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Updated: 53 min 7 sec ago

Fourth Circuit Lifts the Veil on Claims at the Heart of Safeproduct.gov Appeal

Tue, 04/22/2014 - 1:52pm

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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Defeating Class Certification in Food Labeling Class Actions

Mon, 04/14/2014 - 9:30am

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

Thu, 04/10/2014 - 10:05am

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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Do Your Employees Wear Clothes to Work?

Mon, 04/07/2014 - 10:10am

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.
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 Need for Actual Reliance for Food Labeling Claims Under the “Unlawful” Prong of California’s UCL

Fri, 04/04/2014 - 9:55am

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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Don’t be a Cyber-Thief’s Next Victim

Mon, 03/31/2014 - 2:47pm

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

Thu, 03/27/2014 - 10:05am

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

Wed, 03/26/2014 - 10:31am

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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The Eleventh Circuit Bolsters Defense Arguments Based on RICO’s Direct Causation Requirement

Tue, 03/25/2014 - 10:04am

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

Mon, 03/24/2014 - 2:14pm

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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To Preserve or Not Preserve, That Is the Question

Thu, 03/20/2014 - 12:44pm

Nowadays everywhere you go, someone is watching.  Why?  Because surveillance cameras are in every store, restaurant, hotel and gas station around the country.  The primary purpose of these cameras may differ among the many industries that use them but one thing is certain, if a customer is injured, the surveillance footage will be an issue.  

Two scenarios that every industry and claims examiner must respond to on a regular basis are: (1) an attorney sends a letter demanding the preservation of footage after an incident; and (2) a customer incident occurs with no attorney involvement and a decision must be made if footage should be preserved, and if so, what footage. These issues typically arise very soon after a customer incident takes place because time is of the essence when dealing with surveillance footage. Most systems are digital and the amount of time you have to preserve the footage depends on the size of the DVR memory. Therefore, the first and one of the most important things a claims examiner must do is know the capabilities of your company’s surveillance system. Know how it works and most importantly, know the typical amount of time you have before footage is gone.  
Once you know how much time you have to ensure the preservation of footage, the next question is whether to preserve.  The short answer is, YES, PRESERVE! Surveillance footage can both hurt and help your defense but the failure to preserve, even when the incident cannot be seen, will almost always hurt. When it is not preserved, you run the risk of being hit with a spoliation claim or negative inference.
The next question is how much footage to preserve. The easiest way to answer this question is to know your jurisdiction and the judges who will rule on any motions about video preservation. It usually comes down to what is reasonable.  Is 60 days of footage reasonable?  Not in my opinion and not in the opinion of the judges of my jurisdiction. Typically what we have seen as “reasonable” is preserving a few hours before the incident and thirty minutes to an hour after the incident. If that is the amount of footage preserved, it would be unusual for a court to find that improper.  
Since the decision of how much footage to preserve is almost always made before a lawsuit is filed, it is important for counsel and claims examiners to discuss these issues ahead of time and have a standard policy of how much to preserve.  When opposing counsel asks for 60 days to be preserved, you should have standard language to respond to this demand so it can be properly and timely addressed and not create discovery problems down the road.  
Preservation issues with surveillance footage are here to stay because more cameras and more advanced systems are installed every day.  It is an issue that every retailer, claims examiner and defense attorney must handle and be well versed in or problems will arise.  You can learn a great deal more about this topic and how it impacts your practice and company at DRI’s 2014 Retail and Hospitality Litigation and Claims Management Seminar.  The seminar is taking place on May 15-16, 2014 in Chicago, Illinois at the Westin Chicago River North.  There will be many informative presentations impacting the retail and hospitality industries and you will not want to miss Thomas E. Best from The Home Depot and Suzanne M. Marasco from Hill Wallack, LLP give a revealing presentation on “Preserve Your CCTV or Else?” 

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Environmentalists Support Fracking But with Important Reservations

Tue, 03/18/2014 - 3:23pm

It is necessary that natural gas be substituted for coal and oil as an energy source if the world is to have any chance of avoiding runaway greenhouse gas (“GHG”) emissions, particularly from the developing world.

At present, it is unrealistic to expect renewable energy sources (solar, wind and geothermal) to serve as a foundation for national energy policy. In the United States, even with the best use of conservation, energy efficiency and renewables, the combination of these various “alternatives” will not become a substitute for fossil fuels for a very long time.

