On Monday, October 5, 2020 the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) published long-awaited controls on six categories of “emerging technologies.”[1] These new controls come nearly two years after BIS first solicited public comments on the types of items that should be covered and the types of controls that should be implemented to fulfill the requirements of the Export Control Reform Act (“ECRA”). This announcement suggests that this long delay may have been due in part to BIS’s successful efforts to ensure that these controls were adopted by multilateral export control organizations of which the U.S. and many of its allies are members.
These new multilateral controls will have significant implications for companies operating in certain high technology sectors, such as biotechnology, artificial intelligence, and advanced materials. Companies will now almost always require authorization from BIS in order to provide certain items to most jurisdictions outside the United States or even to share important technical knowledge about those items with foreign national employees (under BIS’s “deemed exports” controls). Companies operating in these sectors—particularly those that participate directly or indirectly in semiconductor manufacturing or production—should also be prepared for additional controls to be implemented in the near term. Finally, foreign investors in U.S. businesses will want to be mindful of the ways in which these new controls will affect the ability of the Committee on Foreign Investment in the United States (“CFIUS”) to review, block, or impose mitigation measures upon their investments in U.S. businesses that deal in these newly controlled technologies.
Key Takeaways
- BIS recently began announcing controls on emerging and foundational technologies, and companies operating in certain high technology sectors—particularly those that participate directly or indirectly in semiconductor manufacturing or production—should be prepared for additional controls in the near term.
- Thus far BIS has prioritized multilateral implementation over speed of imposition. Congressional pressure may speed imposition somewhat, but we still expect BIS to work with international partners given the benefits of multilateral adoption and ECRA requirements.
- BIS determinations regarding what constitutes emerging and foundational technologies impact both the scope of CFIUS mandatory jurisdiction and criteria for its application. Any technologies BIS controls as emerging or foundational will be considered “critical technologies.” Certain non-passive foreign investment in U.S. companies dealing with critical technologies must receive CFIUS review and approval.
Background
On August 13, 2018, President Trump signed the John S. McCain National Defense Authorization Act for Fiscal Year 2019 (“FY 2019 NDAA”), an omnibus bill to authorize defense spending that like many other annual NDAA bills also includes amendments unrelated to defense spending. In 2018 those amendments included significant updates to both CFIUS and the U.S. export controls regime.[2] In addition to placing the U.S. export controls regime on firmer statutory footing for the first time in decades, ECRA significantly expanded the President’s authority to regulate and enforce export controls by requiring the Secretary of Commerce to establish controls on the export, re-export, or in-country transfer of “emerging or foundational technologies.”[3]
ECRA was passed alongside the Foreign Investment Risk Review Modernization Act (“FIRRMA”), which reformed the CFIUS review process for inbound foreign investment in an effort to enhance the tools used to address the threats posed by foreign investment in U.S. critical technology companies, among other risks.[4] As FIRRMA was negotiated, a proposed mechanism to regulate outbound investments—such as joint ventures or licensing agreements—through the CFIUS process was ultimately replaced by ECRA, which instead granted BIS the authority to identify and regulate the transfer of these emerging and foundational technologies via U.S. export controls.[5]
ECRA did not offer a precise definition of the “emerging technologies” to be controlled by BIS. Instead, it included criteria for BIS to consider when determining what technologies will fall within this area of BIS control. It was initially thought that these controls might focus strictly on “technology,” which under the EAR does not include end-items, commodities, or software. Instead, “technology” refers to the information, in tangible or intangible form, necessary for the development, production, or use of such goods or software.[6] Technology may include written or oral communications, blueprints, schematics, photographs, formulae, models, or information gained through mere visual inspection.[7] However, as discussed further below, BIS opted for a broader reading of this term to reach goods, software, and technical know-how.
On November 19, 2018, BIS published a request for the public’s assistance in identifying “emerging technologies” essential for U.S. national security that should be subject to new export restrictions.[8] For a longer discussion of the advance notice of proposed rulemaking (“ANPRM”), see our previous alert, New Export Controls on Emerging Technologies – 30-Day Public Comment Period Begins. The ANPRM broadly described emerging technologies as “those technologies essential to the national security of the United States that are not already subject to export controls under the Export Administration Regulations (“EAR”) or the International Traffic in Arms Regulations (“ITAR”).”[9] The ANPRM suggested that technologies would be considered “essential to the national security of the United States” if they “have potential conventional weapons, intelligence collection, weapons of mass destruction, or terrorist applications or could provide the United States with a qualitative military or intelligence advantage.”[10]
In narrowing down which of these technologies would be subject to new export controls, BIS also considered the development of emerging technologies abroad, the effect of unilateral export restrictions on U.S. technological development, and the ability of export controls to limit the spread of these emerging technologies in foreign countries. In making this assessment and further narrowing the category of affected technologies, BIS was also to consider information from a variety of interagency sources, as well as public information drawn from comments submitted in response to the ANPRM.
While the ANPRM did not provide concrete examples of “emerging technologies,” BIS did provide a list of technologies currently subject to limited controls that could be considered “emerging” and subject to new, broader controls. These include the following: (1) biotechnology; (2) artificial intelligence and machine learning; (3) position, navigation, and timing (“PNT”) technology; (4) microprocessor technology; (5) advanced computing technology; (6) data analytics technology; (7) quantum information and sensing technology; (8) logistics technology; (9) additive manufacturing; (10) robotics; (11) brain-computer interfaces; (12) hypersonics; (13) advanced materials; and (14) advanced surveillance technologies.
As the regulated community waited to see what technologies would be considered “emerging” and what types of controls would be imposed, there was also some uncertainty regarding the way in which these new controls would be implemented. ECRA required BIS to coordinate with U.S. allies and international export control regimes to encourage widespread adoption of similar controls on the items it determined were “emerging technologies.” Ensuring such international coordination would protect against the development of a fragmented regulatory environment that could promote the offshoring of “emerging technology” development and production from the U.S. to other jurisdictions by companies seeking to avoid U.S. export controls. Unilateral U.S. controls might also encourage and enable non-U.S. companies to rush in and backfill the effective void created once U.S. companies could no longer freely export their technology to jurisdictions where they might otherwise compete.[11] In several similar areas, the United States had recently adopted a “control-now-cooperate-later” approach, taking unilateral action to amend its trade controls, foreign direct investment, and procurement regulations in ways that might encourage other countries to take similar steps but not waiting for other countries to agree the controls are necessary. However, in this case BIS officials gave early indications that they planned to present the new controls for adoption by multilateral export control bodies before implementing the controls in the United States.
Emerging Technologies
Consistent with the approach to multilateralize such controls as a first step, and with one notable exception discussed below, the initial round of “emerging technology”—adopted earlier this year—were implemented following their adoption by the Australia Group, a multilateral forum that maintains export controls on a list of chemicals, biological agents, and related equipment and technology. On June 17, 2020, BIS designated the first emerging technologies, adding certain chemical weapons precursors and biological equipment to the Commerce Control List (“CCL”) for increased export controls.[12] In its announcement of the new controls, BIS indicated that the agency had not only completed the ECRA-described interagency process to determine that the newly controlled items were “emerging technologies” but had also secured multilateral adoption of these controls at the Australia Group’s Intersessional Implementation Meeting in February 2020.
The newly controlled items include the following:
- Twenty-four precursor chemicals, including chemical mixtures where at least one of the controlled chemicals constitutes 30 percent or more of the mixture;
- Single-use cultivation chambers with rigid walls and related technology; and
- Middle East respiratory syndrome-related coronavirus (MERS-related coronavirus) due to its homology with severe acute respiratory syndrome-related coronavirus (SARS-related coronavirus) and its potential use in biological weapons activities.
These items, which were not previously subject to licensing requirements for export to most jurisdictions, now require authorization for export to most destinations. However, licenses are still not required for exports of the precursor chemicals or cultivation chambers to Australia Group member states.[13]
In addition, the final rule announced on October 5 added six new previously unregulated emerging technologies to the CCL for increased export controls. This second round of emerging technology controls focused primarily on items used in semiconductor manufacturing and development, along with surveillance equipment and certain spacecraft. Like the initial round of “emerging technologies,” these items were added to the CCL to implement changes agreed to by a multilateral organization that oversees international development of controls on dual-use items. Specifically, these new controls implemented a decision taken by the governments participating in the Wassenaar Arrangement at the group’s December 2019 Plenary meeting.[14] BIS, together with its interagency partners, had also concluded that these six technologies are recently developed or developing technologies that are essential to U.S. national security and therefore warranted treatment as “emerging technologies.”
The six categories of controlled items include the following:
1. Hybrid additive manufacturing (“AM”)/computer numerically controlled (“CNC”) tools;
The first control on additive manufacturing and computer numerically controlled tools was added as Note 4 to ECCN 2B001 in response to machine tool manufacturers adding multiple capabilities to their machines. Items captured under this control will now require an export license to most countries for national security (“NS”) reasons but will also be eligible for the Strategic Trade Authorization (“STA”) license exception,[15] as well as any other applicable transaction-based exceptions.
2. Certain computational lithography software designed for the fabrication of extreme ultraviolet masks (“EUV”);
The second modification updates ECCN 3D003 to control electronic design automation (“EDA”) or computational lithography software developed for extreme ultraviolet masks. Software captured under this control will require an export license to most countries for NS and anti-terrorism (“AT”) reasons but will also be eligible for the Technology and Software Under Restriction (“TSR”) license exception,[16] STA, and other transaction-based license exceptions.
3. Technology for finishing wafers for 5nm production;
The third addition creates ECCN 3E004 to control technology for the production of substrates for high-end integrated circuits. Technology captured under this control will require an export license to certain countries for NS reasons and AT reason but will be eligible for TSR, STA, and other transaction-based license exceptions.
4. Forensics tools that circumvent authentication or authorization controls on a computer or communications device and extract raw data;
The fourth control adds ECCN paragraph 5A004.b to control digital forensics and investigative tools that circumvent authentication or authorization mechanisms and extract raw data from a computer or communications device. This control was added because BIS determined that items previously used primarily for law enforcement tools were increasingly being used by militaries to extract time-critical information from devices found on the battlefield. This control does not capture items that extract unprotected data, or items that extract simple user data. Tools captured under this control will require an export license to most countries for NS and AT reasons, and an encryption item license requirement applies. These tools will be eligible for Limited Value Shipment (“LVS”)[17] and Encryption Commodities, Software, and Technology (“ENC”)[18] license exceptions.
5. Software for monitoring and analysis of communications and metadata acquired from a telecommunications service provider via a handover interface; and
The fifth control adds ECCN paragraph 5D001.e to control software specially designed or modified for use by law enforcement to analyze the content of communications acquired from a handover interface—a tool allowing law enforcement to request and receive intercepted communications from communications service providers. According to BIS, such software can be used by international actors in ways that are contrary to U.S. national security. BIS has clarified that this new control does not apply to network management tools or banking software. Software captured under this control will require an export license to most countries for NS and AT reasons, and is eligible for TSR for Country Group A:5 countries and STA license exceptions.
6. Sub-orbital aircraft.
The sixth control adds “sub-orbital craft” to paragraph 9A004.h. This does not include “spacecraft,” which is limited to satellites and space probes. Items captured under this control will require an export license for NS, AT, and regional stability (“RS”), and anti-terrorism reasons, and will be eligible for STA and may be eligible for LVS at $1,500.
The Notable Exception – 0Y521 Controls on Geospatial Imagery Artificial Intelligence
What BIS has chosen not to target multilaterally is just as interesting as what it has.
With one notable exception, BIS has previously avoided imposing emerging technology controls on artificial intelligence (“AI”) broadly, suggesting that BIS took seriously arguments from many sectors that broad controls on U.S. AI technology might be too late or unworkable for several reasons.
However, almost as soon as BIS learned of a specific emerging AI technology with significant national security implications, BIS took unilateral action using another export control authority to control its export from the United States. On January 3, 2020, BIS announced that it would be imposing new export controls on certain types of artificial intelligence software specially designed to automate the analysis of geospatial imagery in response to emergent national security concerns related to the newly covered software. Covered software includes products that employ artificial intelligence to analyze satellite imagery and identify user-selected objects. As a result of the new controls, a license from BIS is now required to export the geospatial imagery software to all countries, except Canada, or to transfer the software to foreign nationals. The only exception to this license requirement is for software transferred by or to a department or agency of the U.S. Government.
BIS deployed a rarely used tool for temporarily controlling the export of emerging technologies—the 0Y521 Export Controls Classification Number (“ECCN”). This special ECCN category allows BIS to impose export restrictions on previously uncontrolled items that have “significant military or intelligence advantage” or when there are “foreign policy reasons” supporting restrictions on its export. Although these controls would only last one year, items subjected to these controls can be moved to a more permanent ECCN before the expiration of the classification.
BIS’ use of the 0Y521 control for this technology demonstrates that BIS can and will impose unilateral controls when the export of emerging technologies from the United States poses an imminent threat to U.S. national security or foreign policy interests.
Looking Ahead, BIS Controls on Foundational Technologies
On August 27, 2020, BIS published an ANPRM seeking public comment on criteria for identifying these “foundational technologies.”[19] The comment period will close on October 26, 2020. Like emerging technologies, ECRA also did not offer a precise definition of the “foundational technologies” to be controlled by BIS. Unlike emerging technologies, however, those determined to be “foundational” may already be restricted with an ECCN on the CCL.
In contrast to the ANPRM for emerging technologies, the foundational technologies ANPRM did not provide a list or categories of specific items that BIS is considering for export controls. However, like it has for emerging technology controls, BIS has clarified that the term foundational technologies includes not only “technology” but also “commodities” and “software,” as those terms are defined in the EAR. While the ANPRM did not provide a list of specific items or categories of items on which it requested comment, it did provide examples of types of technologies that would be subject to additional controls as foundational technologies, including:
- Semiconductor manufacturing equipment and associated software, tools, lasers, sensors and underwater systems that can be tied to indigenous military innovation efforts in China, Russia, or Venezuela;
- Items designated as EAR99 or controlled only for AT reasons that are utilized or required for innovation in developing weapons, enabling foreign intelligence collection activities, or have weapons of mass destruction applications; and
- Technologies that have been the subject of illicit procurement attempts which may demonstrate some level of dependency on U.S. technologies to further foreign military or intelligence capabilities in countries of concern or development of weapons of mass destruction.
In response to criticism levied in public comments on the ANPRM for emerging technologies, BIS introduced a way in this ANPRM to allow private sector companies and other organizations to submit private information that can be redacted in published versions of their comments. We think that this will invite additional comments from companies who would like to better inform BIS rulemaking but also not risk the loss of business competitive information.
CFIUS Consequences
Importantly, any technologies that BIS has controlled or will control as emerging or foundational through these rulemaking processes will be also considered “critical technologies” with respect to a CFIUS national security review, including the determination of whether a mandatory CFIUS filing requirement applies.[20] FIRRMA now requires that certain non-passive foreign investment in U.S. companies dealing with critical technologies receive CFIUS review and approval. Under CFIUS’s new regulations implemented this year, CFIUS must receive advance notice of certain types of non-passive foreign investment in U.S. companies that design, test, manufacture, fabricate, or develop critical technologies—including emerging and foundational technologies identified by BIS—if a license would be required to export those technologies to the foreign investor or certain of its parent entities. In this regard, BIS’s final determination regarding what constitutes emerging and foundational technologies impacts not only the scope of CFIUS’s new mandatory jurisdiction but also the criteria for its application.
Displeased with the pace with which BIS is implementing the new emerging and foundational technology controls, some in Congress are pushing to grant CFIUS even more jurisdiction over these items. In September, the House of Representatives Republican-led China Task Force published a report arguing that the absence of a complete control list is impeding both the implementation of the ECRA and the operation of CFIUS’s expanded jurisdiction.[21] Additionally, on August 6, 2020, Senators Tillis (R-NC), Rubio (R-FL), and Cornyn (R-TX, who previously sponsored FIRRMA) introduced legislation to expand CFIUS’s jurisdiction to review foreign investments in emerging and foundational technology in the United States[22] Rather than waiting for BIS rulemaking to complete its identification of emerging and foundational technologies, this bill would allow the CFIUS chair and one other member of CFIUS to designate technologies as emerging or foundational. This bill does not yet have bipartisan support, nor has a companion bill been introduced in the House of Representatives. While this bill may never become law, it is illustrative of the feeling among some Congressional Republicans that BIS is taking too long to identify foundational and emerging technologies and could result in more designations of “emerging technologies” and a faster timeline for the implementation of the “foundational technology” controls.
Conclusion
The first two rounds of “emerging technology” controls described here are not likely to be the last. Consistent with BIS’s own suggestions and with the increased Congressional pressure it is receiving, we expect that BIS will continue to intermittently release lists of new emerging technologies for addition to the CCL.
However, the first rounds of controls do offer some indication of how future controls are likely to be implemented. BIS has made clear that it is not only targeting “technology,” as defined in the EAR, but is more broadly looking to control goods and software as well. Rather than creating entirely new categories of controls for these items, BIS has also shown a preference for amending existing controls to add newly covered items. Additionally, in both rounds, BIS has prioritized multilateral implementation over speed of imposition. Congressional pressure could threaten this method, but given the significant benefits of multilateral adoption (especially in the wake of China’s own newly-adopted export control law) and the requirements of ECRA, we would still expect BIS to work with its international partners to help standardize implementation of the new controls on both emerging and foundational technologies. Finally, the new emerging technology controls and the foundational technology ANPRM suggest that BIS is particularly focused on semiconductor manufacturing equipment and associated software tools. This is consistent with other recent BIS actions aimed primarily at limiting China’s access to the cutting-edge tools and technology required to produce these critical computing components.
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[1] Implementation of Certain New Controls on Emerging Technologies Agreed at Wassenaar Arrangement 2019 Plenary, https://www.federalregister.gov/documents/2020/10/05/2020-18334/implementation-of-certain-new-controls-on-emerging-technologies-agreed-at-wassenaar-arrangement-2019.
[2] Export Control Reform Act of 2018, Pub. L. No. 115-232, §§ 1751-1781 (2018).
[4] Foreign Investment Risk Review Modernization Act of 2018, Pub. L. No. 115-232, §§ 1701-28 (2018).
[5] Export Control Reform Act of 2018, Pub. L. No. 115-232, §§ 1758 (2018).
[8] Review of Controls for Certain Emerging Technologies, 83 Fed. Reg. 58,201 (advance notice of proposed rulemaking Nov. 19, 2018), https://www.gpo.gov/fdsys/pkg/FR-2018-11-19/pdf/2018-25221.pdf.
[9] Emerging Technologies ANPRM, supra note 1 at 58,201.
[11] These are general observations that one can make regarding the imposition of new unilateral export controls, but not all kinds of emerging technologies are likely to be impacted such controls in the same way. Depending on a range of background conditions, such as the nature of collaboration and economies of innovation in different areas of emerging technologies, the impact of export controls on their continuing development will differ. For an in-depth discussion of these factors and a comparison of how they will impact two areas of emerging technology – hypersonics and artificial intelligence – see our recently published article in the NATO Legal Gazette. C. Timura, J.A. Lee, R. Pratt and S. Toussaint, U.S. Export Controls: The Future of Disruptive Technologies, NATO LEGAL GAZETTE, 41: 96-124 (Oct. 2020).
