Litigation Archives - Page 29 of 51 - The National Law Forum

SawStop Dismissal Explained: Opinion Crosscutting SawStop’s Antitrust Lawsuit Released

Judge Claude M. Hilton of the Eastern District of Virginia recently issued a Memorandum Opinion following up on his June 27, 2014 order (on which we previously wrote here and here) dismissing the complaint filed against the power tool industry bySawStop, LLC.

To recap, according to the February 2014 complaint, in 2000, Stephen Gass, inventor of “SawStop” and a patent attorney, began licensing negotiations with several companies now named as defendants in the lawsuit. As a result, the companies allegedly held a vote on how to respond to SawStop and shortly thereafter ended their individual licensing negotiations with Gass. The complaint also alleges the companies conspired to alter voluntary standards to prevent SawStop technology from becoming an industry standard.

In his opinion dismissing SawStop’s antitrust claims, Judge Hilton wrote:

An alleged antitrust conspiracy is not established simply by lumping ‘the defendants’ together.

Judge Hilton found no evidence that any of the named manufacturer defendants conspired through their industry organization, the Power Tool Institute, Inc. (PTI), not to license SawStop’s safety technology. Judge Hilton also found that the conspiracy allegations were belied by SawStop’s admissions in the complaint that it was actively negotiating with Emerson, Ryobi, and Black & Decker “well after the alleged group boycott began in October 2001,” concluding that “[s]uch history fails to show an agreement to restrain trade.”

The judge also pointed to other contradictions in SawStop’s complaint, including evidence that Ryobi signed an agreement with SawStop regarding royalties related to SawStop’s technology licensing during the time period of the alleged conspiracy. In addition, the judge ruled that Black & Decker’s proposed a licensing agreement with the SawStop, which was negotiated 6 to 8 months after the alleged conspiracy was formed, similarly contradicted SawStop’s allegations. The judge further dismissed SawStop’s arguments that Black & Decker’s 1% royalty payment offer was disingenuous, noting that even if that were the case, such actions do “not sufficiently infer conspiratorial conduct” and cannot be characterized as refusals to deal.

Finally, the judge found that SawStop failed to adequately plead that the defendants corrupted the standard setting process or otherwise agreed to a boycott, pointing out that the complaint alleged that only 5 of the 24 defendants had representatives on the relevant standards-setting committee. Moreover, the court found SawStop’s allegations of competitive harm resulting from the conspiracy (lost sales and profits from UL failing to mandate its safety technology on the market) insufficient, stating:

‘Lost sales’ do not amount to competitive harm because [users] were not ‘in some way constrained from buying [SawStop’s] products’ . . . and failing to mandate [SawStop’s] proposed safety standard does not thereby harm their market access.

Finding no support for an inference that defendants had entered into an agreement to boycott SawStop’s product or otherwise restrain trade, the court dismissed SawStop’s complaint in its entirety.

In addition to the antitrust lawsuit, SawStop technology is at the center of an ongoing rulemaking by the U.S. Consumer Product Safety Commission (CPSC). You can read more about the CPSC’s rulemaking here.

Article By:

Helen J. Kim

Charles A. Samuels

Of:

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

Hostile Work Environment Case Gets Additional Fourth Circuit Scrutiny

The Fourth Circuit Court of Appeals has agreed to an en banc rehearing (in which all judges on the court will hear the case) of Boyer-Liberto v. Fountainebleau Corp. after a three-judge panel of the court ruled in May 2014 that the factual allegations in the case did not rise to the level of a hostile work environment. The three-judge panel ruled that because a racial slur used inh the workplace was limited to two occasions arising from a single incident, the plaintiff had not been subjected to a hostile work environment based on her race.

Ms. Boyer-Liberto based her EEOC Charge of Discrimination and subsequent lawsuit against her former employer on two conversations she had with a coworker about an incident that occurred on September 14, 2010. During those conversations, which were on two consecutive days, the coworker twice directed a racial slur at Ms. Boyer-Liberto. One week after the incident, Ms. Boyer-Liberto was terminated from her job. The United States District Court for the District of Maryland granted summary judgment to the former employer, holding the offensive conduct was too isolated to support the plaintiff’s claims for discrimination and retaliation, and the three-judge panel of the Fourth Circuit affirmed that decision. Although the appeals court agreed the term used was “derogatory and highly offensive,” it held “a co-worker’s use of that term twice in a period of two days in discussions about a single incident was not, as a matter of law, so severe or pervasive as to change the terms and conditions of Liberto’s employment so as to be legally discriminatory.”

The Fourth Circuit has agreed to rehear the case, but it is not clear Ms. Boyer-Liberto will fare better on the rehearing although she argued in her petition for rehearing that the three-judge panel’s decision was inconsistent with other court rulings. That panel had specifically addressed the other cases Ms. Boyer-Liberto argued supported her claim and distinguished each as involving a greater number of incidents occurring over a longer time period or involving conduct having long-term, ongoing consequences.

