Gibson Dunn’s Supreme Court Round-Up provides the questions presented in cases that the Court will hear in the upcoming Term, summaries of the Court’s opinions when released, and other key developments on the Court’s docket. To date, the Court has granted certiorari in 30 cases and set 1 original-jurisdiction case for argument for the 2020 Term, and Gibson Dunn is co-counsel for a party in 1 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.

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 16 cases in the Supreme Court during that period, including closely watched cases with far-reaching significance in separation of powers, administrative law, intellectual property, 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 29 petitions for certiorari since 2006.

* * * *

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, tolson@gibsondunn.com)
Amir C. Tayrani (+1 202.887.3692, atayrani@gibsondunn.com)
Jacob T. Spencer (+1 202.887.3792, jspencer@gibsondunn.com)
Joshua M. Wesneski (+1 202.887.3598, jwesneski@gibsondunn.com)

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

The past several months have seen record volumes of debt issuance at historically low interest rates. At the same time, the COVID-19 pandemic has led to unforeseen challenges and novel practices for issuers, underwriters and their advisors working on these transactions. This webcast will discuss key legal, financial and logistical issues that are affecting debt offerings, as well as best practices for raising capital in the current environment. Please join our panel as they discuss recent developments in investment-grade and high-yield debt offerings, including market trends and disclosure considerations, as well as our expectations for the months ahead.

View Slides (PDF)

PANELISTS:

Boris Dolgonos is a partner in the New York office of Gibson, Dunn & Crutcher and a member of the Capital Markets and Securities Regulation & Corporate Governance Practice Groups. Mr. Dolgonos has more than 20 years of experience advising issuers and underwriters in a wide range of equity and debt financing transactions, including initial public offerings, high-yield and investment-grade debt offerings, leveraged buyouts, cross-border securities offerings, and private placements. Mr. Dolgonos has represented public and private companies, investment banks and other financial institutions and sovereign entities in transactions across North and South America, Europe, Asia and Africa. He has experience in many industries, including metals and mining, biotechnology, industrials, aviation, hospitality, media and telecommunications, financial services, technology, and retail.

Doug Rayburn is a partner in the Dallas and Houston offices of Gibson, Dunn & Crutcher and a member of the firm’s Capital Markets, Energy & Infrastructure, Mergers & Acquisitions, Global Finance, Private Equity and Securities Regulation & Corporate Governance Practice Groups. His principal areas of concentration are securities offerings, mergers and acquisitions and general corporate matters. He has represented issuers and underwriters in over 200 public offerings and private placements, including initial public offerings, high-yield offerings, investment-grade and convertible note offerings, offerings by MLPs, and offerings of preferred and hybrid securities. Additionally, Mr. Rayburn represents purchasers and sellers in connection with mergers and acquisitions involving both public and private companies, including private equity investments and joint ventures. His practice also encompasses corporate governance and other general corporate concerns.

Robyn E. Zolman is a partner in the Denver office of Gibson, Dunn & Crutcher and a member of the firm’s Capital Markets, Securities Regulation & Corporate Governance and Energy Practice Groups. Her practice is concentrated in securities regulation and capital markets transactions. Ms. Zolman represents clients in connection with public and private offerings of equity and debt securities, tender offers, exchange offers, consent solicitations and corporate restructurings. She also advises clients regarding securities regulation and disclosure issues and corporate governance matters, including Securities and Exchange Commission reporting requirements, stock exchange listing standards, director independence, board practices and operations, and insider trading compliance. She provides disclosure counsel to clients in a number of industries, including energy, telecommunications, homebuilding, consumer products, life sciences and biotechnology.

Brussels partner Attila Borsos is the author of “The EU is set to control foreign subsidies,” [PDF] published by Financier Worldwide in its September 2020 issue.

San Francisco partner Ethan Dettmer and Washington, D.C. associate Suria Bahadue are the authors of “The future of DACA is far from clear,” [PDF] published by the Daily Journal on August 27, 2020.

Century City partner Scott Edelman and San Francisco associates Vivek Gopalan and Zach Tan are the authors of “Ruling in gun case puts every Californian at risk,” [PDF] published by the Daily Journal on August 27, 2020.

On August 26, 2020, as part of its continued effort to update and modernize public company disclosure requirements, the U.S. Securities and Exchange Commission (the “Commission”) adopted amendments to Item 101 (“Description of Business”), Item 103 (“Legal Proceedings”) and Item 105 (“Risk Factors”) of Regulation S-K at an open meeting of the Commission.[1] These amendments, which mark the first time that these disclosure requirements have been substantially updated in over 30 years, were designed to result in improved disclosure, tailored to reflect a registrant’s particular circumstances, and reduce disclosure costs and burdens. Many of the amendments reflect the Commission’s “long-standing commitment to a principles-based, registrant-specific approach to disclosure,” which Commission Chairman Jay Clayton referred to at the open meeting as the “envy of the world.”

As discussed in greater detail below, the key changes are:

Revisions to the rules for the Description of Business to more broadly embrace a principles-based standard identifying a non-exclusive list of topics that may be addressed when material.
Revisions to the rules for disclosure of Legal Proceedings to confirm the ability to incorporate by reference from other disclosures in the same document and to raise the dollar threshold for disclosing legal proceedings involving environmental protection laws in which the government is a party.
Revisions to the Risk Factors standards to encourage more concise and company-specific discussions of material factors that make investment in a company or its securities speculative or risky.

In developing the proposed amendments, the Commission stated that it considered input from comment letters received in response to its disclosure modernization efforts, the SEC staff’s experience with Regulation S-K arising from the Division of Corporation Finance’s disclosure review program, and changes in the regulatory and business landscape since the adoption of Regulation S-K. As a recent example, in response to the COVID-19 pandemic, the Division of Corporation Finance closely monitored registrants’ disclosures about how COVID-19 affected their financial condition and results of operations. Division staff observed that the current principles-based disclosure requirements generally elicited detailed discussions of the impact of COVID-19 on registrants’ liquidity position, operational constraints, funding sources, supply chain and distribution challenges, the health and safety of workers and customers, and other registrant- and sector-specific matters. Chairman Clayton stated that “[t]he effectiveness of this framework in providing the public with the information necessary to make informed investment decisions has proven its merit time and time again as markets have evolved when we have faced unanticipated events.”[2] However, this view was not shared by all of the Commissioners, as evidenced by the amendments’ adoption by a 3-2 vote, with the two Democratic Commissioners dissenting.

This client alert begins with a general overview of the amendments adopted by the Commission and their practical impact on existing public company disclosure requirements, as well as the arguments raised by the dissent. A table providing a more detailed review of and observations on the amendments is provided at the end of this alert. For a comparison of the Regulation S-K language from before and after the amendments, please refer to the attached Annex A.

Read More

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[1] See Modernization of Regulation S-K Items 101, 103, and 105, Exchange Act Release No. 33-10825 (August 26, 2020), available at https://www.sec.gov/rules/final/2020/33-10825.pdf.

[2] Modernizing the Framework for Business, Legal Proceedings and Risk Factor Disclosures, available at https://www.sec.gov/news/public-statement/clayton-regulation-s-k-2020-08-26.

Gibson Dunn lawyers are available to assist in addressing any questions you may have regarding these developments. For additional information, please contact the Gibson Dunn lawyer with whom you usually work, any lawyer in the firm’s Securities Regulation and Corporate Governance and Capital Markets practice groups, or the authors:

Andrew L. Fabens – New York (+1 212-351-4034, afabens@gibsondunn.com)
Hillary H. Holmes – Houston (+1 346-718-6602, hholmes@gibsondunn.com)
Elizabeth Ising – Washington, D.C. (+1 202-955-8287, eising@gibsondunn.com)
Brian J. Lane – Washington, D.C. (+1 202-887-3646, blane@gibsondunn.com)
Stewart L. McDowell – San Francisco (+1 415-393-8322, smcdowell@gibsondunn.com)
James J. Moloney – Orange County (+1 949-451-4343, jmoloney@gibsondunn.com)
Ronald O. Mueller – Washington, D.C. (+1 202-955-8671, rmueller@gibsondunn.com)
Michael A. Titera – Orange County (+1 949-451-4365, mtitera@gibsondunn.com)
Peter W. Wardle – Los Angeles (+1 213-229-7242, pwardle@gibsondunn.com)
Lori Zyskowski – New York (+1 212-351-2309, lzyskowski@gibsondunn.com)
William Bald – Houston (+1 346-718-6617, wbald@gibsondunn.com)
Rodrigo Surcan – New York (+1 212-351-5329, rsurcan@gibsondunn.com)

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

New York partner Avi Weitzman and of counsel Tina Samanta are the authors of “Liu v. SEC: Supreme Court Cabins SEC Disgorgement Remedy,” [PDF] published in the Wall Street Lawyer in its July 2020 issue.

Please join members of Gibson Dunn’s Capital Markets and Mergers and Acquisitions Practice Groups as they provide both practical advice and information about the latest legal developments regarding SPACs. Specifically, the panelists will discuss:

IPO Market Overview
IPO Considerations and Trends
Business Combinations –
- Target Perspective
- SPAC Perspective
London Listed SPACs

View Slides (PDF)

PANELISTS:

Evan M. D’Amico is a corporate partner in the Washington, D.C. office of Gibson, Dunn & Crutcher, where his practice focuses primarily on mergers and acquisitions. Mr. D’Amico advises companies, private equity firms, boards of directors and special committees in connection with a wide variety of complex corporate matters, including mergers and acquisitions, asset sales, leveraged buyouts, spin-offs and joint ventures. He also has experience advising issuers, borrowers, underwriters and lenders in connection with financing transactions and public and private offerings of debt and equity securities.

Matthew B. Dubeck is a partner in the Los Angeles office of Gibson, Dunn & Crutcher, where he practices in the firm’s Private Equity, Mergers and Acquisitions and Securities Regulation and Corporate Governance Practice Groups. He advises private equity firms, companies and investment banks across a wide range of industries, focusing on public and private merger transactions, stock and asset sales and joint ventures and strategic partnerships. Mr. Dubeck has particular expertise and experience in the use of transactional liability insurance, such as representation and warranty, tax and litigation risk insurance, to reallocate risk and to consummate transactions more efficiently on superior terms, particularly in the private equity and real estate industries.

Christopher Haynes is an English qualified corporate partner in the London office of Gibson, Dunn and Crutcher. Chris has extensive experience in equity capital markets transactions and mergers and acquisitions including advising corporates, investment banks and selling shareholders on initial public offerings (including dual track processes), rights issues and other equity offerings as well as on public takeovers, private company M&A and joint ventures. He also advises on corporate and securities law and regulation.

Stewart McDowell is a partner in the San Francisco office of Gibson, Dunn & Crutcher. She is a member of the firm’s Corporate Transactions Practice Group, Co-Chair of the Capital Markets Practice Group. Ms. McDowell’s practice involves the representation of business organizations as to capital markets transactions, mergers and acquisitions, SEC reporting, corporate governance and general corporate matters. She has significant experience representing both underwriters and issuers in a broad range of both debt and equity securities offerings. She also represents both buyers and sellers in connection with U.S. and cross-border mergers, acquisitions and strategic investments.

Gerry Spedale is a partner in the Houston office of Gibson, Dunn & Crutcher. He has a broad corporate practice, advising on mergers and acquisitions, joint ventures, capital markets transactions and corporate governance. He has extensive experience advising public companies, private companies, investment banks and private equity groups actively engaging or investing in the energy industry. His over 20 years of experience covers a broad range of the energy industry, including upstream, midstream, downstream, oilfield services and utilities.

MCLE 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 hour, of which 1.0 credit hour 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 CLE@gibsondunn.com 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 hour.

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.

1. Introduction

On December 28, 2019, China’s Standing Committee of the National People’s Congress (“NPC”) published the draft Export Control Law of the People’s Republic of China (“2019 Draft”), a revised version of an earlier draft first published by the Chinese Ministry of Commerce (“MOFCOM”) on June 16, 2017 (“2017 Draft”).[1] On July 3, 2020, the NPC published a further revised draft Export Control Law of the People’s Republic of China (“2020 Draft”) (the 2019 Draft and the 2020 Draft collectively the “Draft Laws”). The resultant set of draft legislation is China’s first step towards a comprehensive and unified export control regime.

Against this backdrop, we take this opportunity to (i) summarize the current status quo of China’s export control regime; (ii) discuss in depth the key features of both Draft Laws; and (iii) analyze their potential impact on our clients around the globe.

2. Status Quo of China’s Export Control Regime

2.1 Overview

Currently, China’s export control regime is scattered across multiple laws, administrative regulations, and other guidelines, including but not limited to: (i) the Foreign Trade Law (rev. 2016); (ii) the Customs Law (2017); (iii) the Administrative Regulations on Import and Export of Goods (2001); (iv) the Administrative Regulations on Import and Export of Technologies (2019); (v) the Regulations on Control of Arms Export (2002); (vi) the Regulations on Control of Nuclear Export (2006); (vii) the Administrative Regulations on Monitored Chemicals (2011); (viii) the Regulations on Control of Nuclear Dual-Use Items and Related Technologies Export (2007); (ix) the Regulations on Control of Missiles and Missile-related Items and Technologies Export (2002); and (x) the Regulations on Control of Biological Dual-Use Items and Related Equipment and Technologies Export (2002). Apart from the foregoing, the Criminal Law (as amended) and the Customs Law (2017) as well as the Implementation Regulations on Customs Administrative Penalties (2004) prescribe criminal liability and administrative penalties for violations of Chinese export control regulations.[2]

2.2 Scope

2.2.1 General

Through the various regulations described above, China’s export control laws and regulations cover items ranging from finished goods (such as products and equipment), components, and raw materials, to intellectual property (such as technologies and software). Generally speaking, China’s current export control regime regulates a wide range of activities such as “the export for trade purpose […], gifting, exhibition, scientific and technological cooperation, assistance, services and […] transfers by other means.”[3]

To date, China’s export control regulations have been focused on equipment, technologies, and services relating to sensitive items, including but not limited to missiles, arms, nuclear, certain chemicals, biological dual-use items, and explosives. In addition, MOFCOM, sometimes together with other authorities, has announced interim export control measures from time to time on items not specifically covered by the existing regulations upon approval of the Chinese State Council and other competent authorities. For example, in 2015, MOFCOM, China’s General Administration for Customs (the “China Customs”), the former State Administration for Science, Technology and Industry for National Defense (“SASTIND”), and the People’s Liberation Army General Armaments Department (“PLA Armaments”) jointly announced restrictions on the export of certain military and civil dual-use unmanned aerial vehicles.[4]

2.2.2 Extraterritoriality

Unlike some components of the U.S. export control regime and U.S. secondary sanctions, China’s export control regime currently generally does not purport to extend to re-exports by foreign persons that are not subject to Chinese jurisdiction.

However, as more fully described in Section 2.5 below, the end user and end-use requirements with respect to certain items effectively already have some (limited) extraterritorial effect. In addition, for clarification purposes, transit, transshipment and through shipment of dual-use items and technologies and export of the same via special customs supervision areas or bonded supervision areas are also subject to current Chinese export control law.[5]

2.3 Registration of Exporters

Article 9 of the Foreign Trade Law requires all exporters (whether or not the relevant products are subject to export control measures) to file and register with the “department of the State Council in charge of foreign trade” (currently MOFCOM), or any authorities entrusted by it, unless such filings and registrations are otherwise exempted. Failure to submit the necessary filings or be duly registered will be an impediment to obtaining clearance or relevant declarations from China Customs. This is especially the case for exporters of items subject to export control, and is a requirement that is duplicated in other export control regulations. For example, the Regulations on Control of Missiles and Missile-related Items and Technologies Export require relevant exporters to register with the “department of the State Council in charge of foreign economy and trade” (currently MOFCOM). Likewise, the Regulations on Control of Nuclear Dual-Use Items and Related Technologies Export also require relevant exporters to register with MOFCOM.

2.4 Quota Restrictions and Export Licenses

Pursuant to Article 19 of the Foreign Trade Law, quota restrictions and export licenses are the most powerful and widely used tools in China for exerting export control over controlled items and technologies.

Where a quota restriction applies to the export of any item, applications are required to be made to governmental authorities in charge of export quota administration, currently MOFCOM (including its local counterparts) in early November each year to apply for such quota for next year. Successful applicants will each receive a quota certification and then may be able to apply for an export quota license again at MOFCOM.

For controlled items that are not subject to a quota (e.g., nuclear, arms, explosives), export licenses are required. Typically, exporters are required to apply to MOFCOM or other competent authorities. For proposed exports that may have a material influence on national security, public interests or likewise, the application may even be subject to approval by the State Council.[6]

To export restricted technologies, exporters are required to apply for export licenses through a two-step process. First, an exporter shall apply to the department of State Council in charge of foreign economy and trade, currently MOFCOM, which will examine the technologies to be exported along with certain agencies in charge of science and technology. With MOFCOM’s approval, as evidenced by issuing a letter of intent for a technology export license, the exporter may then negotiate the terms of and enter into a technology export agreement with the counterparty. Then, following the execution of the technology export agreement, such exporter will again have to apply to MOFCOM for a formal export license.

2.5 End User and End-Use Certification

For export of missile, nuclear, certain chemical and biological dual-use related products and technologies, exporters are generally required to submit end user and end-use certifications and other application documents to competent governmental authorities. Recipients of such products or technologies shall also undertake that the exported products and technologies will not be (i) used for any purpose other than the declared end-use, or (ii) transferred to any third party other than the declared end user, unless otherwise approved by the Chinese government. In case of violation of such end user and end-use certification, any export licenses already issued may be suspended or cancelled.

2.6 Lists of Items and Technologies Restricted from Free Export

China has maintained controlled items lists setting forth details on the items and technologies that are subject to export restrictions, such as: (i) the Missiles and Missile-related Items and Technologies Export Control List; (ii) Arms Export Control List and Nuclear Export Control List; (iii) Certain Chemicals and Related Equipment and Technologies Export Control List; and (iv) Biological Dual-Use Items and Related Equipment and Technologies Export Control List.

Upon approval of the State Council, MOFCOM and other competent authorities may jointly announce interim export control measures against items and technologies that are not already included in these lists.

2.7 Liabilities for Violations under the Current Export Control Regime

Violations of China’s current export control laws and regulations may be subject to administrative penalties and criminal liability.

Pursuant to the customs-related laws and regulations, as well as the abovementioned export control regulations, administrative penalties range from a warning, confiscation of products to be exported and/or illegal income (if any), and/or a fine up to five times the illegal income, to cancellation of export licenses. In addition, local counterparts of China Customs may take temporary measures to detain suspected perpetrators as well as products to be exported and vehicles used for transportation. Criminal liabilities include a monetary penalty, confiscation of all assets and even imprisonment for severe violations that constitute crimes relating to smuggling, illegal business operations, and license forgery.

3. Reform of China’s Export Control Regime

3.1 Overview

The introduction of the new comprehensive Draft Laws comes on the heels of the U.S.-China trade war, which seemed to have culminated in both countries signing the “Phase One” trade deal on January 15, 2020.[7] Much ink has been spilled over the trade war, which featured the U.S. Bureau of Industry and Security’s (“BIS”) inclusion of Huawei onto the Entity List, the U.S. House of Representatives passing legislation in December 2019 in response to the Uighur conflict in Xinjiang, a move which could impose export controls on U.S.-made items used by the Chinese government for certain surveillance and repressive activities (as elaborated here[8]), recent designations of Chinese entities, and new export controls rules on military end uses and end users in China. In response, China has threatened to publish an “Unreliable Entity List” that could lead to trade sanctions against U.S. companies[9] and also recently imposed sanctions on four U.S. politicians, one congressional committee and one U.S. company.[10] The implementation of the 2020 Draft could arguably provide China with ammunition to counter U.S. export control measures targeting China, and spell wider implications for the international business community in dealing with Chinese goods. This includes potential further complications for European companies that may be caught in the middle of the U.S.-China trade war.

According to Minister of Commerce Zhong Shan at the 15th Session of the 13th National People’s Congress Standing Committee on December 24, 2019, the 2019 Draft drew inspiration from a “common international practice” to regulate trade, and therefore enhances China’s obligations to fulfill its international commitments as well as to safeguard national security interests. This sentiment is also echoed in Article 1 of both Draft Laws.[11]

Broadly speaking, the 2019 Draft addressed key matters such as: (i) the formal establishment of an export control system; (ii) the requirement for exporters to establish an internal compliance review system to monitor export controls; (iii) end user and end-use certifications; and (iv) enhanced penalties for violations of the 2019 Draft.

The 2020 Draft largely resembles the 2019 Draft but is also different in a few ways. For example, (i) the 2020 Draft explicitly applies to foreign entities and individuals who violate such law; (ii) it is no longer a mandatory obligation for exporters to establish an internal compliance review system; and (iii) it is now unclear how long it would take to apply for an export license, among others.

3.2 Scope

3.2.1 General

(a) The 2019 Draft

The 2019 Draft comprised 48 articles that are set out over six chapters. This represents a considerable streamlining of the 2017 Draft that contained 70 provisions.[12] We detail the areas we consider most relevant below. The 2019 Draft provided for the establishment of a unified export control system with extraterritorial reach and several additional new features.

The 2019 Draft specifically targeted China’s nuclear, military, and dual-use items,[13] as well as other goods, technology, and services that could have an impact on China’s international obligations and national security.[14] The State Council and the Central Military Commission are the primary enforcers of the legislation, though responsibility for regulating and licensing the various controlled items will be shared between different state agencies.[15]

(b) The 2020 Draft

The 2020 Draft also has 48 articles that are set out in only five chapters – the second chapter (control policy and list) and the third chapter (control measures) in the 2019 Draft have been consolidated to one chapter in the 2020 Draft, namely, control policy, list and measures. There is no material change to the general scope and coverage of the 2019 Draft, except as described below.

3.2.2 Extraterritoriality

(a) Re-exports, Deemed Exports and Likewise

The 2017 Draft defined “re-export” as the transfer of an item from a jurisdiction outside of China to a third country, and provided that the export control provisions would apply to certain Chinese-origin controlled items or foreign-made items that contain Chinese-origin controlled items that are determined with reference to a “percentage test.”[16]

The above definition of “re-export” has been removed in both Draft Laws, although the reasons for doing so are unclear.[17] As stands, the relevant Article 45 of both Draft Laws states: “The transit, transshipment, through shipment, or re-export of a controlled item, or the export of a controlled item to overseas from special customs supervision areas such as bonded areas and export processing zones, as well as bonded supervision places such as export supervision warehouses and bonded logistics centers shall be governed by the relevant provisions of this Law.”

Yet, while the definition of “re-export” and the de minimis rule were removed in the Draft Laws, a reference to “re-export” remained.

Accordingly, it remains to be seen whether Article 45 of the Draft Laws will include extraterritorial reach and expand to all re-exports of controlled items, such as a U.S. company re-exporting a controlled item that originates from China to Mexico.

Under Article 2 of both Draft Laws, “deemed exports” refers to the provision of regulated goods and technologies to non-Chinese citizens, legal persons, and organizations.[18] Ostensibly, this provision was included to regulate the trade activities of foreign entities based in China with access to controlled equipment or sensitive technical data. Although unlike the 2017 Draft, neither the 2019 Draft nor the 2020 Draft includes the language that it also applies to exports to Taiwan, Hong Kong and Macau, we believe it may still capture exports to such regions based on China’s geopolitical understanding and prior export control practice.

Other trade activities that are captured under the Draft Laws include transit, transshipment and through shipment of controlled items and export via special customs supervision areas and bonded supervision areas and the above noted re-exports.[19]

We expect China to address these questions, specifically whether “re-exports” will include re-exports from a non-Chinese country to a third country, either in a revised draft or in implementing regulations that provide more details and guidance after the 2020 Draft is enacted.

(b) Legal Liabilities of Foreign Perpetrators

The 2020 Draft, however, has brought clarity to legal liabilities of foreign entities and individuals engaged in China, by introducing Article 44, which reads: “An organization or individual outside the territory of the PRC which violates the provisions (…) of the Export Control Law, hinders the performance of non-proliferation and other international obligations (…), or endangers China’s national security and interests, shall be (…) held legally liable.”

3.3 Registration of Exporters

While the requirement of exporters’ filing and registration obligations remains unchanged, the first new feature of the export control system under both Draft Laws is the introduction of a licensing regime for exporters who wish to export controlled items, as well as any other items that exporters know or should know : (i) may threaten national security; (ii) are used in the design or development of weapons of mass destruction or their delivery vehicles; or (iii) are used for terrorism purposes.[20] According to the Draft Laws, the following eight factors will be taken into consideration in assessing a license application: (i) international obligations and commitments; (ii) national security; (iii) type of export; (iv) sensitivity of items; (v) countries or regions the items are destined for; (vi) end user and end-use; (vii) credit history of the exporters; and (viii) any other circumstances as prescribed by laws and regulations.[21]

3.4 Controlled Items List

Another novel feature of the Draft Laws is the creation of a controlled items list. To that end, Article 9 of the 2019 Draft states that three separate lists will be generated for dual-use items, military items, and nuclear items respectively.[22] However, according to Article 9 of the 2020 Draft, it appears only one list is contemplated to include all covered items.

Article 10 of the 2019 Draft contains a further catchall provision that provides that goods, technology, or services that are not otherwise on a controlled items list may nevertheless be placed on a temporary restriction list for up to two years.[23] The 2020 Draft has also prescribed the same[24] but has introduced a new assessment regime prior to the expiration of the two-year temporary restriction period.[25] Items that are subject to a temporary restriction will not be automatically exempted from such restraint. Instead, such temporary restriction may be cancelled, extended or turned into a permanent restriction by including such items into the controlled items list, depending on the result of the assessment.

Neither the 2019 Draft nor the 2020 Draft contains an initial list of controlled and/or restricted items. Although the controlled items list(s) referenced in both Draft Laws is expected to include largely the same items on the existing lists subject to the current export control regime,[26] this could still prove worrying for businesses based in China due to the uncertainty of goods that will eventually make it onto the controlled items lists or the temporary restriction list.

While both Draft Laws primarily cover dual-use items, military items, and nuclear items, we do not expect the 2020 Draft, once enacted, to affect China’s current export quota administration primarily regulating the export of certain plants and livestock.

3.5 End User and End-Use Certifications

Unlike the 2017 Draft that gave regulatory authorities the power to request exporters or importers to provide end user and end-use certifications, Article 17 of the 2019 Draft and Article 15 of the 2020 Draft now make it mandatory for exporters to submit end user and end-use certifications to the national export control authorities.[27] In effect, this appears to be a uniform requirement regardless of the sensitivity of the controlled items exported, which is a significant departure from Article 25 of the 2017 Draft that limited the requirement for certification “based on the degree of sensitivity of controlled items and end users.”[28] The end-use and/or end user certificates may be issued by either end users themselves, or the governments in countries or regions where such end users are located.

Furthermore, to add on an additional layer of compliance requirements, exporters who are aware of changes to the end user or end-use of controlled items must immediately report the changes to the national export control authorities.[29] However, both Draft Laws are unclear on what the consequences are of violating these disclosure obligations.

In addition, importers and end users who violated either end user or end-use certifications may be placed on a controlled list. National export control authorities may impose bans or restrictions on transactions with entities on the list, among other sanctions.[30]

3.6 Entity Lists

3.6.1 Proposed “Unreliable Entity List”

In the midst of the China-U.S. trade war, MOFCOM announced on May 31, 2019 that China will introduce an “unreliable entity list” with an aim to “safeguard the international economy and trade rules and multilateral trading regime” and “object to unilateralism and trade protectionism.”[31] This announcement has been seen as a reaction to BIS’s inclusion of Huawei Technologies Co., Ltd. and its 70 affiliates (collectively, “Huawei”) to its Entity List on May 15, 2019 (as described here[32]). Over the course of several press conferences convened by MOFCOM and the Ministry of Foreign Affairs (“MFA”) in late 2019, spokesmen for the respective agencies repeatedly responded that such a list will be published soon.[33] However, there has not been any further development to date.

Nonetheless, we compare China’s proposed “unreliable entity list” against BIS’s Entity List in the table below.

	China’s Proposed “Unreliable Entity List”	BIS’s Entity List
Background and Purpose	“Certain foreign entities have cut off the supplies or taken other discriminating measures, impairing Chinese companies’ legitimate interests, endangering China’s national security and interests, posing a threat to global industry chain and supply chain, as well as negatively affecting the global economy.”[34] The “unreliable entity list” will be introduced to “safeguard the international economy and trade rules and multilateral trading regime, in objection to unilateralism and trade protectionism, safeguard China’s national security, public interests and companies’ legitimate rights and interests.”[35]	BIS first published the Entity List in February 1997 as part of its efforts to inform the public of entities that have engaged in activities that could result in an increased risk of the diversion of exported, re-exported, or transferred (in-country) items to weapons of mass destruction (WMD) programs. Since its initial publication, grounds for inclusion on the Entity List have expanded to activities sanctioned by the State Department and activities contrary to U.S. national security and/or foreign policy interests.[36]
Grounds for Inclusion	When weighing which entities might be included, the following factors will be taken into consideration: (i) whether such entities have implemented a blockade, cutoff of supplies, or other discriminating measures targeting Chinese entities; (ii) whether such entities’ conducts are based on non-commercial purpose and violate market rules and the spirit of contract; (iii) whether such entities’ conducts have caused substantial damage to Chinese companies or relevant industries; and (iv) whether such entities’ conducts pose a threat or potential threat to national security.[37]	Pursuant to Section 744.11(b) of the Export Administration Regulations (the “EAR”), the Entity List identifies persons or organizations reasonably believed to be involved, or to pose a significant risk of being or becoming involved, in activities contrary to the national security or foreign policy interests of the United States.[38]
Legal Basis	Foreign Trade Law; Anti-Monopoly Law; and National Security Law.	Export Control Reform Act of 2019; International Emergency Economic Powers Act; the EAR.
Effect after Inclusion	It is unclear what effect inclusion to such list will have. We expect China to at least impose restrictions on import from and export to the included entities, and such restrictions may even extend to their respective affiliates.	The Entity List imposes specific license requirements for the export, re-export, or transfer (in-country) of specified items to the persons named on it. The persons on the Entity List are subject to individual licensing requirements and policies supplemental to those found elsewhere in the EAR. BIS considers that transactions of any nature with listed entities carry a “red flag” and recommends that U.S. companies proceed with caution with respect to such transactions.[39]
Relief	Listed entities will be entitled to object. After corrective measures are taken, relevant authorities may consider adjusting the “unreliable entity list.”[40]	Listed parties may seek removal from such list.

3.6.2 Introduction of Embargo, “Blacklist,” and National/Regional Risk Assessment

The 2017 Draft, the 2019 Draft and the 2020 Draft formally introduce trade concepts such as embargoes, “blacklists,” and national/regional risk assessments into China’s export control regime. Article 8 of both Draft Laws allows national export control authorities to conduct an assessment of countries and regions where controlled items are exported, identify the level of risks, and take corresponding control measures. Article 10 of both Draft Laws now makes it possible for national export control authorities to ban the export of certain items or to certain countries or regions or to certain persons (both individuals and entities), in order to “fulfill … international obligations and safeguard national security.” Article 18 of the 2020 Draft and Article 20 of the 2019 Draft also introduce a controlled list of importers and end users which (i) violate end user or end-use certifications as stated above, (ii) may impair national security, or (iii) use controlled items for terrorism purposes. Pursuant to the 2020 Draft, transactions with those on the controlled list will be restricted, banned or suspended.[41] These additions arguably will provide a legal framework and broad discretion for China to impose export control measures on an ad hoc basis.

