Sustainability-linked debt is a fast-growing asset class within the broader category of ESG-focused debt, with broad appeal to issuers that may not have appropriate projects to finance with traditional green bonds. The panel will discuss the development of this asset class, with the advent of sustainability-linked loans, and the emergence of sustainability-linked bonds; the challenges of sustainability-linked debt and the measures adopted to avoid “ESG-washing”; and specific features of sustainability-linked debt in the US, with a comparative view to Europe.

View Slides (PDF)

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PANELISTS:

Yair Galil – Of Counsel, Gibson, Dunn & Crutcher LLP

Hillary H. Holmes – Partner & Co-Chair, Capital Markets, Gibson, Dunn & Crutcher LLP

Ben Myers – Partner, Gibson, Dunn & Crutcher LLP

Tess Virmani – Associate General Counsel, EVP Public Policy, LSTA – Introduction

On July 23, 2021, the California Office of Environmental Health Hazard Assessment (OEHHA) released an Initial Statement of Reasons (ISOR) and proposed text for new regulations concerning safe harbor warnings under California’s Safe Drinking Water and Toxics Enforcement Act of 1986 (Proposition 65) for consumer products containing the herbicide, glyphosate. Glyphosate is the active ingredient in Monsanto Company’s Roundup, which is used worldwide in agriculture and other applications.

Proposition 65 generally requires consumer products sold in California to bear a warning label if they expose consumers to chemicals listed by the state as causing cancer or reproductive or developmental toxicity. Glyphosate was added to the list of chemicals causing cancer in 2017 based on the International Agency for Research on Cancer (IARC)’s determination that it is a “probable” human carcinogen.[1]

Despite glyphosate’s listing as a carcinogen under Proposition 65, the issue of glyphosate’s carcinogenicity has proven highly controversial, with major public authorities on carcinogens reaching conflicting conclusions. US EPA, for example, has concluded that glyphosate is “not likely to be carcinogenic to humans.”[2] A number of recent high-profile personal injury actions against Monsanto have resulted in massive jury verdicts for plaintiffs who claimed that exposure to glyphosate in Roundup caused their cancers.[3]

Monsanto’s legal challenge to glyphosate’s addition to the Proposition 65 list was unsuccessful,[4] but, in June 2020, the U.S. District Court for the Eastern District of California issued a permanent injunction against enforcement of Proposition 65 warnings for glyphosate.[5] The court held that the standard safe harbor warning language—including that glyphosate is “known to the State of California to cause cancer”—violated glyphosate sellers’ First Amendment rights against compelled speech, because it would force them to take one side of a controversial issue, despite “the great weight of evidence indicating that glyphosate is not known to cause cancer.”[6]

The ISOR for the proposed regulations discusses the scientific and legal controversy surrounding glyphosate,[7] which has plainly motivated and shaped the text of the proposed regulations. Indeed, the new warning language proposed for glyphosate appears crafted to avoid the First Amendment problems that gave rise to the preliminary injunction in Wheat Growers, though the ISOR notes that the injunction remains in effect, so “no enforcement actions can be taken against businesses who do not provide warnings for significant exposures to [glyphosate].”[8] The ISOR further explains that glyphosate presents “an unusual case because several regulatory agencies did not reach a similar conclusion as IARC,” and, therefore, “[t]he standard Proposition 65 safe harbor warning language . . . is not the best fit in this situation.”[9]

OEHHA proposes to add section 25607.49 to title 27 of the California Code of Regulations, which would provide:

(a) A warning for exposure to glyphosate from consumer products meets the requirements of this subarticle if it is provided using the methods required in Section 25607.48 and includes the following elements:

(1) The symbol required in Section 25603(a)(1)

(2) The words “CALIFORNIA PROPOSITION 65 WARNING” in all capital letters and bold print.

(3) The words, “Using this product can expose you to glyphosate. The International Agency for Research on Cancer classified glyphosate as probably carcinogenic to humans. Other authorities, including USEPA, have determined that glyphosate is unlikely to cause cancer, or that the evidence is inconclusive. A wide variety of factors affect your personal cancer risk, including the level and duration of exposure to the chemical. For more information, including ways to reduce your exposure, go to www.P65Warnings.ca.gov/glyphosate.”

(b) Notwithstanding subsection (a), and pursuant to Section 25603(d), where the warning is provided on the product label, and the label is regulated by the United States Environmental Protection Agency under the Federal Insecticide, Fungicide, and Rodenticide Act, Title 40 Code of Federal Regulations, Part 156; and by the California Department of Pesticide Regulation under Food and Agricultural Code section 14005, and Cal. Code Regs., title 3, section 6242; the word ATTENTION” or “NOTICE” in capital letters and bold type may be substituted for the words “CALIFORNIA PROPOSITION 65 WARNING.”

Section 25607.48 would also be added to make clear that the warning must be provided using a method listed in Section 25602.

Adoption of these regulations may trigger an effort to alter or lift the Wheat Growers injunction, though the district court rejected several alternative warning formulations that are similar to OEHHA’s current proposal.[10] If the injunction is modified, businesses involved in distribution, sale, or use of glyphosate-containing products in California would not be required to use the new warning language, since it is merely a safe harbor, but doing so would be sufficient to avoid violation of Proposition 65’s warning requirement.[11]

OEHHA’s announcement, the proposed text of the new regulations, and the ISOR are linked below. OEEHA will receive public comments on the proposed regulations until September 7, 2021.:

https://oehha.ca.gov/proposition-65/crnr/notice-proposed-rulemaking-warnings-exposures-glyphosate-consumer-products-new

Regulation text

Initial Statement of Reasons

__________________________

   [1]   https://oehha.ca.gov/proposition-65/chemicals/glyphosate

   [2]   https://www.epa.gov/ingredients-used-pesticide-products/glyphosate

   [3]   See, e.g., Hardeman v. Monsanto Co, No. 16-cv-00525-VC (E.D. Cal. filed Feb. 1, 2016); Pilliod v. Monsanto Co., No. RG17862702, JCCP No. 4953 (Cal. Super. Ct. Alameda Cty. filed Jun 2, 2017).

   [4]   Monsanto Co. v. Office of Environmental Health Hazard Assessment, 22 Cal. App. 5th 534 (2018).

   [5]   Nat’l Ass’n of Wheat Growers v. Becerra, 468 F. Supp. 3d 1247, 1266 (E.D. Cal. 2020) (on appeal to the Ninth Circuit Court of Appeals, Case No. 20-16758).

   [6]   Id. at 1260.

   [7]   Initial Statement of Reasons, July 23, 2021, at pp. 5-6, 12.

   [8]   Id. at 12.

   [9]   Id. at 6.

  [10]   Wheat Growers, 468 F. Supp. 3d at 1262-63.

  [11]   Cal. Health & Safety Code § 25249.6

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Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Environmental Litigation and Mass Tort practice group, or the following authors:

Abbey Hudson – Los Angeles (+1 213-229-7954, [email protected])
Alexander P. Swanson – Los Angeles (+1 213-229-7907, [email protected])

Please also feel free to contact the following practice group leaders:

Environmental Litigation and Mass Tort Group:
Stacie B. Fletcher – Washington, D.C. (+1 202-887-3627, [email protected])
Daniel W. Nelson – Washington, D.C. (+1 202-887-3687, [email protected])

© 2021 Gibson, Dunn & Crutcher LLP

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

Washington, D.C. partner Michael Murphy and associate Kyle Neema Guest are the authors of “Green Investments Are Not Immune To ESG Scrutiny,” [PDF] published by Law360 on July 27, 2021.

Los Angeles partner Michael Holecek and Washington, D.C. associate Andrew Kilberg are the authors of “Walsh’s Wrong Turn: The Labor Department’s Misguided Revitalization of the ‘Integral’ Factor,” [PDF] published by The National Law Journal on July 26, 2021.

Los Angeles partners Theane Evangelis and Bradley Hamburger are the co-authors of “Breaking the Legal Paralysis: Combatting California’s Homelessness Crisis After Martin v. City of Boise,” [PDF] published by California Real Property Journal, Vol. 39, No. 2., 2021 of the California Lawyers Association Real Property Law Section in July 2021.

As the United States emerges from the darkest days of the COVID-19 pandemic and the Biden Administration settles in, the U.S. government and qui tam relators continue to churn out litigation and investigations under the False Claims Act (“FCA”), the government’s primary tool for combatting fraud against the federal fisc.

Six months ago, in our 2020 Year-End FCA Update, we explored what the new Biden Administration’s priorities might be and whether they would alter FCA enforcement. To date, there have been no major shifts in overarching policy, but the contours of the Biden Administration’s priorities are emerging. And, with nearly $400 million in FCA settlements in the first half of the year, more aggressive and forward-leaning FCA enforcement may well be on the horizon. Indeed, the Biden Administration forecasts that its efforts to root out COVID-19-related fraud will result in “significant cases and recoveries” under the FCA.

Meanwhile, federal courts issued several significant decisions in the first half of 2021, including important decisions exploring the use of statistical evidence in FCA cases, causation in fraudulent inducement cases, alleged “fraud on the FDA,” liability based on Anti-Kickback Statute (“AKS”) violations, the FCA’s materiality requirement, and DOJ’s discretion to dismiss qui tam cases where the government has not intervened.

Below, we begin by summarizing recent enforcement activity, then provide an overview of notable legislative and policy developments at the federal and state levels, and finally analyze significant court decisions from the past six months. Gibson Dunn’s recent publications regarding the FCA may be found on our website, including in-depth discussions of the FCA’s framework and operation, industry-specific presentations, and practical guidance to help companies avoid or limit liability under the FCA. And, of course, we would be happy to discuss these developments—and their implications for your business—with you.

I.  NOTEWORTHY DOJ ENFORCEMENT ACTIVITY DURING THE FIRST HALF OF 2021

Momentum continued to build on the FCA enforcement front during 2021’s first half, as DOJ announced a number of FCA resolutions totaling more than $393 million. Although the number of resolutions demonstrated a continued high level of enforcement activity, these resolutions did not include any blockbuster settlements by historical standards; DOJ did not announce any nine-figure settlements in the first half of the year.

Below, we summarize the most notable settlements thus far in 2021, with a focus on the industries and theories of liability involved. Consistent with historical trends, a majority of FCA recoveries from enforcement actions for the first half of this year have involved health care and life sciences entities, including alleged violations of the AKS, but DOJ also announced several resolutions in the government contracting and procurement space.

A.  HEALTH CARE AND LIFE SCIENCE INDUSTRIES

FCA resolutions in the health care and life sciences industries totaled more than $228 million. Consistent with historical trends, this made up the largest share of overall recoveries of any industry. Of the 27 resolutions summarized below, at least five included a Corporate Integrity Agreement.

• On January 11, a California laboratory agreed to pay $2.5 million to resolve allegations that it violated the FCA and the AKS by billing Medicare for genetic tests that were induced by kickbacks paid for referrals of the tests. A marketing company purportedly referred its clients to the laboratory for testing, and the laboratory allegedly paid a specified percentage or fixed amount of Medicare’s reimbursement for covered tests.[1]
• On February 4, a Florida company and the company’s president agreed to pay $20.3 million to settle allegations that they violated the FCA by fraudulently establishing corporations to bill for medically unnecessary durable medical equipment (“DME”) and by engaging in improper marketing practices in violation of the According to the government’s allegations, the company established dozens of front companies purporting to be DME suppliers, submitted more than $400 million in improper DME claims to Medicare and the Veterans Administration (“VA”), and bribed doctors to approve the claims even when they had not interacted with the purported beneficiaries. In addition to the settlement, the company’s president pleaded guilty to conspiracy to commit health care fraud and filing a false tax return for which she faces a maximum penalty of 13 years in federal prison. The share of the whistleblower who originally filed the action was not disclosed at the time of the settlement announcement.[2]
• On February 25, a Pennsylvania pharmacy agreed to pay $2.9 million to resolve allegations that it violated the FCA by filling prescriptions with inexpensive generic medications but billing Medicare for pricier brand-name drugs, and that it violated the Controlled Substances Act by illegally dispensing opioids and other controlled substances to individuals who did not have prescriptions.[3]
• On February 25, a global medical technology company agreed to pay $3.6 million to settle allegations that it violated the FCA by submitting improperly completed certificates of medical necessity (“CMN”) for devices that were medically unnecessary. The allegations stemmed from the company’s self-disclosure to HHS-OIG that its sales representatives at times filled out a CMN section that, under Medicare rules, must be completed by the treating physician’s office.[4]
• On March 2, a North Carolina medical equipment provider agreed to pay $20.1 million, and its individual owner agreed to pay an additional $4 million, to resolve allegations that the company violated the federal and North Carolina FCA The government alleged that the company fraudulently billed Medicaid for DME purportedly provided to individual Medicaid recipients, but the individuals never ordered or received the equipment; in some cases, the supposed recipients allegedly had been deceased for years before the submission of the claims. The U.S. government and the state of North Carolina also obtained a default judgment of $34.7 million against a sales representative of the company. In a related criminal investigation, the company was sentenced to five years of probation and ordered to pay a $2 million fine and over $10 million in restitution to the North Carolina Medicaid Program related to charges of health care fraud. The company self-reported the activity to the North Carolina Medicaid Investigations Division.[5]
• On March 2, a Virginia medical practice agreed to pay $2.1 million to resolve allegations that it violated the FCA by double-billing Medicare for treatments administered to patients. The at-issue treatment is sold in single-use vials, but some patients do not need an entire vial. In such cases, Medicare rules allow the doctor to bill as if the entire vial had been administered while discarding the leftover amount. Allegedly, the medical practice engaged in a scheme whereby it would administer a partial vial to one patient, give the remainder of the vial to a different patient, and then bill Medicare for one full vial per patient. In June 2020, the medical practice pleaded guilty to one count of criminal health care fraud related to the conduct.[6]
• On March 5, the Florida-based parent of two Ohio psychiatric hospitals and one Ohio substance abuse treatment facility agreed to pay $10.3 million to resolve allegations that they violated the FCA by billing federal health care programs for medical services that were induced by kickbacks improperly provided to patients. According to the government, the company unlawfully provided free long-distance transportation to patients to induce them to seek treatment at the company’s facilities and then submitted claims for the services it provided to those patients. The government also alleged that some of the inpatient admissions, for which the company submitted claims, were medically unnecessary. In addition to the financial settlement, the company entered into a Corporate Integrity Agreement with HHS-OIG that requires it to retain an independent reviewer for a five-year period to examine its claims to Medicare and Medicaid. The share of the whistleblower who originally filed the action was not disclosed at the time of the settlement announcement.[7]
• On March 16, two former owners of a telemarketing company agreed to collectively pay at least $4 million to settle allegations that they violated the FCA by scheming to generate referrals to pharmacies in exchange for kickbacks. The government alleged that the former owners solicited prospective patients to accept compounded drugs notwithstanding the medical necessity of such drugs, procured prescriptions for the patients, and then arranged to have those prescriptions filled at compounding pharmacies. In exchange, the former owners received a kickback from the pharmacies equal to half of the amount that TRICARE ultimately reimbursed for each prescription. Under the settlement agreement, the exact resolution amount will be determined based the sale price of certain real property that one of the former owners agreed to sell. A former employee of one pharmacy to which the telemarketing company referred prescriptions initially filed the qui tam The share of the whistleblower who originally filed the action was not publicized at the time the settlement was announced.[8]
• On March 18, a Michigan physician and his practice agreed to pay $2 million to resolve allegations that the practice violated the FCA by billing federal programs for diagnostic tests that were unnecessary or never performed. In addition to the financial settlement, the physician and his practice agreed to a Integrity Agreement with HHS-OIG that requires billing practices oversight for a three-year period. The shares of the two whistleblowers who originally filed the actions were not disclosed at the time of the settlement announcement.[9]
• On March 26, a former owner of a North Carolina diagnostic testing laboratory agreed to pay $2 million to settle allegations that he participated in kickback schemes to induce physicians to refer patients to the laboratory for medically unnecessary drug tests, leading to the submission of claims to Medicare in violation of the AKS and the FCA. According to the government, the laboratory provided benefits, including urine drug testing equipment and loans to physicians, as well as volume-based commissions and a salary to an individual for influence over two physician practices, in exchange for referrals to the laboratory for testing. On March 30, another of the laboratory’s former owners consented to an entry of final judgement requiring that he pay $4.5 million to resolve allegations that he paid kickbacks to the owner or a medical practice.[10]
• On April 1, a New York-based pharmaceutical company agreed to pay $75 million to resolve allegations that it knowingly underpaid rebates owed pursuant to the Medicaid Drug Rebate Program. The government alleged that the company had underreported the Average Manufacturer Prices (“AMPs”) for multiple drugs because it improperly subtracted service fees paid to wholesalers from the reported AMPs and excluded additional value the company received under contractual price-appreciation provisions with the wholesalers. According to the government, the underreported AMPs resulted in underpaid quarterly rebates to states and, relatedly, caused overcharges to the United States for the government’s Medicaid program payments to the states.[11] The company will pay approximately $41 million, plus interest, to the United States and the remainder to states participating in the settlement. The settlement stemmed from a qui tam lawsuit, which the whistleblower pursued after the government declined to intervene. The whistleblower’s share was not announced with the settlement.
• On April 8, an urgent-care provider network in South Carolina and its management company agreed to pay $22.5 million to resolve allegations that the management company falsely certified that network health care providers credentialed to bill Medicaid, Medicare, and TRICARE had performed various procedures, when non-credentialed providers actually performed those services. The companies also entered into a five-year Corporate Integrity Agreement with HHS-OIG and DCIS that requires the management company to retain an independent review organization to review its claims.[12] The share of the whistleblowers who originally filed the action was not announced with the settlement.
• On April 20, a network of three specialty health care providers in Massachusetts agreed to pay $2.6 million to resolve allegations that they improperly billed Medicare and Massachusetts’ Medicaid program for certain office visits while also billing for procedures performed at the office visits, allowing the providers to obtain reimbursements to which they were not entitled under the circumstances. The whistleblower who originally filed the action will receive 15% of the recovery.[13]
• On April 21, a Tennessee-based network of pain-management clinics, its four majority owners, and a former executive agreed to pay $4.1 million to settle allegations involving the submission of false claims for medically unnecessary or non-reimbursable treatments, testing, and drugs to federal health care programs, as well as for services and testing that were not actually performed. The settlement also resolved common-law claims of fraud, payment by mistake, and unjust enrichment. With the settlement, the government agreed to dismiss its underlying civil action against all the parties except the network’s former CEO, who was convicted of health care fraud in 2019. The allegations originally stemmed from qui tam lawsuits, pursuant to which the whistleblowers will receive $610,685.[14]
• On April 30, a health care software developer in Florida agreed to pay $3.8 million to resolve allegations that it used its marketing referral program for electronic health records products to pay unlawful kickbacks to generate sales. The government alleged that the referral program financially incentivized existing clients to recommend the developer’s products and barred program participants from providing negative product information to prospective clients, without the prospective clients’ knowledge of the arrangement. The government also asserted that the kickback payments rendered false the claims the company submitted under Medicare and Medicaid Meaningful Use Programs and the Merit-Based Incentive Payment System. The whistleblower who originally filed the action will receive approximately $800,000 in connection with the settlement.[15]
• On May 3, a neurosurgeon in South Dakota, as well as two affiliated medical device distributors owned by the doctor, agreed to pay $4.4 million to resolve allegations that the doctor accepted illegal payments to use certain medical devices and knowingly submitted claims for medically unnecessary surgeries. The doctor allegedly requested and received kickbacks, in the form of meals and alcohol, from a medical device manufacturer through a restaurant that the doctor owned with his wife. The doctor also allegedly knowingly submitted false claims for medically unnecessary procedures using medical devices in which he had a financial interest. The two medical device distributors agreed to pay an additional $100,000 to resolve claims that they violated the Centers for Medicare & Medicaid Services’ (“CMS”) Open Payments Program when the distributors failed to report to the CMS the doctor’s ownership interests and payments made to him. The settlement precludes each of the defendants from participating in federal health care programs for a period of six years. The whistleblowers who originally filed the action will receive $880,000 in connection with the settlement.[16]
• On May 4, a Delaware-based pharmaceutical manufacturer agreed to pay $12.6 million to resolve allegations that it used a third-party foundation to cover the copays of Medicare and TRICARE patients taking its myelofibrosis drug. The government alleged that the manufacturer improperly induced patients to purchase its drugs after pressuring the foundation to use funds donated by the manufacturer for patient copays and help ineligible patients complete financial assistance applications to the fund. The whistleblower who originally filed the action will receive approximately $3.59 million of the recovery.[17]
• On May 5, an Arizona hospital, operated by one of the largest health care systems in the United States, and a neurosurgery provider on the hospital’s campus agreed to pay $10 million to resolve allegations that they billed Medicare for concurrent, overlapping surgeries in violation of regulations and reimbursement policies. The neurosurgery provider contemporaneously entered into a five-year Corporate Integrity Agreement with HHS-OIG that requires the provider to maintain compliance and risk-assessment programs and hire an independent review organization to annually review its claims. The share of the recovery the whistleblower who originally filed the action was not announced with the settlement.[18]
• On May 10, a private university in Florida agreed to pay $22 million to resolve claims related to its laboratory and off-campus, hospital-based facilities. The government alleged that the university billed federal health care programs for medically unnecessary laboratory tests for kidney transplant patients, submitted inflated reimbursement claims for pre-transplant laboratory testing in violation of regulations limiting above-cost reimbursements for tests performed by a provider’s related entity, and knowingly failed to provide required notice to beneficiaries regarding the cost of receiving services at hospital facilities rather than physician offices. Contemporaneous with the settlement, the university entered into a five-year Corporate Integrity Agreement with HHS-OIG, which requires the university to establish compliance, risk-assessment, and internal-review programs. The share of the whistleblower who originally filed the three underlying qui tam lawsuits was not disclosed at the time of settlement.[19]
• On May 11, a national pharmacy-services provider based in Texas agreed to pay $2.8 million to resolve a number of alleged violations under the Controlled Substances Act and FCA. The settlement also resolved allegations that the provider dispensed opioids and other controlled substances without valid prescriptions, submitted false claims for invalid emergency prescriptions to Medicare, and billed Medicare for claims that had already been reimbursed. The share of the whistleblower who originally filed the action was not announced with the settlement.[20]
• On May 14, two Texas-based dentists, as well as their affiliated practices and dental management companies, agreed to pay $3.1 million to resolve allegations that they knowingly billed Medicaid for services not rendered or falsely identified who provided those services. The share of the whistleblowers who originally filed the action was not announced with the settlement.[21]
• On May 19, a French medical device manufacturer and its American affiliate agreed to pay $2 million to resolve allegations that they violated the AKS, FCA, and the Open Payments Program’s requirements. The government alleged the manufacturer provided items of value—such as meals, entertainment, and travel expenses—to U.S.-based doctors attending a conference in France to induce purchases of their spinal devices and failed to fully report the physician-entertainment expenses as part of the Open Payments Program. The share of the whistleblower who originally filed the action was not announced with the settlement.[22]
• On May 21, an Atlanta-based chain of nursing facilities agreed to pay $11.2 million to resolve allegations that it billed Medicare for medically unreasonable, unnecessary, and unskilled rehabilitation therapy services, and that it billed both Medicare and Medicaid for substandard or “worthless” skilled-nursing services after allegedly failing to have a sufficient number of skilled nursing staff to care for the residents. The settlement also resolved allegations that the chain submitted false claims to Medicaid for coinsurance amounts for beneficiaries eligible for both Medicare and Medicaid. Contemporaneously, the chain entered into a five-year Corporate Integrity Agreement with HHS-OIG that requires an independent organization to annually review patient stays and associated claims as well as an independent monitor to review resident-care quality. The settlement resolves several qui tam suits; the whistleblowers’ share of the recovery was not announced with the settlement.[23]
• On May 25, a dental-clinic system in New York agreed to pay $2.7 million to resolve allegations that it submitted false claims to Medicaid for dental services performed with improperly sterilized equipment. The share of the whistleblower who originally filed the action was not announced with the settlement.[24]
• On June 8, a Texas-based chiropractor and her medical group agreed to pay $2.6 million to resolve allegations that the chiropractor improperly billed Medicare and TRICARE programs for the implantation of neurostimulator electrodes despite not performing such surgeries. In addition to the settlement, the chiropractor and affiliated medical entities agreed to a 10-year period of exclusion from participation in any federal health care program.[25]
• On June 28, a surgery center and its affiliated outpatient surgery provider agreed to pay $3.4 million to resolve allegations that the companies submitted claims for kidney stone procedures that were not medically justified and also engaged in a kickback scheme. One of the surgery centers allegedly submitted claims for certain kidney stone procedures for Medicare and TRICARE patients that were not medically necessary. Further, a physician and the two companies allegedly engaged in a kickback arrangement in which the physician performed the kidney stone procedures in exchange for per-procedure payments at the surgery center, which the surgery center then billed to Medicare and TRICARE. The settlement resulted from a qui tam lawsuit, and the whistleblower will receive $748,000 of the settlement proceeds. In November 2020, the estate of the physician also paid the U.S. government $1.75 million to resolve claims related to his participation in the conduct.[26]

B.  GOVERNMENT CONTRACTING AND PROCUREMENT

Settlement amounts to resolve liability under the FCA in the government contracting and procurement space totaled more than $165 million in the first half of 2021.

• On January 8, a Connecticut electrical contractor agreed to pay $3.2 million to settle allegations that it violated the FCA in connection with public construction contracts principally funded by the U.S. Department of Transportation. Under the terms of the contracts, the contractor was required to subcontract a portion of the work to Disadvantaged Business Enterprises (“DBE”). The government alleged that the contractor fraudulently misrepresented that a DBE had performed work as a subcontractor, when in fact the work in question was performed by the electrical contractor’s own employees. As part of the settlement, the contractor agreed to enter a monitoring agreement with the Federal Transit Administration.[27]
• On January 12, a Washington aerospace contractor agreed to pay $25 million to resolve allegations that it submitted materially false cost and pricing data in relation to military contracts, in violation of the FCA. The contractor entered into contracts to supply Unmanned Aerial Vehicles (“UAVs”) to the military. The proposals submitted by the contractor incorporated cost and pricing data that assumed new parts would be used in building the UAVs, but the government alleged that the contractor instead used recycled, refurbished, reconditioned, or reconfigured parts. The whistleblower who originally filed the qui tam lawsuit will receive $4.625 million of the settlement amount.[28]
• On February 17, a subsidiary of a French civil engineering company agreed to pay $3.9 million to resolve allegations that it violated the FCA by knowingly using contractually noncompliant concrete in the construction of an overseas U.S. military airfield. In addition to the civil settlement, the company agreed to enter into a separate DPA under which the company admitted to the underlying facts and accepted responsibility for a one-count information for conspiracy to commit wire fraud, and agreed to pay a monetary penalty of more than $12.5 million. The civil settlement credited approximately $1.95 million of the DPA payment.[29]
• On February 19, a Virginia company agreed to pay more than $6 million to settle allegations that its predecessor company, an information technology contractor, violated the FCA by overbilling the Department of Homeland Security (“DHS”) for work performed by its employees. The contractor allegedly used underqualified personnel to perform services and knowingly billed DHS at higher rates meant for more qualified personnel.[30]
• On February 26, a U.S.-based airline agreed to pay $49 million to resolve criminal charges and civil claims that it provided fraudulent data to the U.S. Postal Service (“USPS”) in connection with a contract to deliver mail internationally on behalf of U.S.P.S. Under the airline’s contracts with USPS, it was required to provide bar code scans of mail containers when it took possession of them and again when it delivered them to intended recipients; the airline was entitled to payment only if accurate scans were provided and the mail was timely delivered. According to the government, the airline submitted automated scans that did not correspond to the actual movement of the mail, and thus it was not entitled to payment. The airline admitted that it concealed problems related to mail movement and scanning that would have subjected it to penalties under the contracts. The airline agreed to pay nearly $32.2 million to resolve civil allegations that it violated the FCA, and the airline also entered into a criminal non-prosecution agreement and agreed to pay an additional $17.3 million in criminal penalties and disgorgement. The airline also agreed to continued cooperation with the DOJ Criminal Division’s Fraud Section. The airline further agreed to strengthen its compliance program and agreed to reporting requirements, including annual reports to DOJ.[31]
• On March 1, the subsidiary of a multinational software engineering and support company agreed to pay $2.2 million to settle allegations that it violated the FCA by failing to pay required administrative fees pursuant to contracts it signed with the U.S. General Services Administration, and that it violated the FCA by failing to provide contracted discounts and not meeting contractual requirements regarding the educational and experiential qualifications of its staff.[32]
• On March 19, a New York-based nongovernmental organization (“NGO”) agreed to pay $6.9 million to settle allegations that it violated the FCA in relation to programming funded by the U.S. Agency for International Development (“USAID”). The NGO received USAID funding to provide humanitarian assistance to refugees in Syria. According to the government, the NGO’s staff participated in a collusion and kickback scheme with a foreign supplier to rig bids for goods and services contracts used in its humanitarian relief efforts. The government alleged that this conduct led to the procurement of goods at unreasonably high prices, which were then invoiced to USAID.[33]
• On April 29, a California-based manufacturer agreed to pay $5.6 million to resolve allegations that it falsely certified the origin of materials and the manufacturing location of items produced under a contract with the Government of Israel, which was funded by the U.S. Defense Security Cooperation Agreement Agency. To be eligible for foreign procurement grant funds, the materials must be sourced and manufactured in the United States by domestic companies. As related to items manufactured under the DSCA-funded contract with the Government of Israel, the government alleged that the manufacturer knowingly submitted false certifications that Chinese-sourced materials were produced in the United States and that manufacturing had occurred in the United States, when the company had in fact contracted with a Mexican maquiladora. The whistleblowers who filed the action will receive 17% of the settlement.[34]
• On May 27, an Illinois-based military manufacturer agreed to pay $50 million to resolve allegations that it fraudulently induced the U.S. Marine Corps to enter into a contract modification at inflated prices for components of armored vehicles. The government alleged that the manufacturer knowingly created and submitted fraudulent sales invoices for sales that never occurred to justify the contract’s inflated prices. The whistleblower who filed the action will receive approximately $11.1 million of the settlement.[35]
• On June 3, a Washington subsidiary of a Colorado-based environmental cleanup and remediation company paid approximately $3 million to resolve allegations that it submitted fraudulent small-business subcontractor reports. The company had entered into a government contract that required it to make efforts to award small businesses a percentage of its subcontracts and regularly report its progress; the contract provided fee-based incentives for its subcontracting successes and imposed monetary penalties if these goals were missed in bad faith. The government alleged that the company falsely represented the status of two businesses awarded subcontracts to claim credit for small-business subcontractors under the contract. The whistleblowers who originally filed the action will receive approximately $865,900 of the settlement.[36]
• On June 10, a national car-rental group headquartered in New Jersey agreed to pay $10.1 million to resolve allegations that it submitted false claims under an agreement managed by the Department of Defense Travel Management Office for unallowable supplemental charges to car rentals, such as collision-damage waiver insurance, supplemental liability coverage, personal-effects coverage, and late turn-in fees. Additionally, the government alleged that some of the fees charged were already included in the government rental rate.[37]
• On June 25, a multinational telecommunications and Internet service provider company agreed to pay more than $12.7 million to resolve allegations that the company violated the FCA in numerous ways. Former officials of the company allegedly accepted kickbacks in return for favorable treatment for subcontractors related to government contracts. The company also allegedly improperly obtained protected competitor bid information related to a government contract to gain a bidding advantage. Further, the company allegedly misstated its compliance with woman-owned small business subcontracting requirements under a contract with the Department of Homeland Security. The settlement resolves claims under the FCA, the Anti-Kickback Act, and the Procurement Integrity Act. The share of the whistleblower who originally filed the action was not disclosed at the time of the settlement announcement.[38]
• On June 30, a government contractor agreed to pay $4.3 million to settle allegations that three of its former executives accepted kickbacks from a subcontractor in exchange for awarding subcontracts for government contracts. A former executive allegedly instructed a subcontractor to mark up the cost of the subcontractor’s services provided to the contractor, and instructed the subcontractor to divide the proceeds between the subcontractor, the former executive, and two other former executives in exchange for awarding the subcontracts to the subcontractor.[39]

II.  POLICY AND LEGISLATIVE DEVELOPMENTS

A.  COVID-19-RELATED DEVELOPMENTS

During the first half of 2021, DOJ has maintained its focus on COVID-19-related fraud. In a February 17, 2021 speech at the Federal Bar Association Qui Tam Conference, Acting Assistant Attorney General Brian M. Boynton outlined the Civil Division’s key enforcement priorities and placed pandemic-related fraud at the top of the list.[40] Acting AAG Boynton described ongoing efforts by DOJ and its agency partners to “identify, monitor, and investigate the misuse of critical pandemic relief monies,” and also expressed confidence that DOJ’s devotion of resources to this effort will be worthwhile: “The vast majority of the funds distributed under [pandemic relief] programs have gone to eligible recipients. Unfortunately, however, some individuals an1 businesses applied for—and received—payments to which they were not entitled.”[42]

In his remarks, Acting AAG Boynton highlighted DOJ’s first civil settlement under the PPP.[42] The settlement was small (only $100,000), but marked the first such settlement related to COVID PPP funds and resolved claims a company had violated the FCA and the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) based on allegations the company “made false statements to federally insured banks that [it] was not in bankruptcy in order to influence those banks to approve, and the Small Business Administration (SBA) to guarantee” a PPP loan.[43] And while the PPP-related settlement did not involve a qui tam relator, in March, DOJ confirmed what many in the defense bar have long known or suspected—namely that “whistleblower complaints have been on the rise” during the COVID-19 pandemic.[44]

The other priorities Acting AAG Boynton outlined in his February speech also reveal that DOJ views pandemic-related fraud as extending beyond relief programs implemented during the pandemic. For example, in discussing DOJ’s continued focus on the opioid crisis, Acting AAG Boynton characterized the crisis as “not new, but . . . exacerbated by the pandemic.”[45] Similarly, he attributed DOJ’s “continued focus on telehealth schemes” in part to “the expansion of telehealth during the pandemic.”[46] These remarks make clear that DOJ has not lost sight of pre-pandemic enforcement priorities, in addition to focusing on fraud tied to government programs that are themselves creatures of the pandemic.

B.  CONTENDING WITH THE LEGACY OF THE GRANSTON MEMO

Under the Trump administration, DOJ took prominent steps to assert DOJ’s control of FCA lawsuits. Specifically, on January 10, 2018, Michael Granston, the then-Director of the Fraud Section of DOJ’s Civil Division, issued a memorandum directing government lawyers evaluating a recommendation to decline intervention in a qui tam FCA action to “consider whether the government’s interests are served . . . by seeking dismissal pursuant to 31 U.S.C. § 3730(c)(2)(A).”[47] That policy was then formally incorporated into the Justice Manual. After that, DOJ became noticeably more willing to seek dismissal of certain FCA cases.

Thus far in 2021, the Biden Administration has not signaled whether it plans to scale back DOJ’s efforts to dismiss certain qui tam suits. Nor has the Administration disavowed the principles outlined in the Granston Memo or Justice Manual. However, statements by DOJ officials in the last six months suggest that DOJ may be adapting its approach to qui tam enforcement by enhancing the government’s own ability to identify and pursue FCA violations without prompting from relators. In his February speech, Acting AAG Boynton stated explicitly that observers can “expect the Civil Division to continue to expand its own efforts to identify potential fraudsters, including its reliance on various types of data analysis.”[48] He went on to discuss “sophisticated analyses of Medicare data” by DOJ “to uncover potential fraud schemes that have not been identified by whistleblower suits, as well as to help analyze and support the allegations that we do receive from such suits.”[49]

While the Biden Administration DOJ explores its options, there has been continued criticism by Senator Chuck Grassley (R-IA) of DOJ’s use of its dismissal authority under the FCA. A week after Acting AAG Boynton’s remarks, Senator Grassley wrote to then-Attorney General Nominee Merrick Garland that “it is up to the courts, through a hearing, to determine whether or not a [qui tam] case lacks merit.”[50] According to Senator Grassley, “[t]he Justice Department is not, and cannot be, the judge, jury, and executioner of a relator’s claim.”[51] Senator Grassley asserted that he is “working with a cadre of bipartisan Senate colleagues to draft legislation that will further strengthen and improve the False Claims Act.”[52]

While the degree of DOJ involvement in this legislative effort—and the extent to which it addresses DOJ’s dismissal authority—remains to be seen, the balance between DOJ-pursued FCA cases and relator-driven matters may shift. On one level, increased leveraging of data analytics could result in less reliance on relators overall, and therefore fewer situations in which DOJ attempts to exercise its dismissal authority and risks making bad law. On another, an increase in the volume and sophistication of DOJ’s data analyses of cases that do involve relators could better position DOJ to make merits-based arguments in favor of dismissal in the event that judicial scrutiny of those decisions ratchets up.

C.  A PIVOT AWAY FROM THE BRAND MEMO?

In January 2018, then-Associate Attorney General (the third-ranking position at DOJ) Rachel Brand issued a memorandum titled “Limiting Use of Agency Guidance Documents In Affirmative Civil Enforcement Cases.”[53] The so-called “Brand Memo” expressly asserted that “[g]uidance documents” issued without notice-and-comment rulemaking “cannot create binding requirements that do not already exist by statute or regulation.”[54] Therefore, the Brand Memo stated that DOJ “may not use compliance with guidance documents as a basis for proving violations of applicable law in [affirmative civil enforcement] cases.”[55] The Brand Memo also explained that DOJ “should not treat a party’s noncompliance with an agency guidance document as presumptively or conclusively establishing that the party violated the applicable statute or regulation.”[56] Despite its brevity—under two pages—the Brand Memo represented a substantial policy change for civil enforcement, especially for the FCA. In December 2018, DOJ issued new section 1-20.000 of the Justice Manual, “Limitation on Use of Guidance Documents in Litigation,” which incorporated the Brand Memo and explained that, with some important caveats—such as the use of “awareness of [a] guidance document” as evidence of scienter—DOJ “should not treat a party’s noncompliance with a guidance document as itself a violation of applicable statutes or regulations.”[57]

Under the Biden Administration, DOJ may marginalize the Brand Memo. On the day he was inaugurated, President Biden issued an executive order that signaled an expected shift from the Trump Administration’s skepticism of agencies toward greater deference to agency expertise and guidance. Executive Order 13992 revoked six Trump executive orders relating to agency regulation.[58] This included revoking Trump’s Executive Order 13891 (“Promoting the Rule of Law Through Improved Agency Guidance Documents”), which required that “agencies treat guidance documents as non-binding both in law and in practice, except as incorporated into a contract” and stated as a matter of executive policy that “[a]gencies may impose legally binding requirements on the public only through regulations and on parties on a case-by-case basis through adjudications.”[59]

President Biden’s order noted that “executive departments and agencies . . . must be equipped with the flexibility to use robust regulatory action to address national priorities,” which include addressing the “coronavirus disease 2019 (COVID-19) pandemic, economic recovery, racial justice, and climate change” (emphasis added).[60] Although Executive Order 13992 does not expressly refer to DOJ’s civil enforcement or the FCA, the Order may foster a climate in which DOJ is more willing to use sub-regulatory guidance as the basis for FCA allegations. Such a change would both allow for broader FCA enforcement and signal support for the expertise of agencies in promulgating external-facing guidance. Likewise, as companies continue to adapt to DOJ’s efforts to root out fraud in government programs, a renewed focus on agency guidance could change the risk calculus built into corporate compliance programs and internal investigation efforts.

D.   STATE LEGISLATIVE DEVELOPMENTS

The federal government provides incentives for states to conform their false claims statutes to the federal FCA. In particular, HHS-OIG grants “a 10-percentage-point increase” in a state’s share of any recoveries under the relevant laws to any state that obtains HHS-OIG approval for its false claims statute.[61] Such approval requires that the statute in question, among other requirements, “contain provisions that are at least as effective in rewarding and facilitating qui tam actions for false or fraudulent claims as those described in the [federal] FCA.”[62] The statute is also required to contain a 60-day sealing provision and “a civil penalty that is not less than the amount of the civil penalty authorized under the [federal] FCA.”[63] The total number of states with approved statutes is now twenty-two, with Minnesota having obtained approval on May 27, 2021.[64] That leaves seven states—Florida, Louisiana, Michigan, New Hampshire, New Jersey, New Mexico, and Wisconsin—with false claims statutes listed by HHS-OIG as “not approved.”[65]

There have been several other notable developments in state-level false claims legislation in the first half of this year.

• In Montana, the legislature passed a law in April that changes the order of priority according to which damages and penalties not paid to qui tam relators are to be disbursed to affected government entities.[66] The statute previously provided that the affected government entity’s general fund would receive the balance of such monies; under the new law, the monies “must be distributed first to fully reimburse any losses suffered by the governmental entity as a result of the defendant’s actions,” with the remainder then going to the entity’s general fund.[67]
• In Arkansas, which has a false claims statute specific to its Medicaid program, the General Assembly recently approved a bill granting the state’s Attorney General the ability to intervene in cases brought in federal court under the federal FCA that implicate Arkansas Medicaid funds.[68]
• In California, the legislature introduced a bill that would (among other things) levy a 1% annual “wealth tax” on any resident with a net worth of over $50 million (or $25 million in the case of a married taxpayer who files a separate return).[69] The bill contains a provision subjecting false claims and records concerning the wealth tax to liability under California’s false claims statute.[70]

III.  CASE LAW DEVELOPMENTS

The first half of 2021 saw a number of notable federal appellate court decisions, which we have summarized below.

A.  D.C. CIRCUIT EXPLORES CAUSATION IN FCA CASES PREMISED ON “FRAUDULENT INDUCEMENT” THEORY

In United States ex rel. Cimino v. International Business Machines Corp., the D.C. Circuit issued an important opinion exploring the contours of the “fraudulent inducement” theory of FCA liability, under which an initial fraud during procurement of a contract allegedly results in liability for all claims submitted to the federal government under that contract. No. 19-7139, 2021 WL 2799946 (D.C. Cir. July 6, 2021). In its decision, the D.C. Circuit imposed important limits on the fraudulent inducement theory by requiring a relator to plead (and ultimately prove) but-for causation.

The Cimino case involved allegations that IBM had “violated the FCA by (1) using a false audit to fraudulently induce the IRS to enter into a $265 million license agreement for software the IRS did not want or need, and (2) presenting false claims for payment for software that the IRS never received.” Id. at *1. In evaluating what it deemed an issue of first impression, the D.C. Circuit undertook an in-depth review of fraudulent inducement cases under the FCA, and the Supreme Court’s most recent opinions in FCA cases, to conclude that “a successful claim for fraudulent inducement requires demonstrating that a defendant’s fraud caused the government to enter a contract that later results in a request for payment.” Id. at *4. The court explained that the critical question for “liability under the FCA for fraudulent inducement must turn on whether the fraud caused the government to contract.” Id. Turning to what standard of causation applied, the court rejected a lesser standard urged by the Relator and instead held that the FCA requires the relator or government “to allege actual cause under the but-for test,” which required the relator in Cimino to “provide sufficient facts for the court to draw a reasonable inference that IBM’s false audit caused the IRS to enter the license agreement.” Id. at *6 (emphasis added). Notably, the court also rejected relator’s argument that causation was encompassed within the FCA’s materiality requirement, and did not need to be pled separately. The court instead recognized that “a plaintiff must plead both causation and materiality,” id. at *7, and that those are “separate elements that we cannot conflate,” id. at *5.