In a thoughtful article in the New York Law Journal on January 2, 2014, titled  “Countries Approach Fracking With Interest and Caution,” Stephen L. Kass, makes the case that natural gas from hydraulic fracturing should be an important component of a comprehensive energy strategy, both in the United States and abroad.  According to Kass, fracking is attractive to: (1) economists seeking to stimulate development; (2) national security officials seeking independence from unreliable oil suppliers; and (3) environmentalists who seek to avoid runaway GHG emissions, particularly from developing countries.

In the United States, fracking now accounts for a staggering 25% of domestic natural gas (a figure expected to rise to 50% by 2035). In addition to lowering energy costs, according to Kass, fracking is widely credited with reducing U.S. “carbon intensity” and GHG emissions.

Fracking places the environmental community between the proverbial rock and a hard place. On the one hand, environmentalists recognize that fracking offers enormous environmental benefits in terms of reduced GHGs. On the other hand, environmentalists continue to be concerned that fracking fluids may contaminate precious water sheds.

Therefore, it is the goal of the environmental community that the amount of water used in fracking be minimized through recycling, that double-walled drill shafts and other controls be effectively utilized to minimize fugitive methane releases, and that waste fluids be adequately treated on-site before being recycled, discharged to water treatment plants or re-injected. The oil and gas industry’s refusal to disclose the composition of its fracking fluids has become an unnecessary distraction from these key environmental concerns.

In the long run, environmental concerns are likely to be largely addressed by increased and moreeffective regulation and by self-policing by industry. From the standpoint of providing an inexpensive fuel to tens of millions of American homeowners, the stakes are simply too high for environmentalists, who support fracking with these reservations, to concede defeat. As industry continues to demonstrate that fracking can be performed in a safe and environmentally sound manner, opposition to the practice will most likely diminish.
This blog was originally posted on January 24, 2014, on the Toxic Tort Litigation Blog by Bill Ruskin. Click here to read the original entry. 
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Thu, 03/13/2014 - 10:01am

What does weather have to do with the practice of law? It is the term now used to identify web-based storage of a lawyer’s files and records instead of the usual paper files and firm server, backed up on local electronics.  It is called Software as a Service (SaaS), or on-demand software.  Technology as it has evolved is universally viewed as a requirement for modern lawyers. Clients expect it, but do not expect to pay for it.  So, to avoid the high costs of servers, back-ups, installation, maintenance and support, some are turning to subscription services for a fixed fee (example, Dropbox and many others).  Of course, the advantage is the management of a cost and then the accessibility of data at any time over a range of devices.

Wonderful:  What could go wrong with that?  If it can, it will and there have been a number of breaches individually of the lawyer, and the firms as well as the service providers.  What then is a prudent lawyer or firm to do?  
Like so many things in the law, this area is evolving and starting to gain traction.  The ABA 2013 Legal Technology Survey Report looked at this in depth and noted a big jump in use (50% increase from 2012 to 2013) now amounting to about 30% of the respondents reporting its use.  Individuals and small firms, along with the West Coast (used to tech businesses) and southern (result of Katrina) lawyers, were the biggest users.  A Lexis Nexis study says 2014 is poised to be the year of the cloud in “small law”.
Recognizing our duties to clients to protect their data and confidential communications, “big law” is slower to come over to this so-called cloud storage.  As a group, lawyers are slow to accept changes anyway.  Bar groups have started to examine the ethics of cloud storage and at last count, 17 jurisdictions have all agreed that cloud computing is ethical. (See, e.g., New York City Bar Report December 2013).  A trend is developing toward acceptance, it seems.  I suspect we shall see more use there, and more gradual acceptance, particularly where clients want it for their use.
Bear in mind that the professional rules still apply. The holdings stress all the same duties as before and therefore put the lawyer in a real due diligence situation before using.  Lawyers’ actions with regard to safekeeping fall into the reasonable conduct standard, and not strict liability or as a guarantor of confidentiality.
The lawyer or firm needs to be able to document each step they took to select a provider and to produce it all later to show they acted reasonably.  The vendor’s reputation will matter, their track record, their service agreement, their coverage (cyber insurance) and yours.  You will really need to review their written terms and make sure they have the same duties you have.  Cyber insurance issues, if you have acquired such coverage, need to be reviewed and compared so there are no gaps.
Sure there will be risks to balance against any convenience, affordability, or increased production.  While most lawyers do not want to be out on the “bleeding edge” of new things, this may quickly evolve into an accepted method for law firms to store data.  There was always an old school risk of server damage and physical loss to your files, so any cloud based use will be a balancing of that new risk as more Bars approve the process.  At one point we were told not to use cell technology for client issues.  Like that example, technology evolves and lawyers have to adapt to meet needs of clients and their expectations.
This blog was originally posted on Lawyering for Lawyers on March 8. Click here to read the original post. 
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Is There A Doctor in the House?

