination transition work or be available as a witness for pending or anticipated litigation.

How Much Severance to Offer?

Unless there is a preexisting requirement, policy, or plan to pay severance in a specified amount, the amount of severance to offer is entirely up to the employer. The amount should be sufficient “consideration” to support the employee’s release of valuable rights/ claims; however, there is no minimum threshold or magic number. Ultimately, the right amount of severance is a function of how much the employer is willing to pay and how little the terminated employee is willing to accept in exchange for signing an agreement containing a general release and any other provisions desired by the employer.

A good starting point—though by no means a requirement or standard—is one week of base salary for every year of service. Using a formula to determine severance amounts based on tenure or some other objective criteria helps insulate an employer from allegations of discrimination or unfairness, especially in the context of a group termination. Still, an employer is generally free to adjust the amount of severance to address individual situations.

Severance can be paid in a single lump sum or in installments over time, within certain limitations under the tax code. Employers should note that severance pay will likely be deemed to be W-2 wages by the IRS and state tax authorities, thus requiring employers to withhold employee payroll taxes and to pay employer payroll taxes. In addition, receipt of severance may impact a terminated employee’s eligibility for unemployment insurance benefits.

There are also a variety of other items that can supplement severance pay and may help achieve the employer’s ultimate goal—getting an employee to give a general release or agree to other conditions. Perhaps the most common is subsidized health insurance continuation coverage, in which the employer makes up the difference between the cost for the terminated employee under COBRA and the rate paid by active employees. Other, non-monetary supplements include job placement assistance, reference letters and more.

Takeaways for Employers

Severance is a powerful tool that employers can use to protect against lawsuits, legal fees, unfair competition, and a host of other undesirable situations. It is critical that any offer of severance, whether contained in an agreement/policy or made in conjunction with a termination, include, at a minimum, a requirement that the terminated employee provide a general release of claims. Finally, severance agreements and policies require the input of experienced legal counsel. There are many procedural requirements to ensure that releases and related agreements are fully enforceable, and these requirements continue to evolve.

ARTICLE BY Jordan E. Pace and Jill Turner Lever at Sills Cummis & Gross P.C.

For more employee termination considerations see the National Law Review Labor & Employment law section.

Keeping Things in Bounds: Private Company Owners Need to Abide by Clear Fiduciary Duties in Managing Their Companies

In February 2009, Pittsburgh Steelers wide receiver Santonio Holmes made a toe tapping catch in the back corner of the end zone^[1] to secure a thrilling, come-from-behind win and crush the hearts of Arizona Cardinals fans in Super Bowl 43. For private company owners running their own firms, the boundaries for their conduct are set by the fiduciary duties they owe to their companies. But in both sports and the management of private businesses, team leaders can find it challenging to remain in bounds. This post therefore reviews the legal lanes of proper conduct that owners will want to follow to avoid future claims.

The Scope of Fiduciary Duties

The fiduciary duties of corporate directors and officers are not included in the Texas Business Organizations Code (“BOC”), but Texas case law for more than a century makes clear that both directors and company officers owe duties of obedience, care, and loyalty, and these duties are owed to the company, not to the individual shareholders. See Tenison, v. Patton, 95 Tex. 284, 67 S.W. 92 (1902); Ritchie v. Rupe, 443 S.W.3d 856, 868 (Tex. 2014). These same fiduciary duties also apply to LLC managers and officers, and all of these parties are referred to in this post as “control persons.”

The Ritchie case focused on whether minority shareholders have a legal right to secure a court-ordered buyout of their minority ownership interest based on claims that control persons engaged in shareholder oppression. The Court held no claim for shareholder oppression exists in the BOC or at common law that would authorize a trial court to order the company or majority owners to buy the minority owner’s stake in the business. But, the Ritchie Court did uphold the right of minority shareholders to pursue claims against officers and directors for breach of their fiduciary duties, and recognized that these claims could be brought on a derivative basis. In this regard, the Court stated that:

“Directors, or those acting as directors, owe a fiduciary duty to the corporation in their directorial actions,and this duty “includes the dedication of [their] uncorrupted business judgment for the sole benefit of the corporation.” 443 S.W.3d at 868.

The BOC permits the fiduciary duties of control persons to be limited in the company’s governance documents, but the statute does not permit a company to remove the duty of loyalty owed by control persons. The remainder of this post focuses on what the duty of loyalty requires from governing persons in their business relationship with their companies.