3.7 Liabilities for Violations under the Draft Laws

3.7.1 Enhanced Penalties in Both Draft Laws

Finally, both Draft Laws significantly ratchet up the penalties for violations in contrast to the 2017 Draft by providing for stiffer fines. Examples of violations under the Draft Laws include, but are not limited to: (i) unauthorized export of controlled items; (ii) obtaining an export license for the export of controlled items through bribery or other improper means; (iii) falsifying or trading an export license; or (iv) conducting business with controlled importers or end users in violation of the Draft Laws.[42] Article 30 of the 2019 Draft and Article 28 of the 2020 Draft provide Chinese authorities with enforcement powers if they suspect violations of the new export control laws. Penalties for violations include confiscation of illegal income (if any) and a fine up to a multiple of the amount of illegal income if such amount is greater than a certain threshold or, if lower, a cap, in each case depending on the specific type of violation. Other administrative penalties include but are not limited to suspension of business for rectification as well as cancellation of export licenses.[43]

The enforcement powers given to Chinese authorities under the 2019 Draft, which now largely remain the same in the 2020 Draft, have been criticized by international organizations. For example, the Federation of German Industries (“BDI”) believes the missing independent judicial oversight is a key problem of the new export control regime.[44] It views the Chinese authorities’ enforcement powers available upon suspicion of a violation as highly problematic. The BDI also suggests publishing decisions about further export controls and measures in order to increase transparency.[45]

3.7.2 China’s Export Control Enforcement Actions

China’s export control enforcement actions result in liabilities ranging from administrative penalties imposed by China Customs to criminal fines and imprisonment.

Existing regulations[46] relating to export control do not specifically authorize China Customs to impose administrative fines. Instead, China Customs usually does so under Articles 14 and 15 of Implementation Regulations of Customs on Administrative Penalties (2004) when parties are seeking to export controlled items without export licenses[47] or when violations would compromise “the accuracy of China Customs’ statistics,” “China Customs’ supervision and administration,” or “China’s administration of licenses.”[48] Pursuant to these articles, a fine would range from RMB1,000 to RMB30,000 (approximately US$ 140 to US$ 4,200) or no more than 30% of the value of exported goods.[49] The value of goods sought to be illegally exported without the required export license, in most administrative cases we were able to find from publicly available information, was under RMB 0.5 million (approximately US$ 70k), with a few at around RMB 2 million (approximately US$ 280k), and one at around RMB 4 million (approximately US$ 560k). Fines imposed by China Customs ranged from a few thousand RMB (approximately a few hundred US dollars) to RMB 284k (approximately US$ 40k), representing 1% – 18% of the value of goods at issue.

Exporters, export agencies and their agents may be held criminally liable in severe violations, for example, when large amounts of valuable controlled items are illegally exported. Fines imposed on exporters may be as high as RMB 14 million (approximately US$ 2 million), and individuals in charge of such exporters or export agencies facilitating the illegal export are typically sentenced to less than five years in prison and fined for a few hundred thousand RMB. The most severe penalty against individuals we were able to find in the public domain was a fine of around RMB 1 million (approximately US$ 156k)[50] and imprisonment of 13 years.[51]

3.7.3 Potential Impact of the Draft Laws on Future Enforcement Actions

As discussed above, the existing export control laws and regulations do not themselves authorize China Customs to impose administrative penalties. Accordingly, China Customs has to resort to other regulations where the prescribed penalties are generally inconsequential. Once the 2020 Draft is enacted, China Customs will be authorized to impose significantly higher fines. In the case of exporting controlled items without an export license, the fine will range from five to 10 times the illegal income with a minimum of RMB 500k (approximately US$ 70,625 at the prevailing exchange rate) even if there is no illegal income,[52] almost twice the administrative fine imposed by China Customs in the most serious violation noted above. If exporters transact with those on the “blacklist” described in Section 4.5 below, the fine can be as high as 10 to 20 times the illegal income with a minimum of RMB 500k.[53]

Most severe export control violations will continue to be subject to criminal liabilities under China’s criminal law.

3.8 Internal Compliance Review System

3.8.1 2019 Draft

More significantly, the 2019 Draft made it mandatory for all exporters to establish an internal compliance review system to monitor their export control obligations. An internal compliance review system is required in order to be eligible for certain licenses – this is in contrast to the 2017 Draft which simply “encouraged” the establishment of an internal compliance program.[54] It is worth noting that under the current export control laws and regulations, only exporters of nuclear dual-use items and technologies are required to establish an internal control system. However, the 2019 Draft did not specify how regulators should evaluate this internal compliance review system and what constitutes a significant violation of this obligation.

3.8.2 2020 Draft

In contrast to the 2019 Draft, establishing an internal compliance system is no longer a mandatory obligation under the 2020 Draft. Article 14 of the 2020 Draft encourages, instead of mandating, exporters to establish such system by granting simplified export measures to those that have established such internal compliance review system that works well.

4. Impact of the Draft Laws on International Trade Relations

The reference to extraterritoriality of the Draft Laws means that China’s new export control regime, if and when the extraterritoriality is enacted, will impact businesses within and outside China that deal with Chinese controlled items.[55] That said, the vagueness of several of the Draft Laws’ provisions creates a layer of uncertainty within the international business community, specifically regarding its extraterritorial application and as to which activities specifically will be affected. This could be a deliberate move on China’s part in order to create sufficient room to augment the scope and reach of this export control regime through the issuance of supplementary regulations.[56]

For example, even with the abolishment of the definition of “re-exports” (but not the concept itself) and references to a de minimis rule, it is unclear if the 2020 Draft will apply to the re-export of foreign-made items that contain Chinese-origin controlled items to a jurisdiction outside of China. Following a public consultation, various trade associations from the U.S., Europe, and Japan have made calls for the 2019 Draft to clarify the scope of the affected re-export activities,[57] while the 2020 Draft remains unchanged in this regard.

Furthermore, the requirements to determine end-use and end-users for exporters may also give rise to increased compliance costs for businesses in China as they now have to undertake more stringent third-party due diligence into their trade counterparties, in order to avoid a potential violation of any controlled items list or restricted list that is published pursuant to the 2020 Draft.

Notwithstanding the above, both Draft Laws appear to be a more conciliatory version of the 2017 Draft in a move that is arguably designed to ease U.S.-China trade tensions. Of note is the removal of a clause that referred to retaliatory measures that China could take in response to “discriminatory export control measures” taken by other countries against it.[58] It therefore remains to be seen if Beijing will ever follow through with publishing an “Unreliable Entity List” in retaliation against U.S. trade sanctions.

4.1 U.S.-China Trade Relationship

For U.S. companies, what may prove most worrying about China’s new export control regime may be the highly publicized “unreliable entity list” and the “blacklist” to be formulated pursuant to the Draft Laws, in China’s apparent attempt to counter the U.S. sanctions, as well as the risk of leaks of trade secrets and other intellectual property in the case of investigations by China’s national export control authorities.

Based on the principle of reciprocity, a term frequently used by both countries’ governments as justification for its hostile actions against one another, if the U.S. government continues to target Chinese technology companies using its “Entity List” or similar tools, it is conceivable that China will follow through its original announcement for the establishment of the “unreliable entity list” and following the enactment of the 2020 Draft, the “blacklist,” and use these legal measures to counter U.S. export control measures targeting China.

The Draft Laws specify what measures China’s national export control authorities may take in order to investigate a suspected violation, and therefore raising concerns for potential leaks of trade secrets and other intellectual property.[59] Perhaps anticipating such concerns, both Draft Laws also require the authorities and their staff to maintain confidentiality of trade secrets obtained during such investigations.[60]

4.2 EU-China Trade Relationship

The 2020 Draft will likely have an impact on EU-China trade relationships and European companies in particular.

In the past, EU companies had to deal with the extraterritoriality of U.S. sanctions and political pressure from both the U.S. and China, as exemplified by the inclusion of the Chinese telecommunications company Huawei and its named affiliates on the U.S. Entity List in May 2019.[61]

In the future, EU companies will have to deal with the extraterritoriality of U.S. and Chinese sanctions and political pressure from both the West and East.

On the legal front, any Sanctions and Export Compliance Management System of an EU company will have to cover not only national law and EU law, but also be mindful of the extraterritorial reach of both the U.S. and the Chinese Sanctions and Export Controls.

If an entity were to be blacklisted or greylisted by the U.S., but not by China, or vice versa, EU companies would have to decide with whom to do business. As many companies might not have the resources to continuously monitor both the U.S. and the Chinese regime, they might choose to reorganize their supply chain in a way to only source U.S. or Chinese products to limit their legal exposure.

When it comes to export controls in the EU, power usually rests with the various national governments to implement their own laws.[62] Despite the lack of ability to implement EU-wide export controls, EU governments could, on a national level, align with U.S. export controls to ensure a common approach towards China.[63] Otherwise, there is an increasing risk for European companies to be subject to U.S. sanctions. One suggested approach for the EU would thus be to work together with the U.S. to restrict China’s ability of gaining access to advanced technologies.[64]

However, if China uses export controls to counter U.S. sanctions, and if, at the same time, the U.S. imposes further tariffs on EU goods, this could drive European companies closer to China.[65]

On the political front, European manufacturers could also find themselves sidelined by the U.S.-China Phase One deal as elaborated above. A study by the American Chamber of Commerce, for example, predicted that German and French manufacturing sectors may be the most adversely affected by China’s commitment to buy $200 billion more in goods from the U.S. in the Phase One deal.[66]

Finally, this conflict could also lead to European companies diversifying their portfolios by using goods from other third countries.

Overall, after the 2020 Draft is enacted, European companies could find themselves in the difficult position of having to choose between imports from the U.S. or China and evaluating where the larger legal risks and economic and political benefits are.

5. Conclusion

Both the 2019 Draft and the 2020 Draft change the 2017 Draft in many ways and provide for a comprehensive Chinese export control regime. Besides a few clear requirements, the 2020 Draft remains opaque as to its exact scope & specifically regarding its contemplated extraterritorial reach, and has the potential of making it challenging for companies to navigate through China’s new export control regime.

It is expected that, as is common with the introduction of a new law in China, the Chinese authorities will, in time, issue implementing regulations that provide more details and interpretation of this law, specifically relating to the concept and application of extraterritoriality.

Companies should monitor the current developments, prepare their Sanctions and Export Compliance mechanisms to be able to cope with a comprehensive Chinese Export Control regime and pay special attention to further supplementary Chinese regulations.

________________________

[1] Export Control Law of the People’s Republic of China (Draft), available at https://www.cistec.or.jp/service/china_law/202001_pubcom2_souan.pdf.

[2] See Xiaoming Liu, Royal United Services Institute, Upgrading to a New, Rigorous System – Recent Developments in China’s Export Controls (Mar. 2016), https://rusi.org/sites/default/files/201603_op_upgrading_to_a_new_rigorous_system_en.pdf.

[3] See Article 2 of the Regulations on Control of Missiles and Missile-related Items and Technologies Export (2002), Article 2 of the Regulations on Control of Nuclear Dual-Use Items and Related Technologies Export (2007), and Article 2 of the Regulations on Control of Biological Dual-Use Items and Related Equipment and Technologies Export (2002) for example.

[4] See Announcement on Imposing Interim Export Control Measures on Military and Civil Dual-Use Unmanned Aerial Vehicles issued on June 25, 2015 with effect from July 1, 2015.

[5] See Article 28 of the Regulations on Control of Nuclear Dual-Use Items and Related Technologies Export (2007).

[6] See Article 11 of the Regulations on Control of Nuclear Export (2006), Article 16 of the Regulations on Control of Arms Export (2002), and Article 11 of the Regulations on Control of Missiles and Missile-related Items and Technologies Export (2002) for example.

[7] See China Briefing, The US-China Trade War: A Timeline (Feb. 26, 2020), https://www.china-briefing.com/news/the-us-china-trade-war-a-timeline/.

[8] See Gibson, Dunn & Crutcher LLP, 2019 Year-End Sanctions Update (Jan. 23, 2020), https://www.gibsondunn.com/2019-year-end-sanctions-update/.

[9] Jeff Black/Daniel Flatley, Bloomberg News, China Hints U.S. Blacklist Imminent in Threat to Trade Talks (Dec. 3, 2019), https://www.bloomberg.com/news/articles/2019-12-03/china-hints-u-s-blacklist-imminent-in-threat-to-trade-talks.

[10] Michael O’Kane, EU Sanctions, China Designates 4 US Politicians & Congressional Commission (July 13, 2020), https://www.europeansanctions.com/2020/07/china-designates-4-us-politicians-congressional-commission/; and Michael O’Kane, EU Sanctions, China Designates Lockheed Martin for Taiwan Arms Deal (July 14, 2020), https://www.europeansanctions.com/2020/07/china-designates-lockheed-martin-for-taiwan-arms-deal/.

[11] Xiaolei Pu, Legal Daily, Proposed Inclusion of Military Items and Nuclear into Covered Items (Dec. 24, 2019), http://www.npc.gov.cn/npc/ckgzlf003/201912/03bf295574ad4d5caba56c2fd7a9af24.shtml.

[12] Leian Kae Naduma, Business Times, China Releases Draft Export Control Law, The Country’s First (Jan. 17, 2020), https://www.btimesonline.com/articles/125133/20200117/china-releases-draft-export-control-law-countrys-first.htm.

[13] This refers to “goods, technologies and services that have civil uses, and also have military use or enhanced military potential, particularly those which could be used for the design, development, production, or use of weapons of mass destruction.” See Article 2 of the 2019 Draft.

[14] http://www.npc.gov.cn/npc/ckgzlf003/201912/1c9cab8e27874d51ae79196802b1d894.shtml; see also Article 2 of the 2019 Draft.

[15] Article 5 of the 2019 Draft.

[16] Article 64 of the 2017 Draft.

[17] Pursuant to the 2017 Draft, “re-export” is defined as “the export of controlled items or foreign products containing controlled items whose value reaches a certain percentage from overseas to other countries (regions).”

[18] Article 2 of the 2019 Draft and Article 2 of the 2020 Draft.

[19] Article 45 of the 2019 Draft, which states the provisions of law also apply to these trade activities. As such, we expect national export control authorities (or jointly with China Customs) to still regulate these trade activities. Article 45 of the 2020 Draft is also similar to this.

[20] Articles 13 and 15 of the 2019 Draft and Article 12 of the 2020 Draft.

[21] Article 13 of the 2019 Draft and Article 13 of the 2020 Draft.

[22] Article 9 of the 2019 Draft.

[23] Article 10 of the 2019 Draft.

[24] Article 9 of the 2020 Draft.

[25] Ibid.

[26] See Catalog of Import and Export Licenses Administration of Dual-use Items and Technologies promulgated by MOFCOM and China Customs on December 31, 2005 and last amended on December 31, 2019; Arms Export Administration List promulgated by former SASTIND and PLA Armaments on November 1, 2002; and Nuclear Export Administration List promulgated by former SASTIND on June 28, 2001 and amended by China Atomic Energy Authority, MOFCOM, MFA and China Customs on June 27, 2018.

[27] See Article 25 of the 2017 Draft, Article 17 of the 2019 Draft and Article 15 of the 2020 Draft.

[28] See Joint Comments by 11 Industrial Associations of U.S. and Japan (Jan. 26, 2010), available at: cistec.or.jp/english/export/china_law/200210-english.pdf.

[29] See Article 18 of the 2019 Draft and Article 16 of the 2020 Draft.

[30] See Article 29 of the 2017 Draft, Article 20 of the 2019 Draft and Article 18 of the 2020 Draft.

[31] See MOFCOM, MOFCOM: China to Establish the “Unreliable Entity List” Regime (May 31, 2019), http://www.mofcom.gov.cn/article/i/jyjl/e/201905/20190502868927.shtml.

[32] See Gibson, Dunn & Crutcher LLP, Citing a National Emergency, the Trump Administration Moves to Secure U.S. Information and Communications Technology and Service Infrastructure (May 20, 2019), https://www.gibsondunn.com/citing-national-emergency-trump-administration-moves-to-secure-us-information-and-communications-technology-service-infrastructure/. On August 21, 2019, the Trump Administration increased its Entity List designation of Huawei affiliates to over 100 entities.

[33] On a press conference of MOFCOM on August 22, 2019, a MOFCOM spokesman responded that the “unreliable entity list” was “going through internal procedures and would be released recently.” A spokesman from MFA repeated the same on October 8, 2019, following the U.S.’s blacklisting an additional 28 Chinese entities on October 7, 2019.

[34] See MOFCOM, MOFCOM: China to Establish the “Unreliable Entity List” Regime (May 31, 2019), http://www.mofcom.gov.cn/article/i/jyjl/e/201905/20190502868927.shtml.

[35] Id.

[36] See FAQs – Entity List FAQs, available at https://www.bis.doc.gov/index.php/2011-09-12-20-18-59/export-and-reexport-faqs/cat/33-entity-list-faqs#faq_105.

[37] See Reasons to Introduce the “Unreliable Entities List” Regime? MOFCOM’s Response (June 4, 2019), http://coi.mofcom.gov.cn/article/y/gnxw/201906/20190602869699.shtml.

[38] See Addition of Certain Entities to the Entity List (Oct. 9, 2019), https://www.federalregister.gov/documents/2019/10/09/2019-22210/addition-of-certain-entities-to-the-entity-list.

[39] See FAQs – Entity List FAQs, available at https://www.bis.doc.gov/index.php/2011-09-12-20-18-59/export-and-reexport-faqs/cat/33-entity-list-faqs#faq_104 and https://www.bis.doc.gov/index.php/2011-09-12-20-18-59/export-and-reexport-faqs/cat/33-entity-list-faqs#faq_118.

[40] See Sina Finance, Authorities: MOFCOM’s Interpretation of China’s “Unreliable Entity List” Regime (June 2, 2019), https://cj.sina.com.cn/articles/view/1704819467/659d7b0b01900ux8q.

[41] It is also noteworthy that pursuant to Article 20 of the 2019 Draft, simplified export measures (if previously granted to the exporter) will no longer be applicable to transactions with those on the controlled list. This is no longer the case in the 2020 Draft.

[42] See Chapter 5 of the 2019 Draft and Chapter 4 of the 2020 Draft.

[43] Id.

[44] Nikolas Kessels, BDI, China’s Export Control, Statement regarding the Second Draft of China’s National Export Control (Jan. 23, 2020), https://bdi.eu/artikel/news/peking-legt-neuen-vorschlag-fuer-exportkontrollgesetz-vor/ (in German).

[45] Id. See also Art. 1 (5) 1. Council Decision (CFSP) 2019/1560 of September 16, 2019 amending Common Position 2008/944/CFSP defining common rules governing control of exports of military technology and equipment. Based on this decision by the European Council, EU member states need to submit information on their exports of military technology and equipment for transparency purposes.

[46] For example, the Regulations on Control of Arms Export (2002), the Regulations on Control of Nuclear Export (2006), the Administrative Regulations on Monitored Chemicals (2011), the Regulations on Control of Nuclear Dual-Use Items and Related Technologies Export (2007), the Regulations on Control of Missiles and Missile-related Items and Technologies Export (2002), and the Regulations on Control of Biological Dual-Use Items and Related Equipment and Technologies Export (2002).

[47] See Article 14 of the Implementation Regulations of Customs on Administrative Penalties (2004).

[48] See Article 15 of the Implementation Regulations of Customs on Administrative Penalties (2004).

[49] Paragraphs (4) and (5) of Article 15 of the Implementation Regulations of Customs on Administrative Penalties (2004) also provide for fines to be imposed where violations would compromise “China’s tax collection” or “foreign exchange or export tax rebate administration.” Such fines might be higher than those set forth above but these paragraphs are rarely cited by China Customs in administrative penalty cases relating to export control of dual-use items, arms, nuclear, monitored chemicals or likewise.

[50] See the Case of Yuhong Peng’s Smuggling General Goods available here, (2009) Xia Xing Chu Zi No. 25, where Yuhong Peng assisted a few clients in exporting 1,631,031 kilograms of flour without a valid export license by intentionally and falsely declaring flour as non-controlled goods. Flour was subject to China’s export quota restrictions. Yuhong Peng was found guilty for smuggling general goods and was sentenced to an imprisonment of 10.5 years and fined RMB 1,112,443.77 (approximately US$ 156,980.71 at the prevailing exchange rate).

[51] See First Trial Criminal Judgement of Huizhou Haihang Industrial Co., Ltd. and Huizhou Jiangfeng Industrial Development Co., Ltd. available here, (2016) Yue 13 Xing Chu No. 11, where Huizhou Haihang Industrial Co., Ltd., Huizhou Jiangfeng Industrial Development Co., Ltd., their respective key persons in charge and a few other individuals exported 689.086 tons of rare earth metals without a valid export license by intentionally and falsely declaring rare earth as non-controlled goods. Huanyong Xu, the manager of Huizhou Haihang Industrial Co., Ltd. was sentenced to an imprisonment of 13 years.

[52] See Article 34 of the 2020 Draft.

[53] See Article 37 of the 2020 Draft.

[54] Article 36 of the 2017 Draft; see also Article 14 of the 2019 Draft.

[55] See Leian Kae Naduma, Business Times, China Releases Draft Export Control Law, The Country’s First (Jan. 17, 2020), https://www.btimesonline.com/articles/125133/20200117/china-releases-draft-export-control-law-countrys-first.htm.

[56] Finbarr Bermingham, South China Morning Post, Trade war clues sought in China’s ‘ambiguous’ new export control law (Dec. 31, 2019), https://www.scmp.com/economy/china-economy/article/3044112/trade-war-clues-sought-chinas-ambiguous-new-export-control.

[57] See Statement by 11 U.S. and Japanese industrial associations, Joint Comments by Industrial Associations of the United States and Japan on China’s Revised Draft Export Control Law (Jan. 26, 2020), https://www.cistec.or.jp/english/export/china_law/200210-english.pdf and Statement by 14 European and Japanese industrial associations, Joint Comments by Industrial Associations of Europe and Japan on China’s Revised Draft Export Control Law (Jan. 21, 2020), https://www.cistec.or.jp/service/china_law/20200123-english.pdf.

[58] Article 9 of the 2017 Draft.

[59] See Article 30 of the 2019 Draft and Article 28 of the 2020 Draft. Such measures include “entering into the place of business … for inspection,” “viewing and copying … relevant agreements, accounting books, business correspondence …” and “seizing and detaining relevant items.”

[60] See Article 31 of the 2019 Draft and Article 29 of the 2020 Draft.

[61] See Benjamin Wilhelm, World Politics Review, Why America’s Global Campaign Against Huawei Is Failing (Jan. 29, 2020), https://www.worldpoliticsreview.com/trend-lines/28503/why-europe-is-resisting-trump-s-campaign-against-huawei-china.

[62] Limited exceptions apply in terms of military and dual-use goods.

[63] Id.

[64] See Carisa Nietsche/Sam Dorshimer, The Hill, America and Europe will lose to China in transatlantic trade war (Jan. 31, 2020), https://thehill.com/opinion/international/480942-america-and-europe-will-lose-to-china-in-transatlantic-trade-war.

[65] Id.

[66] See Greg Knowler, Journal of Commerce, Europe faces $11 billion hit from US-China ‘phase one’ deal: study (Mar. 27, 2020), https://www.joc.com/regulation-policy/europe-faces-11-billion-hit-us-china-%E2%80%98phase-one%E2%80%99-deal-study_20200327.html.

The following Gibson Dunn lawyers assisted in preparing this client update: Judith Alison Lee, Adam Smith, Chris Timura, Fang Xue, Qi Yue, Xuechun Wen, Joerg Bartz and Richard Roeder.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the above developments. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any of the following leaders and members of the firm’s International Trade practice group:

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Ben K. Belair – Washington, D.C. (+1 202-887-3743, bbelair@gibsondunn.com)
Courtney M. Brown – Washington, D.C. (+1 202-955-8685, cmbrown@gibsondunn.com)
Laura R. Cole – Washington, D.C. (+1 202-887-3787, lcole@gibsondunn.com)
Jesse Melman – New York (+1 212-351-2683, jmelman@gibsondunn.com)
R.L. Pratt – Washington, D.C. (+1 202-887-3785, rpratt@gibsondunn.com)
Samantha Sewall – Washington, D.C. (+1 202-887-3509, ssewall@gibsondunn.com)
Audi K. Syarief – Washington, D.C. (+1 202-955-8266, asyarief@gibsondunn.com)
Scott R. Toussaint – Washington, D.C. (+1 202-887-3588, stoussaint@gibsondunn.com)
Shuo (Josh) Zhang – Washington, D.C. (+1 202-955-8270, szhang@gibsondunn.com)

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

The California Supreme Court Round-Up previews upcoming cases and summarizes select opinions issued by the Court. This edition includes opinions handed down from December 2019 through August 2020, organized by subject. Each entry contains a description of the case, as well as a substantive analysis of the Court’s decision.

Updates From the Court

Justice Ming Chin will be retiring at the end of August 2020, after 24 years of service on the Court. At the June oral argument, his colleagues presented a virtual tribute, and Justice Chin remarked that the current pandemic could provide an opportunity to improve the judicial system. “The future of law and the future of the courts will be virtual and remote,” Justice Chin said. Governor Gavin Newsom is expected to announce Justice Chin’s successor before the end of the year.

No update would be complete without recognizing the unprecedented COVID-19 pandemic and the decisive actions of the Chief Justice, Supreme Court, and Judicial Council to preserve the health and safety of the courts, judges and staff, and litigants. Since March 2020, the Chief Justice has issued numerous orders announcing emergency measures and implementing emergency Rules of Court approved by the Judicial Council, which suspended court operations and jury trials, tolled civil and criminal case deadlines, and suspended almost all unlawful detainer actions statewide through September 1. The Chief Justice also approved dozens of superior court and Court of Appeal emergency orders, which permitted those courts to implement their own emergency measures and rules. The Court will continue its recent practice of hearing oral argument virtually through at least the end of 2020, and if it does resume in-person hearings in 2021 they will take place only in San Francisco. Finally, the Supreme Court ordered the postponement of the July 2020 Bar examination to October 2020, and ordered the State Bar to make every effort to administer the examination online.

Read More

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the California Supreme Court, or in state or federal appellate courts in California. Please feel free to contact the following lawyers in California, or any member of the Appellate and Constitutional Law Practice Group.

Theodore J. Boutrous, Jr. – Los Angeles (+1 213-229-7000, tboutrous@gibsondunn.com)
Daniel M. Kolkey – San Francisco (+1 415-393-8420, dkolkey@gibsondunn.com)
Julian W. Poon – Los Angeles (+1 213-229-7758, jpoon@gibsondunn.com)
Michael Holecek – Los Angeles (+1 213-229-7018, mholecek@gibsondunn.com)
Victoria L. Weatherford – San Francisco (+1 415-393-8265, vweatherford@gibsondunn.com)

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

Washington, D.C. partner Helgi Walker, New York partner Barry Goldsmith, New York associate Jonathan Seibald and Washington D.C. associate Brian Richman are the authors of “Aggressive SEC Enforcement Actions Could Limit Small Business Recovery Resources,” [PDF] published by The National Law Journal on August 20, 2020.

Washington, D.C. partner Jason Mendro and associate Jeffrey Rosenberg are the authors of “An Oversight Claim By Any Other Name Is Reviewed Under ‘Caremark,’ Says GoPro,” [PDF] published by Delaware Business Court Insider on August 12, 2020.

CCPA Regulations Are Now Effective

On Friday, August 14, 2020, California Attorney General Xavier Becerra announced that the state’s Office of Administrative Law (“OAL”) approved the final California Consumer Privacy Act (“CCPA”) regulations. As detailed in our alert on June 12, 2020, the Attorney General submitted final proposed regulations to the OAL on June 1, 2020, and OAL approval was required before the regulations could take effect. The approved regulations—which took effect immediately on August 14, 2020—largely track the final regulations proposed by the Attorney General. The OAL withdrew four provisions,[1] however, and the Attorney General made a number of non-substantive changes for accuracy, consistency, and clarity (the non-substantive changes are detailed by the Office of the Attorney General here). The OAL withdrew the following provisions, though certain of the revisions do not indicate any substantive reversal, as noted below:

Explicit Consent for Use of Personal Information for Different Purpose (formerly § 999.305(a)(5)): The OAG removed the requirement that notice and explicit consent is required to use a consumer’s personal information for a materially different purpose from the purpose disclosed at or before the collection of personal information. This provision was heavily debated during the public comment period, and while it would remove a significant burden on businesses seeking to make such a change with respect to explicit consent, the statute (Cal. Civ. Code § 1798.100(b)) still dictates that a “business shall not collect additional categories of personal information or use personal information collected for additional purposes without providing the consumer with notice consistent with” the CCPA.
Offline Notice of Opt-Out (formerly § 999.306(b)(2)): The OAL removed the requirement that businesses substantially interacting with consumers offline must provide an offline notice of a consumer’s ability to opt out of the sale of personal information, such as by providing a consumer with notice on a printed form or posting signage directing consumers to a notice.
Ease of Requesting to Opt-Out (formerly § 999.315(c)): The OAL removed the language requiring that the methods businesses use for submitting requests to opt-out “be easy for consumers to execute,” and “require minimal steps to allow the consumer to opt-out.” The withdrawn provision had also clarified that a “business shall not utilize a method that is designed with the purpose or has the substantial effect of subverting or impairing a consumer’s decision to opt-out.” Although this particular provision was removed, another provision, § 999.315(b), still encourages businesses to consider the “ease of use by the consumer when determining which methods consumers may use to submit requests to opt-out.”
Denying Requests by Unauthorized Agents (formerly § 999.326(c)): Although this subsection allowing businesses to deny a request from an agent that failed to submit proof of authorization to act on the consumer’s behalf was removed, a different provision, § 999.315(f), provides that “[a] business may deny a request from an authorized agent if the agent cannot provide to the business the consumer’s signed permission demonstrating that they have been authorized by the consumer to act on the consumer’s behalf.”

At least the first two provisions above were particularly scrutinized during the public comment period, and their exclusion from the final regulations makes requirements for businesses less onerous (for example, businesses required to provide an opt-out-of-sale mechanism may have struggled with a practical offline procedure for opting out of the sale of data). The OAL has offered little insight into its reasoning for withdrawing these provisions, however, and the Attorney General may resubmit these sections after further review and potential revision.

Regardless of the withdrawal of these particular provisions, in light of the official approval of the remainder of the regulations, and the Attorney General’s authorization to enforce them starting immediately, businesses would be well advised to familiarize themselves with the approved regulations. We remain available to advise accordingly.