Fri, 03/07/2014 - 10:41am

The Patient Protection and Affordable Care Act, often referred to as the “Affordable Care Act” (ACA), or perhaps more commonly “Obama Care,” has had no shortage of media coverage and controversy since it was signed into law nearly four years ago (Yes, it has been 4 years! President Obama signed the Act into law on March 23, 2010).  Several aspects of the ACA have been, for better or worse, more “visible” than others; such as the heavy focus on the “individual mandate,” i.e. the requirement that uninsured citizens obtain health insurance or pay a penalty; the impact on employers and small businesses; and the more recent website debacle where many people seeking to sign up for health insurance on the newly created exchanges were unable to do so due to technical issues with the ACA’s www.healthcare.gov website. 

One of the less discussed issues with the ACA however, is the potential for a massive provider shortage.  At its basic level, one of the primary purposes of the ACA is to increase the number of insured Americans. Indeed, according to various estimates, the implementation of the ACA is anticipated to provide insurance to 25-30 million additional individuals who would otherwise not be insured: “[T]he Affordable Care Act will also ensure that every American can access high-quality, affordable coverage, providing health insurance to nearly 30 million Americans who would otherwise be uninsured.” (Quoted from 2014 Funding Highlights bulletin published on www.whitehouse.gov). Coupled with provisions providing for free or reduced cost annual exams; greater Medicare coverage; increased coverage for younger adults; and increased coverage for preventative care and testing such as mammograms and colonoscopies; that means more insured people utilizing more health care services. Consequently, the question arises of whether we have enough physicians and providers to administer the increased health care demands?  

The Obama administration has acknowledged this potential and recently proposed a Fiscal Year 2015 Budget for the Department of Health and Human Services which attempts to address this contingency, at least in part. According to the HHS’s “Fiscal Year 2015 Budget in Brief” “[t]he Budget makes new and strategic investments in our nation’s health care workforce to ensure rural communities and other underserved populations have access to doctors and other providers. In total, $14.6 billion will be invested in three key initiatives: $4 billion in expanded funding for the National Health Service Corps, $5.2 billion for a new Targeted Support for Graduate Medical Education program, and $5.4 billion for enhanced Medicaid reimbursements for primary care. (U.S. Dept. of HHS “Fiscal Year 2015 Budget in Brief”; http://www.hhs.gov/budget/fy2015/fy-2015-budget-in-brief.pdf).

While the long-term idea behind the ACA may be to reduce health care costs and the need for excessive or increasing health care services (i.e. an insured population is presumably healthier and will therefore require less health care), will we have enough physicians, nurses, and other providers necessary to get us healthier in the short term? 

The full impact of the Affordable Care Act, positive or negative, remains to be seen. You can learn a great deal more about the Affordable Care Act, the difficulties with its implementation, and its impact on you and your practice, at DRI’s 2014 Medical Liability & Health Care Law Seminar, taking place in Las Vegas on March 20–21, 2014 at the Cosmopolitan Hotel.  Among many top-notch presentations at this year’s seminar you will not want to miss Kimber Lantry, Executive Vice President for AXIS Insurance’s Health Care Unit, give a fascinating presentation on “The Unintended Consequences of the Affordable Care Act.”
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Has Your Food Labeling Plaintiff Pleaded Himself Out of Court?

Wed, 03/05/2014 - 10:45am

Two recent district court decisions emphasize that food labeling class action defendants must carefully review complaints to identify what each named plaintiff contends it reviewed and whether the allegedly deceptive statements even affected the named plaintiff’s decision to purchase a product. These plaintiffs often string together unrelated allegations that have nothing to do with their purchases.  If a defendant connects the dots and shows just how unrelated those allegations are, you have a much better chance of succeeding early in the case.      