[12] Implementation of the February 2020 Australia Group Intersessional Decisions: Addition of Certain Rigid-Walled, Single-Use Cultivation Chambers and Precursor Chemicals to the Commerce Control List, https://www.govinfo.gov/content/pkg/FR-2020-06-17/pdf/2020-11625.pdf.
[13] The Australia Group member states are: Argentina, Australia, Austria, Belgium, Bulgaria, Canada, Croatia, Cyprus, Czech Republic, Denmark, Estonia, European Union, Finland, France, Germany, Greece, Hungary, Iceland, India, Ireland, Italy, Japan, Korea, Latvia, Lithuania, Luxembourg, Malta, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, Ukraine, United Kingdom, and United States. See Australia Group Participants, The Australia Group, https://www.dfat.gov.au/publications/minisite/theaustraliagroupnet/site/en/participants.html.
[14] The participating states of the Wassenaar Arrangement are: Argentina, Australia, Austria, Belgium, Bulgaria, Canada, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, India, Ireland, Italy, Japan, Latvia, Lithuania, Luxembourg, Malta, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Republic of Korea, Romania, Russian Federation, Slovakia, Slovenia, South Africa, Spain, Sweden, Switzerland, Turkey, Ukraine, United Kingdom, and United States. See About Us, The Wassenaar Arrangement, https://www.wassenaar.org/about-us/.
[15] License Exception STA permits exports, reexports, and in-country transfers without a license that would otherwise be required for specified items on the CCL to destinations posing a low risk of unauthorized or impermissible uses.
[16] License Exception TSR permits exports and reexports of technology and software where the CCL indicates a license requirement to the ultimate destination for NS reasons only, TSR is noted in the CCL, and the software or technology is destined to Country Group B.
[17] License Exception LVS permits exports and reexports in a single shipment of eligible commodities where LVS is noted on the CCL, the net value of the commodities does not exceed the amount specified in the LVS paragraph for the entry on the CCL, and the commodities are destined to Country Group B.
[18] License Exception ENC permits export, reexport, and in-country transfer of systems, equipment, commodities, and components classified under ECCN 5A002, 5B002, equivalent or related software and technology classified under 5D002 or 5E002, and “cryptanalytic items” and digital forensics items classified under ECCN 5A004, 5D002, or 5E002.
[19] Identification and Review of Controls for Certain Foundational Technologies, 85 Fed. Reg. 52,934 (advance notice of proposed rulemaking Aug. 27, 2020), https://www.federalregister.gov/documents/2020/08/27/2020-18910/identification-and-review-of-controls-for-certain-foundational-technologies [hereinafter, “Foundational Technologies ANPRM”].
[20] Foreign Investment Risk Review Modernization Act of 2018, Pub. L. No. 115-232, § 1703 (2018).
[21] China Task Force Report, https://medium.com/@ChinaTaskForce/china-task-force-report-1dbc47d05f8f.
[22] Tillis, Cornyn & Rubio Introduce Legislation to Protect Our Most Valuable Technology from China, https://www.tillis.senate.gov/2020/8/tillis-cornyn-rubio-introduce-legislation-to-protect-our-most-valuable-technology-from-china.
The following Gibson Dunn lawyers assisted in preparing this client update: Judith Alison Lee, Adam Smith, Chris Timura, Stephanie Connor, R.L. Pratt and Allison Lewis.
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New York partner Arthur Long is the author of “After a Decade, What is Settled About Dodd-Frank?” [PDF] published by the American Bar Association’s Banking Law Committee Journal in September 2020.
The False Claims Act (“FCA”) is well-known as one of the most powerful tools in the government’s arsenal to combat fraud, waste and abuse anywhere government funds are implicated. The U.S. Department of Justice has issued statements and guidance indicating some new thinking in the Trump Administration about its approach to FCA cases that may signal a meaningful shift in its enforcement efforts. But at the same time, newly filed FCA cases remain at historical peak levels and the DOJ has enjoyed ten straight years of nearly $3 billion or more in annual FCA recoveries. The government has also made clear that it intends to pursue vigorously any fraud, waste and abuse in connection with COVID-related stimulus funds. As much as ever, any company that deals in government funds—especially in the life sciences sector—needs to stay abreast of how the government and private whistleblowers alike are wielding this tool, and how they can prepare and defend themselves.
Please join us to discuss developments in the FCA, including:
- The latest trends in FCA enforcement actions and associated litigation affecting drug and device manufacturers;
- Updates on the Trump Administration’s approach to FCA enforcement, including developments with recent DOJ Civil Division personnel changes and DOJ’s use of its statutory dismissal authority;
- The coming surge of COVID-related FCA enforcement actions; and
- The latest developments in FCA case law, including developments in particular FCA legal theories affecting your industry and the continued evolution of how lower courts are interpreting the Supreme Court’s Escobar decision.
View Slides (PDF)
PANELISTS:
Stuart F. Delery is a partner in the Washington, D.C. office. He represents corporations and individuals in high-stakes litigation and investigations that involve the federal government across the spectrum of regulatory litigation and enforcement. Previously, as the Acting Associate Attorney General of the United States (the third-ranking position at the Department of Justice) and as Assistant Attorney General for the Civil Division, he supervised the DOJ’s enforcement efforts under the FCA, FIRREA and the Food, Drug and Cosmetic Act.
Marian J. Lee is a partner in the Washington, D.C. office, where she provides FDA regulatory and compliance counseling to life science and health care companies. She has significant experience advising clients on FDA regulatory strategy, risk management, and enforcement actions.
John D. W. Partridge is a partner in the Denver office where he focuses on white collar defense, internal investigations, regulatory inquiries, corporate compliance programs, and complex commercial litigation. He has particular experience with the FCA and the Foreign Corrupt Practices Act (“FCPA”), including advising major corporations regarding their compliance programs.
Jonathan M. Phillips is a partner in the Washington, D.C. office where he focuses on compliance, enforcement, and litigation in the health care and government contracting fields, as well as other white collar enforcement matters and related litigation. A former Trial Attorney in DOJ’s Civil Fraud section, he has particular experience representing clients in enforcement actions by the DOJ, Department of Health and Human Services, and Department of Defense brought under the FCA and related statutes.
Today, a majority of the Senate Judiciary Committee voted to approve Judge Amy Coney Barrett to fill the seat on the Supreme Court of the United States vacated by the passing of Justice Ruth Bader Ginsburg. If confirmed by the full Senate, Judge Barrett would become the third female Justice to serve on the current Supreme Court, and the fifth female Justice in history.
To assess Judge Barrett’s likely impact on the Supreme Court, our Appellate and Constitutional Law Practice Group has analyzed a sample of her written opinions in her three years as a Judge on the United States Court of Appeals for the Seventh Circuit. As of the date she was nominated for the Supreme Court (September 29, 2020), Judge Barret had written 92 judicial opinions, including 81 majority opinions, 4 concurrences, and 7 dissents. In her responses to the Senate Judiciary Committee’s questionnaire, Judge Barrett identified ten of these, as well as a per curiam decision, as her “most significant” opinions.[*]
Below, we briefly summarize a number of Judge Barrett’s opinions, and a couple of her law review articles, that may provide insights to her approach to several key areas of law, including (1) administrative law, (2) arbitration, (3) class actions and collective actions, (4) constitutional and statutory interpretation, (5) due process, (6) First Amendment, (7) Fourth Amendment, (8) immigration, (9) intellectual property, (10) labor and employment, (11) personal jurisdiction, (12) Second Amendment, (13) standing, (14) stare decisis, and (15) subject-matter jurisdiction.
(1) Administrative Law
- Meza Morales v. Barr, 963 F.3d 629 (7th Cir. 2020). Writing for a unanimous panel, Judge Barrett held that immigration judges have the authority to administratively close cases—a procedural device that temporarily takes a removal case off of an immigration judge’s calendar, preventing the case from moving forward. In doing so, she embraced the Supreme Court’s admonition that courts should not “leap too quickly to the conclusion that a rule is ambiguous.” Applying the “traditional tools of construction,” Judge Barrett rejected the Attorney General’s interpretation of the “thorny but not ambiguous” immigration regulation.
- Williams v. Wexford Health Sources, Inc., 957 F.3d 828 (7th Cir. 2020). In a concurring opinion, Judge Barrett argued that an inmate had failed to exhaust his administrative remedies before filing a civil rights action under 42 U.S.C. § 1983, as required by the Prison Litigation Reform Act. Because the inmate could have filed a “standard grievance” after the prison had determined that his “emergency grievance” did not warrant fast-track treatment, there were still additional remedies available to him.
(2) Arbitration
- Wallace v. GrubHub, 970 F.3d 798 (7th Cir. 2020).* In a unanimous opinion written by Judge Barrett, a Seventh Circuit panel adopted a narrow view of the Section 1 exemption to the Federal Arbitration Act for transportation workers engaged in interstate commerce, holding that certain food delivery drivers were required to arbitrate their claims. The drivers argued that they engaged in interstate commerce by carrying goods that had moved across state lines. But the panel rejected that argument because “to fall within the exemption,” a class of workers “must be connected not simply to the goods, but to the act of moving those goods across state or national borders.” The panel observed that the drivers’ interpretation would sweep in numerous categories of workers whose occupations have nothing to do with interstate transport—a reading inconsistent with the “stringent” requirement that the class of workers “‘actually’” is engaged in interstate commerce.
(3) Class Actions and Collective Actions
- Herrington v. Waterstone Mortg. Corp., 907 F.3d 502 (7th Cir. 2018). Writing for a unanimous panel, Judge Barrett held that the availability of class or collective arbitration is a threshold question of arbitrability that the court must decide unless the parties have clearly and unmistakably delegated the question to an arbitrator. Although the Supreme Court held that waivers of class arbitration for employment claims are enforceable in Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018), it did not determine who should interpret an arbitration agreement to decide whether it waived or authorized that procedure. Following the reasoning of “every federal court of appeals to reach the question,” Judge Barrett held that the availability of class or collective arbitration was so “fundamental” an issue as to belong in the category of “gateway” questions presumptively reserved to the court to decide.
- Weil v. Metal Techs., Inc., 925 F.3d 352 (7th Cir. 2019). In a unanimous opinion by Judge Barrett, the panel affirmed the decertification of class and collective actions under the Fair Labor Standards Act (FLSA) and Indiana wage laws. After the district court’s initial certification order, the plaintiffs failed to provide classwide evidence that the employees in the class “were actually working without compensation.” The plaintiffs therefore lacked “both a theory of liability and proof of any injury” to support certification. Judge Barrett emphasized the Seventh Circuit’s “repeated assertions that district courts have wide discretion in managing class and collective actions” under Rule 23 and the Fair Labor Standards Act, including revisiting prior certification rulings.
(4) Constitutional and Statutory Interpretation
- In her nomination speech, Judge Barrett stated that the textualist judicial philosophy of Justice Scalia—for whom she clerked—is “mine too.” She echoed this sentiment at her confirmation hearings, emphasizing that a judge tasked with interpretation must set aside her policy views and apply the law as written. On the Seventh Circuit, Judge Barrett has shown a willingness to engage in “intense grammatical parsing” when necessary to determine textual meaning. Gadelhak v. AT&T Servs., Inc., 950 F.3d 458, 460 (7th Cir. 2020). She also has indicated discomfort with arguments from extratextual considerations, such as legislative history or congressional inaction. Cook Cty., Illinois v. Wolf, 962 F.3d 208, 250 (7th Cir. 2020) (Barrett, J., dissenting).
(5) Due Process
- A.F. Moore & Assocs., Inc. v. Pappas, 948 F.3d 889 (7th Cir. 2020).* Writing for a unanimous panel, Judge Barrett held that the Tax Injunction Act, which generally strips federal courts of jurisdiction over challenges to state and local taxes, did not prohibit taxpayers from bringing equal protection and due process claims in federal court. This is because, as Judge Barrett explained, Illinois state courts do not offer an adequate forum for taxpayers’ constitutional claims, since Illinois tax-objection procedures do not allow taxpayers to challenge anything other than the correctness of the assessor’s valuation. Because these procedures provide “no remedy at all” for the taxpayers’ claims, the Tax Injunction Act did not apply.
- Cleven v. Soglin, 903 F.3d 614 (7th Cir. 2018). Judge Barrett, writing for a unanimous panel, rejected a city employee’s procedural due process challenge against the city based on an alleged deprivation of his retirement funds. Assuming without deciding that the temporary loss of these funds qualified as a lost property right, Judge Barrett reasoned that the plaintiff still could not show inadequate process, because the state offered a procedure—a writ of mandamus—to challenge any violation of state law. Since the writ provided a meaningful post-deprivation remedy for redressing property deprivation, the panel concluded that petitioner’s due process rights had been satisfied.
- Doe v. Purdue Univ., 928 F.3d 652 (7th Cir. 2019).* Writing for a unanimous panel, Judge Barrett held that a student, John Doe, adequately alleged that a university violated due process by using constitutionally flawed procedures to find him guilty of sexual violence. Judge Barrett first analyzed whether John had lost a liberty or property interest when he was found guilty and punished. While agreeing with the university that John could establish no property interest in continuing his education, Judge Barrett concluded that he was deprived of a protected liberty interest: By finding John guilty of sexual violence—causing his expulsion from the Navy ROTC program—and telling the Navy about this finding, the university denied John “his freedom to pursue naval service, his occupation of choice.” Judge Barrett next evaluated the procedures the university used to determine John’s guilt, finding them far short of what was required under the Due Process Clause. Because John alleged that the university withheld evidence on which it relied, failed to investigate evidence that would support John’s case, and conducted a deficient hearing, Judge Barrett held that he had pleaded facts sufficient to state a claim under the Fourteenth Amendment.
- Green v. Howser, 942 F.3d 772 (7th Cir. 2019). In an opinion by Judge Barrett, a unanimous panel held that sufficient evidence existed to support a jury verdict in favor of a mother who had sued her parents under 42 U.S.C. § 1983 for conspiring with state law enforcement officials to violate her due process right to make decisions regarding the care, custody, and control of her child. Finding “plenty of evidence” from which a jury could conclude that the mother’s parents conspired with law enforcement officials to forcibly gain custody of her child, Judge Barrett rejected the argument that no reasonable jury could find a violation of the mother’s due process rights.
(6) First Amendment
- Grussgott v. Milwaukee Jewish Day Sch., Inc., 882 F.3d 655 (7th Cir. 2018) (per curiam).* Judge Barrett joined a panel concluding that a teacher at a Jewish school was a “minister” under the Supreme Court’s decision in Hosanna-Tabor Evangelical Lutheran Church & School v. E.E.O.C., 565 U.S. 171 (2012), and thus the teacher’s Americans with Disabilities Act claim was barred by the First Amendment’s ministerial exception to employment-discrimination laws. The ministerial exception “allow[s] religious employers the freedom to hire and fire those with the ability to shape the practice of their faith.” To determine whether an employee was a “minister” covered by the exception, the Supreme Court in Hosanna-Tabor looked to the employee’s title, the substance reflected in that title, the employee’s use of that title, and “the important religious functions she performed for the Church.” Hosanna-Tabor, 565 U.S. at 192. The panel in Grussgott emphasized that the Supreme Court had “expressly declined” to adopt a “rigid formula” for the ministerial-exception test. In Grussgott, the teacher’s title and use of that title “cut[] against applying the ministerial exception” while the substance reflected in her title and her performing important religious functions—such as her “integral role in teaching her students about Judaism”—supported applying the ministerial exception. Explaining that “it would be overly formalistic to call th[e] case a draw simply because two ‘factors’ point[ed] each way” while cautioning that “all facts must be taken into account and weighed on a case-by-case basis,” the panel concluded that the “duties and functions” of the teacher’s position were enough to apply the ministerial exception. The Supreme Court’s later decision in Our Lady of Guadalupe School v. Morrissey-Berru, 140 S. Ct. 2049 (2020), was consistent with this non-formulaic approach to the ministerial exception.
(7) Fourth Amendment
- Rainsberger v. Bennett, 913 F.3d 640 (7th Cir. 2019).* In a unanimous opinion by Judge Barrett, a panel denied qualified immunity to a police detective who allegedly lied in a probable-cause affidavit that led prosecutors to charge the plaintiff with murdering his mother. The affidavit stated, for example, that the plaintiff placed a call from his mother’s home an hour before he claimed to have found her dead, but the call actually occurred a few minutes after he said he arrived. The detective argued that the alleged misrepresentations were immaterial because probable cause existed even without them, but the panel determined that the remaining evidence did not support a finding of probable cause. And because it is clearly established that it violates the Fourth Amendment to use deliberately falsified allegations to demonstrate probable cause, the panel concluded, the detective was not entitled to qualified immunity.
- Torry v. City of Chicago, 932 F.3d 579 (7th Cir. 2019). Writing for a unanimous panel, Judge Barrett rejected the plaintiffs’ argument that proving reasonable suspicion for a Terry stop required police officers to have some independent memory of what they knew at the time. Rather, as Judge Barrett explained, “the Fourth Amendment does not govern how an officer proves that he had reasonable suspicion for a Terry stop; he can rely on evidence other than his memory to establish what he knew when the stop occurred.” Judge Barrett also affirmed the lower court’s finding that the officers were entitled to qualified immunity. Because the Terry stop did not violate clearly established law, qualified immunity applied regardless of whether the stop violated the Fourth Amendment, which the panel concluded they “need not consider.”
- United States v. Kienast, 907 F.3d 522 (7th Cir. 2018). Judge Barrett, writing for a unanimous panel, held that the district courts did not err by declining to suppress the evidence obtained by searches that the defendants alleged were unlawful, because the good-faith exception to the exclusionary rule applied. Reasoning that suppression of evidence “is not a personal constitutional right” but rather “a judge-made rule meant to deter future Fourth Amendment violations,” Judge Barrett concluded that suppression was not justified because it would have no deterrent effect on FBI agents’ reliance on a warrant that the magistrate judge allegedly had no authority to issue. Judge Barrett also rejected the defendants’ argument that FBI agents acted in bad faith, concluding instead that “[t]he record establishes that the FBI acted reasonably” in preparing the affidavits and executing the warrants. Because the good-faith exception applied, the panel declined to consider whether the searches violated the Fourth Amendment.
- United States v. Vaccaro, 915 F.3d 431 (7th Cir. 2019). In an opinion by Judge Barrett, a unanimous panel held that a Terry pat-down frisk and the search of the defendant’s car were lawful. Judge Barrett first rejected the defendant’s argument that the Terry frisk was unreasonable. Because the record admitted of more than one permissible reading of the evidence, the district court did not clearly err in finding that the defendant “made furtive movements before leaving the car,” which aroused reasonable suspicion to justify a pat-down search. Judge Barrett next evaluated whether the sweep of the defendant’s car was lawful. While admitting that the sweep was “a closer call,” Judge Barrett concluded that it, too, was permissible because the officers reasonably suspected that the defendant was dangerous and could gain “immediate control” of weapons in his car, notwithstanding that he was handcuffed in the back of a squad car. On this last point, Judge Barrett explained that because the defendant’s detention was a Terry stop, and did not amount to an arrest, he “admitt[ed] that he would have been allowed to return to his car, … [where] he could have gained ‘immediate control of weapons.’”