Bill Extending Key CCPA Exemptions Moves Forward at the Legislature

Separately, on August 13, 2020, the California Senate Judiciary Committee agreed—with a unanimous 9-0 vote—to extend until January 2022 exemptions from certain CCPA requirements for personal information arising from business-to-business (“B2B”) transactions and employment, which are currently set to expire January 1, 2021.[2] The relevant bill, AB 1281, was significantly revamped from a prior bill on June 25, 2020, and now its sole proposal is to extend the foregoing exemptions until January 2022, unless the California Privacy Rights Act (“CPRA”) passes. The CPRA is an initiative that is set for a vote on the November 3, 2020 state ballot, as we discuss in more detail here, and would extend the same exemptions until January 1, 2023. AB 1281 now sits with the Senate Appropriations Committee and was scheduled for a vote on August 19, 2020, but the legislature adjourned its session without a vote on the bill. The next session is scheduled for Monday, August 24. As of now, it appears likely to pass, which means the CCPA would not start applying to employment and B2B-related personal information when the current exemption expires on January 1, 2021.

_____________________

[1] Cal. Code Regs. Tit. 11, Div. 1, Chap. 20 §§ 999.305 (a)(5); 999.306(b)(2); 999.315(c);999.326(c).

[2] See California Senate Committee Roll Calls, available at https://sjud.senate.ca.gov/sites/sjud.senate.ca.gov/files/roll_call_reports_all_bills.pdf.

The following Gibson Dunn lawyers assisted in the preparation of this client update: Alexander Southwell, Benjamin Wagner, Ryan Bergsieker, Cassandra Gaedt-Sheckter, Abbey Barrera, Julie Hamilton, and Tony Bedel.

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 member of the firm’s California Consumer Privacy Act Task Force or its Privacy, Cybersecurity and Consumer Protection practice group:

California Consumer Privacy Act Task Force:
Benjamin B. Wagner – Palo Alto (+1 650-849-5395, bwagner@gibsondunn.com)
Ryan T. Bergsieker – Denver (+1 303-298-5774, rbergsieker@gibsondunn.com)
Cassandra L. Gaedt-Sheckter – Palo Alto (+1 650-849-5203, cgaedt-sheckter@gibsondunn.com)
Joshua A. Jessen – Orange County/Palo Alto (+1 949-451-4114/+1 650-849-5375, jjessen@gibsondunn.com)
H. Mark Lyon – Palo Alto (+1 650-849-5307, mlyon@gibsondunn.com)
Alexander H. Southwell – New York (+1 212-351-3981, asouthwell@gibsondunn.com)
Deborah L. Stein (+1 213-229-7164, dstein@gibsondunn.com)
Eric D. Vandevelde – Los Angeles (+1 213-229-7186, evandevelde@gibsondunn.com)

Please also feel free to contact any member of the Privacy, Cybersecurity and Consumer Protection practice group:

United States
Alexander H. Southwell – Co-Chair, PCCP Practice, New York (+1 212-351-3981, asouthwell@gibsondunn.com)
Debra Wong Yang – Los Angeles (+1 213-229-7472, dwongyang@gibsondunn.com)
Matthew Benjamin – New York (+1 212-351-4079, mbenjamin@gibsondunn.com)
Ryan T. Bergsieker – Denver (+1 303-298-5774, rbergsieker@gibsondunn.com)
Howard S. Hogan – Washington, D.C. (+1 202-887-3640, hhogan@gibsondunn.com)
Joshua A. Jessen – Orange County/Palo Alto (+1 949-451-4114/+1 650-849-5375, jjessen@gibsondunn.com)
Kristin A. Linsley – San Francisco (+1 415-393-8395, klinsley@gibsondunn.com)
H. Mark Lyon – Palo Alto (+1 650-849-5307, mlyon@gibsondunn.com)
Karl G. Nelson – Dallas (+1 214-698-3203, knelson@gibsondunn.com)
Deborah L. Stein (+1 213-229-7164, dstein@gibsondunn.com)
Eric D. Vandevelde – Los Angeles (+1 213-229-7186, evandevelde@gibsondunn.com)
Benjamin B. Wagner – Palo Alto (+1 650-849-5395, bwagner@gibsondunn.com)
Michael Li-Ming Wong – San Francisco/Palo Alto (+1 415-393-8333/+1 650-849-5393, mwong@gibsondunn.com)

Europe
Ahmed Baladi – Co-Chair, PCCP Practice, Paris (+33 (0)1 56 43 13 00, abaladi@gibsondunn.com)
James A. Cox – London (+44 (0)20 7071 4250, jacox@gibsondunn.com)
Patrick Doris – London (+44 (0)20 7071 4276, pdoris@gibsondunn.com)
Bernard Grinspan – Paris (+33 (0)1 56 43 13 00, bgrinspan@gibsondunn.com)
Penny Madden – London (+44 (0)20 7071 4226, pmadden@gibsondunn.com)
Michael Walther – Munich (+49 89 189 33-180, mwalther@gibsondunn.com)
Kai Gesing – Munich (+49 89 189 33-180, kgesing@gibsondunn.com)
Alejandro Guerrero – Brussels (+32 2 554 7218, aguerrero@gibsondunn.com)
Vera Lukic – Paris (+33 (0)1 56 43 13 00, vlukic@gibsondunn.com)
Sarah Wazen – London (+44 (0)20 7071 4203, swazen@gibsondunn.com)

Asia
Kelly Austin – Hong Kong (+852 2214 3788, kaustin@gibsondunn.com)
Jai S. Pathak – Singapore (+65 6507 3683, jpathak@gibsondunn.com)

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

The New York Attorney General (“AG” or the “Office”) has a broad range of powers to launch investigations and bring actions on behalf of the State or its consumers in a wide variety of areas. The AG’s prerogatives can have a profound impact on corporations, nonprofits, individuals, and investors. This 18-month round-up is a summary of major cases and initiatives that have occurred under the leadership of New York State’s 67th Attorney General, Letitia James.

In January 2019, AG James was sworn into office. She promised a rigorous defense of New Yorkers’ interests, particularly in the face of a federal administration that, in her view, may not share New York’s regulatory and enforcement priorities. True to her word, and foreshadowed by her inaugural speech, in 2019 AG James and her team challenged the federal government in numerous sectors, and launched or joined matters in the consumer, investor, environmental protection, and immigration areas, among others. AG James has kept her teams of over 600 lawyers busy, and they have worked on a number of ambitious and challenging cases, including, for example, the T-Mobile/Sprint antitrust case and the Exxon/Mobile securities fraud case. Both of these cases proceeded to trial. And in both, the Office did not prevail. That said, the Office continues to bring complex and high-profile cases. Most recently on August 6, 2020, AG James filed a lawsuit seeking to dissolve the National Rifle Association (“NRA”) based on the organization’s alleged diversion of millions of dollars away from the charitable mission of the organization for the personal benefit of its top executives[1]—a similar theory to the Office’s lawsuit against the Trump Foundation that resulted in the dissolution of the organization and an award of damages.[2] The lawsuit against the NRA is expected to be extensively litigated, as the NRA quickly filed its own countersuit claiming that the AG’s lawsuit is a “political vendetta.”[3] Nevertheless, AG James has promised that the “lawsuit will continue undeterred.”[4] As AG James continues to resolve the majority of cases through settlement agreements, she is also willing to use the bully pulpit to bring about results more favorable to her office.

In this round-up, we provide insight into some of AG James’s key cases and initiatives in her first 18 months in office. First, we provide background on AG James and her team. Second, we describe the Office’s aggressive approach vis-à-vis the federal government. Third, we discuss some of the Office’s key antitrust and competition cases, including the T-Mobile/Sprint trial loss. Fourth, we describe the Office’s activity in the data privacy and cybersecurity space. Fifth, we describe the Office’s efforts to protect investors. Sixth, we discuss significant cases the Office has brought in the health care area. Seventh, we review the Office’s actions in the environmental protection area, including the Office’s ExxonMobil trial loss. Eighth, we look at some of the actions the Office is taking in the employment space. Finally, we provide some thoughts regarding the Office’s approach going forward.

I. AG James and Her Team

A. About AG James

AG James is the first woman of color to hold statewide office in New York, and the first woman ever elected as the State’s AG. AG James’s background consists of public service, including serving as head of the Brooklyn Regional Office of the New York AG’s Office in 1999. In 2003, AG James was elected to New York City Council, representing the 35th Council District in Brooklyn for a decade. In 2013, she became the first woman of color to hold citywide office as Public Advocate of New York City. Some of her prominent initiatives in these past roles have included assisting in the investigation of the New York Police Department’s stop-and-frisk policy, passing legislation requiring landlords to improve tenant living conditions, and expanding public access to recycling.

B. AG James’s Team

The Office is divided into five major divisions: Economic Justice, State Counsel, Social Justice, Criminal Justice, and Appeals and Opinions. Soon after her election as Attorney General, AG James quickly assembled a diverse team:

Jennifer Levy, First Deputy Attorney General: Prior to joining the Office, Levy was the Supervising Attorney for the Civil Law Reform Unit at the Legal Aid Society, which oversees class action and affirmative litigation in matters of housing, government benefits, immigration, and homeless rights. Before that, she served as the General Counsel in Charge of Litigation for the Public Advocate for New York City, also alongside James.
Ibrahim Kahn, Chief of Staff: Khan previously served as First Deputy Public Advocate of New York, working alongside AG James. Before his service in the Public Advocate’s office, Khan was a top advisor on AG James’s Public Advocate campaign.
Christopher D’Angelo, Chief Deputy Attorney General for Economic Justice: D’Angelo is a former Associate Director of the U.S. Consumer Financial Protection Bureau’s Supervision, Enforcement and Fair Lending division. In his current position in the Office, he oversees New York’s antitrust, investor protection, and taxpayer protection bureaus, among others.
Meghan Faux, Chief Deputy Attorney General for Social Justice: Faux was previously the Managing Director of Brooklyn Legal Services, an organization which represents Brooklyn residents, who otherwise could not afford legal services, on a broad range of issues including accessing affordable housing and essential public benefits. In her current position at the Office, she oversees a range of the Office’s bureaus—namely, the charities, civil rights, environmental protection, health care, labor, and real estate finance bureaus.
José Maldonado, Chief Deputy Attorney General for Criminal Justice: Maldonado previously served as a Special Advisor to the New York City Civil Service Commission, providing legal advice on personnel decisions made by city agency commissioners. He also served as Counsel and Senior Policy Advisor to the New York City Fire Department Commissioner, and as that Department’s first compliance officer, leading efforts to revamp its hiring and recruitment practices. Maldonado further served as Chief Assistant District Attorney in the Office of the Special Narcotics Prosecutor for the City of New York. In his current position in the Office, he oversees the Criminal Enforcement and Financial Crimes Bureau, the Conviction Review Bureau, and the Public Integrity Bureau, among others.
Orelia Merchant, Chief Deputy Attorney General, State Counsel: From 2002 to 2019, Merchant served in the U.S. Attorney’s Office for the Eastern District of New York, most recently as an Executive Assistant U.S. Attorney directly overseeing the Office’s Civil and Administrative decisions. Merchant leads the Division of State Counsel, which manages litigation involving the State, including its agencies and officials.
Barbara Underwood, Solicitor General: Underwood previously served as the Solicitor General of New York beginning in 2007 through early 2018, when the New York State Legislature selected Underwood to complete the remainder of former Attorney General Eric T. Schneiderman’s term. Before joining the Office, Underwood served in the U.S. Attorney’s Office for the Eastern District of New York. As Solicitor General, Underwood directs the Division of Appeals and Opinions, which is responsible for handling civil and criminal appeals in both state and federal courts.

II. Taking on the Feds

AG James’s first 18 months have been, in many ways, defined by the Office’s positioning vis-à-vis the federal government as an enforcer. Where she has viewed the federal government as stepping back—relaxing regulations or pulling away from enforcement or even acting unlawfully—AG James has aimed to fill the void. She has made clear that when she views newly enacted federal policy as harmful to her constituents (“discriminatory, regressive, and dangerous,” in her words), she will take action.[5] She has vowed to “work in a legal system where even the most powerful federal official in the country cannot use a loophole to evade justice” and to protect “anyone targeted by the wrath of bigotry.”[6] Since taking office, AG James has filed over 30 lawsuits and numerous amicus briefs against the Trump Administration over such policies, including those related to immigration controls,[7] restricted access to health care,[8] and a rollback of environmental regulations.[9] She prevailed in the U.S. Supreme Court in a lawsuit to block the Trump Administration from adding a citizenship question to the 2020 census[10]; she fought the implementation of a federal agency rule that would expand the ability of employers to refuse health care coverage to employees based on “religious beliefs or moral convictions”[11]; and she filed a lawsuit to halt the enforcement of a federal agency rule that would jeopardize the ability of immigrants to obtain legal permanent resident status and citizenship if they use certain publicly funded health benefits — a Motion to Stay Injunction Pending Appeal is currently pending.[12] AG James has also created a Federal Initiatives Unit within her office “to ensure that the rights of all New Yorkers are not compromised by the federal government.”[13]

“Attorney General Letitia James is focused on enforcing the rule of law. In any case we pursue, we will follow the facts wherever they may lead. We wish the President would share our respect for the law.”

– New York Attorney General’s Office, April 29, 2019

Immigration has been at the forefront of the broad set of federal issues that AG James has addressed in her first year. For example, she supported the challenge to the federal government’s “fundamentally flawed” logic in eliminating Deferred Action for Childhood Arrivals (“DACA”),[14] standing alongside Gibson Dunn and others in support of multiple plaintiffs (including Gibson Dunn’s six Dreamer clients) who challenged the decision to end DACA as arbitrary and capricious under the Administrative Procedure Act and on other grounds. Gibson Dunn partner Ted Olson argued on behalf of Dreamers in the Supreme Court in November 2019.[15] On June 18, 2020, in a 5-4 ruling, the U.S. Supreme Court struck down the Trump Administration’s plan to end DACA, finding that it did not comply with the procedural requirement that it provide a reasoned explanation for its action.[16]

AG James has also launched recent challenges to the Trump Administration’s handling of the COVID-19 pandemic. In May 2020, AG James filed a legal challenge against an Environmental Protection Agency (“EPA”) non-enforcement policy that has effectively waived industry compliance with pollution monitoring and reporting—a non-enforcement policy the Trump Administration claimed was justified by the pandemic that AG James has described as “literally a matter of life and death.”[17] AG James’s motion for a preliminary injunction and the EPA’s motion to dismiss are still being briefed. AG James has also challenged U.S. Department of Labor regulations that restrict workers’ rights to paid sick leave and emergency family leave during the pandemic; a move AG James argues contravenes the Families First Coronavirus Response Act.[18] AG James’s motion for summary judgment was granted in part on August 3, 2020. AG James also led a coalition of 26 attorneys general in calling for the U.S. Department of Housing and Urban Development to ensure that senior citizens with reverse mortgages do not lose their homes because of the pandemic.[19]

Across a broad spectrum, AG James has repeatedly challenged the Trump Administration’s policies, regulations, and actions.[20]

III. Antitrust/Competition

A. T-Mobile & Sprint

On June 11, 2019, AG James and nine other attorneys general filed a lawsuit in the Southern District of New York to block T-Mobile’s proposed acquisition of Sprint under the Clayton Antitrust Act of 1914. The lawsuit claimed that the merger would harm competition in the mobile wireless telecommunications market by reducing the number of major mobile network operators to three, thereby raising prices for consumers. The AGs also expressed concern that the merger would result in the loss of retail jobs and harm mobile wireless independent dealers.

Following the filing, on July 26, 2019, the Federal Trade Commission and U.S. Department of Justice joined the Federal Communications Commission in approving the deal, on the condition that T-Mobile sell its prepaid business and certain wireless spectrum to DISH Network to help enable the creation of a fourth wireless operator.[21] Eight additional AGs later joined the AG James’s lawsuit, although four ultimately withdrew.[22] The trial commenced in December 2019 with 14 state AG plaintiffs and concluded in January 2020.[23] On February 11, 2020, Judge Victor Marrero denied the AGs’ request to enjoin the merger.[24] The court found that the States failed to show that T-Mobile would pursue anticompetitive behavior following the merger, and rejected the argument that DISH would be unable to enter the wireless services market as a viable competitor.[25] On February 16, 2020, AG James announced that she would not pursue an appeal.[26] This high-profile loss demonstrates that even though the Office may be more aggressively pursuing interests traditionally handled by the federal government, like antitrust enforcement, such cases do not easily result in success for the AGs.

B. Google

On September 9, 2019, AG James made an announcement confirming the Office’s ongoing investigation into Google for antitrust issues, alleging that the company’s stature as a telecommunications and search engine giant was potentially harmful to consumers and the economy.[27] In announcing the investigation, which currently involves 50 attorneys general, the AGs pointed to alleged “evidence” that “we have seen” that Google may have reduced consumer choice, slowed innovation, and violated consumer privacy.[28]

Like the federal administration and many regulators around the country, AG James is looking for ways to address the perceived dominance of “big tech” in an era of ever-growing concern about how consumer data is used, and will likely test the applicability of century-old antitrust laws to the tech industry, which, unlike other industries, often offers consumers its products free of charge.[29]

IV. Data Privacy, Cybersecurity, and Data Breaches

A. Equifax & Capital One

On July 22, 2019, AG James announced that she and 49 other attorneys general reached a $600 million settlement with Equifax following their investigation into a 2017 data breach of the company.[30] Equifax, one of the three large consumer reporting agencies, had announced on September 7, 2017, a data breach that affected more than 147 million consumers, 8 million of which were purportedly New York residents.[31] According to press reports, the breach allegedly implicated personal information including social security numbers, names, dates of birth, addresses, credit card numbers and driver’s license numbers.[32]

The settlement comprised a $425 million Consumer Restitution Fund and $175 million payment in fines to the states, approximately $9 million of which would be allocated to New York. In addition to the monetary payment, Equifax agreed to provide free credit monitoring for up to 10 years to consumers affected by the data breach; assist consumers with identity theft issues, such as by helping to dispute inaccurate information in credit reports; and strengthen the company’s security.[33] On December 19, 2019, Judge Thomas W. Thrash Jr. of the Northern District of Georgia granted final approval of the settlement.[34]

On July 30, 2019, AG James announced an investigation into Capital One, which experienced a data breach in which an outside individual gained unauthorized access and obtained certain types of personal information about Capital One credit card customers.[35] While the outcome of that probe is yet to be determined, the investigation demonstrates the Office’s ongoing commitment to aggressively investigating potential breaches of consumer data.

B. Zoom

On March 20, 2020—in the midst of the COVID-19 pandemic and associated increase in work-from-home and academic videoconferencing—AG James sent Zoom a public letter asking the company to address reports of various privacy and security issues with the videoconferencing application.

On May 7, 2020, in lieu of pursuing litigation, AG James announced an agreement with Zoom whereby the company agreed to take various additional security and privacy measures.[36] AG James opted for this route “[i]n recognition of the fact that Zoom has acted [] quickly to address the issues identified above, has worked cooperatively with the AG’s investigation, and has provided valuable services to schools, local governments and health care institutions to help address the unique circumstances” posed by the COVID-19 pandemic.[37] Under the agreement, Zoom will maintain a comprehensive data security program that will involve regular security risk assessments, report those assessments to the Office, and enhance encryption protocols. Zoom also agreed to stop sharing user data with social media companies, and give hosts more control over outside access to video conferences.[38]

V. Investor Protection

Since her inauguration, AG James has consistently reiterated a commitment to protecting investors, enhancing corporate accountability, and maintaining integrity in New York’s financial markets; she views her work in this area as part of her obligation to all New Yorkers (as she often has said, “[W]hat happens on Wall Street impacts families on Main Street”).[39]

On October 2, 2019, AG James announced a new whistleblower submission system that facilitates secure and anonymous contact with the Office.[40] The system, which utilizes a web portal allowing users to submit their complaint and relevant documentation, is intended to permit witnesses of unlawful or otherwise improper workplace conduct to express their concerns without revealing their identities.[41] While the Office encourages users to disclose their identities,[42] it recognizes that “many people have legitimate concerns about their anonymity” and hopes that the new system will “attract, engage, and protect whistleblowers,” especially at a time when those attempting to call out corruption are facing intimidation.[43]

The new whistleblower portal represents just one of the latest efforts undertaken by AG James in 2019 with the goal of enhancing corporate accountability. Just weeks earlier, on August 26, 2019, AG James announced the signing of a bill that restores the six-year statute of limitations for claims under the Martin Act,[44] reversing a 2018 ruling by the New York Court of Appeals[45] that confined the limitations period to three years.[46] The Martin Act, considered one of the nation’s most powerful “blue sky” laws, grants the AG broad powers to investigate financial fraud and to bring both civil and criminal claims against any publicly traded company suspected of wrongdoing.[47] By extending the statute of limitations period, the new law thereby enhances “one of the state’s most powerful tools to prosecute financial fraud,” which AG James cites as particularly important during a period in which she believes that the federal government has worked to roll back consumer financial protections.[48] Critics of the Martin Act, however, have always maintained the law is too expansive, both because it permits the AG to investigate, issue subpoenas, and demand production of corporate documents without probable cause or a grand jury ruling, and because a civil fraud violation under the Martin Act does not require the AG to demonstrate scienter.[49]

Last year, the Office investigated several institutions suspected of violating the Martin Act.[50] For example, in October, AG James announced the resolution of a three-year investigation into two related New York-based brokerage firms—BGC Financial LP (“BGC”) and GFI Securities LLC (“GFI”)—accused of using fraudulent practices to solicit trades of foreign exchange currency options.[51] AG James’s investigation allegedly uncovered that, over a two-year period, BGC and GFI posted false bids and trades in an effort to encourage others to buy and sell options at the level at which the brokers had reported the false trade.[52] As part of the settlement, the two entities admitted wrongdoing—specifically, posting fake bids to create a false appearance of greater liquidity in the market, and fraudulently announcing fake trades to deceptively entice traders to buy and sell options. They agreed to pay fines totaling $12.5 million to the Office, among other penalties.[53] The U.S. Commodity Futures Trading Commission (“CFTC”) also imposed a $25 million dollar civil penalty against BGC and GFI for the same conduct, but did not require the brokerage firms to admit wrongdoing.[54] Both the Office and the CFTC required the appointment of independent monitors, who will work in parallel for at least 12 months.

AG James has also sought to hold individuals in the C-suite responsible for Martin Act violations. For example, in December 2019, the Office filed a civil action against a private equity fund manager for violations of the Martin Act, alleging that this individual and the companies he controlled defrauded investors and misappropriated more than $13 million dollars in funds.[55] In February 2020, a New York judge granted a preliminary injunction enjoining this individual from accessing funds associated with the alleged fraud, pending the upcoming trial.[56] Reiterating her commitment to protect investors, AG James declared that “[t]here is no safe haven for white collar fraudsters in New York….”[57] And in June 2020, the Office obtained a judgment against the founder and CEO of a wind turbine company who marketed unregistered securities and diverted investor funds to pay personal expenses in violation of the Martin Act.[58]

Not all Martin Act lawsuits pursued by AG James have been successful. As further discussed below, following a three-week trial in November 2019, the New York Supreme Court found that the Office failed to establish that ExxonMobil violated the Martin Act, holding that the Office did not prove that a “reasonable investor” would have been misled by ExxonMobil’s representations concerning climate change risks.[59]

In September 2019, AG James led a coalition of eight attorneys general from around the country in filing a federal lawsuit challenging “Regulation Best Interest,” a June 2019 U.S. Securities and Exchange Commission (“SEC”) regulation that, according to the lawsuit, fails to comply with the requirements articulated in the Dodd-Frank Act.[60] The regulation, known as “Reg BI,” outlines the obligations of broker-dealers who provide advice to investors, requiring covered broker-dealers to act in the best interests of their clients—but does not impose a fiduciary duty on them.[61] According to the lawsuit,[62] the SEC’s adoption of Reg BI was contrary to Congress’s delegation of authority as outlined in the Dodd-Frank Act. At the end of September 2019, the Southern District of New York dismissed the action for lack of subject-matter jurisdiction, finding that the law governing review of the SEC’s decisions mandated that the U.S. Court of Appeals for the Second Circuit was the proper forum for the litigation, rather than the district court.[63] The Office continued to pursue this action in the Second Circuit. On June 26, 2020, just four days before Reg BI was set to take effect, the Second Circuit upheld Reg BI, finding that “the SEC lawfully promulgated Regulation Best Interest pursuant to Congress’s permissive grant of rulemaking authority” under the Dodd-Frank Act and that Reg BI was not arbitrary, capricious, or an abuse of the SEC’s discretion.[64] As another setback to AG James and potential challenges to federal regulations in the future, the court also found that the states did not have standing to challenge this federal regulation because the states did not demonstrate that the regulation caused a “direct injury” to state revenues, as required for states that challenge federal regulations.[65]

VI. Health Care

AG James’s actions in the health care space—from partnering with other states to preserve the Affordable Care Act, to lawsuits against the pharmaceutical industry—represented a clear prioritization of those areas in 2019. The Office made headlines for bringing large-scale suits in areas that dominated the news in 2019, including e-cigarette use among youth, the opioid crisis, and access to health care. AG James frequently characterized these actions as protecting not only New Yorkers but the American people,[66] and her office did not hesitate to directly oppose the Trump Administration where she deemed appropriate.

A. Federal Actions – ACA

2019 was a year of significant pushback from AG James and other states’ attorneys general against the Trump Administration’s efforts to limit protections of the Affordable Care Act (“ACA”). In early January 2019, AG James set the tone for the Office’s actions for the rest of the year when she joined with 16 other attorneys general to appeal a Texas district court decision holding the ACA unconstitutional.[67] In announcing that suit, AG James said that New York would “continue . . . to safeguard access to healthcare for all Americans.” The U.S. Supreme Court granted certiorari in March 2020.

AG James made good on that statement a few months later when, in May, she led a group of states and cities in filing a suit opposing the Trump Administration’s “refusal-of-care” rule,[68] which was intended to give health-care providers, insurers, and employers greater leeway to refuse to provide medical care and services on the basis of their own religious or moral beliefs. The rule—also called the “conscience rule” by its supporters—had been enacted by the U.S. Department of Health and Human Services (“HHS”) over opposition from the same group and others.

In November 2019, Judge Paul Engelmayer of the Southern District of New York found in favor of the states and struck down the rule. In a lengthy decision noting that the refusal-of-care rule was “shot through with legal defects,” Judge Engelmayer agreed with the Office that the rule as adopted was unconstitutional because its central justification—that there was a “significant increase” in conscience-related violations—was “flatly untrue,” rendering the HHS “decision to promulgate the rule arbitrary and capricious,” in violation of the Administrative Procedure Act (“APA”).[69] On January 3, 2020, HHS appealed the decision to the Second Circuit.[70]

The refusal-of-care case was just one of several actions in which AG James joined other state AGs to oppose ACA-related rulemakings by the Trump Administration. In July 2019, AG James led a twelve-state coalition in filing the appellees’ brief in the Court of Appeals for the D.C. Circuit, defending a district court decision that struck down the Association Health Plan (“AHP”) rule promulgated by the U.S. Department of Labor which, according to the lawsuit, violated both the ACA and Employee Retirement Income Security Act (“ERISA”) through an unlawful reversal of key ERISA terms for the purpose of undermining the ACA, without adequate justification. The rule attempted to undo federal consumer protections relating to fraud and consumer harm, and expand the use of AHPs, which offer health insurance to groups of small businesses with a common interest.[71] The U.S. Department of Labor had appealed the decision, which found that the rule, which President Trump stated was aimed at dismantling Obamacare, was enacted in violation of the APA and was “clearly an end-run around the ACA.”[72] The appeal remains pending following oral argument in November. And in August 2019, AG James again joined with 21 state AGs to oppose another new HHS rule aimed at undermining anti-discrimination provisions in the ACA.[73]

B. Consumer Health – Drug Pricing

AG James has frequently participated in multi-state lawsuits challenging allegedly anticompetitive drug pricing.

In May 2019, 44 states including New York sued Teva Pharmaceuticals and 19 generic drug manufacturers for allegedly working together to artificially manipulate prices and restrain trade on more than 100 drugs, purportedly leading to inflated prices for consumers.[74] According to the Office, the lawsuit represented the culmination of a five-year investigation by the states into efforts by the companies and individual executives to coordinate and elevate pricing.[75] The suit is still at the pleadings stage.

In January 2020, AG James announced a lawsuit against Vyera Pharmaceuticals and two of its former CEOs, including the previously convicted Martin Shkreli, for anticompetitive behavior, including for an alleged 4,000% increase in the price of Daraprim—the only FDA-approved drug for the treatment of toxoplasmosis—in August 2015.[76] Six other states have since joined the suit, which is in the discovery phase.[77]

In June 2020, AG James joined a coalition of 51 attorneys general nationwide in filing a related antitrust complaint against 26 generic drug manufacturers and 10 executives of these companies, alleging “broad, coordinated, and systematic antitrust violations, price-fixing, market allocating, and the rigging of bids for more than 80 different topical, generic drugs.”[78] The suit is still in the pleadings phase.

Drug pricing was a focus of AG James’s work closer to home, too: in June 2019, the Office concluded an investigation of New York State pharmacies for failing to adhere to a law requiring them to post drug costs for consumers.[79] The investigation led to cease-and-desist letters to 44 pharmacies that were found to be in violation of the rule, which mandates that pharmacies maintain and notify customers of a list of prices for the 150 most commonly prescribed drugs.

C. Consumer Health – E-Cigarettes, Opioids

AG James’s actions over the last year have mirrored the nationwide concern over opioid and e-cigarette use. Like many other states, in 2018 New York launched an investigation into JUUL Labs, Inc., the largest e-cigarette company in the United States; on November 19, 2019, more than a year later, the Office filed a lawsuit. The suit, filed only a few days after New York changed the law to make it illegal to sell e-cigarette products to those under 21, alleges that the company engaged in deceptive marketing of its e-cigarettes and contributed to the “ongoing youth vaping epidemic.”[80] The case is currently in the discovery stage. It is part of a concerted push by the Office to spur further regulation of e-cigarette companies, as evidenced by her leading a coalition of seven attorneys general in filing comments with the Food and Drug Administration that urged enforcement actions related to flavored e-cigarettes and online sales.[81]

AG James has also sued pharmaceutical companies in connection with the opioid crisis. In March 2019, she filed a lawsuit against six opioid manufactures, four distributors, and the Sackler family (who owned Purdue Pharma), alleging that they ignored their duties to prevent unlawful diversion of opioids and thus contributed to the opioid epidemic.[82] Trial for all defendants except for Purdue Pharma and the Sackler family (whose case is moving separately through the U.S. Bankruptcy Court) was set to begin in March 2020, but has been delayed due to the COVID-19 pandemic.

