Sunday, April 6, 2014

How Bad Ideas Grow Legs

Last January, Instapundit lawprof Glenn Reynolds wrote a short essay that became the darling of many folks who take an interest in criminal justice issues entitled Ham Sandwich Nation: Due Process When Everything is a Crime. To be kind, it was a simplistic rehash of long-time, discredited silver-bullet solutions to complex problems. The only virtue was that it came from Reynolds, who was a law professor and thus credible by definition even though he was dabbling at the edges of an area of law about which he knew nothing.

It was excoriated here. Gideon beat it up at A Public Defender as well. Unlike Reynolds, this wasn't a theoretical exercise for us. We lived with the problems, and would wind up living with whatever inane solution seemed like a cool idea to an academic.  Whereas Reynolds' mantle of scholarly credibility was an asset for others whose interest came from a distance, ours was nuts and bolts, from living with the detritus of bad ideas in the trenches.

Radley Balko took us to task for being critical of Reynolds. The Agitator offered a homily of cooperation, arguing that we ought to work with luminaries like Reynolds rather than saying mean things like their ideas aren't fabulous. After explaining what was horribly wrong with a particular idea promoted by Reynolds that Radley found especially interesting (loser pays in criminal litigation), I wrote:

Radley also questioned by twit why I wasn't more open to embracing the ideas proffered by Glenn Reynolds and Conor Friedersdorf, "And it's probably more productive to engage, persuade new allies than to shun and mock them."  Since I hate to be a shunner or mocker, and I try to be relatively informative as reflected in this response to Radley's query, I look forward to Reynolds and Friedersdorf, our new allies, engaging. Engage away, guys. Your turn.

Of course, I was shunning and mocking, just as Radley said. But then, I had no plan to suck up to Reynolds in an effort to gain him as an ally anymore than I planned to teach a pig to sing. As players in punditry go, Reynolds is a major player,* and he enjoys his importance. He doesn't swim with minnows like Gid and me. At most, he eats us for a snack. Radley may have been well-intended, but didn't really appreciate the pecking order.

Of course, there was nothing to stop Reynolds, either before or after he published his Ham Sandwich essay, from speaking with people who were actually knowledgeable about criminal law, whether that was Gid and/or me, or some other trench lawyers, who could explain why good ideas on paper don't play as well in the courtroom.  But no. He didn't. Since it was his essay being published to enlighten the world, it was his duty to get a clue, and his choice not to.

My point to Radley at the time was the when loud voices with ascribed credibility write something like this, bad things happen. Bad ideas are taken more seriously. Other people will mistakenly assume that Reynolds, lawprof and all, has a clue what he's talking about and his ideas must have merit. After all, lawprofs could never be wrong about lawstuff.  And now that Reynolds had rung the bell, it could not be unrung.

George Will, certainly one of this country's leading conservative intellectuals, heard the peal of Reynolds' bell this week. In an otherwise excellent column on Senators Leahy and Rand's efforts to provide a backdoor to mandatory minimums (which raises the question of why they aren't seeking to end mandatory minimums through the front door, but we'll take it anyway they offer it), Will goes from the sublime to the ridiculous:

The House Judiciary Committee has created an Over-Criminalization Task Force. Its members should read “Three Felonies a Day: How the Feds Target the Innocent,” by Harvey Silverglate, a libertarian lawyer whose book argues that prosecutors could indict most of us for three felonies a day. And the task force should read the short essay “Ham Sandwich Nation: Due Process When Everything Is a Crime” by Glenn Harlan Reynolds, a professor of law at the University of Tennessee. Given the axiom that a competent prosecutor can persuade a grand jury to indict a ham sandwich, and given the reality of prosecutorial abuse — particularly, compelling plea bargains by overcharging with “kitchen sink” indictments — Reynolds believes “the decision to charge a person criminally should itself undergo some degree of due process scrutiny.”

He also suggests banning plea bargains: “An understanding that every criminal charge filed would have to be either backed up in open court or ignominiously dropped would significantly reduce the incentive to overcharge. . . . Our criminal justice system, as presently practiced, is basically a plea-bargain system with actual trials of guilt or innocence a bit of showy froth floating on top.”

While Instapundit is a Big Kahuna on the interwebz and among academics, George Will has a soap box that dwarfs Reynolds. And he's taken Reynolds' "ideas" mainstream, not only crediting Reynolds for his position as an academic, but taking for granted that he's got criminal law chops.  It's unlikely that George checked Reynolds out at Tennessee Law School, where he teaches Administrative Law, Constitutional Law, Law, Science, and Technology, Space Law, Internet Law. See criminal law in there? See anything in his past to suggest even a passing familiarity with the actual practice of criminal law? Me neither.

Yet, I look forward to some fine senators extolling the virtue of a dangerous and hare-brained reform of the law, citing to Glenn Reynolds' Ham Sandwich essays as the font of practical criminal law brilliance.  Because the myth has now been created and George Will gave it legs.

And this is how we end up with monumentally bad ideas being enshrined in law.


* For those who aren't familiar with Instapundit, this from Reynolds' Wikipedia page: 

Much of Instapundit's content consists of links to other sites, often with brief comments. (His frequent use of "heh," "indeed," and "read the whole thing" have been widely imitated and are often parodied by other bloggers.) Reynolds encourages readers to explore the wider blogosphere and to fully read articles and posts to which he links.
And that's the foundation for being a major player on the internet.