(8) Immigration
- Cook Cty., Illinois v. Wolf, 962 F.3d 208 (7th Cir. 2020).* Judge Barrett, dissenting from the panel opinion, contended that the definition of “public charge” adopted by the Department of Homeland Security was a reasonable interpretation of the statutory language, which provides that a noncitizen may be denied admission or adjustment of status if he or she “is likely at any time to become a public charge.” The government defined “public charge” as any noncitizen who receives certain cash or noncash government benefits for more than 12 months in the aggregate in a 36-month period. The majority, over Judge Barrett’s dissent, concluded that the term “public charge” necessarily required a higher degree of government dependence. Judge Barrett, in contrast, would have held that under Chevron step two, the government’s broad definition was reasonable. Judge Barrett engaged in a detailed discussion of statutory framework and, citing Justice Scalia, expressed skepticism of plaintiffs’ legislative-inaction arguments. “At bottom,” she explained, “the plaintiffs’ objections reflect disagreement with [a] policy choice and … [l]itigation is not the vehicle for resolving policy disputes.” Judge Barrett declined to address plaintiffs’ other challenges because the district court did not reach them and the plaintiffs barely briefed them.
- Yafai v. Pompeo, 912 F.3d 1018 (7th Cir. 2019).* Judge Barrett, over a dissent, affirmed the district court’s dismissal under the doctrine of consular nonreviewability of a Yemeni husband and wife’s claims that a consular officer improperly denied the wife’s application for an immigrant visa. Observing that Congress has delegated the power to determine who may enter the country to the Executive Branch and that courts generally have no authority to second-guess the Executive’s decisions, Judge Barrett concluded that the consular officer provided a facially legitimate and bona fide reason for denying the wife’s application. The officer cited a valid statutory basis and provided the factual predicate for his decision and, Judge Barrett stressed, under Kleindienst v. Mandel, 408 U.S. 753 (1972), the court cannot “look behind the exercise of that discretion.” Judge Barrett also concluded that the “bad faith” exception to Mandel did not apply because plaintiffs failed to make “an affirmative showing” that the officer denied the wife’s visa in bad faith. The dissent maintained that the majority’s “view of the doctrine sweeps more broadly than required by the Supreme Court and [the Seventh Circuit’s] own precedent.”
- Alvarenga-Flores v. Sessions, 901 F.3d 922 (7th Cir. 2018). Judge Barrett, over a dissent, held that substantial evidence supported the immigration judge’s adverse credibility finding. Judge Barrett noted that the court “afford[s] significant deference to an agency’s adverse credibility determination,” and may reverse such determinations only “if the facts compel an opposite conclusion.”
(9) Intellectual Property
- J.S.T. Corp. v. Foxconn Interconnect Tech. Ltd., 965 F.3d 571 (7th Cir. 2020). In a unanimous opinion by Judge Barrett, the panel affirmed the dismissal for lack of personal jurisdiction of a suit for misappropriation of trade secrets. In so ruling, Judge Barrett analyzed the distinctions between different forms of intellectual property law. She distinguished trade secret law, which focuses on the defendants’ alleged acts, from both “trademark law, in which consumer confusion can be at the heart of the underlying claim,” and “patent law, in which the sale of a patented invention to a consumer can be an act of infringement, even if the seller is unaware of the patent.” Because the defendants’ alleged acts of trade secret misappropriation were all completed outside of the forum state, Judge Barrett concluded that the court lacked personal jurisdiction over those claims on these facts. This decision is also an example of Judge Barrett’s jurisprudence on personal jurisdiction.
- PMT Mach. Sales, Inc. v. Yama Seiki USA, Inc., 941 F.3d 325 (7th Cir. 2019). In a unanimous opinion by Judge Barrett, the panel affirmed the entry of summary judgment against a plaintiff suing under Wisconsin’s Fair Dealership Law. That state law provides contractual protections to “dealerships,” which it defines to include agreements granting persons the right to “use a trade name [or] trademark.” Judge Barrett reasoned that the mere inclusion of another party’s logos on the plaintiff’s website did not qualify as “use” of those trademarks sufficient to establish it as a “dealership” entitled to protection under the Wisconsin law.
(10) Labor and Employment
- Smith v. Rosebud Farm, Inc., 898 F.3d 747 (7th Cir. 2018). Writing for a unanimous court, Judge Barrett held that the district court properly denied an employer’s post-trial motion for judgment as a matter of law on a male employee’s Title VII sex discrimination claim. Judge Barrett reasoned that the evidence supported the jury’s finding that the employee’s coworkers harassed the plaintiff because he was male, rather than engaging in across-the-board and nondiscriminatory “sexual horseplay,” because the shop was a mixed-sex workplace and only men were groped and taunted.
- EEOC v. Costco Wholesale Corp., 903 F.3d 618 (7th Cir. 2018).* Writing for a unanimous court, Judge Barrett held that the district court properly denied Costco’s post-trial motion for judgment as a matter of law on a Title VII hostile work environment claim, because sufficient evidence supported the jury’s finding that a customer’s year-long stalking of a Costco employee was severe or pervasive enough to render the work environment hostile. Judge Barrett explained that harassment does not need to be “overtly sexual to be actionable under Title VII,” but instead “can take other forms, such as demeaning, ostracizing, or even terrorizing the victim because of her sex.” Judge Barrett also held that the district court was correct that the employee could not recover backpay for the period of time after Costco fired her, because the employee did not return to work after a year-long medical leave and thus was not constructively discharged. But Judge Barrett held that the employee may be entitled to backpay for some or all of her time on unpaid medical leave that she took after being traumatized by the customer’s stalking. Judge Barrett remanded for the district court to consider the unpaid-leave issue in the first instance.
- Fessenden v. Reliance Std. Life Ins. Co., 927 F.3d 998 (7th Cir. 2019). Writing for a unanimous panel, Judge Barrett held that a court owes no deference to a benefits plan administrator that, in issuing a benefits decision, misses a deadline imposed by regulations governing the Employee Retirement Income Security Act (ERISA). Although a court may apply an “arbitrary and capricious” standard of review to a plan administrator’s decision that “substantially complies” with other procedural requirements, a “deadline is a bright line,” and a court must apply a de novo standard of review if a plan administrator misses a regulatory deadline. Judge Barrett reasoned that adopting a “substantial compliance” exception under the common law would contravene the regulations’ plain text, which provide that “in no event shall” an extension of time exceed the allotted period. Judge Barrett also explained that a substantial compliance exception would be incompatible with the doctrine itself because a party seeking benefits has exhausted remedies when the regulatory deadlines for a benefits determination lapse, and thus can file suit—and yet, in that circumstance, the district court would have no administrative decision to review. In reaching this conclusion, Judge Barrett expressly disagreed with several other circuits that have applied the substantial compliance exception to missed ERISA deadlines.
(11) Personal Jurisdiction
- Lexington Ins. Co. v. Hotai Ins. Co., 938 F.3d 874 (7th Cir. 2019). Judge Barrett held for a unanimous panel that a district court in Wisconsin lacked personal jurisdiction over two Taiwanese insurance companies that had contracted with the suppliers of the plaintiff bike retailer to provide worldwide insurance coverage for both the suppliers and the bike distributor. Judge Barrett stated that the plaintiff had “failed to demonstrate that either [of the insurance companies] made any purposeful contact with Wisconsin before, during, or after the formation of the insurance contracts.” The fact that the insurance companies had agreed to indemnify the bike distributor, who did business out of Wisconsin, was insufficient, because “it is a defendant’s contacts with the forum state, not with the plaintiff, that count.” Judge Barrett further rejected that any “collateral financial benefits” of the insurance companies’ arrangement gave rise to personal jurisdiction.
(12) Second Amendment
- Kanter v. Barr, 919 F.3d 437 (7th Cir. 2019).* Judge Barrett dissented from a panel decision holding that felon dispossession statutes prohibiting firearm possession by persons convicted of felonies did not violate the Second Amendment. The panel majority applied intermediate scrutiny and concluded that the statutes were substantially related to the important government interest of “keeping firearms away from persons, such as those convicted of serious crimes, who might be expected to misuse them.” In her dissent, Judge Barrett adopted an originalist framework for analyzing the Second Amendment in which “all people have the right to keep and bear arms” unless “history and tradition” support a legislature’s “power to strip certain groups of that right.” Applying that framework, Judge Barrett explained that historically, legislatures have had the power to prohibit dangerous people from possessing guns, but not the power to strip felons—both violent and nonviolent—of their right to bear arms simply because of their status as felons. After noting the government’s “undeniably compelling interest in protecting the public from gun violence,” Judge Barrett concluded the dispossession statutes were “unconstitutional as applied to” the plaintiff, who did not belong to “a dangerous category” of felons—he was convicted of mail fraud—and did not have any “individual markers of risk,” such as a history showing a proclivity for violence.
(13) Standing
- Casillas v. Madison Ave. Assocs., Inc., 926 F.3d 329 (7th Cir. 2019).* Judge Barrett held for a unanimous panel that the plaintiff lacked standing under Article III to sue a debt collector for failure to include all statutorily required information in a debt-collection letter. The omitted information related to the requirement that any objection to the asserted debt be made in writing, but Judge Barrett observed that the plaintiff “did not allege that [the debt collector’s] actions harmed or posed any real risk of harm to her interests under the [Fair Debt Collection Practices] Act.” The plaintiff, Judge Barrett noted, “did not allege that she tried to dispute or verify her debt orally and therefore lost or risked losing the statutory protections,” nor did she “allege that she ever even considered contacting [the debt collector].” Judge Barrett also rejected the plaintiff’s alternative argument that she had suffered an “informational injury,” explaining that “the bare harm of receiving inaccurate or incomplete information” is not a cognizable harm for Article III standing purposes.
- Protect Our Parks Inc. v. Chicago Park Dist., 971 F.3d 722 (7th Cir. 2020). Writing for a unanimous panel, Judge Barrett held that plaintiffs challenging Chicago’s plan to transfer control of public land to the Barack Obama Foundation to construct a presidential memorial center lacked standing to pursue their state-law claims. The plaintiffs claimed that Chicago breached Illinois’ public trust doctrine by transferring control of public lands for private use. Judge Barrett held that the plaintiffs lacked standing to pursue the state-law claims, explaining that the fact that Illinois state courts have heard similar cases does not control the standing inquiry in federal court, and that a desire that the government follow the law is not sufficient. Judge Barrett also affirmed the district court’s dismissal of the federal takings claims on the ground that the plaintiffs lacked a cognizable property interest in the public land.
- Carello v. Aurora Policemen Credit Union, 930 F.3d 830 (7th Cir. 2019). Judge Barrett held for a unanimous panel that a plaintiff lacked standing to sue a credit union under the Americans with Disabilities Act for failing to offer a website that could be read aloud by a screen reader, because the plaintiff was legally ineligible to become a member in the credit union. Judge Barrett explained that “[b]ecause Illinois has erected a neutral legal barrier to [the plaintiff’s] use of the Credit Union’s service, the Credit Union’s failure to accommodate the visually impaired in the provision of its services cannot affect him personally.” Judge Barrett further rejected the plaintiff’s theory that he had suffered an “informational injury,” because the case was “about accessibility accommodations, not disclosure.”
- Gadelhak v. AT&T Servs., Inc., 950 F.3d 458 (7th Cir. 2020), cert. filed, No. 20‑209 (U.S. Aug. 21, 2020). Before addressing the merits of this case arising under the Telephone Consumer Protection Act (TCPA), Judge Barrett first considered whether the plaintiff had standing, even though no party had raised the issue. She concluded for the unanimous panel that a plaintiff who receives unwanted marketing text messages has suffered a sufficiently “concrete” injury for Article III purposes, because “[t]he common law has long recognized actions at law against defendants who invaded the private solitude of another by committing the tort of ‘intrusion upon seclusion.’” Moreover, in enacting the TCPA, “Congress decided that automated telemarketing can pose this same type of harm to privacy interests.” Judge Barrett therefore broke with the Eleventh Circuit, instead siding with the Second and Ninth Circuits holding that the receipt of “unwanted text messages can constitute a concrete injury-in-fact for Article III purposes.”
(14) Stare Decisis
- Stare Decisis and Due Process, 74 U. Colo. L. Rev. 1011 (2003). As a professor, Judge Barrett has questioned whether an inflexible view of stare decisis—which “effectively forecloses a litigant from meaningfully urging error-correction” in future cases—“unconstitutionally deprives a litigant of the right to a hearing on the merits of her claims.” “Generally speaking,” then-Professor Barrett wrote, “if a litigant demonstrates that a prior decision clearly misinterprets the statutory or constitutional provision it purports to interpret, the court should overrule the precedent.”
- Statutory Stare Decisis in the Courts of Appeals, 73 Geo. Wash. L. Rev. 317 (2005). The Supreme Court has long afforded “special force” to stare decisis in the realm of statutory interpretation. As a professor, however, Judge Barrett has questioned whether the courts of appeals should apply the same “super-strong stare decisis” to their own statutory interpretations. “It is one thing,” for example, “to claim that congressional silence signals approval of a decision from the Supreme Court; it is another thing to claim that congressional silence signals approval of a decision from any of the courts of appeals.” Then-Professor Barrett wrote that it is “hard to see why the precedential effect of statutory interpretations in the courts of appeals should be anything more than the simple presumption against overruling that all opinions enjoy.”
(15) Subject-Matter Jurisdiction
- Groves v. United States, 941 F.3d 315 (7th Cir. 2019). In an opinion authored by Judge Barrett, a unanimous panel overruled Seventh Circuit precedent that permitted district courts to recertify their decisions for interlocutory appeal after the expiration of the 10‑day filing window in order to give the appealing party more time to file a petition to appeal with the court of appeals. Judge Barrett explained that the Supreme Court’s more recent decisions had made clear that courts lack discretion to either directly or indirectly extend jurisdictional deadlines, such as the 10-day deadline for filing a petition for interlocutory review. Judge Barrett also rejected the appealing party’s argument that the 10-day limitation was not jurisdictional, holding that the statute setting the deadline “speak[s] to the power of the court rather than to the rights or obligations of the parties.”
- Webb v. FINRA, 889 F.3d 853 (7th Cir. 2018). Judge Barrett held, over a partial dissent, that the federal courts lacked diversity jurisdiction because the amount in controversy did not exceed the statutory threshold of $75,000. The plaintiffs sued the Financial Industry Regulatory Authority, Inc. (FINRA), arguing that FINRA had breached its contract to arbitrate the plaintiffs’ underlying dispute with their former employer, and seeking to obtain their fees for attempting to arbitrate the dispute and for the litigation. Although no party raised a jurisdictional challenge, the court sua sponte ordered supplemental briefing on jurisdiction. Judge Barrett held that the law recognized no right to recover expenses and fees the plaintiffs incurred in either arbitration or in litigation, and that the amount in controversy therefore did not exceed $75,000. Judge Barrett also rejected the alternative theory, offered by FINRA, that the claims arose under federal securities law, explaining that the case presented no questions requiring interpretation of a federal law.
- Wisconsin Cent. Ltd. v. TiEnergy LLC, 894 F.3d 851 (7th Cir. 2018), cert. denied, 139 S. Ct. 918 (2019). Judge Barrett held for a unanimous panel that the court of appeals and district court below had jurisdiction over this dispute involving fees owed for the delayed return of rail cars. The panel had sua sponte raised two issues of jurisdiction and solicited supplemental briefing. On the first, Judge Barrett held that the absence of a separate document setting forth the final judgment with respect to a third-party claim did not divest the appellate court of jurisdiction, because the district court “clearly signaled in its opinion that it was finished with the case.” On the second, Judge Barrett concluded that the district court had federal question jurisdiction over the case, because the plaintiff had brought suit pursuant to a federal law assigning liability for the payment of transportation rates, including fees for the delayed return of rail cars.
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[*] Decisions denoted with an asterisk (*) are decisions that Judge Barrett identified as her “most significant” decisions.
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This webcast covers the authorities of the United States Government to address foreign influence in business and public affairs in the United States. We discuss the Foreign Agents Registration Act, the Lobbying Disclosure Act, export controls, and CFIUS. The webcast also covers recent policy statements by the Department of Justice and other regulators.
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PANELISTS:
Zainab Ahmad, a partner in New York, joined the firm after serving as Senior Assistant Special Counsel in Special Counsel Robert S. Mueller’s Office. She was previously Deputy Chief of the National Security and Cybercrime section at the U.S. Attorney’s Office in the Eastern District of New York. Ms. Ahmad is a decorated former prosecutor who has received both of DOJ’s highest honors, the Attorney General’s Award and the FBI Director’s Award, and whose work prosecuting terrorists was profiled by The New Yorker magazine. Her practice focuses on white collar defense and investigations, including corruption, anti-money laundering, sanctions and FCPA issues. She also advises clients regarding data privacy and cybersecurity matters. Her practice is international and focuses on cross-border issues; she is fluent in Urdu and Hindi.
Stuart Delery, a partner in Washington, D.C., was the Acting Associate Attorney General, the No. 3 position in the Justice Department, where he oversaw the civil and criminal work of five litigating divisions — Antitrust, Civil, Tax, Civil Rights, and Environment and Natural Resources — as well as other components. His practice focuses on representing corporations and individuals in high-stakes litigation and investigations that involve the federal government across the spectrum of regulatory litigation and enforcement.
Roscoe Jones is counsel in the Washington, D.C. office, and a member of the firm’s Public Policy, Congressional Investigations, and Crisis Management groups. Mr. Jones formerly served as Chief of Staff to U.S. Representative Abigail Spanberger, Legislative Director to U.S. Senator Dianne Feinstein, and Senior Counsel to U.S. Senator Cory Booker, among other high-level roles on Capitol Hill.
Adam M. Smith, a partner in Washington, D.C., was the Senior Advisor to the Director of the U.S. Treasury Department’s OFAC and the Director for Multilateral Affairs on the National Security Council. His practice focuses on international trade compliance and white collar investigations, including with respect to federal and state economic sanctions enforcement, the FCPA, embargoes, and export controls. He routinely advises multi-national corporations regarding regulatory aspects of international business.
The United Nations Convention on International Settlement Agreements Resulting from Mediation (the “Singapore Convention” or the “Convention”) came into force on 12 September 2020.[1] The Singapore Convention is a significant step for international commercial dispute resolution, enabling enforcement of mediated settlement agreements among its signatories. For international businesses this means that they are presented with another viable and effective alternative to litigation and arbitration in resolving their cross-border disputes, especially during the global COVID-19 pandemic.[2]
Key Features of the Convention
By facilitating a negotiated settlement between parties, mediation can usually provide them with a faster, more cost-effective and commercial method of resolving disputes than resorting to litigation and arbitration. With the aid of neutral and qualified professionals, mediated settlements focus parties onto what really matters to them, ironing out their differences swiftly in confidentiality while preserving businesses’ reputation and their long term relationship. However, until the Singapore Convention, no harmonised enforcement mechanism existed for these negotiated settlements. Hence, the only remedy for a party who was faced with an opponent refusing to honour the terms of such negotiated settlement, was to bring an action for breach of contract and then seek to have the subsequent judgment enforced, potentially in multiple jurisdictions. This was an expensive and inefficient deterrent for parties to even consider mediation for the resolution of their disputes, so they instead turned to arbitration or litigation from the outset.