AG James also pursued physicians for alleged over-prescribing and attendant Medicaid fraud, and joined a bipartisan multistate coalition of 38 states in an effort to push Congress to remove federal barriers to opioid addiction treatment,[83] calling it an effort to take “action from every angle” against the opioid crisis, and once again highlighting her willingness to get involved at the federal level.[84]

D. Consumer Health – COVID-19

AG James focused on protecting the public health, particularly during the COVID-19 pandemic. She has acted to “ensure the health of New Yorkers [is] not further at risk during these trying times.”[85] For example, in April 2020, citing the importance of protecting reproductive health and limiting trips to pharmacies, AG James demanded that several health insurance companies comply with the Comprehensive Contraception Coverage Act, requiring health insurers to provide a 12-month supply of contraception at one time.[86] The Office has also launched repeated efforts to protect New Yorkers from Coronavirus health scams, including issuing guidance to New Yorkers[87] and scrubbing websites of scams that are “stoking fear in the hearts and minds of Americans,”[88] and pursuing price gouging.[89]

VII. Environmental Protection

“While Washington is asleep at the wheel, New York continues to lead the way in protecting our planet. . . . I am proud to work with NYS Attorney General Letitia James to defend our precious environment from actions taken by this administration.”

– New York Senator Todd Kaminsky (D)

AG James proclaimed in her 2019 Year in Review that she is committed to “fight[ing] policies that hurt New Yorkers, our natural resources, and our planet.” AG James is stepping in to fill what she views as a gap in environmental protection enforcement by the Trump Administration. Many state AGs, including AG James, have taken over 300 actions on climate change, air, water, and toxic chemicals during Donald Trump’s Presidency.[90] A report by the State Energy and Environmental Impact Center at the NYU School of Law found that, as of the beginning of 2020, the Office has brought more environmental actions against the Trump Administration than any other state,[91] bringing 129 of those actions in 2019.[92]

AG James’s environmental activism takes aim at both the federal government’s policies and large corporations when she states that she believes that the federal government has not done enough to hold them accountable. The Office’s activism—frequently coordinated with AGs across the country—could have significant impacts on companies.

A. Taking on the Trump Administration’s Environmental Stance

AG James has challenged several of the Trump Administration’s new environmental rules, including the following:

(1) EPA’s COVID-19 Policy. On March 26, 2020, the EPA issued a temporary policy regarding EPA enforcement of environmental legal obligations in response to the novel coronavirus outbreak.[93] The policy applies retroactively to March 13 and has no end date. The policy allows the EPA not to take enforcement action against companies that violate existing requirements if they draw a nexus between COVID-19 and their noncompliance.[94] On April 15, 2020, AG James and 13 other states submitted a letter requesting that the EPA rescind the policy, contending that the “policy turns a blind eye to the impacts on our communities of more pollution and lesser accountability.”[95] There has been no response to the letter to date. AG James and attorneys general from several other states filed a complaint against the EPA on May 13, 2020 to challenge this policy, alleging that the EPA had not responded to the letter “or taken any of the actions requested by the Attorney[] General.”[96] This litigation remains pending in the Southern District of New York.[97]

(2) The Cross-State Air Pollution “Close-Out” Rule. This 2018 Trump administration rule loosens requirements that upwind states reduce their contribution of ozone precursors to downwind states, impacting the downwind states’ ability to attain ozone pollution standards by certain statutory deadlines. AG James has challenged the Trump Administration’s EPA rulemaking surrounding the Close-Out Rule multiple times.
On October 1, 2019, the U.S. Court of Appeals for the D.C. Circuit sustained New York’s challenge and vacated the Close-Out Rule. The court explained that the Close-Out Rule’s failure to require upwind states to reduce their emissions would “contribute significantly to downwind nonattainment in 2021.”[98] On October 29, 2019, AG James brought another lawsuit against the EPA for failure to “abide by its legal responsibility under the Clean Air Act [(“CAA”)] to ensure upwind sources of pollution do not continue to create unhealthy ground-level ozone pollution [] in New York.”[99] The lawsuit followed the EPA’s denial of a March 2018 petition filed by New York. The petition requested the EPA to make a finding that nine upwind states were guilty of emissions violations and that the EPA ensure that the states reduced their emissions.[100] On July 14, 2020 the court vacated the EPA’s denial of New York’s petition and remanded the case for further proceedings. On February 19, 2020, AG James joined a federal lawsuit against the EPA for its failure to control air pollution from upwind states, thus preventing New York from achieving compliance with the CAA.[101] On July 28, 2020, the court ruled in favor of the coalition of state attorneys general, granting their motion for summary judgment, finding that the EPA had not performed its obligations under the law and granting injunctive relief.

“The Trump Administration’s attempt to weaken the Clean Air Act will cause lasting damage to the economy, environment, and health of the American people.”

– AG James, September 2019

(3) Energy Standards. In August 2019, AG James led a coalition of 22 states and seven localities in filing a lawsuit challenging the EPA’s Affordable Clean Energy (“ACE”) rule, a regulation that purported to replace the Clean Power Plan (“CPP”), which had placed strict limits on fossil-fuel power plant emissions.[102] The lawsuit alleged that the EPA had no legal standing to weaken the CPP, that the replacement ignored an EPA mandate to set limits on greenhouse gases, and that the new rule would reverse progress made in addressing climate change and prolong the U.S.’s dependence on fossil fuels. EPA officials have argued that, unlike the CPP, the ACE rule adheres to the CAA and is just as effective.[103] Oral argument in the case has been scheduled for October 8, 2020.[104] In April 2020, AG James, together with 14 other states and New York City, filed a lawsuit in the Ninth Circuit challenging the U.S. Department of Energy’s (“DOE”) revisions to its Process Rule.[105] The Process Rule describes the procedures, interpretations, and policies that guide DOE in establishing new or revised energy-efficiency standards for consumer products.[106] The Office argued that the revisions impose an “unreasonably high threshold for energy efficiency savings” that “threaten” the economic and environmental progress made by DOE’s long-standing energy efficiency program.[107] The case is pending in the Ninth Circuit.

(4) Changes to Vehicle and Greenhouse Gas Emissions Standards. In July 2019, the U.S. Department of Transportation’s National Highway Traffic Safety Administration (“NHTSA”) repealed an Obama-era rule and announced a new rule that limited the civil penalty rate for automobile manufacturers that fail to meet certain emissions standards. AG James led a coalition of 13 state attorneys general in challenging the agency decision in the U.S. Court of Appeals for the Second Circuit, alleging that the new rule was “unlawful and rewards automakers that fail to manufacture fuel-efficient vehicles” and that it “violated federal law, which mandates that public agencies update their civil penalties to account for inflation using a clear timetable and formula for adjustment.”[108] The case was heard on June 1, 2020.[109] On March 31, 2020, the Trump Administration announced its final rule rolling back the Clean Car Standards.[110] On May 27, 2020, AG James joined a multistate lawsuit against the EPA, U.S. Department of Transportation, and the NHTSA.[111] The pending lawsuit, joined by 23 other attorneys general and several other local governments, argues that the rollback will halt the progress made “in saving consumers at the pump and reducing harmful greenhouse gas emissions, hurting the economy and public health at a time when the country can least afford it.”[112]

(5) Changes to Methane Emissions Standards. In November 2019, AG James joined a coalition of 21 state and local governments in filing comments opposing a proposed EPA rule that would rescind emissions standards for methane.[113] The coalition argued that the proposal was unlawful because the EPA had failed to justify its decision to abandon methane regulation, disregarded its own previous conclusions about the “substantial adverse impacts of methane emissions from the oil and gas industry,” and “arbitrarily eliminate[d] pollution controls from the transmission and storage segment of the oil and natural gas sector.”[114]

(6) Approval of Seismic Air Gun Survey Testing. In March 2019, AG James and eight other AGs joined a group of non-governmental organizations’ motion to preliminarily enjoin the Trump Administration’s authorization of seismic air gun survey testing in the Atlantic Ocean. Seismic testing is considered to a precursor to offshore drilling because it involves the use of high-powered air guns to release loud pressurized blasts through the Atlantic Ocean to the seafloor to map offshore oil and gas reserves. The AGs argued that the authorizations violated the Marine Mammal Protection Act, Endangered Species Act, National Environmental Policy Act, and the APA.[115] The case is currently pending in the U.S. District Court for the District of South Carolina (Charleston).[116]

B. Actions against Corporations

When it comes to the environment, AG James has also participated in actions against fossil fuel and automobile companies.

Fossil Fuel Companies. Former AG Eric T. Schneiderman initiated an investigation against ExxonMobil in November 2015 to determine whether the company had fraudulently misled investors and the public about the risks of climate change and how such risks might hurt the oil business.[117] In 2018, following the nearly three-year investigation, then-AG Barbara Underwood brought a securities fraud case under the Martin Act against ExxonMobil based on an alleged accounting discrepancy, alleging that the oil company caused investors to lose up to $1.6 billion by falsely telling them it had properly evaluated the impact of future climate regulations on its business.[118] In late November 2019, the case went to trial. In December, after three weeks of trial, New York State Supreme Court Justice Barry Ostrager dismissed the case with prejudice, finding that “[t]he office of the Attorney General failed to prove, by a preponderance of evidence, that ExxonMobil made any material misstatements or omissions about its practices and procedures that misled any reasonable investor.”[119] The court further noted, “ExxonMobil does not dispute either that its operations produce greenhouse gases or that greenhouse gases contribute to climate change. But ExxonMobil is in the business of producing energy, and this is a securities fraud case, not a climate change case.”[120]

Following the defeat, the Office has continued to insert itself in climate change litigation brought against oil companies around the country, notably in Baltimore and the Bay Area, joining multistate coalitions in filing amici briefs in pending environmental litigation.[121] Supporting local government plaintiffs in these cases, the state AGs have argued that fossil fuel companies should be held accountable under state law, including state tort law, for actions purportedly contributing to climate change and resulting harms.[122] The oil companies have argued that the issues are fundamentally about emissions, which are regulated at the federal level. Many of the cases have been dismissed, although some remain pending.

Automobile Industry. In January 2019, AG James, a coalition of state and federal agencies, as well as private class action plaintiffs reached a $171 million settlement with Fiat Chrysler Automobiles (“Fiat”) and others. The deal—which did not involve any admission of guilt, and included civil penalties and compensation for eligible customers—settled purported claims that Fiat had allegedly falsely advertised that its “EcoDiesel” vehicles were environmentally friendly (in violation of state environmental and consumer protection laws and the federal Clean Air Act), among other allegations. Following the deal, Fiat announced “rigorous new validation procedures and updated . . . . .training programs.”[123]

VIII. Employee Rights

AG James has also been active in areas relating to labor and employment, especially post COVID-19. Since January 2019, she has actively opposed multiple rule change proposals related to federal labor laws, like the Fair Labor Standards Act (“FLSA”), from the Trump Administration, leading coalitions of state attorneys general, because she believes the proposals weaken vital protections for workers and make it harder for states to enforce workplace laws. AG James’s many comment letters in opposition to the Trump Administration’s proposals suggest that AG James and other attorneys general have already teed up future litigation on numerous issues.[124] We can expect her to file suit on many of these issues.

A. Challenging Federal Policy Changes

For example, in May 2019, AG James led a coalition of states in opposing a then-proposed, now-final, rule regarding the “white collar” exemption to the overtime pay requirements under the FLSA.[125] The exemption generally applies to salaried employees with executive, administrative or professional duties that earn above a threshold amount. The AG coalition favored a higher, more “meaningful” salary threshold in part because they argued it would have, in practice, created a “bright-line” rule that clearly delineated exempt from non-exempt workers in more cases, particularly where states have a higher-than-national minimum wage. However, the salary threshold that the U.S. Department of Labor (“DOL”) ultimately adopted was far below that advocated for by AG James (and the other state attorneys general), and roughly tracks to wages that are or soon will be the minimumwage in states like New York.[126] According to the AGs’ comment letter, this lower salary requirement will likely lead to a higher incidence of worker misclassification, as more classification decisions turn on a “multifactorial duties test” that assesses the extent to which an employee’s duties are administrative, executive, or professional. Despite AG James’s efforts, the overtime rule went into effect on January 1, 2020.[127]

AG James, along with Attorney General Josh Shapiro of Pennsylvania, also led an opposition to the Trump Administration’s efforts to revise the definition of “joint employer” as it is used to determine liability in both the FLSA and the National Labor Relations Act. AG James and AG Shapiro, joined by other states and the District of Columbia, have filed suit to challenge the DOL’s Final Rule[128] under the APA.[129] Cross motions for summary judgment are pending.

With the onset of COVID-19, AG James has redoubled her opposition to certain federal wage and hour policies—new and old—particularly where she believes wage workers will be disproportionately impacted. For example, AGs James and Shapiro again led a coalition of states in urging the Trump Administration to cease implementing the joint employer rule on the basis that the changes “put[] those most at risk of suffering financially as a result of the COVID-19 pandemic in even greater economic jeopardy.”[130] According to the coalition, the new rule limits employees’ ability to collect back wages from bankrupt employers.[131]

Similarly, AG James filed suit in federal court to block implementation of a rule issued by the DOL under the Families First Coronavirus Response Act, claiming that the portions of the rule violate the APA because they are not in accordance with law and exceed the DOL’s statutory authority.[132] AG James seeks to sever and vacate portions of the rule[133] that “make[] it harder for New Yorkers and Americans throughout the country to claim [paid sick leave and emergency family leave] benefits, which unnecessarily puts more workers at risk of exposure to COVID-19.”[134] On August 3, 2020, the court agreed with AG James, invalidating parts of the DOL rule that AG James argued unfairly restricted access to the program.[135]

AG James has also gone beyond wage and hour issues.[136] In a comment letter to the Federal Trade Commission, she joined other state AGs in advocating for increased scrutiny of anticompetitive policies in the labor market, singling out non-compete and no-poach agreements as examples.[137] Joining with other state attorneys general, she filed an amicus brief before the U.S. Supreme Court, joining in support of preservation of anti-discrimination protections, and highlighting the state’s “critical role in enforcing anti-discrimination [laws].”[138] She also co-led the filing of an amicus brief before the U.S. Supreme Court arguing that Title VII prohibits employment discrimination based on an individual’s sexual orientation and stereotyping of that individual’s gender identity.[139] This brief argued that discrimination against LGBT workers undermines the states’ ability to create inclusive communities, and that a contrary interpretation of Title VII would limit the extent to which states can rely on and utilize federal law to combat that discrimination. The U.S. Supreme Court ruled adversely to her position in the first case,[140] but, in the second, issued a landmark ruling protecting the rights of LGBT workers—finding that “[a]n employer who fires an individual for being homosexual or transgender fires that person for traits or actions it would not have questioned in members of a different sex” is in violation of Title VII.[141]

B. Employee Protection Efforts and Enforcement in New York

AG James has been active in prosecuting employers and publicly supporting the passage of various laws and initiatives to protect the rights of workers, including that:

AG James lauded state-wide passage of the Salary History Bill, finding that the practice of inquiring into past salaries during the hiring process “unfairly perpetuates discrimination towards women and women of color, and … deprives them of the equal pay and recognition that they rightfully deserve.”[142]
AG James applauded an amendment to the Equal Pay Act, which bans employers from paying different wages based on gender, remarking that she is “proud to see NY lead the way on ensuring equity in the workplace” by requiring that employees be paid equally for “substantially similar work.”[143] She also joined a letter by a coalition of state attorneys general supporting a lawsuit seeking to compel “complete and final adoption” of the Equal Rights Amendment, after Virginia became the 38th state to ratify the Amendment, and urged Congress to remove any deadline for ratification.[144]
AG James also successfully pushed for passage of a state law that penalizes discrimination and retaliation against immigrant employees, stating that “it is incumbent on us to help vulnerable workers be able to stand up for their rights without fear of punishment.”[145] This law went into effect in October 2019.[146] While the law essentially codifies federal case law interpreting anti-retaliation provisions, AG James advocated for the law to combat the “culture of fear” that has resulted from “increasingly heated rhetoric” regarding immigration nationwide.[147]
AG James also heralded a decision by the New York State Court of Appeals reinstating a determination by the state’s Unemployment Insurance Appeal Board that a delivery driver was entitled to unemployment benefits.[148] AG James heralded the decision that “delivery drivers are employees [and not independent contractors] and are entitled to the same unemployment benefits other employees can obtain” particularly “[a]s the nation battles the spread of the coronavirus and more and more employees are laid off.”[149]

AG James has signaled she will consider “all legal options” to protect employees in the wake of COVID-19.[150] For instance, she has demanded that fast food restaurants provide employees with personal protective equipment,[151] and at least twice called on employees to report perceived violations of both preexisting labor laws and the recently issued executive orders.[152] We expect she will continue to advance the rights of and protections for workers in the turbulence of the COVID-19 pandemic.

AG James also secured several settlements on behalf of employees:

AG James reached a $450,000 settlement with a home health care company following the passage of the new law barring discrimination against immigrant employees based on allegations that more than 100 home health aides were not paid their earned wages, and were instead allegedly threatened with deportation if they reported or complained of the wage theft.[153]
In a settlement regarding the company’s prior sick leave policies and practices, a coffeehouse chain recently agreed to pay $150,000 to a restitution fund, reform its sick leave policy, educate its workers on the new sick leave policy, and submit a compliance report detailing its progress within six months.[154]
AG James has secured a $530,000 settlement for 150 car wash workers for wage theft.[155]
With the New York City Comptroller’s Office, AG James required a developer to pay over $400,000 in restitution and interest to workers, as well as $2.5 million to New York City and the State, to settle its inquiry into whether the developers willfully violated wage requirements under Section 421-a of the New York Real Property Tax Law, which provides tax breaks on certain multifamily buildings.[156]
AG James reached a settlement awarding $240,000 and a 10-year profit sharing arrangement for 11 former employees of a New York City restaurant and requiring implementation of new policies after an investigation found that the restaurant failed to systematically address or take adequate action to address the sexual harassment of the female staff.[157]

IX. The Future

While we expect the next 18 months to look directionally like the last 18 months, the upcoming Presidential election will have important implications for AG James’s priorities. Civil rights including voter protection, the impact of the ongoing pandemic on consumers, borrowers, and workers will undoubtedly continue to draw her focus. The Office’s aggressive enforcement positions require that companies pay careful attention to AG James’s actions and next steps. AG James will continue to look for and seize upon opportunities in a broad range of areas building on her successes to date.

[1] State of New York v. Nat’l Rifle Ass’n of Am., Inc., et al., No. 451625/2020 (N.Y. Sup. Ct. Aug. 6, 2020); Press Release, N.Y.S. Attorney General, Attorney General James Files Lawsuit to Dissolve NRA (Aug. 6, 2020), https://ag.ny.gov/press-release/2020/attorney-general-james-files-lawsuit-dissolve-nra.

[2] Brett Samuels, Trump pays court-ordered $2 million in charity case, NY AG says, The Hill (Dec. 10, 2019), https://thehill.com/homenews/administration/473934-trump-pays-court-ordered-2-million-in-charity-case-ny-ag-says;Press Release, N.Y.S. Attorney General, AG James Secures Court Order Against Donald J. Trump, Trump Children, And Trump Foundation (Nov. 7, 2019), https://ag.ny.gov/press-release/2019/ag-james-secures-court-order-against-donald-j-trump-trump-children-and-trump.

[3] Nat’l Rifle Ass’n of America v. Letitia James, No. 5:000-at-99999 (N.D.N.Y. Aug. 6, 2020).

[4] Press Release, N.Y.S. Attorney General, Attorney General James Refuses to Back Down in Fight Against NRA (Aug. 7, 2020), https://ag.ny.gov/press-release/2020/attorney-general-james-refuses-back-down-fight-against-nra.

[5] Press Release, N.Y.S. Attorney General, Attorney General Letitia James Delivers Remarks At Inauguration Ceremony On Ellis Island (Jan. 2, 2019), https://ag.ny.gov/press-release/2019/attorney-general-letitia-james-delivers-remarks-inauguration-ceremony-ellis.

[6] Id.

[7] Press Release, N.Y.S. Attorney General, Attorney General James Joins Multistate Amicus Brief Challenging Trump Administration “Turnback Policy” (Feb. 22, 2019), https://ag.ny.gov/press-release/2019/attorney-general-james-joins-multistate-amicus-brief-challenging-trump-0.

[8] Press Release, N.Y.S. Attorney General, AG James Backs Lawsuit Challenging Trump Administration’s Use Of Healthcare Coverage To Ban Immigration (Nov. 13, 2019), https://ag.ny.gov/press-release/2019/ag-james-backs-lawsuit-challenging-trump-administrations-use-healthcare-coverage.

[9] Press Release, N.Y.S. Attorney General, Attorney General James Seeks to Halt Trump Administration’s Reckless “Dirty Water Rule” (May 19, 2020), https://ag.ny.gov/press-release/2020/attorney-general-james-seeks-halt-trump-administrations-reckless-dirty-water-rule; Press Release, N.Y.S. Attorney General, Independent Study Finds NY State AG Tops Nation In Environmental Protection (Dec. 9, 2019), https://ag.ny.gov/press-release/2019/independent-study-finds-ny-state-ag-tops-nation-environmental-protection.

[10] Press Release, N.Y.S. Attorney General, Attorney General James And Coalition Files Brief In Census Case Challenging Trump Administration’s Attempt To Add Citizenship Question To The 2020 Census (April 1, 2019), https://ag.ny.gov/press-release/2019/attorney-general-james-and-coalition-files-brief-census-case-challenging-trump.

[11] Press Release, N.Y.S. Attorney General, Attorney General James Seeks Preliminary Injunction Against The Trump Administration To Stop Health Care Discrimination (June 14, 2019), https://ag.ny.gov/press-release/2019/attorney-general-james-seeks-preliminary-injunction-against-trump-administration.

[12] Press Release, N.Y.S. Attorney General, Attorney General James Continues Fight to Stop Public Charge Rule (Apr. 29, 2020), https://ag.ny.gov/press-release/2020/attorney-general-james-continues-fight-stop-public-charge-rule; Press Release, N.Y.S. Attorney General, Attorney General James Announces Lawsuit Against Trump Administration Over Public Charge Rule (Aug. 20, 2019), https://ag.ny.gov/press-release/attorney-general-james-announces-lawsuit-against-trump-administration-over-public.

[13] Office of the N.Y.S. Attorney General Letitia James, 2019 Year in Review, p. 9.

[14] Press Release, N.Y.S. Attorney General, Attorney General James Remarks on DACA Following Supreme Court Argument (Nov. 12, 2019), https://ag.ny.gov/press-release/2019/attorney-general-james-remarks-daca-following-supreme-court-argument.

[15] See Gibson Dunn Dec. 2019 Newsletter: Defending the Dreamers, https://www.gibsondunn.com/wp-content/uploads/2019/12/ProBonoNewsletter-1219.html. A decision is expected in June 2020.

[16] See Department Of Homeland Security et al. v. Regents Of The University Of California, et al., Slip. Op. 18-587 (Supreme Court June 18, 2020).

[17] Press Release, N.Y.S. Attorney General, Attorney General James Urges Court to Halt Trump EPA’s Non-Enforcement of Federal Environmental and Public Health Laws (June 9, 2020), https://ag.ny.gov/press-release/2020/attorney-general-james-urges-court-halt-trump-epas-non-enforcement-federal; Press Release, N.Y.S. Attorney General, AG James Sues Trump Administration for Limiting Enforcement of Federal Environmental and Public Health Laws (May 13, 2020), https://ag.ny.gov/press-release/2020/ag-james-sues-trump-administration-limiting-enforcement-federal-environmental-and.

[18] Press Release, N.Y.S. Attorney General, AG James Sues Trump Administration Over Unlawful Regulations Restricting Coronavirus-Based Paid Sick Leave (Apr. 14, 2020), https://ag.ny.gov/press-release/2020/ag-james-sues-trump-administration-over-unlawful-regulations-restricting.

[19] Press Release, N.Y.S. Attorney General, Attorney General James Leads Bipartisan Multistate Coalition Calling on Federal Government to Protect Seniors’ Homes During Coronavirus Pandemic (May 1, 2020), https://ag.ny.gov/press-release/2020/attorney-general-james-leads-bipartisan-multistate-coalition-calling-federal.

[20] See, e.g.,Press Release, N.Y.S. Attorney General, Statement On President Trump’s Comments Regarding The New York State Attorney General Office (Apr. 29, 2019), https://ag.ny.gov/press-release/2019/statement-president-trumps-comments-regarding-new-york-state-attorney-general.

[21] Press Release, Dep’t of Justice, Justice Department Settles with T-Mobile and Sprint in Their Proposed Merger by Requiring a Package of Divestitures to Dish (July 26, 2019), https://www.justice.gov/opa/pr/justice-department-settles-t-mobile-and-sprint-their-proposed-merger-requiring-package.

[22] Lauren Hirsch, Texas and Nevada are the latest states to defect from the lawsuit against Sprint/T-Mobile deal, CNBC (Nov. 25, 2019), https://www.cnbc.com/2019/11/25/texas-is-latest-to-defect-from-lawsuit-against-sprintt-mobile-deal.html.

[23] Brendan Pierson, Testimony ends in T-Mobile-Sprint merger trial in New York, Reuters (Dec. 20, 2019), https://www.reuters.com/article/us-sprint-corp-m-a-t-mobile-us/testimony-ends-in-t-mobile-sprint-merger-trial-in-new-york-idUSKBN1YO2CV.

[24] Decision and Order, State of New York v. Deutsche Telekom AG, No. 19 Civ. 5434 (Feb. 11, 2020) (ECF No. 409).

[25] Id.

[26] Press Release, N.Y.S. Attorney General, Attorney General James’ Statement On T-Mobile/Sprint Appeal (Feb. 16, 2020), https://ag.ny.gov/press-release/2020/attorney-general-james-statement-t-mobilesprint-appeal.

[27] Press Release, N.Y.S. Attorney General, Attorney General James Announces Antitrust Investigation Into Google (Sept. 9, 2019), https://ag.ny.gov/press-release/2019/attorney-general-james-announces-antitrust-investigation-google.

[28] Steve Lohr, Google Antitrust Investigation Outlined by State Attorneys General, N.Y. Times (Sept. 9, 2019), https://www.nytimes.com/2019/09/09/technology/google-antitrust-investigation.html.

[29] Emily Birnbaum, State probes of Google, Facebook to test century-old antitrust laws, The Hill (Sept. 14, 2019), https://thehill.com/policy/technology/461385-state-probes-of-google-facebook-to-test-century-old-antitrust-laws.

[30] Press Release, N.Y.S. Attorney General, Attorney General James Holds Equifax Accountable By Securing $600 Million Payment In Largest Data Breach Settlement In History (July 22, 2019), https://ag.ny.gov/press-release/2019/attorney-general-james-holds-equifax-accountable-securing-600-million-payment.

[31] Id.

[32] Megan Leonhardt, Equifax to pay $700 million for massive data breach, CNBC (July 22, 2019), https://www.cnbc.com/2019/07/22/what-you-need-to-know-equifax-data-breach-700-million-settlement.html.

[33] Press Release, N.Y.S. Attorney General, Attorney General James Holds Equifax Accountable By Securing $600 Million Payment In Largest Data Breach Settlement In History (July 22, 2019), https://ag.ny.gov/press-release/2019/attorney-general-james-holds-equifax-accountable-securing-600-million-payment.

[34] Robin McDonald, Judge OKs $77.5M in Legal Fees, Approves Equifax Data Breach Settlement, Law.com (Dec. 19, 2019), https://www.law.com/dailyreportonline/2019/12/19/judge-oks-77-5-million-in-legals-fees-approves-equifax-data-breach-settlement/.

[35] Press Release, N.Y.S. Attorney General, Attorney General James’ Statement On Capital One Security Breach (July 30, 2019), https://ag.ny.gov/press-release/attorney-general-james-statement-capital-one-security-breach.

[36] Press Release, N.Y.S. Attorney General, Attorney General James Secures New Protections, Security Safeguards for All Zoom Users (May 7, 2020), https://ag.ny.gov/press-release/2020/attorney-general-james-secures-new-protections-security-safeguards-all-zoom-users.

[37] Letter from the N.Y.S. Attorney General to Cooley LLP, Letter Agreement between Zoom and the NYAG, p. 3 (May 7, 2020), https://ag.ny.gov/sites/default/files/nyag_zoom_letter_agreement_‌final_counter-signed.pdf.

[38] Press Release, N.Y.S. Attorney General, Attorney General James Secures New Protections, Security Safeguards for All Zoom Users (May 7, 2020), https://ag.ny.gov/press-release/2020/attorney-general-james-secures-new-protections-security-safeguards-all-zoom-users.

[39] Press Release, N.Y.S. Attorney General, AG James Files Lawsuit Against Private Equity Fund Manager Who Used Investor Funds as Private Piggy Bank (Dec. 5, 2019), https://ag.ny.gov/press-release/2019/ag-james-files-lawsuit-against-private-equity-fund-manager-who-used-investor.

[40] Press Release, N.Y.S. Attorney General, Attorney General James Announces New Whistleblower Submissions (Oct. 2, 2019), https://ag.ny.gov/press-release/2019/whistleblowers-welcome-attorney-general-james-announces-new-whistleblower.

[41] Id.

[42] Patrick Connelly, Secure Whistleblower Submission System Debuted by New York AG, (Oct. 3, 2019), Buffalo L. J, Buffalo Bus. First, https://www.bizjournals.com/buffalo/news/2019/10/03/‌whistleblower-submission-system-debuted-by-ny-ag.html.

[43] Press Release, N.Y.S. Attorney General, Attorney General James Announces New Whistleblower Submissions (Oct. 2, 2019), https://ag.ny.gov/press-release/2019/whistleblowers-welcome-attorney-general-james-announces-new-whistleblower.

[44] N.Y. Gen. Bus. Law 23-A, §§ 352–53.

[45] People v. Credit Suisse Securities (USA) LLC et al., 107 N.E.3d 515 (N.Y. 2018).

[46] Eric M. Kogan & Leslie J. Levinson, New York Reinstates Six-Year Statute of Limitations Under Martin Act, Nat’l L. Rev. (Sept. 5, 2019), https://www.natlawreview.com/article/new-york-reinstates-six-year-statute-limitations-under-martin-act.

[47] N.Y. Gen. Bus. Law 23-A, §§ 352–53; David Voreacos, The Martin Act, Bloomberg (Nov. 10, 2015), https://www.bloomberg.com/quicktake/martin-act.

[48] N.Y. Gen. Bus. Law 23-A §§, 352–53; Press Release, N.Y.S. Attorney General, New Law Strengthens AG James’ Authority To Take On Corporate Misconduct (Aug. 26, 2019), https://ag.ny.gov/press-release/2019/new-law-strengthens-ag-james-authority-take-corporate-misconduct.

[49] The Martin Act: New York State’s Most Notorious Business Law, Energy in Depth (Oct. 18, 2019), https://eidclimate.org/the-martin-act-explained/.

[50] Press Release, N.Y.S. Attorney General, AG James Imposes $12.5 Million Penalty on Brokerage Firms for Martin Act Violations (Oct. 2, 2019), https://ag.ny.gov/press-release/ag-james-imposes-125-million-penalty-brokerage-firms-martin-act-violations; see also Press Release, New York Attorney General’s Office, Attorney General James Announces Court Order Against “Crypto” Currency Company Under Investigation for Fraud (Apr. 25, 2019), https://ag.ny.gov/press-release/2019/attorney-general-james-announces-court-order-against-crypto-currency-company.