Applying these standards, the D.C. Circuit concluded that the Relator had met his pleading burden in this particular case. But by setting forth this rigorous analysis of the causation and materiality requirements under the FCA in fraudulent inducement cases, the court also charted a course for defendants facing liability under similar circumstances. Where a relator does not plead that a defendants conduct actually caused the government to enter into the underlying contract, a fraudulent inducement theory should not be able to move forward.

Turning to relator’s second theory, the court did dismiss certain claims under Federal Rule of Civil Procedure 9(b) (which requires pleading fraud claims with particularity). Applying a strict form of Rule 9(b), the court concluded that the relator failed to plead certain claims with sufficient particularity because he did not plead “when the false claims were presented and who presented those claims.” Id. at *9.

Finally, in a concurrence, Circuit Judge Rao went a step further and questioned whether fraudulent inducement is even a valid theory under the FCA. Applying a textualist framework, he argued that “[t]he text of the FCA does not readily suggest liability for fraudulent inducement as a separate cause of action.” Id. at *9 (Rao, J., concurring). The concurrence explained that courts across the country have long accepted fraudulent inducement theories based largely on an eighty-year-old Supreme Court FCA decision in United States ex rel. Marcus v. Hess, 317 U.S. 537 (1943), superseded by statute on other grounds, Act of Dec. 23, 1943, ch. 377, 57 Stat. 608, 609. See Cimino, 2021 WL 2799946, at *10. But Judge Rao said that decision is “hardly a model of clarity regarding the existence of a fraudulent inducement cause of action,” and suggested that a “reconsideration of a fraudulent inducement cause of action may be warranted because it exists in some tension with recent Supreme Court decisions” that emphasize the text of the statute over its purpose. Id. at *11. We will be watching carefully to see if other courts take up this project of reconsideration.

B.  ELEVENTH CIRCUIT DECIDES THAT QUI TAM CHALLENGE MIGHT SURVIVE SUMMARY JUDGMENT DESPITE GOVERNMENT’S CONTINUED PAYMENT

In Universal Health Services v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016), the Supreme Court directed the district courts to scrutinize whether plaintiffs have alleged facts sufficient to satisfy the “rigorous” and “demanding” materiality standard the FCA imposes. The Supreme Court also emphasized that the government’s decision to continue paying claims, despite knowledge of an alleged deficiency with those claims, is “very strong evidence” that those issues are not material for purposes of the FCA. Since then, the federal courts have grappled with the impact of these instructions.

Earlier this year, the Eleventh Circuit addressed this issue in United States ex. rel. Bibby v. Mortgage Investors Corp., 987 F.3d 1340 (11th Cir. 2021), cert. denied sub nom. Mortg. Invs. Corp. v. United States ex rel. Bibby, No. 20-1463, 2021 WL 1951877, at *1 (U.S. May 17, 2021). In Bibby, the relators alleged that lenders were charging fees prohibited by the U.S. Department of Veterans Affairs (“VA”) regulations (attorneys’ fees) while certifying that they charged only permissible fees (title examination and insurance fees) by bundling them together. Id. at 1343-45. The district court granted summary judgment for the lender defendants on materiality grounds in light of the fact that the government continued to pay the claims after being on notice of the alleged issue. See id. at 1346

The Eleventh Circuit reversed, holding that genuine issues of material fact precluded summary judgment. Id. There was no dispute that the VA was aware of the lenders’ noncompliance with fee requirements, so the issue of material fact was how the VA reacted to the knowledge that the lenders were charging prohibited fees. Id. at 1349-50. The court acknowledged that the government’s payment decision is typically relevant to the materiality inquiry, but asserted that the relevance of that fact “var[ies] depending on the circumstances.” Id. at 1350. In this case, the Eleventh Circuit found it significant that “[o]nce the VA issues guaranties, it is required by law to honor those guaranties” and pay holders in due course, “regardless of any fraud by the original lender.” Id.

Having decided to “divorce [its] analysis from a strict focus on the government’s payment decision,” the court “s[aw] no reason to limit [its] view only to the VA’s issuance of guaranties.” Id. at 1351. Instead, the court reviewed “the VA’s behavior holistically” and found evidence of materiality in a VA circular sent to lenders reminding them of the applicable fee regulations, as well as the VA’s implementation of “more frequent and more rigorous audits.” Id. Although the VA neither revoked payment on guaranties of loans with purportedly fraudulent fees nor prohibited those lenders from participating in the program, the court determined that those facts did not answer the materiality question on their own. See id. at 1352. In ultimately concluding that the question of materiality in this case was one for the fact finder, the panel again emphasized that “the materiality test is holistic, with no single element—including the government’s knowledge and its enforcement action—being dispositive.” Id.

The Supreme Court denied the petition for writ of certiorari on May 17, 2021. Bibby, 2021 WL 1951877, at *1. The Eleventh Circuit court’s decision in Bibby stands as an indicator that the meaning of Escobar continues to evolve.

C.  NINTH AND ELEVENTH CIRCUITS LIMIT USE OF STATISTICAL EVIDENCE AS SUFFICIENT TO MEET BOTH PLAUSIBILITY AND PARTICULARITY REQUIREMENTS OF FCA PLEADINGS

Courts have continued to clarify pleading requirements for FCA claims under Federal Rules of Civil Procedure 8(a) and 9(b).

In Integra Med Analytics LLC v. Providence Health & Services, No. 19-56367, 2021 WL 1233378, at *1 (9th Cir. Mar. 31, 2021), a Ninth Circuit panel held that Integra’s statistical analysis of publicly available data—allegedly demonstrating that Providence Health submitted Medicare claims “with higher-paying diagnosis codes” than other comparable institutions—was not enough to plead falsity when Integra had failed to rule out an “obvious alternative explanation” and therefore failed to meet the Rule 8(a) requirement for pleading a plausible claim for relief. Id. at *1, *3 (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557 (2007)).

The court noted that Integra, in its pleading, had not ruled out an alternative explanation for why Providence Health’s claim submissions included more Medicare reimbursement codes—in this case, major complication or comorbidity (“MCC”) codes—than other institutions: namely that Providence, with the assistance of third-party billing consultant JATA aimed at improving its Medicare billing practices, was “at the forefront of a national trend toward coding these relevant MCCs at a higher rate.” Id. at *4. Absent any insider information alleging otherwise, the court found that Integra offered only a “possible explanation” for the results of its statistical analysis (i.e., that Providence was directing its doctors to falsify claims) and ignored that the statistical analysis could also support a “plausible alternative (and legal) explanation.” Id. (emphasis in original). Thus, the court stated “[w]e need not accept the conclusion that the defendant engaged in unlawful conduct when its actions are in line with lawful ‘rational and competitive business strategy.’” Id. (citation omitted).

Although the Ninth Circuit’s decision should reduce the weight courts are willing to attribute to the findings of statistical analyses at the pleading stage FCA cases, the court expressly noted in a footnote that its decision was not “categorically preclud[ing]” the use of statistical data to meet the FRCP 8(a) and 9(b) pleading requirements. Id. at *4 n.5.

Similarly, in Estate of Helmly v. Bethany Hospice and Palliative Care of Coastal Georgia, LLC, the Eleventh Circuit upheld the dismissal with prejudice of a qui tam suit brought by two former employees against Bethany Hospice, reasoning that allegations based on numerical probability are mere inferences that do not suffice to plead fraud with particularity under Rule 9(b). No. 20-11624, 2021 WL 1609823, at *6 (11th Cir. Apr. 26, 2021).

In Helmly, the relators alleged that the defendant hospice violated the FCA by submitting false claims when it billed the government for services provided to patients obtained through a kickback scheme. Id. at *1. They argued that because a significant number of Medicare recipients were referred to the hospice, and because “all or nearly all” of the patients at the hospice received coverage from Medicare, it was mathematically plausible that the hospice had submitted to the government claims for patients obtained under kickback agreements. Id. at *4-6.

The Eleventh Circuit rejected this argument as the basis for an FCA claim, holding that relators failed to plead the submission of an actual false claim. Id. at *6. In order to meet Rule 9(b)’s particularity requirement, a complaint “must allege actual submission of a false claim” and must do so with “some indicia of reliability.” Id., at *5 (citing Carrel v. AIDS Healthcare Found., Inc., 898 F.3d 1267, 1275 (11th Cir. 2018)) (internal quotation marks omitted). The Helmly court held that “numerical probability is not an indicium of reliability” sufficient to “meet Rule 9(b)’s particularity requirement.” Id. at *6. “[R]elators cannot ‘rely on mathematical probability to conclude that [a defendant] surely must have submitted a false claim at some point.’” Id. (quoting Carrel, 898 F.3d at 1277) (second alteration in original).

These decisions demonstrate that the pleading stage of an FCA claim requires greater specificity than many relators have typically supplied. Regardless of what the alleged core FCA claim may entail, courts are likely to require plaintiffs to clearly connect the dots and provide more concrete evidence of falsity to survive a motion to dismiss.

D.  NINTH CIRCUIT AFFIRMS THE “FRAUD-ON-THE-FDA” THEORY

This past spring, the Ninth Circuit reaffirmed that “fraud-on-the-FDA” theories may state a valid FCA claim sufficient to survive a motion to dismiss in certain circumstances. United States ex rel. Dan Abrams Co. LLC v. Medtronic Inc., 850 Fed. App’x 508 (9th Cir. 2021). In Medtronic, the relator alleged, among other claims, that the defendant fraudulently obtained FDA 510(k) clearance for several devices used in spinal fusion surgeries. Id. at 510. According to the relator, some of these devices could only be used for a contraindicated use, and could not be used as indicated in defendant’s 510(k) submissions at all (the “Contraindicated-only Devices”). Id. As such, the relator alleged that these devices were not properly approved or cleared by the FDA and thus would have been ineligible for reimbursement under Medicare but for the defendant’s alleged fraud. Id. The district court dismissed these fraud-on-the-FDA allegations for failure to state a claim because the allegations were offered “solely as a predicate for the claim that the [devices] were intended for off-label use” and “the federal government allows reimbursement for off-label and even contraindicated uses.” Id. at 511.

The Ninth Circuit affirmed most of the district court’s dismissal of relators’ claims, but reversed the district court’s holding as to the Contraindicated-only Devices, holding that the FCA may serve as a vehicle to bring a fraud-on-the-FDA claim here. Citing United States ex rel. Campie v. Gilead Sciences, Inc., 862 F.3d 890, 899 (9th Cir. 2017), the court concluded that for the Contraindicated-only Devices, the relator did not merely allege off-label use; rather, the relator alleged that the devices were not properly cleared for any use by the FDA. Because the Contraindicated-only Devices could “only be used for their contraindicated use,” and disclosures about that intended use are “precisely those that the FDA considers in granting Class II certification,” the court held that Medtronic’s alleged fraud went “to the very essence of the bargain” and therefore could proceed as a fraud-on-the-FDA claim. Medtronic, 850 Fed. App’x at 511. Although the Ninth Circuit recognized that other jurisdictions had previously “cautioned against allowing claims under the [FCA] to wade into the FDA’s regulatory regime[,]” citing Campie, 862 F.3d. at 905, Ninth Circuit precedent allowed a relator’s fraud-on-the-FDA theory to move forward. Id.

Relator’s other claims—such as the allegation that the defendant promoted off-label and contraindicated uses of certain devices—were dismissed because the devices included those that could be used for their stated intended use but were contraindicated for use elsewhere. Id. *3. The panel affirmed dismissal of the relator’s claim that defendant violated the AKS by entering into improper rebate agreements with hospitals and offering kickbacks to physicians for certain business development events. Id. at *511–12. The Ninth Circuit stated that the AKS does not include discounts offered to providers if they are properly disclosed and reflected in charges to the federal program. Moreover, the relator failed to explain how defendant’s rebate agreement violated the statute or to state sufficiently specific allegations related to physician kickbacks. Id.

E.  FOURTH CIRCUIT AFFIRMS THE BROAD REACH OF THE AKS AS A BASIS FOR FCA LIABILITY

The Fourth Circuit’s ruling earlier this year in United States v. Mallory, 988 F.3d 730 (4th Cir. 2021), serves as a reminder of the risk of compensating independent contractors for marketing activities in light of HHS-OIG guidance on whether such compensation falls within an AKS safe harbor. In Mallory, a laboratory that provided blood testing for cardiovascular disease and diabetes contracted with a consulting company to market and sell the blood tests. The consulting company received a base payment and a percentage of revenue based on the number of blood tests ordered. Based on the evidence presented at trial, the jury found that the laboratory’s revenue-based commission payments to its sales agents constituted improper remuneration that was intended to induce the sales agents to sell as many laboratory tests as possible. See United States ex rel. Lutz v. BlueWave Healthcare Consultants, Inc., No. 9:11-CV-1593-RMG, 2018 WL 11282049, at *1 (D.S.C. May 23, 2018), aff’d sub nom. United States v. Mallory, 988 F.3d 730 (4th Cir. 2021).

Defendants argued on appeal that the government failed to prove that the defendants “knowingly and willfully” violated the AKS and that, accordingly, the defendants could not have “knowingly” violated the FCA. Mallory, 988 F.3d at 736. The Fourth Circuit found those arguments unconvincing given that, in the course of attempting to assert an advice-of-counsel defense, the defendants were unable to “identify any specific legal opinion” that could support a “good-faith belief that their conduct . . . did not violate the Anti-Kickback Statute.” Id. at 739. To the contrary, the Government offered evidence that several attorneys had expressed concerns to the defendants regarding possible AKS violations in the arrangements. Id. at 736–37.

The defendants also argued on appeal that commissions to independent contractor salespeople do not constitute kickbacks under the AKS. Although the court noted that the AKS does contain a safe harbor for bona fide employment relationships, it explained that HHS-OIG “has expressly recognized that this safe harbor does not cover independent contractors.” Id. at 738. The court discussed the history of the statutory safe harbor for commissions paid to salespeople who are “employee[s]” that have a “bona fide employment relationship” with their employer, 42 U.S.C. § 1320a-7b(b)(3)(B), and HHS’s reasoning that if employers “desire to pay [ ] salesperson[s] on the basis of the amount of business they generate,” they “should make these salespersons employees” to avoid “civil or criminal prosecution.” 54 Fed. Reg. 3088, 3093 (Jan. 23, 1989). Because the amount of compensation in Mallory varied with the volume of the referrals, the court found that it fit squarely outside the bounds of the salesperson commission safe harbor. Mallory, 988 F.3d at 738.

The Fourth Circuit affirmed the jury’s findings and assessment of actual damages totaling more than $16 million for violations of FCA. Id. at 742; Lutz, 2018 WL 11282049, at *2–3. The court also affirmed the district court’s judgment, which totaled more than $100 million after the district court trebled the actual damages and added civil monetary penalties as required by the FCA. Lutz, 2018 WL 11282049, at *8.

F.  SUPREME COURT DECLINES TO REVIEW SEVERAL IMPORTANT ISSUES UNDER THE FCA

1.  SUPREME COURT REJECTS OPPORTUNITY TO REVIEW A SEVENTH CIRCUIT DECISION UPHOLDING DOJ AUTHORITY TO DISMISS CASES OVER OBJECTION OF RELATORS

In the final week of June, the Supreme Court denied a petition to review a Seventh Circuit decision regarding the proper standard to evaluate a government motion to dismiss a relator’s claim. See Cimznhca, LLC v. United States, No. 20-1138, 2021 WL 2637991 (U.S. June 28, 2021). Cimznhca’s appeal argued that the Seventh Circuit improperly expanded its jurisdiction by treating the government’s motion to dismiss also as a motion to intervene for purposes of dismissal, even though the government never sought to intervene.

As explained in Gibson Dunn’s 2020 Year-End Update and discussed above, DOJ has more regularly invoked its dismissal authority under 31 U.S.C. § 3730(c)(2)(A) since the Granston Memo was issued. In evaluating DOJ’s requests to dismiss, courts historically have split based on whether they followed the Ninth Circuit’s Sequoia Orange test or the D.C. Circuit’s Swift test in deciding whether the government may dismiss a qui tam case. Under the Sequoia Orange approach, the government may dismiss a qui tam case if: (1) it identifies a valid government purpose; (2) a rational relation exists between the dismissal and the accomplishment of that purpose; and (3) dismissal is not fraudulent, arbitrary and capricious, or illegal. United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139, 1145 (9th Cir. 1998). The Swift test, by contrast, affords the government an “unfettered” right to dismiss a case such that the decision is “unreviewable” except in instances of “fraud on the court.” Swift v. United States, 318 F.3d 250, 252-53 (D.C. Cir. 2003). Both standards generally favor the government’s discretion, albeit to different degrees, and DOJ regularly argues in its motions to dismiss that it has sufficient discretion to dismiss a case under either standard.

In Cimznhca, the Seventh Circuit called the choice between the Sequoia Orange and Swift standards “a false one, based on a misunderstanding of the government’s rights and obligations under the False Claims Act.” United States v. UCB, Inc., 970 F.3d 835, 839 (7th Cir. 2020). Although it recognized the value of a Sequoia Orange-type standard focused on the outer constitutional limits on the exercise of the government’s prosecutorial discretion, the court stated that it believes the limit lies closer to the more-deferential Swift standard.

When moving for dismissal in the district court, the government argued that the allegations “lack[ed] sufficient merit to justify the cost of investigation and prosecution and [were] otherwise . . . contrary to the public interest.” Id. at 840. In reversing the district court’s denial of the government’s motion, the Seventh Circuit viewed the government’s motion as a motion to intervene and dismiss and held that Federal Rule of Civil Procedure 41 (which governs voluntary dismissal by plaintiffs generally) supplied “the beginning and end of [the court’s] analysis.” Id. at 849. Turning to the Sequoia Orange and Swift standards, the court held that Sequoia Orange simply means that dismissal “may not violate the substantive component of the Due Process Clause,” id. at 851, which the court characterized as a “bare rationality standard” targeting “only the most egregious official conduct” that “shocks the conscience” or “offend[s] even hardened sensibilities,” id. at 852 (internal quotation marks omitted) (alteration in original). The court rejected the idea that the relatively formal nature of Section 3730(c)(2)(A) hearings “justif[ies] imposing on the government in each case the burden of satisfying Sequoia Orange’s ‘two-step test’ before the burden is put back on the relator to show unlawful executive conduct.” Id. at 853.

By declining to review the Cimznhca appeal, the Supreme Court left unresolved a growing circuit split over DOJ dismissals of whistleblower lawsuits. Accordingly, we may see other circuits apply either Sequoia Orange or Swift—or take the Seventh Circuit’s position in Cimznhca that the standard lies somewhere between the two and should primarily be informed by Federal Rule of Civil Procedure 41.

2.  SUPREME COURT DECLINES TO RESOLVE DEBATE OVER “OBJECTIVELY FALSE”

In February, the United States Supreme Court also declined to resolve a prominent split between federal courts of appeal regarding the FCA’s falsity standard. In denying petitions for writs of certiorari in Care Alternatives v. United States, — S. Ct. —, 2021 WL 666386 (Feb. 22, 2021), and RollinsNelson LTC Corp. v. U.S. ex rel. Winters, — S. Ct. —, 2021 WL 666435 (Feb. 22, 2021), the Court left unresolved whether FCA liability must be predicated on a claim that is objectively false based on verifiable facts, or whether a post hoc expert opinion can suffice to establish falsity (at least at the pleading stage). As we have written about here, this objective falsity issue joins a host of other FCA-related questions as to which the federal courts have been unable to provide uniform answers.

IV.  CONCLUSION

We will monitor these developments, along with other FCA legislative activity, settlements, and jurisprudence throughout the year and report back in our 2021 False Claims Act Year-End Update, which we will publish in January 2022.

____________________________

[1]             See Press Release, U.S. Atty’s Office for the Western Dist. of WI, AutoGenomics, Inc. Agrees to Pay Over $2.5 Million for Allegedly Paying Kickbacks (Jan. 11, 2021), https://www.justice.gov/usao-wdwi/pr/autogenomics-inc-agrees-pay-over-25-million-allegedly-paying-kickbacks.

[2]             See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Florida Businesswoman Pleads Guilty to Criminal Health Care and Tax Fraud Charges and Agrees to $20.3 Million Civil False Claims Act Settlement (Feb. 4, 2021), https://www.justice.gov/opa/pr/florida-businesswoman-pleads-guilty-criminal-health-care-and-tax-fraud-charges-and-agrees-203.

[3]             See Press Release, U.S. Atty’s Office for the Eastern Dist. of PA, Lancaster County Pharmacy and Pharmacist Agree to Resolve Civil Allegations of Dispensing Controlled Substances Without a Prescription and Falsely Billing Medicare for $2.9 Million (Feb. 25, 2021), https://www.justice.gov/usao-edpa/pr/lancaster-county-pharmacy-and-pharmacist-agree-resolve-civil-allegations-dispensing.

[4]             See Press Release, U.S. Atty’s Office for the Middle Dist. of NC, Bioventus Agrees to Pay More Than $3.6 Million to Resolve False Claims Act Violations (Feb. 25, 2021), https://www.justice.gov/usao-mdnc/pr/bioventus-agrees-pay-more-36-million-resolve-false-claims-act-violations.

[5]             See Press Release, U.S. Atty’s Office for the Eastern Dist. of N.C., North Carolina Durable Medical Equipment Corporation Sentenced for $10 Million Healthcare Fraud Scheme, and the Company and Its Owner Agree to Pay Millions to Resolve Related Civil Claims (Mar. 2, 2021), https://www.justice.gov/usao-ednc/pr/north-carolina-durable-medical-equipment-corporation-sentenced-10-million-healthcare.

[6]             See Press Release, U.S. Atty’s Office for the Western Dist. of VA, Allergy and Asthma Associates in Roanoke Pleads Guilty to Criminal Charge; Enters into Civil Resolution Over Health Care Fraud Allegations (Mar. 2, 2021), https://www.justice.gov/usao-wdva/pr/allergy-and-asthma-associates-roanoke-pleads-guilty-criminal-charge-enters-civil.

[7]             See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Ohio Treatment Facilities and Corporate Parent Agree to Pay $10.25 Million to Resolve False Claims Act Allegations of Kickbacks to Patients and Unnecessary Admissions (Mar. 5, 2021), https://www.justice.gov/opa/pr/ohio-treatment-facilities-and-corporate-parent-agree-pay-1025-million-resolve-false-claims.

[8]             See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Former Owners of Telemarketing Company Agree to Pay At Least $4 Million to Resolve False Claims Act Allegations (Mar. 16, 2021), https://www.justice.gov/opa/pr/former-owners-telemarketing-company-agree-pay-least-4-million-resolve-false-claims-act.

[9]            See Press Release, U.S. Atty’s Office for the Eastern Dist. of MI, Cardiologist Dinesh Shah Pays $2 Million to Resolve False Claims Act Allegations Relating to Excessive Testing (Mar. 18, 2021), https://www.justice.gov/usao-edmi/pr/cardiologist-dinesh-shah-pays-2-million-resolve-false-claims-act-allegations-relating.

[10]            See Press Release, U.S. Atty’s Office for the Western Dist. of NC, Owner of Defunct Urine Drug Testing Laboratory Agrees to Pay Over $2 Million to Resolve Allegations of Participation in Kickback Schemes (Mar. 26, 2021), https://www.justice.gov/usao-wdnc/pr/owner-defunct-urine-drug-testing-laboratory-agrees-pay-over-2-million-resolve; Press Release, U.S. Atty’s Office for the Western Dist. of NC, Court Enters $4.5 Million Judgment Against Owner of Defunct Urine Drug Testing Laboratory Resolving Allegations of Participation in Kickback Schemes (Mar. 30, 2021), https://www.justice.gov/usao-wdnc/pr/court-enters-45-million-judgment-against-owner-defunct-urine-drug-testing-laboratory.

[11]            See Press Release, U.S. Atty’s Office for the Eastern Dist. of PA, Bristol-Myers Squibb to Pay $75 Million to Resolve False Claims Act Allegations of Underpayment of Drug Rebates Owed Through Medicaid (Apr. 1, 2021), https://www.justice.gov/usao-edpa/pr/bristol-myers-squibb-pay-75-million-resolve-false-claims-act-allegations-underpayment.

[12]            See Press Release, U.S. Atty’s Office for the Dist. of SC, South Carolina’s Largest Urgent Care Provider and its Management Company to Pay $22.5 Million to Settle False Claims Act Allegations (Apr. 8, 2021), https://www.justice.gov/usao-sc/pr/south-carolina-s-largest-urgent-care-provider-and-its-management-company-pay-225-million.

[13]            See Press Release, U.S. Atty’s Office for the Dist. of MA, Massachusetts Eye and Ear Agrees to Pay $2.6 Million to Resolve False Claims Act Allegations (Apr. 20, 2021), https://www.justice.gov/usao-ma/pr/massachusetts-eye-and-ear-agrees-pay-26-million-resolve-false-claims-act-allegations.

[14]            See Press Release, U.S. Atty’s Office for Middle Dist. of TN, Comprehensive Pain Specialists And Former Owners Agree To Pay $4.1 Million To Settle Fraud Allegations (Apr. 21, 2021), https://www.justice.gov/usao-mdtn/pr/comprehensive-pain-specialists-and-former-owners-agree-pay-41-million-settle-fraud.

[15]            See Press Release, U.S. Atty’s Office for the Southern Dist. of FL, Miami-Based CareCloud Health, Inc. Agrees to Pay $3.8 Million to Resolve Allegations that it Paid Illegal Kickbacks (Apr. 30, 2021), https://www.justice.gov/usao-sdfl/pr/miami-based-carecloud-health-inc-agrees-pay-38-million-resolve-allegations-it-paid.

[16]            See Press Release, U.S. Atty’s Office for the Dist. of SD, Neurosurgeon and Two Affiliated Companies Agree to Pay $4.4 Million to Settle Healthcare Fraud Allegations (May 3, 2021), https://www.justice.gov/usao-sd/pr/neurosurgeon-and-two-affiliated-companies-agree-pay-44-million-settle-healthcare-fraud; Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Neurosurgeon and Two Affiliated Companies Agree to Pay $4.4 Million to Settle Healthcare Fraud Allegations (May 3, 2021), https://www.justice.gov/opa/pr/neurosurgeon-and-two-affiliated-companies-agree-pay-44-million-settle-health-care-fraud.

[17]            See Press Release, U.S. Atty’s Office for the Eastern Dist. of PA, Pharmaceutical Manufacturer Agrees to Pay $12.6 Million to Resolve Allegations it Provided Kickbacks Through Donations to a Third-Party Charity (May 4, 2021), https://www.justice.gov/usao-edpa/pr/pharmaceutical-manufacturer-agrees-pay-126-million-resolve-allegations-it-provided; Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Incyte Corporation to Pay $12.6 Million to Resolve False Claims Act Allegations for Paying Kickbacks (May 4, 2021), https://www.justice.gov/opa/pr/incyte-corporation-pay-126-million-resolve-false-claims-act-allegations-paying-kickbacks.

[18]            See Press Release, U.S. Atty’s Office for the Dist. of AZ, Neurosurgical Associates, LTD and Dignity Health, D/B/A St. Joseph’s Hospital, Paid $10 Million to Resolve False Claims Allegations (May 5, 2021), https://www.justice.gov/usao-az/pr/neurosurgical-associates-ltd-and-dignity-health-dba-st-josephs-hospital-paid-10-million.

[19]            See Press Release, U.S. Atty’s Office for the Southern Dist. of FL, University of Miami to Pay $22 Million to Settle Claims Involving Medically Unnecessary Laboratory Tests and Fraudulent Billing Practices (May 10, 2021), https://www.justice.gov/usao-sdfl/pr/university-miami-pay-22-million-settle-claims-involving-medically-unnecessary; Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, University of Miami to Pay $22 Million to Settle Claims Involving Medically Unnecessary Laboratory Tests and Fraudulent Billing Practices (May 10, 2021), https://www.justice.gov/opa/pr/university-miami-pay-22-million-settle-claims-involving-medically-unnecessary-laboratory; Office of Inspector Gen. of Dep’t of Health and Hum. Servs., Corporate Integrity Agreement Between the Office of Inspector General of the Department of Health and Human Services and University of Miami (2021), https://oig.hhs.gov/fraud/cia/agreements/University_of_Miami_05072021.pdf.

[20]            See Press Release, U.S. Atty’s Office for the Northern Dist. of GA, AlixaRx LLC Agrees to Pay $2.75 Million to Resolve Allegations that it Improperly Dispensed Controlled Substances at Long-Term Care Facilities (May 11, 2021), https://www.justice.gov/usao-ndga/pr/alixarx-llc-agrees-pay-275-million-resolve-allegations-it-improperly-dispensed.

[21]            See Press Release, U.S. Atty’s Office for the Northern Dist. of TX, Dentists to Pay $3.1 Million to Resolve Allegations They Submitted False Claims for Services Not Provided to Underprivileged Children (May 14, 2021), https://www.justice.gov/usao-ndtx/pr/dentists-pay-31-million-resolve-allegations-they-submitted-false-claims-services-not.

[22]            See Press Release, U.S. Atty’s Office for the Eastern Dist. of PA, French Medical Device Manufacturer to Pay $2 Million to Resolve Alleged Kickbacks to Physicians and Related Medicare Open Payments Program Violations (May 19, 2021), https://www.justice.gov/usao-edpa/pr/french-medical-device-manufacturer-pay-2-million-resolve-alleged-kickbacks-physicians.

[23]            See Press Release, U.S. Atty’s Office for the Eastern Dist. of PA, Atlanta-Based National Chain of Skilled Nursing Facilities to Pay $11.2 Million to Resolve Allegations of Providing Substandard Care, Medically Unnecessary Therapy Services (May 21, 2021), https://www.justice.gov/usao-edpa/pr/atlanta-based-national-chain-skilled-nursing-facilities-pay-112-million-resolve.

[24]            See Press Release, U.S. Atty’s Office for the Western Dist. of NY, Upper Allegheny Health System To Pay $2.7 Million To Settle False Claims Act Allegations (May 25, 2021), https://www.justice.gov/usao-wdny/pr/upper-allegheny-health-system-pay-27-million-settle-false-claims-act-allegations.

[25]            See Press Release, U.S. Atty’s Office for the Southern Dist. of TX, Wrongful Billing Results in $2.6M Settlement and 10-Year Exclusion from Federal Health Care Programs (June 8, 2021), https://www.justice.gov/usao-sdtx/pr/wrongful-billing-results-26m-settlement-and-10-year-exclusion-federal-health-care.

[26]            See Press Release, U.S. Atty’s Office for the Middle Dist. of FL, Surgical Care Affiliates And Orlando Surgery Center Agree To Pay $3.4 Million To Settle False Claims Act Liability (June 28, 2021), https://www.justice.gov/usao-mdfl/pr/surgical-care-affiliates-and-orlando-surgery-center-agree-pay-34-million-settle-false.

[27]            See Press Release, U.S. Atty’s Office for the Dist. of CT, Connecticut Electrical Contractor Agrees to Pay $3.2 Million to Resolve Criminal and Civil Investigation (Jan. 8, 2021), https://www.justice.gov/usao-ct/pr/connecticut-electrical-contractor-agrees-pay-32-million-resolve-criminal-and-civil.

[28]            See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Insitu Inc. to Pay $25 Million to Settle False Claims Act Case Alleging Knowing Overcharges on Unmanned Aerial Vehicle Contracts (Jan. 12, 2021), https://www.justice.gov/opa/pr/insitu-inc-pay-25-million-settle-false-claims-act-case-alleging-knowing-overcharges-unmanned.

[29]            See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Concrete Contractor Agrees to Settle False Claims Act Allegations for $3.9 Million (Feb. 17, 2021), https://www.justice.gov/opa/pr/concrete-contractor-agrees-settle-false-claims-act-allegations-39-million.

[30]            See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Federal Contractor Agrees to Pay More Than $6 Million to Settle Overbilling Allegations (Feb. 19, 2021), https://www.justice.gov/opa/pr/federal-contractor-agrees-pay-more-6-million-settle-overbilling-allegations.

[31]            See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, United Airlines to Pay $49 Million to Resolve Criminal Fraud Charges and Civil Claims (Feb. 26, 2021), https://www.justice.gov/opa/pr/united-airlines-pay-49-million-resolve-criminal-fraud-charges-and-civil-claims.

[32]            See Press Release, U.S. Atty’s Office for the Eastern Dist. of PA, SAP Public Services, Inc. to Pay $2.2 Million to Settle False Claims Act Allegations (Mar. 1, 2021), https://www.justice.gov/usao-edpa/pr/sap-public-services-inc-pay-22-million-settle-false-claims-act-allegations.

[33]            See Press Release, U.S. Atty’s Office for D.C., The International Rescue Committee (“IRC”) Agrees to Pay $6.9 Million to Settle Allegations That It Performed Procurement Fraud by Engaging in Collusive Behavior and Misconduct on Programs Funded by the U.S. Agency for International Development (Mar. 19, 2021), https://www.justice.gov/usao-dc/pr/international-rescue-committee-irc-agrees-pay-69-million-settle-allegations-it-performed.

[34]            See Press Release, U.S. Atty’s Office for Southern Dist. of CA, Tungsten Heavy Powder of San Diego Agrees to Pay $5.6 Million to Settle False Claims Act Allegations (Apr. 29, 2021), https://www.justice.gov/usao-sdca/pr/tungsten-heavy-powder-san-diego-agrees-pay-56-million-settle-false-claims-act.

[35]            See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Navistar Defense Agrees to Pay $50 Million to Resolve False Claims Act Allegations Involving Submission of Fraudulent Sales Histories (May 27, 2021), https://www.justice.gov/opa/pr/navistar-defense-agrees-pay-50-million-resolve-false-claims-act-allegations-involving.

[36]            See Press Release, U.S. Atty’s Office for Eastern WA, CH2M Hill Plateau Remediation Company Agrees to Pay More than $3 Million to Settle Hanford Subcontract Small Business Fraud Allegations (June 3, 2021), https://www.justice.gov/usao-edwa/pr/ch2m-hill-plateau-remediation-company-agrees-pay-more-3-million-settle-hanford.

[37]            See Press Release, U.S. Atty’s Office for NJ, Avis Budget Group to Pay $10.1 Million to Settle False Claims Act Allegations for Overcharging United States on Rental Vehicles (June 10, 2021), https://www.justice.gov/usao-nj/pr/avis-budget-group-pay-101-million-settle-false-claims-act-allegations-overcharging-united.

[38]            See Press Release, U.S. Atty’s Office for the Eastern Dist. of VA, Level 3 Communications, LLC Agrees to Pay Over $12.7 Million to Settle Civil False Claims Act Allegations (June 25, 2021), https://www.justice.gov/usao-edva/pr/level-3-communications-llc-agrees-pay-over-127-million-settle-civil-false-claims-act.

[39]            See Press Release, U.S. Atty’s Office for the Eastern Dist. of VA, Armed Forces Services Corporation Pays $4.3 Million to Resolve Anti-Kickback Act and False Claims Act Allegations (June 30, 2021), https://www.justice.gov/usao-edva/pr/armed-forces-services-corporation-pays-43-million-resolve-anti-kickback-act-and-false.

[40]            Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Acting Assistant Attorney General Brian M. Boynton Delivers Remarks at the Federal Bar Association Qui Tam Conference (Feb. 17, 2021), https://www.justice.gov/opa/speech/acting-assistant-attorney-general-brian-m-boynton-delivers-remarks-federal-bar [hereinafter, “Boynton Speech”].

[41]            Id. (emphasis added).

[42]            Id.

[43]            See Press Release, U.S. Atty’s Office for the Eastern Dist. of CA., Eastern District of California Obtains Nation’s First Civil Settlement for Fraud on Cares Act Paycheck Protection Program (Jan. 12, 2021), https://www.justice.gov/usao-edca/pr/eastern-district-california-obtains-nation-s-first-civil-settlement-fraud-cares-act.

[44]            Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Justice Department Takes Action Against COVID-19 Fraud: Historic level of enforcement action during national health emergency continues (Mar. 26, 2021), https://www.justice.gov/opa/pr/justice-department-takes-action-against-covid-19-fraud.

[45]            Boynton Speech, supra note 41.

[46]            Id.

[47]            U.S. Dep’t of Justice, Memorandum from Michael D. Granston, Director, Commercial Litigation Branch, Fraud Section (Jan. 10, 2018), https://drive.google.com/file/d/1PjNaQyopCs_KDWy8RL0QPAEIPTnv31ph/view.

[48]            Id.

[49]            Id.

[50]            Ltr. from Sen. Chuck Grassley to Hon. Merrick B. Garland (Feb. 24, 2021), https://g7x5y3i9.rocketcdn.me/wp-content/uploads/2021/03/2021-02-24-CEG-to-DOJAG-Nominee-Garland-regarding-FCA.pdf [hereinafter, “Grassley Letter”].

[51]            Id.

[52]            Id.

[53]         Department of Justice, Office of the Associate Attorney General Rachel Brand, Memorandum for Heads of Civil Litigating Components and United States Attorneys: Limiting Use of Agency Guidance Documents In Affirmative Civil Enforcement Cases (Jan. 25, 2018), available at https://www.justice.gov/file/1028756/download.

[54]            Id. at 2.

[55]            Id.

[56]            Id.

[57]            Department of Justice, Justice Manual § 1-20.000, available at https://www.justice.gov/jm/1-20000-limitation-use-guidance-documents-litigation.

[58]            Executive Order 13992, 86 Fed. Reg. 7049 (Jan. 20, 2021) (“Revocation of Certain Executive Orders Concerning Federal Regulation”).

[59]            Executive Order 13981, 84 Fed. Reg. 55235 (Oct. 9, 2019) (“Promoting the Rule of Law Through Improved Agency Guidance Documents”).

[60]         Id.

[61]            HHS-OIG, State False Claims Act Reviews, https://oig.hhs.gov/fraud/state-false-claims-act-reviews/.

[62]            Id.

[63]            Id.

[64]            Id.; see also Ltr. from Christi A. Grimm, Principal Deputy Inspector General, to Hon. Keith Ellison, Attorney General of Minnesota (May 27, 2021), https://oig.hhs.gov/documents/false-claims-act/369/Minnesota_False_Claims_Act_Letter_05272021.pdf.

[65]            State False Claims Act Reviews, supra note 62.

[66]            See Montana S.B. No. 345, https://legiscan.com/MT/bill/SB345/2021.

[67]            Id.

[68]            Arkansas H.B. 1623, https://legiscan.com/AR/text/HB1623/2021.

[69]            California Assembly Bill No. 310, https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=202120220AB310.

[70]            Id.

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The following Gibson Dunn lawyers assisted in the preparation of this alert: Jonathan Phillips, Winston Chan, Nicola Hanna, John Partridge, James Zelenay, Sean Twomey, Reid Rector, Allison Chapin, Maya Nuland, Michael Dziuban, and Eva Michaels.

Gibson Dunn lawyers regularly counsel clients on the False Claims Act issues. Please feel free to contact the Gibson Dunn lawyer with whom you usually work, the authors, or any of the following members of the firm’s False Claims Act/Qui Tam Defense Group:

False Claims Act/Qui Tam Defense Group Leaders:
Winston Y. Chan – San Francisco (+1 415-393-8362, [email protected])
Jonathan M. Phillips – Washington, D.C. (+1 202-887-3546, [email protected])

Please also feel free to contact any of the following practice members:

Washington, D.C.
Jonathan M. Phillips (+1 202-887-3546, [email protected]),
F. Joseph Warin (+1 202-887-3609, [email protected])
Joseph D. West (+1 202-955-8658, [email protected])
Robert K. Hur (+1 202-887-3674, [email protected])
Geoffrey M. Sigler (+1 202-887-3752, [email protected]) 

New York
Reed Brodsky (+1 212-351-5334, [email protected])
Mylan Denerstein (+1 212-351-3850, [email protected])
Alexander H. Southwell (+1 212-351-3981, [email protected])
Casey Kyung-Se Lee (+1 212-351-2419, [email protected])

Denver
Robert C. Blume (+1 303-298-5758, [email protected])
Monica K. Loseman (+1 303-298-5784, [email protected])
John D.W. Partridge (+1 303-298-5931, [email protected])
Ryan T. Bergsieker (+1 303-298-5774, [email protected])

Dallas
Robert C. Walters (+1 214-698-3114, [email protected])
Andrew LeGrand (+1 214-698-3405, [email protected])

Los Angeles
Nicola T. Hanna (+1 213-229-7269, [email protected])
Timothy J. Hatch (+1 213-229-7368, [email protected])
Deborah L. Stein (+1 213-229-7164, [email protected])
James L. Zelenay Jr. (+1 213-229-7449, [email protected])

Palo Alto
Benjamin Wagner (+1 650-849-5395, [email protected])

San Francisco
Winston Y. Chan (+1 415-393-8362, [email protected])
Charles J. Stevens (+1 415-393-8391, [email protected])

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One of the most common provisions in an acquisition agreement is the “effect of termination” provision. As its name implies, the provision expresses the agreement of the parties regarding what, if any, liability each party will have to the other after the agreement is terminated. It is common for the provision to state that, if the agreement is terminated, neither party will have any liability to the other except with respect to certain other provisions of the agreement, such as the confidentiality, governing law, interpretive and other boilerplate provisions, that are necessary to maintain the confidentiality of each party’s information after the agreement is terminated and to maintain the governing terms of the agreement in the event of a post-termination contractual dispute or a dispute regarding the validity of the termination itself. It is also common for the effect of termination provision to include a carve-out stating that termination of the agreement will not relieve the parties from certain pre-termination breaches of the agreement.

The scope of the pre-termination breaches subject to the carve-out typically is, and should be, scrutinized in transactions in which there is significant risk of the deal being terminated, such as due to a failure to receive regulatory approval or a debt financing failure. For example, in transactions in which the buyer is a financial sponsor and is relying on the availability of debt financing to pay the purchase price, the seller typically wants to ensure that, if the buyer fails to close the acquisition when required by the agreement, it has the ability to (i) keep the agreement in place and seek specific performance of the agreement to force the buyer to close, which may be limited to circumstances in which the buyer’s debt financing is available (i.e., a synthetic debt financing condition), or (ii) terminate the agreement and recover damages, often in the form of a reverse termination fee, from the buyer. The effect of termination provision should not purport to foreclose recovery of the reverse termination fee, which in some transactions serves as liquidated damages and a cap on the buyer’s liability for pre-termination breaches. In other transactions, the effect of termination provision may also permit the seller to recover damages beyond or irrespective of a reverse termination fee, frequently limited to circumstances in which there was an “intentional” or “willful” pre-termination breach by the buyer of its obligations.