Now, the Singapore Convention has the potential to greatly increase the appeal of mediation as a mechanism of resolving commercial disputes with a cross-border dimension. The Convention provides parties who have agreed a mediated settlement with a uniform and efficient mechanism to enforce the terms of that agreement in other jurisdictions, in the way that the New York Convention on the Recognition and Enforcement of Arbitral Awards (the “New York Convention”) does for international arbitral awards.
Where a State has ratified the Convention, the Convention commands that a relevant court (or other competent authority) in that State enforces an international mediated settlement agreement in accordance with the Convention and its own rules of procedure, without the parties needing to initiate new proceedings for its recognition and enforcement. Provided the settlement agreement falls within the scope of the Convention, the negotiated settlement can also be invoked as a defence by the parties, preventing further litigation or arbitration of a matter already settled by the agreement.
Conditions for Enforcement
The Convention applies to international mediated settlement agreements concluded in writing and which resolve a commercial dispute. A settlement agreement will be classified as “international” under the Convention if the parties have their place of business in different States or the parties’ place of business is different from the State in which a substantial part of the obligations under the settlement agreement is performed or with which the subject matter of the settlement agreement is most closely related. The Convention excludes from its scope agreements arising from transactions engaged in by one of the parties (a consumer) for personal, family or household purposes, or whose subject matter concerns family, inheritance or employment law. The Convention also does not apply to settlement agreements that have been concluded during court proceedings (and which are therefore already enforceable as a judgment) and to settlement agreements that are enforceable as an arbitral award. In addition, signatory States have the option to make reservations to the application of the Convention, excluding settlements involving them or their government agencies; or agreeing to apply the Convention only to the extent that disputing parties have agreed to its application. So far, Belarus and Iran have made reservations to that effect.
A party seeking to enforce a settlement agreement under the Convention will have to show that it resulted from mediation. The Convention sets out a number of ways parties can do this, including provision of a settlement agreement signed by the mediator herself/himself or confirmation that a mediation was carried out; or an attestation by the institution that administered the mediation. When none of these are available, the Convention also allows proof by any other evidence acceptable to the relevant competent authority enforcing the agreement.
Similar to the New York Convention, there are limited grounds for refusal to enforce a mediated settlement agreement under the Singapore Convention. These include cases where:
- a party is under some kind of incapacity when entering the settlement agreement;
- the settlement agreement is null and void, inoperative or incapable of being performed under the law to which the parties have validly subjected it;
- the settlement agreement is not binding, or final according to its terms; or has been subsequently modified;
- the obligations in a settlement agreement have been performed, or are not clear or comprehensible; or granting relief would be otherwise contrary to its terms;
- there was a serious breach by the mediator of the applicable standards without which a party would not have entered into the settlement agreement; and
- there was a failure by the mediator to disclose to the parties circumstances that raise justifiable doubts as to the mediator’s impartiality or independence and such failure to disclose had a material impact or undue influence on a party without which failure that party would not have entered into the settlement agreement.
Likewise, if granting relief would be contrary to public policy in the enforcing State or the subject matter of the dispute is not capable of settlement by mediation under the laws of the enforcing State, then enforcement can be refused by the competent authority of such State as it is the case under the New York Convention.
Interestingly, the Singapore Convention does not have a reciprocity requirement like the New York Convention, meaning that a mediation performed anywhere in the world could potentially be recognised and enforced in a ratifying State.
Acceptance of the Convention
On the first day the Singapore Convention opened for signature (7 August 2019), 46 States including the U.S., Singapore, and China signed the Convention. This rose to 53 by January 2020. At the time of writing (October 2020), six of these signatories have ratified the Convention (Singapore, Qatar and Fiji for whom the Convention came into force on 12 September 2020, followed by Saudi Arabia in November 2020, Belarus in January 2021 and Ecuador in March 2021).[3] None of the EU Member States or the EU itself have signed the Convention yet.[4] Similarly, according to a policy statement from the UK Government in June 2020 and the following Parliamentary discussions in September 2020, no formal decision has yet been taken on whether the UK should join the Convention.[5]
Like the New York Convention, the Singapore Convention requires implementation into domestic legislation. Thus, the corresponding UNCITRAL Model Law on International Commercial Mediation and International Settlement Agreements Resulting from Mediation adopted by the United Nations General Assembly in 2018 (amending the UNCITRAL Model Law on International Commercial Conciliation, 2002)[6] will also assist signatory countries by providing the legal framework and procedures for implementing the Convention.
Why Is the Singapore Convention More Important Now?
As with everything in the current challenging climate, the impact of the COVID-19 pandemic on the civil justice systems and formal dispute resolution methods has been palpable. Since the early months of 2020, businesses have been forced to search for alternative means of resolving their mounting disputes, allowing them to fast-track resolution before things escalate into intractable ends.
As such, the Convention’s entry into force is more than timely. If the current uptake by signatories and the historic experience with the New York Convention in terms of promoting arbitration globally are anything to go by, things are looking very positive for the future of mediation and the Singapore Convention. It is without a doubt that the Convention is a momentous step in growing and developing mediation globally and providing a viable alternative to the current dispute resolution gridlock.
That is probably why international institutions for mediation have been quick to see the opportunities lying ahead. For example, in May 2020, the Singapore International Mediation Centre launched the SIMC COVID-19 Protocol with the aim of providing “a swift and inexpensive route to resolve commercial disputes during the COVID-19 period” by introducing expedited online mediation procedures.[7] Likewise, the London Court of International Arbitration has updated its Mediation Rules for the first time in eight years, effective from 1 October 2020.[8]
Unsurprisingly, Singapore is playing a pioneering role in Asia for the promotion of the Convention and mediation, to further solidify Singapore’s place as an international dispute resolution hub. Its proactivity has a high chance of paying off to cement that position in the long run, especially because mediation is viewed as a means of dispute resolution consistent with Asian business culture, as it encourages parties to work towards an acceptable and face-saving outcome, preserving the commercial relationships. Indeed, various Asian jurisdictions have already enacted mediation legislation in recent years, including Singapore, Hong Kong, Malaysia and China. Thus, the Convention is one more step in the right direction for Singapore, perhaps giving it the slight edge over its biggest rival in the region—Hong Kong—as an alternative dispute resolution centre.
___________________
[1] Available at: https://uncitral.un.org/en/texts/mediation/conventions/international_settlement_agreements.
[2] See our previous alert on the Convention here: https://www.gibsondunn.com/singapore-convention-on-mediation-and-the-path-ahead/.
[3] See here for a full list of signatories.
[4] However, please note that the Member States have the benefit of the Mediation Directive No.2008/52/EC which allows the enforcement of cross-border mediated settlement agreements through the national courts of EU Member States.
[6] Available at: https://uncitral.un.org/en/texts/mediation/modellaw/commercial_conciliation.
[7] Available at: http://simc.com.sg/simc-covid-19-protocol/.
[8] See https://www.lcia.org/lcia-rules-update-2020.aspx.
Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s International Arbitration and Transnational Litigation practice groups, or the following:
Cyrus Benson – London (+44 (0) 20 7071 4239, cbenson@gibsondunn.com)
Penny Madden Q.C. – London (+44 (0) 20 7071 4226, pmadden@gibsondunn.com)
Jeffrey Sullivan – London (+44 (0) 20 7071 4231, jeffrey.sullivan@gibsondunn.com)
Rahim Moloo – New York (+1 212-351-2413, rmoloo@gibsondunn.com)
Ceyda Knoebel – London (+44 (0)20 7071 4243, cknoebel@gibsondunn.com)
Brad Roach – Singapore (+65 6507 3685, broach@gibsondunn.com)
Robson Lee – Singapore (+65 6507-3684, rlee@gibsondunn.com)
Brian Gilchrist – Hong Kong (+852 2214 3820, bgilchrist@gibsondunn.com)
Elaine Chen – Hong Kong (+852 2214 3821, echen@gibsondunn.com)
© 2020 Gibson, Dunn & Crutcher LLP
Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.
After the COVID-19 pandemic seemed to close the IPO market overnight, over the past few months IPOs have roared back to life in an incredibly active market. While some parts of the process have remained steady, the current environment has raised unforeseen challenges and novel practices for issuers, underwriters and their counsel in the IPO process. This short webcast will break down the current market and the key legal, financial and execution issues affecting IPOs in late 2020, as well as best practices for successfully navigating the IPO process in the current environment. Please join our expert panelists as they discuss recent developments, market trends and disclosure considerations in the IPO market, as well as current expectations for the future of the IPO process.
View Slides (PDF)
PANELISTS:
Peter W. Wardle is Co-Partner in Charge of the Los Angeles office of Gibson, Dunn & Crutcher. He is a member of the firm’s Corporate Transactions Department and Co-Chair of its Capital Markets Practice Group. Mr. Wardle’s practice includes representation of issuers and underwriters in equity and debt offerings, including IPOs and secondary public offerings, and representation of both public and private companies in mergers and acquisitions, including private equity, cross border, leveraged buy-out, distressed and going private transactions. He also advises clients on a wide variety of general corporate and securities law matters, including corporate governance issues.
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.
Despite the ongoing global pandemic, sanctions and export controls continue to be a most-favored enforcement tool of the U.S. government. Since the outset of 2020, the government has continued to develop, implement, and enforce new international trade sanctions and export controls across a wide range of industry sectors and regions, including in novel and unprecedented ways. Join Gibson Dunn attorneys as they provide a mid-year update on the recent trends in this constantly evolving space.
Topics to be covered include:
- Major U.S. sanctions programs developments, including Iran, Venezuela, Syria, and North Korea
- New sanctions programs and developments, including those affecting China/Hong Kong, significant designations, and recent executive orders targeting the International Criminal Court, TikTok, and WeChat
- New major developments in export controls, including additions to the Entity List and new restrictions on military end use and end users.
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PANELISTS:
Judith Alison Lee is a partner in the Washington, D.C. office and Co-Chair of the firm’s International Trade Practice Group. Ms. Lee is a Chambers ranked leading International Trade, Export Controls, and Economic Sanctions lawyer practicing in the areas of international trade regulation, including USA Patriot Act compliance, economic sanctions and embargoes, export controls, and national security reviews (“CFIUS”). Ms. Lee also advises on issues relating to virtual and digital currencies, blockchain technologies and distributed cryptoledgers.
Jesse Melman has experience representing clients, including major multinational corporations and financial institutions, in connection with their sanctions, anti-corruption, and anti-money laundering compliance programs. His practice includes conducting internal and governmental investigations, evaluating transactions for sanctions and corruption risk, obtaining licenses and authorizations, and designing and assessing programs, policies, and procedures to ensure compliance with sanctions and anti-corruption laws. In addition to his international trade practice, Mr. Melman has extensive experience defending clients in connection with investigations and civil suits involving a wide array of issues, including accounting, tax reporting, securities trading, and other business practices.
R.L. Pratt counsels clients on compliance with U.S. economic sanctions, export controls (ITAR and EAR), foreign investment, and international trade regulatory issues and assists in representing clients before the departments of State (DDTC), Treasury (OFAC and CFIUS), and Commerce (BIS). Before joining Gibson Dunn, he was an associate at a large international law firm where his practice focused on providing counsel on U.S. economic sanctions and export controls and reviews of foreign investment conducted by CFIUS.
Samantha Sewall advises clients across industry sectors on an array of trade compliance matters, including U.S. economic sanctions, export controls, antiboycott, and national security reviews (CFIUS). She has experience advising clients in aerospace, banking and finance, consulting, defense, manufacturing, medical devices, oil and gas, pharmaceuticals, telecommunications, and travel. Prior to joining Gibson Dunn, Ms. Sewall served as a Political-Economic Program Assistant supporting the U.S. Embassy in Côte d’Ivoire. During her time there she was responsible for programs and research related to private sector engagement and bilateral political and economic issues.
Audi Syarief has provided sanctions and export controls advice to major corporations and non-profit organizations. He has extensive experience in assessing enforcement and designation risk, conducting internal investigations, strengthening trade compliance programs, and securing licenses and other authorizations from OFAC. He is particularly well-versed in the application of technology- and information-based sanctions authorizations, such as the Berman Amendment and General License D-1. He has also litigated Helms-Burton Act cases, and advised numerous clients on potential recovery and/or risks under the statute. In addition to his trade practice, Audi has represented clients in civil and criminal matters spanning a variety of subject areas, including government contracts, securities fraud, and the False Claims Act. Most recently, he helped secure the termination of an SEC investigation of a global financial institution relating to alleged accounting fraud.
Scott Toussaint advises clients on matters before the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), the Committee on Foreign Investment in the United States (CFIUS), and other regulatory and enforcement agencies. He has extensive experience counseling U.S. and foreign companies on compliance with OFAC sanctions, obtaining licenses and authorizations, developing corporate compliance programs, and assessing the national security implications of proposed mergers and acquisitions. He represents clients across a wide range of industries, including energy, banking and financial services, private equity, shipping, manufacturing, and consumer products.
Under the Trump Administration, an unprecedented number of Chinese companies have been designated to the U.S. Commerce Department Entity List. Learn about the reasons for these designations, what the effect is on these companies, their suppliers and customers, and what you can do to mitigate the disruptive effects.
“A Deep-Dive Analysis”
- What is new about the Trump Administration’s treatment of Chinese companies under the Entity List?
- What are the reasons given by the Trump Administration for putting Chinese companies on the Entity List?
- What can a company do to avoid designation?
- Once a designation is made, what should suppliers and customers do?
- How can a company get off the list?
Hear from our lawyers in Washington, D.C. and Beijing on these developments and what we can expect in the future. The discussion will be held in both English and Mandarin Chinese.
View Slides (PDF)
PANELISTS:
Judith Alison Lee is a partner in the Washington, D.C. office and Co-Chair of the firm’s International Trade Practice Group. Ms. Lee is a Chambers ranked leading International Trade, Export Controls, and Economic Sanctions lawyer practicing in the areas of international trade regulation, including USA Patriot Act compliance, economic sanctions and embargoes, export controls, and national security reviews (“CFIUS”). Ms. Lee also advises on issues relating to virtual and digital currencies, blockchain technologies and distributed cryptoledgers.
Fang Xue is a partner and Chief Representative of the Beijing office. Ms. Xue is a Chambers ranked leading lawyer in Asia-Pacific for China-based Corporate M&A work. She has represented Chinese and international corporations and private equity funds in cross-border acquisitions, private equity transactions, stock and asset transactions, joint ventures, going private transactions, tender offers and venture capital transactions, including many landmark deals among those.
R.L. Pratt is an associate in the Washington, D.C. office and a member of the firm’s International Trade Practice Group. Mr. Pratt counsels clients on compliance with U.S. economic sanctions, export controls (ITAR and EAR), foreign investment, and international trade regulatory issues and assists in representing clients before the departments of State (DDTC), Treasury (OFAC and CFIUS), and Commerce (BIS).
Shuo Josh Zhang is an associate in the Washington, D.C. office and a member of the Litigation, International Trade, and White Collar Defense and Investigations Practice Groups. Mr. Zhang has experience representing tech clients across various industries in FCPA defense and investigations, export control compliance matters, CFIUS due diligence and compliance matters, and international arbitration.
Christopher Timura is of counsel in the Washington D.C. office, is a member of the firm’s International Trade Practice Group. He counsels clients on export controls (ITAR and EAR), and economic sanctions, and represents them before the departments of State (DDTC), Treasury (OFAC and CFIUS), Commerce (BIS), Homeland Security (CBP), and Justice in investment reviews, licensing, and in voluntary and directed disclosures involving both civil and criminal enforcement actions.
On 29 September 2020, the European Commission (“Commission”) issued its first report on concomitant minority shareholdings by institutional investors in companies active in the same market (“Common Shareholdings”)(“Report”).[1] The findings of the 320 page Report were drawn upon lessons learned from five sectors which are considered by the Commission to be relatively concentrated, namely: Oil & Gas, Electricity, Mobile Telecoms, Trading Platforms, and Beverages.
The Report was triggered by the identification of an increasing number of Common Shareholdings in recent years. For instance, in 2014, 60% of U.S. public firms had a shareholder that held at least 5% both in the firm itself and in a competitor.[2] In Europe, Common Shareholdings with at least 5% participation concerned 67% of listed companies in 2016.[3]
Traditionally, Common Shareholdings have not been an antitrust issue as institutional investors usually held small minority stakes, falling far below the level necessary to give them the ability to exercise control, and implemented passive investment strategies. However, in recent years, Common Shareholdings have attracted the attention of antitrust enforcement agencies in Europe and the U.S.[4], given that fund managers have accumulated more substantial shareholdings, together with the related voting rights, in a large number of firms that are often direct competitors.
A number of economists have also raised concerns about this perceived concentration of power, the influence that could be exerted over the management of the companies affected, and the potential incentives to collude amongst the investors.
Overview of the competition assessments made thus far
To date, empirical research on the competitive effects of Common Shareholdings has been focused on the U.S. Specifically, two major studies of the retail banking and airline sectors have concluded that Common Shareholdings in those sectors were associated with higher prices (for banking deposit services and airline tickets respectively) and accordingly may have had a detrimental effect on competition.[5] Following the publication of those studies, the U.S. Federal Trade Commission held a hearing on Common Shareholdings in December 2018.[6]
In the EU, the Commission has examined the potential effects of Common Shareholdings in two recent merger cases: Dow/DuPont[7] and Bayer/Monsanto.[8] As a result of high levels of Common Shareholdings, the Commission concluded that the usual market share indicators (including the HHI Index) were likely to underestimate the level of market concentration, which would lead it to “underestimate the expected non-coordinated effects of the Transaction”.[9] The Commission’s analysis noted in particular that Common Shareholdings may reduce the likelihood of companies to invest in R&D efforts where this would harm the interests of competing firms held in the same institutional investor portfolio.[10] In addition, the Commission observed that passive investors “exert influence on individual firms with an industry-wide perspective”, and also that dispersed ownership exaggerates that influence.[11]
In 2018, Commission Vice-President Margrethe Vestager indicated that the Commission would be looking “carefully” at the prevalence of Common Shareholdings in the EU.[12] Consistent with this approach, the German Monopolies Commission also concluded in a lengthy report that institutional investors may have the means to influence certain of their portfolio companies’ decisions and recommended that the issue receive more attention at EU level.[13] In early 2019, the European Parliament’s Economic and Monetary Affairs Committee agreed to commission research to examine the prevalence of Common Shareholdings in the EU.
The Report’s findings
The Report sets out evidence on the presence and extent of Common Shareholdings across the EU and its possible anticompetitive effects, without putting forward any concrete policy proposals. Its main findings are as follows:
- More than two-thirds of all listed firms active in the EU (67%) are cross-held by Common Shareholdings of at least 5% in each company.
- Portfolios of Common Shareholdings continue to be especially large – in some cases including between 30% to 40% of active companies – in the electricity, financial instruments, telecommunications, and beverage sectors.
- Despite the wide presence of Common Shareholdings, a causal link with competitive outcomes is still challenging, not least because of the definition of the relevant market, the measurement of the Common Shareholding itself, the choice of an appropriate competition indicator (market dominance, concentration levels), or data availability at firm or product level.
- The Report introduces a detailed study of the beverages sector, concluding that a 2009 merger between two institutional investors may have had an effect on the margins of the beverage firms in their portfolios.