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Source: http://blog.simplejustice.us/2013/07/10/how-bad-ideas-grow-legs.aspx?ref=rss

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Saturday, April 5, 2014

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/

attorney

The Legal Issues Behind Bitcoin's Rise in Value and Popularity

If you had bought $1,000 worth of Bitcoins in 2010, you would have $2.4 million dollars today. The anonymous, Internet-based currency has seen an exponential rise in value and popularity since its inception in 2009. This raises legal questions regarding the legitimacy, the legalities, and what lawyers need to know about this new currency. In this edition of Lawyer2Lawyer, hosts Bob Ambrogi and J. Craig Williams invite Bitcoin experts, attorney Lowell D. Ness and journalist Kashmir Hill, to provide some answers and a foretelling of the e-currency's future. Ness is a partner of the nationwide law firm Perkins Coie which has extensive experience in virtual currency. The firm's Virtual Currency Report Blog, which Lowell regularly contributes to, provides a legal outlook on the state of bitcoin and the market. Lowell's practice focuses on high-growth emerging companies and involves venture capital financings, mergers and acquisitions, public offerings, and private placements. Senior Online Editor of Forbes, Hill is a privacy pragmatist with an interest in the intersection of law, technology, social media, and personal information. Former editor of Above the Law, she has been following the Bitcoin story from the start, and will be releasing an e-book documenting Bitcoin's rise later this year. Special thanks to our sponsor, Clio.

Source: http://legaltalknetwork.com/podcasts/lawyer-2-lawyer/2014/01/legal-issues-behind-bitcoins-rise-value-popularity/

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Federal Judge to Order Ohio to Recognize Same-Sex Marriages

This year alone, federal judges have declared bans on same-sex marriage unconstitutional in several states, including Utah, Oklahoma, Texas and Michigan. We can now add the Buckeye State to the list. Well, mostly.

Source: http://blogs.wsj.com/law/2014/04/04/federal-judge-to-order-ohio-to-recognize-same-sex-marriages/?mod=WSJBlog

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Highlights from the Supreme Court’s Campaign-Finance Ruling

The Supreme Court on Wednesday struck down aggregate limits on political contributions, concluding in a 5-4 ruling that the goal of fighting corruption doesn't justify the burden on First Amendment rights imposed by such restrictions. Here are highlights from the majority opinion written by Chief Justice John Roberts.

Source: http://blogs.wsj.com/law/2014/04/02/highlights-from-the-supreme-courts-campaign-finance-ruling/?mod=WSJBlog

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Supreme Court Strikes Down Key Part Of Campaign Finance Law

By a 5-4 vote, the justices eliminated the cap on the total amount donors can contribute in an election cycle. The aggregate limit had been $123,000.

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Source: http://www.npr.org/2014/04/02/298347681/supreme-court-strikes-down-key-part-of-campaign-finance-law?ft=1&f=1070

law firms

Townhome Neighbors Can’t Challenge Access 

Plaintiff townhome owners do not have standing to challenge defendant developer’s use of a 50-foot easement that runs between a church and the townhome community for access and a connection to a proposed development with seven new homes; the Fairfax Circuit Court says plaintiffs have not shown they would suffer any particularized harm from installation ...

Source: http://valawyersweekly.com/2014/01/02/townhome-neighbors-cant-challenge-access/

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Campaign Finance Ruling Winners: The Political Pros

In practical terms, the Supreme Court ruling could mean more money flowing to political operatives and party committees.

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Source: http://www.npr.org/blogs/itsallpolitics/2014/04/02/298383625/campaign-finance-ruling-winners-the-political-pros?ft=1&f=1070

corporate law

United States Supreme Court Holds That Section 806 of the Sarbanes-Oxley Act Extends to Employees of Private Companies Who Are Contractors or Subcontractors for Covered Public Companies

In Lawson v. FMR, LLC, No. 12-3, 2014 WL 813701 (U.S. Mar. 4, 2014), the Supreme Court of the United States, in a 6-3 decision reversing the United States Court of Appeals for the First Circuit, held that the whistleblower protection provision in Section 806 of Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1514A (“SOX”), protects employees of publicly traded companies and employees of privately held companies that are contractors or subcontractors for a covered publicly traded company.  In reaching this decision, the Supreme Court has clarified the definition of “covered employee” under the whistleblower provisions of SOX and expanded the scope of SOX.

Petitioners in this action were former employees of privately held companies that contracted to advise or manage mutual funds, which were publicly traded companies with no employees.  Petitioners each brought separate actions in the United States District Court for the District of Massachusetts, where they alleged unlawful retaliation by their employers in violation of the whistleblower protections of Section 806 of SOX.  Section 806 provides, in relevant part, that “[n]o company with a class of securities registered under section 12 of the Securities Exchange Act of 1934 . . . or any officer, employee, contractor, subcontractor, or agent of such company, may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of any lawful act done by the employee . . . . ”

Petitioners’ privately held employers moved to dismiss the claims, arguing, in part, that petitioners were not “covered employees” within the meaning of Section 806.  The district court denied the motions, ruling that the SOX whistleblower protection in Section 806 extended to employees of private agents, contractors and subcontractors to public companies.  On appeal, the First Circuit reversed, holding that the whistleblower protections of Section 806(a) do not extend to an employee of a contractor or subcontractor [see blog article here].  The Supreme Court granted certiorari.

The Supreme Court (Ginsberg, J.) reversed.  In its review, the Court looked first to the ordinary meaning of the statute.  The Court held that “nothing in [SOX’s] language confines the class of employees protected to those of a designated employer [and] absent any textual qualification, we presume the operative language means what it appears to mean:  A contractor may not retaliate against its own employee for engaging in protected-whistle blower activity.”  Thus, “based on the text of [SOX], the mischief to which Congress was responding, and earlier legislation Congress drew upon, that [SOX] shelters employees of private contractors and subcontractors, just as it shelters employees of the public company served by the contractors and subcontractors.”

In reaching this decision, the Court chose to disregard the titles and headings within SOX, some of which lend credence to respondent’s arguments, because, the Court explained, SOX “is attended by numerous indicators that the statute’s prohibitions govern the relationship between a contractor and its own employees; we do not read the headings to ‘undo or limit’ those signals.”

The Court found further support by reviewing the underlying purpose of SOX — namely, to prevent “another Enron debacle.”  The Court held that the desire to prevent another Enron debacle was reflected in the legislative record of SOX, a record which focused on the role that contractors had in facilitating the Enron fraud.  Given the extensive legislative record, the Court concluded that “one can safely assume that Congress enacted [SOX] aiming to encourage whistleblowing by contractor employees who suspect fraud involving public companies with whom they work.”

Finally, the Court rejected the dissent’s view that the Court’s ruling was “all too inclusive” and could open the floodgates to SOX litigation.  The majority argued that the dissent’s view that the floodgates would open was simply hypothetical as the “DOL’s regulations have interpreted [SOX] as protecting contractor employees for almost a decade.”

In light of the Supreme Court’s ruling, the definition of the term “covered employee” has been clarified and broadened, and it is now clear that the group of persons potentially covered by the protections of Section 806(a) of SOX include not only employees of publicly traded companies, but also employees of privately held contractors and subcontractors who provide services to the publicly traded companies.

Source: http://www.corporatesecuritieslawblog.com/2014/03/united-states-supreme-court-holds-that-section-806-of-the-sarbanes-oxley-act-extends-to-employees-of-private-companies-who-are-contractors-or-subcontractors-for-covered-public-companies/

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Friday, April 4, 2014

Highlights from the Supreme Court’s Campaign-Finance Ruling

The Supreme Court on Wednesday struck down aggregate limits on political contributions, concluding in a 5-4 ruling that the goal of fighting corruption doesn't justify the burden on First Amendment rights imposed by such restrictions. Here are highlights from the majority opinion written by Chief Justice John Roberts.

Source: http://blogs.wsj.com/law/2014/04/02/highlights-from-the-supreme-courts-campaign-finance-ruling/?mod=WSJBlog

lawyer firm

Top Verdicts of 2013: Lag in IP Awards Pegged to Federal Circuit Ruling

For the first time in years, intellectual property cases contributed no billion-dollar jury verdicts in 2013. In fact, IP recoveries decreased significantly both in number and in dollar amount when compared with 2012.

Source: http://www.law.com/jsp/nlj/PubArticleNLJ.jsp?id=1202648015482&rss=rss_nlj

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Threatening Statements? Me? Hey, It’s My Word Against His.

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If it’s a “he said/she said” occurrence, the party who has the burden of proof is usually going to lose, even more so in a criminal case because of the higher burden of proof. So if a person alleges that another person threatened him, that will be a tough case to prosecute, right? Generally, yes. But what if, oh, say the threat was made to a police officer? Doh! As reported by The Times And Democrat (Orangeburg, South Carolina):

“On Wednesday, March 26, a deputy sheriff responded to Gregory Complete Auto where Randall Dale Gregory indicated batteries and tires had been stolen from vehicles at his auto shop. While the deputy sheriff was taking the report, Gregory began making statements that ‘the OCSO is going to catch hell from him’ and that ‘he is going to drive a tank up the Sheriff (sic) Office and blow it up,’” Williams said. “Gregory continued making threats including against Chief Kinsey and saying that he would go to his home and steal all of his things. Gregory told the responding deputy sheriff ‘that if he observes any deputy sheriff or Sheriff Leroy Ravenell on his property if he is there ‘he will shoot them,’” Williams said.

Talk about stepping on your, er, that is, shooting yourself in the foot.

Gregory, 54, of 2045 Indigo Drive, was arrested Friday without incident and charged with threatening a public official and threatening public property.

You can find the source, and a mug shot, here.

 

Source: http://rss.justia.com/~r/LegalJuiceCom/~3/9k4R9RPYSXM/asdf-16.html

pro bono lawyers

Attorneys and Billing: The Art of Getting Paid

Nearly every firm has clients who are difficult to collect from. Most lawyers are not trained to deal with that. On this episode of the Un-Billable Hour, host Chris Anderson interviews experts Loretta Ruppert and Jeff Krause. Together, they explore ways to effectively track and manage client billing.
Loretta Ruppert is the current Senior Director of Marketing for the SaaS Product Platform at LexisNexis. She is the subject matter expert for billing and accounting software solutions, including Time Matters, and has been involved in developing software products for law firms for nearly twelve years. She is a current member of the American Society of Women Accountants and the former Controller for the Bliss Riordan Law Offices.
Jeff Krause is a Wisconsin attorney who founded Krause Practice Management, LLC and is a founding partner at Solfecta, LLC. He is a Certified Independent Consultant for software solution Time Matters and a frequent author and speaker on legal technology.

Source: http://legaltalknetwork.com/podcasts/un-billable-hour/2014/02/attorneys-billing-art-getting-paid

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Anadarko Agrees to Record $5B Environmental Settlement

In the U.S. Justice Department?s largest environmental enforcement recovery ever, Kerr-McGee Corp. and its parent Anadarko Petroleum Corp. today agreed to pay $5.15 billion to settle charges that they fraudulently tried to duck responsibility to pay for environmental cleanup after decades of contamination.

Source: http://www.law.com/jsp/law/sign_me_in.jsp?article=http://www.law.com/jsp/nlj/legaltimes/PubArticleLT.jsp?id=1396557837830&rss=newswire

legal aid

Cracks in Google’s Bid to Trademark ‘Glass’

Google Inc. is trying to register the word "Glass" as a trademark for its computer-powered glasses. But so far, the company and the U.S. trademark office aren't seeing eye to eye.

Source: http://blogs.wsj.com/law/2014/04/03/cracks-in-googles-bid-to-trademark-glass/?mod=WSJBlog

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The Oculus Rift comes to GDC 2014 with a new demo, upgraded design (pictures) (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 News, RSS and RSS Feed via Feedzilla.

Source: http://news.feedzilla.com/en_us/stories/law/video/366640295?client_source=feed&format=rss

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Enforcing Prison Rape Elimination Standards Proves Tricky

Thirteen years in the making, the Prison Rape Elimination Act is starting to have an impact. Texas Gov. Rick Perry says it's "ill-conceived," but many other states are adopting the law's standards.

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Source: http://www.npr.org/2014/04/02/298332579/enforcing-prison-rape-elimination-standards-proves-tricky?ft=1&f=1070

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Thursday, April 3, 2014

Free webinar

Check out for "heartfelt leadership"

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/

statutory law

Legal Ethics and Cybersecurity

Since 2009, the FBI has warned that law firms have cybersecurity problems with potentially far-reaching consequences. Changes to ethical rules, as a result of the American Bar Association's Ethics 20/20 effort, have clarified that keeping up with technology is a component of attorney competence. Where do ethics rules and cybersecurity measures intersect? In this episode of The Kennedy-Mighell Report, Dennis Kennedy and Tom Mighell discuss cybersecurity in the context of legal ethics, how ethical rules place demands on lawyers to take security measures, and practical approaches to the vital issue of cybersecurity.

Source: http://legaltalknetwork.com/podcasts/kennedy-mighell-report/2014/03/legal-ethics-cybersecurity

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United States Supreme Court Holds That Section 806 of the Sarbanes-Oxley Act Extends to Employees of Private Companies Who Are Contractors or Subcontractors for Covered Public Companies

In Lawson v. FMR, LLC, No. 12-3, 2014 WL 813701 (U.S. Mar. 4, 2014), the Supreme Court of the United States, in a 6-3 decision reversing the United States Court of Appeals for the First Circuit, held that the whistleblower protection provision in Section 806 of Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1514A (“SOX”), protects employees of publicly traded companies and employees of privately held companies that are contractors or subcontractors for a covered publicly traded company.  In reaching this decision, the Supreme Court has clarified the definition of “covered employee” under the whistleblower provisions of SOX and expanded the scope of SOX.

Petitioners in this action were former employees of privately held companies that contracted to advise or manage mutual funds, which were publicly traded companies with no employees.  Petitioners each brought separate actions in the United States District Court for the District of Massachusetts, where they alleged unlawful retaliation by their employers in violation of the whistleblower protections of Section 806 of SOX.  Section 806 provides, in relevant part, that “[n]o company with a class of securities registered under section 12 of the Securities Exchange Act of 1934 . . . or any officer, employee, contractor, subcontractor, or agent of such company, may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of any lawful act done by the employee . . . . ”

Petitioners’ privately held employers moved to dismiss the claims, arguing, in part, that petitioners were not “covered employees” within the meaning of Section 806.  The district court denied the motions, ruling that the SOX whistleblower protection in Section 806 extended to employees of private agents, contractors and subcontractors to public companies.  On appeal, the First Circuit reversed, holding that the whistleblower protections of Section 806(a) do not extend to an employee of a contractor or subcontractor [see blog article here].  The Supreme Court granted certiorari.

The Supreme Court (Ginsberg, J.) reversed.  In its review, the Court looked first to the ordinary meaning of the statute.  The Court held that “nothing in [SOX’s] language confines the class of employees protected to those of a designated employer [and] absent any textual qualification, we presume the operative language means what it appears to mean:  A contractor may not retaliate against its own employee for engaging in protected-whistle blower activity.”  Thus, “based on the text of [SOX], the mischief to which Congress was responding, and earlier legislation Congress drew upon, that [SOX] shelters employees of private contractors and subcontractors, just as it shelters employees of the public company served by the contractors and subcontractors.”

In reaching this decision, the Court chose to disregard the titles and headings within SOX, some of which lend credence to respondent’s arguments, because, the Court explained, SOX “is attended by numerous indicators that the statute’s prohibitions govern the relationship between a contractor and its own employees; we do not read the headings to ‘undo or limit’ those signals.”

The Court found further support by reviewing the underlying purpose of SOX — namely, to prevent “another Enron debacle.”  The Court held that the desire to prevent another Enron debacle was reflected in the legislative record of SOX, a record which focused on the role that contractors had in facilitating the Enron fraud.  Given the extensive legislative record, the Court concluded that “one can safely assume that Congress enacted [SOX] aiming to encourage whistleblowing by contractor employees who suspect fraud involving public companies with whom they work.”

Finally, the Court rejected the dissent’s view that the Court’s ruling was “all too inclusive” and could open the floodgates to SOX litigation.  The majority argued that the dissent’s view that the floodgates would open was simply hypothetical as the “DOL’s regulations have interpreted [SOX] as protecting contractor employees for almost a decade.”

In light of the Supreme Court’s ruling, the definition of the term “covered employee” has been clarified and broadened, and it is now clear that the group of persons potentially covered by the protections of Section 806(a) of SOX include not only employees of publicly traded companies, but also employees of privately held contractors and subcontractors who provide services to the publicly traded companies.

Source: http://www.corporatesecuritieslawblog.com/2014/03/united-states-supreme-court-holds-that-section-806-of-the-sarbanes-oxley-act-extends-to-employees-of-private-companies-who-are-contractors-or-subcontractors-for-covered-public-companies/

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Straight From The Hole

It's far easier to wrap your head around torture when it involves the infliction of active pain. That doesn't make passive pain, the infliction of often unbearable psychological punishment, an less torturous. And it happens regularly, and many time arbitrarily, as explained in an op-ed by Wilbert Rideau, who served 44 years for manslaughter in Louisiana.

Before you dismiss Rideau as a killer who deserved whatever he got, bear in mind that stories from the inside aren't told by saints. Every once in a while, a former inmate emerges with the erudition necessary to put into words the world that most of us never knew existed. When this happens, it's a window through which we need to look. Rideau offers a view of solitary confinement, the hole.
I know something about solitary confinement, because I’ve been there. I spent a total of 12 years in various solitary confinement cells. And I can tell you that isolating a human being for years in a barren cell the size of a small bathroom is the cruelest thing you can do to a person.

Deprived of all human contact, you lose your feeling of connectedness to the world. You lose your ability to make small talk, even with the guard who shoves your meal through the slot in the door. You live entirely in your head, for there is nothing else. You talk to yourself, answer yourself. You become paranoid, depressed, sleepless. To ward off madness, you must give your mind something to do. In 1970, I counted the 358 rivets that held my steel cell together, over and over. Every time the walls seemed to be closing in on me, I counted them again, to give my mind something to fasten on to.

Without having been there, it's likely inconceivable to understand what happens to a mind in isolation. Some of us have trouble being alone for an hour, an evening, a day. Add day upon day, year upon year. But not the way it is for us, where we still have access to television or internet, even if there is no other living person around.  No, this is completely different.

But to add insult to injury, don't leap to the assumption that if a prisoner ends up in the hole, he must have done something pretty bad to deserve it.

In a world where authorities exercise absolute power and demand abject obedience, prisoners are almost always going to be on the losing side, and they know it.

The typical inmate doesn’t want trouble. He has little to gain and too much to lose: his job, his visits, his recreation time, his phone privileges, his right to buy tuna, ramen and stale bread at inflated prices in the commissary. The ways even a bystander to the most peaceful protest can be punished are limited only by the imagination of the authorities.

Punishment can be deserved or not. There's no due process in prison. There's no one to complain to about being punished based on a false accusation, a trumped up allegation, a guard pissed off by an attitude. Authorities own the lives of prisoners, and can be as harsh as they want to be, as arbitrary as they feel like. And there isn't a damn thing you can do about it.

Rideau explains that the prison protests in California are an outgrowth of a system run amok and no other means of addressing their grievance.

And yet, sometimes things get so bad that prisoners feel compelled to protest, with work stoppages, riots or hunger strikes. On July 8, some 30,000 inmates in the custody of the California Department of Corrections went on a hunger strike to demand improvements in prison conditions. Their biggest complaint was the runaway use of solitary confinement, the fact that thousands of prisoners are consigned to this cruelty indefinitely, some for decades.

While prisoners are sentenced to incarceration, no judge sentences them to isolation for decades. There is no requirement that any neutral party review the decision to inflict this torture on another human being. It can be imposed for a sound reason or no reason at all. Who is to disagree?  But no matter what the reason or nonreason, to put a person in the hole for years, for decades, is to impose psychological torture of a terrible kind on a human being.  And there is nothing, absolutely nothing, the prisoner can do about it. 

In California, inmates did the only thing left for them to do, protest. Not too many of us care about what happened to "criminals." After all, bad dudes who did bad things to other people. A pox on them. They get what they deserve and their out of sight, out of mind.  But there is good reason to give them just a little bit of though. For one thing, they are still people, and we are still purportedly a civilized society that doesn't condone the needless brutal treatment of people. But if you lack anything remotely resembling empathy, than do it for your own sake:

Why should you be concerned about the inhumane conditions of prolonged solitary confinement, with all the social, emotional and mental deterioration that it entails? Well, every year men from California’s Pelican Bay and other supermax prisons around the nation are released directly from the vacuum of their cells into free society, to live and work among you and your loved ones. As a matter of self-preservation, maybe we should all join the prisoners’ request for rehabilitative opportunities that will improve the mental health of those in solitary.

Go say "hi" to the guy who moved in down the block kids. So what if he spent the last two decades in the hole and seems a bit odd. I'm sure he'll get over it.



© 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/2013/07/17/straight-from-the-hole.aspx?ref=rss

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Enhanced 911, The FCC, and a Grandfather’s Mandate for Direct Dial

In an emergency, seconds count. What if you couldn't call 911 because you couldn't reach an outside line? On this episode of Lawyer 2 Lawyer, host J. Craig Williams interviews Henry "Hank" Hunt, the man petitioning for Kari's Law, and FCC Commissioner Ajit Pai. Together they discuss the importance of uniform dialing for 911.
Henry Hunt's nine year old granddaughter, through no fault of her own, could not reach 911 to save her mother. Despite her multiple attempts, the calls would not connect because the hotel's phone system required dialing 9 to get an outside line. In the wake of these events, this Texas grandfather started the Kari's Law petition which calls for mandated direct-dial 911.
Ajit Pai serves as FCC Commissioner focusing on regulatory environments where competition and innovation flourish. He is the former Associate General Counsel at Verizon. In addition, he has served as Senior Counsel with the Department of Justice and Chief Counsel to the Senate Judiciary Committee's Subcommittee on the Constitution, Civil Rights, and Property Rights.

Source: http://legaltalknetwork.com/podcasts/lawyer-2-lawyer/2014/02/enhanced-911-fcc-grandfathers-mandate-direct-dial

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Evernote’s Power of Collaboration, Storage, and OCR for Attorneys

Many people know Evernote as Cloud based storage for documents, but some might be surprised that it can be used in collaborative environments as well. With its advanced search functions, storage options, share features, and OCR ability, Evernote is becoming a friend to law offices everywhere. On this episode of Legal Toolkit, host Heidi Alexander is joined by tech expert Katie Floyd. Together, they discuss how to maximize your legal practice using Evernote.
Katie Floyd is a litigator and the co-creator and host of the Mac Power Users Podcast. She is a regular speaker at Macworld Expo and contributor for ScreenCastsOnline Monthly Magazine. Katie also serves as the President of her local Macintosh Users Group and is a member of the Mac Roundtable Podcast.

Source: http://legaltalknetwork.com/podcasts/legal-toolkit/2014/02/evernotes-power-collaboration-storage-ocr-attorneys

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Privacy Fence Violates Injunction 

A defendant who erected a privacy fence along a concrete alleyway, with a gate, has violated a court injunction against unreasonable interference with plaintiff’s easement in the concrete alleyway, and the Richmond Circuit Court orders the privacy fence removed The Supreme Court of Virginia in Hartsock v. Powell, 199 Va. 320 (1957), has said that ...

Source: http://valawyersweekly.com/2014/01/02/privacy-fence-violates-injunction/

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Nurse Has Sovereign Immunity 

An Orange County Circuit Court grants a special plea of sovereign immunity to a defendant who provided nursing services at a county nonprofit nursing facility. In the requests for admission, plaintiff admitted Dogwood Village was a nonprofit nursing facility owned by Orange County and overseen by the Health Center Commission of Orange County, and that ...

Source: http://valawyersweekly.com/2014/01/02/nurse-has-sovereign-immunity/

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Wednesday, April 2, 2014

Alabama federal judge to hold trial on abortion law

[JURIST] Judge Myron Thompson of the US District Court for the Middle District of Alabama [official website] announced on Monday that he would hold a trial on Alabama's new law requiring abortion clinic to have approval to admit patients to nearby hospitals. The Women's Health and Safety Act [text], which was signed into law [JURIST report] last April, requires abortion clinics to meet unprecedented medical standards that supporters argue will protect women from unsanitary conditions. Last year Thompson delayed enforcement...

Source: http://jurist.org/paperchase/2014/03/alabama-federal-judge-to-hold-trial-on-abortion-law.php

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US must ban land mines: HRW

[JURIST] Human Rights Watch (HRW) [advocacy website] on Wednesday urged the administration of US President Barack Obama [official website] to endorse the 1997 Mine Ban Treaty [text, PDF], which flatly prohibits land mines and requires their removal. HRW asserts that, while the US contributes to mine clearance and victim assistance more than any other nation, it should also ban formally the right to use mines in the future. HRW reports [press release] that 161 other nations have signed the treaty...

Source: http://jurist.org/paperchase/2014/04/US-must-ban-land-mines-HRW.php

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Supreme Court lifts limits on aggregate campaign donations

[JURIST] The US Supreme Court [official website] ruled 5-4 Wednesday in McCutcheon v. FEC [SCOTUSblog backgrounder] that limits on overall campaign contributions by individual donors are unconstitutional. The court previously held in Buckley v. Valeo [opinion] that limits on contributions implicate First Amendment interests but that limits may be imposed so long as they are narrowly drawn to further a compelling governmental interest. The Federal Election Campaign Act [text] limited individual donations to candidates to $2,600 and overall donations to...

Source: http://jurist.org/paperchase/2014/04/supreme-court-lifts-limits-on-aggregate-campaign-donations.php

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U.S. Regulators Warn of Pattern in ATM Hacks

AFP/Getty Images
WASHINGTON—U.S. regulators are warning of a pattern in cyberattacks targeting automated teller machines that could saddle banks with "large dollar losses" from unauthorized withdrawals.

Source: http://blogs.wsj.com/law/2014/04/02/u-s-regulators-warn-of-pattern-in-atm-hacks/?mod=WSJBlog

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LawBiz® Legal Pad: Rule 1.17

Ed discusses Rule 1.17 and how it pertains to succession planning.

Source: http://feeds.lexblog.com/~r/LawBizBlog/~3/d0CbuOKZMe8/

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Magic Words, Magic Rights

Knowing my love of police "magic words," a reader pointed me to a thread on the subreddit Bad Cop No Donut on whether there is anything to be done when a police officer claims he "smells pot" in a car.

Or does the 4th Amendment REALLY vanish with those magic words?

I've been stopped and the cop claimed he smelled pot, when, at the time, I hadn't touched the stuff in years. I told him I'd consent to a search if he apologized for wasting both of our time when he didn't find anything. He searched, didn't find anything, and I was on my way without an apology and a "verbal warning" to fix my tail light

Do you ask for another officer's opinion?

Do you tell the officer "bullshit"?

I'm just trying to help some people know what to do in this situation.

Initially, it helps for have a basic understanding of the law as it currently exists. When a cop says he "smells pot," he is invoking the automobile exception to the warrant requirement, which is based on exigent circumstances. Since a person can drive away, and thereby evade arrest and seizure of evidence of a crime in a car, the Supreme Court crafted the exception fin Carroll v. United States, a 1925 opinion about bootleggers getting away from the revenuers, which has done more harm to the 4th Amendment than perhaps any other case.

Since smell can't be captured and bottled for later presentation to a judge, the only "proof" of what an officer smelled is the officer's testimony. If he says so, it becomes real, and that's why they are magic words. Other than proving impossibility or incredibility, there is essentially nothing that can be done to challenge what the cop says he smelled. More importantly, even if a subsequent search turns up no pot, that doesn't mean he didn't smell what he smelled. The officer will testify about his training and experience in smelling pot, and yet he can be mistaken. The law doesn't require the cop to be right.

But the discussion thread about the magic words is where a grave misunderstanding about the system becomes clear.  The problem derives from the absence of any marijuana in the car. The cop says he smelled it. This gives rise to probable cause to search and the automobile exception allows the cop to do so without a warrant. A search follows, and it can be as intrusive as the cop chooses to make it. By intrusive, it can include dismantling your brand new Maserati into a million pieces on the side of the road and, when it's over, leaving it there.

So the cop smells pot, searches and comes up empty. No apology. No help putting your Maserati back together. He drives away without so much as a tip o' the hat. This is where people don't seem to understand how constitutional rights work.

There are no elves in the backroom enforcing your constitutional rights. Had the police officer found something in the car to justify an arrest, the question of the constitutionality of the search could be hashed out in court in a suppression motion and hearing.  Bear in mind that the cop may have claimed to smell marijuana, but that doesn't mean pot is what was found. Maybe other drugs. Maybe an illegal gun. Maybe a dead body. The smell of pot claim serves to except the search from the warrant requirement, and whatever comes of the search is the basis for the subsequent arrest.

But the cop finds nothing. Nada. Zip. You are clean and, surrounded by the pieces of your brand new Maserati, free to go.  What then?

This is where people get confused. That's it? Don't the cops have to, you know, do something?

No red light goes off in the backroom of the constitutional elves. Actually, there is no such backroom. There's nothing. As the cop drives away, that's the end of the encounter, unless the person chooses to take action to contest the violation of his constitutional rights, such as a §1983 claim.

The problem there, of course, is that the cop, invoking the magic words that he "smelled pot," will very likely prevail despite the fact that he found nothing. You won't make it past summary judgment. More significantly, no lawyer will take the case on contingency, meaning that you will have to pay to play, and it will prove to be an expensive longshot to even make the effort to enforce your constitutional rights.

Consider the plight of people stopped in the street in New York City under the stop & frisk program, where the most generous view is that the police take action against 12% of the people stopped. They've performed millions of stops, and a tiny fraction have resulted in people going before a judge, where they can contest what happened. The others, the millions of people stopped and searched where nothing was found, just walk away, having been violated, humiliated and treated like pond scum.

The Constitution is not a self-effectuating document. It requires someone to act upon it to challenge police conduct. Otherwise, they are words without meaning, easily thwarted by police invoking the myriad exceptions the courts have provided.  And here's an even worse secret: they don't even have to use magic words unless they ultimately find something, arrest a person and want to use it as evidence in court.

They get this. Most people don't. Most people harbor a naïve belief that, despite everything they know about how the police function, there is still some thread of honesty woven through their conduct that somehow makes them behave in accordance with the Constitution.

There are some excellent videos and writings about how to best conduct oneself to properly invoke constitutional rights and to create countervailing evidence to support one's invocation. The pervasiveness of video is a huge factor in showing that police have manufactured claims and false allegations, and these go a long way in keeping police clean where in the past they could make up anything they want to and there would be no way to challenge them.

But these rights we love so dearly don't happen on their own. Someone has to make them happen. We make them happen.  And if we don't, then we're left on the side of the road with our Maserati in pieces cursing.  The cops have magic words, but constitutional rights aren't magic. They only happen if we make them.



© 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/2013/07/08/magic-words-magic-rights.aspx?ref=rss

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Partner Departures at Patton Boggs; Merger Talks Continue

At least eight partners have decided to leave Washington, D.C., law firm Patton Boggs LLP, a development that could raise questions about ongoing merger discussions with larger firm, Squire Sanders.

A spokesman for Patton Boggs said the moves would not affect the firm’s merger talks with Squire Sanders and are not otherwise “material” to the firm.

Source: http://blogs.wsj.com/law/2014/03/28/partner-departures-at-patton-boggs-merger-talks-continue/?mod=WSJBlog

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DePuy Hip Implant Deal Excludes Thousands

Just weeks after DePuy Orthopaedics Inc. announced a $2.5 billion settlement to resolve the bulk of the litigation over its recalled hip implants, some lawyers have raised concerns about the thousands of patients excluded from the deal and the process that determines how the plaintiffs will be compensated.

Source: http://www.law.com/jsp/nlj/PubArticleNLJ.jsp?id=1202631268495&rss=rss_nlj

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Tuesday, April 1, 2014

I Spoke Too Soon

My expectations that SJ would be moving to new digs at WordPress yesterday were brutally dashed. My initial reaction was to say "screw it, this isn't worth the hassle anymore," but I spoke with a few friends who persuaded me not to give up the effort. 

It appears that my plans, having already gone through at least three iterations, need to be redrawn. While I remain disinclined to spend a substantial amount of money to make this happen as a matter of principle, the amount of work needed to accomplish this task has proven to be far harder, more involved and less interesting than previously thought.  At the moment, I have neither a solution nor a plan being carried out for an imminent move.  Without one, SJ will vanish one day when GoDaddy pulls the plug.

Hopefully, I will figure out a way to accomplish the move before that. In the meantime, I'll resume what I do here and if it ends up vanishing one day for lack of a viable plan, so be it.  It's the best I can do for the time being and under the circumstances. Sorry that things haven't worked out better thus far, but I'm still working on it.


© 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/2013/07/12/i-spoke-too-soon.aspx?ref=rss

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Charley Zimmer failed at retirement -- and for that Episcopal can be thankful (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 Stories, RSS Feeds and Widgets via Feedzilla.

Source: http://news.feedzilla.com/en_us/stories/law/video/366572355?client_source=feed&format=rss

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Supreme Court to Review Teva Appeal in Copaxone Case

The U.S. Supreme Court on Monday agreed to consider a Teva Pharmaceutical Industries Ltd. appeal of a ruling that invalidated a company patent on its blockbuster multiple-sclerosis drug Copaxone.

Source: http://blogs.wsj.com/law/2014/03/31/supreme-court-to-review-teva-appeal-in-copaxone-case/?mod=WSJBlog

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Cuba legislature approves law to attract foreign investment

[JURIST] Cuba's National Assembly [official website] approved a law on Saturday that provides tax breaks and other incentives to attract foreign investors to grow business in the communist economy of Cuba. The Assembly voted unanimously in a special session to approve the law, which becomes valid within the next 90 days. The new law [Reuters report] reduces the profits tax from 30 to 15 percent and exempts investors from paying that tax for eight years. Many of the incentives are...

Source: http://jurist.org/paperchase/2014/03/cuba-legislature-approves-law-to-attract-foreign-investment.php

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Cause For Hope And Frustration In the Shadow Of ACA Deadline

As the Affordable Care Act's midnight deadline draws near, there has been a surge in last-minute signups. The heavy traffic has caused both glitches in the website and optimism from some forecasters.

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Source: http://www.npr.org/2014/03/31/297315167/cause-for-hope-and-frustration-in-the-shadow-of-aca-deadline?ft=1&f=1070

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License Loss Keeps Habeas Claim Alive 

A petitioner may pursue her habeas claim after completion of a jail sentence; an Augusta County Circuit Court says petitioner’s claim is not moot because she ultimately seeks reinstatement of her nursing license. It is reasonable to suggest that prior to the Supreme Court of Virginia’s decision in E.C. v. Va. Dep’t of Juvenile Justice, ...

Source: http://valawyersweekly.com/2014/01/02/license-loss-keeps-habeas-claim-alive/

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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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NLRB "recess" appointments were unconstitutional; Board lacked a quorum

Noel Canning v. NLRB (DC Cir 01/25/2013)

The DC Circuit this morning held that the President's attempt to make "recess" appointments of three NLRB Members was invalid under the constitution.

On February 8, 2012 the Board issued its decision finding that the employer violated the NLRA by refusing to reduce to writing and execute a collective bargaining agreement reached with Teamsters Local 760. At that time the Board purportedly had five members. Two of these had been confirmed by the Senate. Three of these were appointed on January 4, 2012, purportedly pursuant to the constitution's recess clause.

At the time of the President’s purported recess appointments, the Senate was operating pursuant to a unanimous consent agreement, which provided that the Senate would meet in pro forma sessions every three business days from December 20, 2011, through January 23, 2012. The DC Circuit held that "recess" appointments must occur during an "intersession" recess of the Senate, that is to say, the period between sessions of the Senate when the Senate is by definition not in session and therefore unavailable to receive and act upon nominations from the President.

Because the appointments were invalid, the Board lacked a quorum (three Members) and its order was "void."

Lots of chatter from all over:

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Source: http://www.lawmemo.com/blog/2013/01/nlrb_recess_app_1.html

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