As the panel noted in this case, a hostile work environment exists when “the workplace is permeated with discriminatory intimidation, ridicule, and insult that is sufficiently severe or pervasive to alter the conditions of the victim’s employment and create an abusive working environment.” The Fourth Circuit’s upcoming decision in this case bears watching to see if the court takes the opportunity to expand what has been a relatively narrow definition of hostile work environment. Regardless, employers should promptly investigate any claims of harassment or discrimination, document those investigations, and act quickly to address any harassment or discrimination uncovered in the investigations.

Article By:

Kevin M. Ceglowski

Of:

Poyner Spruill LLP

The Supreme Court of the United States Holds that ESOP Fiduciaries are not Entitled to a Presumption of Prudence, Clarifies Standards for Stock Drop Claims

On June 25, 2014, the Supreme Court of the United States unanimously held that there is no special presumption of prudence for fiduciaries of employee stock ownership plans (“ESOPs”). Fifth Third Bancorp v. Dudenhoeffer, No. 12-751, 573 U.S. ___ (June 25, 2014) (slip op.).

Background

The Employee Retirement Income Security Act of 1974, as amended (“ERISA”) imposes legal duties on fiduciaries of employee benefit plans, including ESOPs.^[1] Specifically, ERISA requires the fiduciary of an employee benefit plan to act prudently in managing the plan’s assets.^[2] In addition, ERISA requires the fiduciary to diversify plan assets.^[3]

ESOPs are designed to be invested primarily in employer securities.^[4] ERISA exempts ESOP fiduciaries from the duty of diversify plan assets and from the duty to prudently manage plan assets, but only to the extent that prudence requires diversification of plan assets.^[5]

The recent financial crisis generated a wave of ERISA “stock drop” cases, which were filed after a precipitous drop in the value of employer securities held in an ESOP. Generally, the plaintiff alleged that the ESOP fiduciary breached its duty of prudence by investing in employer securities or continuing to offer employer securities as an investment alternative. Defendant fiduciaries defended on the ground that the plaintiff failed to rebut the legal presumption that the fiduciary acted prudently by investing in employer securities or continuing to offer employer securities as an investment alternative.

The Federal Circuit Courts of Appeals that had considered the issue adopted the rebuttable presumption of prudence but split on the issues of (1) whether the legal presumption applied at the pleadings stage of litigation or whether the legal presumption was evidentiary in nature and did not apply at the pleadings stage of litigation and (2) the rebuttal standard that the plaintiff of a stock drop action must satisfy.^[6]

Dudenhoeffer held that ESOP fiduciaries are not entitled to a legal presumption that they acted prudently by investing in employer securities or continuing to offer employer securities as an investment alternative.^[7]

The Dudenhoeffer Case

Fifth Third Bancorp maintained a defined contribution plan, which offered participants a number of investment alternatives, including the company’s ESOP. The terms of the ESOP required that its assets be “invested primarily in shares of common stock of Fifth Third [Bancorp].”^[8] The company offered a matching contribution that was initially invested in the ESOP. In addition, participants could make elective deferrals to the ESOP.

ESOP participants alleged that the ESOP fiduciaries knew or should have known on the basis of public information that the employer securities were overvalued and an excessively risky investment. In addition, the ESOP fiduciaries knew or should have known on the basis of non-public information that the employer securities were overvalued. Plaintiffs contended that a prudent ESOP fiduciary would have responded to this public and non-public information by (1) divesting the ESOP of employer securities, (2) refraining from investing in employer securities, (3) cancelling the ESOP investment alternative, and (4) disclosing non-public information to adjust the market price of the employer securities.

Procedural Posture

The United States District Court for the Southern District of Ohio dismissed the complaint for failure to state a claim, holding that ESOP fiduciaries were entitled to a presumption of prudence with respect to their collective decisions to invest in employer securities and continue to offer employer securities as an investment alternative.^[9] The District Court concluded that presumption of prudence applied at the pleadings stage of litigation and that the plaintiffs failed to rebut the presumption.^[10]

The United States Court of Appeals for the Sixth Circuit reversed the District Court judgment, holding that the presumption of prudence is evidentiary in nature and does not apply at the pleadings stage of litigation.^[11] The Sixth Circuit concluded that the complaint stated a claim for a breach of the fiduciary duty of prudence.^[12]

ESOP Fiduciaries Not Entitled to Presumption of Prudence

In a unanimous decision, the Supreme Court of the United States held that ESOP fiduciaries are not entitled to a presumption of prudence with regard to their decisions to invest in employer securities and continue to offer employer securities as an investment alternative; rather, ESOP fiduciaries are subject to the same duty of prudence that applies to other ERISA fiduciaries, except that ESOP fiduciaries need not diversify plan assets.^[13]

The Court began its analysis b
y acknowledging a tension within the statutory framework of ERISA. On the one hand, ERISA imposes a duty on all fiduciaries to discharge their duties prudently, which includes an obligation to diversify plan assets. On the other hand, ERISA recognizes that ESOPs are designed to invest primarily in employer securities and are not intended to hold diversified assets. The Court concluded that an ESOP fiduciary is not subject to the duty of prudence to the extent that the legal obligation requires the ESOP fiduciary to diversify plan assets. The Court found no special legal presumption favoring ESOP fiduciaries.