In an increasingly competitive M&A market, it has become more common for buyers to agree to bear regulatory approval risk and for financial buyers to agree to backstop payment of the entire purchase price with equity in lieu of the synthetic debt financing condition or reverse termination fee construct described above. In these contexts, continued and careful consideration of a buyer’s liability for pre-termination breaches of a purchase agreement is critical. The scope of liability for pre-termination breaches also deserves attention in light of the now widespread use of representation and warranty insurance and transaction structures in which sellers may not expect any liability for breaches of representations and warranties, absent fraud.

The following is a summary of issues for buyers and sellers to consider when negotiating these issues in light of current and evolving M&A market dynamics.

Defining the Appropriate Pre-Termination Breach Standard

Although it is common for the effect of termination provision to include a carve-out stating that termination of the agreement will not relieve the parties from pre-termination breaches of the agreement, the relevant standard for defining the scope of those pre-termination breaches is often inconsistent in practice. Some agreements define the standard as any pre-termination breach that is “intentional and willful,” “knowing and intentional,” “intentional,” “willful and material,” or “willful.” Sometimes these terms are defined, sometimes not. Sometimes the standard distinguishes breaches of covenants, on the one hand, from breaches of representations and warranties, on the other hand, and sometimes it does not. Finally, some agreements do not contain a specific standard and provide that “any” pre-termination breach is carved-out from the effect of termination provision.

This lack of uniformity, coupled with contending interpretations after a broken transaction, can lead to unpredictable or undesirable outcomes. For example, in Hexion Specialty Chemicals, Inc. v. Huntsman Corp., 965 A.2d 715 (Del. Ch. 2008), the Delaware Court of Chancery interpreted a “knowing and intentional” breach of a merger agreement as a deliberate act that in and of itself is a breach of the agreement “even if breaching was not the conscious object of the act.” This could lead to an undesirable outcome for buyers, who are wary of unintentionally breaching their obligations to obtain regulatory approvals or debt financing that can be ripe for second-guessing in the context of a broken transaction. They should consider defining the standard to include only an action taken with the actual knowledge that the action would result in a breach of the agreement.

Sellers, on the other hand, should consider defining the standard to include specifically the failure of the buyer to close the transaction when required by the agreement or, if the transaction involves a reverse termination fee that does not serve as liquidated damages, the failure of the buyer to close the transaction if the debt financing is available. In transactions with a financial buyer, the importance of this issue and the relevant standard may be overlooked if there is a last minute change to a full equity backstop structure in lieu of a traditional reverse termination fee structure.

Distinguishing Breaches of Covenants from Breaches of Representations and Warranties

As stated earlier, effect of termination provisions often do not distinguish between liability for pre-termination breaches of covenants and breaches of representations and warranties. But if the parties have negotiated a “willful” breach or similar standard to define the scope of their liability for pre-termination breaches, what does it mean to “willfully” breach a representation and warranty? As the Delaware court did in Hexion, some may interpret the term “willful” to imply a deliberate action, which may better describe a breach of a covenant, rather than a breach of a representation or warranty. As a result, the parties should consider distinguishing breaches of covenants from breaches of representations and warranties when formulating the appropriate standard.

Aligning Expectations in Transactions with Representation and Warranty Insurance

In addition, in transactions involving representation and warranty insurance, it has become increasingly common for sellers to expect no liability for breaches of their representations and warranties in the purchase agreement, absent fraud. That expectation drives the parties to scrutinize the survival or non-survival of the representations and warranties if the transaction closes, but the parties may overlook the effect of termination provision, which would apply in a broken transaction. A seller who expects no liability for breaches of representations and warranties may insist that the effect of termination carve-out not only distinguish breaches of covenants from breaches of representations and warranties, but also provide that liability for pre-termination breaches of representations and warranties will be limited to only instances of fraud.

In summary, although the effect of termination provision may often be considered akin to boilerplate provisions in a contract, astute dealmakers should focus on the carve-outs and ensure that they best serve their client’s interests under the particular circumstances of the transaction.

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Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these issues. For further information, please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Mergers and Acquisitions or Private Equity practice groups, or the authors:

Robert B. Little – Dallas (+1 214-698-3260, [email protected])
Joseph A. Orien – Dallas (+1 214-698-3310, [email protected])

Please also feel free to contact the following practice group leaders:

Mergers and Acquisitions Group:
Eduardo Gallardo – New York (+1 212.351.3847, [email protected])
Robert B. Little – Dallas (+1 214-698-3260, [email protected])
Saee Muzumdar – New York (+1 212.351.3966, [email protected])

Private Equity Group:
Richard J. Birns – New York (+1 212-351-4032, [email protected])
Scott Jalowayski – Hong Kong (+852 2214 3727, [email protected])
Ari Lanin – Los Angeles (+1 310-552-8581, [email protected])

© 2021 Gibson, Dunn & Crutcher LLP

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

The change in presidential administration has not detoured the institutional momentum of the use of non-prosecution agreements (“NPAs”) and deferred prosecution agreements (“DPAs”) in the first half of 2021.[1] Eighteen agreements have been executed to date, which is in line with recent mid-year marks.

In this client alert, the 24th in our series on NPAs and DPAs, we:

1. report key statistics regarding NPAs and DPAs from 2000 through the present;
2. consider the effect of the COVID-19 pandemic on NPAs and DPAs;
3. analyze the effect of the Department of Justice’s (“DOJ’s”) 2020 corporate compliance program guidelines;
4. survey the latest developments in corporate whistleblower programs;
5. discuss notable DPA conclusions;
6. outline key legislative developments;
7. summarize 2021’s publicly available corporate NPAs and DPAs; and finally
8. outline some key international developments affecting NPAs and DPAs.

One fundamental trend is clear: The NPA/DPA vehicles are being utilized by a broad swath of DOJ and U.S. Attorneys’ Offices. This underscores the broad acceptance of these agreements as a path to resolve complicated fact patterns.

Chart 1 below shows all known corporate NPAs and DPAs from 2000 through 2021 to date. Despite the COVID-19 pandemic, 2020 saw a total of 38 corporate DPAs and NPAs—reflecting an uptick from each of 2018 and 2019, and the highest number on record in a single year since 2016. Often on the eve of a DOJ administration change, agreements are entered because organizations fear the deal terms might change. Although 2021 to date lags slightly behind 2020 in terms of the number of agreements as of the mid-year mark, 2021 is on pace to be another active year in this space.

Chart 2 reflects total monetary recoveries related to NPAs and DPAs from 2000 through 2021 to date. The $9.4 billion in total monetary recoveries related to NPAs and DPAs in 2020 was the highest annual amount in history. At approximately $3.4 billion, recoveries associated with NPAs and DPAs thus far in 2021 slightly lag behind the amount recovered at this time in both 2020 (~$5.6 billion) and 2019 (~$4.7 billion) though the numbers are in line with the average recovery at the midpoint over the last 10 years. Total recoveries so far in 2021 are still more than 50 percent (57%) of the full annual average recoveries of approximately $5.9 billion in the last decade. Depending on developments in the second half of this year, total recoveries for 2021 could show a return to more typical levels, rather than a continuation of the increases in recent years.

Fifteen of the 18 agreements thus far in 2021 have been DPAs, reflecting a continuation of the trend toward DPAs as illustrated in Chart 3 below and discussed in both our 2020 Mid-Year Update and 2020 Year-End Update. Although the trend toward DPAs could signal a shift toward requiring self-disclosure to achieve an NPA, this year’s NPAs highlight the importance of fact-specific circumstances and mitigating factors: self-disclosure alone is not dispositive.

Only three companies have received NPAs to date in 2021:  SAP SE (“SAP”), Avnet Asia Pte. Ltd. (“Avnet Asia”), and United Airlines, Inc. (“United”). Of the three, only SAP received voluntary self-disclosure credit. Notably, two of the three NPAs, involving SAP and Avnet Asia, involved DOJ’s National Security Division (“NSD”), which introduced a new voluntary disclosure policy in late 2019 that provides for a presumption toward NPAs for participating companies. Although Avnet Asia did not receive voluntary self-disclosure credit, the language of the NPA suggests that it may have made a self-disclosure to DOJ after prosecutors initiated their own investigation.

A second emerging trend in 2021 that appears to be consistent with 2020 is a steep decline in compliance monitors. Only one of the 18 agreements to date, the DPA with State Street Corporation (“State Street”), imposes an independent corporate monitor. Similarly, in 2020, only 2 out of 38 resolutions imposed an independent monitor or independent auditor. In contrast, in 2019, 7 out of 31 resolutions imposed some form of an independent compliance monitor.

Time will tell whether, under the Biden Justice Department, these trends will continue to hold true for the remainder of the year and beyond.

Key Developments in 2021 to Date

Enforcement in the Year of COVID-19 and Beyond

As the legal world progresses toward normalcy after an unprecedented 18 months, the mid-year mark of 2021 provides an opportunity to look back at how the COVID-19 pandemic has affected government enforcement efforts, and whether the unique legal risks facing companies managing COVID-19 will be reflected in enforcement activity going forward.

Although a dip in overall enforcement was expected by many at the start of the pandemic, that theory is not supported by the statistics. With the long gestation period of most corporate enforcement cases, the full impact of COVID-19, if any, might not be quantifiable until a later date. Nor does the broader enforcement landscape in 2020 reflect a significant downward trend. First, DOJ’s Civil Frauds Section reported 922 total new matters in 2020, the highest number since the Civil Division began reporting that statistic in 1987, and a 15% increase from 2019.[2] Meanwhile, DOJ Antitrust reported 20 new criminal antitrust matters filed in 2020, which, while a decrease from the 26 new matters filed in 2019, is up from the 18 filed in 2018, and is generally consistent with a 10-year downward trend in criminal antitrust enforcement.[3] If any enforcement arm can be said to have reported a significant dip in enforcement during the pandemic year, it is the SEC, which disclosed 715 new enforcement actions filed in 2020—a 17% decrease from 2019, a 13% decrease from 2018, a 5% decrease from 2017, and the lowest number on record since 2013.[4] However, although new enforcement actions were down, the SEC set a high-water mark for total financial remedies in 2020 of $4.68 billion.[5] Overall statistics from the first half of 2021 are not yet publicly available, but early signs indicate that at least DOJ is continuing its “[h]istoric level of enforcement.”[6]

Still, although the numbers may not reflect an annual dip in enforcement activity, the pandemic at least temporarily disrupted the work of government enforcement arms, as it did for much of the corporate world. For example, in the SEC’s 2020 Annual Report, the then-Enforcement Division Director cited the unique challenges of adapting to telework for the Commission, and stated that “in the early months . . . many of us spent the bulk of our time focused on learning and guiding our staff how to effectively do our job remotely. But we moved past that initial period of uncertainty and ultimately achieved a remarkable level of success, including bringing more than 700 enforcement cases during the fiscal year.”[7]

The more significant effects of the pandemic from an enforcement perspective will be forward looking—namely, how will the unique legal risks created in the last year shift enforcement priorities? As early as May 2020, the SEC had announced a “Coronavirus Steering Committee” to identify and respond to COVID-related legal risks.[8] And DOJ also made it clear that monitoring the use of significant public funds doled out by COVID-19 response programs such as the Paycheck Protection Program and Coronavirus Aid, Relief, and Economic Security Act would be a priority.[9] The then-Principal Deputy Assistant Attorney General said “we will energetically use every enforcement tool available to prevent wrongdoers from exploiting the COVID-19 crisis.”[10]

The results of those priorities are still taking shape. Thus far, DOJ’s publicly disclosed COVID-related enforcement efforts, while significant, have seemingly focused on individual defendants.[11] For example, in a May 2021 announcement by DOJ of charges brought in connection with an alleged nationwide COVID-related fraud scheme, which allegedly resulted in losses exceeding $143 million, all of the 14 defendants charged were individuals.[12]  DOJ has yet to reach a public NPA or DPA with any company for criminal fraud related to COVID-19, although, as discussed in our 2020 Year-End Update, DOJ has entered into a pair of DPAs relating to price-gouging consumers of personal protective equipment. In light of DOJ’s interest in prosecuting COVID-19 related fraud cases and the corporate nature of the Paycheck Protection Program, it is likely that the lack of any publicly disclosed corporate resolutions to date reflects the greater complexity and longer timeline involved in investigating and prosecuting corporate cases.

That enforcement agencies are interested in pursuing COVID-related fraud by corporations, as well as individuals, is reflected in the SEC’s enforcement efforts throughout 2020 (described in our 2020 Year-End Securities Enforcement Update). At the very end of 2020, for example, the SEC brought its first settled charges (though not a DPA or NPA) with a company in response to a different COVID-related risk—misleading disclosures about the effects of the pandemic on a company’s financial condition—with The Cheesecake Factory Incorporated, which Gibson Dunn covered in a client alert.[13] More corporate COVID-related resolutions may follow, as investigations commenced in the last year reach their conclusions. We will continue to follow how enforcement involving COVID-related conduct develops.

June 2020 Corporate Compliance Program Guidance in Practice

In June 2020, DOJ updated the Criminal Division’s guidance on the “Evaluation of Corporate Compliance Programs,” a development Gibson Dunn discussed in a prior client alert and in our 2020 Year-End Update. Although DOJ has not commented officially on the guidance since the new administration took office, resolutions from the first half of 2021 may provide a window into how the updated guidance is playing out in practice.

The June 2020 guidance emphasized DOJ’s commitment to fact-specific resolutions by calling for “a reasonable, individualized determination in each case.”[14] That emphasis has made its way into several negotiated terms relating to specific corporate compliance programs so far in 2021, in some instances continuing a trend started in 2020 in the immediate wake of the updated guidance. Although DOJ often uses the same template as a starting point in many of its resolutions to detail the requirements for corporate compliance programs, context-specific requirements are appearing in resolutions.

For example, the Epsilon DPA follows the trend of fact-specific resolutions, adding a category for “Consumer Rights” not found in the compliance program requirements incorporated in other resolutions.[15] In light of DOJ’s allegation that employees at Epsilon sold customer data to clients that were engaging in consumer fraud, the Epsilon DPA requires Epsilon to provide individual customers with processes to both request the individual’s data that Epsilon may sell to clients and to request that Epsilon not sell the individual’s data at all.[16]

By contrast, the SAP NPA alleges that SAP acquired various companies but “made the decision to allow these companies to continue to operate as standalone entities, without being fully integrated into SAP’s more robust export controls and sanctions compliance program,” and despite “[p]re-acquisition due diligence . . . [that] identified that th[e] . . . companies lacked comprehensive export control and sanctions compliance programs, policies, and procedures.”[17]  Because of this allegation, and given that M&A due diligence was a focus of the June 2020 guidance, SAP’s NPA requires it to audit newly acquired companies within 60 days of acquisition and inform DOJ about any potential violations.[18] This requirement is much more stringent than DOJ’s 2008 Opinion Release (discussed in our 2008 Mid-Year Update) regarding FCPA diligence in the context of M&A transactions.[19]

Additionally, both of the above agreements contain a provision for the continued monitoring and testing of the corporate compliance programs. The June 2020 guidance emphasizes that companies’ risk assessments should be based on “continuous access to operational data and information across functions,” as opposed to just providing a “snapshot in time.”[20] The Epsilon DPA provides for “periodic reviews and testing” of the company’s compliance policies, while the SAP NPA provides for continued maintenance and enhancement of its internal controls.[21]  In line with the previous sections, each of these provisions is fact-specific: Epsilon must review its protection of consumer data; and SAP, its export controls and sanctions compliance programs.[22]

In sum, it appears that the June 2020 guidance from DOJ on corporate compliance programs has had its intended effect: DOJ and U.S. Attorneys’ Offices are, at least in some instances, tailoring the programs for individualized situations, and other foci of the June 2020 guidance are making their way into resolutions. Moving forward, we expect to see more agreements tailored to the individual circumstances of each company, drawing on the principles articulated in the June 2020 guidance.

Developments in Whistleblower Programs

On February 23, 2021, the SEC announced a $9.2 million award to a whistleblower who provided information that led to a successful DPA or NPA with the DOJ.[23] The order redacted information that would identify the type of agreement and fraud.[24] This marks the first SEC whistleblower award based on a DPA or NPA since amendments that expanded eligibility under the Whistleblower Rules[25] to include whistleblowers whose information leads to a DPA or NPA took effect in December 2020.[26] According to the award order, the whistleblower previously provided “significant information” about an ongoing fraud that resulted in DOJ charges.[27] The information facilitated “a large amount of money to be returned to investors harmed by the fraud.”[28]

The SEC whistleblower amendments reflect the recent expansion of whistleblower provisions in other contexts, in particular the anti-money laundering (“AML”) and antitrust areas. We covered two key developments in this regard—the passage of the Anti-Money Laundering Act of 2020, and the passage of the Criminal Antitrust Anti-Retaliation Act of 2020, here and here, respectively. With more avenues for government agencies to issue awards to people who report potential violations, we can expect to see an uptick in enforcement activity in the relevant areas.

DPA Conclusions

The first half of 2021 saw three notable DPA conclusions, with MoneyGram International, Inc. (“MoneyGram”), Standard Chartered Bank (“Standard Chartered”), and Zimmer Biomet (“Zimmer”) each released from very old and frequently extended DPAs entered into in 2012. Both the MoneyGram and Standard Chartered DPAs have been the subject of multiple extensions, as we noted in a prior client alert, and reflect the challenges companies often face even after a resolution is reached. On April 20, 2021, MoneyGram’s monitor certified that the company’s AML compliance program was “reasonably designed and implemented to detect and prevent fraud and money laundering and to comply with the Bank Secrecy Act.”[29] On May 4, 2021, DOJ and MoneyGram jointly filed a status report, stating that the parties were not seeking a further extension of the DPA.[30] The DPA terminated on May 10, 2021.

Standard Chartered reached the end of its monitorship, which was introduced in the 2014 amendment of its DPA, as scheduled in March 2019.[31] In April 2019, however, Standard Chartered agreed to a further amended DPA to resolve additional allegations, described in our 2019 Year-End Update. The 2019 amended DPA did not impose a monitor on Standard Chartered.[32] In May 2021, DOJ acknowledged that Standard Chartered had “complied with its obligations under the 2019 DPA,” and the DPA terminated.[33]

Zimmer’s DPA, which terminated in February 2021, related to pre-acquisition conduct by Biomet, Inc. (“Biomet”).[34] Biomet entered into the 2012 DPA in connection with allegations that it had violated the anti-bribery and accounting provisions of the FCPA.[35] Those allegations related to improper payments Biomet and its subsidiaries made between 2000 and 2008 in China, Argentina, and Brazil.[36] As part of its 2012 DPA, Biomet agreed to be subject to a monitor for 18 months.[37]  The monitor was extended, however, after Biomet discovered additional potentially improper activities in Mexico and Brazil. In 2017, Zimmer entered into a new DPA with the DOJ relating to alleged violations of the FCPA’s internal controls provisions, under which it acknowledged that Biomet had failed to comply with the terms of the 2012 DPA.[38] As part of the 2017 DPA, Zimmer agreed to appoint a monitor for three years.[39] That monitorship concluded in August 2020, and its conclusion was followed by the termination of the DPA in February 2021.

Legislative Developments

In January, Congressman Gary Palmer of Alabama introduced the Settlement Agreement Information Database Act of 2021.[40] If passed, the Act would require Executive agencies to submit any information regarding settlement agreements to a public database.[41] The bill defines a “settlement agreement” broadly¾it includes any agreement, including a consent decree that (1) “is entered into by an Executive agency,” and (2) “relates to an alleged violation of Federal civil or criminal law.”[42] The submission must include the specific violations that provide the basis for the action, the settlement amount and classification as a civil penalty or criminal fine, a description of any data or methodology used to justify the agreement’s terms, the length of the agreement, and other identifying factors.[43] An agency is exempt from filing a submission if the agreement is subject to a confidentiality provision or if the information could be withheld under the Freedom of Information Act (“FOIA”).[44] The bill passed the House on January 5, 2021 and was referred to the Senate Committee on Homeland Security and Governmental Affairs.[45] The bill echoes a reporting requirement imposed on DOJ via a provision in the National Defense Authorization Act, whereby DOJ is now required to report to Congress annually on DPAs and NPAs concerning the Bank Secrecy Act.[46] We covered that development in more detail in our Year-End 2020 Update.

Congressman Palmer introduced the new bill after DOJ did not respond to an April 2020 FOIA request and subsequent administrative appeal in September 2020.[47] The FOIA request, which Professor Jon Ashley of the University of Virginia School of Law made to DOJ, sought all DPAs and NPAs entered into by the government since 2009 for the law school’s Corporate Prosecution Registry.[48] The registry houses more than 3,500 agreements, but Professor Ashley and some members of Congress believe that more agreements exist that have not been disclosed.[49] The bill follows Congressman Jamie Raskin’s August 2020 request to DOJ that it release a full list of all NPAs and DPAs since 2009—a call that has gone unanswered to date.[50] Although some observers believe that DOJ already has its own centralized “database” of agreements that could all be disclosed at once, in reality, the varying requirements for Main Justice involvement in and approval of different types of investigations and prosecutions[51] could mean that non-public agreements have been entered into by U.S. Attorneys’ Offices, for example, without being formally reported to DOJ. Gibson Dunn does not believe that a master database exists. To our knowledge, there is no regulatory or policy obligation for the various DOJ units, including the U.S. Attorneys’ Offices, to report these resolutions.

2021 Agreements to Date

Amec Foster Wheeler Energy Limited (DPA)

On June 24, 2021, Amec Foster Wheeler Energy Limited (“AFWEL”) entered into a three-year DPA with the Fraud Section and the U.S. Attorney’s Office for the Eastern District of New York.[52] The DPA stated that AFWEL engaged in a conspiracy to violate the anti-bribery provision of the FCPA in connection with the use of a third-party sales agent in Brazil.[53] The DPA imposed a penalty of approximately $18.4 million, which will be offset by amounts to be paid to UK and Brazilian authorities pursuant to parallel resolutions.[54]

The DPA granted AFWEL full cooperation credit and did not impose a monitor.[55]  Under the terms of the agreement, AFWEL must report annually to DOJ on its compliance program.[56] The AFWEL DPA is one of two FCPA-related DPAs announced during the first half of this year. The other resolution involved Deutsche Bank AG (see below). Both companies were represented by Gibson Dunn.

Argos USA LLC (DPA)

On January 4, 2021, Argos USA LLC (“Argos”), a Georgia-based producer and supplier of ready-mix concrete, entered into a three-year DPA with the DOJ Antitrust Division for participation in a conspiracy to fix prices, rig bids, and allocate markets in and around the Southern District of Georgia.[57] The sole count against Argos alleged that employees of Argos and other ready-mix concrete companies coordinated and issued price-increase letters to customers, allocated jobs in coastal-Georgia, charged fuel surcharges and environmental fees, and submitted non-competitive bids to customers in a conspiracy lasting from 2010 until July 2016.[58]

According to the DPA, Argos, through its employees, conspired with others in violation of the Sherman Act, 15 U.S.C. § 1 from around October 2011 to July 2016, after they acquired the assets of a concrete supplier in Southern Georgia and in doing so employed two individuals also charged in the conspiracy.[59] Argos agreed to pay more than $20 million in a criminal penalty.[60] As part of the DPA, Argos also has agreed to cooperate in the Division’s ongoing criminal investigation and prosecution of others involved in the conspiracy.[61] The company has implemented and agreed to maintain a compliance and ethics program designed to prevent and detect antitrust violations, submit annual reports to the Division regarding remediation and implementation of its program, and to periodically review its compliance program and make adjustments as needed.[62]

Argos was the second company to be charged in this investigation, following Evans Concrete, LLC.[63] An indictment was also returned for the former Argos employees and two other individuals.[64]

Avanos Medical, Inc. (DPA)

On July 6, 2021, Avanos Medical, Inc. (“Avanos”) entered into a three-year DPA with the Fraud Section of DOJ’s Criminal Division, the Consumer Protection Branch (“CPB”) of DOJ’s Civil Division, and the U.S. Attorney’s Office for the Northern District of Texas.[65] The DPA resolved allegations that Avanos violated the Food, Drug, and Cosmetic Act (“FDCA”) by fraudulently misbranding surgical gowns.[66] In particular, the government alleged that Avanos’s labeling and branding of the gowns as compliant with a 2012 version of an AAMI standard for barrier protection was false and misleading.[67]

The DPA granted Avanos full cooperation credit and noted the company’s “extensive remedial measures,” including changes to its manufacturing process, devotion of additional resources to its compliance function, creation of “a stand-alone Compliance Committee of the Board of Directors,” and appointment of a full-time Chief Ethics and Compliance Officer “who reports directly to the CEO.”[68] The DPA also recognized Avanos’s spinoff of its surgical gown business in 2018, and cited that development as one of the reasons for which DOJ “determined that an independent compliance monitor was unnecessary.”[69] Avanos did not receive voluntary disclosure credit.[70]

Under the DPA, Avanos will pay a total of $22,228,000, comprised of $12.6 million in fines, $8,939,000 in compensation to purchasers of the gowns who “were directly and proximately harmed” by the company’s alleged conduct, and $689,000 in disgorgement.[71] The compensation to purchasers will be administered by a Victim Compensation Claims Administrator selected from a list of three candidates to be proposed by Avanos.[72]

Avnet Asia Pte. Ltd. (NPA)

On January 21, 2021, Avnet Asia Pte. Ltd. (“Avnet”), a Singapore distributor of electronic components and software, entered into a two-year NPA with the U.S. Attorney’s Office for the District of Columbia and DOJ NSD to resolve allegations related to alleged criminal conspiracies carried out by former employees.[73] Specifically, Avnet admitted in the NPA that two former employees (including a separately indicted sales account manager) engaged in two distinct conspiracies—one between 2007 and 2009, the other between 2012 and 2015—to violate U.S. export laws by shipping U.S. power amplifiers to Iran and China.[74] In the NPA, Avnet accepted responsibility for the acts of its employees and further admitted that neither the company nor any of its employees had applied for an export license from U.S. authorities.[75]

As part of the NPA, Avnet agreed to pay a $1.5 million financial penalty, to continue cooperating with any investigations concerning the underlying conduct, to provide all unprivileged documents pertaining to relevant investigations, and to make current and former employees available for interviews and testimony.[76] Avnet further agreed to implement a compliance program aimed at detecting and preventing violations of U.S. export laws and economic sanctions, and to provide updates on its compliance with such laws and sanctions on two occasions during the NPA’s term (at 10 and 20 months after the NPA’s execution).[77]

DOJ credited Avnet for its cooperation during the investigation (including disclosing the results of internal investigations and producing relevant documents) and for its significant remediation efforts (including substantial improvements to its export compliance program).[78] Avnet did not receive voluntary disclosure credit because it did not disclose the underlying misconduct prior to the commencement of the government’s investigation.[79] Relatedly, the U.S. Department of Commerce announced on January 29, 2021 that Avnet had agreed to pay an additional $1.7 million as part of a $3.2 million resolution of violations of the Export Administration Regulations.[80]

Bank Julius Baer & Co. Ltd. (DPA)

On May 27, 2021, Bank Julius Baer & Co. Ltd. (“BJB”), a Swiss bank with international operations, entered into a three-year DPA with DOJ’s Money Laundering and Asset Recovery Section (“MLARS”) and the United States Attorney’s Office for the Eastern District of New York.[81] DOJ alleged that from approximately February 2013 through May 2015, BJB conspired with sports marketing executives to launder through the United States at least $36 million in bribes to soccer officials in exchange for broadcasting rights to soccer matches, including the World Cup.[82]

Under the DPA, BJB agreed to pay a monetary penalty of approximately $43.32 million and forfeit $36.37 million.[83] DOJ stated that it reached this resolution with BJB based on a number of factors, including BJB’s 2016 DPA with DOJ which resolved allegations of “criminal violations relating to [BJB’s] efforts to [assist] U.S. taxpayers in evading U.S. taxes.”[84]

BJB received a 5% reduction off the bottom of the applicable U.S. Sentencing Guidelines fine range for its significant efforts to remediate its compliance program.[85] DOJ specifically acknowledged BJB’s three-year, $112 million AML initiative and “Know Your Client” upgrade launched in 2016; a large-scale AML transaction monitoring and risk management program launched in 2018; and the Bank’s 2019 initiative aimed at strengthening globally the Bank’s risk managements and risk tolerance framework.[86] BJB did not receive voluntary disclosure credit or cooperation credit.[87] The DPA noted the government’s determination that the appointment of an independent compliance monitor to oversee the remediation of BJB’s AML program by Swiss authorities made appointment of an additional monitor unnecessary.[88]

Berlitz Languages, Inc. (DPA) and Comprehensive Language Center, Inc. (DPA)

On January 19, 2021, Berlitz Languages, Inc. (“Berlitz”) and Comprehensive Language Center, Inc. (“CLCI”) entered into two separate, three-year DPAs with the DOJ Antitrust division for charges relating to a conspiracy to defraud the United States through non-competitive bidding processes in 2017[89] in connection with a multi-million dollar contract with the National Security Agency (“NSA”) to provide foreign language training services.[90] DOJ charged the companies with a conspiracy to defraud by “impending, impairing, obstructing, and defeating competitive bidding” in violation of 18 U.S.C. § 371.[91] Specifically, the companies facilitated providing false and misleading bid information to the NSA.[92]

In 2017, the NSA issued a bidding process to award up to three contracts spanning from 2017 until 2022 to provide foreign language training programs in six different locations across the United States.[93] NSA awarded the contracts to Berlitz and CLCI, along with another third-party company, in 2017, which entitled each to bid on individual delivery orders later awarded in December 2017.[94] To qualify for awards of delivery orders, the company had to be deemed “technically acceptable,” by having a facility in the location in which it could conduct the foreign language training.[95] The DPA alleged that the two companies conspired with each other to fraudulently obtain the contracts and delivery orders by falsely representing CLCI’s ability to perform and to suppress competition between Berlitz and CLCI.[96] Specifically, the companies admitted to falsely and misleadingly claiming that CLCI could perform services at a facility in Odenton, Maryland when that facility was owned and operated by Berlitz.[97] In exchange, CLCI then agreed to not bid against Berlitz when Berlitz bid on delivery orders calling for training in or near Odenton, Maryland.[98]

Under the DPA, the companies agreed to pay criminal penalties of around $140,000 each and agreed that they were jointly and severally liable to pay victim compensation to the NSA of approximately $57,000.[99] As part of the DPA, the companies admitted to participating in the alleged conspiracy, agreed to cooperate in any related investigation or prosecution, and implemented or agreed to implement and maintain compliance controls and a compliance and ethics program designed to prevent and detect fraud and antitrust violations.[100] The companies also agreed to periodically review the program and make adjustments as needed.[101]

The Boeing Company (DPA)

On January 7, 2021, The Boeing Company (“Boeing”) and the DOJ Fraud Section, as well as the U.S. Attorney’s Office for the Northern District of Texas, entered into a three-year DPA to resolve a criminal charge of conspiracy to defraud the Federal Aviation Administration’s (“FAA’s”) Aircraft Evaluation Group regarding an aircraft part called the Maneuvering Characteristics Augmentation System (“MCAS”) that affected the flight control system of the Boeing 737 MAX.[102] Pursuant to the DPA, Boeing agreed to pay approximately $2.5 billion, which includes a $243.6 million penalty and $1.77 billion in compensation to Boeing’s airline customers, and to establish a $500 million crash-victim beneficiaries fund.[103]

The DPA acknowledged Boeing’s remedial measures, including creating an aerospace safety committee of the Board of Directors to oversee Boeing’s policies and procedures governing safety and its interactions with the FAA and other government agencies and regulators,[104] and awarded partial credit for cooperation.[105]

Colas Djibouti SARL (DPA)

On February 17, 2021, Colas Djibouti SARL (“Colas Djibouti”)—a French concrete contractor and wholly owned subsidiary of French civil engineering company, Colas SA—entered into a DPA with the U.S. Attorney’s Office for the Southern District of California to resolve allegations concerning Colas Djibouti’s sale of contractually non-compliant concrete used to construct U.S. Navy airfields in the Republic of Djibouti.[106] Specifically, DOJ alleged that Colas Djibouti (1) knowingly provided substandard concrete for use on U.S. Navy airfield construction projects pursuant to contracts between Colas Djibouti and the U.S. Navy and (2) submitted documents and claims containing false representations about the composition and characteristics of the concrete to the United States.[107]

Under the terms of the DPA, Colas Djibouti agreed to plead to a one-count information of conspiracy to commit wire fraud under 18 U.S.C § 1349 and to pay approximately $10 million in restitution, a fine of $2.5 million, and forfeiture in the amount of $8 million (to be credited to the $10 million owed in restitution).[108]

In connection with the same underlying conduct, Colas Djibouti simultaneously agreed to a $3.9 million settlement of civil allegations that it violated the False Claims Act.[109] Under the terms of the settlement agreement, Colas Djibouti agreed to cooperate with any DOJ investigation of other individuals and entities not covered by the DPA and settlement agreement in connection with the underlying conduct.[110] Colas Djibouti agreed to encourage its former directors, officers, and employees to give interviews and testimony, and to furnish DOJ with non-privileged documents and records related to any investigation of the underlying conduct.[111] The civil settlement credited approximately $1.9 million of Colas Djibouti’s payment as restitution under the DPA and obligated Colas Djibouti to make a net payment of approximately $1.9 million.[112]

Deutsche Bank AG (DPA)

On January 8, 2021, Deutsche Bank AG (“Deutsche Bank”) entered into a three-year DPA and agreed to pay approximately $123 million in criminal penalties, disgorgement, and victim compensation to resolve FCPA and commodities fraud investigations.[113] The resolution was coordinated with the SEC.

The FCPA investigation concerned payments to consultants.[114] The commodities investigation related to allegations that Deutsche Bank precious metals traders placed orders with the intent to cancel the orders prior to execution.[115]

The Bank received full credit for cooperating with the investigation, including making detailed factual presentations and producing extensive documentation.[116]  The DPA also acknowledged remedial measures taken by the Bank, including “conducting a robust root cause analysis and taking substantial steps to remediate and address the misconduct, including significantly enhancing its internal account controls, its anti-bribery and anti-corruption program, and its Business Development Consultants [] program on a global basis.”[117]

Epsilon Data Management LLC (DPA)

On January 19, 2021, marketing company Epsilon Data Management LLC (“Epsilon”) entered into a 30-month DPA with DOJ CPB and the U.S. Attorney’s Office for the District of Colorado to resolve a criminal charge for conspiracy to commit mail and wire fraud.[118] The government alleged that from July 2008 to July 2017, employees in Epsilon’s direct-to-consumer unit (“DTC”) sold over 30 million consumers’ information to individuals engaged in fraudulent mass-mailing schemes.[119]

Under the DPA, Epsilon agreed to pay $150 million, with $127.5 million dedicated to a victims’ compensation fund.[120]  Epsilon also agreed to select, and cover the costs of, an independent claims administrator to distribute monies from the fund.[121] The agreement stated that DOJ was not requiring Epsilon to pay a criminal forfeiture amount because of the “facts and circumstances of th[e] case” and the company’s agreement to pay the victims’ compensation amount.[122]

The DPA noted the substantial enhancements Epsilon had already made to its compliance program and internal controls.[123] Epsilon further agreed to enhance its compliance program and internal controls to safeguard consumer data and prevent its sale to individuals engaged in fraudulent marketing campaigns.[124] Epsilon also agreed to cooperate fully in any related matters.[125]

The DPA stated that Epsilon received full credit for its “extensive cooperation,” which included (1) a “thorough and expedited internal investigation,” (2) regular government presentations, (3) facilitating employee interviews, and (4) analyzing and organizing “voluminous evidence.”[126] Epsilon also received credit for its extensive remedial measures, including (1) separating employees known to be involved in the alleged conduct, (2) terminating relationships with the individuals who carried out the fraudulent mailing schemes, (3) dissolving the DTC, (4) investing in additional legal and compliance resources, and (5) updating company policies and procedures.[127] The DPA further credited Epsilon for having no prior criminal history.[128] Epsilon did not receive voluntary disclosure credit.[129]

DOJ determined that an independent compliance monitor was unnecessary “based on Epsilon’s remediation and the state of its compliance program, the fact that the Covered Conduct concluded in 2017,” and the company’s agreement to report annually on the implementation of its compliance program.[130]

On June 14, 2021, the U.S. District Court for the District of Colorado unsealed an indictment charging two former Epsilon employees with conspiracy to commit and the substantive commission of mail and wire fraud in connection with conduct that was the subject of the Epsilon DPA.[131] The indictment alleges that the two individuals sold consumer lists to mass-mailing fraud schemes that invited consumers to engage in false “sweepstakes” and “astrology” solicitations.[132] The unsealing of the indictment coincided with DOJ announcing its DPA with KBM Group LLC (see below) to resolve nearly identical charges.[133]

KBM Group LLC (DPA)

On June 14, KBM Group LLC (“KBM”) entered into a 30-month DPA with the U.S. Attorney’s Office for the District of Colorado and DOJ CPB to resolve allegations that it sold millions of consumers’ information to individuals and entities engaged in elder fraud schemes.[134] DOJ alleged that KBM sold consumer lists to mass-mailing fraud schemes that invited consumers to engage in false “sweepstakes” and “astrology” solicitations.[135] A court in the same district earlier this year approved a similar agreement between the DOJ and Epsilon Data Management LLC to resolve parallel allegations.[136] The court approved the KBM DPA on June 29.[137]

Under the DPA, KBM will pay $42 million, $33.5 million of which will go to a victims’ compensation fund.[138] The DPA requires KBM to select, and cover the costs of, an independent claims administrator to distribute the victim compensation monies.[139] KBM also must implement compliance measures to safeguard consumer data and prevent its sale to perpetrators of fraudulent marketing schemes.[140] The compliance program requirements in KBM’s DPA are nearly identical to those in Epsilon’s, with the exception that KBM’s DPA explicitly requires the company to ensure that both senior and middle management reinforce and abide by the compliance code.[141] KBM’s agreement, like Epsilon’s, also requires annual compliance reporting and cooperation with the government in its ongoing investigations.[142]

The DOJ granted KBM nearly identical credit to that provided under Epsilon’s DPA, including full credit for its cooperation, its “significant remedial measures,” and lack of prior criminal history.[143] Additionally, the DPA credited KBM for its removal of terminated clients’ data from the KBM database and its revision of employee commission plans and co-op member agreements to align with the new compliance measures.[144]

The DOJ announced its filing of the DPA with KBM alongside the unsealing of an indictment charging two former Epsilon employees with mail and wire fraud in connection with a mass-mailing fraud scheme.[145]

PT Bukit Muria Jaya (DPA)

On January 17, 2021, PT Bukit Muria Jaya (“BMJ”)¾a global cigarette paper supplier based in Indonesia¾entered into an 18-month DPA with DOJ NSD and the U.S. Attorney’s Office for the District of Columbia to resolve allegations of conspiracy to commit bank fraud in connection with the shipment of BMJ products to North Korea.[146] DOJ alleged that BMJ customers in North Korea falsified paperwork and misled U.S. banks into processing payments in violation of U.S. sanctions.[147] According to DOJ, BMJ accepted payments from third parties, at the request of its North Korean customers, that were unrelated to the sales transactions, thereby taking the transactions outside the ambit of U.S. banks’ sanctions monitoring systems and leading the banks to process transactions it would have otherwise rejected.[148] BMJ also entered a settlement with the U.S. Treasury’s Office of Foreign Assets Control (“OFAC”) for the same underlying conduct, with OFAC determining that BMJ’s violations were “non-egregious.”[149]

Under the DPA, BMJ agreed to pay a $1.5 million penalty and implement a compliance program designed to prevent and identify violations of U.S. sanctions.[150] BMJ also agreed to report semi-annually on the status of its compliance improvements.[151] The 18-month DPA can be extended by up to one year if BMJ knowingly violates the terms of the agreement.[152]

In setting forth the rationale for the terms of the resolution, the Gibson Dunn-negotiated DPA credited BMJ for its (1) willingness to accept responsibility under U.S. law, (2) remediation efforts and comprehensive improvement of its compliance program, and (3) ongoing cooperation.[153] The agreement also noted that BMJ’s revenue from the sales in question constituted less than 0.3% of the company’s total sales revenue during that same period.[154]

Just six months prior to BMJ’s agreement, the DOJ imposed its first-ever corporate resolution for violations of the 2016 sanctions regulations concerning North Korea.[155] The BMJ DPA suggests that DOJ’s effort in this regard will proceed regardless of the transactions’ value to the entity. In announcing the BMJ DPA, Acting U.S. Attorney for the District of Columbia Michael R. Sherwin highlighted this point by stating that “[w]e want to communicate to all those persons and businesses who are contemplating engaging in similar schemes to violate U.S. sanctions on North Korea . . . . We will find you and prosecute you.”[156]

Rahn+Bodmer Co. (DPA)

On February 10, 2021, the oldest private bank in Zurich, Switzerland, Ranh+Bodmer Co. (“R+B”), entered into a three-year DPA with DOJ’s Tax Division and the United States Attorney’s Office for the Southern District of New York.[157] The DPA resolves allegations that from 2004 until 2012 R+B conspired to help U.S. account holders evade U.S. tax obligations, file false federal tax returns, and otherwise defraud the Internal Revenue Service (“IRS”) by hiding hundreds of millions of dollars in offshore bank accounts at R+B.[158] The DPA is the latest of over 90 resolutions since 2013 with Swiss banks involving tax evasion allegations.

Under the DPA, R+B agreed to make payments totaling $22 million.[159] Specifically, R+B agreed to pay (1) $4.9 million in restitution, representing the “approximate gross pecuniary loss to the [IRS]” resulting from R+B’s participation in the conspiracy; (2) $9.7 million in forfeiture, representing the approximate gross fees that R+B earned on its undeclared U.S.-related accounts between 2004 and 2012; and (3) $7.4 million in penalties, including a 55% discount for cooperation.[160] DOJ stated that it reached this resolution with R+B based on a number of factors, including that R+B conducted a “thorough internal investigation”; “provided a substantial volume of documents” to DOJ; and implemented remedial measures to “protect against the use of its services for tax evasion in the future.”[161] The agreement also requires R+B to disclose information consistent with the Department’s Swiss Bank Program relating to accounts closed between January 1, 2009, and December 31, 2019.[162]

SAP SE (NPA)

On April 29, 2021, SAP SE (“SAP”), a German software corporation, entered into an NPA with DOJ NSD and agreed to disgorge $5.14 million.[163] SAP also entered into concurrent administrative agreements with the Department of Commerce’s Bureau of Industry and Security and OFAC.[164] In voluntary disclosures to these three agencies, SAP acknowledged violations of the Export Administration Regulations and the Iranian Transactions and Sanctions Regulations.[165]

The conduct covered by the NPA involved SAP’s alleged export of software to Iranian end users. Between 2010 and 2017, SAP and overseas partners released U.S.-origin software, upgrades and patches, to users located in Iran in over 20,000 instances.[166] SAP’s Cloud Business Group companies separately permitted over 2,000 Iranian users access to U.S.-based cloud services in Iran.[167] Certain SAP senior managers were aware that the company did not have geolocation filters sufficient to identify and block the Iranian downloads, but SAP failed to institute remedial controls.[168]

According to the NPA, SAP received full credit for its timely voluntary disclosure, as well as credit for extensive cooperation with the government.[169] The company also received credit for spending more than $27 million on remediation efforts, including implementing GeoIP blocking, deactivating violative users of cloud services based in Iran, transitioning to automated sanction screening, auditing and suspending partners that sold to Iran-affiliated customers, and implementing other internal and export controls.[170]

The SAP resolution is one of the first of its kind focused on the provision of cloud services, and as such may now serve as a benchmark for future government enforcement actions—and compliance and remediation expectations—in this space.