The first case involves five gallon bottled water that is municipal tap water that the seller put through a purification process.  In the Chicago Faucet Shoppe, Inc. v. Nestle Waters North America, Inc., No. 12 C 08119 (N.D. Ill. 2/11/14), the plaintiff alleged that the defendant failed to disclose that the water is municipal tap water and not natural spring water.  After buying the bottles for years, that plaintiff realized it was simply purchasing municipal tap water that underwent a purification process.  That defendant apparently referred to “spring water” on its website, invoices, and panels on its delivery trucks. Importantly, it did not include that statement on its labels.  That was crucial for purposes of the defendant’s preemption argument. Federal regulations exempt “purified water” from disclosing if the water comes from a community water system.  21 C.F.R. § 165.110(a)(3)(ii) & (a)(2)(iv).  In fact, the FDA considered but rejected requiring disclosure for purified water, concluding that consumers purchasing it were more concerned with purity and not the source.              This plaintiff knew it couldn’t force the defendant to add more to its label than federal law required. Instead, it argued that it only wanted the defendant to disclose the source in marketing materials and on invoices. But marketing really is no different than labeling. The federal Food Drug & Cosmetic Act prohibits states from imposing any food labeling that is not identical to a federal standard.  Because the federal regulations do not require “purified water” to disclose if it came from a municipal water source, federal law preempted this plaintiff’s claims even though it framed the targeted materials as marketing materials rather than labeling.                You may wonder why the plaintiff did not allege affirmative fraud based on statements on the website and invoices referring to Ice Mountain “spring water.”  Indeed, the court wondered the same thing, so it analyzed (and rejected) an affirmative misrepresentation claim even though the plaintiff did not plead it.  Of course, the most likely reason that the plaintiff did not pursue an affirmative misrepresentation claim is the near impossibility of getting such a class certified.  The court did not touch on that issue, but anyone familiar with consumer fraud class actions certainly recognizes it.  If the plaintiff built its case on specific statements on the website or on invoices, it would have to explain how the court could certify a class without getting mired in individual issues of who saw the website, who relied on it, and what other sources of information they possessed.  That is why these types of food labeling claims tend to rely entirely on the product labeling as opposed to occasional statements on websites or other places.                The next case is Kane v. Chobani, Inc., No. 12-CV-02425-LHK (N.D. Cal. 2/20/14).  This case is familiar to people following food labeling class actions and began in May 2012.  Since then, the court has granted various motions to dismiss but allowed that plaintiff more opportunities to plead cognizable claims. At this point, the plaintiff was on her fourth attempt and, thankfully, it is the last one.  This case is a little more typical because it is in the Northern District of California and relies on California consumer protection laws.  This plaintiff has been pursuing claims falling into two categories.  The first relates to Evaporated Cane Juice (“ECJ”); she alleges that ECJ is nothing more than sugar or dried can syrup, so referring to ECJ on the label is misleading and violates federal regulations requiring manufacturers to refer to ingredients by their common and usual names.  The second class of claims are “all natural” claims.  She alleges that using fruit and vegetable juice and turmeric for color was false and misleading because those are not “all natural.”              One of the most useful portions of this order is its discussion of California UCL claims under that statute’s “unlawful” prong.  Some plaintiffs have successfully argued that they need not rely on a labeling statement that is “unlawful”; rather, they only need to plead that it is plausible that a defendant broke a law (typically, a federal food labeling requirement).  In fact, a handful of other courts in the Northern District of California have accepted that rationale.  But Judge Lucy Koh was having none of it.  She reasoned that any UCL named plaintiff must allege that they relied on the offending statement or conduct, even under the “unlawful” prong.  This will be a developing area under California consumer fraud law.  At some point, the California Supreme Court or the Ninth Circuit will resolve this growing split among lower courts interpreting allegations of “unlawful” conduct and UCL claims.  For now, unfortunately, the outcome in such cases may turn on which judge handles a particular case.                