New Standards for Stock Drop Claims

Although the Court rejected the presumption of prudence, it vacated the judgment of the Sixth Circuit Court of Appeals (which held that the complaint properly stated a claim) and announced new standards for lower courts to observe in evaluating whether a complaint properly pleads a claim that an ESOP fiduciary breached its fiduciary duty of prudence by investing in employer securities or continuing to offer employer securities as an investment alternative.

Public Information

First, the Court concluded that “where a stock is publicly traded, allegations that a fiduciary should have recognized from publicly available information alone that the market was over- or undervaluing the stock are implausible as a general rule, at least in the absence of special circumstances.”^[14] In other words, a plaintiff generally cannot state a plausible claim of imprudence based solely on publicly available information. An ESOP fiduciary does not necessarily act imprudently by observing the efficient market theory, which holds that a major stock market provides the best estimate of the value of employer securities. To be clear, the Court did not rule out the possibility that a plaintiff could properly plead imprudence based on publicly available information indicating special circumstances affecting the reliability of the market price.

Non-Public Information

Second, the Court concluded that “[t]o state a claim for breach of the duty of prudence on the basis of inside information, a plaintiff must plausibly allege an alternative action that the [fiduciary] could have taken that would have been consistent with [applicable Federal and state securities laws] and that a prudent fiduciary in the same circumstances would not have viewed as more likely to harm the [ESOP] than to help it.”^[15]

The Court reasoned that where a complaint alleges imprudence based on an ESOP fiduciary’s failure to act on non-public information, a lower court’s analysis should be guided by three considerations. First, ERISA does not require a fiduciary to violate applicable Federal and state securities laws. In other words, an ESOP fiduciary does not act imprudently by declining to divest the ESOP of employer securities or by prohibiting investments in employer securities on the basis of non-public information. Second, where a complaint faults fiduciaries for failing to decide, on the basis of non-public information, to refrain from making additional investments in employer securities or for failing to disclose non-public information to correct the valuation of the employer securities, lower courts should consider the extent to which the duty of prudence conflicts with complex insider trading and corporate disclosure requirements imposed by Federal securities laws or the objectives of such laws. Third, lower courts should consider whether the complaint has plausibly alleged that a prudent fiduciary could not have concluded that discontinuing investments in employer securities or disclosing adverse, non-public information to the public, or taking any other action suggested by the plaintiff would result in more harm than good to the ESOP by causing a drop in the value of the employer securities.

Quantifying the Unknowns

Fifth Third Bancorp v. Dudenhoeffer will undoubtedly reshape the landscape of ERISA litigation and, specifically, stock drop litigation. To fully understand the decision’s impact, a number of questions must still be answered, including the correct application of the standards espoused by the Court. In addition, Dudenhoeffer involved a publicly-traded company; it is unclear what application, if any, the decision will have in the context of employer securities of a privately held company.

Article By:

Christopher T. Horner

Eric W. Gregory

Of:

Dickinson Wright PLLC

_{^[1] See generally, ERISA § 404(a).}

_{^[2] ERISA § 404(a)(1)(B).}

_{^[3] ERISA § 404(a)(1)(C).}

_{^[4] Code § 4975(e)(7)(A).}

_{^[5] ERISA § 404(a)(2).}

_{^[6] See e.g. Moench v. Robertson, 62 F.3d 553, 571 (3d Cir. 1995); In re Citigroup ERISA Litig., 662 F.3d 128, 138 (2d Cir. 2011); Kirschbaum v. Reliant Energy, Inc., 526 F.3d 243, 254 (5^th Cir. 2008); Kuper v. Iovenko, 66 F.3d 1447 (6^th Cir. 1995); White v. Marshall & Ilsley Corp., Case No. 11-2660, 2013 WL 1688918 (7^th Cir. Apr. 19, 2013); Quan v. Computer Sciences Corp., 623 F.3d 870, 881 (9^th Cir. 2010);Lanfear v. Home Depot, Inc., 679 F.3d 1267 (11^th Cir. 2012).}

_{^[7] No. 12-751, 573 U.S. ____ at 1-2.}

_^[8] Id.

_{^[9] Dudenhoeffer v. Fifth Third Bancorp, Inc., 757 F. Supp. 2d 753, 759 (S.D. Ohio 2010).}

_{^[10] Id. At 762.}

_{^[11] Dudenhoeffer v. Fifth Third Bancorp, 692 F. 3d 410, 418-19 (2012).}

_{^[12] Id. At 423.}

_{^[13] Fifth Third Bancorp v. Dudenhoeffer, No. 12-751, 573 U.S. ___ at 1-2.}

_{^[14] Id. At 16.}

_{^[15] Id. At 18.}

U.S. Supreme Court Makes It Easier To Avoid Method Patents Requiring Multiple Actors

On June 2, 2014, the United States Supreme Court unanimously held that a defendant was not liable for inducing infringement of a patented method where there is no direct infringement because the method steps are “divided” between the defendant and its customers. See Limelight Networks, Inc. v. Akamai Technologies, Inc., No. 12–786. The Court was reviewing a 6-5 en banc decision from the Court of Appeals for the Federal Circuit that held a party might be liable for inducing infringement under 35 USC 271(b) where a defendant carried out some steps and encouraged others (such as its customers) to carry out the remaining steps. In other words, the performance of the method steps was divided between a party and its customers, so the party could be liable for inducing the performance of the remaining steps it did not perform itself. The Supreme Court reversed and remanded the judgment against Limelight, reasoning that there could be no liability for inducing infringement if no party directly infringed.