Conflicts Transactions by Control Persons Can Lead to Claims

Owners of private companies commonly engage in transactions with their businesses in their capacity as control persons. Majority owners may buy, sell and lease property from or to their companies, buy and sell products or services from other businesses they also own or control, and loan money to their companies to fund their business operations. All of these transactions are not at “arm’s-length” and, instead, they are “interested party” transactions, which are sometimes referred to as “conflict transactions.” These types of conflicts transactions may result in claims by the minority owners who allege that the transactions breached the control person’s fiduciary duties because they were not fair to the company.

Once again, the Supreme Court in Ritchie addressed this problem:

[T]he duty of loyalty that officers and directors owe to the corporation specifically prohibits them from misapplying corporate assets for their personal gain or wrongfully diverting corporate opportunities to themselves. Like most of the actions we have already discussed, these types of actions may be redressed through a derivative action, or through a direct action brought by the corporation, for breach of fiduciary duty. 443 S.W.3d at 887.

There is a “safe harbor” provision in the BOC for company control persons when they engage in business with their company for their personal benefit. Section 21.418 of the BOC provides that when a control person enters into a transaction with the Company, which would otherwise be void or voidable, the transaction will be nevertheless be upheld as valid if certain conditions are met. We discussed this safe harbor statute in more detail in a previous post (Read Here). In summary, a conflict transaction by a control person will be upheld if (i) the details of the transaction were fully disclosed to and approved by a majority of the shareholders and/or by a majority of the disinterested directors or (ii) if the transaction is deemed to be objectively fair to the company.

Fairness is not defined in the BOC provisions, but fair is defined in Webster’s dictionary as “characterized by honesty and justice” and “free from fraud, injustice, prejudice or favoritism. Once the minority shareholder brings a claim and demonstrates that a control person engaged in a conflict transaction, the control person will then bear the burden of demonstrating in the case that the terms of the transaction were fair to the company. To avoid being forced to litigate the issue of fairness, control persons may want to avoid the following types of conflict transactions or, alternatively, they may want to take steps to head off the expected challenge from minority owners that the transaction was not fair to the company.

Examples of Conflicts Transactions

The following are the most common types of conflict transactions that control persons engage in with their companies, and for each of these, an approach is suggested that can either eliminate or reduce the potential for future claims.

Theft of corporate opportunity
The duty of loyalty requires control persons not to take business opportunities for themselves that rightfully belong to the company. When control persons take company opportunities, this is referred to as usurpation or misappropriation and it is a breach of fiduciary duty. There is a clear way, however, for control persons to avoid this claim. In 2003, the BOC was amended to allow for a company to include in its certificate of formation, bylaws or in its company agreement an express waiver of the control person’s duty not to usurp a company opportunity. See. BOC Section 2.101(21). The specific language gives the company the power to:

. . . renounce, in its certificate of formation or by action of its governing authority, an interest or expectancy of the entity in, or an interest or expectancy of the entity in being offered an opportunity to participate in, specified business opportunities or a specified class or category of business opportunities presented to the entity or one or more of its managerial officials or owners.

As indicated by this provision, the certificate, bylaw or provision of the company agreement needs to make clear the specific type or category of opportunities that are being excluded from the duty. By including this limitation on the duty of loyalty, however, the control person will be immune from any liability for usurping a corporate opportunity of the company as it is defined in the bylaws or in the provisions of the LLC agreement.

Purchase or sale or lease of property to company, and loans to company
It is common for control persons to either sell, purchase or lease property, assets or services to/from the company they control or to provide loans to the company. These are all conflict transactions that can, and often do, give rise to claims for breach of fiduciary duty and fights about whether the control person engaged in a transaction that was unfair to the company. To avoid or at least limit claims related to these types of transactions, there are a number of common sense, practical steps that control persons can take before they engage in the transaction.

First, the control person should fully disclose all material terms of the transaction to other shareholders, the board and/or managers of the company and seek their approval, which if given, should eliminate all future claims. Second, when there are objections raised to the transaction, the control person should consider securing input from outside experts to provide objective information. For example, if the control person is selling or leasing property to the company, the control person should arrange for an independent appraiser to provide a written appraisal to set the property’s market value. If a lease of property is at issue, an independent broker can provide market value lease rates for the type of property at issue. Third, when the company is receiving loans from the control person, bankers can readily provide loan terms that reflect market rates.

Finally, the control person should consider structuring the transaction in a way that provides the company with a better deal on terms more favorable than market rates. The control person does not need to give the company a gift in the transaction, but if the company receives a deal that is better than market rates, that will make it harder for the other shareholders or LLC members to complain that there was any lack of fairness in the transaction to the company.