The court then analyzed whether this plaintiff actually relied on the alleged misstatements. This really is an interesting portion of the opinion, particularly considering how Judge Koh evaluated the plaintiff’s changing allegations over the course of the case.  As to ECJ, the plaintiff initially contended she did not realize that ECJ was just another sweetener.  But in other portions of the amended pleading, the plaintiff repeatedly referred to sugar and dried cane syrup interchangeably.  Judge Koh did not believe it was plausible that the plaintiff could realize that “dried cane syrup” was a form of sugar, but that “evaporated cane juice” was not.  Similarly, the plaintiff earlier sought a preliminary injunction (perhaps an unwise move) and submitted a declaration indicating she would not have purchased the product if she knew it contained “dried cane syrup”; again, this showed she knew that dried cane syrup was the same as sugar.  And despite the court’s earlier rulings, this latest pleading failed to explain how the plaintiff could understand that dried cane syrup was a form of sugar but was oblivious to that fact regarding ECJ, particularly considering that she purported to read and rely on the label.                Perhaps showing some desperation, the plaintiff and her counsel suggested that the “cane” in ECJ could have referred to some other type of cane, such as bamboo cane or sorghum cane.  But during the hearing on the plaintiff’s preliminary injunction motion (again, probably not a good idea), the plaintiff’s counsel admitted that he does not know what people might think when they see ECJ on a label or whether they may believe it is something other than sugar cane.  It was too much for Judge Koh, who found the “which cane is it” argument to be nonsensical.    
The plaintiff also tripped over her own allegations because she acknowledged that “fruit juice concentrate” is a well-known added sugar.  In light of that admission, it was implausible that the plaintiff thought “evaporated cane juice” was something healthful when she admittedly knew that “fruit juice concentrate” was little more than sugar.  Juice was juice from the court’s perspective.              The court then turned to the “all natural” claims that relied on Chobani using fruit or vegetable juice concentrate as coloring.  The defendant’s labeling explicitly disclosed that it adds fruit or vegetable juice for color, and the plaintiff purported to read the label.  Hoping to salvage this claim, the plaintiff now alleged that the juices added were actually processed, unnatural substances. The court was not impressed.  In three prior complaints and several hearings, the plaintiff never before disclosed a theory that the juice concentrate used for coloring somehow was not “natural” due to some unidentified aspect of its processing.  It was not enough that the plaintiff alleged the juices were “highly processed unnatural substances far removed from the fruits or vegetables they were supposedly derived from”; that was nothing more than a conclusory statement without any factual support.  Judge Koh wanted to know how or why the juices were not natural, and this plaintiff never answered that question despite several opportunities.              Some take away points from Chicago Faucet Shoppe and Kane to consider:
  • In terms of substantive law, reliance and the “unlawful” prong of California’s UCL needs clarifying.  The Northern District of California likely is the federal court with the greatest volume of such claims, and some of its judges are split on whether a named plaintiff must have relied on the allegedly-unlawful statement.  
  • Dissect the plaintiff’s allegations and take the court step-by-step to identify: (1) what the plaintiffs actually saw or relied on; (2) what they included in the complaint as “fluff” (e.g., perceived bad facts that didn’t play a role in their purchase); (3) how their allegations may disprove their claims (e.g., they admit elsewhere that a listed ingredient is known to be “unnatural”); (4) conclusory assertions about ingredients that lack factual bases (e.g., something is “unnatural,” but the plaintiff doesn’t describe how or why); and (5) implausible assertions—courts are slowly showing more willingness to recognize that a label didn’t deceive a plaintiff merely because he or she alleged as much.      
Food labeling cases continue to be a favorite among the plaintiffs’ class action bar.  No doubt, the initial success in surviving motions to dismiss—often followed by quick class-wide settlements—encouraged them. Many courts, however, seem to be taking a closer and more skeptical view of these claims.   James Smith is a member of the Bryan Cave Food and Beverage Team and of the Class and Derivative Action Client Service Group.  He is a partner in the firm’s Phoenix office.     
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Safeguarding Confidential Information from the NSA