State Street Corporation (DPA)

On May 13, 2021, State Street Corporation (“State Street”) entered into a new two-year DPA with the U.S. Attorney’s Office for the District of Massachusetts and agreed to pay a $115 million criminal penalty to resolve charges that it conspired to commit wire fraud by engaging in a scheme to defraud a number of the bank’s clients.[171] According to the DPA, State Street overcharged by over $290 million for expenses related to the bank’s custody of client assets.[172]

Between 1998 and 2015, according to the DPA, eight former bank executives omitted information about charges from client invoices and misled customers who raised concerns about the expenses.[173] Specifically, the former bank executives allegedly “conspired to add secret markups to ‘out-of-pocket’ (OOP) expenses charged to the bank’s clients while letting clients believe that State Street was billing OOP expenses as pass-through charges on which the bank was not earning a profit.”[174] An example of an OOP expense would be fees for interbank messages sent via the Society of Worldwide Interbank Financial Telecommunication (SWIFT) system.[175]

In addition to the $115 million criminal penalty, State Street also agreed to continue to “cooperate with the U.S. Attorney’s Office in any ongoing investigations and prosecutions relating to the conduct, to enhance its compliance program, and to retain an independent compliance monitor for a period of two years.”[176]

Unrelatedly, State Street saw the extension in March 2021 of a 2017 DPA. State Street’s 2017 DPA resolved allegations that it engaged in a scheme to defraud customers by applying extra commissions to billions of dollars’ worth of securities trades.[177] The most recent extension, which runs through September 3, 2021, was described in a joint filing as necessary because the COVID-19 pandemic and the resignation of the monitor (who took a position with the SEC) delayed completion of the monitor’s work.[178]

With the new DPA and the recent extension of the 2017 DPA, State Street is now subject to two concurrent DOJ-imposed monitorships. The new monitor will assess and make recommendations in a way that does not duplicate the efforts of the 2017 monitor, the DPA states.[179] Further, the terms of the agreement specify that State Street may choose to retain the same monitor under the new agreement instead of appointing a separate person.[180]

Swiss Life Holding AG (DPA)

On May 14, 2021, Swiss Life Holding AG (“Swiss Life Holding”), Swiss Life (Liechtenstein) AG, Swiss Life (Singapore) Pte. Ltd., and Swiss Life (Luxembourg) S.A. entered into a three-year DPA with DOJ’s Tax Division and the United States Attorney’s Office for the Southern District of New York.[181] The DPA resolves allegations that from 2005 to 2014, Swiss Life conspired with U.S. taxpayers and others to conceal from the IRS more than $1.452 billion in assets and income through the use of offshore Private Placement Life Insurance (“PPLI”) policies (colloquially known as “insurance wrappers”) and related policy investment accounts in banks around the world.[182] According to the allegations in the DPA, Swiss Life was identified as the owner of the policy investment accounts, rather than the U.S. policyholder and/or ultimate beneficial owner of the assets, thereby allowing U.S. taxpayers to hide undeclared assets and income through the insurance wrapper policies.[183]

Swiss Life Holding agreed to pay approximately $77.3 million to resolve the charges.[184] This sum included (1) $16,345,454 in restitution, representing the approximate unpaid taxes resulting from the Swiss Life Entities’ participation in the conspiracy; (2) $35,782,375 in forfeiture, representing the approximate gross fees (not profits) that the Swiss Life Entities earned on the relevant transactions; and (3) $25,246,508 in penalties, including a 50% discount for cooperation.[185]

DOJ stated that the penalty accounted for the extensive internal investigation conducted by Swiss Life, which included the review of over 1,500 hard-copy PPLI policy files, and production to DOJ of a substantial volume of documents and client-related data derived from that investigation.[186] The DPA noted that Swiss Life took additional measures to assist in the sharing of documents and information with DOJ consistent with the insurance-confidentiality and data privacy laws in the jurisdictions in which Swiss Life’s PPLI carriers operate, including preparing a Tax Information Exchange Agreement request to the Liechtenstein authorities.[187] In addition, Swiss Life conducted extensive outreach to current and former U.S. clients to confirm historical tax compliance, and to encourage disclosure to the IRS when policyholders’ historical tax compliance issues had not yet been resolved.[188]

United Airlines, Inc. (NPA)

On February 25, 2021, United Airlines, Inc. (“United”) entered into a three-year NPA with DOJ (Fraud Section, Criminal Division) to resolve a criminal investigation into an allegedly fraudulent scheme carried out by former United employees in connection with United’s fulfilment of contracts to deliver mail internationally for the U.S. Postal Service (“USPS”).[189] According to the Statement of Facts, United delivered mail internationally pursuant to International Commercial Air (“ICAIR”) contracts with USPS.[190] Under the terms of these ICAIR contracts, United was required to (1) take barcode scans of mail upon taking possession of the mail and upon delivering the mail overseas, and (2) provide these scans to USPS.[191]  Rather than providing USPS with scans based on the actual movement of mail, United admitted that, between 2012 and 2015, it provided USPS with automated scans based on projected delivery times.[192] Submission of these automated scans violated the terms of United’s ICAIR contracts and prompted USPS to make millions of dollars in payments that United was not entitled to under the ICAIR contracts.[193] United further admitted that certain former employees knew the data being transmitted to USPS violated the terms of the ICAIR contracts and engaged in efforts to conceal the automated scan data, which, if discovered, would have subjected United to financial penalties under the ICAIR contracts.[194]

As part of the resolution, United agreed to pay $17.2 million in criminal penalties and disgorgement.[195] Under the NPA, United agreed to continue cooperating with the Fraud Section, strengthen its compliance program, and submit yearly reports to the Fraud Section regarding its remediation efforts and implementation of policies and controls aimed at deterring and detecting fraud surrounding United’s government contracts.[196]

The NPA credited United for cooperating with the Fraud Section’s investigation by producing documents, making employees available for interviews, and giving a factual presentation to DOJ.[197] The NPA also noted United’s extensive remedial action after learning about the underlying misconduct, including removing the principal manager of the alleged scheme, hiring outside advisors to evaluate United’s government contracting compliance policies, instituting an independent “Government Contracts Organization” that reported directly to the United Legal Department, implementing training for employees with duties related to government contracts, and prohibiting automation of and restricting access to flight configuration data to prevent future manipulation of data provided to USPS.[198] In light of the isolated nature of the alleged misconduct and United’s remedial improvements, the Fraud Section determined that an independent compliance monitor was unnecessary.[199]

In connection with the same underlying conduct, United entered into a separate False Claims Act settlement with DOJ (Civil Division, Fraud Section, Commercial Litigation Branch) on February 25, 2021.[200] United agreed to pay $32.1 million as part of the civil settlement.[201]

International DPA Developments

As prior Mid-Year and Year-End Updates have discussed (see, e.g., our 2020 Year-End Update), France and the United Kingdom also have robust DPA or DPA-like frameworks. The UK’s Serious Fraud Office (“SFO”) has entered into 12 DPAs since 2015,[202] and France’s prosecuting agencies have entered into 12 DPA-like agreements (called convention judiciaire d’intérêt public, or “CJIP”) since 2017.[203] France and the United Kingdom together produced four DPA-like agreements in the first half of 2021, and DPA developments in the United Kingdom sparked discussion regarding individual prosecution related to DPAs.

France – Bolloré SE

On February 26, 2021, France’s National Financial Prosecutor’s Office (“PNF”) announced that the Judicial Court of Paris approved a €12 million (about $14.5 million) CJIP with French transport company Bolloré SE and its parent company Financière de l’Odet to resolve allegations of corruption in Togo.[204] PNF alleged that Bolloré paid €370,000 (almost $450,000) to Togolese president Faure Gnassingbé between 2009 and 2011 to secure tax benefits and a contract to manage the Port of Lomé.[205] As part of the CJIP, Bolloré agreed to enhance its compliance program and pay up to €4 million in costs related to the French Anti-Corruption Agency’s (AFA) monitoring and audit of Bolloré over the next two years.

On the same day that the Judicial Court of Paris approved the corporate resolution, the court dismissed the plea bargains that three Bolloré executives had entered into with PNF to resolve allegations related to the same conduct.[206] The court ordered the three executives to stand trial because the allegations against them “seriously undermined economic public order” and the sovereignty of Togo.[207] This is the first time a French court has considered—let alone rejected—plea deals alongside a CJIP, so it remains to be seen whether this development will chill the negotiation of further CJIPs or create more reluctance among individuals implicated in PNF investigations to seek resolutions in parallel with the negotiation of CJIPs.[208]

United Kingdom

Amec Foster Wheeler Energy Limited

On the same day that DOJ and the SEC announced their resolutions with Amec Foster Wheeler Energy Limited, and Amec Foster Wheeler Limited, respectively, the SFO announced that it had “agreed [to] a Deferred Prosecution Agreement in principle with Amec Foster Wheeler Energy Limited.”[209] The DPA relates to the use of third-party agents in five countries in the period before AMEC plc acquired Foster Wheeler AG in November 2014, and prior to Wood’s acquisition of the resulting combined company in October 2017.[210] The SFO DPA, and the parallel DPA with DOJ, collectively call for total payments of $177 million and include fines and disgorgement.[211] On July 1, 2021, the Crown Court at Southwark, sitting at the Royal Courts of Justice, gave final approval of the DPA.[212] Under the UK DPA, AFWEL will pay approximately £103 million.[213]

Two Anonymous DPAs with Companies for UK Bribery Act Offenses

On July 20, 2021, the SFO announced final court approval of two separate DPAs with two UK-based companies for bribery offenses.[214] According to the SFO’s press release, the two companies will pay a total of £2,510,065 (over $3.4 million) in disgorgement of profits and financial penalties.[215] The SFO did not disclose the names of the companies, citing legal restrictions on reporting under the Contempt of Court Act 1981.[216] The publicly available information regarding these two DPAs will therefore be limited until the restrictions have been lifted and the DPAs are published. However, the SFO did state that the companies “either actively participated in or failed to prevent the rolling use of bribes to unfairly win contracts,” and the companies will be obligated to report on their compliance programs at regular intervals during the two-year term of the DPAs.[217]

Further UK Developments

DPAs continue to be in the spotlight more broadly in the United Kingdom. On May 4, 2021, the media reported that the SFO (which declined to comment) was ending a criminal investigation into individuals associated with Airbus SE (“Airbus”) 16 months after Airbus agreed to pay combined penalties of $3.9 billion to authorities in France, the United Kingdom, and the United States to resolve foreign bribery and export control charges (as summarized in our 2020 Mid-Year Update).[218] Similarly, in April 2021, the SFO’s prosecution of two former executives of Serco Georgrafix Ltd. (“Serco”) ended in a directed verdict of not guilty after the revelation that the SFO had failed to disclose evidence to the defense.[219] Serco, a leading provider of outsourced services to governments, entered into a DPA with the SFO in July 2019 and agreed to pay a penalty of £19.2 million (about $24 million) and to reimburse the SFO’s investigation costs of £3.7 million (over $4.6 million) to resolve allegations of fraud and false accounting (as discussed in our 2019 Year-End Update). The Serco case is not the first acquittal in recent years among SFO prosecutions against individuals; in fact, the SFO has yet to successfully prosecute individuals following a DPA.[220] This trend may undermine or at least shape the SFO’s efforts to enter into DPAs in the future, to the extent it leads corporations to question the SFO’s ability to secure a conviction if forced to prove its case in court.

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APPENDIX: 2021 Non-Prosecution and Deferred Prosecution Agreements to Date

The chart below summarizes the agreements concluded by DOJ in 2021 to date. The SEC has not entered into any NPAs or DPAs in 2021.  The complete text of each publicly available agreement is hyperlinked in the chart.

The figures for “Monetary Recoveries” may include amounts not strictly limited to an NPA or a DPA, such as fines, penalties, forfeitures, and restitution requirements imposed by other regulators and enforcement agencies, as well as amounts from related settlement agreements, all of which may be part of a global resolution in connection with the NPA or DPA, paid by the named entity and/or subsidiaries. The term “Monitoring & Reporting” includes traditional compliance monitors, self-reporting arrangements, and other monitorship arrangements found in settlement agreements.

U.S. Deferred and Non-Prosecution Agreements in 2021 to Date
Company	Agency	Alleged Violation	Type	Monetary Recoveries	Monitoring & Reporting	Term of NPA/DPA (months)
Amec Foster Wheeler Energy Limited	DOJ Fraud; E.D.N.Y.	Conspiracy to violate the FCPA	DPA	$41,139,287	Yes	36
Argos USA LLC	DOJ Antitrust	Price-fixing conspiracy	DPA	$20,024,015	Yes	36
Avanos Medical, Inc.	DOJ Fraud; DOJ CPB; N.D. Tex.	FDCA	DPA	$22,228,000	Yes	36
Avnet Asia Pte. Ltd	D.D.C.; DOJ NSD	Export controls – conspiracy to violate the International Emergency Economic Powers Act	NPA	$1,508,000	Yes	24
Bank Julius Baer & Co. Ltd.	DOJ MLARS; E.D.N.Y.	AML	DPA	$79,688,400	Yes	36
Berlitz Languages, Inc.	DOJ Antitrust	Bid rigging	DPA	$203,984	Yes	36
The Boeing Company	DOJ Fraud; N.D. Texas	Fraud	DPA	$2,513,600,000	Yes	36
Colas Djibouti SARL	S.D. Cal.; DOJ Civil	FCA	DPA	$14,500,000	No	24
Comprehensive Language Center, Inc.	DOJ Antitrust	Bid rigging	DPA	$196,984	Yes	36
Deutsche Bank AG	DOJ Fraud; MLARS; E.D.N.Y.	FCPA	DPA	$124,796,046	Yes	36
Epsilon Data Management, LLC	DOJ CPB; D. Colo.	Mail and wire fraud	DPA	$150,000,000	Yes	30
KBM Group, LLC	DOJ CPB; D. Colo.	Mail and wire fraud	DPA	$42,000,000	Yes	30
PT Bukit Muria Jaya	D.D.C.; DOJ NSD	Bank fraud	DPA	$1,561,570	Yes	18
Rahn+Bodmer Co.	S.D.N.Y.; DOJ Tax	Fraud, false tax return filings, and tax evasion	DPA	$22,000,000	No	36
SAP SE	DOJ NSD; D. Mass.	Export controls	NPA	$8,430,000	Yes	36
State Street Corporation	D. Mass.	Wire fraud	DPA	$211,575,000	Yes	24
Swiss Life Holding AG	S.D.N.Y.; DOJ Tax	Fraud, false tax return filings, and tax evasion	DPA	$77,374,337	No	36
United Airlines, Inc.	DOJ Fraud	Fraud	NPA	$49,458,102	No	36

__________________________

  [1]  NPAs and DPAs are two kinds of voluntary, pre-trial agreements between a corporation and the government, most commonly DOJ. They are standard methods to resolve investigations into corporate criminal misconduct and are designed to avoid the severe consequences, both direct and collateral, that conviction would have on a company, its shareholders, and its employees. Though NPAs and DPAs differ procedurally—a DPA, unlike an NPA, is formally filed with a court along with charging documents—both usually require an admission of wrongdoing, payment of fines and penalties, cooperation with the government during the pendency of the agreement, and remedial efforts, such as enhancing a compliance program and—on occasion—cooperating with a monitor who reports to the government. Although NPAs and DPAs are used by multiple agencies, since Gibson Dunn began tracking corporate NPAs and DPAs in 2000, we have identified nearly 600 agreements initiated by DOJ, and 10 initiated by the U.S. Securities and Exchange Commission (“SEC”).

   [2]   Fraud Statistics – Overview, October 1, 1986 – September 30, 2020, U.S. Dep’t of Justice (Jan. 14, 2021), https://www.justice.gov/opa/press-release/file/1354316/download.

   [3]   Criminal Enforcement Trends Charts Through Fiscal Year 2020, U.S. Dep’t of Justice, Antitrust Div. (Nov. 23, 2020), https://www.justice.gov/atr/criminal-enforcement-fine-and-jail-charts.

   [4]   2020 Annual Report, Div. of Enf’t, U.S. Sec. & Exch. Comm’n, https://www.sec.gov/files/enforcement-annual-report-2020.pdf, at 16; Year-by-Year SEC Enf’t Statistics (2005 – 2014), U.S. Sec. & Exch. Comm’n, https://www.sec.gov/news/newsroom/images/enfstats.pdf.

   [5]   2020 Annual Report, Div. of Enf’t, U.S. Sec. & Exch. Comm’n, https://www.sec.gov/files/enforcement-annual-report-2020.pdf.

   [6]   Press Release, U.S. Dep’t of Justice, Justice Department Takes Action Against COVID-19 Fraud (Mar. 26, 2021), https://www.justice.gov/opa/pr/justice-department-takes-action-against-covid-19-fraud (hereinafter “DOJ COVID Press Release”).

   [7]   Id.

   [8]   Stephen Peiken, Co-Director, Div. of Enf’t, “Keynote Address: Securities Enforcement Forum West 2020” (May 12, 2020), https://www.sec.gov/news/speech/keynote-securities-enforcement-forum-west-2020.

   [9]   Ethan P. Davis, Principal Deputy Assistant Attorney General, “Principal Deputy Assistant Attorney General Ethan P. Davis delivers remarks on the False Claims Act at the U.S. Chamber of Commerce’s Institute for Legal Reform” (June 26, 2020), https://www.justice.gov/civil/speech/principal-deputy-assistant-attorney-general-ethan-p-davis-delivers-remarks-false-claims.

  [10]   Id.

  [11]   DOJ COVID Press Release, supra note 6.

  [12]   Press Release, DOJ Announces Coordinated Law Enforcement Action to Combat Health Care Fraud Related to COVID-19 (May 26, 2021), https://www.justice.gov/opa/pr/doj-announces-coordinated-law-enforcement-action-combat-health-care-fraud-related-covid-19.

  [13]   Gibson Dunn, SEC Brings First Enforcement Action Against a Public Company for Misleading Disclosures About the Financial Impacts of the Pandemic (Dec. 7, 2020), https://www.gibsondunn.com/sec-brings-first-enforcement-action-against-a-public-company-for-misleading-disclosures-about-the-financial-impacts-of-the-pandemic/.

  [14]   U.S. Dep’t of Justice, Crim. Div., Evaluation of Corporate Compliance Programs (Updated June 2020) at 1, https://www.justice.gov/criminal-fraud/page/file/937501/download (hereinafter “Compliance Program Update”).

  [15]   United States v. Epsilon Data Mgmt., LLC, No. 21-cr-06 (D. Colo. Jan. 19, 2021), at C-5 (hereinafter “Epsilon DPA”).

  [16]   Id.

  [17]   SAP NPA, Attach. A at 8.

  [18]   SAP NPA, Attach. B at 2.

  [19]   See U.S. Dep’t of Justice, Foreign Corrupt Practices Act Review, Op. Release No. 08-02 (June 13, 2008), https://www.justice.gov/sites/default/files/criminal-fraud/legacy/2010/04/11/0802.pdf.

  [20]   Compliance Program Update at 3.

  [21]   Epsilon DPA, at C-5; SAP NPA, at B-1­.

  [22]   Id.

  [23]   Press Release, U.S. Sec. and Exch. Comm’n, SEC Awards More Than $9.2 Million to Whistleblower for Successful Related Actions, Including Agreement with DOJ (Feb. 23, 2021), https://www.sec.gov/news/press-release/2021-31 (hereinafter “Whistleblower Press Release”).

  [24]   Id.

  [25]   17 C.F.R. § 240.21F.

  [26]   Whistleblower Press Release; Order Determining Whistleblower Award Claim, Release No. 91183 (Feb. 23, 2021), at 2, https://www.sec.gov/rules/other/2021/34-91183.pdf.

  [27]   Order Determining Whistleblower Award Claim, Release No. 91183 (Feb. 23, 2021), at 2, https://www.sec.gov/rules/other/2021/34-91183.pdf.

  [28]   Id.

  [29]   Gov’t Amended Unopposed Mot. to Dismiss the Crim. Info. with Prejudice, United States v. MoneyGram Int’l, Inc., No. 12-CR-291 (M.D. Pa. June 9, 2021), ¶ 11.

  [30]   Id. ¶ 12.

  [31]   See Amended Deferred Prosecution Agreement, United States v. Standard Chartered Bank, No. 12-cr-262 (D.D.C. Apr. 9, 2019), ¶ 19.

  [32]   Id.

  [33]   See Mot. to Dismiss with Prejudice, United States v. Standard Chartered Bank, No. 12-cr-262 (D.D.C. May 4, 2021), ¶ 4; Minute Order, United States v. Standard Chartered Bank, No. 12-cr-262 (D.D.C. May 4, 2021).

  [34]   Press Release, U.S. Dep’t of Justice, Zimmer Biomet Holdings Inc. Agrees to Pay $17.4 Million to Resolve Foreign Corrupt Practices Act Charges (Jan. 12, 2017), https://www.justice.gov/opa/pr/zimmer-biomet-holdings-inc-agrees-pay-174-million-resolve-foreign-corrupt-practices-act; Deferred Prosecution Agreement, United States v. Zimmer Biomet Holdings, Inc., No. 12-cr-80 (Jan. 12, 2017), https://www.justice.gov/opa/press-release/file/925171/download (hereinafter “Zimmer DPA”).

  [35]   Deferred Prosecution Agreement, Biomet, Inc., No. 12-cr-80 (Mar. 26, 2012), https://www.justice.gov/sites/default/files/criminal-fraud/legacy/2012/03/30/2012-03-26-biomet-dpa.pdf (hereinafter “Original Biomet DPA”).

  [36]   Press Release, U.S. Dep’t of Justice, Zimmer Biomet Holdings Inc. Agrees to Pay $17.4 Million to Resolve Foreign Corrupt Practices Act Charges (Jan. 12, 2017), https://www.justice.gov/opa/pr/zimmer-biomet-holdings-inc-agrees-pay-174-million-resolve-foreign-corrupt-practices-act.

  [37]   Original Biomet DPA at 27.

  [38]   Press Release, U.S. Dep’t of Justice, Zimmer Biomet Holdings Inc. Agrees to Pay $17.4 Million to Resolve Foreign Corrupt Practices Act Charges (Jan. 12, 2017), https://www.justice.gov/opa/pr/zimmer-biomet-holdings-inc-agrees-pay-174-million-resolve-foreign-corrupt-practices-act.

  [39]   Id.

  [40]   Settlement Agreement Information Database Act of 2021, H.R. 27, 117th Congress (as passed by House, Jan. 5, 2021).

  [41]   Id.

  [42]   Id. at § 307(a)(3).

  [43]   Id. at § 307(b)(1)(A).

  [44]   Id. at § 307(b)(1)(B).

  [45]   Id.

  [46]   See Nat’l Defense Auth. Act, Pub. L. No. 16-283, § 6311 (Jan. 1, 2021).

  [47]   See Biden Justice Department Refusing to Release Corporate Deferred and Non Prosecution Agreement Database, Corporate Crime Reporter (June 23, 2021), https://www.corporatecrimereporter.com/news/200/biden-justice-department-refusing-to-release-corporate-deferred-and-non-prosecution-agreement-database/.

  [48]   Id.

  [49]   Id.

  [50]   Id.

  [51]   See generally Justice Manual § 9-2.000 – Authority of the U.S. Attorney in Criminal Division Matters / Prior Approvals, https://www.justice.gov/jm/jm-9-2000-authority-us-attorney-criminal-division-mattersprior-approvals (last visited July 2, 2021).

  [52]   Press Release, U.S. Dep’t of Justice, Amec Foster Wheeler Energy Limited Agrees to Pay Over $18 Million to Resolve Charges Related to Bribery Scheme in Brazil (June 25, 2021), https://www.justice.gov/opa/pr/amec-foster-wheeler-energy-limited-agrees-pay-over-18-million-resolve-charges-related-bribery.

  [53]   Id.

  [54]   Id.

  [55]   Id.; Deferred Prosecution Agreement, United States v. Amec Foster Wheeler Energy Limited, No. 21-CR-298 (KAM) (E.D.N.Y. June 25, 2021), at 5 (hereinafter “AFWEL DPA”).

  [56]   Id. at 12.

  [57]   Press Release, U.S. Dep’t of Justice, Ready-Mix Concrete Company Admits to Fixing Prices and Rigging Bids in Violation of Antitrust Laws (Jan. 4, 2021), https://www.justice.gov/opa/pr/ready-mix-concrete-company-admits-fixing-prices-and-rigging-bids-violation-antitrust-laws (hereinafter “Argos Press Release”).

  [58]   Id.

  [59]   Deferred Prosecution Agreement, United States v. Argos USA LLC, No. 4:21-CR-0002-RSB-CLR (S.D. Ga. Jan. 4, 2021), at 24–25 (hereinafter “Argos DPA”).

  [60]   Id. at 7.

  [61]   Id. at 5.

  [62]   Id. at 9; Argos Press Release, supra note 57.

  [63]   Argos Press Release, supra note 57.

  [64]   Id.

  [65]   Deferred Prosecution Agreement, United States v. Avanos Medical, Inc., No. 3:21-cr-00307-E (N.D. Tex. July 7, 2021), at 1 (hereinafter, “Avanos DPA”).

  [66]   Id. ¶ 1; Dep’t of Justice, Office of Public Affairs, Avanos Medical Inc. to Pay $22 Million to Resolve Criminal Charge Related to the Fraudulent Misbranding of Its MicroCool Surgical Gowns (July 8, 2021), https://www.justice.gov/opa/pr/avanos-medical-inc-pay-22-million-resolve-criminal-charge-related-fraudulent-misbranding-its.

  [67]   Avanos DPA, supra note 65, Attach. A ¶¶ 6–31.

  [68]   Avanos DPA, supra note 65, ¶ 4(e).

  [69]   Id. ¶ 4(g).

  [70]   Id. ¶ 4(a).

  [71]   Id. ¶¶ 9–13.

  [72]   Id. ¶ 17.

[73]   Press Release, U.S. Dep’t of Justice, Chinese National Charged with Criminal Conspiracy to Export US Power Amplifiers to China (Jan. 29, 2021), https://www.justice.gov/opa/pr/chinese-national-charged-criminal-conspiracy-export-us-power-amplifiers-china (hereinafter “Avnet Press Release”); Non-Prosecution Agreement, Avnet Asia Pte. Ltd. (Jan. 21, 2021), at 1 (hereinafter “Avnet NPA”).

[74]   Avnet Press Release; Avnet NPA, at 13–14, 17–21.

[75]   Avnet Press Release; Avnet NPA, at 1.

[76]   Avnet NPA, at 3–4.

[77]   Id. at 5.

[78]   Id. at 2–3.

[79]   Id. at 3.

[80]   Avnet Press Release.

  [81]   Deferred Prosecution Agreement, United States v. Bank Julius Baer & Co. Ltd., No. 21cr273 (PKC) (E.D.N.Y. May 27, 2021) (hereinafter “BJB DPA”); Press Release, U.S. Dep’t Justice, Bank Julius Baer Agrees to Pay More than $79 Million for Laundering Money in FIFA Scandal (May 27, 2021), https://www.justice.gov/opa/pr/bank-julius-baer-agrees-pay-more-79-million-laundering-money-fifa-scandal (hereinafter “BJB Press Release”).

  [82]   BJB Press Release, supra note 81.  

  [83]   Id.

  [84]   Id.

  [85]   BJB DPA, supra note 81, at 5.

  [86]   Id.

  [87]   Id. at 4.

  [88]   Id. at 6.

  [89]   Press Release, U.S. Dep’t of Justice, Foreign-Language Training Companies Admit to Participating in Conspiracy to Defraud the United States (Jan. 19, 2021), https://www.justice.gov/opa/pr/foreign-language-training-companies-admit-participating-conspiracy-defraud-united-states (hereinafter “Berlitz-CLCI Press Release”); Deferred Prosecution Agreement, United States v. Berlitz Languages, Inc., No. 21-51-FLW (D.N.J. Jan. 19, 2021) at 3 (hereinafter “Berlitz DPA”); Deferred Prosecution Agreement, United States v. Comprehensive Language Center, Inc., No. 21-50-FLW (D.N.J. Jan. 19, 2021) at 3 (hereinafter “CLCI DPA”).

  [90]   Id.

  [91]   Berlitz-CLCI Press Release, supra note 89.

  [92]   Id.

  [93]   Berlitz DPA, supra note 89 at 22.

  [94]   Id. at 23.

  [95]   Id.

  [96]   Id.

  [97]   Id. at 24.

  [98]   Id.

  [99]   Berlitz-CLCI Press Release, supra note 89.

[100]   Berlitz-CLCI Press Release, supra note 89; Berlitz DPA, supra note 89 at 11; CLCI DPA, supra note 89 at 10.

[101]   Id.

[102]   Deferred Prosecution Agreement, United States v. The Boeing Company (N.D. Tex. Jan. 7, 2021) (hereinafter “Boeing DPA”); Press Release, U.S. Dep’t of Justice, Boeing Charged with 737 Max Fraud Conspiracy and Agrees to Pay over $2.5 Billion (Jan. 7, 2021), https://www.justice.gov/opa/pr/boeing-charged-737-max-fraud-conspiracy-and-agrees-pay-over-25-billion (hereinafter “Boeing Press Release”).

[103]   Boeing DPA.

[104]   Id.

[105]   Id.

[106]  Press Release, U.S. Dep’t of Justice, Concrete Contractor Agrees to Settle False Claim Act Allegations for $3.9 Million (Feb. 17, 2021), https://www.justice.gov/opa/pr/concrete-contractor-agrees-settle-false-claims-act-allegations-39-million (hereinafter “DOJ Colas Djibouti Press Release”); Press Release, U.S. Dep’t of Justice, U.S. Attorney’s Office for the Southern District of California, U.S. Navy Concrete Contractor in Djibouti Admits Fraudulent Conduct and Will Pay More than $12.5 Million (Feb. 17, 2021), https://www.justice.gov/usao-sdca/pr/us-navy-concrete-contractor-djibouti-admits-fraudulent-conduct-and-will-pay-more-125 (hereinafter “SDCA Colas Djibouti Press Release”).

[107]   SDCA Colas Djibouti Press Release.

[108]   Deferred Prosecution Agreement, United States v. Colas Djibouti SARL, No. 21-cr-00280 (S.D. Cal. Feb. 17, 2021), at ¶¶ 7–9; SDCA Colas Djibouti Press Release.

[109]   DOJ Colas Djibouti Press Release.

[110]   Settlement Agreement, Colas Djibouti, https://www.justice.gov/opa/press-release/file/1368556/download, at 6 (hereinafter “Colas Djibouti Settlement Agreement”).

[111]   Id.

[112]   DOJ Colas Djibouti Press Release.

[113]   Press Release, U.S. Dep’t of Justice, Deutsche Bank Agrees to Pay over $130 Million to Resolve Foreign Corrupt Practices Act and Fraud Case (Jan. 8, 2021), https://www.justice.gov/opa/pr/deutsche-bank-agrees-pay-over-130-million-resolve-foreign-corrupt-practices-act-and-fraud.

[114]   Id.

[115]   Id.

[116]   Deferred Prosecution Agreement, United States v. Deutsche Bank Aktiengesellschaft, No. 20-00584 (E.D.N.Y. Jan. 8. 2021).

[117]   Id.

[118]   Press Release, U.S. Dep’t of Justice, Marketing Company Agrees to Pay $150 Million for Facilitating Elder Fraud Schemes (Jan. 27, 2021), https://www.justice.gov/opa/pr/marketing-company-agrees-pay-150-million-facilitating-elder-fraud-schemes (hereinafter “Epsilon Press Release”).

[119]   Id.

[120]   Id.

[121]   Id.

[122]   Epsilon DPA, supra note 15, at 9.

[123]   Id. at 5.

[124]   Id. at 13–14.

[125]   Id. at 6.

[126]   Id. at 4.

[127]   Id. at 4–5.

[128]   Id. at 6.

[129]   Id. at 4.

[130]   Id. at 5.

[131]   Press Release, U.S. Dep’t of Justice, Justice Department Recognizes World Elder Abuse Awareness Day; Files Case Against Marketing Company and Executives Who Knowingly Facilitated Elder Fraud (June 15, 2021), https://www.justice.gov/opa/pr/justice-department-recognizes-world-elder-abuse-awareness-day-files-cases-against-marketing (hereinafter “KBM Press Release”).

[132]   Id.

[133]   Id.

[134]   Id.

[135]   Id.

[136]   Joint Notice of Agreement and Mot. for Deferral of Prosecution at 4–5, United States v. KBM Group, LLC, No. 21-cr-198 (D. Colo. June 14, 2021) (hereinafter “KBM Motion for DPA”).

[137]   Order, United States v. KBM Group, LLC, No. 21-cr-198 (D. Colo. June 29, 2021).

[138]   KBM Motion for DPA, supra note 136 at Ex. 1, ¶ 7.

[139]   Id. ¶ 14.

[140]   KBM Press Release, supra note 131.

[141]   Compare KBM Motion for DPA, supra note 136, at Ex. 1 Attach. C-1–C-6, with Epsilon DPA, supra note 122, at Ex. 1 Attach. C-1–C-6.

[142]   KBM Motion for DPA, supra note 136, at 2, Ex. 1 Attach. D.

[143]   Compare KBM Motion for DPA, supra note 136, at Ex. 1, ¶ 4(d), with Epsilon DPA, supra note 122, at 4–6.

[144]   KBM Motion for DPA, supra note 136, at Ex. 1, ¶ 4(d).

[145]   KBM Press Release, supra note 131.

[146]   Press Release, U.S. Dep’t of Justice, Indonesian Company Admits to Deceiving U.S. Banks in Order to Trade with North Korea, Agrees to Pay a Fine of More Than $1.5 Million (Jan. 17, 2021), https://www.justice.gov/opa/pr/indonesian-company-admits-deceiving-us-banks-order-trade-north-korea-agrees-pay-fine-more-15 (hereinafter “BMJ Press Release”).

[147]   Id.

[148]   United States v. PT Bukit Muria Jaya, No. 21-cr-14 (D.D.C. Jan. 14, 2021), at Attach. A, 7 (hereinafter “BMJ DPA”).

[149]   Enf’t Release, U.S. Dep’t of Treasury, OFAC Settles with PT Bukit Muria Jaya for Its Potential Civil Liability for Apparent Violations of the North Korea Sanctions Regulations (Jan. 14, 2021), at 1, https://home.treasury.gov/system/files/126/20210114_BMJ.pdf.

[150]   BMJ Press Release, supra note 146.

[151]   BMJ DPA, supra note 148, at 10–12.

[152]   Id. at 2.

[153]   Id. at 3.

[154]   Id. at 7.

[155]   See Gibson Dunn, 2020 Year-End Update on Corporate Non-Prosecution Agreements and Deferred Prosecution Agreements (Jan. 19, 2021), https://www.gibsondunn.com/2020-year-end-update-on-corporate-non-prosecution-agreements-and-deferred-prosecution-agreements/#_ftn103.

[156]   BMJ Press Release, supra note 146.

[157]   Deferred Prosecution Agreement, United States v. Rahn+Bodmer Co. (S.D.N.Y. Feb. 10, 2021) (hereinafter “R+B DPA”); Press Release, U.S. Dep’t Justice, Zurich’s Oldest Private Bank Admits To Helping U.S. Taxpayers Hide Offshore Accounts From IRS (Mar. 11, 2021), https://www.justice.gov/usao-sdny/pr/zurich-s-oldest-private-bank-admits-helping-us-taxpayers-hide-offshore-accounts-irs (hereinafter “R+B Press Release”).

[158]  R+B Press Release, supra note 157.

[159]  R+B DPA, ¶ 3.

[160]  Id. ¶¶ 3–10.

[161]  R+B Press Release, supra note 157.

[162]  Id.

[163]   Press Release, U.S. Dep’t of Justice, SAP Admits to Thousands of Illegal Exports of its Software Products to Iran and Enters into Non-Prosecution Agreement with DOJ (Apr. 29, 2021), https://www.justice.gov/opa/pr/sap-admits-thousands-illegal-exports-its-software-products-iran-and-enters-non-prosecution.

[164]   Id.

[165]   Id.

[166]   Id.

[167]   Id.

[168]   Id.

[169]   Non-Prosecution Agreement, SAP SE (Apr. 29, 2021).

[170]   Id.

[171]   Deferred Prosecution Agreement, United States v. State Street Corp., No. 21-cr-10153 (D. Mass, May 13, 2021) (hereinafter “State Street DPA”); Press Release, U.S. Dep’t of Justice, State Street Corporation to Pay $115 Million Criminal Penalty and Enter Into Deferred Prosecution Agreement in Connection With Scheme to Overcharge Custody Customers (May 13, 2021), https://www.justice.gov/usao-ma/pr/state-street-corporation-pay-115-million-criminal-penalty-and-enter-deferred-prosecution.

[172]   Press Release, U.S. Dep’t of Justice, State Street Corporation to Pay $115 Million Criminal Penalty and Enter Into Deferred Prosecution Agreement in Connection With Scheme to Overcharge Custody Customers (May 13, 2021), https://www.justice.gov/usao-ma/pr/state-street-corporation-pay-115-million-criminal-penalty-and-enter-deferred-prosecution.

[173]   Id.

[174]   Id.

[175]   State Street DPA, supra note 171, ¶ 3.

[176]   Press Release, U.S. Dep’t of Justice, State Street Corporation to Pay $115 Million Criminal Penalty and Enter Into Deferred Prosecution Agreement in Connection With Scheme to Overcharge Custody Customers (May 13, 2021), https://www.justice.gov/usao-ma/pr/state-street-corporation-pay-115-million-criminal-penalty-and-enter-deferred-prosecution.

[177]   Press Release, U.S. Dep’t of Justice, State Street Corporation Agrees to Pay More than $64 Million to Resolve Fraud Charges (Jan. 18, 2017), https://www.justice.gov/opa/pr/state-street-corporation-agrees-pay-more-64-million-resolve-fraud-charges.

[178]   Joint Status Report, United States v. State Street Corp., No. 17-10008-IT (D. Mass. Mar. 15, 2021).

[179]   Id.

[180]   Id.

[181]   Deferred Prosecution Agreement, United States v. Swiss Life Holding AG, Swiss Life (Liechtenstein) AG, Swiss Life (Singapore) Pte. Ltd., and Swiss Life (Luxembourg) S.A. (May 14, 2021) (hereinafter “Swiss Life DPA”); Press Release, U.S. Dep’t Justice, Switzerland’s Largest Insurance Company And Three Subsidiaries Admit To Conspiring With U.S. Taxpayers To Hide Assets And Income In Offshore Accounts (May 14, 2021), https://www.justice.gov/usao-sdny/pr/switzerland-s-largest-insurance-company-and-three-subsidiaries-admit-conspiring-us (hereinafter “Swiss Life Press Release”).

[182]  Swiss Life Press Release.

[183]  Id.

[184]  Id.

[185]  Swiss Life DPA at 2–3.

[186]  Swiss Life DPA, Ex. C at 21.

[187]  Id. at 22.

[188]  Id. at 21.

[189]  Press Release, U.S. Dep’t of Justice, United Airlines to Pay $4.9 Million to Resolve Criminal Fraud Charges and Civil Claims (Feb. 26, 2021), https://www.justice.gov/opa/pr/united-airlines-pay-49-million-resolve-criminal-fraud-charges-and-civil-claims#:~:text=United%20Airlines%20Inc.,for%20transportation%20of%20international%20mail (hereinafter “United Airlines Press Release”); Non-Prosecution Agreement, United Airlines, Inc. (Feb. 25, 2021), at 3 (hereinafter “United Airlines NPA”).

[190]  United Airlines NPA, supra note 189, Attach. A, at 2–3.

[191]  Id.

[192]  Id. at 2–6; United Airlines Press Release, supra note 189.

[193]  United Airlines NPA, supra note 189, Attach. A at 4.

[194]  Id. at 2–6; United Airlines Press Release, supra note 189.

[195]  United Airlines Press Release, supra note 189.

[196]  Id.; United Airlines NPA, supra note 189, at 4–5; Attachs. B–C.

[197]   United Airlines NPA, supra note 189, at 1–2.

[198]   Id. at 2; United Airlines Press Release, supra note 189.

[199]   United Airlines NPA, supra note 189, at 2–3.

[200]   United Airlines Press Release, supra note 189; Settlement Agreement, United Airlines, Inc. (Feb. 25, 2021), https://www.justice.gov/opa/press-release/file/1371071/download (hereinafter “United Airlines Settlement Agreement”).

[201]   United Airlines Press Release; United Airlines Settlement Agreement.

[202]   UK Serious Fraud Office, Deferred Prosecution Agreements, https://www.sfo.gov.uk/publications/guidance-policy-and-protocols/guidance-for-corporates/deferred-prosecution-agreements/.

[203]   Agence Française Anticorruption, La Convention Judiciaire D’intérêt Public, https://www.agence-francaise-anticorruption.gouv.fr/fr/convention-judiciaire-dinteret-public.

[204]   James Thomas, Paris Court Approves Corruption DPA with Transport Company but Rejects Plea Bargains with Execs, Global Investigations Rev. (Feb. 26, 2021), https://globalinvestigationsreview.com/anti-corruption/paris-court-approves-corruption-dpa-transport-company-rejects-plea-bargains-execs.

[205]   Id.

[206]   James Thomas, Bolloré Corruption Resolution May Damage Trust in French Settlement Tools, Global Investigations Rev. (Mar. 16, 2021), https://globalinvestigationsreview.com/anti-corruption/bollore-corruption-resolution-may-damage-trust-in-french-settlement-tools.

[207]   Id.

[208]   See id.

[209]   Press Release, UK Serious Fraud Office, SFO Confirms DPA in Principle with Amec Foster Wheeler Energy Limited (June 25, 2021), https://www.sfo.gov.uk/2021/06/25/sfo-confirms-dpa-in-principle-with-amec-foster-wheeler-energy-limited/.

[210]   Bonnie Eslinger, SFO Gets OK On Wood Group Unit DPA Over Bribery Claims, Law360 (July 1, 2021), https://www.law360.com/energy/articles/1399464/sfo-gets-ok-on-wood-group-unit-dpa-over-bribery-claims.