- Nonetheless, the Report stresses that more detailed analysis is needed in specific cases regarding the precise causal link between a given Common Shareholding and any actual impact on competition.
Takeaway
As was clear from the Commission’s Dow/DuPont and Bayer/Monsanto merger Decisions, Common Shareholdings are likely to become a more established element in the Commission’s scrutiny of mergers, particularly in concentrated markets.
Following the publication of the Report, in cases where it believes that market shares and other traditional analytical tools underestimate the effect of a concentration the Commission may be inclined to argue that a material impact on competition is more likely where a Common Shareholding is present. This could result in even more complex merger review procedures, potentially including a review of investment histories and strategies.
The Report shows, however, that there are no hard and fast theories of harm of Common Shareholdings. We are currently none the wiser as to whether the Commission will seek to build such an analysis into its existing “coordinated effects”[14] theories or as part of a broader analysis in so-called “gap” cases.[15] It is, therefore, unlikely that the Commission will rely solely on Common Shareholdings to veto a merger. Nonetheless, it is likely that the Commission will view Common Shareholding as an “element of context” capable of magnifying anticompetitive concerns raised by other elements of the investigation.
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[1] Full report available here. The Report was undertaken by the Finance & Economy Unit of the Commission’s Joint Research Centre at the request of the Commission’s Directorate-General for Competition, as part of a project reviewing “Possible anti-competitive effects of common ownership”.
[2] See OECD, ‘Common Ownership by Institutional Investors and its Impact on Competition’, Background Note by the Secretariat, 5-6 December 2017, p. 13, available at: https://one.oecd.org/document/DAF/COMP(2017)10/en/pdf.
[3] Common Shareholding Report, op. cit., at p. 2.
[4] OECD Background Note, op. cit., at p. 13.
[5] Jose Azar, Sahil Raina and Martin C Schmalz, ‘Ultimate Ownership and Bank Competition’, May 2019; Jose Azar, Martin C Schmalz and Isabel Tecu, ‘Anticompetitive Effects of Common Ownership’, Journal of Finance 28(4), 2018.
[6] FTC Hearing #8: Competition and Consumer Protection in the 21st Century, 6 December 2018, transcript available here.
[7] Case M.7932 Dow/DuPont.
[8] Case M.8084 Bayer/Monsanto.
[9] Case M.7932 Dow/DuPont, Annex 5, paras. 4 and 81; Case M.8084 Bayer/Monsanto, para. 229.
[10] Case M.7932 Dow/DuPont, Annex 5
[11] Case M.7932 Dow/DuPont, Annex 5, para. 7.
[12] Full speech accessible at: https://wayback.archive-it.org/12090/20191129215248/https://ec.europa.eu/commission/commissioners/2014-2019/vestager/announcements/competition-changing-times-0_en; see also https://globalcompetitionreview.com/dg-comp-looking-common-ownership-says-vestager.
[13] Full report available here.
[14] Coordinated effects occur where as a result of the merger, the merging parties and their competitors will successfully be able to coordinate their behaviour in an anti-competitive way, for example by tacit or explicit collusion.
[15] Mergers in oligopolistic markets which the Commission believes would significantly lessen competition without creating or strengthening a dominant position in the marketplace.
Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these developments. For additional information, please contact the Gibson Dunn lawyer with whom you usually work, any member of the Antitrust and Competition practice group or the following authors in Brussels:
Jens-Olrik Murach (+32 2 554 7240, jmurach@gibsondunn.com)
David Wood (+32 2 554 7210, dwood@gibsondunn.com)
Peter Alexiadis (+32 2 554 7200, palexiadis@gibsondunn.com)
Antitrust and Competition Group in Europe:
Brussels
Peter Alexiadis (+32 2 554 7200, palexiadis@gibsondunn.com)
Attila Borsos (+32 2 554 72 11, aborsos@gibsondunn.com)
Jens-Olrik Murach (+32 2 554 7240, jmurach@gibsondunn.com)
Christian Riis-Madsen (+32 2 554 72 05, criis@gibsondunn.com)
Lena Sandberg (+32 2 554 72 60, lsandberg@gibsondunn.com)
David Wood (+32 2 554 7210, dwood@gibsondunn.com)
Munich
Michael Walther (+49 89 189 33 180, mwalther@gibsondunn.com)
Kai Gesing (+49 89 189 33 180, kgesing@gibsondunn.com)
London
Patrick Doris (+44 20 7071 4276, pdoris@gibsondunn.com)
Charles Falconer (+44 20 7071 4270, cfalconer@gibsondunn.com)
Ali Nikpay (+44 20 7071 4273, anikpay@gibsondunn.com)
Philip Rocher (+44 20 7071 4202, procher@gibsondunn.com)
Deirdre Taylor (+44 20 7071 4274, dtaylor2@gibsondunn.com)
© 2020 Gibson, Dunn & Crutcher LLP
Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.
On October 14, 2020, the California Air Resources Board (CARB) issued a letter to light-, medium-, and heavy-duty vehicle and engine manufacturers encouraging industry to report any hardware or software changes made to their vehicles or engines if such changes (i) affect emissions and (ii) were not previously or properly disclosed to CARB. The letter indicates that the agency is in the process of selecting new targets for investigation and is implementing new enhanced testing to identify potential violations. In connection with this forthcoming enforcement initiative, CARB urges industry to proactively and voluntarily disclose any violations under California mobile source regulations before the end of this year. Companies that do so could secure a reduction in penalties ranging from 25% to 75%, depending on the relevant facts and circumstances of the case.
Background. California law, like the federal Clean Air Act, requires manufacturers to disclose all auxiliary emission control devices (“AECDs”) at the time a particular vehicle or engine is submitted for certification. California and federal law also prohibit the installation of any AECD that reduces the effectiveness of the emission control system under conditions which may reasonably be expected to be encountered in normal vehicle operation and use, unless certain exceptions apply. Such functions are referred to as defeat devices. These requirements, or other reporting requirements, apply to a number of mobile source categories including light-duty vehicles, heavy-duty on-road engines and vehicles, highway motorcycles, off-road compression ignition engines, off-road small and large spark-ignition engines, off-highway recreational vehicles, spark-ignition marine engines, and evaporative systems for off-road small and large equipment and marine watercraft.
CARB’s October 14 letter builds upon, and incorporates by reference, a September 25, 2015 letter sent by CARB to light-, medium-, and heavy-duty vehicle and engine manufactures in the wake of the Volkswagen diesel emissions scandal related to its installation of defeat devices in its 2.0L and 3.0L diesel vehicles and reporting issues related thereto. That letter reiterated manufacturers’ obligations to disclose all AECDs at the time of certification, and informed industry of CARB’s intent to begin implementing a robust testing program in support of CARB’s enforcement efforts designed to screen for undisclosed AECDs and defeat devices.
CARB’s letter explains that through this expanded testing program, since 2015, it has achieved multiple settlements with vehicle and engine manufacturers. It further notes that certain manufacturers have “stepped forward” to disclose potential violations, and it encourages others to make voluntary disclosures of any potential violations with respect to the applicable regulatory requirements.
Finally, the letter states that CARB currently is identifying new targets for investigation and plans to open a new, state-of-the-art testing laboratory in 2021, which will better enable it to identify violations related to vehicles and engines sold in California.
Potential Violations Highlighted in the Letter. The letter lists the specific violation types CARB is presently investigating and for which it encourages manufacturers to make proactive reports:
- Undisclosed AECDs
- Defeat Devices
- Unreported Running Changes and Field Fixes
- Failure to Report or Address Warranty Claims
- Manufacturer In-Use Compliance Testing and Manufacturer’s Self-Testing
- Failure to Report Corrective Actions that Should be Under a CARB Approved Recall
- Submission of False Data or Non-Compliance with Regulatory Test Requirements
- Failure to Meet OBD Requirements
- Failure to Disclose Adjustable Parameters that May Affect Emissions
CARB’s Request for Self-Disclosure. The letter concludes by urging manufacturers to voluntarily disclose any potential violations in the above-listed categories by the end of 2020, and reiterates CARB’s authority to enforce California’s emissions laws against noncompliant manufacturers, including through the assessment of maximum penalties of $37,500 per mobile source or engine, per identified violation. CARB states that voluntary disclosure “will trigger a reduction in penalties,” whereas failure to make a voluntary disclosure could result in future enforcement actions or influence ongoing investigations by CARB.
CARB’s letter states that this initiative reflects California’s ongoing efforts to meet existing and future air quality targets and to protect affected communities in the state from the effects of exposure to air pollution.
Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Environmental Litigation and Mass Tort practice group, or the following practice leaders and authors in Washington, D.C.:
Stacie B. Fletcher – Co-Chair (+1 202-887-3627, sfletcher@gibsondunn.com)
Raymond B. Ludwiszewski (+1 202-955-8665, rludwiszewski@gibsondunn.com)
Daniel W. Nelson – Co-Chair (+1 202-887-3687, dnelson@gibsondunn.com)
Rachel Levick Corley (+1 202-887-3574, rcorley@gibsondunn.com)
© 2020 Gibson, Dunn & Crutcher LLP
Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.
The False Claims Act (FCA) is well-known as one of the most powerful tools in the government’s arsenal to combat fraud, waste and abuse anywhere government funds are implicated. The U.S. Department of Justice has issued statements and guidance under the Trump Administration that has effectuated changes in DOJ’s approach to FCA cases. But at the same time, newly filed FCA cases remain at historical peak levels and the DOJ has enjoyed ten straight years of nearly $3 billion or more in annual FCA recoveries. The government has also made clear that it intends vigorously to pursue any fraud, waste and abuse in connection with COVID-related stimulus funds. As much as ever, any company that deals in government funds—especially in the government contracting sector—needs to stay abreast of how the government and private whistleblowers alike are wielding this tool, and how they can prepare and defend themselves.
Please join us to discuss developments in the FCA, including:
- The latest trends in FCA enforcement actions and associated litigation affecting government contractors;
- Updates on the Trump Administration’s approach to FCA enforcement, including developments with recent DOJ Civil Division personnel changes and DOJ’s use of its statutory dismissal authority;
- The coming surge of COVID-related FCA enforcement actions; and
- The latest developments in FCA case law, including developments in particular FCA legal theories affecting your industry and the continued evolution of how lower courts are interpreting the Supreme Court’s Escobar decision.
View Slides (PDF)
PANELISTS:
Jonathan M. Phillips is a partner in the Washington, D.C. office where he focuses on compliance, enforcement, and litigation in the health care and government contracting fields, as well as other white collar enforcement matters and related litigation. A former Trial Attorney in DOJ’s Civil Fraud section, he has particular experience representing clients in enforcement actions by the DOJ, Department of Health and Human Services, and Department of Defense brought under the False Claims Act and related statutes.
Erin N. Rankin is an associate in the Washington, D.C. office. She has extensive experience litigating government contract disputes and advising clients on FAR and DFARS compliance, with a particular focus on cost and pricing issues. Ms. Rankin also assists clients with all types of legal questions and disputes that arise in the creation, performance, and closing out of government contracts. She defends clients against False Claims Act allegations, negotiates and drafts subcontracts, conducts internal investigations, navigates disputes between prime and subcontractors, and represents clients in mandatory disclosures and suspension and debarment proceedings.
Andrew Tulumello is a partner in the Washington, D.C. office. He has represented several government contractors in investigations, suits, and trials (both by qui tam relators and the Department of Justice) under the False Claims Act involving federal contracts worth billions of dollars, including representing a leading defense contractor in 10(b) and derivative litigation following a $500 million deferred prosecution agreement with the Department of Justice. He was profiled by The National Law Journal in recognizing Gibson Dunn’s Washington. D.C. office as the Litigation Department of the Year, in The National Law Journal’s 2017 Appellate Hot List, and by Bloomberg BNA (“Deflategate Lawyer Heads to High Court in Securities Case”).
James Zelenay is a partner in the Los Angeles office where he practices in the firm’s Litigation Department. He is experienced in defending clients involved in white collar investigations, assisting clients in responding to government subpoenas, and in government civil fraud litigation. He also has substantial experience with the federal and state False Claims Acts and whistleblower litigation, in which he has represented a breadth of industries and clients, and has written extensively on the False Claims Act.
On September 25, 2020, California Governor Gavin Newsom signed into law the California Consumer Financial Protection Law (CCFPL), which was passed by the state legislature on August 31, 2020.[1] Under the CCFPL, California’s Department of Business Oversight (DBO) has been renamed the Department of Financial Protection and Innovation (DFPI). Modeled after the Consumer Financial Protection Bureau (CFPB) provisions in the Dodd-Frank Act, the CCFPL aims to strengthen consumer protections by expanding the regulatory authority of the DFPI and promoting access to responsible and affordable credit. The substantive provisions of the CCFPL go into effect on January 1, 2021.
The effects of the CCFPL will be felt most immediately by certain nonbank financial companies – for example, payday lenders and student loan servicers – as well as affiliated “service providers” to financial companies, because of statutory exclusions for regulated banks and many other current DBO nonbank licensees. This said, the CCFPL also gives the DFPI the authority to define other financial services whose providers would thereby become subject to its jurisdiction, and it includes new provisions relating to unfair, deceptive and abusive acts and practices enforcement authority (UDAAP) over statutorily covered persons and service providers. The DFPI will also have the authority to bring civil actions under the Dodd-Frank Act’s consumer protection provisions against all state-licensed banks and nonbank financial companies. As a result, financial institutions doing business in California are now facing a potentially powerful and reinvigorated regulatory authority.
I. Jurisdiction
The CCFPL grants authority to the DFPI to regulate the offering and provision of consumer financial products or services under California’s consumer financial laws, to exercise nonexclusive oversight and enforcement authority under California’s consumer financial laws, and, to the extent permissible under federal consumer financial laws, nonexclusive oversight and enforcement under federal consumer financial laws as well.[2]
The CCFPL’s definition of “consumer financial products and services” closely parallels the broad definition in Title X of the Dodd-Frank Act and its implementing regulations;[3] these include any financial product or service that is delivered, offered, or provided for use by consumers primarily for personal, family, or household purposes.[4] The definition also includes brokering the offer or sale of a franchise in California on behalf of another.[5] Similar to the authority granted to the CFPB under the Dodd-Frank Act, the DFPI will have authority to issue regulations defining any other financial product or service when the financial product or service (i) is entered into or conducted as a subterfuge or with a purpose to evade consumer financial law or (ii) will likely have a material impact on consumers, in each case, subject to certain exceptions.[6]
As a general matter, the CCFPL applies to “covered persons.” Subject to the important exclusions discussed immediately below, this includes (1) any person that engages in offering or providing a consumer financial product or service to a resident of California, (2) any affiliate of a covered person that acts as a service provider, and (3) any service provider to the extent that person offers or provides its own consumer financial product or service.[7] A “service provider” is any person that provides a material service to a covered person in connection with the covered person’s offering or provision of a consumer financial product or service.[8]
Reflecting a legislative compromise, the CCFPL does not apply to the following entities that were previously subject to licensing and DBO regulation: banks, bank holding companies, trust companies, savings and loan associations, savings and loan holding companies, credit unions, industrial loan corporations, insurers, certain electronic financial data transmitters, escrow agents, finance lenders and brokers, mortgage loan originators, broker-dealers, investment advisers, residential mortgage lenders, mortgage servicers, and money transmitters.[9] Payday lenders and student loan servicers, however, are not excluded. Also excluded are licensees of other state agencies and their employees where the licensee or employee is acting under the authority of the other state agency’s license (for example, real estate brokers).[10]
II. UDAAP
Like Title X of Dodd-Frank, the CCFPL contains expanded UDAAP (unfair, deceptive or abusive acts and practices) authority over “covered persons” and “service providers.” The CCFPL permits the DFPI to take action against a covered person or service provider that engages, has engaged, or proposes to engage in UDAAPs with respect to consumer financial products or services.[11] In addition to enforcement authority, the CCFPL authorizes the DFPI to prescribe rules applicable to any covered person or service provider regarding UDAAP, subject to the following limitations.[12] The DFPI must interpret “unfair” and “deceptive” in a manner consistent with California’s broad Unfair Competition Law and case law thereunder.[13] In this area, the definition of “unfair” remains unsettled.[14] Courts typically use one of two tests to determine “unfairness”: (1) an “examination of [the practice’s] impact on its alleged victim, balanced against the reasons, justifications and motives of the alleged wrongdoer”[15] or (2) the Federal Trade Commission’s definition of “unfair” conduct.[16] As for the term “abusive,” the CCFPL requires that it must be interpreted consistently with Title X of the Dodd-Frank Act, and any inconsistency must be resolved in favor of greater protections to the consumer and more expansive coverage.[17]
In addition to UDAAP authority, the DFPI is authorized to bring civil actions or other appropriate proceedings to enforce the consumer protection provisions of Title X of the Dodd-Frank Act and the CFPB’s regulations thereunder, with respect to any entity licensed, registered or subject to DFPI oversight.[18]
III. Other Enforcement Powers
In addition to its UDAAP authority, the DFPI may enforce consumer financial laws with respect to covered persons, service providers, and – broadening its authority substantially – persons who knowingly or recklessly provide substantial assistance to a covered person or service provider in violating consumer financial law.[19] This authority applies only to acts or practices engaged in on or after the January 1, 2021.[20]
The DFPI also has the power to bring administrative and civil actions, issue subpoenas, hold hearings, issue publications, and conduct investigations.[21] It may issue orders directing a person to desist and refrain from engaging in an activity, act, practice or course of business; such injunctive orders become effective and final if a respondent does not request a hearing within 30 days.[22] After notice and an opportunity for a hearing, the DFPI can suspend or revoke the license or registration of a covered person or service provider.[23] The DFPI can also apply to the appropriate superior court for an order compelling the cited licensee or person to comply with its orders.[24]
No civil action can be brought by the DFPI more than four years after the date of discovery of the violation to which an action relates.[25] What constitutes the “date of discovery” is undefined in the CCFPL and similarly undefined in Title X of the Dodd-Frank Act. The United States District Court for the Northern District of California, however, has held that the CFPB’s limitations period begins running when the CFPB “actually” discovers facts constituting a violation or when a “reasonably diligent plaintiff would have” discovered those facts.[26] If, however, an action arises solely under a California or federal consumer financial law, the limitations period under such consumer financial law will apply.[27]
With respect to UDAAP violations, the DFPI will have at its disposal the same wide-ranging remedial tools as the CFPB, including rescission or reformation of contracts, refund of moneys or return of real property, restitution, disgorgement or compensation for unjust enrichment, payment of damages, public notification regarding the violation, and limits on the activities or functions of the violator.[28] Like Title X of the Dodd-Frank Act, the CCFPL does not authorize exemplary or punitive damages,[29] but does empower the DFPI to impose considerable penalties for violations.[30]
CCFPL Penalties | ||||
May not exceed the greater of | ||||
Violation | $5,000 for each day the violation continues | $2,500 for each act or omission in violation | ||
Reckless Violation | $25,000 for each day the violation continues | $10,000 for each act or omission in violation | ||
May not exceed the lesser of | ||||
Knowing Violation | $1,000,000 for each day the violation continues | $25,000 for each act or omission in violation | 1% of the violator’s total assets |
IV. Consumer Complaints
The CCFPL authorizes the DFPI to promulgate regulations to round out its investigatory authority. Like the CFPB, the DFPI may promulgate rules and procedures governing informational requests from covered persons concerning consumer complaints or inquiries.[31] The DFPI is required to finalize its complaint response procedures before it may commence an enforcement action against a covered person or service provider for a violation of these provisions.[32] The DFPI may, however, make the information requests themselves beginning on January 1, 2021. Notably, these provisions do not apply to consumer complaints regarding credit reporting agencies.
