Tag: California

9th Cir. Upholds Antitrust Jury Verdict Against Chinese Telescope Company [PODCAST]

Court affirms evidentiary rulings on market definition and overcharges. Agrees evidence supported verdict for collusion and attempted monopolization.

The Ninth Circuit Court of Appeals this month upheld judgment in favor of Optronic Technologies, Inc., finding there was sufficient evidence that Chinese telescope manufacturer, Ningbo Sunny Electronic (“Sunny”), conspired with a competitor in the U.S. consumer telescope market to allocate customers, fix prices, and monopolize the telescope market in violation of federal antitrust laws (Optronic Technologies, Inc., v. Ningbo Sunny Electronic Co., Ltd., No. 20-15837, 9th Cir. 2021). Ninth Circuit Judge Ronald M. Gould wrote the opinion.

California-based Optronic, known commercially as Orion Telescopes & Binoculars, sued Sunny in November 2014. Orion alleged Sunny violated Sherman Act Sections 1 and 2 by conspiring to allocate customers in the telescope market and conspiring to fix prices or credit terms for Optronics in collusion with Suzhou Synta Optical Technology. Orion further alleged Sunny’s 2014 acquisition of independent manufacturer, Meade, violated Section 7 of the Clayton Act. Orion alleged that Sunny engaged in these anticompetitive acts to force Orion out and further monopolize the telescope market.

A California jury found in favor of Orion on all counts and awarded the company $16.8 million in damages, which the district court trebled to $50.4 million. The district court also ordered injunctive relief, directing Sunny to supply Orion and Synta’s Meade on non-discriminatory terms for five years, and not to communicate with Synta about competitively sensitive information.

Rulings on key elements of plaintiff’s economic evidence affirmed.

Sunny appealed on several grounds, including two that challenged key elements of the plaintiff’s expert economic evidence. The jury had found Sunny liable for attempted monopolization and conspiracy to monopolize in violation of Section 2, which makes it unlawful for any person to monopolize or attempt or conspire to monopolize any relevant market. Sunny argued on appeal that the evidence could not support a Section 2 verdict because Orion’s economist failed to define a relevant market. In particular, Sunny claimed the expert did not examine the cross-elasticity between substitute products in the market or perform a SSNIP test, the standard analysis used to delineate the outer boundaries of a relevant market.

The appeals court found these contentions lacked merit. The plaintiff’s economist had testified that the relevant product market was the market for telescope manufacturing services. The purpose of the SSNIP test is to determine whether the relevant market is drawn too narrowly and should be expanded to include potential substitutes. But because no other manufacturing capacity can substitute for telescope manufacturing services, wholesale purchasers of telescopes cannot turn to other manufacturers to fulfill orders. Without substitutable manufacturers, a SSNIP test boils down to whether new manufacturers would enter the market fast enough to make an increase in price unprofitable for a hypothetical monopolist, which they could not. As a result, the court held that the economist reasonably could forgo performing a SSNIP analysis.

Sunny also challenged the economist’s estimate of anticompetitive overcharges that could not directly be observed. Neither the “benchmark” nor “before-and-after” estimation methods were available. Therefore, to develop a measure of damages, the plaintiff’s expert presented two different methods of estimating the overcharges. In the first method, the expert collected data on cartel overcharges from the economic literature on markets with structures and conditions similar to telescope manufacturing. The average of those overcharges was then used as an estimate of the overcharge resulting from defendants’ collusion. As a check on this estimate, the economist also submitted a theoretical Cournot equilibrium model of market prices based on assumptions drawn from the record in the case. The two methods yielded similar and consistent results. Affirming the admissibility of the expert’s damages estimates, the appellate court found the expert’s report and testimony “were sufficiently tied to the facts of this case such that the district court properly admitted this evidence.”

In rebuttal, the defendant’s economist testified to the high sensitivity of the assumptions used in the plaintiff’s theoretical model. Interestingly, defendants were not permitted to submit their own estimate of damages for the first time on rebuttal, so the defendants’ expert had to limit her testimony to the sensitivity of the model without the ability to show the jury any resulting alternative estimate of the anticompetitive overcharge. The appeals court affirmed the trial court’s limitation on the defendants’ rebuttal expert.

Price fixing and a larger scheme.