Mon, 03/03/2014 - 9:52am

A lawyer has an ever evolving duty to safeguard confidential client information. We don’t just lock our doors and keep our voices down—we encrypt our files, we scrub our metadata—and now, we tackle the issue of how we safeguard our communications with foreign clients. 

The 2008 amendments to the Foreign Intelligence Surveillance Act permit the Director of National Intelligence and the Attorney General to jointly authorize warrantless electronic surveillance, for one-year periods, targeted at a foreigner who is abroad. There is limited, if any, protection for foreigners engaged in communications with American attorneys. Communications that American lawyers take for granted—our phone calls and e-mails with client—may be subject to interception when they involve a foreign client. 
The Edward Snowden scandal brought apparent legitimacy to this previously hypothetical concern. The documents already “disclosed” through the Snowden affair reveal N.S.A. actions in the foreign monitoring of communications between an American Law Firm and its foreign client. As explained in a recent New York Times Article, Spying by N.S.A. Ally Entangled U.S. Law Firm by James Risen and Laura Poitras, the Snowden documents reveal that the American firm was monitored while representing a foreign government in a trade dispute with the United States. Although the surveillance was conducted by the government of Australia, the documents demonstrate apparent acquiescence, approval, and use by the United States government - notwithstanding the very trade dispute at issue. 
If you think the Supreme Court would not stand for this, it appears five justices might disagree. When the ACLU challenged the 2008 amendments in Clapper v. Amnesty International, lawyers raised the concern that their communications would be targeted and intercepted as part of the Act. The Court dismissed these concerns as “speculative,” and declined to provide protection.  It is unclear whether that position would remain the same in this post-Snowden era. Nevertheless, the best way to safeguard foreign client information may be the oldest: face-to-face. On the bright side, if your client is in a tropical paradise, perhaps you finally have that excuse to expense your long awaited client visit. 
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Mediation – Past is Prologue

Fri, 02/28/2014 - 10:08am

Contemporary mediation defined by Black’s Law Dictionary as “a method of nonbinding dispute resolution involving a neutral third party who tries to help the disputing parties reach a mutually agreeable solution,” can trace its roots back to ancient civilizations.  As a method of dispute resolution mediation has been used in a variety of cultures for more than 3,000 years. The historical record includes references to the use of mediators in commercial cases in Phoenicia and Babylon, and ancient Greek and Roman civilizations were known to resolve disputes through mediation as well.  
Mediation can be thought of as an innately human activity that civilizes us and keeps the peace.  In a deeper sense, forms of mediation can be found in religions across the globe.  In that religious context, Paul directed the Corinthians to appoint people from their own community for the purpose of resolving disputes rather than submitting disputes to the court for resolution. (I Corinthians 6:1-4). Buddha encouraged adoption of the middle way or middle path as the means to achieve calm, vision, insight and, indeed, enlightenment. Additionally, Native Americans employed their own non-violent dispute resolution techniques long before the arrival of Europeans on the Continent.  Some similar dispute resolution processes can still be observed today in the tribal councils in the Pashtun areas of Afghanistan and Pakistan.  
Recognizing the long historical use of mediation as a means of peacefully resolving disputes is worth remembering the next time you find yourself mediating a case.  The historical roots of mediation are also worth acknowledging as societies continue to embrace new technologies that can potentially change the way contemporary civil disputes are resolved.  
II. MODERN MEDIATION AS WE KNOW IT Contemporary mediation has its roots in dissatisfaction with the civil litigation process.  In addition to sometimes being less than civil, litigation can be and often is extremely expensive, both to the parties and the state.  Supreme Court Chief Justice Warren Burger remarked upon the problem: “We may well be on our way to a society overrun by hordes of lawyers, hungry as locusts, and brigades of judges in numbers never before contemplated. We have reached the point where our systems of justice—both state and federal—may literally break down before the end of the century.”  Remarks at the American Bar Association Minor Disputes Resolution Conference (May 27, 1977).  “For many [civil] claims, trial by adversarial contest must go the way of ancient trial by battle and blood…”  Warren E. Burger, 70 A.B.A.J. 62, 66 (1984).  In light of the inherent burdens litigation places upon those involved, in 1976 Chief Justice Warren Burger invited Professor Frank E. A. Sander of Harvard Law School to present a paper at the Roscoe Pound Conference of 1976.  This historic gathering of legal scholars and jurists discussed ways to address dissatisfaction with the American legal system and to reform the administration and delivery of justice.
Professor Sander’s paper Perspectives on Justice in the Future urged a widespread adoption of non-litigious forms of dispute resolution, not least of which was mediation.  State legislatures took up the call and became focused on the development of mediation, and law and business schools joined in the research.  In 1979, the CPR (Conflict Prevention and Resolution) Institute was founded, backed by companies and professional firms, and began to explain the idea of mediation.  Getting To Yes by Harvard Law School Professors Roger Fisher and William Ury was published in 1981.  In 1983, Harvard Law School, MIT and Tufts founded the Program on Negotiation.  Two years later came Pepperdine’s Straus Institute for Dispute Resolution.  By the late 1980s, the Association for Conflict Resolution and the ABA Section of Dispute Resolution were established. Mediation rules were then codified and amended throughout the United States.  Consequently, mediation as an integral part of the civil litigation process developed and virtually all litigators are now as familiar with mediations as they are the court room.    
Over the years, lawyers and non-lawyers have found numerous benefits to mediation over trial.  First and foremost for the non-lawyers is the cost.  While mediators and mediation facilities charge fees (in addition to the fees charged by the lawyers for each party), the mediation process is generally much quicker and much less expensive than litigating a case through trial. Perhaps most importantly is the fact that mediations are completely confidential.  This confidentiality allows parties to discuss the true strengths and weaknesses of their respective cases in a truly open and honest manner without the risk of educating the other side.  Another benefit is control.  A party can mediate and control the outcome or go to trial and give control to 12 complete strangers – who can never truly know as much about the case as do the parties – and who certainly do not care about the outcome of the case (at least not to the degree as do the parties).  
III. TECHNOLOGICAL ADVANCES MAY BRING CHANGES TO MEDIATION AS WE KNOW IT As the development of mediation and other forms of alternative dispute resolution has changed the way cases are litigated and resolved, technological advances may now bring changes to the way we mediate those cases.  Online Dispute Resolution (ODR) is a form of alternative dispute resolution which brings technology to the table to facilitate the resolution of disputes between parties.  Moving the mediations online and with the assistance of software developed specifically for the purpose can potentially change the way mediations are conducted in the future. Processes that were once assisted by the Court or third parties can now be moved online, from the initial filing of a claim, the appointment of a neutral, the sharing of evidence, to real time hearings and the ultimate resolution of a matter.     
ODR has the potential to take the human element out of the process with technologies like automated negotiation and blind bidding.  Parties can submit several offers and if the bids of both parties come within a predetermined range or dollar amount, then the technology automatically settles the dispute in the midpoint of the offers. Using technology to settle the case encourages the parties to reveal their bottom line offers and demands, splitting the difference when the amounts are close.  In addition to letting the technology work for you, ODR mediations can be mediator assisted. As these technologies are embraced and the number of ODR companies offering these services continues to grow, it is possible that mediations of the future will look quite different than mediations of today.  Even so, the end result - the peaceable resolution of disputed claims – will remain the same.   
DRI’s ADR Committee is devoted to addressing issues of interest to ADR professionals, attorneys and their clients. The ADR Committee explores the practical implications of using arbitration, mediation and negotiation as cost effective and time-saving alternatives to litigation, and is a key resource on staying up to date with the latest trends and developments in the field of ADR.  For continued information on ADR, please consider joining the ADR Committee.   
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Thu, 02/27/2014 - 10:15am