[211]   Id.

[212]   Id.

[213]   Deferred Prosecution Agreement, Serious Fraud Office v. Amec Foster Wheeler Energy Ltd. (June 28, 2021), at 3–4.

[214]   Press Release, UK Serious Fraud Office, SFO Secures Two DPAs with Companies for Bribery Act Offences (July 20, 2021), https://www.sfo.gov.uk/2021/07/20/sfo-secures-two-dpas-with-companies-for-bribery-act-offences/.

[215]   Id.

[216]   Id.

[217]   Id.

[218]   Kristin Ridley, UK Prosecutor Ends Investigation into Airbus Individuals – Sources, Reuters (May 4, 2021), https://www.reuters.com/business/aerospace-defense/uk-prosecutor-ends-investigation-into-airbus-individuals-sources-2021-05-04/.

[219]   Jasper Jolly, Trial of Former Serco Executives Collapses as SFO Fails to Disclose Evidence, The Guardian (Apr. 26, 2021), https://www.theguardian.com/business/2021/apr/26/serco-trial-collapses-as-serious-office-fails-to-disclose-evidence.

[220]   Joel M. Cohen, Sacha Harber-Kelly, and Steve Melrose, Why Corporations Should Rethink How They Evaluate Deferred Prosecution Agreements, N.Y. L.J. (May 6, 2021), https://www.gibsondunn.com/wp-content/uploads/2021/05/Cohen-Harber-Kelly-Melrose-Why-Corporations-Should-Rethink-How-They-Evaluate-Deferred-Prosecution-Agreements-New-York-Law-Journal-05-06-2021.pdf (compiling data).

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The following Gibson Dunn lawyers assisted in preparing this client update: F. Joseph Warin, M. Kendall Day, Courtney Brown, Laura Cole, Michael Dziuban, Blair Watler, Benjamin Belair, Alexandra Buettner, William Cobb, Teddy Kristek, Madelyn La France, William Lawrence, Allison Lewis, Tory Roberts, Tanner Russo, Alyse Ullery-Glod, and Brian Williamson.

Gibson Dunn’s White Collar Defense and Investigations Practice Group successfully defends corporations and senior corporate executives in a wide range of federal and state investigations and prosecutions, and conducts sensitive internal investigations for leading companies and their boards of directors in almost every business sector. The Group has members across the globe and in every domestic office of the Firm and draws on more than 125 attorneys with deep government experience, including more than 50 former federal and state prosecutors and officials, many of whom served at high levels within the Department of Justice and the Securities and Exchange Commission, as well as former non-U.S. enforcers. Joe Warin, a former federal prosecutor, is co-chair of the Group and served as the U.S. counsel for the compliance monitor for Siemens and as the FCPA compliance monitor for Alliance One International. He previously served as the monitor for Statoil pursuant to a DOJ and SEC enforcement action. He co-authored the seminal law review article on NPAs and DPAs in 2007. M. Kendall Day is a partner in the Group and a former white collar federal prosecutor who spent 15 years at the Department of Justice, rising to the highest career position in the DOJ’s Criminal Division as an Acting Deputy Assistant Attorney General.

The Group has received numerous recognitions and awards, including its third consecutive ranking as No. 1 in the Global Investigations Review GIR 30 2020, an annual guide to the world’s top 30 cross-border investigations practices. GIR noted, “Gibson Dunn & Crutcher is the premier firm in the investigations space and has an unrivalled Foreign Corrupt Practices Act practice.” The list was published in October 2020.

Washington, D.C.
F. Joseph Warin (+1 202-887-3609, [email protected])
M. Kendall Day (+1 202-955-8220, [email protected])
Stephanie L. Brooker (+1 202-887-3502, [email protected])
David P. Burns (+1 202-887-3786, [email protected])
John W.F. Chesley (+1 202-887-3788, [email protected])
Daniel P. Chung (+1 202-887-3729, [email protected])
David Debold (+1 202-955-8551, [email protected])
Michael Diamant (+1 202-887-3604, [email protected])
Richard W. Grime (202-955-8219, [email protected])
Scott D. Hammond (+1 202-887-3684, [email protected])
Judith A. Lee (+1 202-887-3591, [email protected])
Adam M. Smith (+1 202-887-3547, [email protected])
Patrick F. Stokes (+1 202-955-8504, [email protected])
Oleh Vretsona (+1 202-887-3779, [email protected])
Christopher W.H. Sullivan (+1 202-887-3625, [email protected])
Courtney M. Brown (+1 202-955-8685, [email protected])
Ella Alves Capone (+1 202-887-3511, [email protected])
Melissa Farrar (+1 202-887-3579, [email protected])
Jason H. Smith (+1 202-887-3576, [email protected])
Pedro G. Soto (+1 202-955-8661, [email protected])

New York
Zainab N. Ahmad (+1 212-351-2609, [email protected])
Matthew L. Biben (+1 212-351-6300, [email protected])
Reed Brodsky (+1 212-351-5334, [email protected])
Joel M. Cohen (+1 212-351-2664, [email protected])
Mylan L. Denerstein (+1 212-351-3850, [email protected])
Lee G. Dunst (+1 212-351-3824, [email protected])
Barry R. Goldsmith (+1 212-351-2440, [email protected])
Christopher M. Joralemon (+1 212-351-2668, [email protected])
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Randy M. Mastro (+1 212-351-3825, [email protected])
Karin Portlock (+1 212-351-2666, [email protected])
Marc K. Schonfeld (+1 212-351-2433, [email protected])
Orin Snyder (+1 212-351-2400, [email protected])
Alexander H. Southwell (+1 212-351-3981, [email protected])
Lawrence J. Zweifach (+1 212-351-2625, [email protected])

Denver
Robert C. Blume (+1 303-298-5758, [email protected])
John D.W. Partridge (+1 303-298-5931, [email protected])
Ryan T. Bergsieker (+1 303-298-5774, [email protected])
Laura M. Sturges (+1 303-298-5929, [email protected])

Los Angeles
Nicola T. Hanna (+1 213-229-7269, [email protected])
Debra Wong Yang (+1 213-229-7472, [email protected])
Marcellus McRae (+1 213-229-7675, [email protected])
Michael M. Farhang (+1 213-229-7005, [email protected])
Douglas Fuchs (+1 213-229-7605, [email protected])
Eric D. Vandevelde (+1 213-229-7186, [email protected])

Palo Alto
Benjamin B. Wagner (+1 650-849-5395, [email protected])

San Francisco
Winston Y. Chan (+1 415-393-8362, [email protected])
Thad A. Davis (+1 415-393-8251, [email protected])
Charles J. Stevens (+1 415-393-8391, [email protected])
Michael Li-Ming Wong (+1 415-393-8234, [email protected])

London
Patrick Doris (+44 20 7071 4276, [email protected])
Charlie Falconer (+44 20 7071 4270, [email protected])
Sacha Harber-Kelly (+44 20 7071 4205, [email protected])
Michelle Kirschner (+44 20 7071 4212, [email protected])
Matthew Nunan (+44 20 7071 4201, [email protected])
Philip Rocher (+44 20 7071 4202, [email protected])
Steve Melrose (+44 20 7071 4219, [email protected])

Paris
Benoît Fleury (+33 1 56 43 13 00, [email protected])
Bernard Grinspan (+33 1 56 43 13 00, [email protected])

Munich
Benno Schwarz (+49 89 189 33-110, [email protected])
Michael Walther (+49 89 189 33-180, [email protected])
Mark Zimmer (+49 89 189 33-130, [email protected])

Dubai
Graham Lovett (+971 (0) 4 318 4620, [email protected])

Hong Kong
Kelly Austin (+852 2214 3788, [email protected])
Oliver D. Welch (+852 2214 3716, [email protected])

São Paulo
Lisa A. Alfaro (+5511 3521-7160, [email protected])
Fernando Almeida (+5511 3521-7093, [email protected])

Singapore
Joerg Bartz (+65 6507 3635, [email protected])

© 2021 Gibson, Dunn & Crutcher LLP

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

I.  Introduction: Themes and Notable Developments

This mid-year update marks the first six months of the Commission under the Biden administration. Change came swiftly, yet is only just beginning. In this update, we look at the significant developments from the first six months of 2021, and consider what to expect from new leadership at the Commission and the Enforcement Division. In sum, it is safe to say that the next four years will see a return to increasing regulatory oversight and escalated enforcement of market participants.

As predicted in our 2020 Year-End Securities Enforcement Update, promptly after President Biden was inaugurated, the White House substituted then Acting Chairman Elad Roisman with the senior Democratic Commissioner, Allison Herren Lee.[1] Under Acting Chair Lee’s leadership, the Commission began a number of initiatives that immediately signaled more aggressive and proactive regulatory oversight, including in areas of climate and environmental, social and governance (ESG) disclosure and investment management, and special purpose acquisition companies (SPACs), both of which are discussed further below. At the same time, Republican Commissioners often issued statements raising concerns about the approach being taken by the Commission in areas such as ESG disclosure and cryptocurrency.[2]

Shortly after her appointment to the Acting Chair position, Acting Chair Lee announced changes to the enforcement process that facilitated the opening of formal investigations and also added uncertainty to the settlement process for companies and SEC registered firms. In February, Acting Chair Lee restored the delegated authority of senior Enforcement Division staff to issue formal orders of investigation, which authorize the staff to issue subpoenas for documents and testimony.[3] The re-delegation of authority reversed the 2017 decision under the Trump administration which restricted authority to issue formal orders to the Director of the Enforcement or the Commissioners. Acting Chair Lee cited the need to allow investigative staff “to act more swiftly to detect and stop ongoing frauds, preserve assets, and protect vulnerable investors.”[4] Immediately following that pronouncement, the Commission announced an end to the practice of permitting settling parties to make contingent settlement offers—offers to resolve an investigation contingent on receiving from the Commission a waiver of collateral consequences, such as disqualifications from regulatory safe harbors, which would otherwise arise from the violations. In her statement, Acting Chair Lee noted that “waivers should not be used as ‘a bargaining chip’ in settlement negotiations, nor should they be considered a ‘default position’ under the SEC.”[5] Following the announcement, Commissioners Hester Peirce and Elad Roisman, both Republicans, issued a joint statement criticizing the impact of the policy reversal on parties seeking to resolve an investigation through a settlement “because it undercuts the certainty and finality that settlement might otherwise provide.”[6]

In April, Gary Gensler was sworn in as Chairman of the SEC.[7] Before joining the SEC, Chairman Gensler was Chairman of the Commodity Futures Trading Commission in the Obama administration and presided over a period of heightened financial regulation and aggressive enforcement against major financial institutions.

In June, Chairman Gensler appointed Gurbir Grewal, the Attorney General for the State of New Jersey, as the new Director of the Division of Enforcement.[8] Mr. Grewal will begin his role as Division Director on July 26. With the appointment of Mr. Grewal, Chairman Gensler continues a trend, begun in the wake of the 2008 financial crisis, of appointing former prosecutors to the that position. Before becoming New Jersey Attorney General, Mr. Grewal had been the Bergen County Prosecutor, and Assistant U.S. Attorney in the District of New Jersey (where he was Chief of the Economic Crimes Unit) and in the Eastern District of New York (where he was assigned to the Business and Securities Fraud Unit). Mr. Grewal also worked in private practice from 1999 to 2004 and 2008 to 2010.

Now that the new Commission leadership is taking shape, we expect the coming months to reflect increasingly the influence of the new administration. Undoubtedly, this will translate into heightened scrutiny on legal and compliance departments and financial reporting functions of financial institutions, investment advisers, broker-dealers, and public companies.

A.  Climate and ESG Task Force

In March, Acting Chair Lee announced the creation of a Climate and ESG Task Force.[9] The task force is composed of 22 members drawn from various Commission offices and specialized units. The Climate and ESG task force is charged with developing initiatives to identify ESG-related misconduct and analyzing data to identify potential violations. Additionally, the task force aims to identify misstatements in issuers’ disclosure of climate risks and to analyze disclosure and compliance issues related to ESG stakeholders and investors. The SEC has also established a website and intake submission form for tips, referrals, and whistleblower complaints for ESG-related issues. The task force will work closely with other SEC Divisions and Offices, including the Division of Corporation Finance, Investment Management, and Examinations.

In April, the Division of Examinations issued a Risk Alert detailing its observations of deficiencies and internal control weaknesses from examinations of investment advisers and funds regarding investing that incorporates ESG factors.[10] The Division’s Risk Alert provides a useful roadmap to assist investment advisers in developing, testing and enhancing their compliance policies, procedures and practices. Please see our prior client alert on this subject for an analysis of the lessons learned from the Division’s Risk Alert.

B.  Focus on SPACs

Over the course of the first half of this year, the SEC has been intensifying its focus on SPACs. Also referred to as blank check companies, SPACs are shell companies which offer private companies an alternative path to the public securities markets instead of an IPO. A SPAC transaction proceeds in two phases: (i) an initial phase in which the shell company raises investor funds to finance all or a portion of a future acquisition of a private company and (ii) a de-SPAC phase in which the SPAC merges with a private target company. During the de-SPAC phase, investors in the initial SPAC either sell their shares on the secondary market or have their shares redeemed. After the de-SPAC, the entity continues to operate as a public company. Typically, SPACs have two years to complete a merger with a private company.

Earlier this year, senior SEC officials in the Division of Corporation Finance and Office of the Chief Accountant issued a string of pronouncements concerning the risks posed by the explosion of SPAC initial public offerings in 2020 and early 2021, including a potential misalignment of interests and incentives between SPAC sponsors and shareholders.[11] Last week the Commission announced an enforcement action against a SPAC, the SPAC sponsor, and the CEO of the SPAC, as well as the proposed merger target and the former CEO of the target for misstatements in a registration statement and amendments concerning the target’s technology and business risks.[12]

In a separate alert, we analyzed the important implications this enforcement action has for SPACs, their sponsors and executives for their diligence on proposed acquisition targets. To emphasize the point, SEC Chairman Gary Gensler took the unusual step of providing comments that echoed the concerns of senior officials and sent a clear message that even when the SPAC is “lied to” by the target, the SPAC and its executives are at risk for liability under the securities laws if their diligence fails to uncover misrepresentations or omissions by the target. Chairman Gensler stated, “This case illustrates risks inherent to SPAC transactions, as those who stand to earn significant profits from a SPAC merger may conduct inadequate due diligence and mislead investors. . . . The fact that [the target] lied to [the SPAC] does not absolve [the SPAC] of its failure to undertake adequate due diligence to protect shareholders.”

C.  Focus on Cybersecurity Risks

For a number of years, the Commission has been increasing its focus on controls and disclosures related to the risks of cyberattacks. In June, the Division of Enforcement publicly disclosed that it was conducting an investigation regarding a cyberattack involving the compromise of software made by the SolarWinds Corp.[13] As part of that investigation, the Division staff issued letters to a number of entities requesting information concerning the SolarWinds compromise. The inquiry is notable both for its public nature as well as the scope of the requests and signals a heightened scrutiny of how companies manage cyber-related risks.

D.  Shifting Approach to Penalties against Public Companies

In addition to the overarching expectations for increasingly aggressive enforcement under this administration, the first half of this year also revealed indications that the Commission’s approach to corporate penalties may be undergoing a transition.

For many years the Commission has debated whether, and to what extent, public companies should be subject to monetary penalties in settlement of enforcement actions based on allegations of improper accounting or financial reporting or misleading disclosures. On one hand, advocates for the imposition of substantial penalties argue that they are a statutorily authorized remedy that serves regulatory goals of specific and general deterrence and, since the creation of fair funds, the potential goal of financial remediation. On the other hand, imposing penalties on a public company is simply taking value away from current shareholders of the company, some of whom may also have been the victims of the alleged financial reporting misconduct, and, in the absence of a fair fund, simply transferring that value to the U.S. Treasury. In the wake of the corporate accounting scandals of the 2000s, the SEC’s penalties against public companies rose to the hundreds of millions of dollars, leading to calls for a framework for the determination of appropriate penalties.

In an effort to bring some consistency to the Commission’s and the Enforcement Division’s approach to negotiating corporate penalties, in 2006 the Commission unanimously issued guidance on whether, and to what extent, the Commission should seek to impose penalties against public companies.[14] Rooting the guidance in the legislative history of the 1990 Congressional authorization of SEC penalty authority, the Commission’s 2006 guidance identified two principal factors to determine whether a penalty against a public company would be appropriate: (1) whether the company received a direct financial benefit as a result of the alleged violation, and (2) the extent to which a penalty would recompense or harm injured shareholders. Although the 2006 guidance identified other relevant factors—such as the need for deterrence, egregiousness of the harm from the violation, level of intent, corporate cooperation—the first two factors were of paramount importance. As a general matter, in the years following the 2006 Guidance, the size of corporate penalties in financial reporting cases moderated.

In March of this year, Commissioner Caroline Crenshaw, a Democrat, delivered a speech[15] in which she criticized the 2006 guidance. Calling the guidance “myopic” and “fundamentally flawed,” Commissioner Crenshaw argued that the Commission should not treat the presence or absence of a corporate benefit as a threshold issue to imposing a penalty. Instead, the Commission should focus on factors such as: (1) the egregiousness of the misconduct, (2) the extent of the company’s self-reporting, cooperation and remediation, (3) the extent of harm to victims, (4) the level of complicity of senior management within the company in the alleged misconduct, and (5) the difficulty of detecting the alleged misconduct. Anecdotal experience suggests that a majority of the Commissioners, and consequently, the staff of the Enforcement Division, are following the principles outlined in Commissioner Crenshaw’s speech.

The significance of this for public companies is that the Commission’s approach to corporate penalties diverges from its statutory underpinnings. The securities laws provide for prescribed penalty amounts per violation.[16] In general, in litigated cases, district courts and administrative law judges have generally imposed reasonable limits on the penalties sought by the Commission.[17] If the Commission is no longer following the 2006 guidance, then untethered from a consideration of corporate benefit or shareholder cost-benefit, the Commission’s posture on corporate penalties is vulnerable to subjective assessments of egregiousness and corporate cooperation. Moreover, unlike calculations under the US Sentencing Guidelines, there is no public disclosure of exactly how the SEC reaches a particular penalty, leaving companies and counsel unable to understand the basis for any negotiated penalty amount.

E.  Litigation Developments

In the SEC’s ongoing litigation against Ripple Labs, there were notable developments in the defendants’ ability to obtain discovery of the SEC Staff’s prior policy positions concerning whether digital currencies constitute securities. In the pending litigation against Ripple, filed at the end of 2020, the SEC alleges that Ripple’s sales of digital token XRP constituted unregistered securities offerings. In April, a Magistrate Judge hearing discovery disputes granted the defendants’ motion seeking discovery of internal SEC Staff documents bearing on whether XRP tokens are similar to other cryptocurrencies that the SEC Staff has deemed not to be securities. More recently, in July, the Magistrate Judge ordered that the defendants could take the deposition of William Hinman, the former Director of the SEC’s Division of Corporation Finance, regarding a speech he delivered as Division Director concerning whether, in the Staff’s view, certain digital tokens constitute securities. These discovery decisions provide notable precedent for obtaining discovery of evidence relevant to the positions of Commission Staff on policy issues that may be relevant to the issues pending in particular enforcement litigation.

F.  Other Senior Staffing Updates

In addition to the confirmation of Chairman Gensler and appointment of Enforcement Director Grewal, there were a number of other changes in the senior staffing of the Commission:

• In April, Jane Norberg, Chief of the SEC’s Office of the Whistleblower, left the agency. Ms. Norberg had been with the Office of the Whistleblower since near its inception in 2012. The Office’s Deputy Chief, Emily Pasquinelli, has been serving as Acting Chief pending appointment of a new Chief.
• In May, Joel R. Levin, the Director of the Chicago Regional Office, left the SEC.[18] He had served as Director of the Chicago office since 2018. Associate Directors Kathryn A. Pyszka and Daniel Gregus have been serving as Regional Co-Directors pending appointment of a new Regional Director.
• In June, Chairman Gensler announced additions to his executive staff, including Amanda Fischer as Senior Counselor; Lisa Helvin as Legal Counsel; Tejal D. Shah as Enforcement Counsel; Angelica Annino as Director of Scheduling and Administration; Liz Bloom as Speechwriter to the Chair; Basmah Nada as Digital Director; and Jahvonta Mason as Special Assistant to the Chief of Staff.
• Also in June, Renee Jones joined the SEC as Director of the Division of Corporation Finance, while the Acting Director of the Division, John Coates, was named SEC General Counsel.[19] Jones previously served as Professor of Law and Associate Dean for Academic Affairs at Boston College Law School, is a member of the American Law Institute and has served as the Co-Chair of the Securities Law Committee of the Boston Bar Association. Mr. Coates had previously served as the SEC’s Acting Director of the Division of Corporate Finance since February 2021. Before joining the SEC, he was Professor of Law and Economics at Harvard University.

G.  Whistleblower Awards

Coming off another record year of whistleblower awards in 2020, the Commission has continued to issue awards at a record pace in the first half of 2021. There is no reason to believe that these awards will slow down given the importance of the program to the Commission. Through June of this year, the SEC’s whistleblower program has awarded nearly $200 million to 45 separate whistleblowers. That is almost $100 million more than the first half of 2020, which was $115 million to 15 individuals. Overall, the SEC’s whistleblower program has paid out approximately $937 million to 178 individuals since the start of the program.

In April, the SEC announced an award of over $50 million to joint whistleblowers for information that alerted the SEC to violations involving highly complex transactions that would have “been difficult to detect without their information.”[20] This award is the second largest in the history of the program and reflects the Commission’s dedication to recovering funds for harmed investors.

Other significant whistleblower awards granted during the first half of this year include:

• Four awards in January, including an award of almost $500,000 to three whistleblowers in connection with two related enforcement actions; nearly $600,000 to a whistleblower whose information caused the opening of an investigation, and for the whistleblower’s ongoing assistance in the SEC’s investigation; an award of more than $100,000 to a whistleblower whose independent analysis led to a successful enforcement action;[21] and an award of $600,000 to a whistleblower whose tip led to the success of an enforcement action.[22]
• Five awards in February, including a $9.2 million award to a whistleblower who provided information that led to successful related actions by the Department of Justice.[23] Additional awards in February included two awards totaling almost $3 million to two separate whistleblowers whose high quality information led to an enforcement action that resulted in millions of dollars to harmed clients;[24] and two awards totaling more than $1.7 million to two whistleblowers in separate proceedings relating to the new Form TCR filing requirement set forth in Securities Exchange Act Rule 21F-9(e).[25]
• Four awards in March, including over $500,000 to two whistleblowers for tips that revealed ongoing fraud;[26] an award of over $5 million to joint whistleblowers whose tip resulted in the opening of an investigation;[27] approximately $1.5 million to a whistleblower whose information and assistance led to a successful SEC enforcement action;[28] and an award of more than $500,000 to a whistleblower for information and assistance that led to the shutting down of an ongoing fraudulent scheme.[29]
• Three awards in April, including an award of approximately $2.5 million to a whistleblower whose information and assistance to the SEC contributed to the success of an SEC enforcement action;[30] a $3.2 million award to a whistleblower who alerted the SEC to violations and provided subject matter expertise to the staff that conserved SEC resources; and a $100,000 award to a whistleblower for significant information and ongoing assistance.[31]
• Six awards in May, including two awards totaling $31 million to four whistleblowers, two of which received $27 million for providing the SEC with new information and assistance during an existing investigation; and two others who received $3.76 million and $750,000 respectively for independently providing the SEC with information that assisted an ongoing investigation.[32] Additional awards in May include an award of approximately $22 million to two whistleblowers for information and assistance that was “crucial” to a successful enforcement action brought against a financial services firm;[33] a $3.6 million award to a whistleblower whose information and assistance led to a successful enforcement action;[34] an award of more than $28 million to a whistleblower for information that caused both the SEC and another agency to open investigations that resulted in significant enforcement actions;[35] and an award of more than $4 million to a whistleblower who alerted the SEC to certain violations that led to the opening of an investigation.[36]
• Five awards in June, including an award of more than $23 million to two whistleblowers whose information and assistance led to successful SEC and related actions;[37] an award of $3 million to two whistleblowers who separately and independently provided the SEC with valuable information and ongoing assistance;[38] two awards totaling nearly $5.3 million to four whistleblowers who provided information that prompted the opening of two separate investigations;[39] and an award of more than $1 million to a whistleblower whose information and assistance led to multiple successful SEC enforcement actions.[40]

II.  Public Company Accounting, Financial Reporting and Disclosure Cases

A.  Financial Reporting Cases

Cases Against Public Companies and Executives

In February, the SEC announced settled charges against the former CEO and CFO of a company that provides Flexible Spending Account services for allegedly making false and misleading statements and omissions that resulted in the company’s improper recognition of revenue related to a contract with a large public-sector client.[41] The SEC’s order alleged that one of the company’s large public sector clients stated on multiple occasions that it did not intend to pay for certain development and transition work associated with an existing contract. The CEO and CFO allegedly directed the company to recognize $3.6 million in revenue related to this work without disclosing to internal accounting staff or to the company’s external auditor that the client’s employees denied that it owed these amounts to the company. Without admitting or denying the SEC’s findings, the CEO and CFO agreed respectively to cease and desist from further violations of the charged provisions, pay penalties of $75,000 and $100,000, and reimburse the company for incentive-based compensation received on the basis of the alleged violations.

In May, the SEC instituted a settled action against a sports apparel manufacturer for allegedly misleading investors as to the bases of its revenue growth and failing to disclose known uncertainties concerning its future revenue prospects.[42] The SEC’s order alleged that the company accelerated, or “pulled forward,” a total of $408 million in existing orders that customers had requested be shipped in future quarters and that the company attributed its revenue growth during the relevant period to a variety of other factors without disclosing to investors material information about the impact of its pull forward practices. The company agreed to cease and desist from further violations and to pay a $9 million penalty without admitting or denying the findings in the SEC order.

Cases Against Auditors and Accountants

In February, the SEC suspended two former auditors from practicing before the SEC in connection with settled charges alleging improper professional conduct during an audit of a now defunct, not-for-profit educational institution.[43] The auditors allegedly issued an audit report without following Generally Accepted Auditing Standards by, among other things, failing to obtain sufficient appropriate audit evidence or to properly prepare audit documentation. The resultant financial statements allegedly fraudulently overstated the college’s net assets by $33.8 million. Without admitting or denying the findings, the auditors agreed to the suspension with the right to apply for reinstatement after three years and one year, respectively.

In April, the SEC instituted administrative proceedings against a Texas-based CPA for allegedly failing to register his firm with the Public Company Accounting Oversight Board (PCAOB) and alleged failures in auditing and reviewing the financial statements of a public company client.[44] The CPA allegedly failed to complete his application to register with the PCAOB and performed an audit while the application was incomplete. The audit allegedly failed to comply with multiple PCAOB Auditing Standards as well. The proceedings will be scheduled for a public hearing before the Commission.

B.  Disclosure Cases

In February, the SEC announced settled charges against a gas exploration and production company and its former CEO for failing to properly disclose as compensation certain perks provided to the CEO and certain related personal transactions.[45] The alleged failures to disclose included approximately $650,000 in the form of perquisites, including costs associated with the CEO’s use of the company’s chartered aircraft and corporate credit card. The SEC took into account the company’s significant cooperation efforts when accepting the settlement offer. The Company and CEO agreed, without admitting or denying to the SEC’s findings, to cease-and-desist from further violations. Additionally, the CEO agreed to pay a civil penalty in the amount of $88,248.

In April, the SEC instituted a settled action against eight companies for allegedly failing to disclose in SEC Form 12b-25 “Notification of Late Filing” forms (known as Form NT) that their requests for seeking a delayed quarterly or annual reporting filing was caused by an anticipated restatement or correction of prior financial reporting.[46] The orders found that each company announced restatements or corrections to financial reporting within four to fourteen days of their Form NT filings despite failing to disclose that anticipated restatements or corrections were among the principal reasons for their late filings. The companies, without admitting or denying the findings, agreed to cease-and-desist-orders and paid penalties of either $25,000 or $50,000.

In May, the SEC announced settled charges against a firm that produces, maintains, licenses, and markets stock market indices.[47] The SEC’s order alleged failures relating to a previously undisclosed quality control feature of one of the firm’s volatility-related indices, which allegedly led it to publish and disseminate stale index values during a period of unprecedented volatility. The allegedly undisclosed feature was an “Auto Hold”, which is triggered if an index value breaches certain thresholds, at which point the immediately prior index value continues to be reported. Without admitting or denying the SEC’s findings, the firm agreed to a cease-and-desist order and to pay a $9 million penalty.

C.  Disclosure and Internal Controls Case against Ratings Agency

In February, the SEC filed a civil action against a former credit ratings agency. The SEC’s complaint alleged that the agency violated disclosure and internal control provisions in rating commercial mortgage-backed securities (CMBS).[48] According to the complaint, the credit ratings agency allowed analysts to make undisclosed adjustments to ratings models and did not establish and enforce effective internal controls over these adjustments for 31 transactions.

III.  Investment Advisers and Broker-Dealers

A.  Investment Advisers

In late May, the SEC filed a civil action against two investment advisers and their portfolio managers for allegedly misleading investors about risk management practices related to their short volatility trading strategy.[49] According to the SEC’s complaint, the investment advisers made misleading statements about their risk management practices. During a period of historically low volatility in late 2017, the investment adviser firms increased the level of risk in the portfolios while assuring investors that the portfolios’ risk profiles remained stable. The SEC’s complaint alleged that a sudden spike in volatility in early 2018 led to trading losses exceeding $1 billion over two trading days. The SEC separately settled related charges with the Firm’s Chief Risk Oficer.

In mid-June, the SEC announced that it had obtained an asset freeze and filed charges against a Miami-based investment professional and two investment firms for engaging in a “cherry-picking” scheme in which they allegedly channeled trading profits to preferred accounts.[50] The SEC alleged that beginning in September 2015, the firms diverted profitable trades to accounts held by relatives and allocated losing trades to other clients by using a single account to place trades without specifying the intended recipients of the securities at the time of the trade. According to the SEC’s complaint, the preferred clients received approximately $4.6 million in profitable trades while the other clients experienced over $5 million in first-day losses.

B.  Broker-Dealer Reporting and Recordkeeping

In May, the SEC announced settled charges against a Colorado-based broker-dealer for failing to file Suspicious Activity Reports (SARs).[51] The purpose of SARs is to identify and investigate potentially suspicious activity. The SEC’s order alleged that for a three-year period, the broker-dealer failed to file SARs—or filed incomplete SARs—while it was aware that there were attempts to use improperly obtained personal identifying information to gain access to the retirement accounts of individual plan participants at the broker-dealer. The SEC’s order noted significant cooperation by the broker-dealer and remedial efforts including anti-money laundering systems, replacing key personnel, clarifying delegation of responsibility, and implement new SAR-related policies and training.

IV.  Cryptocurrency and Digital Assets

A.  Registration Case

In May, the SEC filed a civil action against five individuals for allegedly promoting unregistered digital asset securities.[52] The defendants worked as promoters for an open-source cryptocurrency, raising over $2 billion dollars from retail investors. The SEC’s complaint alleged that from January 2017 to January 2018, the promoters advertised the cryptocurrency’s “lending program” by creating “testimonial” style videos that appeared on YouTube. According to the complaint, the defendants did not register as broker-dealers and also did not register the securities offering. The complaint seeks injunctive relief, disgorgement, and civil penalties from all five defendants.

B.  Fraud Case

In February, the SEC filed a civil action against three defendants, a founder of two digital currency companies and promoters for the companies, for allegedly defrauding hundreds of retail investors out of over $11 million through digital asset securities offerings.[53] The SEC’s complaint alleged that from December 2017 to January 2018, the individuals induced investors to purchase securities in the companies by claiming their trading platform was the “largest” and “most secure” Bitcoin exchange. The defendants then promoted the unregistered initial coin offering of their cryptocurrency, referred to as B2G tokens by telling investors that their cryptocurrency would be built on the Ethereum blockchain and would launch in April 2018. Instead, the SEC claims, the defendants misappropriated the investor funds for their personal benefit. The complaint seeks injunctive relief, disgorgement, and penalties, along with an officer and director bar for the founder and one promoter. The U.S. Attorney’s Office for the Eastern District of New York and the Department of Justice Fraud Section announced parallel criminal charges against the promoter.

V.  Meme Stocks

In the first half of this year, the SEC responded to the growing presence of ‘meme stocks,’ which undergo spikes of rapid growth in short periods of time largely in response to social media activity. In January, following a period of increased market activity in GameStop stock fueled by posts on the social media aggregator site Reddit, the SEC released an alert that warned investors against “jump[ing] on the bandwagon” and emphasized avoiding making investment decisions based on social media posts.[54]

A.  Trading Suspensions

In February, the SEC suspended trading in an inactive company due to potentially manipulative social media activity attempting to artificially inflate the company’s stock price.[55] The SEC’s trading suspension order stated that in January 2021, several social media accounts coordinated to increase the share price of stocks for a Minnesota-based medical device company, although the company had not filed reports with the SEC since 2017 and its website and contact information were non-functional. During this time, the share price and trading volume of the company’s securities increased. A few weeks later, the SEC suspended trading in the securities for 15 companies again in response to social media activity relating to the issuers, none of which had filed information with the SEC for over a year.[56] In total, the SEC suspended trading for 24 companies in February because of suspicious social media posts.

B.  Fraud Case

In March, the SEC announced a filed civil action and an asset freeze against a California-based trader for allegedly using social media to post false information about a company, while selling his own holdings in the company’s stock.[57] The SEC’s complaint alleged that the defendant purchased 41 million shares of stock from a defunct company with publicly traded securities. In the same day, the trader allegedly made over 120 tweets containing false information about the company, including that the company recently revived its operations and expanded its business. As an example, one of the posts alleged that the company had “huge” investors and the CEO had “big plans” for the company’s future. In the following days, the company’s share price increased by over 4,000 percent, at which point the defendant sold his shares for a profit of over $929,000 dollars and continued to post on Twitter about the company’s success. The complaint seeks a permanent injunction, disgorgement, and a civil penalty. The SEC also temporarily suspended trading in the company’s securities.[58]

VI.  Insider Trading

In March, the SEC filed settled charges against a California individual for perpetuating a scheme to sell “insider tips” on the dark web.[59] This is the SEC’s first enforcement action involving alleged securities violations on the dark web, a platform allowing users to access the internet anonymously. The complaint alleged that the individual falsely claimed to possess material, nonpublic information, which he sold on the dark web. Several investors purchased the individual’s purported tips and traded on the information he provided. The individual agreed to a bifurcated settlement (which reserves the determination of disgorgement and penalties for a later date); the U.S. Attorney’s Office for the Middle District of Florida announced parallel criminal charges.

In June 2021, the SEC announced settled charges against a New York-based couple for insider trading relating to the stock of a pharmaceutical company where one of them worked as a clinical trial project manager.[60] According to the SEC’s complaint, the project manager learned of negative results from the drug trial she oversaw, and tipped another individual who sold all of his stock in the pharmaceutical company ahead of the public news announcement. The individual also tipped his uncle, who also sold all of his stock. After the negative news was announced, the company stock fell approximately 50%, which would have led to losses of over $100,000 for the individuals had the individuals not sold their stock. The individuals have agreed to pay around $325,000 to settle the charges.

VII.  Regulation FD

In the twenty years since the adoption of Regulation FD, which prohibits selective disclosure by public companies of material, non-public material information, the Commission has filed only two litigated enforcement actions alleging violation of the Rule. The first case, filed against Seibel Systems in 2005, ended swiftly when the district court granted the defendants’ motion to dismiss the Commission’s complaint for failure to state a claim.[61] More than fifteen years later, in March of this year, the SEC filed a litigated action against AT&T and three investor relations employees.[62] The complaint alleges that the three IR employees selectively released material financial data in March and April of 2016. Specifically, the SEC alleges that the IR employees disclosed material nonpublic information to a group of analysts at twenty research firms in an effort to avoid the Company’s quarterly revenue falling short of the analyst community’s estimates. AT&T issued a statement in response explaining that any information discussed in communications with analysts was public and immaterial.[63] Among other things, AT&T noted that the information discussed with analysts “concerned the widely reported, industry-wide phase-out of subsidy programs for new smartphone purchases and the impact of this trend on smartphone upgrade rates and equipment revenue…. Not only did AT&T publicly disclose this trend on multiple occasions before the analyst calls in question, but AT&T also made clear that the declining phone sales had no material impact on its earnings.” Notably, AT&T highlighted the fact that the Commission’s complaint “does not cite a single witness involved in any of these analyst calls who believes that material nonpublic information was conveyed to them.”

VIII.  Offering Frauds

The SEC continued to bring a large number of offering fraud cases in the first half of 2021.

A.  Investment Frauds

In January, the SEC filed two civil actions; the first was against a real estate broker and his company for raising $58 million from investors in two real estate funds by using a fabricated investment record.[64] The SEC’s complaint also alleged that the broker, who had no investment management experience, misappropriated over $7 million in investor assets to conceal losses that ultimately forced the funds to wind down. In the second action, the SEC filed a complaint against an entertainment company and its founder for using a “boiler room” sales scheme to raise money from investors.[65] According to the complaint, the company employed salespeople who utilized high-pressure tactics and made misrepresentations about the company’s growth in order to raise $14 million from individual investors. Both complaints seek disgorgement, injunctive relief, and civil penalties.

In early March, the SEC filed charges against seven individuals and a technology company for an alleged scheme to raise the price of the company’s stock, after which they sold their shares for proceeds of over $22 million.[66] The complaint also alleged that during this campaign, approximately $22.8 million was raised from investors who were allegedly misled about the true nature of the company and that a large portion of the money raised from investors was used for personal expenses. The complaint seeks disgorgement, civil penalties, and injunctive relief.

In mid-March, the SEC announced three cases relating to investor frauds. The SEC filed a civil complaint against a New Jersey resident for defrauding potential investors, most of whom were members of the Orthodox Jewish community, including friends and family of the defendant.[67] According to the complaint, the defendant raised millions of dollars using misleading and false representations regarding his real estate investment company, which purchased and owned apartment complexes. The individual defendant agreed to settle the charges against him subject to court approval; the U.S. Attorney’s Office for the District of New Jersey filed parallel criminal charges. The SEC also filed a civil complaint against an individual who raised money from investors in his company by making representations that was an environmentally friendly drink bottling and manufacturing company.[68] The complaint alleged that in reality, the company had no operations, and the money was used by the defendant for personal expenses. The SEC obtained emergency relief in this matter and the seeks complaint injunctive relief and civil penalties. Finally, the SEC filed charges against the two co-founders of a San Francisco-based biotech company for raising funds from investors by misrepresenting their company as a fast-growing medical company that could improve people’s lives via new inventions in the “microbiome industry.”[69] The complaint alleged that the co-founders’ claims regarding their clinical testing were based on false medical tests and other improper practices. The U.S. Attorney’s Office for the Northern District of California filed parallel criminal charges against the co-founders.

In April, the SEC filed a pair of civil actions against firms and their executives for conduct which resulted in significant investor losses. In the first action, the SEC alleged that an Israeli-based company and two of its former executives created a binary option securities trading platform in which investor losses were probable, and failed to inform investors that their partners were counterparties on the options.[70] In the second action, the SEC alleged that an individual and investment adviser misled investors regarding the strategy for his fund, and induced them to invest in highly illiquid companies and real estate rather than liquid assets as promised.[71] The complaint further alleged that the individual misappropriated fund assets for personal uses and failed to disclose all conflicts of interest. The U.S. Attorney’s Office for the Southern District of New York filed parallel criminal charges against the individual.

In May, the SEC filed charges against a New Jersey-based healthcare company and its founder for fraudulently raising money from investors by selling them membership interests in a company that purportedly offered employers a supplemental medical reimbursement plan.[72] The complaint alleged that the individual defendant raised money from investors through various misrepresentations, including failing to disclose his prior felony convictions and history of regulatory violations. The complaint seeks disgorgement, injunctive relief, and civil penalties.

B.  Ponzi-Like Schemes

In February, the SEC filed a civil action against three individuals and their affiliated entities alleging that they conducted a Ponzi-like scheme that raised more than $1.7 billion.[73] The complaint alleged that the defendants promised investors an 8% annualized distribution payment, and represented that it was generated by portfolio companies when it was in fact sourced from other investor money. The complaint seeks disgorgement and civil penalties.

In March, the SEC filed a settled complaint against an individual for operating a decade-long fraud in which he transferred poorly performing assets from a fund controlled by him to two private hedge funds.[74] The defendant told investors that these funds were generating positive returns when a substantial number of the investments were actually used to make Ponzi-like payments to prior investors. The defendant agreed to settle to these charges, and also pled guilty to related criminal charges in the District of New Jersey.

In April, the SEC filed two civil actions alleging Ponzi-like schemes. In the first action, the SEC alleged that an actor raised $690 million by promising investors high returns by telling them that they were buying film rights which he would resell to HBO and Netflix.[75] The defendant allegedly paid investors the returns using new investments, and also misappropriated investor funds for his personal use. In the second action, the SEC’s complaint alleged that the defendant raised more than $17.1 million from over 100 investors by promising investors annual returns between 10% and 60% on resale of “customer lead generation campaigns.”[76] According to the complaint, the defendant instead use the investments to make payments to other investors and entities, as well as for personal expenses.

____________________________

   [1]     SEC Press Release, Allison Herren Lee Named Acting Chair of the SEC (January 21, 2021), available at https://www.sec.gov/news/press-release/2021-13.

   [2]     https://www.sec.gov/news/public-statement/peirce-roisman-coinschedule; https://www.sec.gov/news/public-statement/rethinking-global-esg-metrics.

   [3]     SEC Press Release, U.S. Sec. & Exch. Comm’n, Statement of Acting Chair Allison Herren Lee on Empowering Enforcement to Better Protect Investors (Feb, 9, 2021), https://www.sec.gov/news/public-statement/lee-statement-empowering-enforcement-better-protect-investors.

   [4]     Id.

   [5]     See Allison Herren Lee, Acting Chair, Statement of Acting Chair Allison Herren Lee on Contingent Settlement Offers (Feb. 11, 2021), https://www.sec.gov/news/public-statement/lee-statement-contingent-settlement-offers-021121.

   [6]     See Hester M. Peirce & Elad L. Roisman, Commissioners, Statement of Commissioners Hester M. Peirce and Elad L. Roisman on Contingent Settlement Offers (Feb. 12, 2021), https://www.sec.gov/news/public-statement/peirce-roisman-statement-contingent-settlement-offers-021221.

   [7]     SEC Press Release, Gary Gensler Sworn in as Member of the SEC (April 17, 2021), available at https://www.sec.gov/news/press-release/2021-65.

   [8]     SEC Appoints New Jersey Attorney General Gurbir S. Grewal as Director of Enforcement, Rel. No. 2021-114, June 29, 2021, available at https://www.sec.gov/news/press-release/2021-114.