The Supreme Court relied on a prior decision by the Federal Circuit that there is no direct infringement of a method claim unless a single party performs every step of a claimed method or exercises “control or direction” over the entire process such that every step is attributable to that party. See Muniauction, Inc. v. Thomson Corp., 532 F.3d 1318, 1329 (Fed. Cir. 2013). Muniauction held that there was no direct infringement of a patented method when its distinct steps were performed by “mere arms-length cooperation” between parties. In Limelight, the Supreme Court “assumed” that Muniauction’s holding was correct but observed that the Federal Circuit could revisit it when the Limelight decision was remanded.

Both Limelight and Muniauction involved client-server scenarios for web-based businesses and cloud-based application services, but this decision has broad implications across a variety of fields, such as personalized or precision medicine. For example, a patented method directed to diagnosing and treating a disease would not be infringed where a laboratory provides the diagnosis and the treating physician does not exercise “control or direction” over the steps performed by the laboratory.

Until Muniauction is further defined, the Court has returned the law to its state prior to the Federal Circuit’s Akamai holding, where liability turned on whether a single infringer exhibited sufficient “control or direction” over steps performed by others; if not, no one is liable for patent infringement. For would-be infringers, this potentially provides a useful defense. For patent applicants, it is a reminder to draft method claims in a manner such that all actions can be taken by a single entity.

Article By:

Michael B. Harlin

James P. Muraff

Kevin A. O’Connor Ph.D.

Mike R. Turner

Of:

Neal, Gerber & Eisenberg LLP

Wisconsin Right to Life v. Barland (7th Cir. May 14, 2014)

On May 14, 2014 the Seventh Circuit U.S. Court of Appeals released its long-awaited decision in Wisconsin Right to Life v. Barland. Click here to read a copy of the court’s decision.

The opinion is authored by Judge Diane Sykes who was a member of the Wisconsin Supreme Court before being nominated by President Bush and then appointed to the federal Court of Appeals in 2004. The matter had been fully briefed, argued and pending since January 2013.

In 2010, the Government Accountability Board (the G.A.B.) adopted an administrative rule, GAB 1.28. In short, this rule greatly expanded the scope of communications subject to regulation as independent expenditures. As a result, issue advocacy communications in the 30/60 days before an election that identified a candidate would be presumed to be independent expenditures and subject to full PAC regulation under state campaign finance law, including donor disclosure.

In response to the G.A.B.’s adoption of this highly controversial rule, three lawsuits were filed almost immediately after the rule took effect. One of those lawsuits was filed in federal court in the Eastern District of Wisconsin by attorney James Bopp on behalf of Wisconsin Right to Life (WRTL). However, WRTL not only sued the G.A.B. about administrative rule GAB 1.28, it also challenged a multitude of other Wisconsin campaign finance laws. Today’s decision is essentially a resolution of WRTL’s lawsuit and all of those legal challenges.

WRTL prevailed in virtually all of its arguments, including:

Wisconsin’s ban on corporate political spending is unconstitutional under Citizens United;
GAB 1.28 which treats issue advocacy during the 30/60 day preelection period as fully regulable express advocacy/independent expenditures is unconstitutional; and,
GAB 1.91 which imposes PAC-like registration and reporting requirements on all organizations that sponsor independent expenditures is unconstitutional as applied to sponsors who are not superPACs (such as 501(c)(4) organizations and other non-committee sponsors).

The Court of Appeals reached its conclusions using very strong and clear language on government’s limited ability to regulate political speech:

“The effect of [Buckley] was to place issue advocacy—political ads and other communications that do not expressly advocate the election or defeat of a clearly identified candidate—beyond the reach of the regulatory scheme.” (p. 20)
“As applied to political speakers other than candidates, their committees, and political parties, the statutory definition of ‘political purposes’ in section 11.01(16) and the regulatory definition of ‘political committee’ in GAB 1.28(1)(a) are limited to express advocacy and its functional equivalent as those terms were explained in Buckley and Wisconsin Right to Life II.” (p. 62)
The G.A.B.’s administrative rule “sweeps a far wider universe of political speech into [state campaign finance laws], introducing confusion for ordinary political speakers who lack the background or assistance of a campaign finance lawyer.” (p. 64)
“Regulations on speech, however, must meet a higher standard of clarity and precision. In the First Amendment context, ‘rigorous adherence to [these] requirements is necessary to ensure that ambiguity does not chill protected speech.’ Vague or overbroad speech regulations carry an unacceptable risk that speakers will self-censor, so the First Amendment requires more vigorous judicial scrutiny.” (p. 65)

The WRTL decision also highlights the confusing nature of Wisconsin’s campaign finance statutes and the burdens these laws place on those organizations desiring to participate in the process:

Like other campaign-finance systems, Wisconsin’s is labyrinthian and difficult to decipher without a background in this area of the law; in certain critical respects, it violates the constitutional limits on the government’s power to regulate independent political speech. Part of the problem is that the state’s basic campaign-finance law—Chapter 11 of the Wisconsin Statutes—has not been updated to keep pace with the evolution in Supreme Court doctrine marking the boundaries on the government’s authority to regulate election-related speech. In addition, key administrative rules do not cohere well with the statutes, introducing a patchwork of new and different terms, definitions, and burdens on independent political speakers, the intent and cumulative effect of which is to enlarge the reach of the statutory scheme. Finally, the state elections agency has given conflicting signals about its intent to enforce some aspects of the regulatory mélange. (pp. 3-4)

The WRTL decision also is an excellent summary of the history of campaign finance regulation and litigation in Wisconsin during the last 20 years. It covers in detail successful legal challenges brought against the Elections Board / Government Accountability Board (the G.A.B) by our law firm on behalf of Wisconsin Manufacturers & Commerce (Wis. Supreme Court 1999); Wisconsin Realtors Association (W.D. Wis. 2002); and, Wisconsin Club for Growth / One Wisconsin Now (W.D. Wis. 2010). And, it discusses how despite losing in each of these instances, the G.A.B. continued to push for greater regulation—not less—of political speech.

Bottom line, the WRTL decision makes clear that the government’s authority to regulate political speech extends only to money raised and spent for speech that is express advocacy and that “ordinary political speech about issues, policy, and public officials must remain unencumbered.” (p. 9) Hopefully, with the strong language in this opinion, the G.A.B. will now understand the statutory and First Amendment limitations on its ability to regulate political speech. And, hopefully, the State Legislature will now understand that “Wisconsin’s foundational campaign finance law is in serious need of legislative attention to account for developments in the Supreme Court’s jurisprudence protecting political speech.” (p. 80)

Article By:

Mike B. Wittenwyler

Godfrey & Kahn S.C.

Wind Farms and Eagle “Take” Permits – Litigation is Coming Over the New “30-Year” Permit Rule

The U.S. Fish and Wildlife Service (FWS) recently changed its eagle “take” permitting rules to allow wind developers to apply for 30-year take permits; previously, such permits, which allow the incidental killing of eagles, were available for a maximum of just five years. Wind developers had lobbied for the rule change based on concerns that shorter permitting periods inhibit their ability to obtain financing. But now, a bird conservation group, the American Bird Conservancy (ABC), is threatening litigation to overturn the “30-Year” rule.

How strong are ABC’s claims?

Not especially strong, because the FWS has powerful responses to each of ABC’s contentions. The FWS will also be protected by the deferential standard of review that typically applies in this type of lawsuit. And even if ABC were to prevail on its claims, the end result is less likely to be wholesale revocation of the rule than some delays in implementing it. That is because ABC’s claims are largely procedural in nature, not substantive.

ABC’s claims are summarized in an April 30 letter to the U.S. Department of the Interior and the FWSannouncing the group’s intention to file suit over the 30-Year rule. The letter contends that the FWS committed three legal errors when it extended the maximum take permitting period from five years to 30 years. According to ABC, the FWS violated: (1) the National Environmental Policy Act (NEPA), by failing to prepare an environmental impact statement or environmental assessment for the 30-Year rule; (2) the Endangered Species Act (ESA), by allegedly failing to ensure that the rule is not likely to jeopardize the continued existence of endangered species; and (3) the Bald and Golden Eagle Protection Act (BGEPA), which is the statute that authorizes take permits, by prioritizing the concerns of wind developers over those of the eagles the statute is designed to protect.

The problem for ABC – and the good news for wind developers – is that FWS has strong defenses to ABC’s assertions. First, the NEPA claim will almost certainly turn on whether the FWS correctly concluded that the 30-Year rule falls within a “categorical exclusion” from NEPA’s requirements. In its letter, ABC quibbles with the FWS’s conclusion, but courts generally review such conclusions under a highly deferential standard of review. Indeed, agencies often prevail on such claims simply by offering a facially plausible explanation of why NEPA does not apply. Here, the FWS has done that. The agency’s NEPA implementation regulations permit the FWS to forego NEPA analysis for rules that have broad or speculative impacts, provided that those impacts will be analyzed on a case-by-case basis in the future. The FWS contends that is the situation here – it will conduct a NEPA analysis on a permit-by-permit basis in the future. Courts have rejected NEPA claims under similar circumstances in the past.

The FWS has a similar defense to ABC’s ESA claim. That claim turns on whether the FWS had a duty to engage in internal consultation about the potential impact of the 30-Year rule on endangered species or critical habitat. ABC’s letter insists that the FWS was subject to that duty and failed to comply with it. But the FWS previously concluded, in 2009, that the eagle take permitting rule as a whole would not have any impact on endangered species. That leaves the FWS in a strong position now, because the 30-Year rule does little more than change the maximum available permitting period under the existing permitting rule. The FWS will also likely argue that, contrary to ABC’s assertions, the 30-Year rule does not affect endangered species because all it does is authorize the issuance of permits, it does not itself grant any developer permission to undertake any activity. In sum, the FWS will likely argue that the proper time for ESA consultation is in the context of specific permit applications in the future, not in the context of this more general rulemaking that is not project-specific.