[51] Press Release, N.Y.S. Attorney General, AG James Imposes $12.5 Million Penalty on Brokerage Firms for Martin Act Violations (Oct. 2, 2019), https://ag.ny.gov/press-release/ag-james-imposes-125-million-penalty-brokerage-firms-martin-act-violations.

[52] Lizeth Beltran, Wall Street Brokerages Fined More Than $ 35M for Fraud, Crains New York (Oct. 2, 2019), https://www.crainsnewyork.com/finance/wall-street-brokerages-fined-more-35m-fraud.

[53] Jonathan Stempel, Regulators Fine New York’s BGC Partners $25 Million for Forex Options Fraud, Reuters (Oct. 2, 2019), https://www.reuters.com/article/us-cftc-new-york-brokerages/regulators-fine-new-yorks-bgc-partners-25-million-for-forex-options-fraud-idUSKBN1WH23U. BGC and GFI agreed to pay additional penalties to the U.S. Commodity Futures Trading Commission, totaling $25 million. Id.

[54] See Press Release, Commodity Futures Trading Commission, CFTC Orders Interdealer Brokers to Pay $25 million for Fraud in FX Options Markets (Oct. 2, 2019), https://www.cftc.gov/PressRoom/PressReleases/8035-19; Dave Michaels, Foreign-Exchange Brokers, BGC, GFI Settle Probes Over Phony Trades, Wall St. J. (Oct. 2, 2019), https://www.wsj.com/articles/foreign-exchange-brokers-bcg-gfi-settle-probes-over-phony-trades-11570039909.

[55] Press Release, N.Y.S. Attorney General, AG James Files Lawsuit Against Private Equity Fund Manager Who Used Investor Funds as Private Piggy Bank (Dec. 5, 2019), https://ag.ny.gov/press-release/2019/ag-james-files-lawsuit-against-private-equity-fund-manager-who-used-investor.

[56] Press Release, N.Y.S. Attorney General, AG James Obtains Injunction Against “Self-Dealing” Private Equity Fund Manager Who Committed “Outright Fraud,” According To Court (Feb. 7, 2020), https://ag.ny.gov/press-release/2020/ag-james-obtains-injunction-against-self-dealing-private-equity-fund-manager-who.

[57] Press Release, N.Y.S. Attorney General, AG James Files Lawsuit Against Private Equity Fund Manager Who Used Investor Funds as Private Piggy Bank (Dec. 5, 2019), https://ag.ny.gov/press-release/2019/ag-james-files-lawsuit-against-private-equity-fund-manager-who-used-investor.

[58] Press Release, N.Y.S. Attorney General, Attorney General James locks Fraudster ‘Green’ Inventor from Using Investor Funds as Personal Piggy Bank During Coronavirus Pandemic (Apr. 27, 2020), https://ag.ny.gov/press-release/2020/attorney-general-james-blocks-fraudster-green-inventor-using-investor-funds; Press Release, N.Y.S. Attorney General, Attorney General James Holds ‘Green’ Inventor Accountable, Ends Use of Investor Funds for Personal Expenses (June 5, 2020), https://ag.ny.gov/press-release/2020/attorney-general-james-holds-green-inventor-accountable-ends-use-investor-funds.

[59] People by James v. Exxon Mobil Corp., 65 Misc. 3d 1233(A) (N.Y. Sup. Ct. 2019).

[60] Press Release, N.Y.S. Attorney General, AG James Leads Coalition Suing SEC for Putting Brokers Ahead of Investors (Sept. 10, 2019), https://ag.ny.gov/press-release/2019/ag-james-leads-coalition-suing-sec-putting-brokers-ahead-investors.

[61] Regulation Best Interest: The Broker-Dealer Standard of Conduct, 84 Fed. Reg. 33,318 (July 12, 2019), https://www.sec.gov/rules/final/2019/34-86031.pdf (“Regulation Best Interest”).

[62] The attorneys general of California, Connecticut, Delaware, Maine, New Mexico, Oregon, and the District of Columbia have joined in the lawsuit.

[63] New York v. United States Sec. & Exch. Comm’n, 2019 WL 5203751, at *1 (S.D.N.Y. Sept. 27, 2019) (citing 15 U.S.C. § 78y(b)(1)) (“A person adversely affected by a rule of the Commission . . . may obtain review of this rule in the United States Court of Appeals for the circuit in which he resides or has his principal place of business.”).

[64] XY Planning Network, LLC v. United States Sec. & Exch. Comm’n, 963 F.3d 244, 255–57 (2d Cir. 2020).

[65] Id. at 252–53. The Second Circuit held that an additional petitioner—Investment Advisor Ford Financial Solutions, LLC—had standing to challenge this regulation and, accordingly, allowed the case to proceed on the merits.

[66] Press Release, N.Y.S. Attorney General, Attorney General James’ Statement on Purdue Pharma Bankruptcy Filing (Sept. 16, 2019), https://ag.ny.gov/press-release/2019/attorney-general-james-statement-purdue-pharma-bankruptcy-filing.

[67] Press Release, N.Y.S. Attorney General, Attorney General Letitia James Joins Multistate Coalition to Appeal ACA Ruling (Jan. 3, 2019), https://ag.ny.gov/press-release/2019/attorney-general-letitia-james-joins-multistate-coalition-appeal-aca-ruling.

[68] Press Release, N.Y.S. Attorney General, Attorney General James Leads Coalition of 23 Cities and States Suing Trump Administration to Stop Health Care Discrimination (May 21, 2019), https://ag.ny.gov/press-release/2019/attorney-general-james-leads-coalition-23-cities-and-states-suing-trump.

[69] Yasmeen Abutaleb, Trump’s ‘conscience rule’ for health providers blocked by federal judge, Wash. Post (Nov. 6, 2019), https://www.washingtonpost.com/health/trumps-conscience-rule-for-health-providers-voided-by-federal-judge/2019/11/06/39aa9b74-00b1-11ea-9518-1e76abc088b6_story.html; Michael Riccardi, US District Judge Junks Trump Administration’s Health Care ‘Conscience Rule,’ N.Y. Law J. (Nov. 6, 2019), https://www.law.com/newyorklawjournal/2019/11/06/read-the-opinion-us-district-judge-junks-trump-administrations-health-care-conscience-rule/.

[70] State of New York v. United States Dep’t of Health & Human Servs., Case No. 20-41 (2d Cir. filed Jan. 3, 2020).

[71] Press Release, N.Y.S. Attorney General, Attorney General James Leads Effort to Defend Affordable Care Act from Trump Administration (July 16, 2019), https://ag.ny.gov/press-release/2019/attorney-general-james-leads-effort-defend-affordable-care-act-trump.

[72] Press Release, N.Y.S. Attorney General, Attorney General James Announces Major Win Over Trump Administration’s Attempt to Dismantle Affordable Care Act (Mar. 28, 2019), https://ag.ny.gov/press-release/2019/attorney-general-james-announces-major-win-over-trump-administrations-attempt; Timothy Bella, ‘Clearly an end-run’: Federal judge rejects Trump’s health-care plan to go around Obamacare, Wash. Post (Mar. 29, 2019), https://www.washingtonpost.com/nation/‌2019/03/29/clearly-an-end-run-federal-judge-strikes-down-trump-administrations-health-plan-go-around-obamacare/.

[73] Press Release, N.Y.S. Attorney General, Attorney General James Condemns New HHS Rule for Sabotaging the ACA (Aug. 15, 2019), https://ag.ny.gov/press-release/2019/attorney-general-james-condemns-new-hhs-rule-sabotaging-aca.

[74] Press Release, N.Y.S. Attorney General, New York and 43 Other States Sue 20 Generic Drug Manufacturers Alleging Conspiracy to Fix Prices and Allocate Markets for More Than 100 Generic Drugs (May 13, 2019), https://ag.ny.gov/press-release/new-york-and-43-other-states-sue-20-generic-drug-manufacturers-alleging-conspiracy-fix.

[75] Anne Cullen, Teva a ‘Consistent Participant’ in Drug Price-Fixing, AGs Say, Law360 (May 13, 2019), https://www.law360.com/articles/1158935/teva-a-consistent-participant-in-drug-price-fixing-ags-say.

[76] Press Release, N.Y.S. Attorney General, Attorney General James Sues ‘Pharma Bro’ Martin Shkreli and Vyera Pharmaceuticals for Illegally Monopolizing Life-Saving Drug (Jan. 27, 2020), https://ag.ny.gov/press-release/2020/attorney-general-james-sues-pharma-bro-martin-shkreli-and-vyera-pharmaceuticals.

[77] Press Release, N.Y.S. Attorney General, Attorney General James Adds States to Suit Against Convicted Criminal Martin Shkreli and Vyera Pharmaceuticals (Apr. 14, 2020), https://ag.ny.gov/press-release/2020/attorney-general-james-adds-states-suit-against-convicted-criminal-martin-0.

[78] Press Release, N.Y.S. Attorney General, Attorney General James Challenges Anticompetitive Conduct in the Generic Drug Industry (June 10, 2020), https://ag.ny.gov/press-release/2020/attorney-general-james-challenges-anticompetitive-conduct-generic-drug-industry.

[79] Press Release, N.Y.S. Attorney General, Attorney General James Cracks Down on Pharmacies Failing to Comply with Drug Pricing Transparency Law (June 13, 2019), https://ag.ny.gov/press-release/2019/attorney-general-james-cracks-down-pharmacies-failing-comply-drug-pricing.

[80] Press Release, N.Y.S. Attorney General, Attorney General James Sues JUUL Labs (Nov. 19, 2019), https://ag.ny.gov/press-release/attorney-general-james-sues-juul-labs.

[81] Press Release, N.Y.S. Attorney General, Attorney General James Leads Coalition of 7 States to Urge FDA to Strengthen E-Cigarette Guidance (Apr. 30, 2019), https://ag.ny.gov/press-release/2019/attorney-general-james-leads-coalition-7-states-urge-fda-strengthen-e-cigarette.

[82] Press Release, N.Y.S. Attorney General, Attorney General James Files Nation’s Most Comprehensive Suit Against Opioid Distributors and Manufacturers (Mar. 28, 2019), https://ag.ny.gov/press-release/2019/attorney-general-james-files-nations-most-comprehensive-suit-against-opioid.

[83] Press Release, N.Y.S. Attorney General, Attorney General James Announces Arrest of Two Physicians on Charges of Health Care Fraud at Opioid Mill (May 6, 2019), https://ag.ny.gov/press-release/2019/attorney-general-james-announces-arrest-two-physicians-charges-health-care-fraud; Press Release, N.Y.S. Attorney General, Operation Central City: Attorney General James Takes Down Two Drug Rings Responsible for Trafficking Heroin, Fentanyl, and Cocaine Throughout Central and Upstate New York (Apr. 25, 2019), https://ag.ny.gov/press-release/2019/operation-central-city-attorney-general-james-takes-down-two-drug-rings.

[84] Press Release, N.Y.S. Attorney General, Attorney General James Joins 38 State Coalition Urging Congress to Remove Federal barriers to Treat Opioid Use Disorder (Aug. 5, 2019), https://ag.ny.gov/press-release/attorney-general-james-joins-38-state-coalition-urging-congress-remove-federal.

[85] Press Release, N.Y.S. Attorney General, Attorney General James Makes Government Services More Accessible in Response to Coronavirus Pandemic (Mar. 17, 2020), https://ag.ny.gov/press-release/2020/attorney-general-james-makes-government-services-more-accessible-response.

[86] Press Release, N.Y.S. Attorney General, Attorney General James Demands Health Insurance Providers Obey the Law, Protect Women’s Access to Birth Control (Apr. 19, 2020), https://ag.ny.gov/press-release/2020/attorney-general-james-demands-health-insurance-providers-obey-law-protect-womens.

[87] Press Release, N.Y.S. Attorney General, Attorney General James Takes Action Against Coronavirus Health Scams, Issues Guidance To New Yorkers (Mar. 5, 2020), https://ag.ny.gov/press-release/2020/attorney-general-james-takes-action-against-coronavirus-health-scams-issues.

[88] Press Release, N.Y.S. Attorney General, Attorney General James Cleanses Internet of Coronavirus-Related Scams (Apr. 17, 2020), https://ag.ny.gov/press-release/2020/attorney-general-james-cleanses-internet-coronavirus-related-scams; Press Release, N.Y.S. Attorney General, Attorney General James Orders Craigslist to Remove Posts Selling Fake Coronavirus Treatments and Exorbitantly-Priced Items (Mar. 20, 2020), https://ag.ny.gov/press-release/2020/attorney-general-james-orders-craigslist-remove-posts-selling-fake-coronavirus.

[89] Press Release, N.Y.S. Attorney General, AG James: Price Gouging Will Not Be Tolerated (Mar. 10, 2020), https://ag.ny.gov/press-release/2020/ag-james-price-gouging-will-not-be-tolerated.

[90] 300 and Counting: State Attorneys General Lead the Fight for Health and the Environment (Dec. 2019), https://www.law.nyu.edu/sites/default/files/300%20and%20Counting%20-%20State%20Impact%20Center.pdf.

[91] Id.

[92] Office of the N.Y.S. Attorney General Letitia James, 2019 Year in Review, https://ag.ny.gov/2019-year-in-review.

[93] News Release, U.S. Environmental Protection Agency, EPA Announces Enforcement Discretion Policy for COVID-19 Pandemic (Mar. 26, 2020), https://www.epa.gov/newsreleases/epa-announces-enforcement-discretion-policy-covid-19-pandemic#:~:text=EPA’s%20temporary%‌20enforcement%20discretion%20policy,during%20the%20COVID%2D19%20outbreak.&text=The%20temporary%20policy%20makes%20it,compliance%20as%20quickly%20as%20possible.

[94] Id.

[95] Press Release, N.Y.S. Attorney General, State Attorneys General Call on EPA to Rescind Policy Limiting Enforcement of Federal Civil Environmental and Public Health Laws (Apr. 15, 2020), https://ag.ny.gov/press-release/2020/state-attorneys-general-call-epa-rescind-policy-limiting-enforcement-federal.

[96] State of New York et al. v. Envtl. Prot. Agency et al., No. 20-cv-03714 (S.D.N.Y. May 13, 2020).

[97] Id.

[98] State of New York et al. v. Envtl. Prot. Agency et al., No. 19-1019 (D.C. Cir. Oct. 1, 2019).

[99] Press Release, N.Y.S. Attorney General, Attorney General James Sues Trump Administration For Failing To Address Interstate Smog Pollution (Oct. 2019), https://ag.ny.gov/press-release/2019/attorney-general-james-sues-trump-administration-failing-address-interstate-smog.

[100] Id.

[101] Press Release, N.Y.S. Attorney General, Attorney General Letitia James Joins Lawsuit Against EPA Over Failure To Act On Ozone Pollution From Upwind States (Feb. 19, 2020), https://ag.ny.gov/press-release/2020/attorney-general-letitia-james-joins-lawsuit-against-epa-over-failure-act-ozone.

[102] Press Release, N.Y.S. Attorney General, Independent Study Finds NY State AG Tops Nation In Environmental Protection (Dec. 9, 2019), https://ag.ny.gov/press-release/2019/independent-study-finds-ny-state-ag-tops-nation-environmental-protection.

[103] News Release, U.S. Environmental Protection Agency, EPA Finalizes Affordable Clean Energy Rule, Ensuring Reliable, Diversified Energy Resources while Protecting our Environment (June 19, 2019), https://www.epa.gov/newsreleases/epa-finalizes-affordable-clean-energy-rule-ensuring-reliable-diversified-energy.

[104] State of New York v. EPA, No. 19-1165 (D.C. Cir.), https://www.courtlistener.com/‌docket/20472/parties/state-of-new-york-v-epa/.

[105] Press Release, N.Y.S. Attorney General, Attorney General James Files Lawsuit Challenging the Trump Administration over Irrational New Obstacles for the Issuance of Energy Efficiency Standards (Apr. 15, 2020), https://ag.ny.gov/press-release/2020/attorney-general-james-files-lawsuit-challenging-trump-administration-over.

[106] 10 C.F.R. § 430 Subpt. C, App. A.

[107] Supra note 102.

[108] Press Release, N.Y.S. Attorney General, Attorney General James Leads Lawsuit Challenging Trump Administration’s Efforts To Undercut Fuel Efficiency Standards (Aug. 2, 2019), https://ag.ny.gov/press-release/2019/attorney-general-james-leads-lawsuit-challenging-trump-administrations-efforts.

[109] State of New York v. National Highway Traffic, Docket No. 19-02395 (2d Cir. Aug 2, 2019); see also Petition for Review of a Final Rule of the National Highway Traffic Safety Administration, State of New York et al. v. NHTSA (Aug. 2, 2019), https://oag.ca.gov/system/files/attachments/press-docs/CAFE%20penalty%20petition%20w.%20exhibit.pdf.

[110] News Release, U.S. Environmental Protection Agency, U.S. DOT and EPA Put Safety and American Families First with Final Rule on Fuel Economy Standards (Mar. 31, 2020), https://www.epa.gov/newsreleases/us-dot-and-epa-put-safety-and-american-families-first-final-rule-fuel-economy-standards.

[111] Press Release, N.Y.S. Attorney General, Attorney General James Fights to Protect Clean Air (May 27, 2020), https://ag.ny.gov/press-release/2020/attorney-general-james-fights-protect-clean-air.

[112] Id.

[113] Press Release, N.Y.S. Attorney General, Attorney General James Joins Coalition Opposing EPA Proposal To Gut Methane Emission Standards (Nov. 2019), https://ag.ny.gov/press-release/attorney-general-james-joins-coalition-opposing-epa-proposal-gut-methane-emission.

[114] Letter from the State of California et al. to the EPA (Nov. 22, 2019), https://ag.ny.gov/sites/default/files/comments_of_states_and_cities_11.22.19.pdf.

[115] Press Release, N.Y.S. Attorney General, Attorney General James Joins States’ Efforts To Halt Seismic Testing Off Atlantic Coast (Mar. 2019), https://ag.ny.gov/press-release/2019/attorney-general-james-joins-states-efforts-halt-seismic-testing-atlantic-coast.

[116] South Carolina Coastal Conservation League et al. v. Wilbur Ross et al., No. 2:18-cv-03326 (D.S.C. Jan. 18, 2019).

[117] Justin Gillis & Clifford Krauss, Exxon Mobil Investigated for Possible Climate Change Lies by New York Attorney General, N.Y. Times (Nov. 5, 2015), https://www.nytimes.com/2015/11/06/science/‌exxon-mobil-under-investigation-in-new-york-over-climate-statements.html.

[118] Brendan Pierson, Exxon Mobil scores win in New York climate change lawsuit, Reuters (Dec. 10, 2019), https://www.reuters.com/article/us-exxon-mobil-lawsuit/exxon-mobil-scores-win-in-new-york-climate-change-lawsuit-idUSKBN1YE1ZU; Daniel Fisher, There’s second major trial starting this week – New York v. Exxon, Legal Newsline (Oct. 21, 2019), https://legalnewsline.com/stories/‌515106301-there-s-second-major-trial-starting-this-week-new-york-v-exxon.

[119] People by James v. Exxon Mobil Corp., 65 Misc. 3d 1233(A) (N.Y. Sup. Ct. 2019).

[120] Id.

[121] Press Release, N.Y.S. Attorney General, AG James Fights To Hold Big Polluters Accountable To State And Local Laws (Sept. 2019), https://ag.ny.gov/press-release/2019/ag-james-fights-hold-big-polluters-accountable-state-and-local-laws.

[122] Id.

[123] Press Release, N.Y.S. Attorney General, Attorney General James Announces Landmark Multistate Settlements With Fiat Chrysler And Bosch Totaling $171 Million For Alleged Violations Of State Environmental And Consumer Protection Laws (Jan. 2019), https://ag.ny.gov/press-release/2019/attorney-general-james-announces-landmark-multistate-settlements-fiat-chrysler.

[124] See, e.g.,Salary Comment Letter, supra note 124(white collar exemption); State Attorneys General, Comment Letter on Proposed Rulemaking (RIN: 3142-AA32) The Standard for Determining Joint-Employer Status (Jan. 28, 2019), https://ag.ny.gov/sites/default/files/nlrb-comment-letter.pdf (joint employer under NLRA); Joint-Employer Status Comment Letter, supra note 129 (joint employer under FLSA); State Attorneys General, Comment Letter on Proposed Rulemaking (RIN: 1235-AA21) Tip Regulations Under the Fair Labor Standards Act (FLSA) (Dec. 9, 2019), https://ncdoj.gov/wp-content/uploads/2019/12/Comment-of-19-State-Attorneys-General-re-RIN-1235-AA21.pdf (tip credit).

[125] State Attorneys General, Comment Letter on Proposed Rulemaking (RIN: 1235-AA20) Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees (May 21, 2019), [hereinafter Salary Comment Letter] https://ag.ny.gov/sites/default/files/usdol_overtime_multistate_comment_-_5-21-19.pdf.

[126] See Final Rule, Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees, 84 Fed. Reg. 51230 (Sept. 27, 2019). The DOL adopted a salary requirement of $684/week, effective January 1, 2020, that is far below that advocated for by AG James and the other state attorneys general who joined in opposing the rule. See also Salary Comment Letter, supra note 124.

[127] See id.

[128] Final Rule, Joint Employer Status Under the Fair Labor Standards Act, 85 Fed. Reg. 2820 (Jan, 16, 2020).

[129] See Complaint, State of New York, at al v. Scalia, No. 20-cv-1689 (S.D.N.Y. Feb. 26, 2020), available at https://ag.ny.gov/sites/default/files/20-cv-1689.usdol_joint_employer_multi-state_complaint.as_filed.pdf; Press Release, N.Y.S. Attorney General, AG James Files Suit To Stop Trump Administration From Stripping Workers Of Key Labor Protections (Feb. 26, 2020), https://ag.ny.gov/press-release/2020/ag-james-files-suit-stop-trump-administration-stripping-workers-key-labor.

[130] Press Release, AG James: Trump Administration Must Suspend Implementation of Joint Employer Rule Amid Coronavirus Pandemic (Mar. 30, 2020),https://ag.ny.gov/press-release/2020/ag-james-trump-administration-must-suspend-implementation-joint-employer-rule.

[131] Id.; see also Letter to Secretary Scalia (March 30, 2020), https://ag.ny.gov/sites/default/‌files/2020.03.30_ag_letter_to_sec_scalia_0.pdf.

[132] Complaint, State of New York v. United States Department of Labor, No. 20-cv-3020 (S.D.N.Y. April 14, 2020), https://ag.ny.gov/sites/default/files/ny_v_us_dol_complaint.pdf.

[133] See Motion for Summary Judgment, State of New York v. United States Department of Labor, No. 20-cv-3020 (S.D.N.Y. April 14, 2020), https://ag.ny.gov/sites/default/files/ny_v_us_dol_‌motion_for_summary_judgment.pdf.

[134] Press Release, N.Y.S. Attorney General, AG James Sues Trump Administration Over Unlawful Regulations Restricting Coronavirus-Based Paid Sick Leave (April 14, 2020), https://ag.ny.gov/press-release/2020/ag-james-sues-trump-administration-over-unlawful-regulations-restricting.

[135] Press Release, N.Y.S. Attorney General, AG James Secures Court Win Against Trump Admin for Unlawful Regulations Restricting Coronavirus-Based Paid Sick Leave (Aug. 3, 2020), https://ag.ny.gov/press-release/2020/ag-james-secures-court-win-against-trump-admin-unlawful-regulations-restricting.

[136] AG James also joined coalitions of state attorneys general in opposing proposed rules regarding the calculation of overtime and distribution of “tips” under the FLSA. Press Release, N.Y.S. Attorney General, Attorney General James Urges U.S. Department Of Labor To Withdraw Proposal That Would Decrease Employee Earnings (Dec. 6, 2019), https://ag.ny.gov/press-release/2019/attorney-general-james-urges-us-department-labor-withdraw-proposal-would-decrease; State Attorneys General, Comment Letter on Proposed Rulemaking (RIN: 1235-AA21) Tip Regulations Under the Fair Labor Standards Act (FLSA) (Dec. 9, 2019), https://ncdoj.gov/wp-content/uploads/2019/12/Comment-of-19-State-Attorneys-General-re-RIN-1235-AA21.pdf; Joanna Fantozzi, Proposed Elimination of the 80/20 Tip Credit Rule is Likely Illegal, Attorneys General Say, Nation’s Rest. News (Dec. 12, 2019), https://www.nrn.com/operations/proposed-elimination-8020-tip-credit-rule-likely-illegal-attorneys-general-say.

[137] Press Release, N.Y.S. Attorney General, Attorney General James Urges Regulators To Protect Workers From Harmful, Anticompetitive Labor Practices (July 16, 2019), https://ag.ny.gov/press-release/2019/attorney-general-james-urges-regulators-protect-workers-harmful-anticompetitive.

[138] Press Release, N.Y.S. Attorney General, Attorney General James Fights To Protect Employees From Discrimination (Mar. 11, 2020), https://ag.ny.gov/press-release/2020/attorney-general-james-fights-protect-employees-discrimination.

[139] Press Release, N.Y.S. Attorney General, Attorney General James Files Supreme Court Brief To Protect LGBTQ+ Employees From Discrimination (July 3, 2019), https://ag.ny.gov/press-release/attorney-general-james-files-supreme-court-brief-protect-lgbtq-employees; Brief for States of Illinois, et al. as Amici Curiae in Support of the Employees, Bostock v. Clayton County, Georgia, No. 17-1618 (US July 3, 2019), https://www.supremecourt.gov/DocketPDF/18/18-107/107183/‌20190703180657540_Bostock-Zarda-Harris%20Amicus%20Br%20for%20States%20of%20IL-NY-et%20al.pdf.

[140] See Our Lady of Guadalupe Sch. v. Morrissey-Berru;, No. 19-267, 590 U.S. ___, ___ S. Ct. ___ (July 8, 2020) (slip op.) (holding that the Religion Clause in the First Amendment forecloses courts from adjudicating the discrimination claims brought by elementary school teachers who “performed vital religious duties”).

[141] See Bostock v. Clayton Cty., Georgia, 590 U.S. ___, 140 S. Ct. 1731 (2020) (holding that “[a]n employer who fires an individual for being homosexual or transgender fires that person for traits or actions it would not have questioned in members of a different sex” is in violation of Title VII); see also Press Release, Attorney General James Lauds Supreme Court Decision Protecting LGBTQ+ Employees from Discrimination (June 15, 2020), https://ag.ny.gov/press-release/2020/attorney-general-james-lauds-supreme-court-decision-protecting-lgbtq-employees.

[142] Press Release, N.Y.S. Attorney General, Attorney General James On Passage Of Salary History Bill (June 20, 2019), https://ag.ny.gov/press-release/2019/attorney-general-james-passage-salary-history-bill; NY AG James (@NewYorkStateAG), Twitter (Jan. 6, 2020), https://twitter.com/‌NewYorkStateAG/status/1214289147604750338.

[143] NY AG James (@NewYorkStateAG), Twitter (Oct. 8, 2019), https://twitter.com/‌NewYorkStateAG/status/1181628966270066688.

[144] Press Release, N.Y.S. Attorney General, Attorney General James Calls On Congress To Take Steps Towards Ratification Of Equal Rights Amendment (Feb. 11, 2020), https://ag.ny.gov/press-release/2020/attorney-general-james-calls-congress-take-steps-towards-ratification-equal;Press Release, N.Y.S. Attorney General, Attorney General James’ Statement On Equal Rights Amendment Lawsuit (Jan. 31, 2020), https://ag.ny.gov/press-release/2020/attorney-general-james-statement-equal-rights-amendment-lawsuit.

[145] Press Release, N.Y.S. Attorney General, AG James: Bill Protecting Immigrant Workers From Workplace Harassment Signed Into Law (July 29, 2019), available at https://ag.ny.gov/press-release/2019/ag-james-bill-protecting-immigrant-workers-workplace-harassment-signed-law.

[146] N.Y. Lab. Law § 215.

[147] Press Release, N.Y.S. Attorney General, Attorney General James Applauds Passage Of Bill Protecting Immigrants In The Workplace (June 17, 2019), https://ag.ny.gov/press-release/2019/attorney-general-james-applauds-passage-bill-protecting-immigrants-workplace.

[148] Press Release, Attorney General James Scores Major Win for ‘Gig’ Workers with Victory in Postmates Case (Mar. 26, 2020), https://ag.ny.gov/press-release/2020/attorney-general-james-scores-major-win-gig-workers-victory-postmates-case.

[149] Id.

[150] Press Release, AG James’ Statement on Firing of Amazon Worker Who Organized Walkout (Mar. 30, 2020), https://ag.ny.gov/press-release/2020/ag-james-statement-firing-amazon-worker-who-organized-walkout[hereinafter Organized Walkout].

[151] Press Release, Attorney General James Demands Fast Food Restaurants Protect Workers (Apr. 25, 2020), https://ag.ny.gov/press-release/2020/attorney-general-james-demands-fast-food-restaurants-protect-workers [hereinafter Fast Food].

[152] Press Release, Attorney General James Urges Employees to File Complaints Against Employers Ignoring NYS Executive Orders (Mar. 21, 2020), https://ag.ny.gov/press-release/2020/attorney-general-james-urges-employees-file-complaints-against-employers-ignoring. See also Organized Walkout, supra note 152; Fast Food, supra note 154.

[153] Press Release, N.Y.S. Attorney General, Attorney General James Secures $450,000 For 100 Home Health Aides Threatened With Deportation (Sept. 13, 2019), https://ag.ny.gov/press-release/2019/attorney-general-james-secures-450000-100-home-health-aides-threatened.

[154] Press Release, City Hall of New York City, Mayor de Blasio and New York State Attorney General James Announce Settlement with Starbucks for Violations of City’s Paid Safe and Sick Leave Law (Dec. 19, 2019), https://www1.nyc.gov/office-of-the-mayor/news/631-19/mayor-de-blasio-new-york-state-attorney-general-james-settlement-starbucks-for; Jonathan Stempel, Starbucks settles New York probe into illegal sick leave policy, Reuters (Dec. 19, 2019), https://www.reuters.com/article/us-starbucks-new-york-settlement/starbucks-settles-new-york-probe-into-illegal-sick-leave-policy-idUSKBN1YN2H5; NY AG James (@NewYorkStateAG), Twitter (Dec. 21, 2019), https://twitter.com/NewYorkStateAG/status/1208448002760818696.

[155] Press Release, N.Y.S. Attorney General, Attorney General James Secures Over $500,000 For Over 150 Car Wash Workers (Sept. 13, 2019), https://ag.ny.gov/press-release/2019/attorney-general-james-secures-over-500000-over-150-car-wash-workers.

[156] Press Release, N.Y.S. Attorney General, AG James, Comptroller Stringer, and 32BJ President Bragg Return More Than $400,000 in Recovered Wages to Building Service Workers (Dec. 17, 2019), https://ag.ny.gov/press-release/2019/ag-james-comptroller-stringer-and-32bj-president-bragg-return-more-400000; Press Release, N.Y.S. Attorney General, AG James And Comptroller Stringer Secure Nearly $3 Million From Landlords For Underpaying Workers And Fraudulently Obtaining Tax Breaks (Nov. 8, 2019), https://ag.ny.gov/press-release/2019/ag-james-and-comptroller-stringer-secure-nearly-3-million-landlords-underpaying.

[157] Press Release, N.Y.S. Attorney General, Attorney General James Secures Settlement For Victims Of Sexual Harassment And Discrimination At Spotted Pig Restaurant (Dec. 17, 2019), https://ag.ny.gov/press-release/2020/attorney-general-james-secures-settlement-victims-sexual-harassment-and.

The following Gibson Dunn lawyers assisted in the preparation of this client update: Matthew Biben, Mylan Denerstein, Avi Weitzman, Amanda Aycock, Doran Satanove, Nina Meyer, Rachel Jackson, Sam Berman, and Praatika Prasad.

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these developments. For additional information, please feel free to contact the Gibson Dunn lawyer with whom you usually work, or the following authors in New York:

Matthew L. Biben (+1 212-351-6300, mbiben@gibsondunn.com)
Mylan L. Denerstein (+1 212-351- 3850, mdenerstein@gibsondunn.com)
Avi Weitzman (+1 212-351-2465, aweitzman@gibsondunn.com)

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

On August 4, 2020, the Commodity Futures Trading Commission (“CFTC”) announced that the U.S. District Court for the Southern District of New York entered a consent order resolving the CFTC’s seven-year old charges against the New York Mercantile Exchange (“NYMEX”) and its two former employees for the two employees’ repeated disclosure of material non-public information in violation of the Commodity Exchange Act (“CEA”) and CFTC regulations.[1] Neither NYMEX nor its former employees admitted or denied the CFTC’s allegations. The CFTC’s enforcement action against NYMEX and its former employees is the first time the CFTC has charged an exchange with violations of the CEA and CFTC regulations’ proscriptions against disclosures of material non-public information by exchange employees.[2] It also represents one of the few actions that the CFTC has taken against a party for violating its insider trading rules in the commodity futures, options, and swap markets. And it provides guidance as to what the CFTC considers to be material, nonpublic information relating to order flow.

CFTC’s Expanded Scope of Enforcement

The Dodd-Frank Wall Street Reform and Consumer Protection Act[3], signed into law in 2010, amended the Commodity Exchange Act and granted the CFTC authority to devise enforcement to promulgate such “rules and regulations… are reasonably necessary to prohibit … trading practice that is disruptive of fair and equitable trading[.]”[4] On July 7, 2011, the CFTC adopted new antifraud regulation – Rule 180.1 which is expressly modeled on Section 10b-5 of the Securities Exchange Act of 1934. The new Rule prohibits “trading on the basis of material nonpublic information in breach of a pre-existing duty (established by another law or rule, agreement, understanding or some other source) and trading on the basis of material nonpublic information that was obtained through fraud or deception.”[5]

On December 2, 2015, the CFTC settled on consent with Arya Motazedi, for various violations of CFTC Rules[6]. This was the CFTC’s first enforcement of its anti-manipulation rules in an insider trading case. Motazedi was a gasoline and energy trader at a large, unmade, public traded company. The CFTC alleged that Motazedi committed fraud by (a) trading in his personal account against the company without the company’s knowledge, and (b) trading ahead of company orders in his personal account, taking advantage of the material, nonpublic information of his employer. Specifically, the CFTC alleged that Motazedi stole material, nonpublic information concerning the times, volumes, and prices at which his company intended to trade energy commodities futures. Instead of solely basing Motazedi’s liabilities on general antifraud provisions of the CEA, the CFTC focused on Section 6(c)(1) of the CEA and Rule 180.1 and Motazedi entered into a settlement, neither admitting nor denying that he breached his duty to his employer in violation of both Section 6(c)(1) and Rule 180.1.[7]

Similar to the Motazedi enforcement action, in September 2016, the CFTC filed a case against and reached a settlement with Jon P. Ruggles to pay a $1.75 million penalty and to forego more than $3.5 million in gains and banned him from trading and registration. Neither admitting nor denying liability, Ruggles allegedly traded in the same NYMEX products in personal accounts in his wife’s name with material nonpublic information of his employer.[8]

On September 28, 2018, the CFTC filed a civil complaint in the Southern District of Texas against EOX Holdings and Andrew Gizienski alleging violations of the CEA and CFTC insider trading regulations.[9] In this case, which remains ongoing, the CFTC alleges that Gizienski disclosed material, nonpublic information about EOX Holdings’ customer identities, block trades, and security positions, in breach of Gizienski’s duties to those customers, to profit in a friend’s trading account. The CFTC further alleges that EOX approved Gizienski’s trading in a friend’s account, but failed to implement reasonable procedures to monitor trading in that account. On the date that the CFTC charged EOX and Gizienski, the CFTC announced the formation of an Insider Trading and Information Protection Task Force.

Enforcement Against NYMEX and Its Former Employees

Over seven years ago, on or about February 21, 2013, the CFTC charged NYMEX, which is owned and operated by the CME Group, and the two former employees (William Byrnes and Christopher Curtin) with repeatedly disclosing customer trading information transmitted through the CME ClearPort Facilitation Desk to a commodity broker on at least in total approximately seventy-six occasions. The ClearPort Facilitation Desk provided clearing and settlement services for exchange-traded contracts and over-the-counter derivatives transactions. ClearPort customers were allegedly told that the trades they submitted would not be made public and would be deemed to be confidential; the customer user agreements, for example, allegedly stated that all “Exchange Data shall be deemed to be confidential” which the CFTC alleged included all price and other trade-related data, and such information could not be disclosed to third parties for any purpose other than to facilitate the transactions. At the time of the disclosures, Byrnes was a supervisor on the ClearPort Facilitation Desk and Curtin was the Associate Director of the Globex Control Center. The CFTC alleged that the disclosures were often captured on tape, and that NYMEX had failed to investigate an anonymous complaint about improper disclosures for over a year before terminating Byrnes.[10]

In the consent order against NYMEX and its two former employees, the CFTC alleged that, on numerous occasions between 2008 and 2010, the two former employees (William Byrnes and Christopher Curtin) disclosed material, nonpublic information about derivatives trading activity that they obtained through their employment at the NYMEX.[11] The material and nonpublic information Byrnes and Curtin allegedly disclosed includes “the identifies of counterparties, whether a particular counterparty purchased or sold the option, whether it was a call or a put, the volume of contracts traded, the expiry, the strike price and the trade price.”[12] The disclosures were allegedly made to a commodities broker who was apparently not authorized to receive the information.

The CFTC alleged that Byrnes and Curtin were directly liable for the alleged disclosures of material, nonpublic information of trading activity, and that NYMEX was vicariously liable for the conduct of its former employees.[13] Both employees are permanently banned from trading commodity interests and registering with the CFTC. The order also enjoins NYMEX to the extent the CEA and CFTC regulations apply under the vicarious liability provision of the CEA.[14] The order imposes a $4 million joint and several monetary penalty on NYMEX, Byrnes and Curtin, capping the liability of Byrnes and Curtin at $300,000 and $200,000 respectively.[15]

In 2016, NYMEX submitted a motion for summary judgement arguing that it was not vicariously liable for the violations of Byrnes and Curtin. On September 19, 2019, Judge Broderick denied NYMEX’s motion stating that “Plaintiff [CFTC] identifies several facts that could permit a jury to find that Byrnes and Curtin intended to serve some purpose of NYMEX and were acting within the scope of their employment.”[16] Judge Broderick quoted several allegations in the CFTC’s complaint that precluded the Court from granting the defense motion including: (1) Curtin’s 2007 NYMEX self-evaluation where he wrote one of his goals was to “continue to grow facilitation desk knowledge base and increase the business”; (2) Byrnes and Curtin allegedly knew that the broker whom they allegedly tipped was on NYMEX’s list of ‘Top 50’ Brokers for ClearPort; and (3) NYMEX earned fees as a result of the broker’s trades.[17]

Takeaways

There are multiple, important takeaways from this civil action that the CFTC took against NYMEX and its two former employees for violating the CFTC’s insider trading rules.

First, the CFTC set forth again its position that certain customer trading information which is supposed to be kept confidential pursuant to user agreements is material, nonpublic information. The CFTC’s position will not be tested in this case, because NYMEX and its two former employees reached a settlement resolving the matter, without admitting or denying the allegations.

Second, for purposes of alleging that the former NYMEX employees had a duty not to disclose the customer trading information, the CFTC relied on the employer’s code of conduct, the employee handbook, the employment agreements, and the customer user agreements. Often such codes of conduct, handbooks, and agreements are highly general and fail to provide clear notice as to what can and cannot be disclosed. It is important for all market participants to be aware of the non-disclosure provisions in the agreements available to them, and certainly the ones which each individual signs and agrees to follow.

Third, the CFTC partially built its case against the former NYMEX employees through recorded lines during which there was disclosure of customer information to a commodities broker and the employees were captured trying to avoid the recorded line by agreeing on the recorded line to call each other on their mobile devices. Regulators will often look for evidence that market participants are trying to avoid discussions over recorded lines such as the commodities broker’s statements “Do you want me to call you on your cell” and “Bring your cell phone tomorrow” so we can discuss customer trading.

Fourth, upon receipt of an anonymous complaint of improper activity, it is incumbent on the firm to investigate expeditiously and to be prepared to defend that investigation to regulators later. In this case, upon receipt of confidential information regarding trades cleared through CME ClearPort had been disclosed to a brokerage firm improperly, NYMEX’s manager of the ClearPort Facilitation Desk allegedly conducted a belated and cursory investigation by reviewing phone calls and emails from one day, and did not question the employees allegedly involved in the disclosures. Moreover, although the manager directed all employees on the CME ClearPort Facilitation Desk not to use mobile devices for business, the employees allegedly used their personal cell phones in the open at their desks.

Fifth, the CFTC’s theory of vicarious liability against NYMEX will unfortunately not be tested at trial. It was an aggressive theory given that Curtin and Byrnes appeared to have acted contrary to NYMEX’s policies and agreements, and against their employer’s interests. In demonstrating that the conduct of rogue employees should not be vicariously liable to their employer, it is critical to develop facts to demonstrate that the employees acted outside the scope of their employment, contrary to training and instructions, and for the purpose of benefitting themselves at the expense of the employer.

Sixth, the CFTC charged the recipient of the allegedly material, nonpublic information with aiding and abetting the primary violations of the former NYMEX employees. The CFTC alleged that the broker “repeatedly solicited Byrnes and Curtin for the specific material nonpublic information they disclosed to him and providing Byrnes and Curtin with information they needed to identify and locate information about the specific trades in which Eibschutz was interested.”[18] Whether the CFTC will be able to prove aiding and abetting liability against the broker will test the regulator’s ability to go after the recipients of material, nonpublic information.

Finally, the CFTC’s civil action took approximately seven years and six months since filing of the complaint, and over ten years since the alleged underlying misconduct took place, to resolve the matter against NYMEX and its former employees. There are many reasons for this long delay including the time taken to submit and resolve a motion to dismiss, discovery disputes, and the submission and resolution for summary judgment. That extensive stretch of time presents serious challenges to regulators and market participants in terms of the burden on regulators to prove their actions, the costs of litigating, and the distraction and other collateral consequences of a never-ending civil action to market participants. Of course the civil action against the recipient broker remains ongoing, and it’s unclear whether that will also result in a settlement or go to trial.

_________________

[1] NYMEX and Two Former Employees to Pay $4 Million for Disclosing Material Non-Public Information, Release Number 8216-20 (Aug 4, 2020). Please see here.

[2] Id.

[3] Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), Pub. L No. 111-2031, § 753, 124 Stat. 1376 (2010).

[4] 7 U.S.C § 6c(a)(6) (2018).

[5] Commodity Futures Trading Commission Q&A – Anti-Manipulation and Anti-Fraud Final Rules (2011), please see here.

[6] In re Arya Motazedi, CFTC Docket No. 16-02 (Dec 2, 2015).

[7] Id.

[8] In re Jon P. Ruggles, CFTC Docket No. 16-34 (Sept. 29, 2016).

[9] Complaint, U.S. Commodity Futures Trading Commission v. EOX Holdings LLC et al., Case No.: 1:18-cv-08890 (S.D.N.Y. filed Sept. 28, 2018).

[10] Complaint, U.S. Commodity Futures Trading Commission v. William Byrnes et al., Case No.: 1:13-cv-01174 (S.D.N.Y. filed Feb. 21, 2013).

[11] U.S. Commodity Futures Trading Commission v. William Byrnes, Christopher Curtin, The New York Mercantile Exchange, Inc., and Ron Eibschutz, No. 13 Civ. 1174 (Aug 4, 2020).

[12] Id.

[13] Id.

[14] Id.

[15] Id.

[16] U.S. Commodity Futures Trading Commission v. William Byrnes, Christopher Curtin, The New York Mercantile Exchange, Inc., and Ron Eibschutz, No. 13 Civ. 1174 (S.D.N.Y., Sep. 19, 2019).

[17] Id.

[18] CFTC Charges Ron Eibschutz with Aiding and Abetting Disclosures of Material Nonpublic Information about Customer Trades in its Case Against the CME Group’s New York Mercantile Exchange and Two Former Employees, Release Number 6584-13 (May 8, 2013). Please see: https://www.cftc.gov/PressRoom/PressReleases/6584-13.

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On August 13, 2020, the California Supreme Court issued its ruling in Facebook v. Superior Court (“Touchstone”), No. S245203, ___Cal.5th___. The decision provides a framework for courts evaluating a criminal defendant’s third-party subpoena of records relating to a crime victim or prosecution witness. In Touchstone, a criminal defendant facing trial for attempted murder sought his alleged victim’s records from Facebook—instead of from the victim himself—in an effort to bolster the defendant’s self-defense theory and gather witness impeachment material. Facebook moved in the Superior Court to quash Touchstone’s subpoena on the basis of the Stored Communications Act, 18 U.S.C. § 2701 et seq. (“SCA”), which prohibits an electronic communications service from disclosing the contents of people’s communications in the absence of certain exemptions, such as consent. The Superior Court denied Facebook’s motion to quash, the Court of Appeal reversed, and the California Supreme Court granted Touchstone’s petition for review.

Writing for a unanimous Court, Chief Justice Cantil-Sakauye remanded the case for a renewed analysis of whether the subpoena was supported by good cause. The Court held that on remand the Superior Court should employ a seven-factor balancing test to determine the existence of good cause, evaluating such factors as, among others, the defendant’s “plausible justification” for the third-party subpoena, the infringement on third-party privacy rights posed by the subpoena, and the availability of the materials sought from alternative sources. The Court’s decision provides much-needed clarity to social media and other web-based companies that are routinely inundated with requests for third-party communications and data for use in court proceedings.

I. The Court Establishes a Good-Cause Framework for Third-Party Subpoenas of User Communications and Data

In Touchstone, the Superior Court had allowed Touchstone to submit the declaration and exhibits supporting his proposed subpoena under seal and on an ex parte basis, thus depriving both the prosecution and Facebook of any opportunity to challenge whether the subpoena was supported by good cause. Touchstone, supra at [p. 36].

During appellate proceedings, the California Supreme Court unsealed Touchstone’s declaration and exhibits and requested argument from Facebook and the prosecution (which had intervened in the appeal) regarding Touchstone’s subpoena’s good-cause backing. Id. at [p. 38]. Upon viewing the newly-unsealed information, Facebook and the prosecution argued that the subpoena was overbroad (it sought the alleged victim’s entire Facebook account history, without any date limitation); that the subpoena was predicated on speculation that relevant communications might exist; that the material sought was readily available from alternative sources (including the alleged victim himself, whom Touchstone had never attempted to subpoena); and that the alleged victim should be afforded the chance to interpose his own privacy objections to the subpoena.

The California Supreme Court remanded, instructing the Superior Court to hear argument from Facebook, the prosecution, and the defense as to whether the subpoena was supported by good cause, applying the following seven-factor balancing test:

(1) Has the defendant carried his burden of showing a ‘plausible justification’ for acquiring documents from a third party;

(2) Is the sought material adequately described and not overly broad;

(3) Is the material reasonably available to the . . . entity from which it is sought (and not readily available to the defendant from other sources);

(4) Would production of the requested materials violate a third party’s confidentiality or privacy rights or intrude upon any protected governmental interest;

(5) Is defendant’s request timely, or, alternatively, is the request premature;

(6) Would the time required to produce the requested information . . . necessitate an unreasonable delay of defendant’s trial; and

(7) Would production of the records containing the requested information . . . place an unreasonable burden on the [third party]?

Id. at [pp. 15-19] (quotations omitted).

The Court explained that unless this balancing test is satisfied, a criminal defendant’s third-party subpoena must be quashed, regardless of whether the SCA or any other law also independently bars disclosure in a given circumstance. The Court walked through several of the factors in detail.

Alternative Sources. The Court explained that if alternative sources for information sought via third-party subpoena have not been exhausted, the subpoena is more likely to fail for lack of good cause. The Court offered several helpful illustrations, citing with approval cases quashing subpoenas where “the proponents can obtain the same information by other means,” the defendant can “readily obtain the [discovery] information through his own efforts,” or “there existed an alternative source for the requested information.” Id. at [p. 17] (citations omitted). In Touchstone, for instance, Touchstone never subpoenaed the alleged victim for his own records, nor any of the recipients of the alleged victim’s communications.

Plausible Justification. The Court further explained that whether the defendant has shown a “plausible justification” to acquire the documents sought requires that “each legal claim that a defendant advances to justify acquiring and inspecting sought information must be scrutinized and assessed regarding its validity in strength.” Id. at [p. 27].

Third-Party Privacy Interests. The Court also explained that “[w]hen, as in the present case, a litigant seeks to effectuate a significant intrusion into privacy by compelling production of a social media user’s restricted posts and private messages, the fourth factor . . . becomes especially significant.” Id. at [p. 29]. In such cases, the “plausible justification” factor “must be subject to even closer examination in the absence of an apparent relationship between the alleged crime and the sought private communications.” Id. (noting that in the “present case,” “it is questionable whether there is any [ ] substantial connection between the victim’s social media posts and the alleged attempted murder”).

Finally, the Court also questioned the trial court’s use of ex parte and under-seal proceedings, id. at [pp. 35-38], admonishing trial courts to carefully consider whether “it is necessary and appropriate to proceed ex parte and/or under seal, and hence to forego the benefit of normal adversarial testing.” Id. at [p. 37].

II. The Court Reserves All Ruling on the SCA’s Independent Bar to Production

Because the Court resolved the appeal by determining that the Superior Court had failed to conduct an adequate threshold good-cause analysis regarding Touchstone’s subpoena, it declined to reach Facebook’s argument that regardless of good cause, Touchstone’s subpoena was barred by the SCA, which broadly prohibits electronic communications providers from divulging the contents of communications in response to a criminal defendant’s subpoena absent an applicable exception. See Facebook, Inc. v. Superior Court, 4 Cal. 5th 1245, 1250 (2018) (holding that third-party subpoenas of electronic service providers are “unenforceable under the [SCA] with respect to communications addressed to specific persons, and other communications that were and have remained configured by the registered user to be restricted”); Facebook, Inc. v. Wint 199 A.3d 625, 629 (D.C. 2019) (“[E]very court to consider the issue has concluded that the SCA’s general prohibition on disclosure of the contents of covered communications applies to criminal defendants’ subpoenas.”). In other words, the Court ruled that because the subpoena may not be supported by good cause, the SCA’s independent bar on disclosure was not yet implicated and need not be addressed.

Chief Justice Cantil-Sakauye and Justice Cuéllar wrote separate concurring opinions to suggest that lower courts should apply a context-dependent and critical lens in future cases regarding the threshold determination of whether an entity is covered by the SCA in the first instance.

III. Implications of the Court’s Decision

The Court’s decision clarifies the standard that criminal defendants must meet before enforcing third-party subpoenas on social media and other companies seeking the records of potential crime victims or witnesses, holding that their subpoenas fail unless they meet a seven-factor balancing test that evaluates whether the materials can be obtained from a different source, the defendant’s need for the materials, and third-party privacy interests.

Gibson Dunn represented Facebook in the California Supreme Court.

For more information, please feel free to contact the Gibson Dunn lawyer with whom you usually work or any of the following attorneys listed below.

Theodore J. Boutrous, Jr. – Los Angeles (+1 213-229-7000, tboutrous@gibsondunn.com)
Daniel M. Kolkey – San Francisco (+1 415-393-8420, dkolkey@gibsondunn.com)
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The first half of 2020 brought the spread of COVID-19 and unprecedented changes in daily life and the economy. We discuss how, nevertheless, there has still been a variety of securities-related lawsuits, including securities class actions, insider trading lawsuits, and government enforcement actions. We also discuss developments in the securities laws that have occurred against this backdrop.

The mid-year update highlights what you most need to know in securities litigation developments and trends for the first half of 2020:

In Liu v. SEC, the U.S. Supreme Court affirmed the SEC’s ability to obtain disgorgement as an equitable remedy in civil actions, but left open several questions about the permissible scope of the remedy. In addition, a petition for a writ of certiorari was filed in National Retirement Fund v. Metz Culinary Management, Inc., a case posing the question of how to calculate withdrawal liability based on interest rate assumptions for union pension plans.
We discuss the Delaware Supreme Court’s decision in Salzberg v. Sciabacucchi, which confirmed the facial validity of federal-forum provisions, as well as the Court of Chancery’s treatment of Caremark claims and director independence with respect to a putatively controlling stockholder.
We continue to analyze how lower courts are applying the U.S. Supreme Court’s decision in Lorenzo, with a focus on recent district court opinions interpreting Lorenzo’s scope.
We survey securities-related lawsuits arising in connection with or related to the coronavirus pandemic, including securities class actions, insider trading lawsuits, and government enforcement actions filed by both the SEC and the Department of Justice.
We discuss recent decisions illustrating the difficulty plaintiffs face in attempting to overcome Omnicare’s formidable barrier to adequately pleading securities fraud.
We examine the Second Circuit’s noteworthy decision in Goldman Sachs II regarding how defendants may rebut the presumption of reliance under Halliburton II.
Finally, we examine the intersection of the federal securities laws and ERISA, discussing the U.S. Supreme Court’s recent Sulyma decision, which clarified the statute of limitations for fiduciary breach claims, and the lower court decisions addressing significant issues in the wake of the Court’s January decision in Jander.

I. Filing And Settlement Trends

Despite COVID, data from a newly released NERA Economic Consulting (“NERA”) study shows that the first half of 2020 was not markedly different from 2019, and in some cases, continued trends that have been developing over the last few years. Perhaps unsurprisingly, this year, the number of new federal class action cases filed is on pace to be about 15–20% lower than 2017–2019, but is still on par with the amount of new federal class actions filed during those years as compared to the first half of the decade.

There has also been a continuation of the trends that have formed over the last few years for the types of cases filed. For example the number of merger cases in 2020 is on pace to generally continue the trend of post-2017 declines, and the number of Rule 10b-5-related cases is projected to continue the upward slope begun in 2016.

With regards to securities cases filed per industry sector, the Health Technology and Services sector is projected to have a decline for a fifth year in a row, while the Electronic Technology and Technology Services sector is projected to have additional growth.

The median settlement values of federal securities cases for 2020—excluding merger-objection cases and cases settling for either more than $1 billion or equal to $0—is on pace to be the highest of the decade (and up about 10% compared to 2019). This continues the trend of the last few years, which has resulted in median settlements that average nearly twice the median settlement in 2017 ($6.5 million). In contrast to the median settlement, the average settlement, however, does not appear to be following a trend, as it is more than double the average settlement value in 2019, but about 10% less than the average settlement in 2018.

A. Filing Trends

Figure 1 below reflects the number of federal filings for the first half of 2020.[1] The one hundred seventy-five cases filed as of June 30 put 2020 on pace to have 15-20% fewer filings than the years spanning 2017-2019, but still significantly more than during 1996–2016 (with the exception of 2001, which was dominated by IPO Laddering Filings).

Figure 1:

B. Mix Of Cases Filed In 1H 2020

1. Filings By Industry Sector

Figure 2 below sets forth the split of non-merger objection class actions filed in the first half of 2020. Notably, the percentage of class actions related to Health Technology and Services continue to decline as they have each year from 2016–2020, whereas class actions related to Electronic Technology and Technology Services continue to increase as they have each year during 2016–2020. Finance-based class actions bounced back to 2016–2018 levels, suggesting that 2019 was an anomaly.

Figure 2:

2. Merger Cases

Figure 3 below breaks down the types of federal filings in the first half of 2020. Merger objection filings are projected to constitute 40% of federal filings in 2020, which is generally consistent with the trend of slight decreases that began following the massive jump in 2017 (48%), declining in 2018 (46%) and 2019 (38%). Rule 10b-5 filings are projected to represent 51% of federal filings in 2020, which represents a slight increase as compared to 2019 (48%), 2018 (44%), and 2017 (44%).

Figure 3:

C. Settlement Trends

As Figure 4 shows below, the average settlement value in 2020 is more than double the average settlement value in 2019, and is in the upper half of average settlement values over the past decade. However, as the chart demonstrates, it is difficult to infer any particular trend in average settlement values over the past decade.

Figure 4:

In Figure 5 below, median settlement values show for 2020 are similar to 2018 and 2019, all three of which are among the highest of the decade. The differences between Figure 4, which shows a sharp contrast between 2020 and 2019, and Figure 5, which does not, is likely attributable to Figure 5’s exclusion of settlements over $1 billion.

Figure 5:

II. What To Watch For In The Supreme Court

In a blockbuster term affected by the pandemic, the U.S. Supreme Court issued 53 signed opinions—its lowest number in over 150 years. Only one of those cases arose under the federal securities laws.

A. The Supreme Court Allows Equitable Disgorgement In SEC Enforcement Actions

On June 22, 2020, the Supreme Court issued an opinion in Liu v. SEC, which affirmed the Securities and Exchange Commission’s (“SEC”) ability to obtain disgorgement as an equitable remedy in civil actions, but left open several questions about the permissible scope of the remedy. 140 S. Ct. 1936 (2020). As discussed in our 2019 Year-End Securities Litigation Update, in Liu, the SEC brought an action for securities fraud against Charles Liu and his wife Xin Wang, alleging they misappropriated over $20 million of EB-5 investor funds.

The district court granted summary judgment in favor of the SEC on its claim under Section 17(a)(2) of the Securities Act and ordered disgorgement of the total amount raised from investors. SEC v. Liu, 262 F. Supp. 3d 957, 976 (C.D. Cal. 2017). The Ninth Circuit affirmed, rejecting defendants’ argument that the district court lacked the authority to order disgorgement based on Kokesh v. SEC, 137 S. Ct. 1635, 1645 (2017). SEC v. Liu, 754 F. App’x 505, 509 (9th Cir. 2018). In their petition, defendants argued that the Court’s decision in Kokesh, which held that “SEC disgorgement constitutes a penalty within the meaning of § 2462,” 137 S. Ct. at 1643, foreclosed the court from considering disgorgement as an equitable remedy under 15 U.S.C. § 78u(d)(5). See Liu, 140 S. Ct. at 1946.

On June 22, 2020, in an 8-1 decision, the Supreme Court disagreed with defendants’ argument that disgorgement is categorically unavailable to the SEC, finding that “a disgorgement award that does not exceed a wrongdoer’s net profits and is awarded for victims is equitable relief permissible under § 78u(d)(5),” and remanded the case to the lower court to consider whether the order was appropriately tailored. Id. at 1940.

Even though the Court’s decision does not foreclose the SEC from obtaining disgorgement, it does cabin the remedy in several important ways. The Court noted that in recent years, grants of disgorgement have “test[ed] the bounds of equity practice: by ordering the proceeds of fraud to be deposited in Treasury funds instead of disbursing them to victims, imposing joint-and-several disgorgement liability, and declining to deduct even legitimate expenses from the receipts of fraud.” Id. at 1946. Although the Court declined to specify the precise boundaries of permissible disgorgement, it “nevertheless discuss[ed] principles that may guide the lower courts’ assessment of these arguments on remand.” Id. at 1947.

First, the Court noted that “[t]he equitable nature of the profits remedy generally requires the SEC to return a defendant’s gains to wronged investors for their benefit.” Id. at 1948. The broad public benefit of “depriving a wrongdoer of ill-gotten gains” alone is not generally sufficient to meet that requirement and “would render meaningless the latter part of §78u(d)(5),” which restricts equitable relief to that “appropriate or necessary for the benefit of investors.” Id. While the Court considered that practical concerns may justifiably limit the ability to remit funds to defrauded investors, it did not offer specific guidance on when it may be permissible to deposit disgorged funds into the Treasury, instead noting that “[i]t is an open question whether, and to what extent, that practice . . . is consistent with the limitations of §78u(d)(5).” Id.

Second, the Court discussed the application of joint-and-several liability, noting that the practice has occurred “in a manner sometimes seemingly at odds with the common-law rule requiring individual liability for wrongful profits.” Id. at 1949. Applying this liability to disgorgement remedies could improperly “transform any equitable profits-focused remedy into a penalty.” Id. Because Liu and Wang were married and commingled finances, the Court left it to the Ninth Circuit to determine whether joint-and-several liability would be appropriate in this case, as “partners engaged in concerted wrongdoing.” See id.

Third, the Court found that “courts must deduct legitimate expenses before ordering disgorgement,” but provided limited guidance on what would constitute such expenses. Id. at 1950. The Court postulated that defendants who operate an “entirely fraudulent scheme” might have illegitimate expenses, such as those for “personal services.” Id. On the other hand, expenses that “have value independent of fueling a fraudulent scheme” may be legitimate. Id. Again, the Court left it to the lower court to examine precisely which expenses may be included “consistent with the equitable principles underlying § 78u(d)(5).” Id.

Accordingly, the Liu decision leaves open significant questions concerning the practical application of any disgorgement remedy, including the contours of when (1) disgorged funds may be disbursed to the Treasury rather than recouped by investors; (2) joint and several liability may be imposed; and (3) business expenses should be deemed legitimate and deducted from a disgorgement award.

In the coming years, lower courts will have to grapple with these complicated considerations in deciding how to apply the Court’s guidance in particular cases.

B. Pension Plan Seeks Review Of Withdrawal Liability Calculation Decision

On May 29, 2020, a petition for a writ of certiorari was filed in National Retirement Fund v. Metz Culinary Management, Inc., No. 19-1336, a case involving the question of how to calculate withdrawal liability based on interest rate assumptions for union pension plans. Petitioners, a multiemployer trust fund and its trustees, which manage the pension plans of approximately 10 million participants, asked the Court to reverse the Second Circuit’s decision that favored employers. Petition for Writ of Certiorari at i–ii, 1–2, Metz (No. 19-1336).

Under ERISA, an employer seeking to withdraw from a multiemployer pension plan must pay its share of unfunded vested benefits, known as the “withdrawal liability.” See 29 U.S.C. § 1381(b)(1). Plans must calculate the withdrawal charge as of the last day of the plan year before the year the employer withdrew, known as the “Measurement Date.” See 29 U.S.C. § 1391. In calculating this charge, plan actuaries must make assumptions, including, as relevant in Metz, about what interest rate to use to discount an employer’s liability for future benefit payments. Applying a higher interest rate would decrease an employer’s withdrawal liability.

In Metz, the plan’s actuaries applied a revised, lower interest rate developed the year following the Measurement than it had applied for the year in which the Measurement date fell, which nearly quadrupled the employer’s liability. Nat’l Ret. Fund v. Metz Culinary Mgmt., Inc., 2017 WL 1157156, at *4 (S.D.N.Y. Mar. 27, 2017). An arbitrator found in favor of the employer and ordered that the assumptions and methods in place on the Measurement Date must be used to calculate the employer’s withdrawal liability. Id. The district court vacated the arbitrator’s decision, holding the “withdrawal liability interest rate assumption in effect on the Measurement Date is not applicable to the upcoming plan year unless the actuary affirmatively determines that the assumption . . . is reasonable and her best estimate of anticipated experience under the plan as of the Measurement Date.” Id. at *7.

The Second Circuit disagreed, finding retroactive application of interest rates improper, and holding that “the assumptions and methods used to calculate the interest rate assumption for purposes of withdrawal liability must be those in effect as of the Measurement Date.” Nat’l Ret. Fund v. Metz Culinary Mgmt., Inc., 946 F.3d 146, 151 (2d Cir. 2020). In its petition, the fund argues that the Second Circuit misread the Court’s seminal withdrawal liability opinion, Concrete Pipe & Products of California, Inc. v. Construction Laborers Pension Trust, 508 U.S. 602 (1993), in holding that allowing actuaries to select interest rates “would create significant opportunity for manipulation and bias.” Petition for Writ of Certiorari at 26, Metz (No. 19-1336) (quoting Metz, 946 F.3d at 151).

How courts rule on the proper amount of latitude to give actuaries in calculating withdrawal liability can have an impact measuring in the millions of dollars. Consequently, employers are monitoring the appellate courts as they start to take up these complex issues, which are most often resolved in arbitration. Although the Court may ultimately deny the petition in Metz given the lack of a circuit split on this issue, questions were raised when the Court requested a brief from the respondent employer after it initially waived its response.

III. Delaware Developments

A. Delaware Supreme Court Holds Federal-Forum Provisions Facially Valid

In March, a unanimous Delaware Supreme Court confirmed the facial validity of federal-forum provisions (or “FFPs”), which several Delaware corporations had adopted to require stockholder actions arising under the Securities Act of 1933 to be filed exclusively in federal court. Salzberg v. Sciabacucchi, 227 A.3d 102 (Del. Mar. 18, 2020) (revised Apr. 14, 2020). In Salzberg, the Court was presented with three nearly identical FFPs that had been challenged through a declaratory judgment. Id. On review, the Court determined that the plaintiffs had failed to show that “the charter provisions ‘do not address proper subject matters’ as defined by statute, ‘and can never operate consistently with the law.’” Id. In doing so, the Court emphasized the “broadly enabling” scope of both the Delaware General Corporation Law (“DGCL”) as a whole, and of Section 102(b)(1), which governs the contents of a corporation’s certificate of incorporation. The Court specifically held that Section 102(b)(1) authorizes corporations to adopt provisions regulating matters within an “outer band” of “intra-corporate affairs” extending beyond the “universe of internal affairs” of a Delaware corporation.

As a practical matter, the Court’s ruling likely means that Delaware corporations generally may amend their charters to require claims under the 1933 Act to be filed in federal court. After the United States Supreme Court decision in Cyan, Inc. v. Beaver County Employees Retirement Fund, 138 S. Ct. 1061 (2018)—which, as we discussed in our 2018 Mid-Year Securities Litigation Update, prevents defendants from removing 1933 Act claims to federal courts—plaintiffs began filing 1933 Act claims in state courts at a high rate. As a result, corporations have increasingly been forced to contest duplicative state and federal court litigation throughout the country, rendering corporate amendments minimizing this an attractive option.

The full impact of the Delaware Supreme Court’s decision in Salzberg is yet to be determined, as the extent to which FFPs will be enforced by courts around the country will depend on facts and circumstances unique to each case. Apart from its direct effect, the decision will be of continued interest to practitioners and academics alike for the opportunities it creates. In particular, although the Court explicitly rebuffed the notion that Section 115 of the DGCL might permit modified FFPs to require arbitration of internal corporate claims, practitioners may well continue to push to include arbitration as an exclusive means to resolve certain intra-corporate disputes lying within the “outer bound” of Section 102(b)(1).

B. Another Caremark Claim Survives A Motion To Dismiss

In Hughes v. Hu, the Delaware Court of Chancery once again addressed the degree of particularity with which a plaintiff must plead a Caremark claim. 2020 WL 1987029 (Del. Ch. Apr. 27, 2020). Although duty of oversight claims are notoriously difficult to plead, Delaware courts have recently offered greater clarity on pleading violations of Caremark’s first prong—that directors “utterly failed to implement any reporting or information system or controls.” Id. at *14 (quoting Stone v. Ritter, 911 A.2d 362, 370 (Del. 2006)); see also Marchand v. Barnhill, 212 A.3d 805, 821–22 (Del. 2019) (holding “inference that a board has undertaken no efforts to make sure it is informed of a compliance issue intrinsically critical to the company’s business operation” supports an inference that the board “made no good faith effort to ensure that the company had in place any ‘system of controls’”). In Hughes, the court denied the defendants’ motion to dismiss and held that the plaintiff had pled sufficient facts to support an inference that Kandi Technologies’ directors had willfully breached their duty of oversight. The alleged problem was that Kandi’s directors had consciously failed to “act in good faith to maintain a board-level system for monitoring the Company’s financial reporting.” Id. at *17. The director defendants at issue also comprised a majority of Kandi’s six-member board at the time the complaint was filed (the “Demand Board”), thus excusing demand.

In reaching this conclusion, the court reaffirmed the high pleading bar for Caremark claims, noting that Caremark claims must plead particular facts that could lead to a reasonable inference that a company’s directors either “(a) . . . utterly failed to implement any reporting or information system or controls; or (b) having implemented such a system or controls, consciously failed to monitor or oversee its operations” (i.e., ignored “red flags”). Id. at *14 (quoting Stone, 911 A.2d at 370). Despite this high standard, the court in Hughes found that it was met because Kandi’s directors allegedly “did not make a good faith effort to do their jobs.” Id. at *16. The company’s audit committee only convened “sporadically” for “abbreviated meetings,” often less than once a year, and even then only with minimal efforts to comply with federal securities laws. Id. at *14–16. According to the court, this “pattern of behavior” showed that the directors “followed management blindly,” and “did not make a good faith effort to do their jobs.” Id. at *16.

The court’s other notable conclusion was that demand was excused because Kandi’s board was comprised of a majority of directors who would likely face oversight liability. Under the test set forth in Rales v. Blasband, 634 A.2d 927 (Del. 1993), a director cannot utilize his or her independent and disinterested business judgment when evaluating a litigation demand if “the director is either interested in the alleged wrongdoing or not independent of someone who is.” Hughes, 2020 WL 1987029, at *12. Such a disqualifying interest would exist if there were a “substantial risk” of liability to the director considering the demand, not just a mere threat. Id. Here, four members of Kandi’s board were also named defendants in the complaint as willfully neglecting their duty of oversight. Three members of Kandi’s board also served on the audit committee that only “met sporadically, devoted inadequate time to its work, had clear notice of irregularities, and consciously turned a blind eye to their continuation.” Id. at *14. These facts supported a substantial likelihood of personal liability for these directors, thus making them interested in—and excusing as futile—a litigation demand.

C. Director Independence Remains A Focus Of Delaware Courts

As we noted in our 2019 Year-End Securities Litigation Update, in recent years Delaware courts have reviewed director independence with seemingly reinvigorated scrutiny. See, e.g., Marchand v. Barnhill, 212 A.3d 805 (Del. 2019) (director’s 28-year relationship with CEO’s family rebutted presumption of independence); Sandys v. Pincus, 152 A.3d 124 (Del. 2016) (director’s 50-year friendship with controller rebutted presumption of independence); Del. Cnty. Emps. Ret. Fund v. Sanchez, 124 A.3d 1017 (Del. 2015) (director and controller’s co-ownership of airplane rebutted presumption of independence).

In Voigt v. Metcalf, 2020 WL 614999 (Del. Ch. Feb. 10, 2020), the Court of Chancery continued that trend by closely scrutinizing directors’ independence from a putatively controlling stockholder. There, a stockholder of NCI Building Systems, Inc. (“NCI”) alleged that NCI’s directors, as well as NCI’s largest and allegedly controlling stockholder, Clayton, Dubilier & Rice (“CD&R”), breached their fiduciary duties by causing NCI to acquire one of CD&R’s portfolio companies at a 94% premium. Id. at *1. The persistent and ongoing nature of CD&R’s relationships with a majority of NCI’s directors was the first among myriad “possible sources of influence” cited by the court as contributing to its conclusion that CD&R—which owned 34.8% of NCI’s voting stock—conceivably controlled NCI for purposes of the transaction. Id. at *12, 17.

Of the twelve directors comprising NCI’s board, four directors’ independence were compromised by virtue of being CD&R insiders. Id. at *1. Thus, the court’s analysis focused on four nominally outside directors. Id. at *14–16. Plaintiff alleged that two of these directors derived a substantial portion (if not all) of their income from serving as directors of NCI and other CD&R portfolio companies. Id. at *15–16. Both directors also had a decades-long connections to CD&R portfolio companies, which suggested a persistent and ongoing relationship with CD&R. Id. Accordingly, the directors had an alleged sense of “beholden-ness” towards CD&R, which conceivably subjected them to CD&R’s influence and control. Id.

The court’s independence analysis also focused on allegations concerning two additional directors’ roles as senior members of NCI’s leadership. NCI’s CEO allegedly received millions of dollars in compensation in the years leading up to the disputed merger, from which the court inferred a sense of “owing-ness” towards CD&R. The chairman of NCI’s board learned at an early stage of negotiations that he would be both chairman and CEO of the combined company, the prospect of which allegedly induced him to favor the challenged transaction. Id. at *16. “Under the great weight of Delaware precedent,” the court reasoned, “senior corporate officers generally lack independence for purposes of evaluating matters that implicate the interests of a controller.” Id. (citing, e.g., Rales v. Blasband, 634 A.2d 927, 937 (Del. 1993)). Thus, the court concluded that these directors also conceivably lacked independence with respect to CD&R. Id.

The court’s conclusion that CD&R conceivably controlled NCI required application of the plaintiff-friendly entire fairness standard of review, and ultimately denial of the defendants’ motion to dismiss, id. at *23–24, because the defendants had not attempted to follow the MFW blueprint by conditioning the acquisition upfront on both the approval of a committee and a favorable vote by a majority of unaffiliated shares, id. at *10.

IV. Courts Continue To Grapple With The Supreme Court’s Decision In Lorenzo

As we discussed in our 2019 Year-End Securities Litigation Update, over the course of the past year, courts have begun grappling with how to apply the Supreme Court’s decision in Lorenzo v. SEC, 139 S. Ct. 1094 (2019). In Lorenzo, the Supreme Court held that those who disseminate false or misleading information to the investing public with the intent to defraud can be found liable under Section 17(a)(1) of the Securities Act and Exchange Act Rules 10b-5(a) and 10b-5(c), even if the disseminator did not “make” the statements and thus was not subject to enforcement under Rule 10b-5(b). This holding raised the possibility that secondary actors—such as financial advisors and lawyers—could face liability under Rules 10b-5(a) and 10b-5(c) simply for disseminating the alleged misstatement of another if a plaintiff showed that they knew the statement contained false or misleading information.

One very recent case addressing Lorenzo is In re Cognizant Technology Solutions Corp. Securities Litigation in the District of New Jersey, where a court found that the plaintiffs had adequately alleged scheme liability against the former Chief Legal and Corporate Affairs Officer of the defendant corporation, under both Lorenzo and the “pre-Lorenzo scheme liability framework.” 2020 WL 3026564, at *18–19 (D.N.J. June 5, 2020). The court preceded its discussion of Lorenzo by noting that the two cases were “markedly different”—namely because the Supreme Court’s holding in Lorenzo was limited to situations where the “only conduct involved concerns a misstatement,” id. at *16 (quoting Lorenzo, 139 S. Ct. at 1100 (emphasis original)), whereas in the Cognizant case, the defendant’s alleged “participation in and concealment of the bribery scheme [at issue] extended far beyond the mere dissemination of alleged misstatements,” id. Thus, the finding that the defendant could be liable for disseminating statements he knew to be false was not critical to the conclusion that plaintiffs adequately had pleaded a claim under Rule 10b-5. Nonetheless, the Court expressly rejected the defendant’s attempt to view the alleged misstatement in isolation by arguing that “Lorenzo did not do away with a requirement that the act of dissemination be inherently deceptive,” and instead ruled that Lorenzo did not preclude from liability “instances where the dissemination of a misstatement is preceded by additional allegedly deceptive conduct.” Id. at *17 (emphasis original) (internal quotation marks omitted). In so finding, the Court noted the Supreme Court’s language in Lorenzo that “provisions [under subsections (a) and (c)] capture a wide range of conduct.” Id. (quoting Lorenzo, 139 S. Ct. at 1101 (alteration and emphasis original)).

On the other hand, a court in the Southern District of New York recently rejected an attempt to invoke Lorenzo to support claims for scheme liability under Rule 10b-5. In Geoffrey A. Orley Revocable Trust U/A/D 1/26/2000 v. Genovese, two trusts that had invested in defendant Genovese’s investment fund brought securities law claims against Genovese and two lawyers with regard to alleged misrepresentations about the fund. 2020 WL 611506, at *1–2 (S.D.N.Y. Feb. 7, 2020). The court granted the lawyer defendants’ motions to dismiss, rejecting the plaintiff trusts’ claim that under Lorenzo, one of the lawyer’s “participation in the preparation of” documents used to pitch the trusts on the investment fund gave “rise to primary liability under Rule 10b-5 . . . because such participation was one part of a larger scheme to defraud them.” Id. at *7–8. The Court distinguished the facts in Lorenzo by explaining that the defendant lawyer was “not alleged to have disseminated the statements in the January 2015 brochure or the Privacy Information document,” at issue; therefore, the plaintiff trusts could “not take advantage of any additional liability Lorenzo may have carved out.” Id. at *8 (emphasis added). The Court concluded its discussion by stating that construing the lawyer’s actions “to fall under the prohibitions of paragraphs (a) and (c) [of Rule 10b-5] would serve to erase the distinction between” primary and secondary liability. Id.

Also of note, a court in the Northern District of Illinois denied the defendants’ motion to dismiss and rejected the contention that “claims under Rule 10b-5(a) and (c) cannot be predicated on the same conduct as that supporting claims under Rule 10b-5(b).” SEC v. Kameli, 2020 WL 2542154, at *1, 15 (N.D. Ill. May 19, 2020). The Kameli case arose out of an immigration attorney’s alleged improper handling of funds invested by foreign nationals seeking to obtain visas in order to become U.S. legal permanent residents. See id. at *1–3. In their motion to dismiss, the defendants argued that “conduct used to support a claim under Rule 10b-5(b)—defendants’ false/misleading statements/omissions—cannot also be used as the basis for claims under Rule 10b-5(a) and (c).” Id. at *14. More specifically, they argued that “asserting claims under Rule 10b-5(a) and (c) based only on misrepresentations generally remains verboten under Lorenzo” and that “Lorenzo merely carve[d] out an exception allowing such claims where the defendant is alleged to have disseminated the misrepresentation, rather than having made it.” Id. (emphasis original). Relying on Lorenzo, the Court rejected defendants’ argument, stating that “[t]he Court [in Lorenzo] rejected the notion ‘that [Exchange Act Rules 10b-5(a)–(c)] should be read as governing different, mutually exclusive, spheres of conduct,’ observing that the ‘Court and the Commission have long recognized considerable overlap among the subsections of the Rule and related provisions of the securities laws.’” Id. (quoting Lorenzo, 139 S. Ct. at 1102). Instead the Court explained that “[r]ather than positing a fine distinction between ‘making’ statements and ‘disseminating’ them, Lorenzo effectively abrogated the line of cases on which defendants rely and permits liability under Rule 10b-5(a) and (c) for both making and disseminating misleading statements—despite some resulting redundancy with Rule 10b-5(b).” Id. Notably, the Court went on to point out that, even if the defendants’ position were correct, the complaint did adequately allege that defendants disseminated misleading statements and that defendants engaged in a fraudulent scheme in connection with the purchase or sale of securities. Id. at *15.

Interestingly, notwithstanding Kameli, a court in the Eastern District of Michigan granted the defendants’ motion for summary judgment as to scheme liability claims under Rules 10b-5(a) and 10b-5(c) because the plaintiff did not allege a fraudulent scheme “separate and apart from” the alleged misstatements and omissions. See Gordon v. Royal Palm Real Estate Inv. Fund I, LLLP, 2020 WL 2836312, at *4–5 (E.D. Mich. May 31, 2020). In Gordon, the plaintiff-receiver, who was appointed on behalf of “a convicted Ponzi-schemer,” sued an investment fund and other companies, alleging securities fraud claims and seeking the recovery of money invested in an “allegedly fraudulent investment scheme.” Id. at *1. The plaintiff argued that, in Lorenzo, the Supreme Court “recognize[d] overlap between the 10b-5 provisions and allow[ed] 10b-5 (a) and (b) liability when a defendant disseminates false or misleading statements.” Id. at *5. In rejecting that argument, the Court recognized two “key differences” that distinguished Lorenzo. Id. First, the Court noted that the false statements at issue in Lorenzo occurred before the relevant purchase of securities, whereas in the case at hand the alleged misstatements were made after the relevant securities purchase. Id. Second, the Court pointed out that, while the defendant in Lorenzo disseminated the misstatements of others and was therefore liable for participating in a fraudulent scheme, the defendants before it simply were not involved in the alleged misstatements at issue at all. Id.

Finally, as noted in our 2019 Year-End Securities Litigation Update, the Tenth Circuit seemingly expanded Lorenzo last year by holding that scheme liability could be found based on a failure to correct a misstatement. See Malouf v. SEC, 933 F.3d 1248 (10th Cir. 2019), cert. denied, 140 S. Ct. 1551 (2020). Readers will recall that the Malouf Court accepted that the defendant was liable because, although he did not disseminate the alleged misstatements, he failed to correct the relevant disclosures that he knew were false. To date, this holding has not been adopted by other courts.

If the above cases are any indication, it seems as though parties are invoking the Lorenzo decision in order to stretch the bounds of scheme liability to secondary actors, while some courts remain reticent to expand its holding in the absence of other improper conduct. We will provide a further update on the direction that courts take Lorenzo and scheme liability in our 2020 Year-End Securities Litigation Update.

Unsurprisingly, the unique challenges posed by COVID-19 have given rise to a variety of securities-related lawsuits. As it is too soon to say how courts will broadly view the merits of these actions, we are providing only a survey of these cases. For example, securities class actions concerning COVID-19 have been filed based on alleged (1) false statements concerning a company’s commitment to safety; (2) failure to make sufficiently detailed risk disclosures; and (3) false statements concerning vaccinations, cures, and testing products. Plaintiffs have also asserted at least two insider trading lawsuits, including allegations that Senator Richard Burr improperly traded on information obtained as Chairman of the Senate Intelligence Committee. In addition, government enforcement actions have been filed by both the SEC and the Department of Justice, in each case relating to alleged false statements with respect to COVID-19-related products and tests.

Again, it is too soon to tell how courts will treat COVID-19 in these cases more broadly, but by year’s end some broader themes may emerge. We will continue to monitor developments in these and other coronavirus-related securities litigation cases. Additional resources regarding company disclosure considerations related to the impact of COVID-19 can be found in the Gibson Dunn Coronavirus (COVID-19) Resource Center.

A. Securities Class Actions

1. False Claims Concerning Commitment To Safety

In the Second Circuit, statements concerning a company’s commitment to safety are often considered inactionable because they are “too general to cause a reasonable investor to rely upon them.” In re Vale S.A. Sec. Litig., 2017 WL 1102666, at *21 (S.D.N.Y. Mar. 23, 2017) (citations omitted); see also Foley v. Transocean Ltd., 861 F. Supp. 2d 197, 204 n.7 (S.D.N.Y. 2012) (“[W]e note that the statements [regarding commitment to safety and training] would likely be considered expressions of ‘puffery’ that cannot form the basis of a securities fraud claim.”). However, such statements may be found actionable when the company operates in a dangerous industry, where “it is to be expected that investors will be greatly concerned about [its] safety and training efforts,” Bricklayers & Masons Local Union No. 5 Ohio Pension Fund v. Transocean Ltd., 866 F. Supp. 2d 223, 244 (S.D.N.Y. 2012).

Douglas v. Norwegian Cruise Lines, No. 1:20-cv-21107 (S.D. Fla. Mar. 12, 2020): The proposed class action complaint alleges that Norwegian Cruise Lines violated the securities laws by minimizing the likely impact of the coronavirus outbreak on its operations and failing to disclose allegedly deceptive sales practices that downplayed the risks of COVID-19. Purportedly, this failure to disclose caused the company’s statements regarding its commitment to safety to be misleading, including the claim that it places “the utmost importance on the safety of [its] guests and crew.” Norwegian’s stock fell more than 50% in the days after news reports revealed these alleged practices. A putative class action complaint asserting similar claims has been consolidated with Douglas in the Southern District of Florida. See Atachbarian v. Norwegian Cruise Lines, No. 20-cv-21386.

Service Lamp Corp. Profit Sharing Plan v. Carnival Corp., No. 1:20-cv-22202 (S.D. Fla. May 27, 2020): The complaint alleges that Carnival Corp. made false and misleading statements regarding its commitment to safety, including its “commit[ment] to operat[e] a safe and reliable fleet and protect[] the health, safety and security of [its] guests, employees and all others working on [its] behalf.” The stock price slipped after news articles accused the company of failing to adequately protect customers from COVID-19, contrary to its claimed commitments.

2. Failure To Disclose Specific Risks

“Forward-looking statements are protected under the ‘bespeaks caution’ doctrine where they are accompanied by meaningful cautionary language.” In re Am. Int’l Grp., Inc. 2008 Sec. Litig., 741 F. Supp. 2d 511, 531 (S.D.N.Y. 2010). “However, generic risk disclosures are inadequate to shield defendants from liability for failing to disclose known specific risks.” Id.; see also Freudenberg v. E*Trade Fin. Corp., 712 F. Supp. 2d 171, 193 (S.D.N.Y. 2010) (observing generally, in adjudicating a motion to dismiss, that defendants “cannot be immunized for knowingly false statements even if they include some warnings”).

In re Zoom Sec. Litig., No. 5:20-cv-02353 (N.D. Cal. Apr. 7, 2020): Two related putative class actions with substantially similar allegations of securities fraud against Zoom Video Communications, Inc.—Drieu v. Zoom Video Communications, Inc., No. 5:20-cv-02353, and Brams v. Zoom Video Communications, Inc., No. 3:20-cv-02396—were consolidated in the Northern District of California. The operative complaint alleges that Zoom misled shareholders about its data privacy and security measures and failed to disclose that its service was not end-to-end encrypted. According to the complaint, the company’s offering documents contained “generic, boilerplate representations concerning Zoom’s risks related to cybersecurity, data privacy, and hacking,” and “‘catchall’ provisions that were not tailored to Zoom’s actual known risks.”

Wandel v. Gao, No. 1:20-cv-03259 (S.D.N.Y. Apr. 24, 2020): A shareholder in Chinese co-living company Phoenix Tree Holdings Ltd. filed a complaint alleging that the company pushed its January 22, 2020 initial public offering without fully disclosing its pandemic-related risks or the full extent and nature of renter complaints. The company’s risk disclosures were inadequate, the complaint alleges, only “obliquely warn[ing]” that its “business could also be adversely affected by the effects of Ebola virus disease, H1N1 flu, H7N9 flu, avian flu, Severe Acute Respiratory Syndrome, or SARS, or other epidemics,” without specifically referencing COVID-19.

3. False Claims About Vaccinations, Cures, And Testing for COVID-19

Securities class actions regarding medical devices or developments often concern statements about pending approval from the Food and Drug Administration (“FDA”). See, e.g., Tongue v. Sanofi, 816 F.3d 199, 211 (2d Cir. 2016) (holding that there was no conflict between the defendant’s statement of optimism and the FDA’s instructions as to the treatment results necessary for approval); In re Atossa Genetics Inc. Sec. Litig., 868 F.3d 784, 794 (9th Cir. 2017) (finding allegations that defendant’s test did not receive FDA clearance directly contradicted its alleged statements that the test was FDA-cleared); In re Delcath Sys., Inc. Sec. Litig., 36 F. Supp. 3d 320, 333 (S.D.N.Y. 2014) (finding FDA approval statements not actionable “because they were forward-looking statements that fall within the safe harbor provision”). But certain cases, including the recent COVID-19-related suits, have less to do with whether the drug will be approved than whether it will be developed or effective. See, e.g., Abely v. Aeterna Zentaris Inc., 2013 WL 2399869, at *9 (S.D.N.Y. May 29, 2013) (“Plaintiff also failed to allege that a press release contained actionable omissions concerning the drug’s lack of short-term efficacy and its failure to enumerate particular side effects, when defendants made no representation that the drug was effective in the short term and reported ‘serious adverse events’ for those treated with the drug as compared to those given placebo.”).

Yannes v. SCWorx Corp., No. 1:20-cv-03349 (S.D.N.Y. Apr. 29, 2020): The complaint against SCWorx Corp., a service provider to healthcare companies, alleged that the company artificially inflated its stock by falsely claiming to have received a purchase order to sell millions of COVID-19 rapid testing kits. The company’s stock dropped precipitously after an investment research firm referred to the purported deal as “completely bogus” and backed by fraudsters and convicted felons. After Yannes, additional stockholders filed derivative and putative class action claims based on similar allegations. See Lozano v. Schessel, No. 1:20-cv-04554 (S.D.N.Y. June 15, 2020) (derivative complaint); Leeburn v. SCWorx Corp., No. 1:20-cv-04072 (S.D.N.Y. May 27, 2020) (proposed class action).

Wasa Med. Holdings v. Sorrento Therapeutics, Inc., No. 20-cv-00966 (S.D. Cal. May 26, 2020): A shareholder in Sorrento Therapeutics Inc. filed a proposed class action complaint alleging that the company falsely claimed it discovered a COVID-19 “cure.” The stock dropped by nearly half when it was revealed that no cure had in fact been discovered.

McDermid v. Inovio Pharm., Inc., No. 20-cv-1402 (E.D. Pa. Mar. 12, 2020): An investor in Inovio Pharmaceuticals Inc., filed a proposed class action lawsuit alleging that the company’s stock price “more than quadrupled” after its CEO claimed Inovio developed a COVID-19 vaccine “in a matter of about three hours” and could begin testing in early April. The stock price then plummeted by more than 70 percent after a well-known short-seller challenged the veracity of the vaccine claim in a tweet that also called for an SEC investigation into the company’s “ludicrous and dangerous claim.” A derivative suit has also been filed based on similar allegations. See Beheshti v. Kim, No. 2:20-cv-1962 (E.D. Pa. Apr. 20, 2020).

B. Insider Trading

“Under the ‘traditional’ or ‘classical theory’ of insider trading liability, § 10(b) and Rule 10b–5 are violated when a corporate insider trades in the securities of his corporation on the basis of material, nonpublic information.” United States v. O’Hagan, 521 U.S. 642, 651–52, (1997). Thus, “a corporate insider must abstain from trading in the shares of his corporation unless he has first disclosed all material inside information known to him.” Chiarella v. United States, 445 U.S. 222, 227 (1980). “[I]f disclosure is impracticable or prohibited by business considerations or by law, the duty is to abstain from trading.” SEC v. Obus, 693 F.3d 276, 285 (2d Cir. 2012). Under the Stop Trading on Congressional Knowledge Act of 2012 (“STOCK Act”), Pub. L. No. 112–105, 126 Stat. 291 (2012), “Members of Congress . . . are not exempt from the insider trading prohibitions arising under the securities laws, including section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder,” STOCK Act, § 4(a), and “owe[] a duty arising from a relationship of trust and confidence to the Congress, the United States Government, and the citizens of the United States” not to trade on material, nonpublic information derived from their positions in Congress, id. § 4(b)(2), 15 U.S.C. § 78u–1(g)(1). A similar state-law claim in Delaware is known as a Brophy claim, which permits a corporation to recover from its fiduciaries for harm caused by insider trading. Brophy v. Cities Serv. Co., 70 A.2d 5 (Del. Ch. 1949).

Jacobson v. Burr, No. 1:20-cv-00799 (D.D.C. Mar. 23, 2020): On March 23, 2020, a shareholder in Wyndham Hotels and Resorts filed suit against Senator Richard Burr. The complaint alleges that Senator Burr sold securities in a variety of publicly traded companies on material, nonpublic information concerning COVID-19, which he obtained in his capacity as Chairman of the Senate Intelligence Committee. See Dkt. No. 1 at 1. The plaintiff alleged that Senator Burr “injured shareholders . . . who purchased and/or continued to hold securities in the same companies.” Id. On May 1, 2020, the plaintiff announced that he was dismissing the suit without prejudice, “[i]n consideration of the effect that this lawsuit may have on any pending criminal or civil investigation” by the Justice Department and SEC “as well as the effect those investigations will have on the discovery process in this action.” Dkt. No. 6 at 1.

St. Paul Elec. Constr. Pension Plan v. Garcia, No. 2020-0415 (Del. Ch. May 28, 2020): On May 28, 2020, plaintiffs filed suit against the controlling stockholder of a company and other individuals alleging that defendants purchased shares of the company at a price that was too low in light of a decline in the company’s stock price at the outset of the COVID-19 pandemic. Dkt. No. 1 at 1–4, 24. Plaintiffs bring a Brophy claim, as well as derivative claims for breach of fiduciary duty, waste, and unjust enrichment. See id. at 39–44.

C. SEC Cases

SEC v. Praxsyn Corp., No. 9:20-cv-80706 (S.D. Fla. Apr. 28, 2020): On April 28, 2020, the SEC filed a lawsuit against Praxsyn Corp. claiming it had “blatantly” lied about (1) having and being able to acquire and supply large quantities of N95 masks, and (2) “that it was negotiating the sale of millions of masks” and “vetting suppliers to guarantee a dependable supply chain.” Dkt. No. 1 at 1–2. The SEC alleges that internal Praxsyn emails and other documents reveal both claims were false—Praxsyn “never had either a single order from any buyer to purchase masks, or a single contract with any manufacturer or supplier to obtain masks, let alone any masks actually in its possession.” Id. at 2.

SEC v. Turbo Glob. Partners Inc., No. 8:20-cv-01120, (M.D. Fla. May 14, 2020): On May 14, the SEC filed a lawsuit against Turbo Global Partners, Inc. and its CEO, Robert W. Singerman, alleging the company falsely claimed that it was “selling equipment that scans large crowds to detect individuals with elevated fevers,” one of the early warning signs of COVID-19 infection. Dkt. No. 1 at 1–2. The SEC alleges that Turbo’s false statements significantly impacted its securities. For example, “the trading volume doubled” and the stock price increased as much as 15 percent “the day after” Turbo issued one of its allegedly fraudulent press releases. Id. at 1–2.

SEC v. Applied BioSciences Corp., No. 1:20-cv-03729 (S.D.N.Y May 14, 2020): On May 14, the SEC filed suit against Applied BioSciences Corp. alleging that the company “issued a materially misleading press release in which it falsely claimed to be offering and shipping a COVID-19 home test kit to the general public for private use.” Dkt. No. 1 at 1–2. In reality, the suit alleges, the company had not yet shipped any finger-prick tests, did not offer or intend to sell the tests for home or private use by the general public, and had not yet had the test approved by the FDA. Id. at 2.

SEC v. E*Hedge Securities Inc., No. 1:20-cv-22311 (S.D. Fla. June 3, 2020): On June 3, the SEC filed suit against an internet investment advisor firm and its President for failing to turn over its books while touting investment opportunities related to treatments and vaccines for COVID-19. See Dkt. No. 1 at 1–2, 6.

SEC v. Nielsen, No. 5:20-cv-03788 (N.D. Cal. June 9, 2020): On June 9, the SEC brought suit against a penny stock trader allegedly engaged in a fraudulent “pump and dump” scheme involving the stock of a biotechnology company, Arrayit. Dkt. No. 1 at 1. The defendant allegedly posted on an internet forum numerous false and misleading statements regarding the company’s development of a COVID-19 test and FDA approval, which statements were designed to drive up the price of the stock. Id. at 1–2. The trader then sold the stock at the artificially-inflated price. Id. at 2.

D. Criminal Securities Fraud

United States v. Schena, No. 5:20-mj-70721 (N.D. Cal. June 8, 2020): In its first criminal securities fraud case related to COVID-19, the Justice Department brought securities and health care fraud claims against a California biotechnology executive. According to the Complaint, Schena and the company of which he is president, Arrayit Corporation, promoted a quick COVID-19 test that would be done with the same finger-stick test kit the company used to test for allergies. See Dkt. No. 1 at 6, 17. Among other things, however, Arrayit’s promotional materials failed to mention that the FDA had advised it in April that the test “failed to satisfy FDA performance standards” and thus could not qualify for emergency use authorization. Id. at 18. The SEC also alleges that Schena “repeatedly issued” false or misleading “tweets and press releases on Arrayit’s behalf, stating that [its] financial were forthcoming shortly.” Id. at 8.

E. Conclusion

Although a fair number of COVID-19 suits have been filed, the book is far from closed on this topic. Upcoming earnings announcements and other disclosures will undoubtedly be scrutinized carefully by potential plaintiffs and plaintiffs’ attorneys, while whistleblower complaints are likely to increase as the economic impact continues. Regardless of the course COVID-19 takes in the second half of 2020, we expect plaintiffs to continue filing coronavirus-related securities litigation lawsuits. As such, we will continue to monitor developments in these and other cases.

**VI. Falsity Of Opinions – Omnicare Update**

As we discussed in our prior securities litigation updates, lower courts continue to examine the standard for imposing liability based on a false opinion as set forth by the Supreme Court in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, 575 U.S. 175 (2015). The Supreme Court in Omnicare held that “a sincere statement of pure opinion is not an ‘untrue statement of material fact,’ regardless whether an investor can ultimately prove the belief wrong,” but that an opinion statement can form the basis for liability when the speaker does not “actually hold[] the stated belief,” or when the opinion statement contains “embedded statements of fact” that are untrue. Id. at 184–86. Additionally, an opinion may give rise to liability if facts are omitted that “conflict with what a reasonable investor would take from the statement itself.” Id. at 189. And while decided in the context of a Section 11 claim, Omnicare’s holding has been widely applied to Section 10(b) and Rule 10b-5 claims as well. See, e.g., Chapman v. Mueller Water Products, Inc., 2020 WL 3100243 (S.D.N.Y. June 11, 2020).

In the first half of 2020, Omnicare had continued to act as a pleading barrier when proper cautionary language accompanies opinions and when shareholders seek to impose liability when an opinion statement turns out to be incorrect. The Third Circuit recently affirmed the district court’s dismissal of a portion of a shareholder suit arising out of a merger between two banks in Jaroslawicz v. M&T Bank Corp., 962 F.3d 701 (3d Cir. 2020). The court rejected the shareholders’ argument that the bank’s projection of when the merger would close provided grounds for liability because the opinion turned out to be wrong, reaffirming that “a plaintiff cannot state a claim by alleging only that an opinion was wrong.” Id. at 717 (quoting Omnicare, 575 U.S. at 194). The shareholders also alleged that the proxy statement at issue omitted facts about the due diligence the bank performed to form the basis of its opinions—specifically that the “reverse due diligence” lasted at most five business days. The court explained that because the proxy statement disclosed the duration of the due diligence efforts, the bank had sufficiently “divulge[d the] opinion’s basis.” Id. at 718 (quoting Omnicare, 575 U.S. at 195). Even if a reasonable investor may have expected the banks to conduct diligence over a longer period of time, the proxy provided enough information about what the banks did, and that information was enough for shareholders to decide how to vote on the merger. The Court thus rejected the shareholders’ claims because “[c]autionary language surround[ed] the opinions, warning of the uncertainty of projections,” and “these opinions inform, rather than mislead, a reasonable investor.” Id.

Recent district court cases also provide guidance on the types of statements that will not give rise to liability under Omnicare. In Chapman, plaintiff investors alleged that defendants had made a number of false and misleading statements concerning the financial health of the company. The statements at issue included reports on the defendant company’s financial results, its risk disclosures, and a $9.8 million warranty charge; statements made during an investor call discussing quarterly results; and SOX certifications. Chapman, 2020 WL 3100243, at *9-10. The court held that none of the alleged opinion statements qualified as actionable opinions because plaintiffs’ allegations were largely based on conjecture. Plaintiffs offered no evidence suggesting that defendants lacked an “honest belief” in these statements, that defendants knew the information was false, or that the omitted information made the opinions misleading to a reasonable investor. Id. at *10-12, 15, 18-19. In In re Adient plc Securities Litigation, 2020 WL 1644018 (S.D.N.Y. Apr. 2, 2020), plaintiffs alleged that defendant had made false and misleading statements in connection with projections of defendant’s “Metals” business segment. The court rejected plaintiffs’ claims, holding that not only did plaintiffs fail to adequately show that “any Defendant falsely or unreasonably held the opinions they public discussed,” but also that the statements at issue were mere statements of goals and belief that do not run afoul of Omnicare. Id. at *16-17. As such, these statements were found inactionable.

Other recent district court decisions illustrate how plaintiffs may be able to adequately plead allegations and overcome Omnicare’s high bar. For example, in In re Advance Auto Parts, Inc., Securities Litigation, 2020 WL 599543 (D. Del. Feb. 7, 2020), plaintiffs alleged with particularity that defendants had made a series of statements projecting an increase in sales and operating margins at a time when it knew that such projections were not attainable based on information that defendants did not disclose to investors. Id. at *4. The court permitted this claim to go forward because plaintiff specifically pleaded that defendant had omitted several known adverse facts, including that it had disregarded several negative forecasts in late 2016, missed its operating margin “by the largest gap as compared to any point earlier in the year,” and was experiencing an extended downward trend in sales. Id.

As shareholder litigation arising from the economic impact of COVID-19 continues, Omnicare will likely play a significant role. Volatile markets and drops in stock price, together with circumstances that make forward-looking statements and other statements of opinion—including management analysis and expectations, accounting estimates and management valuations, and predictions pertaining to a company’s ability to operate as a going concern—easy to second guess in hindsight may put Omnicare further to the test in the coming quarters.

**VII. Halliburton II Market Efficiency And “Price Impact” Cases**

As we discussed in our 2018 Year-End Securities Litigation Update, the Second Circuit has shaped the law regarding how defendants can rebut the presumption of reliance under Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. 258 (2014) (“Halliburton II”), more than any other federal circuit court of appeals since Halliburton II was issued. Recall that, in Halliburton II, the Supreme Court preserved the “fraud-on-the-market” presumption, permitting plaintiffs to maintain the common proof of reliance that is required for class certification in a Rule 10b-5 case, but also permitting defendants to rebut the presumption at the class certification stage with evidence that the alleged misrepresentation did not impact the issuer’s stock price.

As we anticipated in our 2019 Year-End Securities Litigation Update, this year the Second Circuit continued its development of the Supreme Court’s decision in Halliburton II regarding the use of price impact evidence to rebut the presumption of reliance at the class certification stage in its decision in Arkansas Teacher Retirement System v. Goldman Sachs Group, Inc., 955 F.3d 254 (2d Cir. 2020) (“Goldman Sachs II”).

By way of background, the Goldman Sachs plaintiffs allege that the company’s generic statements about its business principles and conflicts omitted material information about alleged conflicts of interest. See Ark. Tchr. Ret. Sys. v. Goldman Sachs Grp., Inc., 879 F.3d 474, 478–80 (2d Cir. 2018) (“Goldman Sachs I”). The first time the case reached the Second Circuit, in Goldman Sachs I, the appellate court vacated the trial court’s order certifying a class and remanded the action, directing that price impact evidence must be analyzed prior to certification, even if price impact “touches” on the merits issue of materiality. Id. at 486. On remand, the district court again certified a class after supplemental briefing, an evidentiary hearing, and oral argument. In re Goldman Sachs Grp. Sec. Litig., 2018 WL 3854757, at *1–2 (S.D.N.Y. Aug. 14, 2018). The district court judge held that while defendants had produced evidence to show that the company’s stock price had not moved in response 36 disclosures regarding the company’s conflicts, the alleged corrective disclosure—a subsequent announcement of regulatory action related to conflicts of interest—was sufficiently different to credit plaintiffs’ expert’s “link between the news of Goldman’s conflicts and the subsequent stock price declines,” and that defendants’ expert testimony was insufficient to “sever” that link. See id. at *3–6.

Defendants appealed again, arguing (1) that “the district court misapplied the inflation-maintenance theory,” which should apply only in limited circumstances, and (2) “that the [district] court abused its discretion by holding that Goldman failed to rebut the Basic presumption by a preponderance of the evidence.” Goldman Sachs II, 955 F.3d at 264.

Defendants were unable to persuade the Second Circuit a second time. On April 7, 2020, a divided Second Circuit panel affirmed the trial court’s second order certifying a class, permitting the plaintiffs to obtain class certification based on Goldman Sachs’ generic public statements without any showing that the statements inflated the stock price, or maintained existing price inflation, when made, because the stock price dropped with the announcement of a related regulatory action. See id. at 258–59, 262–63, 271, 273–74; see also id. at 275 (Sullivan J., dissenting).

The Second Circuit rejected Goldman Sachs’s argument that the “inflation-maintenance” theory—which is frequently the only theory of price impact in Rule 10b-5 cases—may only be applied to “fraud-induced” inflation and should be narrowed to disallow its application to “general statements.” Id. at 265–70. In rejecting that argument, the court held that “the actual issue is simply whether Goldman’s share price was inflated” and not whether the inflation entered the stock price through fraud. Id. at 265. The court characterized defendants’ proposal to disallow inflation maintenance for “general statements” as “a means for smuggling [the merits issue of] materiality into Rule 23.” See id. at 267. The court also found that defendants’ proposed narrowing was “at odds” with the Second Circuit’s prior holding that “theories of ‘inflation maintenance’ and ‘inflation introduction’ are not separate legal categories.” Id. at 268 (quoting In re Vivendi, S.A., Sec. Litig., 838 F.3d 223, 259 (2d Cir. 2016)). The court further explained that the Second Circuit had already “implicitly rejected” Goldman Sachs’s argument in Waggoner v. Barclays PLC, 875 F.3d 79 (2d Cir. 2017), in which inflation maintenance was applied outside of defendants’ proposed limited circumstances. Goldman Sachs II, 955 F.3d at 268–69.

The court also dismissed defendants’ policy arguments that upholding inflation maintenance in these circumstances would “open the floodgates to unmeritorious litigation by allowing courts to certify classes that it believes should lose on the merits,” id. at 269, and that any time allegations of misconduct caused a stock to drop, “plaintiffs could just point to any general statement about the company’s business principles or risk controls and proclaim ‘price maintenance,’” id. (quoting Brief and Special Appendix for Defendants-Appellants at 52–53, Ark. Tchr. Ret. Sys. v. Goldman Sachs Grp., Inc., 955 F.3d 254 (2d Cir. 2020) (No. 18-3667), ECF No. 62). In the court’s view, Second Circuit case law provides defendants with opportunities to challenge materiality in a motion to dismiss, motion for summary judgment, and at trial, and with the opportunity to challenge price impact at the class certification stage. See id. at 269–70.

The Second Circuit went on to find no abuse of discretion in the district court’s “holding that Goldman failed to rebut the Basic presumption.” See id. at 270–74. The opinion describes defendants’ task in meeting the burden of persuasion to disprove price impact, see Waggoner, 875 F.3d at 99–103 (assigning the burden of persuasion to defendants in the Second Circuit), as a requirement to “show by a preponderance of the evidence that the entire price decline on the corrective-disclosure dates was due to something other than the corrective disclosures.” Goldman Sachs II, 955 F.3d at 271. Assigning a stock price decline to a corrective disclosure does not amount to a showing of price impact by an alleged misstatement unless the corrective disclosure reveals something that corrects a challenged statement. See Halliburton II, 573 U.S. at 277–78.

Defendants’ “primary contention” was that the district court’s decision was clearly erroneous because it ignored defendants’ uncontested evidence that the market did not react to 36 earlier press reports “touch[ing] on” Goldman Sachs’ alleged conflicts. Goldman Sachs II, 955 F.3d at 271. The Second Circuit rejected this argument, because it believed that the district court had not abused its discretion in finding that plaintiffs had shown that the 37th disclosure revealed new, “hard evidence” of conflicts sufficient to create a “link” between the alleged misstatements and the stock price drop. Id. (quoting In re Goldman Sachs, 2018 WL 3854757, at *4–5). It emphasized the role in the standard of review in this case by acknowledging “one of us given the same task as that of the district judge” may have “conclude[d] otherwise.” Id. at 274.

Judge Sullivan dissented. He explained that he would reverse because Goldman Sachs had “sever[ed] the link that undergirds the Basic presumption” with its “persuasive and uncontradicted evidence that Goldman’s share price was unaffected by earlier disclosures of Defendants’ alleged conflicts of interest.” Id. at 275. He went on to explain why, despite agreeing that “the district court did not misapply the inflation-maintenance theory of price impact,” he nonetheless “believe[d] that the majority [erred in] uncritically accept[ing] the district court’s conclusions regarding what rebuttal evidence is necessary to overcome the Basic presumption.” Id. To this end, Judge Sullivan distinguished precedent such as Waggoner, noting that Goldman Sachs “demonstrated that the prior disclosures . . . had no impact on [its] stock price,” id. at 278, and, thus “sever[ed] the link between the alleged misrepresentation and . . . the price . . . paid by the plaintiff,” id. (quoting Waggoner, 875 F.3d at 95). Notably, Judge Sullivan concluded, contra the majority, that “it’s fair for this court to consider the [general] nature of the alleged misstatements in assessing whether and why ‘the misrepresentations did not in fact affect the market price of Goldman stock.’” Id. (quoting Goldman I, 879 F.3d at 486).

The disagreement between the majority and the dissent in Goldman Sachs II is emblematic of questions that continue to arise in trial courts, as well. For example, in In re Chicago Bridge & Iron Co. N.V. Securities Litigation, the District Court for the Southern District of New York rejected a special master’s recommended “correctiveness” test that would have inquired whether the corrective disclosure “relates to the same subject matter” as the misrepresentation or is “wholly unrelated.” 2020 WL 1329354, at *5–7 (S.D.N.Y. Mar. 23, 2020). Instead, the court reemphasized the need for the alleged misstatement to be “linked” to the corrective disclosure. Id. at *6.

On June 15, 2020, the Second Circuit denied the defendants’ petition for rehearing en banc in Goldman Sachs II, Order, Ark. Tchr. Ret. Sys. v. Goldman Sachs Grp., Inc., No. 18-3667 (2d Cir. June 15, 2020), ECF No. 277, and stayed the case pending the filing of a petition for a writ of certiorari, id. at ECF No. 288.

Given the importance of the issue, the extant circuit split on the viability of the inflation maintenance theory, and related issues, more is anticipated in this space soon. Accordingly, we will continue to monitor developments in Goldman Sachs II and related cases.

VIII. ERISA Litigation

Where employer stock is offered as an investment option in employee retirement plans, securities litigation is often accompanied by claims under the Employee Retirement Income Security Act of 1974 (“ERISA”). The first half of 2020 saw significant ERISA litigation activity, including the Supreme Court’s recent Sulyma decision clarifying the statute of limitations for fiduciary breach claims. Lower courts have also been active in the wake of the Court’s January decision in Retirement Plans Committee of IBM v. Jander, 140 S. Ct. 592 (2020), in addition to analyzing the requirements for fiduciary breach claims, pleading standards for claims partly grounded in fraud, and the applicability of arbitration agreements.

A. Supreme Court Clarifies “Actual Knowledge” Trigger For Three-Year Limitations Period In Fiduciary Breach Cases

In February, the Supreme Court unanimously held in Intel Corporation Investment Policy Committee v. Sulyma, 140 S. Ct. 768 (2020), that for purposes of ERISA’s limitations period in fiduciary breach cases, a fiduciary’s disclosure of plan information alone does not create “actual knowledge” subjecting such claims to the statute’s shorter three-year period absent proof that a beneficiary actually read the disclosures. Gibson Dunn submitted an amicus brief on behalf of the National Association of Manufacturers, the Chamber of Commerce of the United States, the Securities Industry and Financial Markets Association, the American Benefits Counsel, the ERISA Industry Committee, and the American Retirement Association in support of petitioner Intel Corp. Investment Policy Committee.

ERISA Section 413(2) requires claims for breach of fiduciary duty to be brought no later than “three years after the earliest date on which the plaintiff had actual knowledge of the breach or violation.” 29 U.S.C. § 1113(2). Absent “actual knowledge,” breach of fiduciary duty claims under ERISA must be brought within six years of the breach or violation. Id. § 1113(1). In 2015, Christopher Sulyma, a former Intel employee, sued multiple retirement plans, claiming the plans improperly over-invested in alternative investments. Sulyma, 140 S. Ct. at 774-75. More than three years, but fewer than six years, before that suit was filed, Sulyma had received plan disclosures that described the investments Sulyma claimed were imprudent. Id. The Ninth Circuit held that the disclosures alone did not trigger the three-year bar because Sulyma testified he had not read the disclosures and Intel had not established Sulyma had subjective awareness of what was disclosed. Id.

The Supreme Court affirmed, clarifying that the statutory phrase “actual knowledge” means what it says: a plaintiff must in fact have become “aware of” the information pertaining to the alleged breach or violation. Id. at 771. Disclosure of plan information alone does not trigger the three-year limitations period in Section 413(2). Id.

As a result, retirement plans and their sponsors may be susceptible to claims reaching back more than three years to the extent participants need only allege that they did not read plan disclosures advising of certain investments, fees or returns, in order to expand the ERISA statute of limitations from three to six years. However, the Court left open questions about how to prove “actual knowledge” based on circumstantial evidence or “willful blindness.” See Sulyma, 140 S. Ct. at 779. Only a few lower courts have applied this decision so far. See, e.g., Toomey v. DeMoulas Super Markets, Inc., No. 19-cv-11633, 2020 WL 3412747, at *4 (D. Mass. April 16, 2020) (declining to dismiss based on plaintiff’s allegation of lack of actual knowledge); Moitoso v. FMR LLC, No. 18-cv-12122, 2020 WL 1495938, at *4 n.3 (D. Mass. Mar. 27, 2020) (same).

B. Lower Court Developments

1. ESOP Fiduciary Claims After Jander

Readers will recall that, as we discussed in our 2019 Year-End Securities Litigation Update, the Supreme Court heard argument in November 2019 in Retirement Plans Committee of IBM v. Jander on the question whether the “more harm than good” pleading standard from Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409, 430 (2014), can be satisfied by generalized allegations that the harm resulting from the inevitable disclosure of an alleged fraud generally increases over time. Rather than deciding that question, the Court remanded the case in January to allow the Second Circuit to address two unresolved issues raised by the parties: (1) whether ERISA ever imposes a duty on a fiduciary for an employee stock option plan (ESOP) to act on inside information, and (2) whether ERISA requires disclosures that are not otherwise required by the securities laws. 140 S. Ct. 592 (2020) (per curiam). Justice Kagan (joined by Justice Ginsburg) and Justice Gorsuch filed dueling concurrences addressing those questions and disputing whether they were properly presented in this case.

On remand, the Second Circuit reinstated the judgment entered pursuant to its original opinion—an uncommon win for plaintiffs in this area. Jander v. Ret. Plans Comm. of IBM, 962 F.3d 85 (2d Cir. 2020) (per curiam). The court agreed with Justice Kagan’s suggestion that the additional arguments raised by defendants and the government in supplemental briefing “either were previously considered by this Court or were not properly raised,” and therefore were forfeited. Id. at 86.

Other lower courts have continued to apply the Dudenhoeffer pleading standard, offering varying answers to the questions raised by the Supreme Court in Jander. In Varga v. General Electric Company, No. 18-cv-1449, 2020 WL 1064809 (N.D.N.Y. Mar. 5, 2020), the court dismissed a class action complaint alleging that General Electric violated its fiduciary duties owed to participants of the GE Retirement Savings Plan, which offered an ESOP that invested all of its assets in GE common stock. Id. at *5. The complaint alleged that the defendants breached their fiduciary duties of prudence and loyalty by continuing to invest in GE stock despite knowing, and failing to disclose, the company’s $15 billion insurance funding shortfall. Id. at *1. The court interpreted Dudenhoeffer as requiring a plaintiff to plausibly allege an alternative action that the defendant could have taken that would have been consistent with the securities laws and that a prudent fiduciary in the same circumstances would not have viewed as more likely to harm the company stock fund than to help it. Id. at *3. It rejected the two alternatives suggested by plaintiffs: (1) disclose the problem earlier, or (2) close the GE Stock Fund to additional investments once they knew, or should have known, of the insurance reserve problem. Id. The first alternative failed to satisfy the requirement that a prudent fiduciary could not have concluded that the alternative would do more harm than good, and the second alternative failed Dudenhoeffer’s pleading standard because it rested purely on speculation. Id. at *4.

In Perrone v. Johnson & Johnson, No. 19-cv-923, 2020 WL 2060324 (D.N.J. Apr. 29, 2020), the court dismissed a fiduciary breach class action complaint concerning Johnson & Johnson’s failure to disclose information related to allegations of cancer-causing asbestos in the company’s talc powder on grounds similar to Varga. The court reasoned in part that plaintiffs failed to meet their burden under Dudenhoeffer because they alleged an alternative action (corrective disclosure) that would have been impermissibly taken in defendants’ corporate, as opposed to its fiduciary, capacity. In so ruling, the district court drew “support from Justice Gorsuch’s concurrence to the per curiam opinion remanding Jander.” Id. at *16.

2. Defined-Contribution Plan Fiduciary Claims

Other recent decisions have addressed claims by defined-contribution plan participants for breach of the duties of prudence and diversification. ERISA requires the fiduciary of a pension plan to act prudently in managing the plan’s assets, but what that requirement entails may vary depending on the type of plan at issue, giving rise to complex questions in securities-related litigation.

The Seventh Circuit affirmed the dismissal of one such claim in Divane v. Northwestern University, 953 F.3d 980 (7th Cir. 2020). The court held plaintiffs did not allege a fiduciary breach by alleging, inter alia, that defendants provided investment options that were too numerous, too expensive, or underperforming—notwithstanding decisions of the Third and Eighth Circuits potentially suggesting otherwise. Id. at 991 (citing Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 596 (8th Cir. 2009) (finding imprudence where investment plan offered “relatively limited menu of funds . . . chosen to benefit the trustee at the expense of the participants”); Sweda v. Univ. of Pennsylvania, 923 F.3d 320, 330 (3d Cir. 2019) (stating that offering a “meaningful mix and range of investment options” does not automatically “insulate[] plan fiduciaries from liability for breach of fiduciary duty”)).

The Fifth Circuit affirmed the dismissal of a putative fiduciary breach class action in Schweitzer v. Investment Committee of Philips 66 Savings Plan, 960 F.3d 190 (5th Cir. 2020). Schweitzer first addressed the scope of the statutory definition of qualifying employer securities exempt from the otherwise applicable fiduciary duties of diversification. The ERISA statute defines such a security as a “security issued by an employer of employees covered by the plan, or by an affiliate of such employer.” 29 U.S.C. § 1107(d)(1). Here, the court rejected the defendants’ argument that the funds at issue (investing in ConocoPhillips stock) were qualifying employer securities, because an intervening spinoff had made a new entity (Phillips 66) the employer for statutory purposes. 960 F.3d at 195. But the court nevertheless held that the defendants satisfied their fiduciary obligations by allowing plan participants to choose to retain their previous investments in those funds, while closing the funds to new investments post-spinoff. Id. at 196, 199.

3. Pleading Standards For Claims Partly Grounded In Fraud

In Vigeant v. Meek, 953 F.3d 1022, 1026 (8th Cir. 2020), the Eighth Circuit highlighted a recurring issue regarding which pleading standard should be applied when a complaint for breach of ERISA fiduciary duties contains specific allegations that are grounded in fraud. The Eighth Circuit agreed with the district court that an allegation grounded in fraud must be pleaded, and considered by a court, according to the specificity required by Rule 9(b) of the Federal Rules of Civil Procedure. Id. The remaining allegations, however, are to be considered under the less rigorous plausibility standard under Rule 8.

4. Arbitrability Of ERISA Claims

The extent to which ERISA plan participants can be required to arbitrate fiduciary duty-related disputes has also continued to be litigated in the securities context. In Ramos v. Natures Image, Inc., No. 19-cv-7094, 2020 WL 2404902, (C.D. Cal. Feb. 19, 2020), the court partially denied a motion to compel arbitration on an ERISA claim for breach of fiduciary duty, even though the individual employee plaintiffs had signed arbitration agreements. Unlike other employment-related claims, under Ninth Circuit precedent, the ERISA claims “ultimately belong to the plan,” not the individual employee, and hence are not arbitrable “without consent from the plan to arbitrate.” Id. at *7–8 (citing Munro v. Univ. of S. Cal., 896 F.3d 1088, 1092 (9th Cir. 2018)).

Although Ramos was not itself a stock-drop case, the principle it applied holds significance for ERISA securities litigation where plaintiffs are current or former employees who may have signed individual arbitration agreements in connection with their employment. In addition to individual participant arbitration agreements, plan sponsors may want to assess whether to include arbitration provisions within plan documents to counter the reasoning of Ramos. For example, in Dorman v. Charles Schwab Corp., 780 F. App’x 510 (9th Cir. 2019), “the Plan did consent in the Plan document to arbitrate all ERISA claims.” Id. at 514. The Ninth Circuit accordingly distinguished the line of cases applied in Ramos and held that the ERISA claims in Dorman were indeed arbitrable. Id.

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[1] All charts courtesy of NERA.

The following Gibson Dunn lawyers assisted in the preparation of this client update: Jefferson Bell, Shireen Barday, Krista Hanvey, Monica Loseman, Brian Lutz, Karl Nelson, Mark Perry, Avi Weitzman, Lissa Percopo, Mark H. Mixon, Jr., Sam Berman, Andrew Bernstein, Jason Bressler, Tim Deal, Luke Dougherty, Rachel Jackson, Hannah Kirshner, Andrew V. Kuntz, Zachary Piaker, Emily Riff, Max Schulman, Alisha Siqueira, Marc Aaron Takagaki, Collin James Vierra, and Chase Weidner.

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, or any of the following members of the Securities Litigation practice group steering committee:

Monica K. Loseman – Co-Chair, Denver (+1 303-298-5784, mloseman@gibsondunn.com)
Brian M. Lutz – Co-Chair, San Francisco/New York (+1 415-393-8379/+1 212-351-3881, blutz@gibsondunn.com)
Robert F. Serio – Co-Chair, New York (+1 212-351-3917, rserio@gibsondunn.com)
Jefferson Bell – New York (+1 212-351-2395, jbell@gibsondunn.com)
Matthew L. Biben – New York (+1 212-351-6300, mbiben@gibsondunn.com)
Jennifer L. Conn – New York (+1 212-351-4086, jconn@gibsondunn.com)
Thad A. Davis – San Francisco (+1 415-393-8251, tadavis@gibsondunn.com)
Ethan Dettmer – San Francisco (+1 415-393-8292, edettmer@gibsondunn.com)
Barry R. Goldsmith – New York (+1 212-351-2440, bgoldsmith@gibsondunn.com)
Mark A. Kirsch – New York (+1 212-351-2662, mkirsch@gibsondunn.com)
Gabrielle Levin – New York (+1 212-351-3901, glevin@gibsondunn.com)
Jason J. Mendro – Washington, D.C. (+1 202-887-3726, jmendro@gibsondunn.com)
Alex Mircheff – Los Angeles (+1 213-229-7307, amircheff@gibsondunn.com)
Robert C. Walters – Dallas (+1 214-698-3114, rwalters@gibsondunn.com)
Aric H. Wu – New York (+1 212-351-3820, awu@gibsondunn.com)
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Washington, D.C. partner Andrew Tulumello and associates Jason Spencer and Joshua Wesneski are the authors of “Neb. Ruling May Squash Consent By Registration Theory,” [PDF] published by Law360 on August 7, 2020.

On July 16, 2020, the Court of Justice of the European Union struck down as legally invalid the U.S.-EU Privacy Shield but ruled that the “Standard Contractual Clauses”(“SCCs”) approved by the European Commission, another mechanism many companies use to justify such transfers, remain valid with some caveats. The Court’s decision will force companies on both sides of the Atlantic and globally to reassess their data transfer mechanisms, as well as the locations in which they store personal data.

Our international privacy group from the EU, the US and Asia shares its analysis of the Court ruling and its recommendations in light of the initial guidance issued by the European Data Protection Board and National Supervisory Authorities in the EU.

PANELISTS:

Our in-depth discussion of cutting-edge issues will be moderated by global co-Chairs of Gibson Dunn’s Privacy, Cybersecurity and Consumer Protection group, Alexander H. Southwell and Ahmed Baladi

Ahmed Baladi – Partner, Paris
Patrick Doris – Partner, London
Cassandra L. Gaedt-Sheckter – Associate Attorney, Palo Alto
Kai Gesing – Of Counsel, Munich
Alejandro Guerrero – Of Counsel, Brussels
Connell O’Neill – Partner, Hong Kong
Clémence Pugnet – Associate Attorney, Paris
Alexander H. Southwell – Partner, New York

New York partners Lee Dunst and Joel Cohen are the authors of “INSIGHT: Lessons From a Rare in-Person Courtroom Experience in a Pandemic,” [PDF] published by Bloomberg Law on August 6, 2020.