   [9]     SEC Press Release, SEC Announces Enforcement Task Force Focused on Climate and ESG Issues (March 4, 2021), https://www.sec.gov/news/press-release/2021-42.

   [10]   The Division of Examinations’ Review of ESG Investing, April 9, 2021, available at https://www.sec.gov/files/esg-risk-alert.pdf.

   [11]   March 31, 2021 Staff Statement on Select Issues Pertaining to Special Purpose Acquisition Companies, available at https://www.sec.gov/news/public-statement/division-cf-spac-2021-03-31; March 31, 2021 Public Statement: Financial Reporting and Auditing Considerations of Companies Merging with SPACs, available at https://www.sec.gov/news/public-statement/munter-spac-20200331; Apr. 8, 2021 Public Statement:  SPACs, IPOs and Liability Risk under the Securities Laws, available at https://www.sec.gov/news/public-statement/spacs-ipos-liability-risk-under-securities-laws; Apr. 12, 2021 Public Statement:  Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”), available at https://www.sec.gov/news/public-statement/accounting-reporting-warrants-issued-spacs; SEC Official Warns on Growth of Blank-Check Firms, Wall St. Journal (Apr. 7, 2021), available at https://www.wsj.com/articles/sec-official-warns-on-growth-of-blank-check-firms-11617804892.

   [12]   Press Release, Securities and Exchange Commission, SEC Charges SPAC, Sponsor Merger Target, and CEOs for Misleading Disclosures Ahead of Proposed Business Combination (July 13, 2021), available at https://www.sec.gov/news/press-release/2021-124.

   [13]   In the Matter of Certain Cybersecurity-Related Events (HO-14225) FAQs, available at https://www.sec.gov/enforce/certain-cybersecurity-related-events-faqs.

   [14]   Statement of the Securities and Exchange Commission Concerning Financial Penalties, Rel. 2006-4, Jan. 4, 2006, available at https://www.sec.gov/news/press/2006-4.htm.

   [15]   Moving Forward Together – Enforcement for Everyone, Commissioner Caroline A. Crenshaw, March 9, 2021, available at https://www.sec.gov/news/speech/crenshaw-moving-forward-together.

   [16]   See, e.g., Securities Exchange Act of 1934, Section 21(d)(3) (15 U.S.C. § 78u).

   [17]   See, e.g., In re Total Wealth Management, Inc., Initial Dec. No. 860 (Aug. 17, 2005) (finding Enforcement Division staff’s argument that each investor constitutes a separate violation “arbitrary” and “overly simplistic” and may “lead to wildly disproportionate penalty amounts.”).

   [18]   SEC Press Release, Joel R. Levin, Director of Chicago Regional Office, to Leave SEC, (April 16, 2021), available at https://www.sec.gov/news/press-release/2021-63.

   [19]   SEC Press Release, Renee Jones to Join SEC as Director of Corporation Finance; John Coates Named SEC General Counsel, (June 14, 2021), available at https://www.sec.gov/news/press-release/2021-101.

   [20]   SEC Press Release, SEC Awards Over $50 Million to Joint Whistleblowers (April 15, 2021), available at https://www.sec.gov/news/press-release/2021-62.

   [21]   SEC Press Release, SEC Issues Over $1.1 Million to Multiple Whistleblowers (January 7, 2021), available at https://www.sec.gov/news/press-release/2021-2.

   [22]   SEC Press Release, SEC Awards Nearly $600,000 to Whistleblower (January 14, 2021), available at https://www.sec.gov/news/press-release/2021-7.

   [23]   SEC Press Release, SEC Awards Almost $3 Million Total in Separate Whistleblower Awards (February 19, 2021), available at https://www.sec.gov/news/press-release/2021-31.

   [24]   SEC Press Release, SEC Awards More Than $9.2 Million to Whistleblower for Successful Related Actions, Including Agreement with DOJ (February 23, 2021), available at https://www.sec.gov/news/press-release/2021-30.

   [25]   SEC Press Release, SEC Issues Whistleblower Awards Totaling Over $1.7 Million (February 25, 2021), available at https://www.sec.gov/news/press-release/2021-34.

   [26]   SEC Press Release, SEC Awards Over $500,000 to Two Whistleblowers (March 1, 2021), available at https://www.sec.gov/news/press-release/2021-37.

   [27]   SEC Press Release, SEC Issues Over $5 Million to Joint Whistleblowers Located Abroad (March 4, 2021), available at https://www.sec.gov/news/press-release/2021-41.

   [28]   SEC Press Release, SEC Awards Approximately $1.5 Million to Whistleblower (March 9, 2021), available at https://www.sec.gov/news/press-release/2021-44.

   [29]   SEC Press Release, SEC Awards Over $500,000 to Whistleblower Under “Safe Harbor” for Internal Reporting and Surpasses Record for Individual Awards (March 29, 2021), available at https://www.sec.gov/news/press-release/2021-54.

   [30]   SEC Press Release, SEC Awards Approximately $2.5 Million to Whistleblower (April 9, 2021), available at https://www.sec.gov/news/press-release/2021-60.

   [31]   SEC Press Release, SEC Awards More Than $3 Million to Whistleblowers in Two Enforcement Actions (April 23, 2021), available at https://www.sec.gov/news/press-release/2021-70.

   [32]   SEC Press Release, SEC Awards More Than $31 Million to Whistleblowers in Two Enforcement Actions (May 17, 2021), available at https://www.sec.gov/news/press-release/2021-85.

   [33]   SEC Press Release, SEC Awards $22 Million to Two Whistleblowers (May 10, 2021), available at https://www.sec.gov/news/press-release/2021-81.

   [34]   SEC Press Release, SEC Awards Approximately $3.6 Million to Whistleblower (May 12, 2021), available at https://www.sec.gov/news/press-release/2021-83.

   [35]   SEC Press Release, SEC Awards More Than $28 Million to Whistleblower Who Aided SEC and Other Agency Actions (May 19, 2021), available at https://www.sec.gov/news/press-release/2021-86.

   [36]   SEC Press Release, SEC Awards More Than $4 Million to Whistleblower (May 27, 2021), available at https://www.sec.gov/news/press-release/2021-88.

   [37]   SEC Press Release, SEC Awards More Than $23 Million to Whistleblowers (June 2, 2021), available at https://www.sec.gov/news/press-release/2021-91.

   [38]   SEC Press Release, SEC Awards Approximately $3 Million to Two Whistleblowers (June 14, 2021), available at https://www.sec.gov/news/press-release/2021-100.

   [39]   SEC Press Release, SEC Issues Whistleblower Awards Totaling Nearly $5.3 Million (June 21, 2021), available at https://www.sec.gov/news/press-release/2021-106.

   [40]   SEC Press Release, SEC Awards More Than $1 Million to Whistleblower (June 24, 2021), available at https://www.sec.gov/news/press-release/2021-110.

   [41]   SEC Press Release, SEC Charges Former Executives of San Francisco Bay Area Company With Accounting Violations (Feb. 2, 2021), available at https://www.sec.gov/news/press-release/2021-23.

   [42]   SEC Press Release, SEC Charges Under Armour Inc. With Disclosure Failures (May 3, 2021), available at https://www.sec.gov/news/press-release/2021-78.

   [43]   SEC Press Release, SEC Charges Two Former KPMG Auditors for Improper Professional Conduct During Audit of Not-for-Profit College (Feb. 23, 2021), available at https://www.sec.gov/news/press-release/2021-32.

   [44]   SEC Press Release, Auditor Charged for Failure to Register with PCAOB and Multiple Audit Failures (Apr. 5, 2021), available at https://www.sec.gov/news/press-release/2021-56.

   [45]   SEC Press Release, SEC Charges Gas Exploration and Production Company and Former CEO with Failing to Disclose Executive Perks (Feb. 24, 2021), available at https://www.sec.gov/news/press-release/2021-33.

   [46]   SEC Press Release, SEC Charges Eight Companies for Failure to Disclose Complete Information on Form NT (Apr. 29 2021), available at https://www.sec.gov/news/press-release/2021-76.

   [47]   SEC Press Release, SEC Charges S&P Dow Jones Indices for Failures Relating to Volatility-Related Index (May 17, 2021), available at https://www.sec.gov/news/press-release/2021-84.

   [48]   SEC Press Release, SEC Charges Ratings Agency With Disclosure And Internal Controls Failures Relating To Undisclosed Model Adjustments (February 16, 2021), available at https://www.sec.gov/news/press-release/2021-29.

   [49]   SEC Press Release, SEC Charges Mutual Fund Executives with Misleading Investors Regarding Investment Risks in Funds that Suffered $1 Billion Trading Loss (May 27, 2021), available at https://www.sec.gov/news/press-release/2021-89.

   [50]   SEC Press Release, SEC Charges Investment Advisers With Cherry-Picking, Obtains Asset Freeze (June 17, 2021), available at https://www.sec.gov/news/press-release/2021-105.

   [51]   SEC Press Release, SEC Charges Broker-Dealer for Failures Related to Filing Suspicious Activity Reports (May 12, 2021), available at https://www.sec.gov/news/press-release/2021-82.

   [52]   SEC Press Release, SEC Charges U.S. Promoters of $2 Billion Global Crypto Lending Securities Offering (May 28, 2021), available at https://www.sec.gov/news/press-release/2021-90.

   [53]   SEC Press Release, SEC Charges Three Individuals in Digital Asset Frauds (Feb. 1, 2021), available at https://www.sec.gov/news/press-release/2021-22.

   [54]   SEC Investor Alert, Thinking About Investing in the Latest Hot Stock? (Jan. 30, 2021), available at https://www.sec.gov/oiea/investor-alerts-and-bulletins/risks-short-term-trading-based-social-media-investor-alert.

   [55]   SEC Press Release, SEC Suspends Trading in Inactive Issuer Touted on Social Media (Feb. 11, 2021), available at https://www.sec.gov/news/press-release/2021-28.

   [56]   SEC Order of Suspension of Trading, In the Matter of Bebiba Beverage Co., et. al. (Feb. 25, 2021), available at https://www.sec.gov/litigation/suspensions/2021/34-91213-o.pdf.

   [57]   SEC Press Release, SEC Obtains Emergency Asset Freeze, Charges California Trader with Posting False Stock Tweets (Mar. 15, 2021), available at https://www.sec.gov/news/press-release/2021-46.

   [58]   SEC Order of Suspension of Trading, In the Matter of Arcis Resources Corporation (Mar. 2, 2021), available at https://www.sec.gov/litigation/suspensions/2021/34-91245-o.pdf.

   [59]   SEC Press Release, SEC Charges California-Based Fraudster With Selling “Insider Tips” on the Dark Web (March 18, 2021), available at https://www.sec.gov/news/press-release/2021-51.

   [60]   SEC Press Release, SEC Charges Couple With Insider Trading on Confidential Clinical Trial Data (June 7, 2021), available at https://www.sec.gov/news/press-release/2021-94.

   [61]   SEC v. Siebel Systems, Inc., 384 F. Supp. 2d 694 (S.D.N.Y. 2005).

   [62]   SEC Press Release, SEC Charges AT&T and Three Executives with Selectively Providing Information to Wall Street Analysts (Mar. 5, 2021), available at https://www.sec.gov/news/press-release/2021-43.

   [63]   AT&T Disputes SEC Allegations, Mar. 5, 2021, available at https://www.prnewswire.com/news-releases/att-disputes-sec-allegations-301241737.html.

   [64]   SEC Press Release, SEC Charges Real Estate Fund Manager With Misappropriating Over $7 Million From Retail Investors (Jan. 12, 2021), available at https://www.sec.gov/news/press-release/2021-4.

   [65]   SEC Press Release, SEC Charges Vuuzle Media Corp. and Affiliated Individuals in Connection With $14 Million Offering Fraud (Jan. 27, 2021), available at https://www.sec.gov/news/press-release/2021-18.

   [66]   SEC Press Release, SEC Charges Seven Individuals for $45 Million Fraudulent Scheme (Mar. 2, 2021), available at https://www.sec.gov/news/press-release/2021-38.

   [67]   SEC Press Release, SEC Charges Owner of Real Estate Investment Company with Defrauding Investors (Mar. 18, 2021), available at https://www.sec.gov/news/press-release/2021-48.

   [68]   SEC Press Release, SEC Obtains Emergency Asset Freeze, Charges Colorado Resident with Fraud Involving Sham Bottling Company (Mar. 18, 2021), available at https://www.sec.gov/news/press-release/2021-50.

   [69]   SEC Press Release, SEC Charges Co-Founders of San Francisco Biotech Company With $60 Million Fraud (Mar. 18, 2021), available at https://www.sec.gov/news/press-release/2021-49.

   [70]   SEC Press Release, SEC Charges Binary Options Trading Platform and Two Top Executives with Fraud (Apr. 19, 2021), available at https://www.sec.gov/news/press-release/2021-66.

   [71]   SEC Press Release, SEC Charges Fund Manager and Former Race Car Team Owner with Multimillion Dollar Fraud (Apr. 23, 2021), available at https://www.sec.gov/news/press-release/2021-71-0.

   [72]   SEC Press Release, SEC Charges Healthcare Company and Its Founder with Multimillion Dollar Fraud (May 19, 2021), available at https://www.sec.gov/news/press-release/2021-87.

   [73]   SEC Press Release, SEC Charges Investment Adviser and Others With Defrauding Over 17,000 Retail Investors (Feb. 4, 2021), available at https://www.sec.gov/news/press-release/2021-24.

   [74]   SEC Press Release, SEC Charges Unregistered Investment Adviser with Defrauding Investors in Decade-Long Scheme (Mar. 9, 2021), available at https://www.sec.gov/news/press-release/2021-45.

   [75]   SEC Press Release, SEC Obtains Emergency Asset Freeze, Charges Actor with Operating a $690 Million Ponzi Scheme (Apr. 6, 2021), available at https://www.sec.gov/news/press-release/2021-58.

   [76]   SEC Press Release, SEC Obtains Emergency Relief, Charges Florida Company and CEO with Misappropriating Investor Money and Operating a Ponzi Scheme (Apr. 26, 2021), available at https://www.sec.gov/news/press-release/2021-74.

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The following Gibson Dunn lawyers assisted in the preparation of this client update: Mark Schonfeld and Tina Samanta.

Gibson Dunn is one of the nation’s leading law firms in representing companies and individuals who face enforcement investigations by the Securities and Exchange Commission, the Department of Justice, the Commodities Futures Trading Commission, the New York and other state attorneys general and regulators, the Public Company Accounting Oversight Board (PCAOB), the Financial Industry Regulatory Authority (FINRA), the New York Stock Exchange, and federal and state banking regulators.

Our Securities Enforcement Group offers broad and deep experience. Our partners include the former Director of the SEC’s New York Regional Office, the former head of FINRA’s Department of Enforcement, the former United States Attorneys for the Central and Eastern Districts of California, and former Assistant United States Attorneys from federal prosecutors’ offices in New York, Los Angeles, San Francisco and Washington, D.C., including the Securities and Commodities Fraud Task Force.

Securities enforcement investigations are often one aspect of a problem facing our clients. Our securities enforcement lawyers work closely with lawyers from our Securities Regulation and Corporate Governance Group to provide expertise regarding parallel corporate governance, securities regulation, and securities trading issues, our Securities Litigation Group, and our White Collar Defense Group.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work or any of the following:

Securities Enforcement Practice Group Leaders:
Richard W. Grime – Washington, D.C. (+1 202-955-8219, [email protected])
Mark K. Schonfeld – New York (+1 212-351-2433, [email protected])

Please also feel free to contact any of the following practice group members:

New York
Zainab N. Ahmad (+1 212-351-2609, [email protected])
Matthew L. Biben (+1 212-351-6300, [email protected])
Reed Brodsky (+1 212-351-5334, [email protected])
Joel M. Cohen (+1 212-351-2664, [email protected])
Lee G. Dunst (+1 212-351-3824, [email protected])
Barry R. Goldsmith (+1 212-351-2440, [email protected])
Mary Beth Maloney (+1 212-351-2315, [email protected])
Alexander H. Southwell (+1 212-351-3981, [email protected])
Avi Weitzman (+1 212-351-2465, [email protected])
Lawrence J. Zweifach (+1 212-351-2625, [email protected])
Tina Samanta (+1 212-351-2469, [email protected])

Washington, D.C.
Stephanie L. Brooker (+1 202-887-3502, [email protected])
Daniel P. Chung (+1 202-887-3729, [email protected])
M. Kendall Day (+1 202-955-8220, [email protected])
Jeffrey L. Steiner (+1 202-887-3632, [email protected])
Patrick F. Stokes (+1 202-955-8504, [email protected])
F. Joseph Warin (+1 202-887-3609, [email protected])

San Francisco
Winston Y. Chan (+1 415-393-8362, [email protected])
Thad A. Davis (+1 415-393-8251, [email protected])
Charles J. Stevens (+1 415-393-8391, [email protected])
Michael Li-Ming Wong (+1 415-393-8234, [email protected])

Palo Alto
Michael D. Celio (+1 650-849-5326, [email protected])
Paul J. Collins (+1 650-849-5309, [email protected])
Benjamin B. Wagner (+1 650-849-5395, [email protected])

Denver
Robert C. Blume (+1 303-298-5758, [email protected])
Monica K. Loseman (+1 303-298-5784, [email protected])

Los Angeles
Michael M. Farhang (+1 213-229-7005, [email protected])
Douglas M. Fuchs (+1 213-229-7605, [email protected])
Nicola T. Hanna (+1 213-229-7269, [email protected])
Debra Wong Yang (+1 213-229-7472, [email protected])

© 2021 Gibson, Dunn & Crutcher LLP

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

This alert surveys recent case law and legislative developments involving California’s anti-SLAPP statute, California Code of Civil Procedure § 425.16(e). The anti-SLAPP statute offers defendants in actions brought pursuant to California law a powerful procedural tool to seek early dismissal of lawsuits that target defendants’ actions taken in furtherance of their “right of petition or free speech under the United States Constitution or the California Constitution in connection with a public issue.”[1]

Courts apply a two-pronged analytical framework to evaluate an anti-SLAPP special motion to strike. The first is the “protected activity” prong, under which the defendant has the burden of proving that the activity that gave rise to the plaintiff’s cause of action arises from one of the four enumerated categories under § 425.16(e):

1. any written or oral statement or writing made before a legislative, executive, or judicial proceeding, or any other official proceeding authorized by law,
2. any written or oral statement or writing made in connection with an issue under consideration or review by a legislative, executive, or judicial body, or any other official proceeding authorized by law,
3. any written or oral statement or writing made in a place open to the public or a public forum in connection with an issue of public interest, or
4. any other conduct in furtherance of the exercise of the constitutional right of petition or the constitutional right of free speech in connection with a public issue or an issue of public interest.

If the first prong is met, the burden shifts to the plaintiff to establish on the second prong that “there is a probability that the plaintiff will prevail on the claim.”[2] Giving additional teeth to the law, a defendant who prevails on an anti-SLAPP special motion to strike is entitled to recover its attorneys’ fees and costs incurred in bringing the motion.[3]

Below, we discuss recent substantive decisions by state and federal courts that apply the anti-SLAPP statute’s framework to lawsuits in the media, finance, employment, and real estate contexts and which involve claims regarding revenge porn, trade libel, unfair competition, business torts, and employment discrimination, and also implicate the law’s commercial-speech exemption.

1.  Hill v. Heslep et al., Case No. 20STCV48797 (Apr. 7, 2021, L.A. Cnty. Super. Ct.)

Facts:  Plaintiff Katherine Hill, a former U.S. Representative from California’s 25th congressional district, sued Mail Media, Inc. (publisher of the Daily Mail) in a California state court for publishing to its MailOnline website nonconsensually distributed nude photographs of Hill.[4] The photographs had been disseminated by Kenneth Heslep, Hill’s ex-husband (also named as a defendant). Hill also sued talk-radio host Joe Messina for statements referencing the images that he made on-air and in an article posted to his blog, as well as Salem Media Group, Inc. (owner of the conservative political blog RedState) and RedState editor Jennifer Van Laar for their alleged roles in the distribution of the nude photos. Hill alleged that the actions of each defendant violated California Civil Code § 1708.85, the state’s revenge porn law, which prohibits the “distribution” of certain types of intimate photographs (among other types of media) without the consent of the depicted individual. Distribution is not defined by the statute, but Judge Yolanda Orozco of the Los Angeles County Superior Court construed it broadly enough to include activities such as dissemination of prohibited photographs by an individual to others as well as publication by media outlets. On April 7, 2021, Judge Orozco heard and granted Mail Media’s anti-SLAPP motion to strike; Hill has filed a notice of appeal.

Prong 1:  In analyzing prong one, Judge Orozco noted that “reporting the news is speech subject to the protections of the First Amendment and subject to an anti-SLAPP motion if the report concerns a public issue or an issue of public interest,”[5] and “‘[t]he character and qualifications of a candidate for public office constitutes a “public issue or public interest”’ for purposes of section 425.16.”[6] While the court agreed with Hill that “the gravamen of her Complaint against [Mail Media] is [its] distribution of Plaintiff’s intimate images,”[7] it noted that this distribution occurred via an online news publication, and the “intimate images published by Defendant spoke to Plaintiff’s character and qualifications for her position, as they allegedly depicted Plaintiff with a campaign staffer whom she was alleged to have had a sexual affair with and appeared to show Plaintiff using a then-illegal drug…”[8] Thus, “the gravamen of Plaintiff’s Complaint against Defendant constitutes protected activity under Section 425.16(e)(3) and (4).”[9]

Prong 2: On the second (merits) prong, Judge Orozco noted that Hill’s claims presented a novel intersection of California’s anti-SLAPP and revenge porn laws.  Section 1708.85(a) states, in relevant part,

A private cause of action lies against a person who intentionally distributes… a photograph… of another, without the other’s consent, if (1) the person knew that the other person had a reasonable expectation that the material would remain private, (2) the distributed material exposes an intimate body part of the other person… and (3) the other person suffers general or special damages…

However, Judge Orozco held that the newspaper’s activities fell squarely within the “matter of public concern” exemption contained in § 1708.85(c)(4), as the published images “speak to Plaintiff’s character and qualifications for her position as a Congresswoman.”[10] Thus, “Plaintiff failed to carry her burden establishing that there is a probability of success on the merits of her claim.”[11]

Other Case Notes & Attorneys’ Fees Awards: In a subsequent hearing on June 2, 2021, Judge Orozco granted Mail Media’s motion for costs and prevailing-party attorneys’ fees, totaling $104,747.75.[12] The dismissal of Mail Media’s claims followed the earlier dismissals and awards of attorneys’ fees for all of the other defendants except for Heslep, the lone defendant remaining in the case.[13]  In total, Hill has been ordered to pay over $200,000 in attorneys’ fees to the prevailing defendants.[14]

Of note, Hill was ordered to pay $30,000 in fees and costs to Messina, the radio personality who merely commented about the pictures on his program and blog.[15]  Shortly after Messina filed his anti-SLAPP motion to strike, but before the scheduled hearing, Hill voluntarily withdrew her claims against Messina. Despite this, Judge Orozco entertained Messina’s motion for attorneys’ fees as the prevailing defendant under Section 425.16. Judge Orozco noted that “‘because a defendant who has been sued in violation of his… free speech rights is entitled to an award of attorney fees, the trial court must, upon defendant’s motion for a fee award, rule on the merits of the SLAPP motion even if the matter has been dismissed prior to the hearing on that motion.’”[16] Judge Orozco concluded that Messina was the prevailing party on the merits of the motion to strike and granted the motion for attorneys’ fees.

While the trial court’s orders are non-precedential, the Court of Appeal will have a chance to review them, as on June 18, 2021, Hill filed notices of appeal for the orders granting the anti-SLAPP motions of Mail Media, Van Laar, and Salem Media.

2.   Muddy Waters, LLC v. Superior Court, 62 Cal. App. 5th 905 (2021)

Facts: In 2017, Perfectus Aluminum, Inc., a distributor of aluminum products, sued Muddy Waters, LLC, a financial analysis firm that engages in activist short selling, following the latter’s publication of a pair of reports that allegedly implicated Perfectus in a scheme to inflate aluminum sales for Zhongwang Holdings, Ltd., a publicly traded Chinese company.[17] The two reports (“Dupré Reports”) were published by Muddy Waters on a publicly accessible website under the business pseudonym “Dupré Analytics.” In its complaint, Perfectus alleged that U.S. Customs detained a shipment of the company’s aluminum awaiting export in the port of Long Beach and lost potential business as a result of the allegations in the Dupré Reports, bringing claims for 1) violation of California’s Unfair Competition Law; 2) trade libel; and 3) intentional interference with prospective economic advantage.

The Superior Court of San Bernardino County denied Muddy Waters’s anti-SLAPP motion on the grounds that Muddy Waters failed to prove that the causes of action arose from protected activity and, alternatively, that the commercial speech exemption of Section 425.17(c) applied to the publication of the Dupré Reports, thereby barring an anti-SLAPP challenge. Because the trial court found Section 425.17 applied, Muddy Waters lacked the immediate right of appeal that is otherwise available upon denial of an anti-SLAPP motion and thus sought a writ of mandate from the Court of Appeal.

Prong 1: The Court of Appeal began its analysis of the first prong by highlighting the third category of protected activities in § 425.16(e):  “any written or oral statement or writing made in a place open to the public or a public forum in connection with an issue of public interest.” The Court divided the first prong’s analysis into two stages. In the first stage, the Court determined whether a publicly accessible website constitutes a public forum, and found that it does, as “Internet postings on websites that ‘are open and free to anyone who wants to read the messages’ and ‘accessible free of charge to any member of the public’ satisfies the public forum requirement of section 425.16.”[18]

In the second stage, the Court asked whether the content of the Dupré Reports represented an issue of public interest, and found that it did because the reports alleged that Zhongwang was artificially inflating reported sales and allegations of “mismanagement or investor scams” made against a publicly traded company constitute an “issue of public interest” for purposes of the anti-SLAPP law.[19]

Commercial Speech Exemption: Before moving to the merits prong of the anti-SLAPP analysis, the Court of Appeal addressed the trial court’s determination that the § 425.17(c) commercial speech exemption applied, thereby barring Muddy Waters’s ability to bring an anti-SLAPP motion. The Court noted that the plaintiff has the burden of proof to establish the applicability of the commercial speech exemption, and that the exemption is “narrow,” excluding only a “‘subset of commercial speech—specifically, comparative advertising.’”[20] Thus, it noted, the commercial speech exemption is triggered only with respect to “speech or conduct by a person engaged in the business of selling or leasing goods or services when… that challenged [speech or] conduct pertains to the business of the speaker or his or her competitors.”[21] In other words, the Court noted, the commercial speech exemption does not apply in circumstances like the current case, where a defendant has made representations of fact about a noncompetitor’s goods in order to promote sales of the defendant’s goods or services. Accordingly, the Court of Appeal reversed the Superior Court’s determination that the commercial speech exemption applied and barred Muddy Waters from bringing an anti-SLAPP motion.

Prong 2: The Court of Appeal next determined whether Perfectus had satisfied the merits prong for each of its three causes of action.

For the California UCL claim, the Court wrote that “nothing in the record suggests that plaintiff has lost money or property such that it would have standing to pursue a UCL action against Muddy Waters.”[22] The Court found that Perfectus had not produced any evidence that would establish a nexus between the alleged unfair practice (publication of the Dupré Reports) and the loss of property (the aluminum that was detained by U.S. Customs), and therefore lacked standing to bring a UCL claim.

For the trade libel claim, the Court noted that Perfectus failed to produce evidence identifying a specific third party that was deterred from conducting business with Perfectus as a result of the Dupré Reports, a required element for the claim. It wrote, “‘it is not enough to show a general decline in [Perfectus’s] business resulting from the falsehood, even where no other cause for it is apparent… it is only the loss of specific sales [as a result of the defendant’s actions] that can be recovered.’”[23] Thus, Perfectus’s failure to specify a particular business partner that was convinced by the Dupré Reports to refrain from dealing with Perfectus doomed the trade libel cause of action.

Finally, on the intentional-interference-with-prospective-economic-advantage claim, the Court noted that Perfectus would need to prove an “actual economic relationship with a third party”[24] and that the relationship “‘contains the probability of future economic benefit to [Perfectus],’”[25] but that Perfectus failed to submit evidence that identified such an actual economic relationship with a specific third party.[26]

Result: The Court of Appeal issued a writ of mandate directing the Superior Court to vacate its order denying Muddy Waters’s anti-SLAPP motion and to enter in its place a new order granting the motion. Perfectus has sought review in the California Supreme Court.

3.   Verceles v. Los Angeles Unified School District, 63 Cal. App. 5th 776 (2021)

Facts: Plaintiff Junnie Verceles, a Filipino man who was 46 years old at the time he filed his complaint in March 2019, was a teacher in the Los Angeles Unified School District from 1998 until his termination on March 13, 2018.[27]  On December 1, 2015, following unspecified allegations of misconduct, Verceles was reassigned and placed on paid suspension, which Verceles described as “teacher jail.” In November 2016, Verceles filed a discrimination complaint with the California Department of Fair Employment and Housing (DFEH) while an investigation by the District into the alleged misconduct was still underway. The DFEH case was closed on March 7, 2017, and roughly one year later, the District terminated Verceles’s employment. Verceles alleged three violations of California’s Fair Employment and Housing Act (FEHA): 1) age discrimination, 2) race and national origin discrimination, and 3) retaliation; in response, the District filed an anti-SLAPP motion to strike each of the three causes of action. After the Los Angeles County Superior Court granted the District’s motion, Verceles appealed; the Court of Appeal reversed.

Prong 1: The District argued that each cause of action arose out of its investigation into teacher misconduct, and was thus protected activity under § 425.16(e).  Verceles argued that the gravamen of his complaint was not the investigation into teacher misconduct, but the discrimination and retaliation that resulted in his firing by the District. The trial court granted the motion, characterizing the investigation and resulting termination (and alleged discrimination and retaliation) as a single “proceeding” that gave rise to the causes of action.

The Court of Appeal, however, rejected the District’s attempt to “define the alleged adverse action broadly to encompass the entirety of its investigation into Verceles’s purported misconduct.”[28] Instead, the Court found persuasive Verceles’s argument that the investigation as a whole into his alleged misconduct was not tainted by discriminatory or retaliatory intent. After all, Verceles argued, the investigation began before Verceles filed his DFEH complaint, and so up to that point, there was nothing for the District to retaliate against. Furthermore, Verceles argued, the District’s other investigations into alleged misconduct did not demonstrate a pattern of discrimination against protected groups that resulted in the requisite disparate impact; however, according to Verceles, the District’s termination practices and use of “teacher’s jail” to discipline a relative few number of teachers like him did demonstrate such a pattern of disparate, adverse impacts on protected groups.  Thus, the Court concluded that the activities that underpinned Verceles’s complaint were his reassignment to “teacher’s jail” and termination.

The District argued that the “investigation was an ‘official proceeding authorized by law’ for purposes of [425.16(e)(2)],” and that all actions taken in the course of the investigation—including the decision to reassign and terminate Verceles—fell within the ambit of this protected activity.[29] The Court acknowledged that the District was generally correct to state that an investigation into alleged misconduct by a public employee is categorized as “an official proceeding”; however, the Court rejected the idea that every action taken during the course of such an investigation constituted a protected activity for anti-SLAPP purposes.[30] “Such an interpretation,” wrote the Court, “ignores the plain language of the statute, which requires a claim be based on a written or oral statement made in connection with the proceeding.”[31] Instead, Section 425.16(e) protects the District’s speech and petitioning activity “that led up to or contributed” to the decision to reassign and terminate Verceles, but it did not protect the actual acts of reassignment and termination.[32] Thus, “In the absence of any oral or written statements from which Verceles’ claims arise, the District’s decisions to place Verceles on leave and terminate his employment are not protected activity within the meaning of [Section 425.16(e)(2)].”[33]

Result: Thus, the Court held that the District failed to meet its burden under the first prong of the anti-SLAPP analysis and reversed the trial court’s judgment granting the District’s motion to strike and motion for attorney’s fees as the prevailing party. The Court also granted Verceles’s the costs related to his appeal of the order granting the motion to strike. The District filed a petition for review, which is currently pending before the California Supreme Court.

4.   Appel v. Wolf, 839 F. App’x 78 (9th Cir. 2020)

Facts: Defendant Robert Wolf is an attorney who represents Concierge Auctions, LLC, a company that specializes in auctioning off luxury real estate. A dispute arose between Concierge and the plaintiff Howard Appel over the sale of property in Fiji. During the course of this dispute, Wolf sent an email containing an allegedly defamatory statement that Wolf knew Appel and that Appel “had legal issues (securities fraud).”[34]  After Appel sued Wolf for defamation, Wolf filed an anti-SLAPP motion to strike, arguing that the statements in the email were made pursuant to settlement discussions in the course of litigation and so were protected under Section 425.16. The district court denied the motion to strike and Wolf appealed. Though it found the district court erred in its prong-one analysis, the Ninth Circuit found such error harmless and therefore affirmed.

Prong 1: In its first prong analysis, the Ninth Circuit held that the district court erred in holding that Wolf’s email communication was not protected activity, as acts that occur in the course of litigation “are generally considered protected conduct falling within section 425.16(e)(2)’s broad ambit.”[35] The panel noted that “[t]his protection extends to ‘an attorney’s communication with opposing counsel on behalf of a client regarding pending litigation’ and includes ‘an offer of settlement to counsel.’”[36] The panel then found that “[t]he district court misapplied California law when it reasoned that Wolf’s email—which was sent to Appel’s counsel, allegedly ‘begging for a phone[-]call discussion about possible settlement of Appel’s case against Concierge’—was insufficiently concrete to qualify as protected conduct,” because “Section 425.16(e)(2) has no such ‘concreteness’ requirement.”[37]  Thus, the allegedly libelous email qualified for Section 425.16(e)(2)’s protection, and Wolf satisfied his burden of establishing the first prong.

Prong 2: However, the Ninth Circuit held that the district court’s error on prong one was ultimately harmless, because Appel was “reasonably likely to succeed on the merits of his claim, given that Wolf’s email was facially defamatory and not immunized by California’s litigation privilege.”[38]  First, the complaint’s allegations and the email itself supported the district court’s finding that Wolf’s statement “would have negative, injurious ramifications on [Appel’s] integrity.”[39]  Next, though Wolf’s statement was made in the context of settlement negotiations, the panel held it was not privileged, as “the privilege ‘does not prop the barn door wide open’ for every defamatory ‘charge or innuendo,’ merely because the libelous statement is included in a presumptively privileged communication,”[40] and “Appel established that Wolf’s false insinuation that he had been involved in securities fraud is not reasonably relevant to Appel’s underlying dispute with Concierge.”[41]

Result: The Ninth Circuit thus affirmed the district court’s denial of Wolf’s anti-SLAPP motion.

5.   SB 329 Proposes Limitation on Use of Anti-SLAPP Motions in “No Contest” Wills and Trust Actions

Finally, a new bill, California Senate Bill 329, introduced by Senator Brian Jones (R, 38th Dist.), proposes to prohibit the use of anti-SLAPP motions in actions relating to wills and trusts. The bill would amend Section 425.17 to add the following provision: “(e) Section 425.16 does not apply to an action to enforce a no contest clause contained in a will, trust, or other instrument. As used in this subdivision, ‘no contest clause’ has the meaning provided in Section 21310 of the Probate Code.” A “no-contest” clause is a provision that disinherits a beneficiary who challenges a will or trust.

The Senate Floor Analysis of the bill notes that “[a]lthough commonly associated with the protection of constitutional rights, the anti-SLAPP statute applies to a broad range of contexts, including proceedings to enforce a no-contest clause in a trust or will that penalizes beneficiaries who challenge the terms of the will without probable cause.” The Senate Judiciary notes that two recent Court of Appeal cases “establish that the anti-SLAPP statute applies to no-contest enforcement petitions.”[42]  SB 329 is sponsored by the California Conference of Bar Associations and the Executive Committee of the Trusts and Estates Section of the California Lawyers Association, which “argue that the statute was not intended to apply in this context and that it offers minimal upside while opening the door to needless litigation and cost.”

_________________________

    [1]             Cal. Civ. Code § 425.16(b)(1).

    [2]             Id.

    [3]             Id. § 425.16(c)(1).

    [4]             Hill v. Heslep et al., Case No. 20STCV48797, at *1 (Apr. 7, 2021, L.A. Cnty. Super. Ct.).

    [5]             Id. at *8 (citing Liberman v. KCOP Television, Inc., 110 Cal. App. 4th 156, 164 (2003)).

    [6]             Id. at *6-7 (quoting Collier v. Harris, 240 Cal. App. 4th 41, 52 (2015)).

    [7]             Id. at *7-8.

    [8]             Id. at *8.

    [9]             Id. at *7.

    [10]            Id. at *13.

    [11]            Id.

    [12]            Hill v. Heslep et al., Case No. 20STCV48797 at *5 (Super. Ct. of L.A. Cnty., June 2, 2021).

    [13]            Nathan Solis, Katie Hill Owes Daily Mail $105K for Attorney Fees in Nude Photo Fight, Courthouse News Service (June 2, 2021), https://www.courthousenews.com/katie-hill-owes-daily-mail-105k-for-attorney-fees-in-nude-photo-fight/.

    [14]            Id.

    [15]            Hill v. Heslep, et. al., Case No. 20STCV48797, at *12 (Super. Ct. of L.A. Cnty., May 4, 2021).

    [16]            Id. at *3 (citing Pfeiffer Venice Properties v. Bernard, 101 Cal. App. 4th 211, 218 (2002)).

    [17]            Muddy Waters, LLC v. Superior Ct., 62 Cal. App. 5th 905, 912-93 (2021), reh’g denied (Apr. 23, 2021), petition for review filed (May 18, 2021).

    [18]            Muddy Waters, 62 Cal. App. 5th at 917 (citing ComputerXpress, Inc. v. Jackson, 93 Cal. App. 4th 993, 1007 (2001)).

    [19]            Id. at 918.

    [20]            Id. at 919-20 (citing Dean v. Friends of Pine Meadow, 21 Cal. App. 5th 91, 105 (2018)).

    [21]            Id. at 919.

    [22]            Id. at 923.

    [23]            Id. at 925 (citing Erlich v. Etner, 224 Cal. App. 2d 69, 73 (1964)).

    [24]            Id. at 926.

    [25]            Id. (citing Korea Supply Co. v. Lockheed Martin Corp., 29 Cal 4th 1134, 1164 (2003)).

    [26]            Muddy Waters, 62 Cal. App. 5th at 926-27.

    [27]            Verceles v. Los Angeles Unified Sch. Dist., 63 Cal. App. 5th 776, 779 (2021), petition for review filed (June 3, 2021).

    [28]            Id. at 785.

    [29]            Id. at 787.

    [30]            Id.

    [31]            Id.

    [32]            Id.

    [33]            Id. at 788.

    [34]            Appel v. Wolf, 839 F. App’x 78, 80 (9th Cir. 2020).

    [35]            Id.

    [36]            Id. (citing GeneThera, Inc. v. Troy & Gould Pro. Corp., 171 Cal. App. 4th 901, 905 (2009)).

    [37]            Id. at 80.

    [38]            Id.

    [39]            Id.

    [40]            Id. at 81 (quoting Nguyen v. Proton Technology Corp., 69 Cal. App. 4th 140, 150 (1999)).

    [41]            Id.

    [42]            Citing Key v. Tyler, 34 Cal. App. 5th 505 (2019); Urick v. Urick, 15 Cal. App. 5th 1182 (2017).

---

The following Gibson Dunn lawyers assisted in the preparation of this client update: Scott Edelman and Nathaniel L. Bach.

Gibson Dunn lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, the author, or the following leaders and members of the firm’s Media, Entertainment & Technology Practice Group:

Scott A. Edelman – Co-Chair, Los Angeles (+1 310-557-8061, [email protected])
Kevin Masuda – Co-Chair, Los Angeles (+1 213-229-7872, [email protected])
Benyamin S. Ross – Co-Chair, Los Angeles (+1 213-229-7048, [email protected])
Orin Snyder – New York (+1 212-351-2400, [email protected])
Brian C. Ascher – New York (+1 212-351-3989, [email protected])
Anne M. Champion – New York (+1 212-351-5361, [email protected])
Michael H. Dore – Los Angeles (+1 213-229-7652, [email protected])
Howard S. Hogan – Washington, D.C. (+1 202-887-3640, [email protected])
Ilissa Samplin – Los Angeles (+1 213-229-7354, [email protected])
Nathaniel L. Bach – Los Angeles (+1 213-229-7241,[email protected])

Please also feel free to contact the leaders of the firm’s Labor and Employment practice group:

Jason C. Schwartz – Washington, D.C. (+1 202-955-8242, [email protected])
Katherine V.A. Smith – Los Angeles (+1 213-229-7107, [email protected])

© 2021 Gibson, Dunn & Crutcher LLP

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

On July 15, 2021, the California Supreme Court in Ferra v. Loews Hollywood Hotel, LLC adopted a new formula for calculating the one extra hour of premium pay that employees are owed if an employer fails to provide a compliant meal period or rest break. Specifically, the Court held that those premium payments must include the hourly value of any nondiscretionary earnings (such as a nondiscretionary bonuses), and cannot simply be paid an employee’s base hourly rate. This holding aligns the formula for calculating meal period and rest break premium payments with the formula for calculating overtime payments under California law.

The Ferra decision represents a change in the law, as the California Court of Appeal and several federal district courts had previously held that California Labor Code section 226.7’s use of the term “regular rate of compensation” meant that premium payments for failures to provide meal periods or rest breaks should be calculated using an employee’s base hourly rate. Despite this shift, however, the California Supreme Court held that its decision applies retroactively.

In light of Ferra, employers should take steps to evaluate whether their calculation of premium payments for the non-provision of meal periods and rest breaks includes nondiscretionary payments, as well as assess the impact of the decision on any pending meal period or rest break litigation.

Ferra Holds That Nondiscretionary Earnings Must Be Included in the Calculation of Meal Period and Rest Break Premiums

California courts have long held that premium wages for calculating overtime pay must factor in the hourly value of nondiscretionary earnings. At issue in Ferra was whether that same formula applied to premium payments that are owed to employees when an employer fails to provide a meal period or rest break. Specifically, the California Supreme Court answered the following question: “Did the Legislature intend the term ‘regular rate of compensation’ in Labor Code section 226.7, which requires employers to pay a wage premium if they fail to provide a legally compliant meal period or rest break, to have the same meaning and require the same calculations as the term ‘regular rate of pay’ under Labor Code section 510(a), which requires employers to pay a wage premium for each overtime hour?”

The California Supreme Court held that “regular rate of compensation” and “regular rate of pay” are interchangeable terms, and therefore “premium pay for a noncompliant meal, rest, or recovery period, like the calculation of overtime pay, must account for not only hourly wages but also other non-discretionary payments for work performed by the employee.”