Finally, although ABC insists that the FWS should not have privileged the interests of wind developers over the protection of eagles, that is probably not enough to establish that the 30-Year rule violates the BGEPA. The BGEPA expressly allows the FWS to permit eagle takes “for the protection of . . . other interests in any particular locality.”

ABC will likely wait 60 days before actually commencing litigation, so as to comply with the ESA’s citizen suit provision. In the interim, the FWS will surely be evaluating the merits of ABC’s contentions and considering what options it has for addressing them. Wind developers may want to make their voices heard during that 60 day period, and may want to consider intervening to defend the 30-Year rule in the event this matter does in fact proceed to litigation.

Article By:

Jacob Hollinger

Of:

McDermott Will & Emery

Legal Updates for Government Entities Covering March and April 2014

Arizona Court of Appeals

Immunity under A.R.S. § 12-820.05

Tucson Unified School District v. Gallagher, –P.3d–, 2014 WL949114 (March 11, 2014)

The Gallaghers sued TUSD and a TUSD school employee, Michael Corum, alleging that Corum sexually abused and/or exploited their developmentally challenged daughter at a TUSD school. The Gallaghers claimed that TUSD was vicariously liable for Corum’s conduct and was negligent in hiring and supervising Corum. The Gallaghers alleged that if TUSD had properly investigated Corum’s employment history they would have discovered that a prior employer recommended that he not be employed in a position that involved disabled children. TUSD filed for summary judgment, arguing that it was immune under A.R.S. § 12-820.05 because Corum had committed a felony and it had no actual knowledge of Corum’s purported propensity for such conduct. The trial court denied summary judgment, concluding that TUSD should have known of the circumstances of Corum’s previous conduct and thus the immunity statute did not apply. TUSD appealed.

A.R.S. § 12-820.05(B) provides that a public entity is not liable for losses that arise out of and are directly attributable to a public employee’s act or omission that is determined by a court to be a felony, unless the public entity knew of the public employee’s propensity for that action. The Court of Appeals held that immunity under A.R.S. § 12-820.05(B) applies unless the entity has actual, not constructive, knowledge. The Court based its decision on the plain language of the statute. When the legislature intends a standard of actual or constructive knowledge, it expressly states so. The use of the word “knew” in the immunity statute unambiguously shows the legislature’s intent to require actual knowledge rather than constructive knowledge. A.R.S. § 12-820.05(B) means exactly what it says—that immunity applies unless the public entity actually knew of the “employee’s propensity.”

Ninth Circuit Court of Appeals

Qualified immunity for warrantless entry

Sheehan v. City and County of San Francisco, 743 F.3d 1211 (9th Cir. 2014)

Sheehan suffered from a mental illness and was residing in a group home. Her assigned social worker was concerned about her deteriorating condition, deemed her gravely disabled, and called the police to transport her to a mental health facility for a 72-hour involuntary commitment. When officers Reynolds and Holder arrived at the home, they entered Sheehan’s room, without a warrant, to confirm her mental condition and take her into custody. Sheehan reacted violently, grabbed a knife, threatened to kill the officers, and told them that she did not wish to be detained in a mental health facility. The officers retreated to the hallway for their safety and called for backup. But rather than waiting for backup to arrive, the officers drew their weapons and forced their way back into Sheehan’s room. Sheehan again threatened them with a knife. The officers shot her six times. Sheehan survived and filed a § 1983 action, claiming the officers’ entry into her room violated the Fourth Amendment and they used excessive force. The district court found the officers were entitled to qualified immunity and granted summary judgment. Sheehan appealed.

Generally, a warrantless search or seizure in a person’s home is presumptively unreasonable under the Fourth Amendment. But there are exceptions to the warrant requirement, including the emergency aid exception. The emergency aid exception applies when, under the totality of the circumstances, (1) law enforcement had an objectively reasonable basis for concluding that there was an immediate need to protect others or themselves from serious harm, and (2) the search’s scope and manner were reasonable to meet the need. Under this exception, the Ninth Circuit held that the officers’ first entry into Sheehan’s room did not violate the Fourth Amendment because they had an objectively reasonable basis for concluding that there was an urgent need to protect Sheehan from serious harm. The officers knew she was off of her medication, was not taking care of herself, had threatened her social worker, and was gravely disabled and in need of involuntary hospitalization. Indeed, the court noted that the officers reasonably took a cautious approach to the situation and that “erring on the side of caution is exactly what we expect of conscientious police officers.” And they carried out the search in a reasonable manner. They knocked and announced and used a pass key to gain entry. They did not draw their weapons and had no reason to believe that their entry would trigger a violent confrontation.

The court found that the emergency aid exception also justified the second warrantless entry into Sheehan’s room. The officers continued to have an objectively reasonable basis for concluding that there was an urgent need to protect Sheehan from serious harm. And because the two entries were part of a single, continuous search or seizure, the officers were not required to separately justify the continuing emergency with respect to the second entry. But the court found that fact issues as to whether the entry was conducted in a reasonable manner precluded summary judgment, and noted that Ninth Circuit case law would put any reasonable, competent officer on notice that it is unreasonable to forcibly enter the home of an armed, mentally ill subject who is acting irrationally and threatening anyone who entered, when there was no objective need for immediate entry.