Compensation and bonuses
Finally, a hot button point with shareholders and members is often compensation, and more specifically, how much money is paid in base compensation and bonuses to the majority owner in his/her capacity as an officer, director or manager. The obvious concern is that funds paid in compensation should, instead, be issued as dividends or distributions to all owners, and that the compensation paid to the majority owner is considered a “disguised distribution.”

If the other shareholders or members express concern regarding the compensation and bonuses that are being paid to the majority owners, this issue should be addressed by hiring an experienced and independent executive compensation expert. The compensation expert will provide the company with a range of compensation that is being paid to executives at similarly situated companies in the same or similar industry and geographic region. As noted above, rather than choosing a compensation/bonus level at the top end of the range determined by the expert, the majority owner is advised to select a range of compensation in the 70-80% range to limit the likelihood of any claim being brought by minority owners on this basis.

Conclusion

In King Henry IV, Shakespeare wrote: “Uneasy lies the head that wears a crown.” One cause for this unease by private company owners who wear the mantle of leadership is that they are subject to suits by co-owners for breach of loyalty to the company. But staying inbounds is by no means an insurmountable challenge for majority owners, as control persons, if they follow a few simple ground rules. In short, majority owners need to be fully transparent in all of their transactions with the company, they should seek agreement when possible with other owners, but when an agreement is not possible, they need to secure specific input from outside experts who can validate the fairness of the transaction to the company before it takes place. And regarding that Santonio Holmes TD catch, let’s look ahead and hope the Cardinals get another chance at a Super Bowl win soon led by their exciting QB and No. 1 Draft Choice, Kyler Murray.

_____________________________

_{[1] Cardinals fans like me continue to question whether Holmes actually managed to get his right toes down on the turf in the end zone before he was pushed out of bounds, and photographs of the catch prolong this debate.}

ARTICLE BY Winstead’s Business Divorce Team.

For more on Corporate Fiduciary Duties, see the National Law Review Corporate & Business Organization’s law section.

FTC Reports to Congress on Social Media Bots and Deceptive Advertising

The Federal Trade Commission recently sent a report to Congress on the use of social media bots in online advertising (the “Report”). The Report summarizes the market for bots, discusses how the use of bots in online advertising might constitute a deceptive practice, and outlines the Commission’s past enforcement work and authority in this area, including cases involving automated programs on social media that mimic the activity of real people.

According to one oft-cited estimate, over 37% of all Internet traffic is not human and is instead the work of bots designed for either good or bad purposes. Legitimate uses for bots vary: crawler bots collect data for search engine optimization or market analysis; monitoring bots analyze website and system health; aggregator bots gather information and news from different sources; and chatbots simulate human conversation to provide automated customer support.

Social media bots are simply bots that run on social media platforms, where they are common and have a wide variety of uses, just as with bots operating elsewhere. Often shortened to “social bots,” they are generally described in terms of their ability to emulate and influence humans.

The Department of Homeland Security describes them as programs that “can be used on social media platforms to do various useful and malicious tasks while simulating human behavior.” These programs use artificial intelligence and big data analytics to imitate legitimate activities.

According to the Report, “good” social media bots – which generally do not pretend to be real people – may provide notice of breaking news, alert people to local emergencies, or encourage civic engagement (such as volunteer opportunities). Malicious ones, the Report states, may be used for harassment or hate speech, or to distribute malware. In addition, bot creators may be hijacking legitimate accounts or using real people’s personal information.

The Report states that a recent experiment by the NATO Strategic Communications Centre of Excellence concluded that more than 90% of social media bots are used for commercial purposes, some of which may be benign – like chatbots that facilitate company-to-customer relations – while others are illicit, such as when influencers use them to boost their supposed popularity (which correlates with how much money they can command from advertisers) or when online publishers use them to increase the number of clicks an ad receives (which allows them to earn more commissions from advertisers).

Such misuses generate significant ad revenue.

“Bad” social media bots can also be used to distribute commercial spam containing promotional links and facilitate the spread of fake or deceptive online product reviews.

At present, it is cheap and easy to manipulate social media. Bots have remained attractive for these reasons and because they are still hard for platforms to detect, are available at different levels of functionality and sophistication, and are financially rewarding to buyers and sellers.

Using social bots to generate likes, comments, or subscribers would generally contradict the terms of service of many social media platforms. Major social media companies have made commitments to better protect their platforms and networks from manipulation, including the misuse of automated bots. Those companies have since reported on their actions to remove or disable billions of inauthentic accounts.

The online advertising industry has also taken steps to curb bot and influencer fraud, given the substantial harm it causes to legitimate advertisers.

According to the Report, the computing community is designing sophisticated social bot detection methods. Nonetheless, malicious use of social media bots remains a serious issue.

In terms of FTC action and authority involving social media bots, the FTC recently announced an enforcement action against a company that sold fake followers, subscribers, views and likes to people trying to artificially inflate their social media presence.

According to the FTC’s complaint, the corporate defendant operated websites on which people bought these fake indicators of influence for their social media accounts. The corporate defendant allegedly filled over 58,000 orders for fake Twitter followers from buyers who included actors, athletes, motivational speakers, law firm partners and investment professionals. The company allegedly sold over 4,000 bogus subscribers to operators of YouTube channels and over 32,000 fake views for people who posted individual videos – such as musicians trying to inflate their songs’ popularity.

The corporate defendant also allegedly also sold over 800 orders of fake LinkedIn followers to marketing and public relations firms, financial services and investment companies, and others in the business world. The FTC’s complaint states that followers, subscribers and other indicators of social media influence “are important metrics that businesses and individuals use in making hiring, investing, purchasing, listening, and viewing decisions.” Put more simply, when considering whether to buy something or use a service, a consumer might look at a person’s or company’s social media.

According to the FTC, a bigger following might impact how the consumer views their legitimacy or the quality of that product or service. As the complaint also explains, faking these metrics “could induce consumers to make less preferred choices” and “undermine the influencer economy and consumer trust in the information that influencers provide.”

The FTC further states that when a business uses social media bots to mislead the public in this way, it could also harm honest competitors.

The Commission alleged that the corporate defendant violated the FTC Act by providing its customers with the “means and instrumentalities” to commit deceptive acts or practices. That is, the company’s sale and distribution of fake indicators allowed those customers “to exaggerate and misrepresent their social media influence,” thereby enabling them to deceive potential clients, investors, partners, employees, viewers, and music buyers, among others. The corporate defendant was therefor charged with violating the FTC Act even though it did not itself make misrepresentations directly to consumers.

The settlement banned the corporate defendant and its owner from selling or assisting others in selling social media influence. It also prohibits them from misrepresenting or assisting others to misrepresent, the social media influence of any person or entity or in any review or endorsement. The order imposes a $2.5 million judgment against its owner – the amount he was allegedly paid by the corporate defendant or its parent company.

The aforementioned case is not the first time the FTC has taken action against the commercial misuse of bots or inauthentic online accounts. Indeed, such actions, while previously involving matters outside the social media context, have been taking place for more than a decade.

For example, the Commission has brought three cases – against Match.com, Ashley Madison, and JDI Dating – involving the use of bots or fake profiles on dating websites. In all three cases, the FTC alleged in part that the companies or third parties were misrepresenting that communications were from real people when in fact they came from fake profiles.

Further, in 2009, the FTC took action against am alleged rogue Internet service provider that hosted malicious botnets.

All of this enforcement activity demonstrates the ability of the FTC Act to adapt to changing business and consumer behavior as well as to new forms of advertising.

Although technology and business models continue to change, the principles underlying FTC enforcement priorities and cases remain constant. One such principle lies in the agency’s deception authority.

Under the FTC Act, a claim is deceptive if it is likely to mislead consumers acting reasonably in the circumstances, to their detriment. A practice is unfair if it causes or is likely to cause substantial consumer injury that consumers cannot reasonably avoid and which is not outweighed by benefits to consumers or competition.

The Commission’s legal authority to counteract the spread of “bad” social media bots is thus powered but also constrained by the FTC Act, pursuant to which the FTC would need to show in any given case that the use of such bots constitute a deceptive or unfair practice in or affecting commerce.

The FTC will continue its monitoring of enforcement opportunities in matters involving advertising on social media as well as the commercial activity of bots on those platforms.

Commissioner Rohit Chopra issued a statement regarding the “viral dissemination of disinformation on social media platforms.” And the “serious harms posed to society.” “Social media platforms have become a vehicle to sow social divisions within our country through sophisticated disinformation campaigns. Much of this spread of intentionally false information relies on bots and fake accounts,” Chopra states.

Commissioner Chopra states that “bots and fake accounts contribute to increased engagement by users, and they can also inflate metrics that influence how advertisers spend across various channels.” “[T]he ad-driven business model on which most platforms rely is based on building detailed dossiers of users. Platforms may claim that it is difficult to detect bots, but they simultaneously sell advertisers on their ability to precisely target advertising based on extensive data on the lives, behaviors, and tastes of their users … Bots can also benefit platforms by inflating the price of digital advertising. The price that platforms command for ads is tied closely to user engagement, often measured by the number of impressions.”

Click here to read the Report.

ARTICLE BY Richard B. Newman of Hinch Newman LLP.

For more on social media, see the National Law Review Communications, Media & Internet law section.

Striking for Black Lives While Striking a Balance Between Business Needs and Employee Concerns

Plans are underway in multiple cities across the country for employees to participate in a Strike for Black Lives on Monday, July 20. The initiative encompasses the efforts of Black Lives Matter, the Movement 4 Black Lives, and a union-organizing effort by the Service Employees International Union. Strike for Black Lives encourages employees to “rise up for Black Lives” by walking off their jobs to march; and for those who can’t march, to take an “8:46 Pledge” in recognition of the death of George Floyd. The 8:46 Pledge asks supporters to take 8 minutes and 46 seconds at noon on July 20 to either take a knee, walk off the job, or observe a moment of silence.

Challenged by the threats of COVID-19, economic uncertainty, and now striking employees, employers should be prepared. As a reminder, the National Labor Relations Act (NLRA), which governs both union and non-union workplaces, protects most private sector employees who engage in concerted, protected activities to object to working conditions or terms of employment. On the other hand, employees who miss work without a good reason or for one’s own personal grievances may be subject to companies’ regular policies. Regardless, it is prudent for employers to proceed with caution in taking action against employees who join the Strike for Black Lives. If you have questions or doubts, consult with counsel.

Meanwhile, the Strike for Black Lives and similar events present opportunities for businesses to bolster their commitments to diversity and inclusion beyond standard statements of support. A recent Harvard Business Review article outlines recommendations for employers standing against racism. Others suggest allowing time off on short notice for last-minute marches and demonstrations. Showing flexibility in the application of company policies reflects a willingness to identify with employees’ concerns and reinforces a business’s own support for racial justice.

Although the convergence of extraordinary events in 2020 presents challenges for employers, in the words of John Adams, “Every challenge is an opportunity in disguise.”

ARTICLE BY Jeanine M. Gozdecki at Barnes & Thornburg LLP.

For more on Black Lives Matter, see the National Law Review Civil Rights law section.

Review of Chiafalo and Baca: The “Faithless Electors” Supreme Court Cases

The role the Electoral College plays in American life has confused and confounded many, especially since the U.S. Presidential election of 2016, when the winner of the national popular vote, Hillary Clinton, actually lost the election to President Donald Trump by vote of State-appointed electors in the Electoral College.

The Electoral College was intended by the Founding Fathers to be a buffer between the passions of the masses and the rule by edict of only an elite few, but how much of a buffer and how autonomous the electors within the Electoral College actually are was never fully addressed by the Supreme Court until its decisions late this term in Chiafalo v. Washington, 19-465, (Decided July 6, 2020) and Colorado Dept. of State v. Baca, 18-1173 (Decided July 6, 2020). (The Supreme Court issued its full opinion in Chiafalo).

As a country, we have grown accustomed to watching the national news on election night as states are called for each candidate, and electoral vote tallies are updated to show to us who is “winning” the election when, in reality, all of this is a mere projection, as none of those “electoral votes” are assured, or even cast, until the electors actually cast those votes at a time and place long after November 4.

So who are these “electors” who vote in the Electoral College? Are they “rubber stamps” bound to follow the popular vote of the State who appointed them? Can the State require the electors to sign a pledge to vote consistent with their state’s popular vote winner? If so, can the State punish that elector, including removal as an elector if they violate that pledge and vote for someone else? Or is an elector more of a “free agent” in the vein of those elected as State representatives in Congress? Congressional representatives, of course, are not bound by the State or its citizens’ desires when casting a vote in Congress (though they are held to account for their votes in the next congressional election). If electors are not to use their own judgment, then why does the Constitution call them an “elector” (which connotes some amount of discretion) instead of a delegate, or a proxy, or any number of other terms that would signify a lack of individual authority? Or, more simply, why have electors at all?

In Chiafalo and Baca, electors in Washington and Colorado were appointed by their respective States and were required to make, and did make a pledge when they were appointed as electors to vote consistent with the popular vote of their states. Yet, when the time came to cast their vote in the Electoral College, they didn’t vote consistent with the winner of the State’s popular vote as they had pledged. They voted for another candidate instead, forever earning the moniker of “faithless electors”. They weren’t the first electors ever to have done that. In fact, it has happened 180 times in our country’s history. The question presented to the Court then was – can they do that?

As it turns out the answer isn’t that simple. To understand how we got here, you need to go back to the Founding Fathers and the debates that forged the U.S. Constitution and the country itself. Let’s start with the misconception that the Constitution provides for a direct popular election of the President by the vote of its citizens. It doesn’t. At the birth of our country, there was fierce debate over who would elect our President. One group argued for a free and democratic vote, where the (white) (male) citizens directly chose their nation’s leader based upon a direct popular vote. Another group, more skeptical about the passions (and frankly, the ability) of the masses, called instead for a group of wise men to be tasked with choosing the President. This debate was resolved in an “eleventh hour” compromise at the close of the Constitutional Convention, which attempted to bridge the gap by expressly stating only:

Each State shall appoint, in such Manner as the Legislature thereof may direct, a Number of Electors, equal to the whole Number of Senators and Representatives to which the State may be entitled in the Congress: but no Senator or Representative, or Person holding an Office of Trust or Profit under the United States shall be appointed an Elector.

U.S. Constitution, Article II, §1, cl. 2. Originally, the Article continued on to describe the process for the vote, but that process was quickly found unworkable and the States scrapped it.

Instead, in 1804, the States replaced the process the electors were to follow with the Twelfth Amendment:

The Electors shall meet in their respective states and vote by ballot for President and Vice-President…, they shall name in their ballots the person voted for as President, and in distinct ballots the person voted for as Vice-President, and they shall make distinct lists of all persons voted for as President, and of all persons voted for as Vice-President, and the number of votes for each, which lists they shall sign and certify, and transmit sealed to [Congress, where] the votes shall then be counted.

Yet even after this amendment, the Constitution remained silent as to what the electors’ role beyond merely casting their vote was to be.

In Chiafalo, the “faithless electors” argued that electors could vote for whomever they wished, based on three main arguments: (1) a textual argument that focused heavily on the word “elector”; (2) a historical argument based upon the fact that from early on there were electors who voted contrary to their state’s popular vote; and (3) the “federal function” argument, that once they had been appointed by the State as an elector, that the State no longer had the power to control their vote since they were now engaged a “federal function” of electing the President and Vice President. Central to their arguments was the concept that the right to vote inherently includes the discretion to choose whom they will vote for. And more, that an elector should not be subject to punishment by the State based upon how they cast their vote. While a State can set requirements for electors, i.e. that they be state residents, etc., the electors argued that those requirements end when it comes to the electors’ exercise of their appointed function – the vote. The faithless electors argued that electors were akin to legislators and that discretion by the voter was inherently part of the Electoral College process. Once the State appointed an elector, they argued, the State did not have the power to “stand over the shoulder” of the elector as they carried out their constitutional function of voting for President and Vice-President. Otherwise, why have electors? Why not have the States simply report who they had voted for?

The States countered that, consistent with Supreme Court precedent, along with the express power to appoint the electors, came with it the reciprocal and concurrent power to also remove the electors, and therefore States could set conditions of removal on its electors, including punishments for the way in which they vote, such as a pledge that they vote as the state’s voters had in the popular election or suffer a $1,000 fine. The States argued that this outcome was dictated by a plain textual reading that these powers had been delegated to the States, that the federal government has limited power and authority, and that any powers not expressly given to the federal government in the U.S. Constitution, remain forever within the States’ exclusive right to control.

The gravity of the question the Supreme Court faced in these cases was real. While the outcome of the 2016 election was not changed by these faithless electors’ actions, with our country so closely divided, it is quite possible that faithless electors could change the outcome of future elections. If the Court had decided that electors were “free agents” who, once appointed, could vote (or not vote) as they wish, then not only could an elector or group of electors “switch sides” and change the winner of the Presidential election, but also, if they instead chose not to vote, they could deny both candidates the 270 votes necessary to win the election, and the matter would be sent to the House of Representatives for a “contingent election.” In a contingent election, each State must cast a single vote, and the victor of that vote becomes President regardless of who won the national popular vote or won States with more than 270 electoral votes combined.

As many publications recognized in advance of the Court’s ruling, this case legally presented a close call. The Founding Fathers provided little help, as even they couldn’t agree on the best approach – hence the compromise – and essentially just “kicked the can down the road.” A dispositive purely textual analysis (which this Court in its current make-up is increasingly fond of) was unavailing. The sole clear point is the unconditional power given to the States by the Constitution to choose the electors.

In deciding Chiafalo and Baca, the Supreme Court struck a pragmatic approach. Listening to the oral arguments, once could sense the concern with potential for “chaos” – the “chaos question” Justice Breyer called it – about the “chaos” that could ensue if the Supreme Court suddenly declared all electors to be “free agents” untethered from the will of the States and their citizens, to be instead courted and lobbied by nefarious actors from both home and abroad to vote for candidates regardless of who won the actual popular vote of each State’s elections. A fear that once may have seemed far-fetched, seems much more real today, after 2016, when foreign actors clearly engaged in attempts to manipulate the Presidential election. Consider, as the Court did, the risk of a foreign power hacking the computers of electors and blackmailing them to change their votes. Or the risk of a rich and elite few enticing electors to switch their votes for personal gain. It was these practical rather than legal concerns that seemed a loud and constant undercurrent of the entire debate.

In the end, the Justices, even the most fervent originalists among them, appeared to look more at how electors and the Electoral College is understood today than how the Founding Fathers had actually potentially intended it to work at the beginning.

Writing for the majority, Justice Elena Kagan quoted James Madison’s maxim that “a regular course of practice” can “liquidate & settle the meaning of” disputed or indeterminate “terms & phrases.” She then reviewed that regardless of what may or may not have been envisioned as an elector’s role 200 years ago, the historical reality is that over time electors have evolved into merely a “rubber stamp” for the vote of the people within their States. (The faithless electors stressed that since the founding, electors have cast some 180 faithless votes for either President or Vice President without objection, but the Court shrugged off this inconvenient fact, concluding “that is 180 out of over 23,000” electoral votes cast).

For a Court that has tacked toward textualism and divining the original intent of the Founding Fathers, its decision as expressed in Chiafalo and Baca was instead a square and practical one. If a State holds an election for President, and the State declares “winner take all” for its electoral votes, then the State has the power to require the electors to vote as the States wants, including the power to condition their service and to mete out punishment on the electors if and when they do not comply. The country has evolved to a place where it is now assumed by the general public that their votes count, and that electors will simply carry out the proxy of the State who appoints them. To change that assumption now would not just upset the apple cart – but may well have destroyed it – disenfranchising millions of citizens and creating grave risks of political corruption that, in the Justices’ eyes, was too much to bear.

Article by David K. TeSelle Trial Lawyer at Burg Simpson and
The National Law Review’s Guest Contributor.

For more on the Electoral College see the National Law Review Election Law & Legislative News section.

Thieves Breach Twitter Security to Commandeer Famous Accounts

The Twitter accounts of major companies and individuals were briefly taken over as part of a bitcoin scam. Former and current heads of states, global corporations, and presidential candidates had their twitter accounts compromised. The tweet from many of the twitter account said similar things, for example Kanye West’s feed stated that he is “giving back to my fans”; the message from Bezos’, Barack Obama, and Joe Biden’s account said that they had “decided to give back to my community”; while Elon Musk’s account said “feeling greatful” and provided a link to a Bitcoin wallet to send money to. The tweets would indicate that they would send double the money back to a limited number of contributors.

Twitter, through its Twitter Support account notified users that an internal investigation was conducted into the matter. The investigation revealed that several employees who had access to internal systems had their accounts compromised in a “coordinated social engineering attack.” Twitter’s internal system was then exploited to tweet from high-profile accounts. The attack was at least moderately successful considering the Bitcoin wallets promoted in the tweets received over 300 transactions and Bitcoin worth over $100,000.

These tweets began at about 4 P.M. (Eastern Standard Time) on Wednesday, July 16. The first wave of attacks hit the Twitter accounts of prominent cryptocurrency leaders and companies, but expanded quickly after that. Along with Vice President Biden, President Obama, Kanye West, Bill Gates, Michael Bloomberg, and Elon Musk, large company accounts were also targeted including Uber and Apple. Twitter’s initial response was to take down the offending tweets, but those were quickly replaced by new ones – – an indication that the hackers maintained access to the individual accounts.

The persistence of the attacks led to Twitter disabling some the platform services including the ability of blue-checked (verified) twitter users to tweet. The services were restored around four and a half hours after the suspicious tweets began. However, that shutdown period was not insignificant. Several National Weather Service Twitter accounts were shut down as a line of severe weather and possible tornadoes moved across the Midwest. The National Weather Service felt severely hampered in its ability to communicate with people about the impending storm.

In a tweet, Twitter’s CEO Jack Dorsey said that the company feels “terrible this happened” and that they are “diagnosing and will share everything we can when we have a more complete understanding of exactly what happened.” The nature of this attack is yet to be determined. The legal implications will hinge on the findings of the investigation, including whether there were sensitive direct messages accessed by the attackers. Considering the compromised accounts includes current and former heads of state (Prime Minister Benjamin Netanyahu, President Obama, and Vice President Biden), there are also questions of national security involved.

The United States does not have a comprehensive federal data breach notification scheme. These obligations are provided by the fifty states and sector-specific laws. More than 40 of the state breach notification laws contain a harm threshold pursuant to which notification is not required unless harm to affected individuals has occurred or is reasonably likely to occur. The EU’s GDPR also includes a similar assessment. As more information is disclosed, we will get a better understanding of Twitter and the attacked users’ incident response processes.

ARTICLE BY Dominic Dhil Panakal at Womble Bond Dickinson (US) LLP.

For more on data breaches, see the National Law Review Communications, Media & Internet law section.

Building a Successful Law Firm—Without an Office

Rent is one of the largest expenses for law firms, sometimes taking up as much as 10 percent of their gross revenue. Too, it’s not uncommon for workers in large cities to have hour-plus commutes to their offices. The majority of today’s clients are more interested in efficiency and reasonable prices than how glamorous their lawyer’s office is. As a result, firms are choosing another way to work: virtual offices.

Marcia Watson Wasserman, Founder and President of Comprehensive Management Solutions, Inc., serves as a consulting COO for boutique and mid-sized law firms, helping numerous lawyers develop and sustain virtual offices. She joined the Law Firm Marketing Catalyst podcast to share her expertise and advice for lawyers considering moving toward virtual work.

Know who you’re working with

With a virtual office, you can’t pop into a colleague’s office or bump into them in the hallway. You won’t see what they’re doing on a daily basis, so you need to trust that they share the same goals, work ethic and commitment to firm culture as you. Marcia finds that people who have worked together at a brick-and-mortar firm before going virtual tend to work best, because an in-person relationship and sense of trust is already established. If you’re going virtual, find colleagues you already know personally, or at the very least, spend plenty of in-person time with them before committing to anything.

Understand your tech tools

It’s impossible to have a virtual firm without the help of cloud-based technology tools. To have a successful virtual firm, everyone must be an expert on those tools. Law firms are notorious for buying software, then failing to learn how to use it—that won’t fly with a virtual firm. You need remote systems and procedures that streamline your practice and benefit your clients, and everyone must be comfortable using them. At a minimum, you’ll have to invest both money and training time in document management software, video conferencing software, client portals for paying bills, collaboration tools and, of course, encryption and data security tools.

Cultivate communication

How to delegate work, how to offer feedback, how to manage work among teams, when and how to have meetings—these questions are equally important at virtual or brick-and-mortar firms. But at virtual firms, it becomes even more critical that you discuss them openly and have communications systems in place. When communication is only happening by email, it can easily break down. Video conferencing, phone calls and planned communication are the antidote to this problem. Virtual connection also needs to be backed up with in-person events like retreats and social gatherings, at least annually. Maintaining communication at a virtual firm isn’t just important for client work, it’s also crucial to maintain firm culture.

Working from home sounds great, but it’s not for everyone. Some people get lonely working remotely. Others get distracted or they lack the motivation to work if they’re not in an office. Just like lawyers, support staff must have the right personality and skillset to work virtually. Another element to consider with support staff is wage and hour law in your location. Most support staff are non-exempt, and you have to consider supervision, insurance and the myriad of issues that arise when you have staff working remotely. Management issues don’t go away when support staff is out of sight.

Take advantage of time to network

Virtual work doesn’t mean staying home staring at your computer all day. The majority of work might be done from your home office, but networking can still happen in person. Join organizations, go to meetings and attend events to stay connected to your profession and your colleagues. Virtual work also offers more flexibility to meet with clients and attend events important to their industry. You’ll get to know your clients at a deeper level, which they’ll appreciate, and it will get you out of your work-from-home routine—a win for everyone.

If you can’t go fully virtual, start small

Not every firm is suited to virtual work, but many firms can use some of its elements to their advantage. Especially in large cities, more firms are using co-working spaces or opening small satellite offices that are more convenient for lawyers to get to. With more attorneys working outside of the main office a few days a week, the next logical step for some firms is to encourage office sharing. It’s a huge cultural shift for partners to share an office, but it can offer tremendous space and cost savings, and this concept typically doesn’t faze young associates.

ARTICLE BY Sharon Berman at Berbay Marketing & Public Relations Firm.

For more on running a law firm, see the National Law Review Law Office Management section.

Category: Uncategorized

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Take advantage of time to network

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