The Court explained that, in enacting Labor Code section 226.7, the California Legislature did so with an understanding that the federal Fair Labor Standards Act’s use of the phrase “regular rate” has been “consistently understood . . . to encompass all nondiscretionary payments, not just base hourly rates.” With this context, the Court concluded that “regular rate” was the “operative term” in the statute, and that the modifiers “of pay” and “of compensation” were intended to be used interchangeably.

The Court also held that its decision applies retroactively, emphasizing that it had not previously issued a definitive decision on the issue.

Ferra’s Impact on Employers

Employers should review their how they are calculating any meal period or rest break premium payments to ensure that they include the value of any nondiscretionary earnings during the relevant pay period.

As for litigation regarding the improper calculation of meal period and rest break premiums, Ferra does not eliminate all defenses to such claims or ensure that class certification will be granted in such cases. While Ferra clarifies how meal period and rest break premiums must be calculated, it says nothing at all regarding whether or not such premiums are owed in the first place. This means, as Ferra itself recognized, that an “employer may defend against” a claim that it has failed to provide meal periods or rest breaks “as it has always done.” In other words, plaintiffs pursuing Ferra-based claims will still need to establish an entitlement to a premium in the first place, and under Brinker Restaurant Corp. v. Superior Court, 53 Cal. 4th 1004 (2012), this means plaintiffs must establish that a compliant meal period or rest break was not provided. And in a putative class action, plaintiffs must show that this threshold question can be resolved on a classwide basis.   

Some plaintiffs may attempt to skip over this important threshold requirement by pointing to the fact that an employer voluntarily made meal period or rest break premium payments, and argue that such payments are evidence that they were not provided with compliant breaks. But the fact that an employer may have made a meal period or rest break premium is not dispositive evidence that a compliant meal period or rest break was not provided. Employers often pay such premiums proactively and out of an abundance of caution, even where a premium was not in fact due.  In other words, employers do not need to concede that the payment of a premium establishes that an employee was entitled to it. And this will mean that, in many cases, determining whether a compliant meal period or rest break was provided, and thus whether a premium was owed in the first, is a question that is not capable of classwide resolution.

Moreover, even if a plaintiff can show that they were entitled to a meal period or rest break premium, they must also prove that they earned a form of nondiscretionary pay during that same pay period that must be included in calculating the amount of the premium under Ferra. Whether a particular payment was discretionary or nondiscretionary is also often a highly fact-dependent inquiry, and thus may not be suitable for resolution on a classwide basis.

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This alert was prepared by Jason Schwartz, Michele Maryott, Katherine Smith, Brad Hamburger, Lauren Blas, Megan Cooney, Katie Magallanes, Amber McKonly, Nick Thomas, Nick Barba, and Rebecca Lamp.

Gibson Dunn lawyers are available to assist in addressing any questions you may have about these matters. Please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Labor and Employment practice group, or the following authors:

Jason C. Schwartz – Co-Chair, Washington, D.C. (+1 202-955-8242, [email protected])
Michele L. Maryott – Orange County (+1 949-451-3945, [email protected])
Katherine V.A. Smith – Co-Chair, Los Angeles (+1 213-229-7107, [email protected])
Bradley J. Hamburger – Los Angeles (+1 213-229-7658, [email protected])
Lauren M. Blas – Los Angeles (+1 213-229-7503, [email protected])
Megan Cooney – Orange County (+1 949-451-4087, [email protected])
Katie Magallanes – Orange County (+1 949-451-4045, [email protected])

© 2021 Gibson, Dunn & Crutcher LLP

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

On July 13, 2021, the Securities and Exchange Commission (“SEC”) announced a partially settled enforcement action against a Special Purpose Acquisition Company (“SPAC”), the SPAC sponsor and the CEO of the SPAC, as well as the proposed merger target and the former CEO of the target for misstatements in a registration statement and amendments concerning the target’s technology and business risks.[1] As of the date of the enforcement action, the registration statement had not been declared effective and the proxy statement/prospectus had not been mailed to the SPAC shareholders. This action is notable because the allegations against the SPAC, its sponsor and its CEO are premised on a purported negligent deficiency in their due diligence, which failed to uncover alleged misrepresentations and omissions by the target and its former CEO. This action has important implications for SPACs, their sponsors and executives for their diligence on proposed acquisition targets.

Overview of the Action

In a settled administrative order, in which the respondents neither admit nor deny the allegations, the Commission alleged that disclosures contained in a Form S-4 filed by the SPAC were inaccurate because they both overstated the commercial viability of the target’s key product, and understated the risk pertaining to the target’s former CEO and a previous regulatory action regarding national security.

The settled administrative action against the target and the civil complaint against its former CEO, who is a Russian national, are premised on allegations of fraud: specifically, that the target and its former CEO (1) misrepresented that the target had “successfully tested” its key technology, when in fact a prior test did not meet criteria for success; and (2) omitted or made misstatements concerning the U.S. government’s concerns with national security and foreign ownership risks posed by the target CEO including concerns related to his affiliation with the target.

The target consented to a settlement finding a violation of the anti-fraud provisions of the securities laws, including Section 10(b) of the Securities Exchange Act and agreeing to pay a penalty of $7 million. In the separate civil complaint against the target’s former CEO, the Commission alleges violations of the same anti-fraud provisions.

Of greater significance is the settled action against the SPAC, its sponsor and CEO, which is premised on allegations of negligence in the conduct of their due diligence on the target, which failed to uncover the misrepresentations by the target and its former CEO and thus resulted in those misstatements or omissions being repeated in the proxy materials, even though those proxy materials had not yet been mailed to shareholders. The settled order alleges that: (1) although the SPAC engaged a technology consulting firm to conduct diligence on the target’s technology, the SPAC did not ask the consulting firm to review the target’s prior product test; and (2) although the SPAC was aware that the U.S. government had previously ordered the target CEO to divest from another unrelated technology company, and requested documentation from the target relating to the order, and was falsely told by the target that it did not have such documents, the SPAC nevertheless proceeded with the executing the merger agreement and filing the registration statement.

The SPAC, its sponsor and its CEO consented to violations (or causing violations) of the negligence-based anti-fraud provisions, including those relating to proxy solicitations – Sections 17(a)(3) of the Securities Act and 14(a) of the Securities Exchange Act and Rule 14a-9. The SPAC agreed to pay a penalty of $1 million and the CEO agreed to pay a penalty of $40,000. The SPAC’s sponsor also agreed to forfeit 250,000 of its founder shares in the event the merger receives shareholder approval. The SPAC and the target also agreed to offer PIPE investors in the SPAC the opportunity to terminate their subscription agreement.

Key Takeaways — Implications for SPAC and Acquiror Diligence

This latest enforcement action comes on the heels of a string of pronouncements by senior SEC officials earlier this year concerning the risks posed by the explosion of SPAC initial public offerings in 2020 and early 2021, including a potential misalignment of interests and incentives between SPAC sponsors and shareholders.[2]

In the press release announcing this enforcement action, SEC Chairman Gary Gensler took the unusual step of providing comments that echoed the concerns of senior officials and sent a clear message that even when the SPAC is “lied to” by the target, the SPAC and its executives are at risk for liability under the securities laws if their diligence fails to uncover misrepresentations or omissions by the target. Chairman Gensler stated, “This case illustrates risks inherent to SPAC transactions, as those who stand to earn significant profits from a SPAC merger may conduct inadequate due diligence and mislead investors. . . .  The fact that [the target] lied to [the SPAC] does not absolve [the SPAC] of its failure to undertake adequate due diligence to protect shareholders. Today’s actions will prevent the wrongdoers from benefitting at the expense of investors and help to better align the incentives of parties to a SPAC transaction with those of investors relying on truthful information to make investment decisions.”

The SEC’s action has important implications for SPAC sponsors, as well as any acquiror conducting diligence on a prospective merger target.

• First, the SEC took action with respect to the initial Form S-4, filed on November 2, 2020, and two amendments, filed on December 14, 2020 and March 8, 2021, even though the Form S-4 has been subsequently amended (and presumably corrected) and has not yet been declared effective. The combined proxy statement/consent solicitation statement/prospectus contained in the Form S-4 has not yet been mailed to shareholders since it remains in preliminary form.
• Second, in view of the unusual posture of this case, it is clear that the SEC intends this to be a message case to SPAC sponsors on the level of scrutiny that will be imposed on their diligence of acquisition targets. Diligence should be reasonable under the circumstances. However, in an investigation, the government reviews the reasonableness of diligence with the dual benefits of hindsight and subpoena power not available to private enterprises engaged in commercial transactions. Moreover, the SEC is well-versed in conducting these types of investigations and the securities law provisions used here are the same well-established provisions used in typical negligent fraud actions filed by the Commission. Thus the lessons of this action are not limited to SPACs, but also apply to diligence conducted by any acquiror on a potential target where the merger will be subject to disclosure and shareholder approval.
• Third, when conducting diligence on potential targets, sponsors should keep in mind that, in the event a target’s business turns out not to be as represented, the reasonableness of the SPAC’s diligence may be reviewed under a harsh government spotlight. This action highlights the need for blank check companies and their founders to conduct and document thorough legal, financial and accounting due diligence review of potential targets, as well as industry-specific due diligence focused on a target’s business. Sponsors should also follow up appropriately on potential red flags identified during the due diligence process, including assessing the accuracy of, and basis for, factual statements about the target in public filings and investor materials and to identify risks related to the target’s business to investors. Ultimately, in the event open questions remain, sponsors will need to evaluate the feasibility of proceeding with a transaction or whether adequate disclosures can be made to address the attendant risks.
• Fourth, sponsors also may want to consider the inclusion of seller indemnification provisions or the use of representations and warranties insurance to protect the SPAC from losses resulting from the inaccuracy of the target’s representations and warranties in the acquisition agreement. Such provisions and the use of insurance are less typical in de-SPAC transactions than in traditional private M&A transactions. In fact, the SPAC in this Enforcement action and the target amended their merger agreement on June 29, 2021, among other things, to add a limited seller indemnity related to untrue statements of a material fact in the information provided by or on behalf of the target for inclusion in the SPAC’s SEC filings, or any omission of a material fact therein relating to the target.
• Fifth, this action is also notable for the SPAC sponsor’s agreement to forfeit a portion of its founder shares and the opportunity given to PIPE investors to terminate their subscription. These remedies may have been driven, in part, by the limited amount of cash working capital at the SPAC available for a settlement and also highlights the SEC’s desire to hold founders accountable for the actions of the SPAC, with such founder shares representing a significant value to a SPAC’s sponsor. Furthermore, the ability of PIPE investors to terminate their subscription agreements could meaningfully impact the SPAC’s ability to close its pending transaction without the additional financing to backstop potential redemptions by the SPAC’s public investors.
• Finally, this action is also notable because the SEC charged the SPAC, the SPAC sponsor and the CEO of the SPAC with violating the proxy rules, including Rule 14a-9, at the preliminary proxy statement stage. In other words, the SEC could have, but chose not to, simply allowed the SPAC to correct its misstatements and omissions in subsequent filings so that the definitive proxy statement that is mailed to SPAC shareholders is materially accurate.

The SEC’s decision to intervene in the middle of the de-SPAC process with an Enforcement action and a suite of remedial actions that includes requiring the target to engage an independent compliance consultant to conduct a comprehensive ethics and compliance program assessment of the target’s disclosure practices underscores the priority of the Enforcement Division’s continuing focus on SPACs.

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   [1]   Press Release, Securities and Exchange Commission, SEC Charges SPAC, Sponsor Merger Target, and CEOs for Misleading Disclosures Ahead of Proposed Business Combination (July 13, 2021), available at https://www.sec.gov/news/press-release/2021-124.

   [2]   March 31, 2021 Staff Statement on Select Issues Pertaining to Special Purpose Acquisition Companies, available at https://www.sec.gov/news/public-statement/division-cf-spac-2021-03-31.

       March 31, 2021 Public Statement: Financial Reporting and Auditing Considerations of Companies Merging with SPACs, available at https://www.sec.gov/news/public-statement/munter-spac-20200331.

       Apr. 8, 2021 Public Statement: SPACs, IPOs and Liability Risk under the Securities Laws, available at  https://www.sec.gov/news/public-statement/spacs-ipos-liability-risk-under-securities-laws

       Apr. 12, 2021 Public Statement: Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”), available at https://www.sec.gov/news/public-statement/accounting-reporting-warrants-issued-spacs.

       SEC Official Warns on Growth of Blank-Check Firms, Wall St. Journal (Apr. 7, 2021), available at https://www.wsj.com/articles/sec-official-warns-on-growth-of-blank-check-firms-11617804892.

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Gibson, Dunn and Crutcher’s lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Securities Enforcement, Securities Regulation and Corporate Governance, Capital Markets, or Mergers and Acquisitions practice groups, or the following authors:

Mark K. Schonfeld – New York (+1 212-351-2433, [email protected])
Evan M. D’Amico – Washington, D.C. (+1 202-887-3613, [email protected])
Thomas J. Kim – Washington, D.C. (+1 202-887-3550, [email protected])
Jonathan M. Whalen – Dallas (+1 214-698-3196, [email protected])
Tina Samanta – New York (+1 212-351-2469, [email protected])
Timothy M. Zimmerman – Denver (+1 303-298-5721, [email protected])

© 2021 Gibson, Dunn & Crutcher LLP

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

In the last several years, M&A transaction planners have become increasingly focused on cybersecurity, privacy, and data protection risks, as technology advances and the regulatory regimes evolve. This recorded webcast focuses on how to design and manage an effective cybersecurity and privacy diligence plan. A group of experts, including US and European cybersecurity, privacy, and data protection lawyers, as well as M&A lawyers, discuss, among other things:

• The principal risks under relevant U.S. and European law
• The impact of the target company’s industry sector on the scope of the exercise
• The role of the buyer’s and seller’s internal experts, as well as outside consultants.
• Red flags that suggest the possibility of significant issues
• Key practice pointers

View Slides (PDF)

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PANELISTS:

Ahmed Baladi is a partner in the Paris office and Co-Chair of the firm’s Privacy, Cybersecurity and Data Innovation Practice Group. His practice focuses on a wide range of privacy and cybersecurity matters including compliance, investigations and procedures before data protection authorities. He also advises companies and private equity clients in connection with all privacy and cybersecurity aspects of their cross-border M&A transactions.

Stephen Glover is a partner in the Washington, D.C. office and a member of the firm’s Mergers and Acquisitions Practice Group. Mr. Glover has an extensive practice representing public and private companies in complex mergers and acquisitions, including SPACs, spin-offs and related transactions, as well as other corporate matters. Mr. Glover’s clients include large public corporations, emerging growth companies and middle market companies in a wide range of industries. He also advises private equity firms, individual investors and others.

Saee Muzumdar is a partner in the New York office and a member of the firm’s Mergers and Acquisitions Practice Group. Ms. Muzumdar is a corporate transactional lawyer whose practice includes representing both strategic companies and private equity clients (including their portfolio companies) in connection with all aspects of their domestic and cross-border M&A activities and general corporate counseling.

Alexander H. Southwell is a partner in the New York office and Co-Chair of the firm’s Privacy, Cybersecurity and Data Innovation Practice Group.  He is a Chambers-ranked former federal prosecutor and was named a “Cybersecurity and Data Privacy Trailblazer” by The National Law Journal. Mr. Southwell’s practice focuses on privacy, information technology, data breach, theft of trade secrets and intellectual property, computer fraud, national security, and network and data security issues, including handling investigations, enforcement defense, and litigation. He regularly advises companies and private equity firms on privacy and cybersecurity diligence and compliance.

Cassandra Gaedt-Sheckter is of counsel in the Palo Alto office where her practice focuses on data privacy, cybersecurity and data regulatory litigation, enforcement, transactional, and counseling representations. She has substantial experience advising companies on legal and regulatory compliance, diligence, and risks in transactions, particularly with respect to CCPA and CPRA as one of the leads of the firm’s CCPA/CPRA Task Force; GDPR; Children’s Online Privacy Protection Rules (COPPA); and other federal and state laws and regulations.

Vera Lukic is of counsel in the Paris office where her practice focuses on a broad range of privacy and cybersecurity matters, including assisting clients with multinational operations on their global privacy compliance programs, cross-border data transfers and data security issues, as well as representing clients in investigations, enforcement actions and litigation before the French data protection authority and administrative courts. She also regularly advises on data privacy aspects of M&A transactions, including with respect to carve-out and transition issues.

Lisa Zivkovic, Ph.D is an associate in the New York Office. She is a member of the Firm’s Privacy, Cybersecurity and Data Innovation, Technology Transactions, and Litigation practices groups. Ms. Zivkovic’s doctorate is a comparative history of data privacy in the US and European Union. She advises a wide range of clients, including technology, financial services, data aggregation and analytics, vehicle, and telematics companies, on new and complex legal and policy issues regarding global data privacy, cybersecurity, artificial intelligence, Internet of Things, and big data.

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MCLE CREDIT INFORMATION:

This program has been approved for credit in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 1.0 credit hours, of which 1.0 credit hours may be applied toward the areas of professional practice requirement.

This course is approved for transitional/non-transitional credit. Attorneys seeking New York credit must obtain an affirmation form prior to watching the archived version of this webcast. Please contact [email protected] to request the MCLE form.

Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 1.0 hours.

California attorneys may claim “self-study” credit for viewing the archived version of this webcast. No certificate of attendance is required for California “self-study” credit.

Today, July 9, 2021, President Biden issued a sweeping Executive Order directing federal regulatory agencies to take a variety of steps that, if completed and upheld by the courts, would effect a sea change in the government’s regulation of businesses’ competitive practices.[1]

The Executive Order itself will have little immediate impact on regulated parties, although its tenor and objectives send an important message about the Administration’s perception of the business climate and enforcement priorities. The Order’s principal purpose is to set in motion a variety of proceedings before regulatory agencies. Interested parties will often (but not always) have the opportunity to participate in notice and comment rulemaking before the agencies. If the agencies exceed their statutory authority or fail to follow proper regulatory procedures, their actions typically will be subject to challenge in the courts.

General Overview of the Executive Order

The Executive Order is expansive—addressing 72 initiatives involving more than a dozen federal agencies. The Order’s premise is that the size and consolidation of American businesses has restricted competition and harmed consumers and workers. A White House “fact sheet” accompanying the Order expresses concern that “[f]or decades, corporate consolidation has been accelerating,” including in healthcare, financial services, agriculture, and other sectors.[2] The Order asserts this has resulted in higher prices and lower wages, along with reduced “growth and innovation.” In the technology sector, the Order states, “a small number of dominant Internet platforms use their power to exclude market entrants, to extract monopoly profits, and to gather intimate personal information that they can exploit for their own advantage.” “When past presidents faced similar threats from growing corporate power,” the accompanying fact sheet says, “they took bold action,” such as trust-busting by Theodore Roosevelt and “supercharged antitrust enforcement” under Franklin Roosevelt. The fact sheet then lays out the “decisive,” “whole-of-government effort” directed by President Biden in the Order.

The Order addresses matters as diverse as the cost of hearing aids, airline payments for delayed baggage, the price of beef, and international shipping fees. It “directs” executive branch agencies like the Department of Transportation (“DOT”) to take certain action and “encourages” independent agencies like the Federal Trade Commission (“FTC”) to consider others. Nonetheless, independent agencies like the FTC should be expected to pursue each of the actions the Order identifies. Indeed, some of the initiatives outlined in the Order relate to matters for which agencies are already engaging in rulemakings.

Initiatives in the Order include:

Agriculture

1. The Order directs the United States Department of Agriculture (“USDA”) to consider issuing new rules regulating competition in the farming industry.
2. The Order “encourages” the Federal Trade Commission (“FTC”) to address restrictions on third-party repair or self-repair, such as restrictions prohibiting farmers from repairing their own tractors.

Healthcare

3. The Order encourages the FTC to consider a rule addressing agreements in the prescription drug industries, such as settlements of patent litigation to delay the market entry of generic drugs or biosimilars.
4. The Order directs the United States Department of Health and Human Services (“HHS”) to consider issuing proposed rules allowing hearing aids to be sold over the counter.

Labor Markets

5. The Order encourages the FTC “to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.”
6. The Order encourages the FTC to consider a rule addressing occupational licensing restrictions.
7. The Order encourages the FTC and the Department of Justice (“DOJ”) to revise existing antitrust guidance to “better protect workers from wage collusion.”

Merger Review

8. The Order encourages the FTC and DOJ “to review the horizontal and vertical merger guidelines and consider whether to revise those guidelines.”

Technology

9. The Order encourages the FTC to consider a rule addressing data collection and surveillance practices.
10. The Order encourages the FTC to consider a rule addressing “unfair competition in major Internet marketplaces.”

Transportation

11. The Order directs the DOT to “publish for notice and comment a proposed rule requiring airlines to refund baggage fees when a passenger’s luggage is substantially delayed and other ancillary fees when passengers pay for a service that is not provided.”
12. The Order encourages the Federal Maritime Commission to consider a rule “to improve detention and demurrage practices and enforcement of related Shipping Act prohibitions.”

Next Steps, and Implications for Our Clients

The Order is a significant and bold pronouncement of the Administration’s position on competition matters and business practices generally. However, its ultimate importance will depend principally on agencies’ success in implementing the changes the Order identifies. Many of the changes sought by the Order will require notice and comment rulemaking, a process that often takes years. In rulemakings, agencies must conduct appropriate analyses; draft and issue a proposed rule; invite and consider the public’s comments on the proposal; and then revise and finalize the rule in light of those comments and the evidence in the record. A hasty, sloppy rule—or one that gives insufficient attention to important problems identified by commenters, such as the absence of statutory authority or constitutional problems—is legally vulnerable.

Agencies must base and justify their regulatory action on their own statutory authority; the Order is not a basis for an agency to take actions that are not statutorily authorized by Congress.

Companies concerned about specific directives in the Order should begin making plans now to ensure those concerns are amply documented before the agency when rulemaking proceedings begin. Substantial, evidence-based rulemaking comments—whether submitted directly by a company, or by a trade association—are often very helpful to agencies in identifying changes they should make to their initial proposals. And, if those comments are ignored, they can provide a strong foundation for a successful legal challenge.

Focus on the FTC

The FTC will be responsible for some of the Order’s most significant directives. For the FTC to simultaneously address such a large number of competition initiatives would be a historical novelty—the FTC has only issued one competition rule in its entire history.[3] That rule was issued in the 1960s, never enforced, and later withdrawn.[4]

Procedurally, the FTC recently streamlined its rulemaking procedures and gave the Chair more control over the process.[5]  FTC Commissioner Wilson, who dissented from the procedural changes, expressed concern that they compromised the impartiality of the rulemaking process and unduly limited public input. And substantively, while any rulemaking must be based on a factual record, several of the initiatives outlined in the Order appear inconsistent with longstanding FTC enforcement policy and governing law. For example, the fact sheet accompanying the Order objects that “rapid[] consolidation” in the shipping industry has resulted in 10 shippers controlling 80% of the market. But under the long-standing Horizontal Merger Guidelines of the Department of Justice and Federal Trade Commission that are cited regularly by the courts, such a market likely would be considered “unconcentrated.”[6] To the extent the FTC takes actions that conflict with courts’ interpretation of antitrust law, or that constitute a significant and unexplained deviation from existing enforcement policies, its initiatives may be subject to legal challenge.

Similarly, while the fact sheet accompanying the Order suggests the FTC is to “ban” non-compete agreements, such a sweeping rule by the agency likely would be invalidated in court. The Order therefore more modestly encourages the agency to “curtail” non-compete “clauses” and agreements “that may unfairly limit worker mobility”; still, even a rule adopting this narrower approach would be subject to legal challenge, particularly if not drawn with great care and precision. Indeed, given that many states already require non-compete agreements to be reasonable in their scope, it is unclear how—if at all—a federal effort to curtail such agreements that “unfairly” limit worker mobility would change the legal landscape.

Expansive rulemaking could also expose the FTC to legal challenges under the constitutional “nondelegation doctrine,” which limits the extent to which Congress may delegate lawmaking power to administrative agencies. Although the nondelegation doctrine has seldom been invoked by the Supreme Court since the New Deal Era, in 2019 five Supreme Court justices expressed interest in reviving the doctrine.[7] Those five justices constitute a majority of the current Supreme Court.  The FTC Act, which delegates to the FTC the authority to regulate “unfair” behavior, may be susceptible to a challenge on the grounds that Congress must provide concrete guidance to cabin the FTC’s exercise of its delegated power.

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[1] Executive Order on Promoting Competition in the American Economy (July 9, 2021), https://www.whitehouse.gov/briefing-room/presidential-actions/2021/07/09/executive-order-on-promoting-competition-in-the-american-economy/.

[2] FACT SHEET: Executive Order on Promoting Competition in the American Economy, (July 9, 2021), https://www.whitehouse.gov/briefing-room/statements-releases/2021/07/09/fact-sheet-executive-order-on-promoting-competition-in-the-american-economy/.

[3] FTC Commissioner Noah Joshua Phillips, Non-Compete Clauses in the Workplace: Examining Antitrust and Consumer Protection Issues, (Jan. 9, 2021), available here.

[4] Id.

[5] Statement of FTC Commissioner Rebecca Kelly Slaughter (July 1, 2021), available here.

[6] U.S. Dept. of Justice and the Federal Trade Commission, Horizontal Merger Guidelines, (Aug. 19, 2010), https://www.ftc.gov/sites/default/files/attachments/merger-review/100819hmg.pdf (explaining that a Herfindahl-Hirschman Index of less than 1500 is “[u]nconcentrated”).

[7] Gundy v. United States,  139 S. Ct. 2116 (2019) (Gorsuch J., dissenting) (joined by Chief Justice Roberts and Justice Thomas); Id. at 2131 (Alito, J., concurring); Paul v. United States, 140 S. Ct. 342 (2019) (Kavanaugh, J., concurring in denial of certiorari).

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The following Gibson Dunn attorneys assisted in preparing this client update: Eugene Scalia, Helgi Walker, Rachel Brass, Kristen Limarzi, Michael Perry, Stephen Weissman, Jason Schwartz, Katherine Smith, and Chad Squitieri.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. To learn more about these issues, please contact the Gibson Dunn lawyer with whom you usually work, or any of the following in the firm’s Administrative Law and Regulatory, Antitrust and Competition or Labor and Employment practice groups.

Administrative Law and Regulatory Group:
Eugene Scalia – Washington, D.C. (+1 202-955-8543,[email protected])
Helgi C. Walker – Washington, D.C. (+1 202-887-3599, [email protected])

Antitrust and Competition Group:
Rachel S. Brass – San Francisco (+1 415-393-8293, [email protected])
Kristen C. Limarzi – Washington, D.C. (+1 202-887-3518, [email protected])
Michael J. Perry – Washington, D.C. (+1 202-887-3558, [email protected])
Stephen Weissman – Washington, D.C. (+1 202-955-8678, [email protected])

Labor and Employment Group:
Jason C. Schwartz – Washington, D.C. (+1 202-955-8242, [email protected])
Katherine V.A. Smith – Los Angeles (+1 213-229-7107, [email protected])

© 2021 Gibson, Dunn & Crutcher LLP

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

On July 7, 2021, Colorado Governor Jared Polis signed into law the Colorado Privacy Act (“CPA”), making Colorado the third state to pass comprehensive consumer privacy legislation, following California and Virginia.

The CPA will go into effect on July 1, 2023.[1]  In many ways, the CPA is similar—but not identical—to the models set out by its California and Virginia predecessors the California Consumer Privacy Act (“CCPA”), the California Privacy Rights Enforcement Act (“CPRA”) and the Virginia Consumer Data Protection Act (“VCDPA”). The CPA will grant Colorado residents the right to access, correct, and delete the personal data held by organizations subject to the law. It also will give Colorado residents the right to opt-out of the processing of their personal data for purposes of targeted advertising, sale of their personal data, and profiling in furtherance of decisions that produce legal or similarly significant effects on the consumer. In ensuring that they are prepared to comply with the CPA, many companies should be able to build upon the compliance measures they have developed for the California and Virginia laws to a significant extent.

The CPA does, however, contain a few notable distinctions when compared to its California and Virginia counterparts. First, the CPA applies to nonprofit entities that meet certain thresholds described more fully below, whereas the California and Virginia laws exempt nonprofit organizations. Similar to the VCDPA and unlike the CPRA—the California law slated to replace the CCPA in 2023—the CPA does not apply to employee or business-to-business data. Like the VCDPA, the CPA will not provide a private right of action.[2]  Instead, it is enforceable only by the Colorado Attorney General or state district attorneys. The laws in all three states differ with respect to the required process for responding to a consumer privacy request and the applicable exceptions for responding to such requests.

Finally, in addition to adopting certain terminology such as “personal data,” “controller” and “processor,” most commonly used in privacy legislation outside the United States, the CPA applies certain obligations modeled after the European Union’s General Data Protection Regulation (“GDPR”), including the requirement to conduct data protection assessments. Further, the CPA imposes certain obligations on data processors, including requirements to assist the controller in meeting its obligations under the statute and to provide the controller with audit rights, deletion rights, and the ability to object to subprocessors. Companies that have undergone GDPR compliance work thus will have a leg up with respect to these obligations.

The CPA gives the Attorney General rulemaking authority to fill some notable gaps in the statute. Among them are how businesses should implement the requirement that consumers have a universal mechanism to easily opt out of the sale of their personal data or its use for targeted advertising, which must be implemented by July 1, 2023. In addition, as Governor Polis noted in a signing statement, the Colorado General Assembly already is engaged in conversations around enacting “clean-up” legislation to further refine the CPA.[3]

The following is a detailed overview of the CPA’s provisions.

I. CPA’s Key Rights and Provisions

A. Scope of Covered Businesses, Personal Data, and Exemptions

1. Who Must Comply with the CPA?

The CPA applies to any legal entity that “conducts business in Colorado or produces or delivers commercial products or services that are intentionally targeted to residents of Colorado” and that satisfies one or both of the following thresholds:

1. During a calendar year, controls or processes personal data of 100,000 or more Colorado residents; or
2. Both derives revenue or receives discounts from selling personal data and processes or controls the personal data of 25,000 or more Colorado residents.[4]

In other words, the CPA will likely apply to companies that interact with Colorado residents, or process personal data of Colorado residents on a relatively large scale, including non-profit organizations. Like the California and Virginia laws, the CPA does not define what it means to “conduct business” in Colorado. However, in the absence of further guidance from the Attorney General, businesses can assume that economic activity that triggers tax liability or personal jurisdiction in Colorado likely will trigger CPA applicability.

Notably, like the VCDPA (and unlike the CCPA), the statute does not include a standalone revenue threshold for determining applicability separate from the above thresholds regarding contacts with Colorado. Therefore, even large businesses will not be subject to the CPA unless they fall within one of the two categories above, which focus on the number of Colorado residents affected by the business’s processing or control of personal data.

The CPA contains a number of exclusions, including both entity-level and data-specific exemptions. For instance, it does not apply to certain entities, including  air carriers[5] and national securities associations.[6] Employment records and certain data held by public utilities, state government, and public institutions of higher education are also exempt.[7] The CPA also exempts data subject to various state and federal laws and regulations, including the Gramm-Leach-Bliley Act (“GLBA”), Health Insurance Portability and Accountability Act (“HIPAA”), Fair Credit Reporting Act (“FCRA”), and the Children’s Online Privacy Protection Act (“COPPA”).[8] Like the California and Virginia laws, however, these latter exemptions do not apply at the entity level and instead only apply to data that is governed by and processed in accordance with such laws.

The CPA also explicitly exempts a wide variety of activities in which controllers and processors might engage, such as responding to identity theft, protecting public health, or engaging in internal product-development research.[9]

2. Definition of “Personal Data” and “Sensitive Data”

The CPA defines personal data as “information that is linked or reasonably linkable to an identified or identifiable individual,” but excludes “de-identified data or publicly available information.”[10] The CPA defines “publicly available information” as information that is “lawfully made available from federal, state, or local government records” or that “a controller has a reasonable basis to believe the consumer has lawfully made available to the general public.”[11] The CPA further does not apply to data “maintained for employment records purposes.”[12]

As discussed below, opt-out rights apply to certain processing of personal data, while opt-in consent must be obtained prior to processing categories of data that are “sensitive.” The statute defines “sensitive data” to mean “(a) personal data revealing racial or ethnic origin, religious beliefs, a mental or physical health condition or diagnosis, sex life or sexual orientation, or citizenship or citizenship status; (b) genetic or biometric data that may be processed for the purpose of uniquely identifying an individual; or (c) personal data from a known child.”[13]

B. Consumer Rights Under the Colorado Privacy Act

A “consumer” under the CPA is a Colorado resident who is “acting only in an individual or household context.”[14] Like the VCDPA, the CPA expressly exempts individuals acting in a “commercial or employment context,” such as a job applicant, from the definition of “consumer.”[15] This contrasts with the CPRA, which does not exempt business-to-business and employee data, and the CCPA’s exemptions for such data that are set to expire in 2023.

1. Access, correction, deletion, and data portability rights

The CPA gives Colorado consumers the right to access, correct, delete, or obtain a copy of their personal data in a portable format.[16]

Controllers must provide consumers with “a reasonably accessible, clear, and meaningful privacy notice.”[17] Those notices must tell consumers what types of data controllers collect, how they use it and what personal data is shared with third parties, with whom they share it, and “how and where” consumers can exercise their rights.[18]

To exercise their rights over their personal data, consumers must submit a request to the controller.[19] Controllers cannot require consumers to create an account to make a request about their data,[20] and they also cannot discriminate against consumers for exercising their rights, such as by increasing prices or reducing access to products or services.[21] However, they can still offer discounts and perks that are part of loyalty and club-card programs.[22]

2. Right to opt-out of sale of personal data, targeted advertising, and profiling

As under the VCDPA, under the CPA consumers have the right to opt out of the processing of their non-sensitive personal data for purposes of targeted advertising, the sale of personal data, or “profiling in furtherance of decisions that produce legal or similarly significant effects.”[23] The CPA, like the CCPA, adopts a broad definition of “sale” of personal data to mean “the exchange of personal data for monetary or other valuable consideration by a controller to a third party.”[24] However, the CPA contains some broader exemptions from the definition of “sale” than the CCPA, including for the transfer of personal data to an affiliate or to a processor or when a consumer directs disclosure through interactions with a third party or makes personal data publicly available.[25]

If the controller sells personal data or uses it for targeted advertising, the controller’s privacy notice must “clearly and conspicuously” disclose that fact and how consumers can opt out.[26] In addition, controllers must provide that opt-out information in a “readily accessible location outside the privacy notice.”[27] However, the CPA, like the VCDPA, does not specify how controllers must present consumers with these opt-out rights.

The CPA permits consumers to communicate this opt out through technological means, such as a browser or device setting.[28] By July 1, 2024, consumers must be allowed to opt out of the sale of their data or its use for targeted advertising through a “user-selected universal opt-out mechanism.”[29] Opting-out of profiling, however, does not appear to be explicitly addressed by this mechanism. Exactly what the universal opt-out mechanism will look like will be up to the Attorney General, who will be tasked with defining the technical requirements of such a mechanism by July 1, 2023.[30]

3. New rights to opt-in to the processing of “sensitive” data and to appeal

a. Right to opt-in to the processing of “sensitive” data”

Similar to the VCDPA, controllers must first obtain a consumer’s opt-in consent before processing “sensitive data,” which includes children’s data; genetic or biometric data used to uniquely identify a person; and “personal data revealing racial or ethnic origin, religious beliefs, a mental or physical health condition or diagnosis, sex life or sexual orientation, or citizenship or citizenship status.”[31] Unlike the VCDPA, however, the CPA does not define “biometric” data.

Consent can be given only with a “clear, affirmative act signifying a consumer’s freely given, specific, informed, and unambiguous agreement,” such as an electronic statement.[32] Like its California counterparts, the CPA further specifies that consent does not include acceptance of broad or general terms, “hovering over, muting, pausing, or closing a given piece of content,” or consent obtained through the use of “dark patterns,” which are “user interface[s] designed or manipulated with the substantial effect of subverting or impairing user autonomy, decision making, or choice.”[33]

b. Right to appeal

Like its counterparts, the CPA provides that controllers must respond to requests to exercise the consumer rights granted by the statute within 45 days, which the controller may extend once for an additional 45-day period if it provides notice to the requesting consumer explaining the reason for the delay.[34] A controller cannot charge the consumer for the first such request the consumer makes in any one-year period, but can charge for additional requests in that year. [35] The CPA, like the VCDPA (but unlike the CCPA/CPRA), requires controllers to establish an internal appeals process for consumers when the controller does not take action on their request.[36] The appeals process must be “conspicuously available and as easy to use as the process for submitting the request.”[37] Once controllers act on the appeal—which they must do within 45 days, subject to an additional extension of 60 days if necessary—they must also tell consumers how to contact the Attorney General’s Office if the consumer has concerns about the result of the appeal.[38]

C. Business Obligations

1. Data Minimization and technical safeguards requirements

Like the California and Virginia laws, the CPA limits businesses’ collection and use of personal data and requires the implementation of technical safeguards.[39] The CPA explicitly limits the collection and processing by controllers of personal data to that which is reasonably necessary and compatible with the purposes previously disclosed to consumers.[40] Relatedly, controllers must obtain consent from consumers before processing personal data collected for another stated purpose.[41] Also, under the CPA controllers and processors must take reasonable measures to keep personal data confidential and to adopt security measures to protect the data from “unauthorized acquisition” that are “appropriate to the volume, scope, and nature” of the data and the controller’s business.[42]

2. GDPR-like requirements – data protection assessments, data processing agreements, restrictions on processing personal data

The CPA, like the VCDPA, requires controllers to conduct “data protection assessments,” similar to the data protection impact assessments required under the GDPR, to evaluate the risks associated with certain processing activities that pose a heightened risk – such as those related to sensitive data and personal data for targeted advertising and profiling that present a reasonably foreseeable risk of unfair or deceptive treatment or unlawful disparate impact to consumers – and the sale of personal data.[43] Unlike the GDPR, however, the CPA does not specify the frequency with which these assessments must occur. The CPA requires controllers to make these assessments available to the Attorney General upon request.[44]

The CPA also requires controllers and processors to contractually define their relationship. These contracts must include provisions related to, among other things, audits of the processor’s actions and the confidentiality, duration, deletion, and technical security requirements of the personal data to be processed.[45]

D. Enforcement

The CPA is enforceable by Colorado’s Attorney General and state district attorneys, subject to a 60-day cure period for any alleged violation until 2025 (in contrast to the 30-day cure period under the CCPA and VCDPA and the CPRA’s elimination of any cure period).[46] Local laws are pre-empted and consumers have no private right of action.[47] A violation of the CPA constitutes a deceptive trade practice for purposes of the Colorado Consumer Protection Act, with violations punishable by civil penalties of up to $20,000 per violation (with a “violation” measured per consumer and per transaction).[48] The Attorney General or district attorney may enforce the CPA by seeking injunctive relief.

In addition to rulemaking authority to specify  the universal opt-out mechanism, the Colorado Attorney General is authorized to “adopt rules that govern the process of issuing opinion letters and interpretive guidance to develop an operational framework for business that includes a good faith reliance defense of an action that may otherwise constitute a violation” of the CPA.[49]

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As we counsel our clients through GDPR, CCPA, CPRA, VCDPA, and CPA compliance, we understand what a major undertaking it is and has been for many companies. As discussed above, the CPA resembles the VCDPA in several respects, including by requiring opt-in consent for the processing of “sensitive data,” permitting appeal of decisions by companies to deny consumer requests, as well as by imposing certain GDPR-style obligations such as the requirement to conduct data protection assessments. Because many of the privacy rights and obligations in the CPA are similar to those in the GDPR, CCPA, CPRA, and/or VCDPA, companies should be able to strategically leverage many of their existing or in-progress compliance efforts to ease their compliance burden under the CPA.

In light of this sweeping new law, we will continue to monitor developments, and are available to discuss these issues as applied to your particular business.

_________________________

   [1]   Sec. 7(1), Colorado Privacy Act, Senate Bill 21-190, 73d Leg., 2021 Regular Sess. (Colo. 2021), to be codified in Colo. Rev. Stat. (“C.R.S.”) Title 6.

   [2]   E.g.,C.R.S. §§  6-1-1311(1); 6-1-108(1).

   [3]   SB 21-190 Signing Statement, available at https://drive.google.com/file/d/1GaxgDH_sgwTETfcLAFK9EExPa1TeLxse/view.

   [4]   C.R.S. §  6-1-1304(1).

   [5]   C.R.S. § 6-1-1304(2)(l).

   [6]   C.R.S. § 6-1-1304(2)(m).

   [7]   C.R.S. § 6-1-1304(2)(k), (n), (o).

   [8]   E.g., C.R.S. §§ 6-1-1304(2)(e), (i)(II), (j)(IV), (q).

   [9]   C.R.S. § 6-1-1304(3)(a).

  [10]   C.R.S. § 6-1-1303(17).

  [11]   C.R.S. § 6-1-1303(17)(b).

  [12]   C.R.S. § 601-1304(2)(k).

  [13]   C.R.S. § 6-1-1303(24).

  [14]   C.R.S. § 6-1-1303(6)(a).

  [15]   C.R.S. § 6-1-1303(6)(b).

  [16]   C.R.S. § 6-1-1306(1)(b)-(e).

  [17]   C.R.S. § 6-1-1308(1)(a).

  [18]   C.R.S. § 6-1-1308(1)(a).

  [19]   C.R.S. § 6-1-1306(1).

  [20]   C.R.S. §§ 6-1-1306(1); 6-1-1308(1)(c)(I).

  [21]   C.R.S. § 6-1-1308(1)(c)(II), (6).

  [22]   C.R.S. § 6-1-1308(1)(d).

  [23]   C.R.S. § 6-1-1306(1)(a)(I).

  [24]   C.R.S. § 6-1-1303(23)(a) (emphasis added).

  [25]   C.R.S. § 6-1-1303(23)(b).

  [26]   C.R.S. § 6-1-1308(1)(b); see also 6-1-1306(1)(a)(III), 6-1-1306(1)(a)(IV)(C).

  [27]   C.R.S. § 6-1-1306(1)(a)(III).

  [28]   C.R.S. § 6-1-1306(1)(a)(II).

  [29]   C.R.S. § 6-1-1306((1)(a)(IV).

  [30]   C.R.S. § 6-1-1306((1)(a)(IV)(B).

  [31]   C.R.S. § 6-1-1303(24).

  [32]   C.R.S. § 6-1-1303(5).

  [33]   C.R.S. § 6-1-1303(5), (9).

  [34]   C.R.S. § 6-1-1306(2)(a)-(b).

  [35]   C.R.S. § 6-1-1306(2)(c).

  [36]   C.R.S. § 6-1-1306(3)(a).

  [37]   C.R.S. § 6-1-1306(3)(a)-(b).

  [38]   C.R.S. § 6-1-1306(3)(b)-(c).

  [39]   See generally C.R.S. §§ 6-1-1305, 6-1-1308(2)-(5).

  [40]   C.R.S. § 6-1-1308(2)-(4).