Lack of resources defense/ jury instruction in § 1983 cases

Peralta v. Dillard, 744 F.3d 1076 (9th Cir. 2014)

Peralta, a prison inmate, sued a prison dentist claiming deliberate indifference under the Eighth Amendment. At trial, the court instructed the jury that “whether a dentist or doctor met his duties to Peralta under the Eighth Amendment must be considered in the context of the personnel, financial, and other resources available to him or her or which he or she could reasonably obtain.” Peralta challenged this jury instruction on appeal.

The Ninth Circuit noted that the Supreme Court has not said whether juries and judges may consider a lack of resources as a defense in § 1983 cases. But the Supreme Court has held that prison officials are not deliberately indifferent to a prisoner’s medical needs unless they act wantonly, and whether an official’s conduct can be characterized as wanton depends on the constraints facing him. See Wilson v. Seiter, 501 U.S. 294, 303 (1991). The Court has also held that even if an official knows of a substantial risk, he’s not liable if he responded reasonably. Farmer v. Brennan, 511 U.S. 825, 844 (1994). This framework makes clear that what is reasonable depends on the circumstances that constrain what actions an official can take.

Several constraints impacted and delayed provision of care for Peralta. Security concerns dictate that only one prisoner at a time can be in the exam room, and the prisoner cannot be left alone in the room because dental tools can be used as weapons. During lockdown, only emergency cases can be seen. Dentists can’t accept prisoners’ complaints at face value, as inmates often try to jump the line by exaggerating symptoms.

The Ninth Circuit noted that lack of resources is not a proper defense to a claim for prospective relief. But a claim for damages is different. Damages provide redress for something an official could have done but did not. So with respect to a claim for damages, the nature of the available resources is highly relevant to show the scope of choices that the individual defendant had. A prison medical official who fails to provide needed treatment because he lacks the necessary resources can hardly be said to have intended to punish the inmate. The court held that the challenged jury instruction properly advised the jury to consider the resources the dentist had available in determining whether he was deliberately indifferent.

United States Supreme Court

Scope of Fourth Amendment consent to search

Fernandez v. California, 132 S.Ct. 1126 (2014)

Officers responding to an assault call saw a man running through an alley and into a building. A minute or two later, they heard sounds of screaming and fighting coming from the building. They knocked on the apartment unit from which the screams were coming. A crying woman, Rojas, answered the door. Her face was red, she had a large bump on her nose, and fresh blood was on her shirt and hand. Officers asked her to step outside so they could do a protective sweep of the apartment. The plaintiff, Fernandez, stepped forward and told the officers that they could not enter. Believing that Fernandez had assaulted Rojas, the officer removed him from the apartment and arrested him. About an hour later, a detective returned to the apartment and requested and received oral consent from Rojas to search the premises. Police found evidence incriminating Fernandez, which Fernandez moved to suppress in his criminal case. Fernandez argued that the search was unconstitutional because his denial of consent trumped the later consent Rojas gave. The trial court denied the motion to suppress, the California Court of Appeals affirmed the denial, and the California Supreme Court denied the petition for review. The Supreme Court granted certiorari.

Consent searches are recognized as an exception to the requirement for a search warrant. In 1974, the Supreme Court held that police officers may search jointly occupied premises if one of the occupants consents. See United States v. Matlock, 415 U.S. 164 (1974). Years later, the Court recognized a narrow exception to this rule, holding that the consent of one occupant is insufficient when another occupant is present and objects to the search. Georgia v. Randolph, 547 U.S. 103 (2006). Here, the Court declined to expand the current rule. They rejected Rodriguez’s argument that his objection to the search should have barred a later search since he was absent from the premises only because the police arrested and removed him. The Court held that an occupant who is absent due to a lawful detention or arrest stands in the same shoes as an occupant who is absent for any other reason. The Court also rejected the idea that once an occupant objects to a search, the objection remains effective until withdrawn.

Article By:

Lisa S. Wahlin

Of:

Ryley Carlock & Applewhite, A Professional Corporation

Only one week until the Trademark Infringement & Litigation Summit – April 28-29, San Francisco

The National Law Review is pleased to bring you information about the upcoming Trademark Infringement & Litigation Summit hosted by IQPC.

When

Monday April 28 & Tuesday April 29, 2014

Where

San Francisco, California, USA

Trademark law may not be changing, but its application certainly has and will continue to do so. Brands are increasingly global, which opens up new possibilities for companies… but also new trademark issues and potential pitfalls. The online experience adds to this global focus and changes the interaction between brands and consumers dramatically.

IQPC’s Trademark Infringement & Litigation Summit will address the topics that you grapple with on a daily basis, including:

How business and infringement concerns guide strategic registration and vigilance
Methods of enforcing your mark, including a “soft approach,” ICANN dispute resolution, cancellation and opposition
Litigation and enforcement management
Evolving company domain name strategy

Perhaps the biggest benefit of attending, however, is the practical, frank conversation about the legal and business choices involved in protecting and maintaining your brand. Attend the Trademark Infringement & Litigation Summit to work through these issues with your colleagues.

