Over a year after the Consumer Products Safety Commission (CPSC) abandoned its Safeproducts.gov appeal, a successful appeal by consumer groups has blown the lid off Company Doe’s secrecy.

In 2012, the CPSC intended to publish a report attributing the death of an infant to a product made by Company Doe.  Company Doe objected and after some wrangling over redactions of misleading information, Company Doe ultimately sued for an injunction in Company Doe v. Tenenbaum, 8:11-cv-02958.  The Maryland District Court granted Company Doe’s requests to proceed confidentially, which resulted in sealing large portions of the docket as well as the court’s rulings on issues.  Consumer groups Public Citizen, Consumers Union, and Consumer Federation of America attempted unsuccessfully to intervene in the lawsuit, seeking access to the sealed documents.  Ultimately, the district court granted Company Doe’s motion for summary judgment.  In early 2013, the CPSC declined to pursue an appeal of the decision.  Consumer groups, however, pursued an appeal in the Fourth Circuit.

On Wednesday, the Fourth Circuit issued an opinion reversing the trial court’s sealing orders and will make public Company Doe’s identity, the product at issue, and the complaints about that product. The Fourth Circuit concluded that even though the consumer groups were not parties, “[b]ecause the orders from which [they] appeal[ed] deprive [them] of the very information they claim a right to inspect, their appeal [fell] squarely within the exception allowing nonparties to seek appellate review when necessary to preserve their rights.”

The rest of the Court’s sixty-four page opinion went on to overrule the district court’s orders on First Amendment Grounds.  It found that Company Doe’s concern about reputational harm was not a compelling interest sufficient to defeat the public’s First Amendment right of access.  Therefore, it was an abuse of discretion for the court to seal and/or redact the docket and its rulings.
As we predicted over a year ago, the CPSC’s retreat was not the end of the story. The Fourth Circuit’s opinion substantially curtails companies’ recourses when they are faced with CPSC reports that they believe are inaccurate.  If they cannot resolve the matter with the CPSC—as Company Doe could not—their option to seek an injunction comes with the unattractive caveat that it will mean publicly disseminating through a public court docket the very information that they wanted to prevent the CPSC from disclosing.  In cases like this, where the district court ultimately granted summary judgment to Company Doe—which indicates that the company was justified in opposing the CPSC’s intended report—, it begs the question of whether seeking an injunction is better than permitting the CPSC to proceed as it planned.  

William F. Auther is a partner in the Phoenix, Arizona office of Bowman and Brooke LLP, where he has an active trial practice in product liability and business litigation. Amanda Heitz is an associate at Bowman and Brooke.

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In postings in September 2013 and February 2014, I discussed tactics for opposing class certification in food labeling class actions. These tactics included relying on the Supreme Court’s opinion in Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013), to challenge the sufficiency of the plaintiffs’ damages model, which should be particularly difficult in these types of claims. In late March 2014, the Northern District of California decertified a food labeling class action largely based on those shortcomings.

In re POM Wonderful LLC Marketing & Sales Practices Litigation, 2014 U.S. Dist. LEXIS 40415 (N.D. Cal. Mar. 25, 2014), involves allegations that the defendant falsely advertised that certain of its juice products provide various health benefits and that substantial scientific research demonstrates those benefits.  The plaintiffs alleged familiar theories based largely on California consumer fraud statutes. The court had earlier certified the class, and the plaintiffs proposed two damages models from their expert as part of that process. The first would grant a full refund of the entire purchase price to the entire class--$450 million. That model assumed “that consumers would not have purchased Defendant’s juices if not for the alleged misrepresentations.” Id. at *11.  The court rejected that model, however, because it failed to acknowledge that consumers received some benefit even if they purchased the juice based on the “fraudulent” representations. It would be an improper windfall for the plaintiffs to receive a full refund when they could not “plausibly contend that they did not receive any value at all from Defendant’s products.” Id. at *14.

The second damages model was the “price premium” model. It assumed that consumer demand for the products would have been lower if not for the alleged misrepresentations. That damages calculation was approximately $290 million.  But the plaintiffs did not use any sort of consumer research data to show why consumers purchased these products or the effect of the alleged misrepresentations. Instead, they tried to rely on the fraud on the market theory that familiarly appears in securities fraud class actions. The fraud on the market theory, however, really only applies to establishing or overcoming the need to prove reliance on a class wide basis. It does not calculate damages. Plus, no case seems to have applied this theory to a consumer class-action.  Id. at *16.  Furthermore, the plaintiffs did not establish that an efficient market for the juices exists, which is a predicate to the securities fraud on the market theory.  It truly would be impossible to establish such an efficient market because consumers by such products for a host of different reasons, and the marketplace has not adjust the price to reflect all of those reasons.  “Absent such traceable market-wide influence, and where, as here, consumers buy a product for myriad reasons, damages resulting from the alleged misrepresentations will not possibly be uniform or amenable to class proof.”  Id. at *18.

Things going downhill for the plaintiffs. Even if a fraud on the market theory somehow were relevant, the plaintiffs could not show that the alleged misrepresentations caused the class to pay a price premium. The plaintiffs’ expert tried to compare the POM products to the average prices of refrigerated orange, grape, apple, and grapefruit juice. He never tried to explain why the POM juices were more expensive; he simply observed that they were and assumed that all of that price difference was attributable to the misrepresentations.  The expert “assumed, without any methodology at all to support the assumption, that not a single consumer would have chosen POM juice over some agglomeration of orange, grapefruit, Apple, and grape juice if not for POM’s allegedly deceptive advertising.”  Id. at *21.  But that ignores that consumers purchased products for several reasons-- because they are thirsty, they want to try something new, a friend likes the flavor, it was on sale, etc. That type of damages model did not meet the requirement that class-wide damages be tied to a legal theory, and the court could not conduct a rigorous analysis when “there is nothing of substance to analyze.”  Id. at *22.  Significantly, the court also noted that the expert’s opinions were not admissible under Daubert, implying that the court believes that standard governs the use of expert testimony at class certification.  Id. at *22 n.7.  Admittedly, that is an unresolved question across the Circuit Courts and the United States Supreme Court.

The final blow to class certification was ascertain ability.  It seems impossible to believe that many consumers would have retained receipts to prove that they purchase these products.  “Here, at the close of discovery and despite Plaintiffs’ best efforts, there is no way to reliably determine who purchased Defendant’s products were when they did so.”  Id. at *24.  See this earlier post for another analysis of using ascertain ability to defeat class certification in these cases.

In sum, this decision is an important victory for food labeling class action defendants that ties together several tactics. First, these plaintiffs tend to rely on that same price premium theory. It seems impossible, however, to create a coherent theory of establishing that damages model under Comcast.  People buy food products for too many different reasons to suggest that alleged fraud harmed everyone. This is where a defendant may want to use its own consumer survey research data to affirmatively demonstrate those different motivations for product purchases. And ascertain ability will continue to be a very difficult hurdle for these plaintiffs to overcome. Not yet addressed in an opinion I have seen is any effort to show which class members actually were “injured,” even under a price premium theory. That is, the actual price someone pays varies greatly from day to day and store to store. A product may be on sale because a particular store has too much in stock. The manufacturer may be running a promotion as well.  Supermarket customer loyalty programs also may result in discounts. It seems impossible to segregate “injured” class members from those who did not suffer any purported injury because they paid a price that is beneath the supposed “premium price.”

James Smith is a partner in the Phoenix office of Bryan Cave LLP.  He is a member of the Class and Derivative Actions Client Service Group and the Food & Beverage Team.

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Situational Awareness

Posted on April 10, 2014 03:05 by Steve Crislip


In a recent car commercial, the driver accelerates some new style engine in the car in order to bring the three passengers’ heads up from their devices to make them discuss where to go to lunch.  Everywhere you go, you see people preoccupied with something and not paying attention.  We all go about our pattern behavior without really looking around and seeing our situation.  Lots of trips and slips of all types can be avoided by effectively looking, a concept long recognized in negligence case law.

For fun, I took a handgun safety class once.  During all nine hours of the class, the former Marine captain made us do every maneuver only after first looking around us to develop “situational awareness.”  I had never made myself regularly do that as a habit.  I now look around parking areas and walkways, as a habit, because his comments made real sense.  Be aware of where you are and what is around you.  You will see things quite literally and avoid many issues by having your head up and looking around.

This same concept really applies in law offices where you want to avoid personnel or client problems.  When there is a big issue of these types, you usually find after the fact that someone had knowledge, or was generally aware that something was not right.  They just did nothing about it.  They did not pay enough attention.  So, I am now preaching situational awareness to you in the loss prevention business for lawyers.  (See November 2013 Post for examples to look for and consider.)

A lawyer from Ames & Gough, an insurance broker specializing in law firm coverage, recently shared with me their article on Enterprise Risk Management (ERM), a recognized method of evaluating and eliminating risk in an organization.  They argue that its use in the law firm setting starts with the education of senior leadership and management acceptance and then moves out in the firm.  A group within the firm organizes the effort to list their known risks and keeps track of them and how they deal with them.  They suggest a formal approach to accomplish this and to evaluate the risks, manage, and measure them.  

In many modern larger law firms this is done through the General Counsel function.  If you are not to that point in your firm, you may want to consider forming a small group to do this on a formal basis.  I submit it is worth your time and will then allow you to use basic situational awareness to avoid problems.  Paying attention to developing problems will save you later grief, as well as money.

This blog was originally posted on “Lawyering for Law Firms” on April 9. Click here to read the original entry. 

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If you don’t know, it could cost you.  In the past few years, federal courts have seen an influx in “donning and doffing” lawsuits.  These suits reflect a general discontent of employees that are not compensated for the time spent dressing in work-related attire while on employer premises. Sometimes employers are required to pay and sometimes they aren’t, but it is best to be aware of recent developments to avoid being caught with your pants down.

Consider Your Collective Bargaining Agreement & the FLSA

On January 27, 2014, the Supreme Court handed down its opinion for Sandifer v. United States Steel Corp.  The Supreme Court granted cert on this case to determine whether an employer must pay employees for their time spent putting on (donning) and taking off (doffing) their work-related garments and protective gear under the Fair Labor Standards Act (FLSA).  

The FLSA sets out the circumstances under which an employer must compensate an employee.  Pertinent to “donning and doffing”, section 790.8(c) of the FLSA requires that an employer compensate an employee for the time they take to put on and take off safety equipment. However, section 203(o) creates an exception, which indicates that any time spent changing clothes or washing at the beginning and end of the workday shall be excluded from compensated time if the collective bargaining agreement in place excludes compensation for these activities.  In Sandifer v. United States Steel Corp., 800 steelworkers from Indiana have challenged the definition of clothes in the applicable collective bargaining agreement in line with section 203(o) of the FLSA.  

When United States Steel Corp. steelworkers arrive at the plant each morning, they report to their respective locker rooms and dress in protective gear that is stored at the facility.  A steelworker wears fire retardant jackets, fire retardant pants, steel toed boots, protective goggles, ear plugs, hard hats, a flame retardant or aluminized snood (a head covering to protect the head and neck), a flame retardant wristlet that covers the forearms, and flame retardant spats that cover the foot and shin area.  If these items fall outside of the definition of “clothes,” perhaps qualified as “protective gear,” then Sandifer and the other steelworkers must be compensated for the time spent changing.

The amount of time that it takes each worker to put on (don) and take off (doff) each protective item can certainly accumulate each day. Sandifer and the other steelworkers allege that they are owed back overtime pay because the amount of time spent donning and doffing their protective gear would qualify as overtime beyond the normal 40 hour work week.

The Supreme Court determined that all items worn by the steelworkers, other than protective goggles and ear plugs, qualified as “clothes” under the ordinary meaning of the word, defined as “items that are both designed and used to cover the body and are commonly regarded as articles of dress”.  Because these items are deemed “clothes," employers and employees are authorized to decide whether that time is compensable and memorialize the decision in a collective bargaining agreement.

The Supreme Court’s determination of Sandifer can impact your business if you have established a collective bargaining agreement that qualifies the donning and doffing of safety equipment or protective gear as “changing clothes.”  It is important to review the types of work-related garments and gear your employees wear.  Are the items commonly regarded as articles of dress?  Or are some of the items more similar in function to ear plugs and safety glasses?  Certainly no one would question whether jeans, a tee shirt, a suit, or a blouse were clothes.  But the Supreme Court’s decision requires that you consider each element of your employees’ uniform in a new light.  It may be necessary that you reconsider whether certain items be donned during work hours in order to prevent the risk of future litigation.  The Sara Lee Corporation failed to address these implications in time to avoid litigation.

The Portal to Portal Act: Donning & Doffing May Be a Principal Activity

In 1947, the Portal-to-Portal Act was enacted as an amendment to the FLSA in order to clarify the type of time that classifies as work time.  Section 254(a)(2) provides that no employer shall be liable for failure to pay wages or overtime for activities that are preliminary or postliminary to principal activities, which occur before the workday starts or after the workday ends. Thus, the pertinent legal question is whether an activity is a principal activity.  

In Duran v. Sara Lee Corp., a group of Sara Lee factory workers in Zeeland, Michigan, brought suit to demand back overtime pay for the time spent donning and doffing their protective gear, including ear protection, safety glasses, steel-toed boots, and bump caps, while on-site.  These workers argued that putting on and taking off this protective gear qualifies as a “principal activity” of their job.  In March, a federal jury determined that the Sara Lee factory workers were engaging in “principal activities” of their jobs while donning and doffing their protective gear because it is one of the many tasks that must be completed on the job daily.  The jury also determined that these factory workers are owed back overtime pay for these activities.  In addition, the jury determined that Sara Lee’s actions were willful, which allows for greater recovery of damages.  Although it is certain this verdict will be appealed, the Michigan jury is sending a message to employers to review their contracts and reconsider their donning and doffing policies.

Conclusion

Savvy business owners should carve out time to review the articles of clothing and protective gear worn by their employees.  Consider the purpose and function of each article. If there is a chance that an item is more likely to be qualified as protective gear rather than clothes, it is vital to revisit your current collective bargaining agreement and employment manual with respect to the donning and doffing of work-related articles.  The time spent examining your current policies is well worth the benefit of avoiding or minimizing future litigation whether your employees wear clothes to work or not.


This article does not constitute legal advice, is not applicable to factual situations, and does not establish an attorney-client relationship.

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The tide seems to be turning in favor of food labeling class action defendants with respect to the “unlawful” prong of California’s Unfair Competition Law.  The UCL provides consumers with a claim for “unlawful,” “unfair,” or “fraudulent” business practices.  Cal. Bus. & Prof. Code § 17200.  Since the California Supreme Court’s opinion in Kwikset Corp. v. Superior Court, 51 Cal. 4th 310, 246 P.2d 877 (2011), there has been no doubt that the UCL requires that a named plaintiff prove actual reliance on the challenged advertising when pursuing claims under the UCL’s unfair or fraudulent prongs.  A number of plaintiffs have argued, however, that they need not plead reliance when proceeding under the unlawful prong of the UCL.  Those plaintiffs contend that simply purchasing an “illegal” product that is misbranded in violation of California law is sufficient; thus, they need not prove that they relied on the alleged misbranding in those circumstances.  Admittedly, the decisions of some judges in the Northern District of California in food labeling class actions may support the argument that the plaintiff need not demonstrate reliance under the unlawful prong but need only allege facts showing that it is plausible that the defendant violated the law when selling a product.  E.g., Trazo v. Nestle USA, Inc., 2013 WL 4083218, *9 (N.D. Cal. Aug. 9, 2013).  

Fortunately for class action defendants, however, the trend now seems to require reliance even under the UCL’s unlawful prong.  Judge Edward Davila issued the latest such decision in Thomas v. Costco Wholesale Corp., No. 5:12-CV-02908-EJD (N.D. Cal. Mar. 31, 2014).  There, two named plaintiffs alleged that Costco improperly labeled several products.  Judge Davila granted in part the motion to dismiss and emphasized the need for reliance for such claims under the unlawful prong.  Plaintiffs pursuing these claims allege they would not have purchased a product if he or she had known that it was mislabeled contrary to California law.  Because California law also makes it unlawful for a person to hold or offer for sale any misbranded food, such plaintiffs contend that they received products that are “worthless” and have no economic value, even if those plaintiffs consumed and enjoyed the products.  See Cal. Health & Safety Code § 110760 (unlawful for person to hold or offer for sale any food that is misbranded).

The plaintiffs in Thomas presented that same type of argument and contended that they need not show actual reliance on any of the several allegedly-improper labeling statements at issue. “Plaintiffs argue that their claims are not based on misrepresentation, [but] rather on the illegality of the products themselves as their misbranding violates the Sherman Law, and therefore there is no need for plaintiffs to prove reliance.”  Thomas Slip Op. at 12.  Judge Davila rejected Plaintiffs’ arguments:  “Plaintiffs cannot circumvent the reliance requirement by simply pointing to a regulation or code provision that was violated by the alleged label misrepresentation, summarily claiming that the product is illegal to sell and therefore negating the need to plead reliance.”  Id. As a backstop to the reliance issue, those plaintiffs also argued that they “relied on Defendant not to sell them illegal products (i.e., products misbranded under state law).”  Id. at 13.  The Court also rejected that proposition—Plaintiffs must plead and prove reliance “on the representation,” not on an implied assurance of “legality.”  Id.   

To be sure, Thomas is not a home run for class action defendants.  It denied the motion to dismiss as to several claims.  But it is an important addition to the growing line of cases holding that actual reliance is necessary under the UCL’s unlawful prong.  E.g., Gitson v. Trader Joe’s Co., 2014 U.S. Dist. LEXIS 33936, at *26 (N.D. Cal. Mar. 14, 2014) (holding that plaintiffs must demonstrate actual reliance); Kane v. Chobani, Inc., 2014 U.S. Dist. LEXIS 22258, at *22-23 (N.D. Cal. Feb. 20, 2014) (same).  

Some plaintiffs are successfully arguing that allegedly-illegal labels on certain products also support claims for breach of the implied warranty of merchantability.  They do not contend that they relied on any particular statements to support those claims.  Rather, they allege that they would not have purchased products that could not be legally sold or held, and that the defendant impliedly warranted that the product was “legal.”  These plaintiffs consumed and, apparently, enjoyed the products despite their “illegality,” and the products performed as expected (i.e., they could be safely consumed), so the notion of any sort of breach warranty shouldn’t apply.  With this continuing trend of requiring actual reliance under the UCL’s unlawful prong, I hope that these implied warranty claims also begin falling by the wayside.  It seems untenable to suggest that warranty claims can succeed where consumer fraud claims—which have broader remedial and ameliorative public policy purposes—fail.  
 
James Smith is a partner in the Phoenix office of Bryan Cave LLP.  He is a member of the Class & Derivative Actions Client Services Group and a member of the Food and Beverage Team.   

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As the recent Target and Neiman Marcus data breaches have made clear, cyber security is one of the top threats to business today.  These threats can be devastating to companies - damaging customer confidence, the company brand, and the bottom line by increasing costs through remediation costs, lost revenues and customers, litigation, and fines.  Governments and customers are now holding businesses accountable for inadequate protection of customer data.  

It has been reported that 24% of data breaches occur in retail environments and restaurants.  And the average total cost to a US company of a data breach is approximately $5.4 million.  There are 46 different state statutory schemes and a host of federal regulations that apply to the collection and storage of data and the prevention and reporting of a breach.  These rules often contradict.  An interstate or internet retailer, however, must comply with the laws of the states in which a customer makes a purchase.
 
While consultants, IT experts, insurance and security firms can be integral parts of a Data Protection plan, they are only players on the team.  In fact, many experts are engaging in breach event information sharing to assist each other in identifying and defending against cyberthreats.  Cyber security concerns are now part of doing business, and general counsel and C-Suite executives must be ready to guide their companies through these complex issues.  

Prevention
Prevention is the first step to minimizing cyber security liability.  The following steps can help minimize the cost and likelihood of security breaches:   
• Security measures before a breach.  Studies have found that having an incident response plan, establishing a strong security infrastructure, and appointing a Chief Information Security Officer can lower the costs of a data breach by approximately 50%.  
 Cyber-security audits.  Businesses should conduct regular cyber-security audits and limit the access of sensitive data by third parties and employees.  
• Cyber-security insurance.  Businesses should review insurance policies to determine whether and to what extent they are covered for cyber-security threats.  
• Encryption.  If a data breach occurs, encryption can help minimize liability.  

Notification
If a data breach occurs, businesses must immediately determine whether they have notification obligations under federal or state law.  Congress has yet to enact comprehensive federal law governing notification in the private sector, so businesses must conduct a state- and industry-specific analysis.  The following are examples of notification obligations: 
• Health Insurance Portability and Accountability Act and Health Information Technology for Economic and Clinical Health Act.  HIPAA requires covered entities to protect against reasonably anticipated threats or hazards to security.  The HITECH Act requires covered entities and business associates to notify the individuals whose protected health information was accessed no later than 60 days after the breach was discovered.  If the breach affects more than 500 individuals, the law also requires notification within 60 days after the breach was discovered to the US Department of Health and Human Services and the media.  
• Gramm-Leach-Bliley Act.  This act requires financial institutions to publicize their privacy policies and establish internal safeguards and procedures to protect customer information.  Related guidelines require covered financial institutions to notify customers whose personal information has been subject to unauthorized access or use if misuse of the customer’s information has occurred or is reasonably possible, unless law enforcement determines that notification will interfere with a criminal investigation.  
• Securities & Exchange Commission.  The SEC has issued guidance stating that publicly traded companies should report certain instances of cyber incidents.   
• State law.  Currently, 46 states, the District of Columbia, Puerto Rico, and the Virgin Islands have enacted laws requiring notification of security breaches involving personal information.  

Potential Litigation
Businesses should be ready for litigation if a data breach occurs.  Potential claims by private parties and the government include: 
 State-law claims.  Businesses could face suits under individual states’ consumer protection laws, tort and contract law, fiduciary requirements, and other cyber security rules.   
• FTC Safeguards Rule.  The FTC has brought numerous enforcement actions to address whether businesses security systems are reasonable and appropriate to protect consumer information.  
• SEC Enforcement Actions.  The SEC’s Division of Corporation Finance has taken the position that public companies should disclose their risk of cyber incidents.  Failure to disclose cyber security breaches or risks could lead to actions on security anti-fraud provisions like Rule 10b-5 or books and records violations under Rule 13b2-2.  

Conclusion
A business’s cyber-security obligations are too complex to address in this blog.  Regardless, it is critical for businesses to be prepared.  In house counsel are invited to join Polsinelli attorney Leon Silver and Kevin Morgan of Grant Thornton at DRI’s 2014 Retail & Hospitality Litigation and Claims Management Seminar, May  15, 2014 in Chicago at the Westin Chicago River North Hotel for a presentation titled “Cybersecurity and Data Governance:  The 21st Century Legal Issue.”

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E-Discovery Can be Criminal

Posted on March 27, 2014 03:05 by David Hynes


On December 18, 2013, Kurt Mix, a former BP engineer was convicted 18 U.S.C. 1512(c)(1); which prohibits individuals from “corruptly… alter[ing], destroy[ing], mutliat[ing] or conceal[ing] a record, document, or other object, or attempt[ing] to do so, with the intent to impair the object’s integrity or available for use in an official proceeding.” 

Mr. Mix had been the first criminal conviction stemming from the Deepwater Horizon oil spill, indicted in May of 2012, two years after the 2010 disaster. While Mr. Mix was employed at BP, he received ten (10) notices from BP that he was required to preserve all of his spill-related records. However, Mr. Mix deleted a string of texts to and from his supervisor, Jonathan Sprague. While the verdict may be overturned due to jury misconduct, the verdict carries with it a potential twenty (20) years in prison and $250,000 fine. His sentencing is set for March 26, 2014. 
While there is little likelihood that your client or company will be under such heavy scrutiny from the US government than BP following the blowout, there are lessons to learn useful to minimizing risks in all litigation with E-Discovery (which is to say, all litigation). 

1- Know the data storage policies—Almost all companies with any amount of data will eventually purge their information. Find out your organization’s deletion timetable, and if there are “sensitive folders” which are retained for longer.  If there is a lawsuit, you need to know how soon the standard purging will take place.

2-Establish (or broaden) a Policy—while many companies have some kind of policy, make sure the policy includes all methods of communication and data storage. Does your organization’s policies include texting? According to recent Pew Research Center’s studies, over 81% of American adults text.  Over 60% of American adults use their cellphone for the internet, is your corporate cellphone policy inclusive of this data?

3-Education is Key—Your employees will not understand this intuitively. While most employees will not emulate Mr. Mix and erase sensitive data after being told numerous times to keep it. The organization must make sure its employees do not inadvertently destroy potentially sensitive information. 

4.-Create Fail-safes—Like data redundancy, make sure multiple people in your organization truly knows the policy, and comprehends the risk of not complying with the policy. Whether you nominate Human Resources to better educate, or IT to facilitate information exchanges, make sure there are multiple people who can help you say “stop, it’s time to save.”

5. On the flip side—Quickly determine if you need to identify and use an e-discovery forensic specialist. It is possible to recover deleted texts, emails, photos, and other ESI. As technology is constantly changing and individuals’ sense of privacy may change, be proactive, and have a procedure of dealing with sensitive information.  

The year has brought some pretty big rulings on what we are seeing with E-Discovery legal decisions.  The impact of E-Discovery will continue to evolve. Following well-written and comprehensive internal protocol will help protect your company against the harsh rulings of document retention pitfalls. 

David Hynes is an associate at the Carter Law Group. His practice areas include insurance defense litigation, environmental and regulatory compliance. Should you have any questions please feel free to contact the Carter La Group LLC, at 504-527-5055. This article does not constitute legal advice, is not applicable to a factual situation and does not establish an attorney-client relationship.

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ABA v. NSA: An Unhelpful Exchange

Posted on March 26, 2014 03:31 by Brandi Blair


The Edward Snowden scandal brought to light evidence that the National Security Agency obtained information from foreign intelligence services, which included privileged attorney-client communications between U.S. law firms and their foreign clients.  

Concerned about this discovery, the American Bar Association (ABA) sought clarification from the NSA. In correspondence to the NSA, ABA president James Silkenat underscored the importance of the attorney-client privilege as the “bedrock legal principle of our free society.” In essence, privileged attorney-client communications facilitate the “full and frank discussion between lawyer and client that is essential for effective legal representation.”  As our interests continue to globalize, this full and frank discussion increasingly involves electronic and voice communication with foreign clients. Although many of us would welcome an excuse to increase our global travel, it is simply not feasible for US law firms to limit their communications with foreign clients to in-person interviews. 

Given the disturbing evidence that the NSA retained information obtained from privileged communications, Mr. Silkenat requested that the NSA fully explain its policies pertaining to the collection and use of such information. A full understanding of the NSA’s policies and procedures, regarding the collection, retention, and use of privileged communications, is necessary for law firms to meet their ethical obligations to safe guard the confidentiality of client communications.     

NSA Director, General Keith Alexander, responded that he appreciated “the opportunity to clarify [the NSA’s] current policies and practices.” Unfortunately, in the response that followed, the NSA fell short of the open dialogue contemplated by the ABA’s request. Instead, General Alexander’s response attempts to reassure the bar that the agency is “firmly committed to the bedrock legal principle of attorney-client privilege.” According to General Alexander, potentially privileged communications are examined on a “case-by-case basis to determine whether the information is in fact privileged and, if so, the appropriate steps to be taken.” This response does not offer guidance, or the specificity necessary for attorneys to take adequate precautions to safeguard their client confidences, or to rest assured that the information is being appropriately safeguarded by the intelligence agencies.

Until the time that the NSA provides a more substantive response, and in the wake of this exchange of correspondence, it remains unclear what reasonable steps attorneys can take to adequately safeguard their foreign client communications. It appears the options are to trust foreign and domestic intelligence agencies, or start banking more flight miles abroad.  Either option is potentially costly to law firms, and their foreign clients. 

Brandi Blair is an attorney at Jones, Skelton & Hochuli in Phoenix, Arizona. She concentrates her practice on § 1983 defense, professional liability, and wrongful death and personal injury defense. She is currently the Publications Chair for DRI's Lawyers' Professionalism and Ethics Committee.  The views expressed herein are her own.

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Recently, the Eleventh Circuit issued an opinion that stands to be very useful to RICO defendants at the motion to dismiss stage. Undoubtedly, plaintiffs will argue that the decision is limited to RICO cases relying on a specific predicate act. That argument, however, ignores very important language in the opinion and the structure of RICO itself.

Simpson v. Sanderson Farms, Inc., No. 13-10624 (11th Cir. Mar. 7, 2014), involves poultry processing plant employees’ allegations that the plant depressed wages by falsely attesting that illegal employees presented genuine work-authorization and identification documents. Such false attesting violates 18 U.S.C. § 1546 and is a predicate offense under RICO.  This is not an entirely new theory. Indeed, the Eleventh Circuit held only a few years ago that a plaintiff stated a valid RICO claim by alleging that a deliberate scheme to hire illegal employees depressed wages in Williams v. Mohawk Industries, Inc., 465 F.3d 1277 (11th Cir. 2006).  At least two other circuits also have let such depressed wage claims survive motions to dismiss.   Trollinger v. Tyson Foods, Inc., 370 F.3d 602 (6th Cir. 2004); Mendoza v. Zirkle Fruit Co., 301 F.3d 1163 (9th Cir. 2002).  Importantly, however, all three of those opinions predate Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009), and the pleading standards that those United States Supreme Court opinions embraced. The Eleventh Circuit relied on that important fact when affirming the dismissal of these Plaintiffs’ complaint.

The two Plaintiffs in Simpson worked at the processing plant in Moultrie, Georgia. They alleged the plant used falsified documents in order to employ illegal immigrants.  Under the Plaintiffs’ theory, that allowed the plant to pay depressed wages to all employees, legal or illegal, because it artificially inflated the pool of potential workers.  And, of course, legal workers had to compete with illegal workers who are willing to work for lower wages. While these two Plaintiffs experienced wage increases of more than 30% in approximately two years, that alone did not doom their claims. After all, a logical conclusion of their theory could be that wages increased less rapidly than they otherwise would have. Similarly, wages could have started at a lower position due to the illegal employees with whom they competed.  Instead, the Eleventh Circuit affirmed the dismissal because the Plaintiffs failed to adequately plead basic economic facts showing that the alleged scheme directly caused their alleged injuries.

Despite designating its decision as an opinion for publication, the Eleventh Circuit at times downplayed (incorrectly in my view) the importance of its analysis. “Nevertheless, because this is not a close case, we need not engage in any creative legal analysis to conclude that the plaintiffs have not plausibly shown injury.”  [Slip Op. at 12]  The problem with the complaint was the failure to allege or include any wage data. The Plaintiffs did not offer any market data that would allow a court to infer that a gap existed between Plaintiffs’ actual wages and what they would have received but for the false employment documents. They did not offer or estimate wages paid by comparable processing plants in the relevant market, in the state, or even the region. And they certainly did not attempt to distinguish between the wages paid by employers who use illegal employees and those who do not. 

It was not enough to allege an abstract market impact theory. Rather, the court expected the Plaintiffs to quantify the labor market in some way. That is, show or at least estimate the number of unskilled workers in the market and what percentage of that workforce is work-authorized. The Plaintiffs had to establish that the percentage of illegal workers was sufficient to actually depressed or otherwise affect wages. They did not do this for the relevant market or even for this particular plant. And that failure to do so for the relevant market simply highlighted that the Plaintiffs never defined that market. Was it the entire county, a subset of the county or some other geographic region? The Plaintiffs never said, and the court would not guess.   

So what lessons does this case have for defense practitioners?  It has long been the case that the alleged predicate acts must directly injure a RICO’s plaintiff’s business or property.  Hemi Group, LLC v. City of N.Y., 559 U.S. 1, 14-15 (2010); Holmes v. Secs. Investor Protection Corp., 503 U.S. 258, 265-68 (1992); Anza v. Ideal Steel Supply Corp., 547 U.S. 451, 458 (1991).  The plaintiff’s business or property must be injured “by reason of” the RICO violation.  18 U.S.C. § 1964(c).  Thus, if alternative causes exist or if the causal link is too attenuated, a RICO claim typically will fail. While often described in terms of proximate cause, this truly is a more stringent causation requirement than, for example, a common law tort claim.  For example, one of the more influential Court of Appeals opinions emphasized the need for a plaintiff to show how its losses were tied directly to the alleged predicate offenses (i.e., providing false information on commercial loan documents) rather than an overall downturn in the New York real estate market.  First Nationwide Bank v. Gelt Funding Corp., 27 F.3d 763, 770-71 (2d Cir. 1994) (affirming dismissal).  “[W]hen the plaintiff’s loss coincides with a marketwide phenomenon causing comparable losses to other investors, the prospect that the plaintiff’s loss was caused by the fraud decreases.”  Id. at 772.  

In that respect, the Eleventh Circuit’s recent opinion continues the proximate cause analysis that has been part of RICO for some time.  It is the level of detail and economic analysis that the complaint must include that makes the Eleventh Circuit’s opinion so interesting. It also would be a mistake to interpret it as limited to this type of illegal employment case. Any time a plaintiff—particularly a putative class representative—alleges that predicate acts caused widespread economic harm, it is almost inevitable that countervailing economic forces may be at work.  A defendant should point to this opinion and argue that the plaintiff must allege data points and facts supporting an inference of that economic effect in a particularly defined market.  The plaintiff should not be able to argue that discovery is necessary or that he may rely on “commonsense” inferences at the pleading stage.  A defendant should force the plaintiff to define the market and define the specific economic data showing the purported injury to business or property.  When possible alternative causes of the alleged injury exist, the plaintiff needs to address those at the pleading stage as well.

Defendant may see these types of allegations in “no injury” product defect cases.  That is, allegations that a product does not perform as promised, so the plaintiffs paid more than they otherwise would have or the product is now worth less than it otherwise would be. Similarly, allegations regarding real estate transactions, particularly following the housing bust, also often suggests some sort of effect across an entire market. Such claims should have difficulty withstanding this type of pleading requirement.  As defense counsel, you will want to identify all of the plausible alternative explanations for any economic harm alleged in the complaint.  Your plaintiff must do more than allege in conclusory fashion that those alternative causes are not to blame. Rather, he or she must provide a feasible theory that survives basic economic scrutiny.   

James Smith is a partner in the Phoenix office of Bryan Cave LLP and is a member of the firm’s Class & Derivative Actions Client Service Group.  


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Drafting the Employee Handbook

Posted on March 24, 2014 07:14 by Marc Zimet


Are you an employer? Then you should have an employee handbook. If you don't have one, now is the time to procure one. If you do have one, then now is the time to review your handbook to ensure it is up to date with the ever changing employment laws. While the state of California does not require an employer to maintain an employee handbook, a well drafted handbook helps to avoid lawsuits, offers an affirmative defense to litigation, and ensures compliance with complex state and federal regulations. 

A good employee handbook sets forth the company's stance on important legal issues, such as harassment and discrimination, as well as informs the employee of the company's operating policies and procedures. A handbook can set forth the rules for employees, including management guidelines, and may also be used to educate employees about benefit plans. Regardless of the depth of a handbook, there are a few policies an employer should be sure to develop and include. 

- An explanation of “at-will” employment and disclaimer. To ensure an employee handbook is not interpreted by an employee as constituting an employment contract , the handbook must include an “at-will” disclaimer. This will explain to the employee that he or she can be terminated with or without cause at any time.

-An explanation of the different classifications of employment. This should include full-time, part-time, temporary, exempt, and non-exempt classifications. It should be clear which category an employee fits into, and the employer should ensure the employee is properly classified. 

- An explanation of hours, meals, and breaks. To aid in avoiding litigation, employers should ensure their policy regarding employee hours, meals, and breaks is clearly set forth and in compliance with legal requirements. This should also include the employer's policies regarding over-time and double-time pay rates. 

-A statement of equal employment opportunity. Employers should ensure they have a well drafted policy addressing their dedication to equal employment and intolerance of all forms of discrimination against classes protected by law. It should further set forth that the employer shall not discriminate at any time during the employment process, such as during hiring and termination. 

-Policy against harassment. All employers should clearly set forth their policy against harassment in the workplace. This should include all forms of harassment employees are protected against (not just sexual). A harassment policy should also provide employees who believe they have been harassed with guidelines for reporting such harassment and protocols for handling incidents reported by employees. 

- Employee conduct and performance. The handbook should set forth what conduct is impermissible in the workplace, especially that conduct which may result in termination. It should also set forth expectations regarding an employee's performance and whether there will be periodic reviews of performance levels. 

-Explanation of the company's electronic privacy policies. The employee handbook is the best place for employers to set forth their policy on electronic privacy of employees. This includes an employee's privacy of their computers, emails, telephone conversations, and voicemails.  

- Family and Medical Leave Act (FMLA) policy. If you are an employer with more than fifty employees, you are required by law to provide your employees with your FMLA policy in writing. The handbook is an excellent place to do this.

- Acknowledgment. Employers should always ensure they receive a written acknowledgment from the employee stating his or her receipt of the handbook and that he or she understands the terms and agrees to abide by company policies. It cannot be emphasized how important this step is. 

Due to the complexity of employment laws, employers should hire experienced legal counsel to draft and/or review their employee handbook. A well drafted handbook will be written in simple, laymen language to ensure all employees understand its provisions and there is no confusion about the meaning of its terms.

Last of all, employers must ensure its employees actually follow the employee handbook. It is important that not just low-level employees comply, but managers as well. This is especially true in cases of claims of discrimination or harassment where a manager's handling of a claim can either mitigate a company's damages, or increase them. 

While the above list is not exclusive, it provides a solid foundation for employers to base their employee handbooks. An employer who clearly sets forth its policies on these issues protects itself against litigation, and will find that in the event litigation is ever commenced, the handbook provide defense as well as evidence of company policies and culture. 

Blurb: If you are an employer in California, an employee handbook is a must. While the state of California does not require an employer to maintain an employee handbook, a well drafted handbook helps to avoid lawsuits, offers an affirmative defense to litigation, and ensures compliance with complex state and federal regulations. Included are some of most important policies an employer should be sure to develop and include in their handbook.


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