  [41]   C.R.S. § 6-1-1308(4).

  [42]   C.R.S. §§ 6-1-1305(3)(a); 6-1-1308(5).

  [43]   C.R.S. § 6-1-1309.

  [44]   C.R.S. § 6-1-1309(4).

  [45]   C.R.S. § 6-1-1305(3)-(5).

  [46]   C.R.S. §§ 6-1-1311(1)(a), (d).

  [47]   C.R.S. §§ 6-1-1311(1)(b); 6-1-1312.

  [48]   C.R.S. § 6-1-1311(1)(c); see C.R.S. § 6-1-112(a).

  [49]   C.R.S. § 6-1-1313(3).

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This alert was prepared by Ryan Bergsieker, Sarah Erickson, Lisa Zivkovic, and Eric Hornbeck.

Gibson Dunn lawyers are available to assist in addressing any questions you may have about these developments.  Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any member of the firm’s Privacy, Cybersecurity and Data Innovation practice group.

Privacy, Cybersecurity and Data Innovation Group:

United States
Alexander H. Southwell – Co-Chair, PCDI Practice, New York (+1 212-351-3981, [email protected])
S. Ashlie Beringer – Co-Chair, PCDI Practice, Palo Alto (+1 650-849-5327, [email protected])
Debra Wong Yang – Los Angeles (+1 213-229-7472, [email protected])
Matthew Benjamin – New York (+1 212-351-4079, [email protected])
Ryan T. Bergsieker – Denver (+1 303-298-5774, [email protected])
David P. Burns – Washington, D.C. (+1 202-887-3786, [email protected])
Nicola T. Hanna – Los Angeles (+1 213-229-7269, [email protected])
Howard S. Hogan – Washington, D.C. (+1 202-887-3640, [email protected])
Robert K. Hur – Washington, D.C. (+1 202-887-3674, [email protected])
Joshua A. Jessen – Orange County/Palo Alto (+1 949-451-4114/+1 650-849-5375, [email protected])
Kristin A. Linsley – San Francisco (+1 415-393-8395, [email protected])
H. Mark Lyon – Palo Alto (+1 650-849-5307, [email protected])
Karl G. Nelson – Dallas (+1 214-698-3203, [email protected])
Ashley Rogers – Dallas (+1 214-698-3316, [email protected])
Deborah L. Stein – Los Angeles (+1 213-229-7164, [email protected])
Eric D. Vandevelde – Los Angeles (+1 213-229-7186, [email protected])
Benjamin B. Wagner – Palo Alto (+1 650-849-5395, [email protected])
Michael Li-Ming Wong – San Francisco/Palo Alto (+1 415-393-8333/+1 650-849-5393, [email protected])
Cassandra L. Gaedt-Sheckter – Palo Alto (+1 650-849-5203, [email protected])

Europe
Ahmed Baladi – Co-Chair, PCDI Practice, Paris (+33 (0)1 56 43 13 00, [email protected])
James A. Cox – London (+44 (0) 20 7071 4250, [email protected])
Patrick Doris – London (+44 (0) 20 7071 4276, [email protected])
Kai Gesing – Munich (+49 89 189 33-180, [email protected])
Bernard Grinspan – Paris (+33 (0)1 56 43 13 00, [email protected])
Penny Madden – London (+44 (0) 20 7071 4226, [email protected])
Michael Walther – Munich (+49 89 189 33-180, [email protected])
Alejandro Guerrero – Brussels (+32 2 554 7218, [email protected])
Vera Lukic – Paris (+33 (0)1 56 43 13 00, [email protected])
Sarah Wazen – London (+44 (0) 20 7071 4203, [email protected])

Asia
Kelly Austin – Hong Kong (+852 2214 3788, [email protected])
Connell O’Neill – Hong Kong (+852 2214 3812, [email protected])
Jai S. Pathak – Singapore (+65 6507 3683, [email protected])

Gibson Dunn’s Supreme Court Round-Up provides summaries of the Court’s opinions from this Term, a preview of cases set to be argued next Term, and other key developments on the Court’s docket. In the October 2020 Term, the Court heard argument in 57 cases, including 2 original-jurisdiction cases, and Gibson Dunn was counsel or co-counsel for a party in 4 of those cases.

Spearheaded by former Solicitor General Theodore B. Olson, the Supreme Court Round-Up keeps clients apprised of the Court’s most recent actions. The Round-Up previews cases scheduled for argument, tracks the actions of the Office of the Solicitor General, and recaps recent opinions. The Round-Up provides a concise, substantive analysis of the Court’s actions. Its easy-to-use format allows the reader to identify what is on the Court’s docket at any given time, and to see what issues the Court will be taking up next. The Round-Up is the ideal resource for busy practitioners seeking an in-depth, timely, and objective report on the Court’s actions.

To view the Round-Up, click here.

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Gibson Dunn has a longstanding, high-profile presence before the Supreme Court of the United States, appearing numerous times in the past decade in a variety of cases. During the Supreme Court’s 5 most recent Terms, 9 different Gibson Dunn partners have presented oral argument; the firm has argued a total of 15 cases in the Supreme Court during that period, including closely watched cases with far-reaching significance in the areas of intellectual property, separation of powers, and federalism. Moreover, although the grant rate for petitions for certiorari is below 1%, Gibson Dunn’s petitions have captured the Court’s attention: Gibson Dunn has persuaded the Court to grant 32 petitions for certiorari since 2006.

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Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Supreme Court. Please feel free to contact the following attorneys in the firm’s Washington, D.C. office, or any member of the Appellate and Constitutional Law Practice Group.

Theodore B. Olson (+1 202.955.8500, [email protected])
Amir C. Tayrani (+1 202.887.3692, [email protected])
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Joshua M. Wesneski (+1 202.887.3598, [email protected])

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Orange County partner Oscar Garza, of counsel Matthew Bouslog and associate Douglas Levin are the authors of “The Current State of Play: the Bankruptcy Code ‘Safe Harbor’ After Merit Management” [PDF] published by the Norton Journal of Bankruptcy Law and Practice in April 2021.

Reprinted from Norton Journal of Bankruptcy Law and Practice, Vol. 30 No. 2 (April 2021), with permission of Thomson Reuters. Copyright © 2021. Further use without the permission of Thomson Reuters is prohibited. For further information about this publication, please visit https://legal.thomsonreuters.com/en/products/law-books or call 800.328.9352.

On June 23, 2021, the U.S. Supreme Court held 6-3 that a California regulation granting labor organizations a right of access to agricultural employers’ property to solicit support for unionization, constitutes a “per se” physical taking under the Fifth Amendment. Finding that “the regulation here is not transformed from a physical taking into a use restriction just because the access granted is restricted to union organizers, for a narrow purpose, and for a limited time” the Court’s decision in Cedar Point Nursery v. Hassid arguably signals an expanded definition of physical takings which potentially could encompass additional government regulations. The Court’s analysis, however, was strongly influenced by the relative intrusiveness and persistence of the intrusions authorized by the California regulation before it—which the Court analogized to a traditional “easement”— and which it distinguished from  more limited tortious intrusions akin to trespasses and from traditional health and safety inspections, neither of which raise takings issues. It is therefore too soon to know whether Cedar Point will markedly alter takings jurisprudence.

I. Background

The California Agricultural Labor Relations Act of 1975 grants union organizers a right to take access to the property of agricultural employers for the purposes of soliciting the support of agricultural workers by filing written notice with the state’s Agricultural Labor Relations Board and providing a copy of the notice to the employer. Under the regulation, agricultural employers must allow the organizers to enter and remain on the premises for up to three hours per day, 120 days per year. Agricultural employers who interfere with the organizers’ right of entry onto their property may be subjected to sanctions for unfair labor practices.

In 2015, organizers from the United Farm Workers sought entry into Cedar Point Nursery and Fowler Packing Company without providing written notice. After the organizers entered Cedar Point and engaged in disruptive behavior, Cedar Point filed a charge against the union for entering the property without notice; the union responded with its own charge against Cedar Point for committing an unfair labor practice. The union filed a similar charge against Fowler Packing Company, from which they were as been blocked from accessing altogether.

The District Court dismissed the employers’ complaints, rejecting their argument that the regulation constituted a per se physical taking. The Court of Appeals affirmed, evaluating the claims under the multi-prong balancing test that applies to use restrictions. The U.S. Supreme Court disagreed with the lower courts and reversed, finding that the regulation did qualify as a per se physical taking because it granted a formal entitlement to enter the employers’ property that was analogous to an easement, thereby appropriating a right of access for union organizers to physically invade the land, and impair the property owner’s “right to exclude” people from its property.

II. Issues & Holding

The U.S. Constitution requires the government to provide just compensation whenever it effects a taking of property. Under a straightforward application of takings doctrine, just compensation will always be required when the government commits a per se physical taking by physically occupying or possessing property without acquiring title. Takings claims arising from regulations that restrict an owner’s ability to use their property are less clear-cut. Such claims will be evaluated under a multi-prong balancing test, and just compensation is only required if it is determined that the regulation “goes too far” as a regulatory taking.

The outcome of this particular case turned on whether the Court viewed the California regulation as a per se physical taking, for which just compensation  generally is required, or as a “regulatory” taking, the doctrine applied to use restrictions and under which compensation is required only if the restriction “goes too far.” The Court found that the California access provision qualified as a per se physical taking because it did not merely restrict how the owner used its own property, but it appropriated the owner’s “right to exclude” for the government itself or for a third party by granting organizers the right physically to enter and occupy the land for periods of time. Under the Court’s holding, the fact that the physical appropriation arose from a regulation was immaterial to its classification as a per se taking. As the Court explained, although use restrictions are often analyzed as “regulatory takings,” “[t]he essential question is not whether the government action at issue comes garbed as a regulation (or statute, or ordinance, or miscellaneous decree). It is whether the government has physically taken property for itself or someone else—by whatever means—or ha instead restricted a property owner’s ability to use his own property.”

The Court supported its holding with past takings jurisprudence. Under the landmark case Loretto v. Teleprompter Manhattan CATV Corp., any regulation that authorizes a permanent physical invasion of property qualifies as a taking. 458 U.S. 419 (1982). The Court clarified that Loretto did not require a finding that a per se physical taking had not occurred since the invasion was only temporary and intermittent rather than permanent and ongoing, because the key element of a taking under Loretto is the physical invasion itself. While the duration and frequency of the physical invasion may bear on the amount of compensation due, it does not alter its classification as a per se taking. By authorizing third parties to physically invade agricultural employers’ property, the California regulation amounted to the government having taken a property interest analogous to a servitude or easement, and such actions have historically been treated as per se physical takings. The Court also made clear that a physical invasion need not match precisely the definition of “easement” under state law to qualify as a  taking.

The Court also considered the seminal case of PruneYard Shopping Center v. Robins, in which the California Supreme Court used the multi-factor balancing test to find that a restriction on a privately owned shopping center’s right to exclude leafleting was not a taking. 447 U.S. 74 (1980). The Court pointed out that unlike the California agricultural property, the shopping center in PruneYard was open to the public. Finding a significant difference between “limitations on how a business generally open to the public may treat individuals on the premises” and “regulations granting a right to invade property closed to the public,” the Court rejected the argument that PruneYard stood for the proposition that limitations on a property owner’s right to exclude must always be evaluated as regulatory rather than per se takings.

Finally, the Court confirmed that its holding would not disturb ordinary government regulations. The Court noted that isolated physical invasions are properly analyzed as torts (trespasses), and not takings, that many government-authorized restrictions simply reflect longstanding common limitations on property rights (such as ruled requiring property owners to abate nuisances), and, most importantly, that its analysis would not affect traditional health and safety inspections that require entry onto private property will generally not constitute a taking. Such inspections are generally permitted on the theory that the government could have refused to license the commercial activity in question, and that an access requirement is thus proportional to that “benefit” and constitutional.

III. Takeaways

The decision does not expand the scope of per se takings to encompass regulations which merely restrict the use of property without physically invading the land. Legislative restrictions that do not involve a physical invasion will still be evaluated under the multi-prong balancing test before just compensation is required. This decision does not alter the legality of certain categories of government-authorized physical invasions, such government health and safety inspections. It is however a reaffirmation that there are limits to the government’s ability to mandate public access to private property.

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The following Gibson Dunn attorneys prepared this client update: Amy Forbes.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, the author, or any of the following leaders and members of the firm’s Land Use and Development or Real Estate practice groups in California:

Doug Champion – Los Angeles (+1 213-229-7128, [email protected])
Amy Forbes – Los Angeles (+1 213-229-7151, [email protected])
Mary G. Murphy – San Francisco (+1 415-393-8257, [email protected])

© 2021 Gibson, Dunn & Crutcher LLP

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

In this update, we look at the key employment law considerations our clients face across the UK, France and Germany connected to a return to the workplace in the near future, including: (i) ensuring a “Covid-secure” workplace’ and whether to continue to offer flexible working arrangements in the future; (ii) whether to implement an employee Covid-19 vaccination policy (and if so, whether it should be compulsory or voluntary); and (iii) vaccination certification logistics and the facilitation of Covid-19 testing for employees. The legal and commercial issues around Covid-19 continue to be fast-developing, alongside guidance from governments and national authorities, which employers and lawyers alike will continue to monitor closely in the coming months.

1.   A return to the workplace

UK

On 5 July 2021, the Prime Minister announced the UK government’s plans to lift the remaining Covid-19 legal restrictions in England from 19 July 2021 following a further review of the health crisis on 12 July 2021 (with varying timeframes across the other nations of the United Kingdom). Should the lifting of restrictions be confirmed on 12 July, it is expected that there will no longer be legal limits on social contact or social distancing, or mandatory face covering requirements except in certain specific settings (such as healthcare settings). Event and venue capacity caps are also expected to be dropped and venues such as nightclubs should be permitted to reopen. UK employers are therefore anticipating a return to the workplace over the next few months, with the government’s message of “work from home where you can” expected to be removed from 19 July 2021.

With a safe return to the workplace in mind, to the extent they have not done so already, employers should be ensuring their workplaces are “Covid-secure” and risk assessments have been conducted in line with the UK’s Health and Safety Executive’s regularly updated guidelines which are scheduled for further review on 19 July 2021. Practical measures to be put in place will vary depending on the nature of the workplace and industry-specific guidelines, but employers may need to (or wish to) produce policy documents to outline protocols covering meetings, hand washing, mask-wearing, shielding and self-isolation in the event of exposure to Covid-19. In terms of the practical logistics of a return to the workplace, employers should consider whether they wish to continue flexible working arrangements that may currently be in place for their workforce including working from home, the rotation of teams with allocated days to attend the workplace and even specifying arrival and departure times to avoid “bottle necks” in reception areas. UK employers have a duty to consult with employees on matters concerning health and safety at work so will need to engage with their workforce and any relevant unions in good time in advance of a return to the workplace.

Some UK employers will also be preparing for the anticipated end of UK government financial support towards employer costs through the Coronavirus Job Retention Scheme (which is currently set to run until the end of September 2021), the reintegration of furloughed employees, managing levels of accrued untaken annual leave which employers may seek to require their employees take at specific times to ensure it is well distributed, the management of employees who are reluctant to return to the workplace and their options in terms of disciplinary processes and navigating potential employment claims associated with any such processes, as well as potential headcount reductions and redundancies.

Germany

The home office regulations in Germany were tightened in spring of this year, ending in June. Unlike the UK, Germany had to face a serious “third wave” of Covid-19 infections in spring. Until April 2021, German law only stipulated an obligation for employers to provide working-from-home opportunities whenever possible. However, after intense public discussions, the government imposed an additional and enforceable obligation for employees to actually make use of such offers. Due to the rapidly falling numbers of infections in Germany during early summer, the government announced that the working-from-home obligation shall cease from the end of June.

However, a fast return to the status before the pandemic is still highly unlikely. Many large entities have already announced that they will provide non-mandatory work-from-home  opportunities to their employees after the end of June in order to allow all employees to return to the office when they feel comfortable doing so. Some entities may no longer have the capacity to provide office space to all employees every day, five days per week.

Due to the recent and unpredictable development of the Delta variant and generally possible increasing infections in autumn, employers are well advised to keep the work-from-home infrastructure for a potential mandatory return to the home office in place.

France

The health crisis has led employers in France to adopt strict measures to prevent the spread of Covid-19 which have varied in intensity depending on the period of the pandemic in question. These measures have required a great deal of work by Human Resources personnel, who have had to adapt to many recommendations from the French government including the National Health Protocol for companies (hereinafter the “Health Protocol”) – a driving force which is regularly updated according to the ever-evolving health situation.

On Thursday, 29 April 2021, President Emmanuel Macron unveiled a 4-step plan to ease lockdown in France, with key dates on 3 May 2021, 19 May 2021, 9 June 2021, and 30 June 2021, which is progressively accompanied by an easing of the Health Protocol. As of 9 June 2021, working from home is no longer the rule for all workplaces and, where applicable, it is now up to the employer to prescribe a minimum number of days per week for employees to work from home or from the workplace within the framework of local social dialogue. In this way, the easing of the Health Protocol is slowly handing back  decision-making authority to employers by allowing them to determine the right proportion of at home/onsite days for their employees. However, all hygiene and social distancing rules must continue to be followed by employers, as well as the promotion of remote meetings where possible.

As the physical risks of returning to the workplace reduce, employers must continue to monitor and account for the psychosocial risks, insofar as a return to the workplace may be a source of anxiety for employees (such as the fear of having lost their professional reflexes or the fear of physical contamination). Employers must therefore remain vigilant on these issues as they manage the return of their workforce.

2.   Vaccination policies

UK

The UK government’s Department of Health and Social Care has said that it is aiming to have offered a Covid-19 vaccination to all adults in the UK by the end of July 2021, although the vaccination is not mandatory. In his 5 July 2021 announcement, the Prime Minister confirmed that the government plans to recognise the protection afforded to fully-vaccinated individuals in relation to self-isolation requirements upon return from travel abroad or contact with an individual who has tested positive for Covid-19. Employers are therefore considering some of the following issues with respect to the vaccination of their workforce:

(i) Whether to introduce voluntary vaccination policy or vaccination as a contractual obligation or pre-requisite to employment for new recruits: UK health and safety legislation requires employers to take reasonable steps to reduce workplace risks, and some employers will be of the view that requiring (or encouraging) employee vaccination is a reasonable step to take towards protecting their workforce from the risks of Covid-19 in the workplace. This assessment is likely to depend largely on the nature of the work being done, the workforce (its interaction generally and with third parties) and the nature of the workplace.

Proposed amendments to the Health and Social Care Act 2008 (Regulated Activities) Regulations 2014 (SI 2014/2936) will make it mandatory from October 2021 for anyone working in a regulated care home in England to be fully vaccinated against Covid-19 (subject to a grace period). This includes all workers, agency workers, independent contractors and volunteers who may work onsite. The government is currently considering whether this mandatory vaccination policy should apply to other healthcare and domiciliary care settings. In the meantime, many employers who are not bound by this policy are nevertheless considering introducing a vaccination policy, whether voluntary or compulsory. Any vaccination policy must be implemented carefully and thoughtfully.

(ii) Employees who refuse the Covid-19 vaccination: Employees may be reluctant or refuse to have the Covid-19 vaccination for a variety of reasons such as their health, religious beliefs or simply personal choice. Depending on whether employers choose to encourage their employees to have the vaccination through a voluntary policy, or make vaccination a mandatory contractual requirement, where employees decline vaccination, employers will need to consider: (a) whether they need to take additional steps to protect the health and safety of those unvaccinated employees or others, including addressing any measures to ensure the workplace is “Covid-secure” or extending working-from-home flexibility for unvaccinated employees; (b) whether disciplinary action (including dismissal) is an option; and (c) how best to manage the risk of potential employment claims.

Employers will be seeking to balance their obligations to protect their workforce under health and safety legislation (which may in part be achieved through high levels of workforce vaccination), reporting obligations in respect of diseases appearing in the workplace (which include Covid-19) and their general duty of care towards employees on the one hand, with employees’ right to refuse the vaccination and the risk of potential employment claims on the other.

(iii) Data protection implications: Employers who collect information relating to whether their employees have been vaccinated will be processing special category personal data, which means they must comply with the requirements of the UK data protection laws in respect of such processing. As such, employers processing vaccination data will need a lawful basis to do so under Article 6(1) of the UK GDPR as well as meeting one of the conditions for processing under Article 9. Furthermore, any such processing must be done in a transparent way so relevant privacy notices will need to be updated and employers must ensure that they also take account of data minimisation and data security obligations.  Specifically, they should ensure they do not retain the information for longer than necessary or record more information than they need for the purpose for which it is collected (i.e., protecting the workforce), as well as ensuring any such data remains accurate and safe from data breaches.

Whether an employer has a legal basis for processing this special category personal data will depend on the context of their employees’ work, the relevant industry and other factors such as the interaction of their workforce with each other as well as clients or other third parties.

Germany

The German government lifted its vaccination prioritization system on 7 June 2021. Most recently, occupational doctors (Betriebsärzte) have been involved in the vaccination campaign as well in order to accelerate it.

Employers may be interested in reaching the highest possible vaccination rate amongst their employees. There are not only economic reasons for such an approach (e.g., to mitigate the risk of disrupted production as a result of quarantine measurements), employers also have a legal obligation towards their employees to protect them and create a safe work environment. In this regard, however, there are crucial points to consider:

(i) So far, there is no indication for the lawfulness of an obligatory vaccination: It is quite clear that there is no justification for the state to make vaccination mandatory for its citizens – mainly for constitutional reasons. The legality of a contractual vaccination obligation imposed by the employer is also widely opposed in Germany.

(ii) Alternatively – and less risky from a legal perspective –,  employers may consider a cooperative approach to achieve a high percentage of vaccinated employees: This could include different measures to increase willingness to be vaccinated amongst the workforce, e.g.,  by providing information about the vaccine, highlighting the advantages, or offering the vaccination through the company’s medical provider. A more controversial method  is to consider rewards for vaccinated employees. There is no case law yet on the issue of whether employers can legally grant such bonuses. However, an incentive will most likely be considered lawful if the bonus stays within a reasonable range. Only in such a case, a completely voluntary decision for each employee to decide for or against a vaccination can be assumed. Even negative incentives can be justified under special circumstances. Therefore, absent any statutory rules on this issue it seems reasonable and appropriate to deny non-vaccinated employees access to common areas like close-area production areas, warehouses, or the cafeteria in order to avoid a spread of infections. On the other hand, it is not admissible to threaten an employee with termination if that employee decides against vaccination.

(iii) Data protection implications: Given the fact that the new UK GDPR is an almost verbatim adoption of the EU GDPR, the data protection implications for the UK and the EU, including Germany and France, are basically identical. Articles 6 and 22 of the EU GDPR can provide the necessary basis to legally handle the processing of health data like the vaccination status. Nonetheless, employers will have to make sure this is done in a transparent fashion and the information is not kept longer than absolutely necessary.

In the event that employers offer bonuses to employees for getting vaccinated, compliance with the EU GDPR is less problematic as the employees will likely provide their personal data on a voluntary basis. However, to comply with the EU GDPR, employers must ensure they have explicit consent for the data processing.

France

In France, vaccination against Covid-19 has been progressively extended to new audiences in stages and in line with accelerated vaccine deliveries. Since 31 May 2021, vaccination has been available to all over 18 years’ old including those without underlying health conditions. As of 15 June 2021, it has been available to all young people aged  between 12 to 18 years’ old.

(i) No obligation to get vaccinated: Employees are encouraged to be vaccinated as part of the vaccination strategy set out by France’s health authorities. However vaccination against Covid-19 remains voluntary and there should be no consequences from an employer if an employee refuses vaccination. Indeed, the mandatory or simply recommended nature of any occupational vaccination is decided by the French Ministry of Health (Ministère de la Santé) following the opinion of the French High Authority of Health (Haute Autorité de Santé). In the case of Covid-19, the mandatory nature of the vaccination has not yet been confirmed. Therefore, employers cannot request employees get vaccinated as a condition of returning to the workplace. In the same way, vaccinated employees will not be able to refuse to return to the workplace on the grounds that their colleagues have not been vaccinated.

As an employer cannot force an employee to be vaccinated, one big question arises in relation to those employees whose  jobs require them to travel abroad regularly, particularly to countries where entry is allowed or denied according to Covid-19 vaccination status. Although no position has been taken in France on this subject for the moment, it seems likely that an employer will be able to require such an employee to prove that they has been vaccinated before allowing them to travel on company business.

(ii) Compliance with strict confidentiality and the EU GDPR: An employer cannot disclose information relating to an employee’s vaccination status, nor their willingness to be vaccinated, to another person under the EU GDPR. It is therefore, not possible for an employer to organise for a vaccination invitation to be sent to individual employees identified as vulnerable or whose job requires proof of vaccination. Indeed, such a process would allow the employer to obtain confidential information concerning the health of the employees in question, which is contrary to medical secrecy and which data is considered “sensitive” health data under the EU GDPR.

(iii) Involvement of occupational health services: The Covid-19 vaccination may be performed by occupational health services. If an employee chooses to go through this service, they are allowed to be absent from work during their working hours. No sick leave is required and the employer cannot object to their absence. In other situations, in particular if an employee chooses to be vaccinated in a vaccinodrome or at their doctor’s practice, there is no right to leave. However, in our opinion, the employer must facilitate the vaccination of employees in order to comply with its health and safety obligations.

3.   Vaccination certification and Covid testing

UK

Vaccination certification

The UK government has introduced a Covid-19 vaccination status certification system known as the “NHS COVID Pass”. The Pass can be downloaded onto the NHS App on an individual’s smartphone and be used within the UK and abroad by those who have received a Covid-19 vaccination to demonstrate their vaccination status. In his 5 July 2021 announcement, the Prime Minister confirmed that a Covid-19 vaccination certificate will not be legally required as a condition of entry to any venue or event in the UK, but businesses may make use of the NHS Covid Pass certification if they wish to do so. Employers may therefore ask their employees to show their NHS Covid Pass as a condition to returning to the workplace or particiating in certain activites, but to the extent they do so, the employment and data privacy issues noted above will need to be considered in advance to ensure employers do not expose themselves to risk of claims.

Covid testing

Since April 2021, the UK government has made Covid-19 lateral flow tests available at no cost to everyone in England. Under its current workplace testing scheme, free rapid lateral flow tests will continue to be made available until the end of July 2021. UK government guidance encourages employers to offer regular (twice weekly) testing to their on-site employees to reduce the risk of Covid-19 transmission in the workplace, although such testing programs are voluntary. Employers who propose introducing Covid-19 testing for their workforce will need to consider the risks and implications of doing so, including: (i) the terms of any policy around Covid-19 testing, including whether testing will be mandatory or voluntary and the extent to which they need to consult with the workforce ahead of introducing such policy; and (ii) how to manage employee reluctance to submit to testing, and whether disciplinary proceedings will be appropriate or feasible, taking into account the risk of claims from their employees.

Germany

Vaccination certification

On 17 March 2021, the European Commission presented its proposal to create a Digital Green Certificate. It aims to standardize the mechanism by which a vaccination certificate is verified throughout the EU and to facilitate the right of free movement for EU citizens. Germany recently presented a new digital application for this certificate, the “CovPass-App”. Additionally, the newest version of the “Corona Warn App” is also capable of saving and displaying an individual’s vaccination certificate. It is possible to check their immunization status by scanning a QR-code on “the CovPassCheck App” and users are able to get their certificate uploaded to the application on their smartphone at selected pharmacies and doctors.

Regardless of the abstract possibilities of verification, employers in Germany and the EU will have to consider if and how they would like to use these tools. For instance, certificates might open up options to release employees from potential test obligations or work-from-home orders. At the same time, employers will have to observe aforementioned data protection implications and avoid unlawful discrimination or indirect vaccination obligations.

Covid testing

In Germany, rapid testing is currently free of charge and widely available. In addition, employers are required to offer at least two rapid tests a week for employees that are required to work onsite. The German government has declared that whilst employers’ no longer have an obligation to offer work-from-home opportunities, their obligation to offer rapid tests to employees will remain after the end of June. However, employees are not legally required to make use of this offer. This raises the question for employers whether or not they should make these tests mandatory. The legality of mandatory testing has not been assessed  by a German court yet. It will depend primarily on the outcome of the balancing of the conflicting interests of employers and employees. While employees may claim a general right of privacy and cannot be required to undergo medical testing, employers can argue that they have a legal obligation to ensure the safety of their other employees.

Currently, one can argue that, due to the current extraordinary pandemic situation, the interests of the employer generally outweigh reservations of the employee against being tested or testing themselves. However, this might very well change when the number of cases continues to drop and the vaccination rate rises. Thus, employers electing to apply such measures are well-advised to monitor the nationwide and even local epidemiological developments closely and adapt their policies accordingly.

Again, the test results are “health data” that fall within the scope of the EU GDPR. Therefore, the data protection implications mentioned above apply accordingly. In the event that entities are having a works council, potential questions of co-determination rights according to the Works Constitution Act (BetrVG) have to be considered as well.

France

Vaccination certification

The French government has deployed a new application feature called TousAntiCovid-Carnet, which is part of the European work on the Digital Green Certificate. It is a digital “notebook” that allows electronic storage of test result certificates as well as vaccination certificates. For the French Data Protection Authority (“CNIL”), the voluntary nature of the use of this application must remain an essential guarantee of the system. Consequently, its use must not constitute a condition for the free movement of persons, subject to a few exceptions. Employers are therefore (in line with the health and safety obligations) invited to publicize this system and to encourage employees to download the application, but they cannot make it compulsory, either through internal regulations or by any other means. Any attempts to do so would be vitiated by illegality. Moreover, if the application is installed on a work phone, the employer will not be able to access the declared data, according to the French Ministry of Labor (Ministère du Travail).

In any case, if a French law that required people to have a vaccination passport and/or to download an application was to enacted, each employer would have to ensure compliance with such a law. But, until then, this is not the case.

Covid testing

Companies may carry out Covid-19 screening operations with antigenic tests at their own expense, on a voluntary basis and in compliance with medical confidentiality. They may also provide their employees with self-tests in compliance with the same rules, along with  instructions provided by a health professional. On the one hand, employee rights to privacy prevent a negative test result from being communicated to the employer – an employee does not have to inform their employer that they have taken a test at all in such a situation. On the other hand, in the event of a positive test, an employee must inform their employer of the positive result – an employee, like an employer, has a health and safety obligation to take care of their own health and safety, which in turn impacts his colleagues.

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We are looking forward to navigating these issues with our clients in the coming months and would be pleased to discuss any of the points raised in this alert.

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The following Gibson Dunn attorneys assisted in preparing this client update: James Cox, Nataline Fleury, Mark Zimmer, Heather Gibbons, Georgia Derbyshire, Jurij Müller, and Joanna Strzelewicz.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these and other developments. Please feel free to contact the Gibson Dunn lawyer with whom you usually work, or the following authors and members of the Labor and Employment practice group in Europe:

United Kingdom
James A. Cox (+44 (0) 20 7071 4250, [email protected])
Georgia Derbyshire (+44 (0) 20 7071 4013, [email protected])
Kathryn Edwards (+44 (0) 20 7071 4275, [email protected])

Germany
Mark Zimmer (+49 89 189 33 130, [email protected])
Jurij Müller (+49 89 189 33-162, [email protected])

France
Nataline Fleury (+33 (0) 1 56 43 13 00, [email protected])
Charline Cosmao (+33 (0) 1 56 43 13 00, [email protected])
Claire-Marie Hincelin (+33 (0) 1 56 43 13 00, [email protected])
Léo Laumônier (+33 (0) 1 56 43 13 00, [email protected])
Joanna Strzelewicz (+33 (0) 1 56 43 13 00, [email protected])

© 2021 Gibson, Dunn & Crutcher LLP

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This edition of Gibson Dunn’s Federal Circuit Update summarizes the Supreme Court’s decisions in Arthrex and Minerva Surgical. It also discusses recent Federal Circuit decisions concerning patent eligibility, subject matter jurisdiction, prosecution laches, and more Western District of Texas venue issues. The Federal Circuit announced that it will resume in-person arguments in September.

Federal Circuit News

Supreme Court:

United States v. Arthrex, Inc. (U.S. Nos. 19-1434, 19-1452, 19-1458): As we summarized in our June 21, 2021 client alert, the Supreme Court held 5-4 that the Appointments Clause does not permit administrative patent judges (APJs) to exercise executive power unreviewed by any Executive Branch official. The Director therefore has the authority to unilaterally review any Patent Trial and Appeal Board (PTAB) decision. The Court held 7-2 that 35 U.S.C. § 6(c) is unenforceable as applied to the Director and that the appropriate remedy is a limited remand to the Acting Director to decide whether to rehear the inter partes review petition, rather than a hearing before a new panel of APJs. Gibson Dunn partner Mark A. Perry is co-counsel for Smith & Nephew, and argued the case before the Supreme Court.

In response to the Court’s decision, the Federal Circuit issued an order requiring supplemental briefing in Arthrex-related cases. In addition, the PTAB implemented an interim Director review process. Review may now be initiated sua sponte by the Director or may be requested by a party to a PTAB proceeding. The PTAB published “Arthrex Q&As,” which provides more details on the interim Director review process.

Minerva Surgical Inc. v. Hologic Inc. (U.S. No. 20-440): As we summarized in our June 30, 2021 client alert, the Supreme Court upheld the doctrine of assignor estoppel in patent infringement actions, concluding in a 5-4 decision that a patent assignor cannot, with certain exceptions, subsequently challenge the patent’s validity. The Court indicated that the doctrine may have been applied too broadly in the past and provided three examples of when an assignor has an invalidity defense: (1) when an employee assigns to her employer patent rights to future inventions before she can possibly make a warranty of validity as to specific patent claims, (2) when a later legal development renders irrelevant the assignor’s warranty of validity at the time of assignment, and (3) when the patent claims change after assignment and render irrelevant the assignor’s validity warranty.

The Court did not add any new cases originating at the Federal Circuit.

The Court denied the petition in Warsaw Orthopedic v. Sasso (U.S. No. 20-1284) concerning state versus federal court jurisdiction.

The following petitions are still pending:

• Biogen MA Inc. v. EMD Serono, Inc. (U.S. No. 20-1604) concerning anticipation of method-of-treatment patent claims. Gibson Dunn partner Mark A. Perry is counsel for the respondent.
• American Axle & Manufacturing, Inc. v. Neapco Holdings LLC (U.S. No. 20‑891) concerning patent eligibility under 35 U.S.C. § 101, in which the Court has invited the Solicitor General to file a brief expressing the views of the United States.
• PersonalWeb Technologies, LLC v. Patreon, Inc. (U.S. No. 20-1394) concerning the Kessler

Other Federal Circuit News:

The Federal Circuit announced that, starting with the September 2021 court sitting, the court will resume in-person arguments. The court has issued Protocols for In-Person Argument, as well as a new administrative order implementing these changes, which are available on the court’s website.

Upcoming Oral Argument Calendar

The list of upcoming arguments at the Federal Circuit is available on the court’s website.

Live streaming audio is available on the Federal Circuit’s new YouTube channel. Connection information is posted on the court’s website.

Key Case Summaries (June 2021)

Yu v. Samsung Electronics Co. (Fed. Cir. No. 20-1760): Yu appealed a district court’s order finding that the asserted claims of Yu’s patent (titled “Digital Cameras Using Multiple Sensors with Multiple Lenses”) were ineligible under 35 U.S.C. § 101.

The district court granted the defendants’ motion to dismiss under § 101 on the basis that the asserted claims were directed to “the abstract idea of taking two pictures and using those pictures to enhance each other in some way.”

The Federal Circuit (Prost, J., joined by Taranto, J.) affirmed. At Step 1 of the Alice analysis, the majority “agree[d] with the district court that claim 1 is directed to the abstract idea of taking two pictures (which may be at different exposures) and using one picture to enhance the other in some way,” noting that “the idea and practice of using multiple pictures to enhance each other has been known by photographers for over a century.” At Step 2, the majority “conclude[d] that claim 1 does not include an inventive concept sufficient to transform the claimed abstract idea into a patent-eligible invention” because “claim 1 is recited at a high level of generality and merely invokes well-understood, routine, conventional components to apply the abstract idea.” In so concluding, the majority stated that the recitation of “novel subject matter . . . is insufficient by itself to confer eligibility.”

Judge Newman dissented, writing that the camera at issue “is a mechanical and electronic device of defined structure and mechanism; it is not an ‘abstract idea.’”

Chandler v. Phoenix Services (Fed. Cir. No. 20-1848): The panel (Hughes, J., joined by Chen and Wallach, J.J.) held that because Chandler’s cause of action arises under the Sherman Act, rather than patent law, and because the claims do not depend on a resolution of a substantial question of patent law, the Court lacked subject matter jurisdiction. The Court discussed a recent decision, Xitronix I, in which the Court found it lacked jurisdiction. There, the Court held that a Walker Process claim does not inherently present a substantial issue of patent law. Further, in this case, there was a prior decision that found the ’993 patent unenforceable. Thus, the transferee appellate court would have little need to discuss patent law issues. This case would not alter the validity of the ’993 patent and any discussion of the patent would be “merely hypothetical.” Thus, the Court stated this was an antitrust case and there was not proper jurisdiction simply because a now unenforceable patent was once involved in the dispute.

Hyatt v. Hirshfeld (Fed. Cir. No. 18-2390): Hyatt, the patent applicant, filed a 35 U.S.C. § 145 action against the Patent Office with respect to four patent applications. The Patent Office appealed the District Court of the District of Columbia’s judgment that the Patent Office failed to carry its burden of proving prosecution laches.

The panel (Reyna, J., joined by Wallach and Hughes, J.J.) held that the Patent Office can assert a prosecution laches defense in an action brought by the patentee under 35 U.S.C. § 145, reasoning that the language of § 282 demonstrates Congress’s desire to make affirmative defenses, including prosecution laches, broadly available. Further, the Court stated the Patent Office can assert the prosecution laches defense in a § 145 action even if it did not previously issue rejections based on, or warnings regarding, prosecution laches during the prosecution of the application. Still, the PTO’s failure to previously warn an applicant or reject claims based on prosecution laches may be part of the totality of the circumstances analysis in determining prosecution laches.

The Court found that the Patent Office’s prosecution laches evidence and arguments presented at trial shifted the burden to Hyatt to show by a preponderance of evidence he had a legitimate, affirmative reason for his delay, and the Court remanded the case to afford Hyatt an opportunity to present such evidence.

Amgen Inc. v. Sanofi (Fed. Cir. No. 20-1074): On June 21, 2021, the court denied Amgen’s petition for panel rehearing and rehearing en banc. The panel wrote separately to explain that it had not created a new test for enablement.

As we summarized in our February alert, the panel had held that the claims at issue were not enabled because undue experimentation would be required to practice the full scope of the claims. The panel had explained that there are “high hurdles in fulfilling the enablement requirement for claims with broad functional language.”

In re:  Samsung Electronics Co., Ltd. (Fed Cir. No. 21-139): Samsung and LG sought writs of mandamus ordering the United States District Court for the Western District of Texas to transfer the underlying actions to the United States District Court for the Northern District of California. The panel (Dyk, J., joined by Lourie and Reyna, J.J.) granted the petition.

The panel first held that plaintiffs’ venue manipulation tactics must be disregarded and so venue in the Northern District of California would have been proper under § 1400(b). The panel explained that the presence of the Texas plaintiff “is plainly recent, ephemeral, and artificial—just the sort of maneuver in anticipation of litigation that has been routinely rejected.”

With respect to the merits of the transfer motion, the panel explained that the district court (1) “clearly assigned too little weight to the relative convenience of the Northern District of California,” (2) “provided no sound basis to diminish the[] conveniences” of willing witnesses in the Northern District of California, and (3) “overstated the concern about waste of judicial resources and risk of inconsistent results in light of plaintiffs’ separate infringement suit … in the Western District of Texas.” With respect to local interest, the panel rejected the district court’s position that “‘it is generally a fiction that patent cases give rise to local controversy or interest.’” It also explained that “[t]he fact that infringement is alleged in the Western District of Texas gives that venue no more of a local interest than the Northern District of California or any other venue.” Finally, with respect to court congestion, the panel stated that “even if the court’s speculation is accurate that it could more quickly resolve these cases based on the transferee venue’s more congested docket, … rapid disposition of the case [was not] important enough to be assigned significant weight in the transfer analysis here.”

In re: Freelancer Ltd. (Fed. Cir. No. 21-151) (nonprecedential): Freelancer Limited petitioned for a writ of mandamus instructing Judge Albright in the Western District of Texas to stay proceedings until Freelancer’s motion to dismiss is resolved. Freelancer’s motion was fully briefed as of March 4, 2021. Freelancer subsequently filed a motion to stay proceedings pending resolution of the motion to dismiss, and the stay motion was fully briefed as of April 21, 2021. A scheduling order has been entered in the case, and the plaintiff’s opening claim construction brief was filed on May 27, 2021. Freelancer then filed its mandamus petition. Neither of Freelancer’s motions has been resolved.

The Federal Circuit (Taranto, J., Hughes, J., and Stoll, J.) denied the petition. The court stated that “Freelancer has identified no authority establishing a clear legal right to a stay of all proceedings premised solely on the filing of a motion to dismiss the complaint.” The court further stated that “any delay in failing to resolve either of Freelancer’s pending motions to dismiss and stay proceedings is [not] so unreasonable or egregious as to warrant mandamus relief.” The court noted, however, that any “significant additional delay may alter [its] assessment of the mandamus factors in the future,” made clear that it “expect[ed] . . . that the district court w[ould] soon address the pending motion to dismiss or alternatively grant a stay.”

In re:  Volkswagen Group of America, Inc. (Fed. Cir. No. 21-149) (nonprecedential): Volkswagen petitioned for a writ of mandamus directing the United States District Court for the Western District of Texas to dismiss or to transfer to the United States District Court for the Eastern District of Michigan. Alternatively, Volkswagen sought to stay all deadlines unrelated to venue until the district court rules on the pending motion to dismiss or transfer.

The Federal Circuit (Taranto, J., Hughes, J., and Stoll, J.) denied the petition. Because the district court had indicated that it will resolve that motion before it conducts a Markman hearing in this case, Volkswagen was unable to show that it is unable to obtain a ruling on its venue motion in a timely fashion without mandamus. The Court noted, however, that the district court’s failure to issue a ruling on Volkswagen’s venue motion before a Markman hearing may alter our assessment of the mandamus factors.

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Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Federal Circuit. Please contact the Gibson Dunn lawyer with whom you usually work or the authors of this alert:

Blaine H. Evanson – Orange County (+1 949-451-3805, [email protected])
Jessica A. Hudak – Orange County (+1 949-451-3837, [email protected])

Please also feel free to contact any of the following practice group co-chairs or any member of the firm’s Appellate and Constitutional Law or Intellectual Property practice groups:

Intellectual Property Group:
Kate Dominguez – New York (+1 212-351-2338, [email protected])
Y. Ernest Hsin – San Francisco (+1 415-393-8224, [email protected])
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