V. Registration
Covered persons engaged in the business of offering or providing a consumer financial product or service may become subject to new registration requirements and attendant fees, as the latter will help support the DFPI’s operating budget.[33] The authority to promulgate rules related to the registration and reporting of covered persons will expand the reach of the DFPI to oversee entities that are not currently subject to licensure or registration. In order to deter regulation by enforcement, the CCFPL requires the DFPI to promulgate registration rules no later than three years following the initiation of its second action to enforce a violation of the CCFPL by persons providing the same or substantially similar consumer financial product or service.[34]
VI. Covered Person Reporting
Like the CFPB, the DFPI can require a covered person to generate, provide, or retain records for the purposes of facilitating oversight and assessing and detecting risks to consumers.[35] In conducting any monitoring, regulatory or assessment activity, the DFPI can also gather information regarding the organization, business conduct, markets, and activities of any covered persons or service providers.[36]
VII. DFPI Reporting
The DFPI must prepare and publish an online annual report detailing actions taken during the prior year.[37] The report must include information on actions with respect to rulemaking, enforcement, oversight, consumer complaints and resolutions, education, research, and the activities of the Financial Technology Innovation Office.[38] The report may also include recommendations, including those intended to result in improved oversight, greater transparency, or increased availability of beneficial financial products and services in the marketplace.[39]
VIII. Conclusion
Notwithstanding its exclusions for many entities previously subject to DBO oversight, the CCFPL creates a more powerful state financial services regulator with new registration authority, expanded enforcement authority, and UDAAP authority. If it makes full use of the CCFPL’s powers, the DFPI will become a significant consumer regulator. Firms that offer consumer financial products and services in California will therefore need to pay close attention to the DFPI in 2021 as it begins to implement its new statutory authority.
______________________
[1] California Assembly Bill 1864 (passed August 31, 2020), available here.
[3] See 12 C.F.R. § 1091.101 (definition of “consumer financial product or service”) and 12 U.S.C. § 5481(15) (definition of “financial product or service”).
[4] New Cal. Fin. Code § 90005(c).
[5] Id. § 90005(e). For a complete list of “financial products or services,” see id. § 90005(k).
[6] Compare New Cal. Fin. Code § 90005(k)(12) with 12 U.S.C. § 5481(15)(A)(xi).
[7] New Cal. Fin. Code § 90005(f).
[11] Id. §§ 90012(a); 90009(c); 12 U.S.C. § 5531(a), (b).
[12] New Cal. Fin. Code § 90009(c). The statute further authorizes the DFPI to define UDAAP in connection with the offering or provision of commercial financing or other financial products and services to small business recipients, nonprofits, and family farms. Id. § 90009(c)(3).
[14] See, e.g., Mui Ho v. Toyota Motor Corp., 931 F. Supp. 2d 987, 1000 n.5 (N.D. Cal. 2013) (“California courts and the legislature have not specified which of several possible ‘unfairness’ standards is the proper one.”); Ferrington v. McAfee, Inc., No. 10-CV-01455-LHK, 2010 WL 3910169, at *11 (N.D. Cal. Oct. 5, 2010) (“California law is currently unsettled with regard to the correct standard to apply to consumer suits alleging claims under the unfair prong of the UCL.”).
[15] Motors, Inc. v. Times Mirror Co., 102 Cal. App. 3d 735, 740 (1980).
[16] The Federal Trade Commission Act provides that an act or practice is unfair when (1) it causes or is likely to cause substantial injury to consumers, (2) the injury is not reasonably avoidable by consumers and (3) the injury is not outweighed by countervailing benefits to consumers or to competition. 15 U.S.C. § 45(n). The CFPB uses the same standard for unfairness. 12 U.S.C. § 5531(c).
[17] New Cal. Fin. Code § 90009(c)(3).
[26] See Consumer Financial Protection Bureau v. Nationwide Biweekly Administration, Inc., et. al., No. 15-cv-02106-RS (N.D. Cal. Sep. 8, 2017)
[27] New Cal. Fin. Code § 90014.
[29] Compare New Cal. Fin. Code § 90013(d) with 12 U.S.C. § 5565(a)(3).
[30] New Cal. Fin. Code § 90013(d).
[31] Id. § 90008. Notably, these provisions do not apply to consumer complaints regarding consumer reporting agencies. Id.
[35] Id. § 90009(b); 12 U.S.C. § 5514(b)(7)(B).
[36] New Cal. Fin. Code § 90010(f).
The following Gibson Dunn lawyers assisted in preparing this client update: Arthur S. Long, Benjamin B. Wagner, James O. Springer and Samantha J. Ostrom.
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 in the firm’s Financial Institutions practice group, or the following:
Arthur S. Long – New York (+1 212-351-2426, along@gibsondunn.com)
Matthew L. Biben – New York (+1 212-351-6300, mbiben@gibsondunn.com)
Michael D. Bopp – Washington, D.C. (+1 202-955-8256, mbopp@gibsondunn.com)
Stephanie Brooker – Washington, D.C. (+1 202-887-3502, sbrooker@gibsondunn.com)
M. Kendall Day – Washington, D.C. (+1 202-955-8220, kday@gibsondunn.com)
Mylan L. Denerstein – New York (+1 212-351- 3850, mdenerstein@gibsondunn.com)
Jeffrey L. Steiner – Washington, D.C. (+1 202-887-3632, jsteiner@gibsondunn.com)
Benjamin B. Wagner – Palo Alto (+1 650-849-5395, bwagner@gibsondunn.com)
James O. Springer – New York (+1 202-887-3516, jspringer@gibsondunn.com)
Samantha J. Ostrom – Washington, D.C. (+1 202-955-8249, sostrom@gibsondunn.com)
© 2020 Gibson, Dunn & Crutcher LLP
Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.
New York of counsel Karin Portlock and associate Vinay Limbachia are the authors of “The Constitutional Risks In Pandemic-Era Criminal Jury Trials” published by Law360 on October 9, 2020.
Washington, D.C. partner Judith Alison Lee, of counsel Christopher Timura, and associates R.L. Pratt and Scott Toussaint are the authors of “U.S. Export Controls: The Future of Disruptive Technologies” [PDF] published in the NATO Legal Gazette, Issue 41 in October 2020.
This Client Alert provides an update on shareholder activism activity involving NYSE- and Nasdaq-listed companies with equity market capitalizations in excess of $1 billion and below $100 billion (as of the close of trading on June 30, 2020) during the first half of 2020. As the markets weathered the dislocation caused by the novel coronavirus (COVID-19) pandemic, shareholder activist activity decreased dramatically. Relative to the first half of 2019, the number of public activist actions declined from 51 to 28, the number of activist investors taking actions declined from 33 to 10 and the number of companies targeted by such actions declined from 46 to 22.
By the Numbers – H1 2020 Public Activism Trends

Additional statistical analyses may be found in the complete Activism Update linked below.
The decline in shareholder activism activity brought concentration among those investors engaged in activist activity during the first half of 2020. For example, during the first half of 2020, NorthStar Asset Management launched six campaigns and Starboard Value LP launched four campaigns. Three activists represented half of the total public activist actions that began during the first half of 2020.
In addition, as compared to the first half of 2019, activists turned their focus away from agitating for particular transactions as the animating rationale for the campaigns they launched. While changes in board composition remained the leading rationale for campaigns initiated in the first half of 2019 and the first half of 2020, M&A (which includes advocacy for or against spin-offs, acquisitions and sales) and acquisitions of control, which served as the rationale for 24% and 8%, respectively, of activist campaigns in the first half of 2019, declined to 9% and 0%, respectively, in the first half of 2020. By contrast, advocacy for changes in governance, which emerged in 6% of campaigns in the first half of 2019, became the principal rationale for 28% of campaigns in the first half of 2020. Business strategy also remained a high-priority area of focus for shareholder activists, representing the rationale for 22% of campaigns begun in the first half of 2019 and 24% of campaigns begun in the first half of 2020. The rate at which activists engaged in proxy solicitation remained consistent at 24% in the first half of 2019 and 21% in the first half of 2020. (Note that the percentages for campaign rationales described in this paragraph sum to over 100%, as certain activist campaigns had multiple rationales.)
Publicly filed settlement agreements declined alongside the decrease in shareholder activism activity. Nine settlement agreements were filed during the first half of 2020, as compared to 17 such agreements during the first half of 2019. Nonetheless, the settlement agreements into which activists and companies entered contained many of the same features noted in prior reviews, including voting agreements and standstill periods as well as non-disparagement covenants and minimum and/or maximum share ownership covenants. Expense reimbursement provisions appeared in two thirds of the settlement agreements reviewed, which represented an increase relative to historical trends. We delve further into the data and the details in the latter half of this Client Alert.
We hope you find Gibson Dunn’s 2020 Mid-Year Activism Update informative. If you have any questions, please do not hesitate to reach out to a member of your Gibson Dunn team.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the issues discussed in this publication. For further information, please contact the Gibson Dunn lawyer with whom you usually work, or any of the following authors in the firm’s New York office:
Barbara L. Becker (+1 212.351.4062, bbecker@gibsondunn.com)
Dennis J. Friedman (+1 212.351.3900, dfriedman@gibsondunn.com)
Richard J. Birns (+1 212.351.4032, rbirns@gibsondunn.com)
Eduardo Gallardo (+1 212.351.3847, egallardo@gibsondunn.com)
Saee Muzumdar (+1 212.351.3966, smuzumdar@gibsondunn.com)
Daniel S. Alterbaum (+1 212.351.4084, dalterbaum@gibsondunn.com)
Jessica L. Bondy (+1 212.351.3802, jbondy@gibsondunn.com)
Please also feel free to contact any of the following practice group leaders and members:
Mergers and Acquisitions Group:
Jeffrey A. Chapman – Dallas (+1 214.698.3120, jchapman@gibsondunn.com)
Stephen I. Glover – Washington, D.C. (+1 202.955.8593, siglover@gibsondunn.com)
Jonathan K. Layne – Los Angeles (+1 310.552.8641, jlayne@gibsondunn.com)
Securities Regulation and Corporate Governance Group:
Brian J. Lane – Washington, D.C. (+1 202.887.3646, blane@gibsondunn.com)
Ronald O. Mueller – Washington, D.C. (+1 202.955.8671, rmueller@gibsondunn.com)
James J. Moloney – Orange County, CA (+1 949.451.4343, jmoloney@gibsondunn.com)
Elizabeth Ising – Washington, D.C. (+1 202.955.8287, eising@gibsondunn.com)
Lori Zyskowski – New York (+1 212.351.2309, lzyskowski@gibsondunn.com)
© 2020 Gibson, Dunn & Crutcher LLP
Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.
California’s housing shortage continues as the state grapples with the COVID-19 pandemic. In an effort to mitigate delays in housing production throughout the state, California Governor Gavin Newsom recently signed into law Assembly Bill 1561 (“AB 1561”), which extends the validity of certain categories of residential development entitlements. Devised as a remedy for impediments to housing development as a result of interruptions in planning, financing, and construction due to the pandemic, AB 1561 helps cities and counties that would otherwise need to devote significant resources to addressing individual permit extensions on a case-by-case basis.
AB 1561 adds a new section to the state’s Government Code, Section 65914.5, that extends the effectiveness of “housing entitlements” that were (a) issued and in effect prior to March 4, 2020 and (b) set to expire prior to December 31, 2021. All such qualifying housing entitlements will now remain valid for an additional period of eighteen (18) months.
Section 65914.5 broadly defines a “housing entitlement” to include any of the following:
- A legislative, adjudicative, administrative, or any other kind of approval, permit, or other entitlement necessary for, or pertaining to, a housing development project issued by a state agency;
- An approval, permit, or other entitlement issued by a local agency for a housing development project that is subject to the Permit Streamlining Act (Cal. Gov. Code § 65920 et seq);
- A ministerial approval, permit, or entitlement by a local agency required as a prerequisite to the issuance of a building permit for a housing development project;
- Any requirement to submit an application for a building permit within a specified time period after the effective date of a housing entitlement described in numbers 1 and 2 above; and
- A vested right associated with an approval, permit, or other entitlement described in numbers 1 through 4 above.
Notably, specifically excluded from the definition of a “housing entitlement” are: (a) development agreements authorized pursuant to California Government Code Section 65864; (b) approved or conditionally approved tentative maps which were previously extended for at least eighteen (18) months on or after March 4, 2020 pursuant to Government Code Section 66452.6; (c) preliminary applications under SB 330 (the Housing Crisis Act of 2019); and (d) applications for development approved under SB 35 (Cal. Gov. Code § 65913.4).
Further, housing entitlements which were previously granted an extension by any state or local agency on or after March 4, 2020, but before the effective date of AB 1561 (i.e. September 28, 2020), will not be further extended for an additional 18-month period so long as the initial extension period was for no less than eighteen (18) months.
The definition of a “housing development project” is broad and includes any of the following: (x) approved or conditionally approved tentative maps, vesting tentative maps, or tentative parcel maps for Subdivision Map Act compliance (Cal. Gov. Code § 66410 et seq); (y) residential developments; and (z) mixed-use developments in which at least two-thirds (2/3rds) of the square footage of the development is designated for residential use. For purposes of calculating the square footage devoted to residential use within a mixed-use development, the calculation must include any additional density, floor area, and units, and any other concession, incentive, or waiver of development standards obtained under California’s Density Bonus Law (Cal. Gov. Code § 65915); however, the square footage need not include any underground space such as a basement or underground parking garage.
AB 1561 makes clear that while the extension provision of Section 65914.5 applies to all cities, including charter cities, local governments are not precluded from further granting extensions to existing entitlements.
Gibson Dunn lawyers are available to assist in addressing any questions you may have regarding these developments. For additional information, please contact any member of Gibson Dunn’s Real Estate or Land Use Group, or the following authors:
Doug Champion – Los Angeles (+1 213-229-7128, dchampion@gibsondunn.com)
Amy Forbes – Los Angeles (+1 213-229-7151, aforbes@gibsondunn.com)
Ben Saltsman – Los Angeles (+1 213-229-7480, bsaltsman@gibsondunn.com)
Matthew Saria – Los Angeles (+1 213-229-7988, msaria@gibsondunn.com)
© 2020 Gibson, Dunn & Crutcher LLP
Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.
While the COVID-19 pandemic has disrupted the practice of law in 2020, courts have continued to churn out important rulings impacting the media and entertainment industries. Here, Gibson Dunn’s Media, Entertainment and Technology Practice Group highlights some of those key cases and trends: from politically charged First Amendment cases to copyright battles over rock anthems, fictional pirates, and real-life music piracy.
I. Recent Litigation Highlights
A. First Amendment Litigation
1. President Trump’s Failed Efforts to Block Publication of Critical Books.
This presidential election year saw two efforts by the federal government and President Trump to enjoin the publication of forthcoming books critical of the current president. Both efforts to obtain a prior restraint order failed and the books were released, though one of the cases is far from over.
On June 20, 2020, the District Court for the District of Columbia rejected the U.S. government’s motion for a preliminary injunction and temporary restraining order to block former National Security Advisor John Bolton from publishing his memoir, The Room Where it Happened.[1] The United States filed its lawsuit on June 16, 2020, alleging that Bolton’s book contains sensitive information that could compromise national security, that its publication breached non-disclosure agreements that bound Bolton, and that Bolton abandoned the prepublication review process.[2] In addition to an injunction, the government seeks as a remedy a constructive trust over Bolton’s proceeds from the book. PEN American Center, Inc., Association of American Publishers, Inc., Dow Jones & Company, Inc., The New York Times Company, Reporters Committee or Freedom of the Press, The Washington Post, the ACLU and others filed amicus briefs opposing the government’s effort to enjoin publication, arguing, among other things, that the First Amendment prohibits prior restraints for any duration of time.[3] Rejecting the government’s motion, the district court held that, while the government is likely to succeed on the merits of its complaint, it did not establish that it would suffer irreparable injury absent an injunction.[4] Judge Lamberth had harsh words for Bolton, stating that—while not controlling as to that present motion—Bolton “has exposed his country to harm and himself to civil (and potentially criminal) liability.”[5] On July 30, 2020, the government filed a motion for summary judgment against Bolton.[6] On September 15, 2020, it was reported that the Justice Department had opened a criminal investigation into Bolton’s alleged disclosure of classified information in connection with his book.[7] On October 1, 2020, the district court denied Bolton’s motion to dismiss the government’s civil case against him.[8] [Disclosure: Gibson Dunn represented amicus PEN American Center, Inc. in opposing the government’s effort to enjoin publication.]
On July 13, 2020, the New York Supreme Court rejected a similar attempt by President Trump’s brother, Robert S. Trump—brought shortly before his death—to enjoin publication of their niece Mary Trump’s book, Too Much and Never Enough.[9] Robert Trump filed his motion for temporary restraining order and preliminary injunction against Mary Trump and her publisher, Simon and Schuster, on June 26, 2020, alleging that publication of Ms. Trump’s book would breach a confidentiality clause in a nearly 20-year-old settlement agreement among the Trump family regarding the president’s parents’ estates.[10] Ms. Trump argued, among other things, that a prior restraint is not a constitutionally permissible method of enforcing a settlement agreement’s confidentiality provision and that the contract Robert Trump invoked was not enforceable under the circumstances.[11] The Court agreed, finding that “in the vernacular of First year law students, ‘Con. Law trumps Contracts.’”[12] Ms. Trump’s book was released and became a best-seller. [Disclosure: Gibson Dunn represents Mary Trump in this lawsuit.]
2. Defamation Litigation
a. A Barrage of Defamation Claims, Settlements, Trials, and Dismissals.
The past year has been particularly active in the defamation arena. While media defendants have won some high-profile victories over slander and libel claims, such claims remain a threat, and plaintiffs continue to file lawsuits with headline-grabbing damages requests. Sarah Palin’s libel case against The New York Times Company—over a 2017 editorial that she alleges falsely tied her to a mass shooting—will proceed to trial in February 2021 after the judge denied dueling summary judgment motions and found that the case should be decided by a jury.[13] And this year, Nicholas Sandmann settled suits brought against The Washington Post and CNN over coverage of his viral-video encounter with a Native American activist at the 2019 March for Life rally in Washington D.C.[14] Sandmann still has pending suits against NBC, ABC News, CBS News, The New York Times, Gannett, and Rolling Stone.[15]
On the other hand, in December 2019, a Los Angeles jury determined that Elon Musk did not defame Vernon Unsworth when he called him a “pedo guy” during a name-calling spat on Twitter.[16] Moreover, over the past year, Congressman Devin Nunes has seen many of his defamation suits against media companies rebuffed, with courts recently dismissing his lawsuit against Esquire and journalist Ryan Lizza, and dismissing another suit against the political research firm Fusion GPS, though Nunes continues to pursue both actions.[17] Nunes also continues to try to sue Twitter and certain of its users for defamation, including a Republican political strategist and anonymous parody accounts belonging to a fake cow (Devin Nunes’ cow @DevinCow) and to Nunes’ “mother” (Devin Nunes’ Alt-Mom @NunesAlt), even after Twitter was dismissed from the case.[18] Nunes has also filed suits against McClatchy, The Washington Post, and CNN.[19] [Disclosure: Gibson Dunn represents The McClatchy Company in the suit filed by Nunes.]
b. Rachel Maddow Wins Dismissal of One America News Network Owner’s Defamation Claim.