Do not miss your opportunity to network and engage with top in-house and outside counsel working in the area. Register today!

NOTE: IQPC plans on making CLE credits available for the state of California (number of credits pending). In addition, IQPC processes requests for CLE Credits in other states, subject to the rules, regulations and restrictions dictated by each individual state. For any questions pertaining to CLE Credits please contact: amanda.nasner@iqpc.com.

Employer Used As Means to Commit Crime not a Victim under Restitution Act, Fourth Circuit Court Rules

The Mandatory Victims Restitution Act of 1996 (“MVRA”) provides that a victim of a federal crime may be entitled to an order of restitution for certain losses suffered as a direct result of the commission of the crime for which the defendant was convicted. A question that courts sometimes face is whether a company can be considered a “victim” under the MVRA if an employee uses that company as an instrument to defraud the federal government.

Looking at this issue, the U.S. Court of Appeals for the Fourth Circuit on April 4, 2014, declined to allow a company’s bankruptcy estate to receive restitution for a large debt caused by an owner/employee’s fraud because that company was used as an instrument for that fraud. In re Bankruptcy Estate of AGS, Inc., No. 12-cr-113 (4th Cir., April 4, 2014).

Dr. Allen G. Saoud was convicted after a June 2013 jury trial of five counts of health care fraud. Dr. Saoud, who is a dermatologist, in 2005 was excluded from participating in Medicare and Medicaid for 10 years. He then plotted to maintain ownership and control of his dermatology practice, AGS, Inc. in violation of the exclusion. He founded a new dermatology practice and transferred all of his patients to this new practice. After selling his new practice to Dr. Fred Scott for $1.8 million, Dr. Saoud then sold AGS, which had lost its value, for $1 million to nurse practitioner Georgia Daniel. Despite these sales, he continued to control and profit from both entities, partly by collecting Medicare and Medicaid reimbursement funds.

After Dr. Saoud was convicted, the estate of AGS, Inc., which had filed for bankruptcy, sought a $1 million restitution award to cover bankruptcy creditor claims that stemmed partly from the underlying fraud. The district court declined. The Estate of AGS, Inc. then filed a writ of mandamus with the Fourth Circuit.

The Fourth Circuit also refused to award restitution to the Estate. The Court held that Dr. Saoud used AGS, Inc. as an instrument in his scheme to illegally obtained Medicare and Medicaid funds, and as such, the Court declined to “also hold that AGS was one of the scheme’s victims.”

AGS, Inc. should be a source of concern to companies that have sustained losses as a result of employee fraud. If an employee, director, officer or owner uses a company to defraud the government and that company incurs tax or other debt liability as a result of that fraud, that company may not be able to receive restitution under the MVRA. Jackson Lewis attorneys are available to advise companies on the scope of the Mandatory Victims Restitution Act and their rights in collecting amounts lost to criminal acts.

Article By:

Ramsay C. McCullough

Of:

Jackson Lewis P.C.

Detecting FMLA (Family and Medical Leave Act) Abuse

Dealing with employees who abuse FMLA can be difficult. Letting abuse run rampant, however, can impact business productivity and put a damper on company morale (as present employees often have to pick up the slack of someone on leave). Employers who detect abuse must proceed with caution because it is very easy to run afoul of regulations.

Under the FMLA, it is unlawful for any employer to interfere with, restrain, or deny the exercise of any right provided by the Act. Further, employers cannot use the taking of FMLA leave as a negative factor in employment actions, such as hiring, promotions, or disciplinary actions. Violating these provisions can lead to employee lawsuits for interference or retaliation. Having said that, an employer is not helpless in thwarting employees’ ill-intentioned leaves.

If there is suspected abuse, it should be documented in detail. Who reported it? Is the source credible? Is there evidence (i.e., photographs)? Employers should refrain from overzealously playing detective or prompting other employees to snoop on a coworker – doing so may violate privacy laws. However, if there is a reasonable belief or honest suspicion that abuse is occurring, an employer may begin a confidential investigation, perhaps with the aid of private investigator. Surveillance of an employee should only be used in the most egregious situations and should always be conducted by a professional. Be sure to allow the employee the chance to refute the allegation and present his or her side of the story before taking any adverse action against him or her.

FMLA leave is a right for covered employees, but it does not act as a shield for misconduct nor does it prohibit termination of an employee who abuses the terms of an FMLA leave. You can terminate an employee on FMLA leave, but caution must be used. If you are an employer and detect abuse, it is highly recommended you contact an employment attorney about how to proceed so as to avoid costly lawsuits alleging interference or retaliation.

Article By:

Benjamin L. Riddle

Of:

McBrayer, McGinnis, Leslie and Kirkland, PLLC

Tag: Litigation

SawStop Dismissal Explained: Opinion Crosscutting SawStop’s Antitrust Lawsuit Released

Like this:

Hostile Work Environment Case Gets Additional Fourth Circuit Scrutiny

Like this: