Monday, March 31, 2014

Supreme Court declines to review challenges to contraception mandate

[JURIST] The US Supreme Court [official website] on Monday denied review [order list, PDF] of two cases brought by Roman Catholic non-profit groups seeking an exemption from part of Patient Protection and Affordable Care Act (PPACA) [materials; JURIST backgrounder] requiring employers to provide insurance coverage for contraception. Both cases, Roman Catholic Archbishop of Washington v. Sebelius and Priests for Life, v. Department of Health and Human Services [dockets], were seeking certiorari prior to decisions from the US Court of Appeals...

Source: http://jurist.org/paperchase/2014/03/supreme-court-declines-to-review-challenges-to-contraception-mandate.php

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US Congress approves legislation to aid Ukraine

[JURIST] Both the US Senate and the House of Representatives [official websites] on Thursday approved nearly identical bills [text] that would send a $1 billion aid package to Ukraine and place new sanctions on Russia. The bill passed [NYT report] by a vote of 98-2 in the Senate and 399-19 in the House. Despite the overwhelming support of the bill, Congress remains torn on how the government should confront Russian President Vladimir Putin [official website]. Some lawmakers from both parties...

Source: http://jurist.org/paperchase/2014/03/us-congress-approves-bill-to-aid-ukraine.php

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http://www.heartfeltleadership.com/blog/2014/3/20/328-10-11-am-pst-free-webinar-on-follow-through-with-dr-mark.html

Source: http://feeds.lexblog.com/~r/LawBizBlog/~3/xWn9N4sownU/

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EEOC can use Teamsters-style pattern-or-practice theory under Title VII § 706

Serrano sued in a class action claiming sex discrimination and the EEOC intervened. The trial court ruled for the employer on a number of issues; the 6th Circuit reversed. Serrano and EEOC v. Cintas Corp (6th Cir 11/09/2012).

The main issue was whether EEOC could pursue a pattern-or-practice style claim pursuant to § 706 of Title VII.

The employer argued that under § 706 the EEOC is limited to proving its allegations of discrimination pursuant to the McDonnell Douglas Corp v. Green, 411 US 792 (1973), burden-shifting framework, and cannot use the pattern-or-practice framework announced by the Supreme Court in Teamsters v. United States, 431 US 324 (1977). The court rejected that argument. Even though the Teamsters case arose under § 707, the theory of that case can be used under § 706.

The trial court erred in holding that the employer was entitled to judgment on the pleadings in light of the EEOC's failure to plead its intent to rely on the Teamsters framework. Although the EEOC's complaint "is not a model of good lawyering," a plaintiff need not indicate at the pleading stage which circumstantial evidentiary framework it plans to use.

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Source: http://www.lawmemo.com/blog/2012/11/eeoc_can_use_te.html

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Zimmerman: No Appeal From The Court of Public Opinion (Update)

George Zimmerman was acquitted on a Saturday night. Keyboards were pounded. Reporters reported. Pundits opined. And the jury in the court of public opinion rendered its verdict.

Almost no criminal lawyer, prosecution or defense, saw a second degree murder conviction coming. Education and experience condemns us to view evidence and law with detached logic, so there is no emotionalism, no reliance on "common sense," to fudge the proof.

While juries regularly reach verdicts that bear little relation to the facts, evidence and applicable law, mostly because it's a deeply flawed system, that didn't happen here. The best discussion of what happened that has been produced thus far comes from the Unwashed Advocate, Eric Mayer, who succinctly lays it out.

Acquittal was the right verdict in this case, no matter how much you feel Zimmerman acted out of prejudice, or how terrible it is that a young man was killed.

But the court of public opinion rendered its opinion on twitter following the verdict. For those who embrace the "wisdom of crowds," consider its holding:

1. Trayvon Martin's family should appeal the verdict, up to the Supreme Court if necessary.
2. On appeal, they can make George Zimmerman testify.
3. Then, George Zimmerman will be convicted because a young man is dead.

It's not that people intentionally determined that the Constitution should be ignored. It's that the crowds have no clue.  Maybe they slept through civics class. Maybe they don't remember. Maybe they don't care. But less than ten days after we celebrated the independence of this nation, the court of public opinion has decided they don't like them.

There will be no appeal because of the double jeopardy clause, which precludes it. Zimmerman did not have to testify, and will never have to testify in a criminal prosecution, because he has the right not to testify. And most sadly, the fact that a young man is dead does not compel the conclusion that someone be convicted of a crime.

So much for the adoration of crowdsourcing, or the desiderata that the public can be entrusted with the handling of the law.  In the court of public opinion, assumption runs rampant, as people get their own "feel" for right and wrong, and then become so entrenched in their own bias that they refuse to consider the hard details of evidence and proof.  People need no trial to tell them what happened. They hear a story and whatever gut reaction they have to it becomes their reality.

As it turns out, much of what was told about the death of Trayvon Martin is either false or mired in mystery. When left with the proposition that we will never know what "really" happened, the significance is that the prosecution then lacks evidence to prove its case.  But Trayvon is dead, so it's unfair since he can't tell his side of the story?  True, but that doesn't change the requirement that a defendant be proven guilty. The rule is not proof if its available, assumption if it's not. Except in the court of public opinion.

Is there nothing left to do? There is the possibility of a civil suit for wrongful death by Trayvon Martin's family, just as Nicole Brown Simpson's family sued O.J. The standard of proof is lower, "preponderance of the evidence" rather than "beyond a reasonable doubt," but the outcome will be money damages at worst, not conviction of a crime and imprisonment.

There is also the possibility of a prosecution in federal court for violating Trayvon Martin's civil right to live by shooting him, under the dreaded dual sovereignty that allows the feds a shot if the state fails to convict. That's what happened to LAPD Sgt. Stacey Koon in the Rodney King beating. 

Will either of these happen? Time will tell. The former seems far more likely than the latter, but Trayvon's family may be more legally sophisticated by this point, such that they realize the difficulty that exists with providing evidence to prove their claim.  It's not that they can't believe, but they can't prove.

As show trials go, this one has generated plenty of fodder for television heads to fill the empty minutes between commercials.  But it has also shown that the court of public opinion can't be trusted. Americans still don't understand their own system. They don't get that the rights they want for themselves have to be given to people they despise as well. They refuse to accept that someone they feel with absolute certainty is guilty can be properly acquitted.

Did George Zimmerman have hate in his heart? Who knows. I don't. Neither do you, no matter how strongly you believe you do. But he wasn't proven to have killed Trayvon Martin because of his ill will toward a young black man, and when that happens under our system, acquittal must follow. Yet the court of public opinion refused to accept the verdict, instead pushing its million member jury deeper into ignorance.

There is one truth that neither conviction nor acquittal can change:

 A young man named Trayvon died. He didn’t need to die. That is both tragic and sad.
And there is another truth that twitter cannot change. For all the vast information that has become available to us by virtue of the internet, there is no wisdom of the crowds.

Update: Already this morning, television news has broadcast the twits of New York City politicians and candidates following the verdict. They have the potential to enlighten, to calm, to inform. Instead, they are pandering and inflaming the passions and ignorance of the public, playing the confirmation bias card.

Whether they too lack a working grasp of our legal system, or know better and just don't care, is unclear. Either way, a million people could end the day stupider than it began. Is it worth a vote? Don't answer.


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Source: http://blog.simplejustice.us/2013/07/14/zimmerman-no-appeal-from-the-court-of-public-opinion.aspx?ref=rss

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Federal appeals court allows Kansas to defund Planned Parenthood

[JURIST] The US Court of Appeals for the Tenth Circuit [official website] ruled [text, PDF] on Tuesday that the Kansas legislature can withhold federal funding for two Planned Parenthood [advocacy website] clinics. In the original lawsuit, Planned Parenthood challenged a state law that stripped Planned Parenthood of funding under Title X because the group provides abortion services. US District Court Judge Thomas Marten [official profile] blocked [JURIST report] the enforcement of the state law in 2011, finding it to be...

Source: http://jurist.org/paperchase/2014/03/federal-appeals-court-allows-kansas-to-defund-planned-parenthood.php

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Northwestern Football Players Get Approval to Unionize

Northwestern University football players receiving athletic scholarships are employees and therefore can unionize, according to a Wednesday ruling by a National Labor Relations Board regional director.

Source: http://blogs.wsj.com/law/2014/03/26/northwestern-football-players-get-approval-to-unionize/?mod=WSJBlog

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UN invalidates Crimea referendum

[JURIST] The UN General Assembly [official website] approved a resolution [press release] on Thursday declaring the Crimean referendum to secede from Ukraine invalid. The resolution calls upon all UN states, international organizations and specialty agencies not to recognize any change in status of the Crimean region despite the referendum [JURIST report]. The UN gained broad support for the resolution as 100 states voted in favor, outnumbering the 11 votes against and 58 abstentions. The US Ambassador to the UN Samantha...

Source: http://jurist.org/paperchase/2014/03/un-invalidates-the-crimea-referendum.php

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Sunday, March 30, 2014

Martin Lipton Names Some Activists He Respects

Veteran deal lawyer Martin Lipton said Friday that some shareholder activism should be "encouraged" even while he maintained his long-standing arguments that activists harm the economy.

Source: http://blogs.wsj.com/law/2014/03/28/martin-lipton-names-some-activists-he-respects/?mod=WSJBlog

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If You Dislike Smoking And/Or Smokers, This Story Will Really Get You Steamed.

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If you’re thinking this story is about a smoker who did something with a cigarette butt that caused a HUGE amount of damage, you would be right. Per The Star-Ledger (via nj.com):

Middlesex County acting Prosecutor Andrew C. Carey said investigators believe that [school custodian] Jerome C. Higgins, 48, of East Brunswick, tossed an unfinished portion of a cigarette into a trash can inside the school before he left the building sometime Saturday.

Uh-oh.

Carey said the contents of the trash can, located in a custodian’s office, caught fire and the blaze spread throughout the building at about 7:45 p.m.

The result was an inferno that consumed the 50-year-old building that held 450 students in kindergarten through fifth grade.

Poof. Just like that, the building was gone. There must be some serious consequences for that, right? Well …

Higgins is charged with a petty disorderly persons offense for smoking inside the school.

Well, it’s not like anyone will be inconvenienced or anything …

[Edison Board of Education President Gene] Maeroff said the school’s students and staff will not return to school until Wednesday when they will be placed in temporary quarters at Middlesex County College in Edison until more permanent facilities can be found.

All of the children will have to be bused to the college, which is several miles away from the school.

“We’re doing this so they will all stay together,” the board president said. “After a few weeks, they will go to more permanent facility once we find one.”

Um. Sorry? Click here for the source, some photos, a video, and some additional information on this unfortunate event.

 

Source: http://rss.justia.com/~r/LegalJuiceCom/~3/suJryqm5NBo/qwre-2.html

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Tenth Circuit Looks Past “General Partnership” Labels in Agreements to Determine Whether Certain Investments Constitute “Securities”

In SEC v. Shields, No. 12-1438, 2014 U.S. App. LEXIS 3369 (10th Cir. Feb. 24, 2014), the United States Court of Appeals for the Tenth Circuit reversed the district court’s order granting defendants’ motion to dismiss, holding that the complaint alleged sufficient facts to (1) raise a plausible claim that the interests at issue involved are securities, and (2) rebut the presumption that an investment labeled as a “general partnership” is a “security.”  The Tenth Circuit’s holding reaffirms that although an investment may be labeled as a “general partnership” interest, courts must look beyond the labels to determine whether the investment constitutes a “security.”

The Securities & Exchange Commission (“SEC”) filed a civil enforcement action against Jeffory Shields a/k/a Jeffrey D. Shields, Geodynamics, Inc. (“Geodynamics”), four joint ventures and others, alleging violations of Sections 5(a) and 17(a) of the Securities Act of 1933, 15 U.S.C. §§ 77e(a), 77e(c), 77q(a); Sections 10(b) and 16(a) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b), 78o(a); and SEC Rule 10b-5, 17 C.F.R. § 240.10b-5.  The SEC alleged that Shields, managing partner of Geodynamics, offered and sold over $5 million of interests in oil and gas exploration and drilling joint ventures to sixty investors across 28 states.  The money collected was used to fund GeoDynamics.  Shields allegedly marketed the oil and gas drilling ventures to individuals with little experience in the oil and gas exploration business by making cold calls to thousands of people and promising annual returns of between 256% and 548%.  The SEC alleged that Shields denied investors access to information, lied to investors to keep them misinformed and comingled funds.

Shields provided potential investors with offering documents which stated explicitly that the investors had the rights of general partners, and that the joint venture interests were not securities.  In addition, the documents provided the investors with the power to remove the managing venturer, GeoDynamics, the right to terminate the partnership, and the right to inspect records.  However, unlike GeoDynamics, the investors did not have the power to bind the joint ventures by executing contracts, spending funds, or interpreting contracts.  Additionally, the investors were required to sign drilling and completion contracts, thereby locking themselves into contracts with GeoDynamics, who unilaterally set the contract price.

Defendants moved to dismiss the SEC’s complaint.  Defendants asserted that the investments at issue were general partnership interests, as stated in and evidenced by the agreements, not securities.  Because they were not securities, defendants argued, the SEC failed to state a claim upon which relief could be granted.  The United States District Court for the District of Colorado granted defendants’ motion to dismiss.  The district court reasoned that the SEC’s allegations were “insufficient to state a plausible claim that the joint venture interests at issue” were securities.  The SEC appealed.

The Tenth Circuit reversed.  The Court acknowledged that an investment contract, which is a type of security, exists where there is “(1) an investment, (2) in a common enterprise, (3) a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.”  The Court focused solely on the third requirement.  The third requirement is satisfied, the Court explained, when the efforts of individuals other than the investor significantly affect the “success or failure of the enterprise.”  Additionally, the Court acknowledged that while there is a general presumption that a general partnership is not a security, this presumption is rebuttable.  The Court looked to Williamson v. Tucker, 645 F.2d 404 (5th Cir. 1981), which provided examples of situations when a general partnership can be a security, such as when the agreement leaves little power in the partner’s hands, when the partner lacks experience and knowledge that he or she is incapable of exercising his or her partnership powers, or where the partner is so dependent on a unique entrepreneurial or managerial ability that he or she cannot replace the manager or exercise his or her partnership powers.

Based upon these principles, the Tenth Circuit held that the allegations in the complaint raised a plausible claim that the interests involved were securities.  Specifically, the SEC raised issues of fact regarding whether the investors were relying upon the efforts of GeoDynamics and Shields to “significantly affect the outcome of the ventures.”  Additionally, the Court held that the SEC alleged sufficient facts to “rebut the presumption that the purported general partnerships here [were] not securities.”  The Court reasoned that the complaint satisfied the factors in Williamson to rebut the presumption, as the SEC alleged facts to show that the investors had limited power to control or manage the investment — even if they removed GeoDynamics as the manager, they were still locked into contracts with GeoDynamics.  These contracts were the key ways in which the investors would make profits.  Thus, the investors were required to rely on GeoDynamics for the success of their joint venture.

Also, the SEC alleged that the investors had little or no experience in the oil and gas drilling business, which meant that they relied upon Shields to provide them with the necessary information.  The Court held that this raised a factual issue as to whether their voting rights, which were provided in the agreements, were illusory or a sham.  Additionally, the SEC alleged that Shields marketed GeoDynamics as having a unique expertise in the oil and gas industry, so much so that he was able to offer annual profits of 256% and 548%.  The Court held that the investors’ lack of experience in the industry combined with the GeoDynamics’ expertise, forced the investors to completely rely upon GeoDynamics, thereby raising an issue of fact as to whether the investors had any other alternative than to continue with GeoDynamics.  Thus, the investors lacked the control or management abilities of general partners.

The Court in Shields held that the disctric court erred because it “focused only on the form of the [joint venture agreements] . . . without considering the economic realities of the transactions and the investors’ lack of access to information needed in order to actually use the powers reserved to them under the [agreements].”  Although an agreement may expressly state that the parties involved are general partners and that the interests are not securities, such interests may still be considered securities and subject to federal securities regulations if the agreement is found to be an investment contract or the facts show that the presumption that a general partnership is not a security is rebutted.  As confirmed by Shields, parties may be subject to federal securities regulations even if they explicitly state in their agreements that the interests involved are general partnerships and not securities.

Source: http://www.corporatesecuritieslawblog.com/2014/03/tenth-circuit-looks-past-general-partnership-labels-in-agreements-to-determine-whether-certain-investments-constitute-securities/

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It's Not Easy Being Weev (Update)

Appellants and amici briefs are now in at the Third Circuit on the appeal of Andrew Auernheimer's conviction for somehow violating the Computer Fraud and Abuse Act. I say "somehow" as the government was never pinned down on whether it was exceeding authorized access or unauthorized access. But they were clear that what he did was wrong, wrong enough to get him convicted and sentence to 41 months imprisonment.

Weev didn't help himself. Whether he wanted to be a martyr to the cause of geekdom or just unwilling to win except on his terms isn't clear. But his lawyer, Tor Eckland, couldn't control him, and had enough on his hands trying to defend Weev in what I believe to be his first trial*. While the prosecution was huge within the computer hacker community, it didn't garner the attention of Lori Drew's prosecution, lacking a dead child.  But make no mistake, Weev's prosecution raises issues of monumental significance for all computer users.

Orin Kerr, who joined the defense team on appeal, gives a summary of the case.

Here are the basic facts. When iPads were first released, iPad owners could sign up for Internet access using AT&T. When they signed up, they gave AT&T their e-mail addresses. AT&T decided to configure their webservers to “pre load” those e-mail addresses when it recognized the registered iPads that visited its website. When an iPad owner would visit the AT&T website, the browser would automatically visit a specific URL associated with its own ID number; when that URL was visited, the webserver would open a pop-up window that was preloaded with the e-mail address associated with that iPad.

The basic idea was to make it easier for users to log in to AT&T’s website: The user’s e-mail address would automatically appear in the pop-up window, so users only needed to enter in their passwords to access their account. But this practice effectively published the e-mail addresses on the web. You just needed to visit the right publicly-available URL to see a particular user’s e-mail address. Spitler realized this, and he wrote a script to visit AT&T’s website with the different URLs and thereby collect lots of different e-mail addresses of iPad owners. And they ended up collecting a lot of e-mail addresses — around 114,000 different addresses — that they then disclosed to a reporter. Importantly, however, only e-mail addresses were obtained. No names or passwords were obtained, and no accounts were actually accessed.

Or to put it a bit more succinctly, Weev and Spitler stumbled on pages that were publicly accessible, but AT&T figured no one would find because there was no way to access them other than to have its iPad or, as stumble on them. They then did what geeks do, and exploited their discovery to see how far they could go. Rather than hand it over nicely to AT&T so it could cover its tracks and deny its screw-up, they gave it to a reporter to publish. AT&T was pissed, and the government was happy to prosecute as payback for quick and easy disclosure of your cellular communications the heinous crime of publicly embarrassing AT&T for being a computer idiot.

The appellant's brief, after a disturbing opening to the main argument that repeats the conventional wisdom from 1986 analogizing computers to physical trespass, takes the view that this just isn't a crime. As the pages were public, it cannot be unlawful access. The brief reads more academic than advocate, but does an admirable job of making its points.

There are two amici briefs, one arguing that this is how everybody uses the internet, and the other arguing that this is how sophisticated internet security experts use the internet, both reaching the same conclusion that affirmance of Weev's conviction would criminalize normal and lawful practices.

As everybody else involved relies on analogies, it seems appropriate despite my view that it's critical to stop using real world analogies to explain digital world conduct, to do the same. The prosecution's argument is that just because someone leaves their door unlocked doesn't mean a person can walk in and take what he wants.  The defense argument is that when someone leaves their stuff in front of a picture window, passersby commit no crime by looking in and seeing what the person put on display.  Neither analogy strikes me as fully satisfying.

The question for the rest of us is where the line is drawn between lawful and unlawful conduct based on a law crafted at the birth of public computer use and before there was any world wide web to consider. The language of the CFAA fails miserably to provide an answer, and there is certainly no "originalist" view since there was no internet in existence. What we are left with is empty, meaningless language being shoehorned into technology that didn't exist. It might have seemed like a good idea back in 1986, but we're paying for it now.

Nonetheless, Congress can't be bothered to do its job of crafting a law that might apply, and the court is left with trying to decipher criminality from inapt words and their limited grasp of how the tubes work (or that of their kids, their law clerks, or maybe the kid down the street).

The prosecution has a huge glaring hole that needs answering: Is there any middle ground for a URL that can be accessed without hacking a password but is otherwise not intended to be found, accessed or used except by a discrete, chosen group of users?  The government wants the crime to depend on the subjective and transitory intent of the website owner, where "unauthorized" is defined as undesired. The defense wants a brightline test that says if it can be publicly accessed, then there can be no crime.

The government's position is not only untenable, but presents a threat to users that can't be tolerated. And indeed, it's so highly subjective, and selective, that it ignores that Google et al. violate it constantly with impunity. Do we want cookies and bots crawling all over us, capturing our personal info to feed back to people so they can sell us crap? I don't think so. But it prevailed below anyway.

The problem now is that the burdens shift on appeal, and it's the appellant's position that will be subject to scrutiny. Is there no limit to what we can access on the internet, as long as we don't hack the password? What if all the surrounding circumstances leave us with no doubt that the website owner doesn't want anybody coming in uninvited, so that no reasonable person can not be aware that he's entering a URL where he isn't welcome? Is that still okay?

Since the lines are drawn at polar extremes, and the arguments remain couched in poor analogies, and the judges will have a terrible time getting into the mindset of sophisticated computer users who think nothing of screwing around with user agents to see what they can find, and Weev felt compelled to handle himself in the typical, snarky, computer whizkid way that tends to just piss the crap out of everybody who isn't a snarky computer whizkid, this is going to be a tough fight.

But there remains one detail that I would have pounded hard, far harder than either the appellant or amici. Fair notice requires that the language of the CFAA, for smarter or stupider, state clearly what constitutes criminal conduct so that a person will know what not to do. By the Rule of Lenity, the failure of the law to adequately define a crime given the state of technology as it currently exists must resolve all ambiguities in favor of the defendant. 

While no one knows what Congress might do if it is forced to recraft the CFAA, and they could make it even worse, what seems clear now is that it is far too unclear to imprison anyone whose conduct falls within that middle ground of not hacking a password and breaking through a brick wall. Maybe they would criminalize what happened here, but until the law makes clear where the line is drawn, the government can't just make it up at will. And the Third Circuit should not be so activist as to give a 2013 meaning to a 1986 law that the government pulls out of its butt to nail Weev.

Weev's conviction must be reversed, despite his attitude and mouth, because the rest of us used the internet too and if Weev is a criminal, so too are we all.

* I hasten to add, lest anyone think otherwise, that I think Tor did an exceptional job with this case, even the more remarkable given the circumstances.

Update: Via Volokh, the amicus brief of the National Association of Criminal Defense Lawyers has just become available.  While I'm still going through it, my initial impression is that it's excellent, and fills in some of the gaps in the other briefs.  Notably, putting them all together, the argument on behalf of Weev is overwhelming.



© 2007-13 Simple Justice NY LLC. This feed is for personal, non-commercial & Newstex use only. The use of this feed on any other website is a copyright violation. If this feed is not via RSS reader or Newstex, it infringes the copyright.

Source: http://blog.simplejustice.us/2013/07/09/its-not-easy-being-weev.aspx?ref=rss

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Payout Resolves Objections to $1.6B Toyota Settlement

Some of the most vocal objectors to the $1.6 billion settlement with Toyota Motor Corp. have agreed to drop their challenge in exchange for $1.5 million to research electronics systems used in cars.

Source: http://www.law.com/jsp/nlj/PubArticleNLJ.jsp?id=1202637032014&rss=rss_nlj

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Behind the sounds of Infamous: Second Son (Albuquerque Journal)

Share With Friends: Share on FacebookTweet ThisPost to Google-BuzzSend on GmailPost to Linked-InSubscribe to This Feed | Rss To Twitter | Law - Video Stories, RSS and RSS Feed via Feedzilla.

Source: http://news.feedzilla.com/en_us/stories/law/video/367177515?client_source=feed&format=rss

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New rules for IRS 1099

New rules relating to the issuance of 1099 forms are in place that impact even funds in one's IOLTA account. If you have oversight and management of the funds such as selecting the expert witnesses or investigators in a personal injury matter, you may have sufficient dominance to be required to issue a 1099.

See Priv. Ltr. Rul 97-44-02 (1997) and 91-02-013. See also Rev Rul 93-70, 1993-2 CD 294.

The threshold amount if $600. Beyond that, consider the consequences of filing/not filing. And if you're a co-recipient of a settlement draft with your client where a portion of the draft is for attorney's fees, you will still have to report and/or attach an explanation to your tax return.

Moral of the story:  These laws are complex. Consult your tax adviser.

Source: http://feeds.lexblog.com/~r/LawBizBlog/~3/svZVL8o36k0/

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United States Supreme Court Resolves Circuit Split and Narrows Scope of SLUSA

In Chadbourne & Parke LLP v. Troice, Nos. 12-79, 12-86 and 12-88, 2014 U.S. LEXIS 1644 (U.S. Feb. 26, 2014), the Supreme Court of the United States resolved a split in the circuits regarding whether alleged misrepresentations were made “in connection with the purchase or sale of a covered security” for purposes of the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”), 15 U.S.C. § 78bb(f)(1)(A).  The Court held that a “misrepresentation or omission of a material fact” is made “in connection with the purchase or sale of a covered security” only if the misrepresentation is “material” to the plaintiff’s decision to buy or sell that covered security.  This decision narrows the scope of removal and preclusion of state law securities fraud class actions by the federal courts under SLUSA.

Plaintiffs were private investors who brought state law class claims against defendant firms and individuals in Louisiana and Texas state courts, alleging that defendants had assisted Stanford International Bank (the “Bank”) and Alan Stanford (“Stanford”) in perpetrating a fraud on the plaintiffs.  Stanford had run a multibillion dollar Ponzi scheme through which he and his affiliates sold to plaintiffs Bank certificates of deposit (“CDs”).  The CDs were debt assets that promised a fixed rate of return.  Plaintiffs expected Stanford to use the money it received to buy assets and invest in publicly traded securities.  Instead, Stanford used the money to repay old debts, live a lavish lifestyle and finance speculative real estate ventures.

Defendants removed the state law class actions to federal court and sought dismissal under SLUSA.  SLUSA generally authorizes the removal to federal court and dismissal of state law class actions that allege misrepresentations or misleading omissions in connection with the purchase or sale of “covered securities.”  SLUSA adopts the definition of “covered security” in the Section 18 of the Securities Act of 1933, 15 U.S.C. § 77r, as one that is “listed, or authorized for listing, on [various national stock exchanges]” or one that is “issued by an investment company that is registered . . . under the Investment Company Act of 1940.”

The United States District Court for the Northern District of Texas granted defendants’ motion to dismiss, concluding that plaintiffs’ claims were precluded under SLUSA.  The district court acknowledged that the CDs were not “covered securities” under SLUSA because the CDs were not “traded nationally [or] listed on a regulated national exchange.”  However, the district court noted that each complaint alleged that the fraud included misrepresentations that the Bank held significant holdings in covered securities, which made the CDs more secure.  The district court thus held that this provided the necessary “connection” between plaintiffs’ state law fraud claims and “transactions in covered securities,” and that the claims were therefore precluded by SLUSA.

As previously reported here, the United States Court of Appeals for the Fifth Circuit reversed.  The Fifth Circuit agreed with the district court’s determination that the complaints described misrepresentations about covered securities.  The Fifth Circuit held, however, that the “heart” of the allegedly fraudulent scheme centered on representations that the uncovered CDs were safe and secure.  The Fifth Circuit held the falsehoods concerning the covered securities were too “tangentially related” to the “crux” of the fraud to be sufficiently “in connection with” the purchase or sale of a covered security for purposes of SLUSA.

The Supreme Court affirmed.  The Court first noted that SLUSA focuses on transactions in covered securities, not uncovered securities.  The Court also observed that the pertinent phrase of SLUSA, “material fact in connection with the purchase or sale,” suggests a connection between the misrepresentation or omission and a purchase or sale that “matters.”  The Court determined that a connection “matters” where the misrepresentation makes a “significant difference to a person’s decision to purchase or sell a covered security,” but not an uncovered security.  Plaintiffs’ complaints alleged misrepresentations regarding the Bank’s ownership of covered securities, but did not allege misrepresentations in connection with the “purchase or sale of a covered security” by plaintiffs.  Thus, the complaints did not provide the necessary “connection” between the materiality of the misstatements and the “purchase or sale of a covered security.”

The Court also noted that its interpretation of the “in connection with” language in SLUSA should not significantly impair the SEC’s enforcement powers for violations of Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. § 78j(b), because the definition of “security” under the Exchange Act is broader than that of “covered security” under SLUSA.

The Court’s decision in Chadbourne would appear to limit SLUSA to cases where plaintiffs allegedly purchased, sold or held (see Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit, 547 U.S. 71 (2006); see blog article here) “covered securities.”  Class actions where plaintiffs allegedly purchased, sold or held uncovered securities, even if covered securities are lurking in the background, may proceed in state court.

Source: http://www.corporatesecuritieslawblog.com/2014/03/united-states-supreme-court-resolves-circuit-split-and-narrows-scope-of-slusa/

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Saturday, March 29, 2014

Martin Lipton Names Some Activists He Respects

Veteran deal lawyer Martin Lipton said Friday that some shareholder activism should be "encouraged" even while he maintained his long-standing arguments that activists harm the economy.

Source: http://blogs.wsj.com/law/2014/03/28/martin-lipton-names-some-activists-he-respects/?mod=WSJBlog

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US Congress approves legislation to aid Ukraine

[JURIST] Both the US Senate and the House of Representatives [official websites] on Thursday approved nearly identical bills [text] that would send a $1 billion aid package to Ukraine and place new sanctions on Russia. The bill passed [NYT report] by a vote of 98-2 in the Senate and 399-19 in the House. Despite the overwhelming support of the bill, Congress remains torn on how the government should confront Russian President Vladimir Putin [official website]. Some lawmakers from both parties...

Source: http://jurist.org/paperchase/2014/03/us-congress-approves-bill-to-aid-ukraine.php

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LawBiz® Legal Pad: Disaster Preparedness and Recovery Planning

No one can predict when a disaster will strike your law firm.  Ed stresses the importance of having a solid plan for such situations, because "failing to plan is planning to fail."

Source: http://feeds.lexblog.com/~r/LawBizBlog/~3/qoo3xb4baww/

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Experts Debate Impact of Northwestern Ruling

Here's what experts are saying about the ruling by the National Labor Relations Board that Northwestern University scholarship football players are eligible to form the nation's first college athletes' union.

Source: http://blogs.wsj.com/law/2014/03/27/experts-debate-impact-of-college-football-labor-ruling/?mod=WSJBlog

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Patent Law — Best Practices as Seen From the Bench

Three U.S. district judges and a U.S. magistrate participated in a roundtable discussion in Dallas, "Patent Law: Best Practices As Seen From The Bench."

Source: http://www.law.com/jsp/law/sign_me_in.jsp?article=http://www.law.com/jsp/tx/PubArticleTX.jsp?id=1202607411492&rss=newswire

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Princeton Student Claims Discipline After Suicide Attempt Was Biased

A Princeton University undergraduate who was asked to leave school after he attempted suicide has brought a federal court suit charging disability discrimination.

Source: http://www.law.com/jsp/law/sign_me_in.jsp?article=http://www.law.com/jsp/nj/PubArticleNJ.jsp?id=1202648637026&rss=newswire

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Oklahoma judge voids execution drug secrecy law

[JURIST] The Oklahoma County District Court [official website] ruled Wednesday that the state’s law preventing death row inmates from obtaining information about the drugs used in lethal injections violates the Oklahoma constitution. Judge Patricia Parrish found [AP report] that the Oklahoma law, which keeps the identities of lethal-injection drugs suppliers secret and prevents the information from being revealed in court, is a violation of an inmate's due process right. Death row inmates Clayton Lockett and Charles Warner challenged the Oklahoma...

Source: http://jurist.org/paperchase/2014/03/oklahoma-judge-voids-execution-drug-secrecy-law.php

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Rachel Vitti: School superintendent's wife making her own mark on educational and human rights issues (Florida Times-Union)

Share With Friends: Share on FacebookTweet ThisPost to Google-BuzzSend on GmailPost to Linked-InSubscribe to This Feed | Rss To Twitter | Law - Video News, RSS and RSS Feed via Feedzilla.

Source: http://news.feedzilla.com/en_us/stories/law/video/366572353?client_source=feed&format=rss

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Friday, March 28, 2014

Protip: Don't Screw With Old Folks

A squad of 18 deputies in Cook County were very aggressive in trying to collect money from deadbeat dads, using whatever methods they needed to bring these culprits to justice.  When they put a gun to 77-year-old Merien Macon's head, however, they messed with the wrong person. From the Chicago Tribune:

When the unit arrived at the Macons' home, two weeks before Merien's arrest, officers had two outstanding warrants for couple's son, Derrick Macon, then 50, including one for child support. Officers insisted they be allowed into the home, William Macon said.

Because the officers did not have a search warrant, William Macon refused, he said.

William Macon, 83 years old, wasn't to be easily pushed. You gotta love tough old birds. And before anyone gets all bent out of shape about his "derelict" deadbeat son, it turns out that while the team knew all about the outstanding warrants for child support, they somehow missed the order holding that he wasn't the father of the child. But let's not have facts impair a good story.

When the deputies saw Merien drive up to the back of the home, they approached with guns drawn — one pointed at her head as she sat in the car — and pressed her about her son's whereabouts, according to the lawsuit.

"I was really surprised when they walked up with their guns," Merien Macon, a retired clerical worker, said last week. "I was scared. I was shocked. I was surprised."

Macon, who had dropped off her son earlier, told them she didn't know where he was and she did not want to answer questions, [Macon's lawyer, Elizabeth] Kaveny said.

And so the deputies, duly chastised by their overly violent conduct frightening a nice old woman, apologized profusely and left her in peace outraged by her refusal to do as they commanded, decided to teach an old woman a lesson.

At that point, Merien Macon became upset and told the officers she would not speak to them. The officers handcuffed, frisked and arrested Merien Macon on a charge of obstruction of justice.

The officers then took her to a nearby parking lot, where they gave her a phone and told her to call her son and find out where he was.

Merien's husband, William, a retired electrician, called that "a hostage situation," attempting to trade off his wife for his son. The sheriff's office claimed that was not at all the case, and they were just being thoughtful.

The sheriff's office denied attempting to pressure Macon to call her son and said she was moved to the parking lot because her husband had become upset and neighbors were starting to gather.

They didn't want to upset old William by forcing him to watch her cuffed, frisked and with guns pointed at his wife's head. A very sensitive gesture in law enforcement, likely to win a medal at some point.

The Macons sued for what was done to Merien.

Merien Macon was charged with felony obstruction of justice, leading her to file a lawsuit against Sheriff Tom Dart and the officers involved. A Cook County jury recently sided with her, awarding Macon $327,500 and agreeing with her husband that what happened that afternoon went too far.

Frankly, that's a very healthy award, give that most plaintiffs in her situation could hope for a fraction of that at best. But then, picture a jury hearing the testimony in this case, looking at the 77-year-old woman and her loving 83-year-old husband, and pondering the cuffs on her wrists, the hands on her body, the gun at her head, all over a mistaken child support warrant. It doesn't get more sympathetic than this.

"I've seen this type of thing over and over and over," William Macon said. "But when it happens to you it becomes more personal."

Truth. Unless you happen to be knowledgeable about your rights, have the guts to assert them with a gun pointed at your head and, purely by happenstance, a couple of cool codgers, chances aren't good you would end up with a verdict of this magnitude. This makes it an exceptionally good reason to both applaud the Macons, and to care a whole lot about when things like this happen "over and over and over." Because next time it could be you, and it will, without question, become "more personal."

H/T Spencer Neal






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Source: http://blog.simplejustice.us/2013/07/13/protip-dont-screw-with-old-folks.aspx?ref=rss

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SEC Brings Charges Against SEC Registered Investment Adviser for Improperly Allocating Expenses and Other Violations of the Investment Advisers Act of 1940 (the “Advisers Act”)

On February 25, 2014 the Securities and Exchange Commission (the “SEC”) filed public administrative and cease-and-desist proceedings against Arizona-based Clean Energy Capital, LLC (a registered investment adviser, “CEC”) and its founder and Chief Executive Officer Scott Brittenham charging that CEC and Brittenham committed the following violations with respect to the 20 private equity funds sold and managed by CEC primarily under the name of Ethanol Capital Partnership, L.P. (the “ECP Funds”)…

  1. CEC and Brittenham misappropriated more than $3 million from the ECP Funds by improperly allocating CEC’s expenses to the ECP Funds without adequate disclosure to investors.
  2. CEC and Brittenham secretly caused the ECP Funds to borrow money from CEC at unfavorable rates, pledging the ECP Funds’ own assets as collateral, to enable the ECP Funds to pay for these inappropriate expenses.
  3. Beginning in August 2011, CEC changed the calculation of dividend distributions for certain of the ECP Funds, which adversely affected the dividends received by certain of their investors and increased distributions to CEC, without disclosure to investors.
  4. In 2009, CEC and Brittenham falsely induced a previous investor to invest in a new ECP Fund by knowingly misrepresenting the amounts of the investments by Brittenham and another co-founder in the new ECP Fund.
  5. CEC violated the custody rule by failing to use a qualified custodian and failing to segregate fund assets.
  6. CEC’s compliance policy was inadequate because it incorrectly described the custody rule, which resulted in the above violation.
  7. For the ECP Funds offered in late 2008-2010, CEC concealed a co-founder’s SEC disciplinary history in the offering documents for the funds.

Improper Allocations

As described in the SEC’s order, CEC and Brittenham improperly allocated at least $3 million of expenses, primarily for CEC employee compensation and CEC office expenses, to 19 of the ECP Funds. These expenses included CEC’s rent, salaries, office lunches, business cards, employee hiring costs, gifts, CEC registration expenses and other employee benefits such as tuition costs, retirement, and bonuses. Brittenham allocated approximately $1.1 million to himself, including 70% of a $100,000 bonus he awarded to himself.

Improper Loans

The payment of the improperly allocated expenses shrank the cash reserve of the ECP Funds. In order to continue paying for such expenses with ECP Fund assets, CEC made unauthorized “loans” to the funds with inflated interest rates reaching as high as 17.38%. CEC also entered into pledge agreements with these ECP Funds, giving CEC a first priority security interest in the respective ECP Funds’ assets.  The pledge agreements constituted principal transactions between CEC and the ECP Funds, and neither CEC nor Brittenham provided written notice or obtained consent from the ECP Funds prior to such principal transactions.

Improper Distributions

CEC and Brittenham further benefitted when they changed the way that CEC calculated the distribution waterfall in several respects to the detriment of fund investors and with inadequate or no disclosure of these material changes to the investors.

Misrepresentations

Brittenham also lied to an investor of the ECP Funds and told him that he and another co-founder were personally investing $100,000 each in the fund in order to induce the investor to contribute to the ECP Funds. In reality, Brittenham and the co-founder only invested $25,000 each in the ECP Funds.

Violation of Custody Rule and Inadequate Compliance Policies and Improper Disclosure

Rather than utilize a qualified custodian, CEC kept original stock certificates for securities owned by the ECP Funds in its office. CEC also did not send audited financial statements to the limited partners of the ECP Funds until January 2013, at which time it sent audited financial statements for fiscal year 2011. No audited financial statements have been sent since January 2013.  CEC also never obtained a surprise exam.

In addition, some of CEC’s compliance policies incorrectly described the custody rule, Rule 206(4)-2(b) under the Investment Advisers Act of 1940. Finally, the private placement memoranda for certain offerings of the ECP Funds, which were offered and sold to investors from December 2008 through June 2010, did not disclose a co-founder’s previous disciplinary settlement with the SEC.

Violations of Law

The SEC charges that as a result of the conduct described above, CEC and Brittenham willfully violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, which prohibit fraudulent conduct in the offer or sale of securities and in connection with the purchase or sale of securities.

In addition, CEC and Brittenham willfully violated the Advisers Act and Rule 206(4)-8(a) promulgated thereunder, which, among other things, prohibit fraudulent conduct.  The SEC also alleges that CEC and Brittenham willfully violated the prohibition against principal transactions without proper disclosure and consent, willfully retained custody of clients’ funds and securities without retaining a qualified custodian, willfully violated the requirement to adopt and implement written compliance policies and procedures reasonably designed to prevent violations of the Advisers Act and its rules and willfully violated Section 207 of the Advisers Act which makes it unlawful to make any untrue statement of a material fact in any registration report filed with the SEC.

In light of these allegations, the SEC has ordered cease-and-desist proceedings to determine whether the allegations are true and what remedial action is appropriate, including, but not limited to, disgorgement and civil penalties.

Next Steps

CEC and Brittenham have twenty days to respond to the SEC order and a public hearing will be held between 30 and 60 days from the service of the order. An administrative law judge will issue an initial decision within 300 days of the date of service of the order.

Commentary

Of particular note to CCOs, we observe that even though the SEC proverbially “threw the book” at CEC and charged CEC and its founder with a number of “minor” violations such as improperly describing the custody rule in CEC’s compliance policies in connection with the more serious fraud charges, the SEC interestingly did not charge CEC’s CCO with any wrongdoing.  The SEC action describes the facts surrounding the CCO’s actions while CEC’s founder was lying to an investor regarding the amount of investment that the founder was making in a newly-launched fund advised by CEC.  The facts state that (i) the CCO accused the founder over email of asking him to lie to the investor about the amount of the founder’s investment in the new ECP fund and (ii) the CCO refused to lie to the investor and resigned over the matter.  We believe that this particular fact pattern shows that a CCO may be able to protect herself from SEC action if she knows that there are occurrences of violations of law at the investment adviser with whom she is associated if she promptly documents the violation and resigns if the violation is not remedied to her satisfaction.

For further information regarding the foregoing, please contact either Thomas Devaney (TDevaney@sheppardmullin.com; 212-634-3042), Jung Yeon Son (JSon@sheppardmullin.com; 650-815-2676), or Lauren Lewis (LaLewis@sheppardmullin.com; 650-815-2672).

Disclaimer

This update has been prepared by Sheppard, Mullin, Richter & Hampton LLP for informational purposes only and does not constitute advertising, a solicitation, or legal advice, is not promised or guaranteed to be correct or complete and may or may not reflect the most current legal developments. Sheppard, Mullin, Richter & Hampton LLP expressly disclaims all liability in respect to actions taken or not taken based on the contents of this update.

Source: http://www.corporatesecuritieslawblog.com/2014/03/sec-brings-charges-against-sec-registered-investment-adviser-for-improperly-allocating-expenses-and-other-violations-of-the-investment-advisers-act-of-1940-the-advisers-act/

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Plaintiff Can Access Police Investigation Records 

In a plaintiff’s suit involving a charge that he failed to make a right-hand turn signal, the Richmond Circuit Court will resolve a discovery dispute by allowing plaintiff discovery of an internal affairs investigation through documents provided by defendant for in camera review. Defendants invoke a provision of the Freedom of Information Act, Va. Code ...

Source: http://valawyersweekly.com/2014/01/02/plaintiff-can-access-police-investigation-records/

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Who Represents Corporate America

Our annual survey of the law firms that work for the nation's largest companies takes a global focus.

Source: http://www.law.com/jsp/nlj/PubArticleNLJ.jsp?id=1202625300999&rss=rss_nlj

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DOMA down, but why?

The 1st Circuit today held that the Defense of Marriage Act's denial of federal benefits to married same-sex couples is unconstitutional. Massachusetts v. US Department of Health and Human Services (1st Cir 05/31/2012).

The federal Defense of Marriage Act (DOMA) Section 3 prevents same-sex married couples from filing joint tax returns, prevent a surviving spouse from collecting Social Security survivor benefits, and prevents federal employees from sharing medical benefits with same-sex spouses.

The trial court held that DOMA Section 3 is unconstitutional; the 1st Circuit affirmed.

The court's decision surveys equal protection and federalism issues and concludes that "governing precedents under both heads combine - not to create some new category of 'heightened scrutiny,' ..., but rather to require a closer than usual review based in part on discrepant impact among married couples and in part on the importance of state interests in regulating marriage."

Thus the court gave less deference to, and "closer scrutiny of government action touching upon minority group interests and of federal action in areas of traditional state concern."

The court concluded that denial of federal benefits to same-sex married couples "has not been adequately supported by any permissible federal interest."

The court stayed its mandate, thus extending the trial court's stay, in anticipation of the losing parties seeking certiorari in the US Supreme Court.

My view:

This is a decision, purportedly based on the US Constitution, that essentially avoids making an explicit connection to the text of the Constitution.

The idea is that states regulate marriage, the federal government may have something to say in this regard, but the reasons behind the federal government's actions didn't have enough oomph. No, there's no 10th amendment violation, and no violation of the Spending Clause. And no, there's no "strict scrutiny" going on. And no "new category of 'heightened scrutiny.'" But wait, let's give the legislation "closer scrutiny."

I'm no fan of DOMA, but it's not really clear to me what this court is doing.

[By the way, similar DOMA issues are pending in the 9th Circuit.]

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Source: http://www.lawmemo.com/blog/2012/05/doma_down_but_w.html

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