On May 22, 2020, Judge Cynthia A. Bashant of the Southern District of California granted Rachel Maddow, MSNBC, NBCUniversal, and Comcast’s anti-SLAPP special motion to strike in response to a complaint filed by Herring Networks, Inc., owner of the conservative news outlet One America News (“OAN”).[20] Herring Networks filed its lawsuit in September 2019 over comments Ms. Maddow made during a broadcast of The Rachel Maddow Show. During that show, she commented on a Daily Beast article that reported how OAN employed an on-air reporter who also worked for Sputnik, a pro-Kremlin news organization funded by the Russian government. While reporting on the article, Ms. Maddow exclaimed, “the most obsequiously pro-Trump right wing news outlet in America really literally is paid Russian propaganda. Their on air U.S. politics reporter is paid by the Russian government to produce propaganda for that government.”[21] Herring Networks argued Ms. Maddow’s statement that the network “really literally is paid Russian propaganda” was false and defamatory.[22]
Ms. Maddow and the other defendants challenged Herring Networks’ suit via a motion to strike under California’s anti-SLAPP law, arguing that Ms. Maddow’s statement was fully protected opinion under the First Amendment and, in any event, was substantially true.[23] The court granted the defendants’ motion, explaining Ms. Maddow clearly outlined the basis for her opinions during the segment and “inserted her own colorful commentary” regarding the facts.[24] As such, the court found the statement was protected opinion as a matter of law and disagreed with Herring Networks’ argument that Ms. Maddow’s statement raised a factual issue for a jury. The court dismissed Herring Networks’ complaint with prejudice, and ordered the defendants to file a motion to recover their fees (as required by California’s anti-SLAPP law).[25] Herring Networks has filed a notice of appeal with the Ninth Circuit. [Disclosure: Gibson Dunn represents Ms. Maddow, MSNBC, NBCUniversal, and Comcast in this action.]
c. “Wolf of Wall Street” Libel Claim Fails.
In June 2020, the Second Circuit rejected a libel lawsuit filed against Paramount Pictures over the film “The Wolf of Wall Street,” in which Wall Street brokerage-firm attorney Andrew Greene alleged he was defamed by a fictional character in the film who Greene claimed resembled him.[26] Greene, an ex-employee of the financial firm portrayed in the film, alleged that the film featured a character that is “recognizable as him” and “depicted as engaging in behavior that defames his character.”[27] The District Court for the Eastern District of New York granted the defendants’ motion for summary judgment, holding that Greene failed to raise a genuine issue of material fact as to whether Paramount Pictures acted with knowledge or reckless disregard in making defamatory statements “of and concerning” Greene.[28]
The Second Circuit affirmed, holding that Greene’s claims failed as a matter of law because a reasonable jury would not find that Paramount Pictures acted with actual malice.[29] First, the Second Circuit found that Paramount Pictures “took appropriate steps to ensure that no one would be defamed by the Film.”[30] Those steps included reading the book and news articles on which the film was based and assigning characters fictitious names with no “specific real life analogue.”[31] Second, the circuit court found that “no reasonable viewer” of “The Wolf of Wall Street” would believe that Paramount Pictures intended the character in the film as a depiction of Greene, as Paramount Pictures knew the film character was a fictitious, composite character.[32] Also, Greene worked as head of the corporate finance department at the financial firm portrayed in the film, while the character at issue worked as a broker on the trading floor.[33] Finally, the film included a disclaimer that characters in the film were fictionalized.[34]
3. Right of Publicity
a. New York Considers New Right of Publicity Law.
In July 2020, both houses of the New York Legislature unanimously passed a much-anticipated proposed right of publicity bill, which awaits signature by Governor Andrew Cuomo.[35] The bill, Senate Bill S5959D/Assembly Bill No. A05605B, would replace New York Civil Rights Law § 50 and changes the right of publicity landscape in the state.[36] Significantly, the bill makes a person’s right of publicity an independent property right that is freely transferable and creates postmortem rights for forty years after the death of an individual.[37] It further “protects a deceased performer’s digital replica in expressive works to protect against persons or corporations from misappropriating a professional performance.”[38]
Given the rise of pornographic deepfakes—“hyper-realistic manipulation of digital imagery that can alter images so effectively it’s largely impossible to tell real from fake”[39]—SAG-AFTRA called the bill’s passage “a remarkable step in the ongoing effort to protect our members, and all performers, from the exploitation of our images and voices – the very assets we use to make a living.”[40] But others, including the Motion Picture Association of America (“MPAA”) and the New York State Broadcasters Association, Inc., have voiced concerns about the bill’s implications, arguing it chills speech and presents First Amendment concerns.[41] Specifically, the MPAA argues that the bill’s language is vague and overbroad and interferes with the ability of filmmakers to tell stories inspired by real people and events.[42]
B. Profit Participation & Royalties
1. AMC Prevails in First The Walking Dead Profits Trial in California.
On July 22, 2020, following a bench trial, Judge Daniel Buckley of the Superior Court for the County of Los Angeles issued a sweeping ruling in favor of AMC in a profit participation action regarding the hit AMC series The Walking Dead.[43] This California lawsuit, governed by New York contract law, was brought by various show participants, including Robert Kirkman, David Alpert, and Gale Anne Hurd. The case also involved issues pertaining to spin-offs Fear the Walking Dead and Talking Dead. The profit participants alleged that AMC failed to properly account to them under their agreements, and Judge Buckley ordered the eight-day trial to resolve key, gateway issues of contractual interpretation.
Those issues included (1) whether AMC’s standard modified adjusted gross receipts definition (“MAGR Definition”) governed the calculation, reporting, and payment of MAGR to the plaintiffs; and (2) whether the affiliate transaction provision in certain plaintiffs’ agreements applied to AMC Network’s exhibition of The Walking Dead.[44]
Judge Buckley found that AMC’s standard MAGR Definition governed the calculation, reporting, and payment of MAGR to the plaintiffs, even where the MAGR exhibit was supplied after the plaintiffs signed their agreements. The court looked at the plain text of the parties’ agreements, which stated that “MAGR shall be defined, computed, accounted for and paid in accordance” with AMC’s MAGR Definition, and explained that “New York courts routinely uphold the right of one party to a contract to fix a material price term in the future.”[45] The court also noted that the plaintiffs bargained for and received particular MAGR protections in the agreements themselves.[46] Though the court found looking to extrinsic evidence was unnecessary, it explained how years of post-performance conduct only confirmed AMC’s position that its MAGR Definition controlled, with certain plaintiffs waiting four years to object to the MAGR Definition after they received it, all the while accepting payments from AMC under that definition.[47]
One of the plaintiffs’ key arguments was that the license fee imputed for AMC Network’s exhibition of The Walking Dead, which appeared in the MAGR Definition, was too low and not in compliance with the affiliate transaction provisions in their agreements. Those provisions required “‘AMC’s transactions with Affiliated Companies [to] be on monetary terms comparable with the terms on which AMC enters into similar transactions with unrelated third party distributors for comparable programs after arms’ length negotiation.”[48] The court held AMC Network’s exhibition of The Walking Dead was governed by the imputed license fee in the MAGR Definition, and that the affiliate transaction provisions only applied to transactions where the participant “has no seat at the table to negotiate. . . .”[49] The court found the provision did not apply to the kind of internal rights transfers the plaintiffs challenged.
Similar lawsuits over The Walking Dead were filed by CAA and Frank Darabont in New York.[50] The consolidated jury trial in these lawsuits is scheduled to begin in April 2021. [Disclosure: Gibson Dunn represents AMC in these actions.]
C. #MeToo Litigation
1. Ninth Circuit Revives Ashley Judd’s Harassment Claim against Harvey Weinstein.
On July 29, 2020, the Ninth Circuit ruled that the actor Ashley Judd could proceed with her sexual harassment claim against Harvey Weinstein. Ms. Judd filed her action alleging defamation, sexual harassment, intentional interference with prospective economic advantage, and unfair competition on April 30, 2018. Ms. Judd’s claims stemmed from events occurring in and around 1997, at which time Ms. Judd alleges Mr. Weinstein invited her, a Hollywood newcomer, to a “general” industry meeting at the Peninsula Hotel in Beverly Hills, where she was to seek advice and guidance. When Ms. Judd arrived, she was directed to Mr. Weinstein’s private hotel room, where Mr. Weinstein appeared in a bathrobe, asked to give Ms. Judd a massage, and asked her to watch him shower.
Judge Phillip Gutierrez of the Central District of California granted Mr. Weinstein’s motion to dismiss Ms. Judd’s sexual harassment claim, brought pursuant to California Civil Code section 51.9, finding Ms. Judd and Mr. Weinstein’s relationship did not fall within the definition of a “business, service, or professional relationship” under the statute. The court nonetheless explained that “an appellate decision on these important issues could provide needed guidance to lower courts applying § 51.9.” Ms. Judd appealed the dismissal of her sexual harassment claim to the Ninth Circuit.
Reversing the district court, the Ninth Circuit explained that “[Ms. Judd’s and Mr. Weinstein’s] relationship consisted of an inherent power imbalance wherein Weinstein was uniquely situated to exercise coercion or leverage over Judd by virtue of his professional position and influence as a top producer in Hollywood.”[51] The court held that section 51.9 does, in fact, cover such business or professional relationships where there is an inherent power imbalance.[52] [Disclosure: Gibson Dunn represents Ashley Judd in this action.]
D. Music Industry Litigation
1. Led Zeppelin Prevails in En Banc “Stairway” Ruling.
On March 9, 2020, the Ninth Circuit, sitting en banc, reinstated a Los Angeles jury’s 2016 verdict clearing Led Zeppelin of infringing the band Spirit’s song “Taurus.”[53] Michael Skidmore, the trustee of for the estate of Spirit’s founding member Randy Wolfe (pka Randy California), had alleged that the opening riff of “Stairway to Heaven” is substantially similar to “Taurus,” and infringed Wolfe’s copyright in the composition. In 2016, the jury found no substantial similarity between “Taurus” and the rock anthem under the extrinsic test for unlawful appropriation. But in September 2018, a Ninth Circuit three-judge panel vacated the verdict and remanded the case for a new trial.[54] The three-judge panel found that lack of an instruction explaining copyrights that cover the selection and arrangement of music, combined with an allegedly faulty instruction on the requisite element of originality prejudicially “undermined the heart of plaintiff’s argument.”[55]
The March 2020 en banc ruling overturned the panel in a detailed opinion, agreeing with U.S. District Judge R. Gary Klausner that the 1909 Copyright Act, not the 1976 Copyright Act, governed, and that only the bare-bones “deposit copy” of “Taurus” was properly introduced for comparison to “Stairway to Heaven.”[56] The en banc panel held that “[b]ecause the 1909 Copyright Act did not offer protection for sound recordings, [Spirit]’s one-page deposit copy defined the scope of the copyright at issue.”[57] Thus, it was not error for the district court to deny the plaintiff’s request to play for the jury sound recordings of “Taurus.”[58]
The en banc panel also rejected the “inverse ratio rule” previously adopted by the Ninth Circuit, under which it had “permitted a lower standard of proof of substantial similarity where there is a high degree of access.”[59] To preserve the inverse ratio rule, Judge McKeown wrote for the en banc panel, would “unfairly advantage[] those whose work is most accessible by lowering the standard of proof for similarity,” thereby benefitting “those with highly popular works.”[60] The “Stairway” case had been closely watched by the music industry and attracted numerous amicus at the court of appeals, including the U.S. Department of Justice supporting Led Zeppelin’s position on appeal. On October 5, 2020, the U.S. Supreme Court denied Skidmore’s petition for writ of certiorari.[61]
2. Labels’ and Publishers’ Billion-Dollar Verdict Against Cox Upheld.
On June 2, 2020, U.S. District Judge Liam O’Grady of the Eastern District of Virginia largely upheld a $1B verdict against Cox Communications won by over 50 records labels and music publishers, including Sony Music Entertainment, Universal Music Group, and Warner Bros. Records.[62]
Judge O’Grady rejected Cox’s contention that the evidence at trial was insufficient, concluding that there was “overwhelming” and “strong” evidence that Cox’s users illegally reproduced the sound recordings and distributed them over Cox’s network.[63] Further, there was “ample” evidence for the jury to conclude that Cox gained some direct benefit from the infringement and find Cox liable for vicarious copyright infringement.[64] Judge O’Grady emphasized evidence showing that “Cox looked at customers’ monthly payments when considering whether to terminate them for infringement.”[65]
Judge O’Grady also rejected Cox’s argument that the award was “grossly excessive.”[66] He noted that the per-work damages of $99,830.29 were more than $50,000 below the statutory maximum under the Copyright Act,[67] but ordered additional briefing on the issue of the calculation of the number of infringed works.[68]
3. Music Publishers and Peloton Reach Settlement in Copyright Suit After Dismissal of Cycling Company’s Counterclaims.
In March 2019, more than a dozen music publishers filed suit in New York federal court alleging popular fitness tech company Peloton failed to license songs for its online classes, thereby violating the publishers’ copyrights.[69] The publishers claimed over $150 million in damages for unlicensed uses of more than 1000 songs, with each use of an allegedly unlicensed song constituting a separate infringement because audiovisual “sync” licenses are issued on a per-video basis.[70] The publishers also alleged Peloton’s conduct was “deliberate and willful” because the company had obtained the necessary “sync” licenses from other music copyright owners.[71]
In response, Peloton counterclaimed against the publishers, alleging that any failure to obtain licenses was due to the National Music Publishers’ Association’s (“NMPA”) creation of a price fixing “cartel.”[72] Peloton alleged the NMPA both engaged in “horizontal collusion” to inflate prices in its own negotiations with the company and tortiously interfered with Peloton’s ability to negotiate with individual publishers.[73] On January 29, 2020, U.S. District Judge Denise Cote dismissed Peloton’s counterclaims without leave to amend, finding that Pelton failed define a “relevant market,” a necessary element to Peloton’s antitrust claim under Section 1 of the Sherman Act.[74] A month later, the case settled.
4. Second Circuit Upholds Copyright Win for Drake.
On February 3, 2020, the Second Circuit affirmed the Southern District of New York’s ruling that Drake did not violate copyright law by incorporating a 35-second clip of the song “Jimmy Smith Rap” into his song “Pound Cake” without a license.[75] The lawsuit began in April 2014, when the estate of Jimmy Smith sued Drake and Drake’s record labels and publishers for copyright infringement. The defendants moved for summary judgment, arguing that Drake’s use of the song was protected by the fair use doctrine.[76]
The District Court granted the defendants’ motion for summary judgment in May 2017.[77] In its 2020 ruling, the Second Circuit affirmed, finding Drake’s use of the song was protected by the fair use doctrine, as the use was “transformative.”[78] The Court stated that “‘Pound Cake’ criticizes the jazz-elitism that the ‘Jimmy Smith Rap’ espouses. By doing so, it uses the copyrighted work for a purpose, or imbues it with a character, different from that for which it was created.”[79] In addition, the Court found “no evidence that ‘Pound cake’ usurps demand for ‘Jimmy Smith Rap.’”[80] [Disclosure: Gibson Dunn represented one of the defendants in the action.]
E. Copyright Litigation
1. Ninth Circuit Revives Screenwriter’s Pirates of the Caribbean Copyright-Infringement Suit.
On July 22, 2020, the Ninth Circuit revived a screenwriter’s copyright-infringement suit against The Walt Disney Company alleging that the film Pirates of the Caribbean: Curse of the Black Pearl is substantially similar to plaintiff’s screenplay.[81] The district court had granted Disney’s Rule 12(b)(6) motion to dismiss on the grounds that the two works were not substantially similar as a matter of law.[82] In reversing, the Ninth Circuit acknowledged “striking differences between the two works,” but nonetheless found “the selection and arrangement of the similarities between them [to be] more than de minimis” and sufficient to warrant denial of Disney’s motion.[83]
The district court had noted the similarities between the works but concluded that many of the shared elements were “unprotected generic, pirate-movie tropes.”[84] The Ninth Circuit disagreed, explaining “it is difficult to know whether such elements are indeed unprotectible material” at the pleading stage, and further noting that additional evidence—including expert testimony—“would help inform the question of substantial similarity.”[85] According to the court, such additional evidence would be “particularly useful” given that “the blockbuster Pirates of the Caribbean film franchise may itself have shaped what are now considered pirate-movie tropes.”[86] Ultimately, because “[t]he district court erred by failing to compare the original selection and arrangement of the unprotectible elements between the two works,” the Ninth Circuit reversed the dismissal and remanded for further proceedings.[87] And on August 31, 2020, the Ninth Circuit denied Disney’s petition for panel rehearing and for rehearing en banc. Some commentators and practitioners have noted that the ruling appears to represent the latest in a shift away from the Ninth Circuit’s prior precedents that had generally leaned toward upholding dismissals of substantial similarity suits, representing a cautionary ruling for industry defendants.[88]
2. Copyright Act Preempts Lyrics Site Genius’s Claims Against Google.
On August 10, 2020, District Judge Margo Brodie dismissed Genius Media Group Inc.’s suit against Google. Genius Media had alleged in December 2019 that Google “misappropriated lyric transcriptions from its website.”[89] According to its complaint, Genius Media earns revenue by, among other things, licensing its database of high-quality lyrics to companies and generating ad revenue via traffic to its website.[90] In its complaint, Genius Media alleged that when users search for song lyrics, Google’s “Information Box”—which appears above the search results—displays complete song lyrics obtained from Genius Media’s website and thus reduces traffic to that site.[91] Genius Media sued Google for breach of contract, indemnification, unfair competition under New York and California law, and unjust enrichment.[92]
Judge Brodie determined, however, that Genius Media’s state law claims were preempted by the Copyright Act.[93] As an initial matter, Judge Brodie found that the transcribed song lyrics were among the works protected by the Copyright Act, and because the subject of Plaintiff’s claims was the transcribed lyrics, the subject-matter prong of the Copyright Act’s preemption test was met.[94] Judge Brodie additionally determined that Genius Media’s contract claims were “nothing more than claims seeking to enforce the copyright owner’s exclusive rights to protection from unauthorized reproduction of the lyrics and are therefore preempted”; however, Genius Media licensed, but did not own, the relevant copyrights.[95] The court found that Genius Media’s transcriptions are, in essence, derivative works, and held that “the case law is clear that only the original copyright owner has exclusive rights to authorize derivative works.”[96] Accordingly, the Court dismissed Genius Media’s complaint for failure to state a claim.[97]
______________________
[1] United States v. Bolton, No. 20-cv-1580, Order Denying Plaintiff’s Motion for Temporary Restraining Order and Preliminary Injunction (D. D.C. June 20, 2020).
[3] See, e.g., United States v. Bolton, No. 20-cv-1580, Brief of PEN American Center, Inc. as Amicus Curiae in Support of Defendant (D. D.C. June 19, 2020).
[4] United States v. Bolton, No. 20-cv-1580, Order Denying Plaintiff’s Motion for Temporary Restraining Order and Preliminary Injunction, *8 (D. D.C. June 20, 2020).
[6] United States v. Bolton, No. 20-cv-1580, Plaintiff’s Motion for Summary Judgment (D. D.C. July 30, 2020).
[7] Katie Benner, “Justice Dept. Opens Criminal Inquiry Into John Bolton’s Book,” N.Y. Times (Sept. 15, 2020), https://www.nytimes.com/2020/09/15/us/politics/john-bolton-book-criminal-investigation.html.
[8] Charlie Savage, “Government Lawsuit Over John Bolton’s Memoir May Proceed, Judge Rules,” N.Y. Times (Oct. 5, 2020), https://www.nytimes.com/2020/10/01/us/politics/john-bolton-book-proceeds-lawsuit.html.
[9] Trump v. Trump, No. 22020-51585, 2020 WL 4212159 (N.Y. Sup. Ct. July 13, 2020).
[10] Trump v. Trump, No. 22020-51585, Motion for Temporary Restraining Order and Preliminary Injunction (N.Y. Sup. Ct. June 26, 2020).
[11] Trump, 2020 WL 4212159, *14.
[13] Palin v. The New York Times Co., No. 17-cv-4853, Opinion and Order on Motions for Summary Judgment (S.D.N.Y Aug. 28, 2020).
[14] Ted Johnson, “Nick Sandmann, Student at Center of Viral Video, Settles Defamation Lawsuit Against Washington Post,” The Washington Post (July 24, 2020), https://deadline.com/2020/07/nick-sandmann-washington-post-defamation-1202994384/.
[15] Cameron Knight, “Sandmann files 5 more defamation lawsuits against media outlets,” Cincinnati Enquirer (Mar. 3, 2020), https://www.cincinnati.com/story/news/2020/03/03/sandmann-files-5-more-defamation-lawsuits-against-media-outlets/4938142002/.
[16] Lauren Berg, “Jury Says Elon Musk Didn’t Defame with ‘Pedo Guy’ Tweet,” Law360 (Dec. 6, 2019), https://www.law360.com/articles/1226249/jury-says-elon-musk-didn-t-defame-with-pedo-guy-tweet.
[17] Kate Irby, “Judge tells Devin Nunes for 3rd time he can’t sue Twitter over anonymous tweets,” The Fresno Bee (Aug. 14, 2020), https://www.fresnobee.com/news/california/article244958665.html.
[20] Herring Networks, Inc. v. Maddow, No. 19-cv-1713, Order Granting Defendants’ Special Motion to Strike (S.D. Cal. May 22, 2020).
[21] Id. at *3 (internal quotations omitted).
[26] Greene v. Paramount Pictures Corp., 813 F. App’x 728 (2d Cir. 2020).
[27] Id. at 730.
[28] Greene v. Paramount Pictures Corp., 340 F. Supp. 3d 161, 172 (E.D.N.Y. 2018).
[29] Greene, 813 F. App’x at 732.
[30] Id. at 731.
[31] Id.
[32] Id.
[33] Id.
[34] Id. at
[35] Senate Bill S5959D, 2019-2020 Legislative Session of The New York State Senate (last accessed Aug. 26, 2020), https://www.nysenate.gov/legislation/bills/2019/s5959.
[36] Jennifer E. Rothman, New York Reintroduces Right of Publicity Bill with Dueling Versions, Rothman’s Roadmap to the Right of Publicity (May 22, 2019), https://www.rightofpublicityroadmap.com/news-commentary/new-york-reintroduces-right-publicity-bill-dueling-versions.
[37] Senate Bill S5959D, Summary Memo, supra note 35.
[39] Eriq Gardner, Deepfakes Pose Increasing Legal and Ethical Issues for Hollywood, The Hollywood Reporter (July 12, 2019), https://www.hollywoodreporter.com/thr-esq/deepfakes-pose-increasing-legal-ethical-issues-hollywood-1222978.
[40] David Robb, SAG-AFTRA Expects NY Gov. Andrew Cuomo To Sign Law Banning “Deepfake” Porn Face-Swapping, Deadline (July 28, 2020), https://deadline.com/2020/07/deepfakes-sag-aftra-expects-andrew-cuomo-to-sign-law-banning-face-swapping-porn-1202997577/.
[41] Ben Sheffner, New York vs. biopics? The state Legislature is poised to crack down on fact-inspired works of art, New York Daily News (June 18, 2019), https://www.nydailynews.com/opinion/ny-oped-stop-this-threat-to-free-speech-20190618-evesugulizgspk4reelegxiazu-story.html.
[43] Kirkman v. AMC Film Holdings, LLC, No. BC672124, 2020 WL 4364279 (Cal. Super. Ct. July 22, 2020).
[50] Darabont v. AMC Network Entertainment LLC, No. 654328/2013 (N.Y. Sup. Ct.); Darabont v. AMC Network Entertainment LLC, No. 650251/2018 (N.Y. Sup. Ct.).
[51] Judd v. Weinstein, 967 F.3d 952, 959 (9th Cir. 2020).
[53] Skidmore v. Led Zeppelin, 952 F.3d 1051 (9th Cir. 2020) (“Skidmore II”).
[54] Skidmore v. Led Zeppelin, 905 F.3d 1116 (9th Cir. 2018) (“Skidmore I”).
[56] Skidmore II, 952 F.3d at 1079.
[61] Bill Donahue, “Supreme Court Won’t Hear Led Zeppelin Copyright Fight,” Law360 (Oct. 5, 2020), https://www.law360.com/california/articles/1308109/supreme-court-won-t-hear-led-zeppelin-copyright-fight.
[62] Sony Music Entm’t v. Cox Commc’ns, Inc., No. 1:18-CV-950-LO-JFA (E.D. Va. June 2, 2020).
[69] Complaint, Downtown Music Publishing LLC, et al v. Peloton Interactive, Inc., No. 1:19-cv-02426 (S.D.N.Y. Mar. 19, 2019).
[72] Answer to Complaint and Counterclaims Against National Music Publishers’ Association, Inc. and Plaintiff Publishers, Downtown Music Publishing LLC, et al v. Peloton Interactive, Inc., No. 1:19-cv-02426-DLC, at 35–37 (S.D.N.Y. Apr. 30, 2019).
[74] Opinion & Order, Downtown Music Publishing LLC, et al v. Peloton Interactive, Inc., No. 1:19-cv-02426 (S.D.N.Y. Jan. 29, 2020).
[75] Smith v. Graham, No. 19-28, 799 F. App’x 36 (2d Cir. Feb. 3, 2020).
[76] Smith v. Cash Money Records, Inc., 253 F. Supp. 3d 737 (S.D.N.Y. 2017).
[78] Smith v. Graham, No. 19-28, 799 F. App’x. 36, 78 (2d Cir. Feb. 3, 2020).
[81] Alfred v. Walt Disney Co., — F. App’x —, 2020 WL 4207584 (9th Cir. July 22, 2020).
[88] See Bill Donahue, “9th Circ. Making It Harder for Studios To Beat Copyright Suits,” Law360 (July 29, 2020), https://www.law360.com/articles/1296112/9th-circ-making-it-harder-for-studios-to-beat-copyright-suits.
[89] Genius Media Grp. Inc. v. Google LLC, Case No. 1:19-cv-07279-MKB-VMS, Dkt. No. 22 at 1 (E.D.N.Y. Aug. 10, 2020).
[95] Id. at 16; see also id. at 23, 29 (similarly finding the unjust enrichment and state-law unfair-competition claims preempted by the Copyright Act).
[97] Id. at 36 (also denying Genius Media’s motion to remand to state court).
The following Gibson Dunn lawyers assisted in the preparation of this client update: Theodore Boutrous, Scott Edelman, Howard Hogan, Nathaniel Bach, Jonathan Soleimani, Dillon Westfall, Marissa Moshell, Kaylie Springer, Daniel Rubin, Sarah Scharf, and Abi Averill.
Gibson Dunn lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or the following leaders and members of the firm’s Media, Entertainment & Technology Practice Group:
Theodore J. Boutrous, Jr. – Co-Chair, Litigation Practice, Los Angeles (+1 213-229-7000, tboutrous@gibsondunn.com)
Scott A. Edelman – Co-Chair, Media, Entertainment & Technology Practice, Los Angeles (+1 310-557-8061, sedelman@gibsondunn.com)
Kevin Masuda – Co-Chair, Media, Entertainment & Technology Practice, Los Angeles (+1 213-229-7872, kmasuda@gibsondunn.com)
Orin Snyder – Co-Chair, Media, Entertainment & Technology Practice, New York (+1 212-351-2400, osnyder@gibsondunn.com)
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Ari Lanin – Los Angeles (+1 310-552-8581, alanin@gibsondunn.com)
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Los Angeles partner Michael Farhang is the author of “New DOJ priority: targeting pandemic stimulus fraud” [PDF] published by the Daily Journal on October 5, 2020.
The Hong Kong Court of Appeal (Court of Appeal) recently reaffirmed[1], in the context of an application for an examination order of individuals (Respondents) residing in Hong Kong to obtain information which may enable partial satisfaction of a judgment debt under a judgment in proceedings in a foreign court to which neither the Respondents nor the companies of which they are officers were parties, that pre-trial discovery against non-party witness is not permitted, save within the limited scope of Norwich Pharmacal discovery.
1. Background Leading to the Application in Hong Kong
The applicants for the Hong Kong examination order (Applicants) obtained a judgment for US$100,738,980 (Judgment Debt) in the United States District Court, Western District of Washington at Seattle (Federal Court) against a number of judgment debtors.
The Applicants’ case was that based on the unaudited balance sheet of one of the judgment debtors (Judgment Debtor), there were receivables owed by some third parties to the Judgment Debtor, being US$18.9 million by an exempted limited partnership registered in Cayman Islands, and US$4 million by a company incorporated in the British Virgin Islands (respectively, the Two Sums and the Third Parties).
The Applicants were appointed by the King County Superior Court, State of Washington (State Court) as collecting agent to collect the receivables of the Judgment Debtor, including the Two Sums. Such receivables were to be applied to satisfy the Judgment Debt. The State Court subsequently clarified that it did not have jurisdiction over the Third Parties (as they had no place of business in the State of Washington) and it did not adjudicate on the issue of whether the Two Sums were owed by them to the Judgment Debtor, and held that the collection orders only placed the Applicants in the shoes of the Judgment Debtor for collection purposes and such orders could be made even though the State Court had no jurisdiction over the Third Parties.
Of importance to note is that the collection orders were not garnishee orders, and there is no evidence to suggest that the Federal Court and the State Court had the requisite personal jurisdiction over the Third Parties for garnishee proceedings. Further, the relevant transaction agreements between the Judgment Debtor and the Third Parties respectively had an exclusive jurisdiction clause, which provided that the agreements were governed by the laws in Hong Kong and subject to resolution solely in the Hong Kong Courts.
The Two Sums were disputed by the Third Parties, and their case was that it was the Judgment Debtor which owed them monies instead.
The Respondents, being the subjects of the examination order, are officers of the Third Parties, who reside in Hong Kong.
2. Procedural History in the Hong Kong Courts
The Federal Court issued two Letters of Request for an examination of the Respondents, the purpose of which was to allow the Applicants to obtain information regarding the Two Sums that may enable them to collect the monies owed to the Judgment Debtor which could be utilised to satisfy the Judgment Debt.
An ex parte application by way of an Originating Summons supported by the two Letters of Request to examine the Respondents were made by the Applicants and Master Lai of the Court of First Instance (CFI) granted an examination order (Examination Order).
The Respondents applied to set aside the Examination Order and/or to strike out the Applicants’ ex parte Originating Summons. Both applications were allowed by Recorder Yvonne Cheng SC (Judge) of the CFI.
The Applicants appealed against the decision of the Judge, which decision was upheld by the Court of Appeal.
3. Requirements under the Evidence Ordinance (Cap. 8) (Ordinance) in the Context of Evidence for Civil Proceedings in Other Jurisdictions
Whilst both sections 75(b) and 76(3) of the Ordinance are relevant in the circumstances[2], the Court of Appeal upheld the Judge’s decision based on section 76(3) alone. The analysis under paragraph 3.2 below on section 75(b) is included for completeness.
3.1 Section 76(3) – Pre-Trial Discovery Against Non-Party Witness Prohibited
Section 76 provides for the power of the Court of First Instance to give effect to an application for assistance in obtaining evidence for civil proceedings in foreign courts. Section 76(3) states that:
An order under this section shall not require any particular steps to be taken unless they are steps which can be required to be taken by way of obtaining evidence for the purposes of civil proceedings in the court making the order (whether or not proceedings of the same description as those to which the application for the order relates)…” (emphasis added)
The Judge held that the proposed examination was for pre-trial discovery against non-party witnesses, which is not permitted under Hong Kong law and prohibited by section 76(3), since the allegations of fact relied upon by the Applicants (in short, the Third Parties owed monies to the Judgment Debtor) were not live issues before and to be resolved by the Federal Court where the main action was concluded, and enforcement proceedings (i.e. garnishee proceedings) in which such allegations could be raised had not been instituted. As to the Applicants’ alternative case that after the examination of the Respondents they would “plot a course for collection depending on the evidence so obtained”, the judge held that the proposed examination was a fishing exercise.
The Court of Appeal agreed with the Judge’s decision, and made, inter alia, the following remarks:
- Hong Kong has adopted the common law position that there is no pre-trial discovery against non-party witnesses other than those falling within the limited scope of Norwich Pharmacal discovery (i.e. discovery against third parties who got innocently mixed up in the wrongdoings of others);
- whether the assistance request falls foul of section 76(3) on account of fishing must be a matter for the judge in Hong Kong by reference to Hong Kong laws rather than US laws under which the permissible scope of discovery is wider. Whilst examination which is investigatory in nature (in contrast to eliciting admissible evidence) is allowed under US laws, it is not permitted under Hong Kong laws; and
- obtaining information from a non-party witness by way of post-judgment discovery in aid of execution, whilst permissible under US laws, is not a permissible procedure in Hong Kong, noting that if a judgment creditor has sufficient ground to support the application for a garnishee order in respect of a debt due to a judgment debtor, the judgment creditor has to commence garnishee proceedings first before he can obtain directions for determination of the liability of the garnishee (including directions for discovery as necessary)[3].
3.2 Section 75(b) – Obtaining Evidence for the Purposes of Civil Proceedings
Section 75 provides for the requirements to be fulfilled in an application for assistance. Section 75(b) provides that:
“Where an application is made to the Court of First Instance for an order for evidence to be obtained in Hong Kong and the court is satisfied that the evidence to which the application relates is to be obtained for the purposes of civil proceedings which either have been instituted before the requesting court or whose institution before that court is contemplated, the Court of First Instance shall have the powers conferred on it by this part.” (emphasis added)
The central issue under this section is therefore whether evidence is to be obtained for the purposes of civil proceedings, instituted or contemplated, before the requesting court.
The Judge, without the benefit of expert evidence on US law from the Applicants which was set out in an affirmation[4], ruled that the requirement was not satisfied because the evidence was not obtained for the purposes of civil proceedings which either have been instituted before the Federal Court or whose institution was contemplated.
The Judge rejected that the very application for discovery leading to the Federal Court’s request for evidence could constitute civil proceedings within the meaning of section 75(b) as a matter of construction, since it would render the section redundant. Further, since there was no evidence that the Applicants could establish the Federal Court’s jurisdiction over the Third Parties, it could not be said that proceedings against the Third Parties in the said court for enforcement of the judgment were contemplated.
The Court of Appeal, however, left the issue open, since it disagreed with the Judge on the admissibility of the Applicants’ expert evidence on US law.[5]
Notwithstanding such disagreement and that it was prepared to assume that under US law, the obtaining of information to facilitate the “plotting of the next course of action” would be regarded as obtaining evidence for use in the Federal Court proceedings, the Court of Appeal took the view that it also had to be established that the relevant proceedings were proceedings in a civil or commercial manner in the requested jurisdiction, i.e. Hong Kong court, in addition to the requesting jurisdiction.
In this regard, the Court of Appeal considered that the mere facilitation of the Applicants to act as collection agent did not qualify as civil proceedings in Hong Kong. Whilst discovery procedure is a form of civil proceedings in Hong Kong, such discovery would not be permitted against non-party witnesses, other than the limited form of Norwich Pharmacal discovery.
4. Conclusion
It is clear from the decisions of the Judge and the Court of Appeal that to obtain an order for assistance in obtaining evidence for civil proceedings in a foreign court, such obtaining of evidence must be permissible under the laws of Hong Kong. It is not sufficient that it is only permissible under the laws of the requesting jurisdiction (which may be implied by the Letter of Request issued by the foreign court). On this note, pre-action discovery against non-party witness is not permitted in Hong Kong save for Norwich Pharmacal discovery.
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[1] Re a civil matter now pending in United States District Court for the Western District of Washington at Seattle under No 2:13-CV-1034 MJP ([2020] HKCA 766). The presiding judges were Hon Lam VP, Chu JA and G Lam J. A copy of the judgement of the Court of Appeal is available here. The judgment of the Court of First Instance ([2019] HKCFI 1738) is available here.
[2] The Respondents also argued that (1) there were material non-disclosures on the Applicants’ part when they took out the ex parte application for the Examination Order and (2) the Examination Order contravened section 6 of the Protection of Trading Interests Ordinance (Cap. 471). However, these were not the focus of the Judge or the Court of Appeal and accordingly, are not the focus of this alert.
[3] The Applicants did not commence garnishee proceedings against the Third Parties since the Federal Court did not appear to have personal jurisdiction over the Third Parties and they were also unable to say that the Two Sums were actually due from these entities to the Judgment Debtor. Further, the Applicants also faced the difficulty of the exclusive choice of forum clauses in the agreements governing the transactions between the Judgment Debtor and the Third Parties. However, these issues were not put before the Federal Court in the application for the Letters of Request and accordingly, the Federal Court had no opportunity to address it. The Court of Appeal remarked that if the Applicants wished to rely on the use of evidence of the Respondents in garnishee proceedings against the Third Parties, they should have at least alluded to such basis in their motion for application for the Letters of Request.
[4] The Judge ruled that such evidence was not admissible on the basis that there was no expert declaration in accordance with Order 38 Rule 37C of the Rules of the High Court (RHC). The expert for the Applicants, being the general counsel of the Applicants (who was heavily engaged in the present dispute), felt that he was unable to give an expert declaration.
[5] The Court of Appeal was inclined to take the view that the prohibition against admissibility for lack of expert declaration under Order 38 Rule 37C of the RHC does not apply automatically to expert evidence set out in affidavits or affirmations adduced under Order 38 Rule 2(3) (as opposed to expert reports filed for trial pursuant to directions given under Order 38 Rule 6 regarding proceedings commenced by, inter alia, Originating Summons), being an exception under Order 38 Rule 36(2) .
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 the authors and the following lawyers in the Litigation Practice Group of the firm in Hong Kong:
Brian Gilchrist (+852 2214 3820, bgilchrist@gibsondunn.com)
Elaine Chen (+852 2214 3821, echen@gibsondunn.com)
Emily Chan (+852 2214 3825, echan@gibsondunn.com)
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