Sunny also argued that Orion failed to present sufficient evidence to support Orion’s Section 1 claims. Section 1 prohibits unreasonable restraints of trade. Horizontal price fixing and market allocation are per se unreasonable and support Section 1 liability without regard to any purported justification or defense. The Ninth Circuit noted that Orion offered evidence that Synta executives encouraged Sunny’s purchase of Meade, an acquisition that was part of a larger scheme by Sunny and Synta to jointly control the telescope manufacturing market, even though federal regulators had already prohibited such a combination. The court also declined to upset the jury’s finding that Sunny conspired with a Synta subsidiary to fix prices and credit terms to Orion, a per se violation of Section 1.

“If you break it, you buy it.”

Finally, it is notable that the appellate court affirmed the award of damages accruing after September 2016, when the defendant and Synta took their last steps to eliminate Meade, and Synta entered a Settlement and Supply Agreement with Orion. The court held that, even if the conspiratorial acts of Sunny and Synta ended in 2016, Orion could still recover post-2016 damages “because it continued to suffer economic harm from the harm to competition caused by the illegal concerted activity.” Thus, where collusion causes a durable change in market structure or sets the pattern of a continuing collusive practice, it is no defense that the conspirators may have ceased engaging in concerted action.

The rule adopted by the Ninth Circuit in Optronics is clear: “[W]here an antitrust plaintiff suffers continuing antitrust injuries from anticompetitive changes to market structure that arose from a proven antitrust violation, we hold that the violation may be a material cause of that injury, and so recovery of damages is permitted, even after the last proven date of the violative conduct. This rule accords with the common-sense principle that ‘if you break it, you buy it.’”

Welcomed clarity.

The Ninth Circuit’s opinion brings welcomed clarity on several points. It demonstrated that plaintiffs need not perform a SSNIP test where market-specific circumstances define a market’s outer boundary. For claimants facing the need to estimate unobservable anticompetitive overcharges, it affirms an ingenious method for arriving at a reasonable and reliable estimate. And, for past conspiracies with continuing anticompetitive effects, the decision announces the common-sense principle that a defendant “remains liable for the continuing injuries suffered by plaintiffs from the structural harm to competition that its unlawful scheme brought about.” Put simply, this is a well-articulated decision by a capable panel that adds precision and certainty to antitrust.

Edited by Tom Hagy for MoginRubin LLP

© MoginRubin LLP

For more articles on 9th Circuit decisions, visit the NLR Litigation section.

Proposition 13 Overhaul Qualifies for November Ballot

California Secretary of State Alex Padilla announced on Friday, May 29, 2020, that the revised initiative entitled “The California Schools and Local Communities Act of 2020” officially qualified for the November ballot. If passed, the initiative would establish a “split roll” where retail, office, commercial, and industrial real property would be taxed based on their market value, while residential property would continue to be assessed based on its purchase price.

THE CURRENT TAX REGIME: PROPOSITION 13

The current property tax regime under Proposition 13 generally provides that real property is taxed at one percent of its fair market value, which usually is the property’s purchase price. Unless there is a change in ownership of the property such as a sale, this “base value” can only increase by an inflationary rate that cannot exceed two percent per year. When property changes ownership, it is reassessed and the property’s base value is reset to its then current fair market value. Under Proposition 13, a property’s base value can be lower than its current fair market value, which in turn can reduce the amount of property tax that might otherwise be owed.

THE SPLIT ROLL

The ballot initiative creates a “split roll” if voters approve it in November. Under the split roll, commercial and industrial property with a fair market value of more than $3 million would be reassessed at its current fair market value at least every three years. The current tax regime under the Proposition 13 rules described above would continue to apply to all residential property, including both single-family and multi-unit structures and the land on which those structures are constructed or placed. The current rules also would remain in place for real property used for commercial agricultural production.

The process of administering this new tax regime will be determined by the California legislature, which will include, among other things, a process for reassessment appeals. The taxpayer will have the burden of proving that the property was not properly valued. The legislature also will determine a process by which to allocate mixed-use property between its commercial and residential uses for purposes of implementing the split roll.

The new regime will not apply to commercial or industrial property with a fair market value of $3 million or less unless any of the direct or indirect owners of such real property also own interests in other commercial and/or industrial real property. In that case, the new regime will apply if all such real property has an aggregate fair market value in excess of $3 million.

TANGIBLE PERSONAL PROPERTY TAX RELIEF

If passed, the ballot initiative would exempt small businesses from property tax on all of its tangible personal property. A small business is a business that: (1) has fewer than 50 annual full time employees, (2) is independently owned and operated such that the ownership interests, management and operation are not subject to control, restriction, modification, or limitation by an outside source, individual or another business, and (3) owns real property located in California.

For all other taxpayers, an amount up to $500,000 of combined tangible personal property and fixtures (other than aircraft and vessels) will be exempt from taxation.

WHEN WOULD THE SPLIT ROLL TAKE EFFECT?

The split roll would become operative beginning January 1, 2022, and the tangible personal property tax relief would become operative on January 1, 2024.

Despite the split roll becoming operative on January 1, 2022, the reassessment of undervalued commercial and industrial property will be implemented through a phase-in over two or more years. An owner of commercial or industrial property would only be obligated to pay taxes based on the new assessed value beginning with the lien date for the fiscal year when the assessor has completed the reassessment. In addition, if 50% or more of the square footage of a commercial or industrial property is occupied by a small business, such property will not be subject to the new regime at least until the 2025-26 fiscal year.

© 2010-2020 Allen Matkins Leck Gamble Mallory & Natsis LLP

For more on real estate taxation, see the National Law Review Tax law section.

Court Rules That Whistleblower Must Face Trial On Former Employer’s Claims

Life is not necessarily all skittles and beer for whistleblowers.  Sometimes, they are sued by the very companies on which they blew the whistle.  Such is the case in the ongoing case of Erhart v. Bofi Holding, Inc., 2020 U.S. Dist. LEXIS 57137.  Judge Cynthia Bashant limns the background facts as follows:

“Charles Erhart was an internal auditor for BofI Federal Bank. After Erhart discovered conduct he believed to be wrongful, he reported it to BofI’s principal regulator. BofI responded by allegedly defaming and terminating him. Erhart then filed this lawsuit for whistleblower retaliation under state and federal law. The next morning, The New York Times published an article summarizing the lawsuit’s allegations—causing BofI’s stock price to plummet. The Bank quickly commenced a countersuit against Erhart claiming he committed fraud, breached his duty of loyalty, and violated state and federal anti-hacking statutes. The Court consolidated BofI’s countersuit with Erhart’s whistleblower-retaliation action.”

In the cited decision, Judge Bashant grants in parts and denies in part Erhart’s and Bofi’s motions for summary adjudication.  The ruling is lengthy and tackles a variety of issues, some of which I hope to address in future posts.  Nonetheless, a key point for whistleblowers is that Judge Bashant is allowing Bofi’s claims against Erhart to proceed to trial, albeit on a limited basis.

When “Whistleblower” First Became Figurative

Recently, I endeavored to identify the first figurative use of the term “whistleblower” in a reported California opinion.  I was surprised that earliest case dates to the presidency of Ronald Reagan.  Interestingly, the Court addresses the very tension at the heart of Erhart:

“There is a great public interest in the truthful revelation of wrongdoing, and in protecting the ‘whistleblower’ from retaliation; there is very little public interest in protecting the source of false accusations of wrongdoing.”

Mitchell v. Superior Court, 37 Cal. 3d 268, 283, 690 P.2d 625, 634, 208 Cal. Rptr. 152, 161 (1984).  Many cases dating back to the mid 19th Century mention the blowing of whistles, but the references are to actual, not figurative, whistles.

© 2010-2020 Allen Matkins Leck Gamble Mallory & Natsis LLP

For more on whistleblowers, see the National Law Review Litigation & Trial Practice Section.

California Judicial Council Adopts Emergency Rules Affecting Unlawful Detainer Actions and More

The Judicial Council of California adopted 11 temporary emergency rules in response to the COVID-19 pandemic affecting eviction proceedings, judicial foreclosures, and statutes of limitations for civil causes of actions, among other things. The rules, adopted April 6, 2020, are effective immediately and apply to all California state courts.

Rules of particular interest:

  •  Emergency Rule 1: Unlawful Detainers
    • Prohibits courts from issuing a summons on an unlawful detainer complaint until 90 days after the Governor declares the state of emergency related to the COVID-19 pandemic is lifted. This rule applies to all new unlawful detainer actions – whether or not the eviction action is related to nonpayment of rent for COVID-19 related issues. The only exception is for an unlawful detainer action necessary to protect public health and safety.
  • Emergency Rule 2: Judicial Foreclosures
    • Stays any action for judicial foreclosure and tolls any statute of limitations for filing such action until 90 days after the state of emergency is lifted.
  • Emergency Rule 9: Tolling of Statutes of Limitations for Civil Causes of Action
    • Tolls statutes of limitations for civil causes of action from April 6, 2020, until 90 days after the Governor declares the state of emergency is lifted.
  • Emergency Rule 10: Extension of 5-Year Rule for Civil Actions
    • Extends the five-year deadline to bring a civil action to trial to five years and six months for all actions filed on or before April 6, 2020.
  • Emergency Rule 11: Depositions through Remote Electronic Means
    • Allows a deponent to not be present with the deposition officer at the time of deposition.

© 2010-2020 Allen Matkins Leck Gamble Mallory & Natsis LLP

Lyft Sexual Assault Claims Consolidated for Pre-Trial Proceedings

Lyft and other companies have become a part of life and people look to them for a safe ride home at the end of a night out.   However, ridesharing companies, like Lyft and Uber, have been under fire for passenger safety concerns, and the stories of women being sexually assaulted by their drivers are prolific, harrowing and terrifying.  In response to this disturbing trend, a wave of lawsuits in California are addressing the company’s responsibility when a passenger is assaulted.

Lyft Sexual Assault Claims Consolidated in San Francisco Superior Court

Recently,  California Superior Court Judge Hon. Kenneth Freeman granted a petition to consolidate multiple Lyft sexual assault cases in California recommending the Superior Court of California San Francisco County as the appropriate venue for the “complex” coordinated matters to be heard.

The Lyft passenger lawsuits claim the plaintiffs were sexually assaulted by sexual predators driving for Lyft after Lyft had been on actual notice of ongoing, sexual assaults by its drivers. According to the complaints, Lyft failed to respond to the sexual assaults by adopting and implementing adequate driver hiring or monitoring systems and procedures to protect riders. This failure to respond to an identified, systemic issue of sexual assault put more riders at risk.

The Lyft plaintiffs filed a motion to coordinate the cases, as most of the cases included in the ruling had been filed in San Francisco Superior Court.  The court agreed with the Lyft plaintiffs that: Lyft’s corporate headquarters are in San Francisco, as are the majority of corporate witnesses and documents.   The court added, the San Francisco Superior Court uses e-filing, which could potentially save the parties significant costs.  Additionally, only cases that are “complex” as defined by California’s Judicial Council standards may be coordinated.

Need for ESI (Electronically Stored Information)  Orders, Are Lyft Drivers are Independent Contractors or Employees, Additional Plaintiffs Joining Requires Complex Case Management

Co-Counsel for the Lyft Sexual Assault Plaintiffs, Brooks Cutter of Cutter Law argued that there are likely to be thousands of documents, studies, e-mails, and memoranda that are relevant to the claims and defenses in this case and discovery will inevitably require a complex ESI (Electronically Stored Information) order and accordingly a court like San Francisco Superior Court is well-equipped to handle such issues, including staying discovery, staying portions of the case, obtaining stipulations that apply to the entire coordinated case, and selecting bellwether plaintiffs.

Many of the underlying cases in the consolidation action allege vicarious liability or the liability of Lyft for the torts or wrongful actions of their drivers whether or not Lyft classifies them as an employee or independent contractor.  Lyft, Uber, and Doordash are actively fighting California Assembly Bill 5 Pledging over $90 Million To Fund Voter Initiative To Overturn AB-5  which went into effect January 1, 2020.  AB-5 profoundly alters the legal standard applied in evaluating whether a worker is classified as an employee or an independent contractor.   Furthermore,  Uber and Postmates on December 31st  filed a legal challenge in Federal Court alleging AB-5 violates individuals’ constitutional rights, seeking declaratory and injunctive remedies claiming the law unfairly discriminates against technology platforms and those who make a living through them.

Lyft has also been accused of stalling and slowing down discovery. Coordinated proceedings could help plaintiffs’ attorneys combat Lyft’s delays, and it could be beneficial to have one judge see how Lyft has conducted itself in discovery.

Attorney Cutter stated he is aware of five more related sexual assault cases that have been filed in the time since that petition was filed.   According to attorney Cutter, “There are definitely victims who have not yet come forward.”

Lyft Fought Against Sexual Assault Lawsuit Consolidation

Lyft, represent by Williams & Connolly, argued that the consolidation of  Lyft Sexual assault cases “would make in San Francisco Superior Court a national clearinghouse for claims against San Francisco-based companies.”    Furthermore, Lyft contended that:

“all claims against a California based-company —wherever the underlying incidents arise, and however much the disputed facts occurred elsewhere and other states’ laws govern the contested legal issues — could be brought in California courts and coordinated.”

Lyft’s two main objections to consolidation are that “the allegations of misconduct are not the same and that the majority of the cases did not occur in California.”

Judge Freeman, however, disagreed with the company, focusing instead on Lyft’s actions or inactions as an organization to protect rider’s safety. “To the contrary, the predominating legal and factual issues will examine Lyft’s liability for allegedly failing to institute a system to have prevented the assaults in these cases and potential future assaults.” Judge Freeman said. “The court agrees with plaintiffs that this is not a case against the drivers; it is fundamentally a case against Lyft.”

Significance of Lyft Consolidation Ruling

Judge Freeman also found that coordination of the suits would make the most efficient use of court resources and avoid duplicative testimony. In giving his ruling he further noted that there is a risk of duplicative and inconsistent rulings if the cases were not coordinated, which would create confusion, and it would hinder the Court of Appeal’s ability to hear challenges to inconsistent rulings, orders, and judgments, which would inevitably cause significant delays.

“This is an important ruling for victims as it means the claims will be heard in a single court in California,” plaintiff’s co-counsel Brooks Cutter said. “Lyft opposed our motion and wanted to force victims to undergo litigation in separate courts across the country. As a California company, it is appropriate for these Lyft claims to be heard in California.”

The Lyft sexual assault and rape claims each allege that the company did not adequately address the issue of sexual misconduct committed by sexual predators who drove for the ride-sharing company. Furthermore, they allege Lyft owed that duty to its riders, who believed it offered a safe form of transportation.  Attorney Cutter says, “The occurrence of sexual assault in the vast majority of these lawsuits is undisputed. The focus of these lawsuits is Lyft’s accountability for the assaults, which plaintiffs contend were enabled by Lyft’s lax background checks and failure to enact reasonable in-app monitoring to help ensure rider safety.”

Alexandra LaManna, a spokeswoman for Lyft, disclosed to the New York Times: in 2019 nearly one in five employees at the company had been dedicated to initiatives strengthening the rideshare platform’s safety, and that in recent months Lyft had introduced more than 15 new safety features.  Lyft announced in September of 2019 some of these safety features: access to 911 through the app and monitoring and offers of support from Lyft personnel to the driver and passenger if a trip is experiencing an unexpected delay.  These are on top of the company’s criminal background checks, steps to prevent fraudulent use of the app and identify driver identity, and harassment prevention programs.

However, despite these steps, more Lyft lawsuits are being filed, alleging the ride-sharing company has not taken adequate steps to protect riders from sexual assault.

Lyft has not Released a Safety Report – Lyft Victims Can Still File Lawsuits

In December 2019, Lyft competitor Uber released a safety report.  Uber reported that in 2017 and 2018 it received reports of 5,981 incidents of sexual abuse.  In 2018, this included 235 rapes and 280 reports of attempted rape, 1,560 reports of groping, 376 reports of unwanted kissing to breast, buttocks or mouth and 594 reports of unwanted kissing to another body part.  Because Uber’s figures are based on the information it received, the actual numbers could in fact be higher than reported.

Lyft has not released its safety report regarding sexual assaults, rapes, and accidents. Attorney Cutter finds the lack of safety report from Lyft to be problematic.  He says, “It is important for Lyft to issue a safety report so the public has a better understanding of the significant risk of sexual assault in rideshare vehicles.”

Victims who suffered sexual assault committed by a Lyft driver are still eligible to file a lawsuit. Consolidation of the current lawsuits does not prevent future lawsuits from being filed, and it is likely there are many more victims who have yet to come forward about their experiences.

Copyright ©2020 National Law Forum, LLC

More on consolidated case litigation in the National Law Review Litigation and Trial Practice section.

Federal Court Preliminary Enjoins Enforcement of New California Arbitration Law AB 51

On Friday, January 31, 2020, Chief District Judge Kimberly J. Mueller of the federal District Court for the Eastern District of California issued a Preliminary Injunction (PI) against the State of California, enjoining the State from enforcing Assembly Bill 51 (AB 51) with respect to mandatory arbitration agreements in employment to the extent governed by the Federal Arbitration Act (FAA).1

As discussed in the Vedder Price employment law alert, TRO Halts New Arbitration Law AB 51, the District Court had previously issued a Temporary Restraining Order (TRO) on December 30, 2019 temporarily enjoining enforcement of AB 51 pending a preliminary injunction hearing scheduled for January 10, 2020. The Court subsequently continued the January 10 hearing and extended the TRO until January 31 to allow the parties time to submit supplemental briefing. AB 51, the new California law previously slated to take effect on January 1, 2020, purportedly prohibited employers from requiring applicants or employees in California to agree, as a condition of employment, continued employment, or the receipt of any employment-related benefit, to arbitrate claims involving violations of the California Fair Employment and Housing Act (FEHA) or the California Labor Code. AB 51 did not specifically mention “arbitration” but instead broadly applied to the waiver of “any right, forum, or procedure for a violation of [the FEHA or Labor Code], including the right to file and pursue a civil action.”

In issuing the PI, the District Court specifically: (a) enjoined the State from enforcing sections 432.6(a), (b), and (c) of the California Labor Code where the alleged “waiver of any right, forum, or procedure” is the entry into an arbitration agreement covered by the FAA2; and (b) enjoined the State from enforcing Section 12953 of the California Government Code [FEHA] where the alleged violation of “Section 432.6 of the Labor Code” is entering into an arbitration agreement covered by the FAA.

The PI will remain in place pending a final judgment, which would likely occur following a motion for summary judgment rather than a full trial on the merits since there are no material facts in dispute to be tried. However, pursuant to 28 U.S.C. § 1292(a)(1), an order granting a preliminary injunction is immediately appealable. Accordingly, it is likely that the State of California will file an immediate appeal directly with the 9th Circuit Court of Appeals.

In the interim, based on this PI, employers should feel comfortable in continuing to require employees in California to sign mandatory arbitration agreements as a condition of employment without being subjected to criminal prosecution under AB 51, provided that the arbitration agreement is clearly governed by the FAA. Employers are encouraged to consult with legal counsel to ensure compliance in this regard.

1 See Chamber of Commerce of U.S., et al. v. Xavier Becerra, et al., Case No. 2:19-cv-02456-KJM-DB, Dkt. No. 44 (E.D. Cal. Jan. 31, 2020).

2 Federal Arbitration Act, 9 U.S.C. §§ 1-16

© 2020 Vedder Price

For more on recent employment law litigation in California and elsewhere, see the National Law Review Labor & Employment law section.

California Law Creates New Risk Factor

Last year, California enacted AB 5 imposing the so-called A-B-C test for employee status under California’s Labor Code.  The legislation basically extended the California Supreme Court’s holding in Dynamex Operations West, Inc. v. Superior Court, 4 Cal. 5th 903 (2018) which imposed the test in the more limited context of claims for wages and benefits arising under wage orders issued by the Industrial Welfare Commission.

Although aimed at the gig economy, AB 5 has impacted a wide range of traditional businesses.  For example, it was widely reported last year that Vox media had laid off hundreds of California free-lance writers in response to AB 5.  Not surprisingly, the American Society of Journalists and Authors, Inc., and National Press Photographers Association has filed a lawsuit in federal court challenging the new law (A hearing on California’s motion to dismiss is scheduled for March 23).  A ballot initiative measure is currently in circulation to change for “app-based” transportation and delivery drivers.  This month, the California Trucking Association succeeded in obtaining a federal court order enjoining enforcement of AB 5 as to any motor carrier operating in California.

I am music and I write the songs, but am I an employee?

Great uncertainty still abounds about the applicability, application and even constitutionality of AB 5.  Thus, it is not surprising to see issuers identifying AB 5 as a risk factor in their filings with the SEC.  For example, Warner Music Group Corp.  included this risk factor in its Form 10-K concerning independent songwriters and and recording artists:

“Although we believe that the recording artists and songwriters with which we partner are properly characterized as independent contractors, tax or other regulatory authorities may in the future challenge our characterization of these relationships. We are aware of a number of judicial decisions and legislative proposals that could bring about major reforms in worker classification, including the California legislature’s recent passage of California Assembly Bill 5 (“AB 5″). AB 5 purports to codify a new test for determining worker classification that is widely viewed as expanding the scope of employee relationships and narrowing the scope of independent contractor relationships. Given AB 5’s recent passage, there is no guidance from the regulatory authorities charged with its enforcement, and there is a significant degree of uncertainty regarding its application. In addition, AB 5 has been the subject of widespread national discussion and it is possible that other jurisdictions may enact similar laws. If such regulatory authorities or state, federal or foreign courts were to determine that our recording artists and songwriters are employees, and not independent contractors, we would be required to withhold income taxes, to withhold and pay Social Security, Medicare and similar taxes and to pay unemployment and other related payroll taxes. We would also be liable for unpaid past taxes and subject to penalties. As a result, any determination that our recording artists and songwriters are our employees could have a material adverse effect on our business, financial condition and results of operations.”

© 2010-2020 Allen Matkins Leck Gamble Mallory & Natsis LLP

For more on California’s AB5 see the National Law Review Labor & Employment Law section.

My Business Is In Arizona, Why Do I Care About California Privacy Laws? How the CCPA Impacts Arizona Businesses

Arizona businesses are not typically concerned about complying with the newest California laws going into effect. However, one California law in particular—the CCPA or California Consumer Privacy Act—has a scope that extends far beyond California’s border with Arizona. Indeed, businesses all over the world that have customers or operations in California must now be mindful of whether the CCPA applies to them and, if so, whether they are in compliance.

What is the CCPA?

The CCPA is a comprehensive data privacy regulation enacted by the California Legislature that became effective on January 1, 2020. It was passed on September 13, 2018 and has undergone a series of substantive amendments over the past year and a few months.

Generally, the CCPA gives California consumers a series of rights with respect to how companies acquire, store, use, and sell their personal data. The CCPA’s combination of mandatory disclosures and notices, rights of access, rights of deletion, statutory fines, and threat of civil lawsuits is a significant move towards empowering consumers to control their personal data.

Many California businesses are scrambling to implement the necessary policies and procedures to comply with the CCPA in 2020. In fact, you may have begun to notice privacy notices on the primary landing page for national businesses. However, Arizona businesses cannot assume that the CCPA stops at the Arizona border.

Does the CCPA apply to my business in Arizona?

The CCPA has specific criteria for whether a company is considered a California business. The CCPA applies to for-profit businesses “doing business in the State of California” that also:

  • Have annual gross revenues in excess of twenty-five million dollars; or
  • Handle data of more than 50,000 California consumers or devices per year; or
  • Have 50% or more of revenue generated by selling California consumers’ personal information

The CCPA does not include an express definition of what it means to be “doing business” in California. While it will take courts some time to interpret the scope of the CCPA, any business with significant sales, employees, property, or operations in California should consider whether the CCPA might apply to them.

How do I know if I am collecting a consumer’s personal information?

“Personal information” under the CCPA generally includes any information that “identifies, relates to, describes, is capable of being associated with, or could reasonably be linked” with a specific consumer. As the legalese of this definition implies, “personal information” includes a wide swath of data that your company may already be collecting about consumers.

There is no doubt that personal identifiers like name, address, email addresses, social security numbers, etc. are personal information. But information like biometric data, search and browsing activity, IP addresses, purchase history, and professional or employment-related information are all expressly included under the CCPA’s definition. Moreover, the broad nature of the CCPA means that other categories of data collected—although not expressly identified by the CCPA—may be deemed to be “personal information” in an enforcement action.

What can I do to comply with the CCPA?

If the CCPA might apply to your company, now is the time to take action. Compliance will necessarily be different for each business depending on the nature of its operation and the use(s) of personal information. However, there are some common steps that each company can take.

The first step towards compliance with the CCPA is understanding what data your company collects, how it is stored, whether it is transferred or sold, and whether any vendors or subsidiaries also have access to the data. Next, an organization should prepare a privacy notice that complies with the CCPA to post on its website and include in its app interface.

The most substantial step in complying with the CCPA is to develop and implement policies and procedures that help the company conform to the various provisions of the CCPA. The policies will need to provide up-front disclosures to consumers, allow consumers to opt-out, handle consumer requests to produce or delete personal information, and guard against any perceived discrimination against consumers that exercise rights under the CCPA.

The company will also need to review contracts with third-party service providers and vendors to ensure it can comply with the CCPA. For example, if a third-party cloud service will be storing personal information, the company will want to verify that its contract allows it to assemble and produce that information within statutory deadlines if requested by a consumer.

At least you have some time!

The good news is that the CCPA includes a grace period until July 1, 2020 before the California Attorney General can bring enforcement actions. Thus, Arizona businesses that may have ignored the quirky California privacy law to this point have a window to bring their operations into compliance. However, Arizona companies that may need to comply with the CCPA should consult with counsel as soon as possible to begin the process. The attorneys at Ryley Carlock & Applewhite are ready to help you analyze your risk and comply with the CCPA.

Copyright © 2020 Ryley Carlock & Applewhite. A Professional Association. All Rights Reserved.

Learn more about the California Consumer Privacy Act (CCPA) on the National Law Review Communications, Media & Internet Law page.

Federal Court Issues Eleventh-Hour TRO to Enjoin Enforcement of California’s Controversial New Independent Contractor Law for 70,000 Independent Truckers

On January 1, 2020, California’s new independent contractor statute, known as AB 5, went into effect.  The law codifies the use of an “ABC” test to determine if an individual may be classified as an independent contractor.

The hastily passed and controversial statute has been challenged by a number of groups as being unconstitutional and/or preempted by federal law, including ride-share and delivery companies and freelance writers.

Just hours before AB 5 went into effect, a California federal court in San Diego enjoined enforcement of the statute as to some individuals – approximately 70,000 independent truckers, many of whom have invested substantial sums of money to purchase their own trucks and to work as “owner-operators.”

In the lawsuit, the California Trucking Association (“CTA”) has alleged that the “ABC” test set forth in AB 5 is preempted by the Federal Aviation Administration Authorization Act of 1994 (“FAAAA”).

The CTA asserts that the FAAA preempts the “B” prong because it will effectively operate as a de facto prohibition on motor carriers contracting with independent owner-operators, and will therefore directly impact motor carriers’ services, routes, and prices, in contravention of the FAAA’s preemption provision.

The CTA further contends that the test imposes an impermissible burden on interstate commerce, in violation of the Commerce Clause of the U.S. Constitution.  The CTA asserts that the test would deprive motor carriers of the right to engage in the interstate transportation of property free of unreasonable burdens, as motor carriers would be precluded from contracting with a single owner-operator to transport an interstate load that originates or terminates in California.  Instead, motor carriers would be forced to hire an employee driver to perform the leg of the trip that takes place in California.

©2020 Epstein Becker & Green, P.C. All rights reserved.

CCPA Notice of Collection – Are You Collecting Geolocation Data, But Do Not Know It?

Businesses subject to the California Consumer Privacy Act (“CCPA”) are working diligently to comply with the CCPA’s numerous mandates, although final regulatory guidance has yet to be issued. Many of these businesses are learning that AB25, passed in October, requires employees, applicants, and certain other California residents to be provided a notice of collection at least for the next 12 months. These businesses need to think about what must be included in these notices.

A Business Insider article explains that iPhones maintain a detailed list of every location the user of the phone frequents, including how long it took to get to that location, and how long the user stayed there. The article provides helpful information about where that information is stored on the phone, how the data can be deleted, and, perhaps more importantly, how to stop the tracking of that information. This information may be important for users, as well as companies that provide iPhones to their employees to use in connection with their work.

AB25 excepted natural persons acting as job applicants, employees, owners, directors, officers, medical staff members, and contractors of a CCPA-covered business from all of the CCPA protections except two: (i) providing them a notice of collection under Cal. Civ. Code Sec. 1798.100(b), and (ii) the right to bring a private civil action against a business in the event of a data breach caused by the business’s failure to maintain reasonable safeguards to protect personal information. The notice of collection must inform these persons as to the categories of personal information collected by the business and how those categories are used.

The CCPA’s definition of personal information includes eleven categories of personal information, one of which is geolocation data. As many businesses think about the categories of personal information they collect from employees, applicants, etc. for this purpose, geolocation may be the last thing that comes to mind. This is especially true for businesses with workforces that come into the office every day, and which do not have a business need to know where their employees are, such as transportation, logistics, and home health care businesses. But, they still may provide their workforce members a company-owned iPhone or other smart device with similar capabilities, although not realizing all of its capabilities or configurations.

As many who have gone through compliance with the General Data Protection Regulations in the European Union, the CCPA and other laws that may come after it in the U.S. will require businesses to think more carefully about the personal information they collect. They likely will find such information is being collected without their knowledge and not at their express direction, and they may have to communicate that collection (and use) to their employees.

Jackson Lewis P.C. © 2019