You take comfort when you walk on to a plane that the flight crew always runs a printed checklist on every aspect of the flight and that most systems on the aircraft are duplicated.  If you were awake, you might have heard the scrub or circulating nurse doing a sponge and instrument count before and after your surgery. These are routine and fundamental procedures in these professions.  

With the number of claims and their severity on the rise against legal professionals, you might just wonder why we do so little check-listing.  I often remind younger lawyers that spell-checking is not proofreading. Double-checking legal documents by proofreading seems to be a dying art.
A successful major insurer of law firms (Attorneys Liability Assurance Society, or ALAS) recently put on a training program featuring an engineer who was a pilot, and later became a medical doctor who then became an astronaut.  Having retired from NASA, he does quality control for a large metropolitan hospital.  His point was that we lawyers can control mistakes to a greater degree than other professional errors, and should utilize basic safety type checklists with the fundamental communication read back. Every new pilot learns quickly to read back the controller’s direction to take heading 240° at 10,000 feet to avoid that simple little avoidable mistake of running into another aircraft at the wrong altitude and heading.  The same basics apply to an itemized list of procedures, which as the surgeon Atul Gawande wrote, can “hold the odds of doing harm low enough for the odds of doing good to prevail.”
In a recent WSJ column, Jason Zweig argued that intelligent investors should consider doing the same standardization for basic investment decisions, and thereby reduce the risk of costly errors you have learned by past mistakes.  He argues the biggest investment flaw comes from inconsistency which can be smoothed out to avoid making the same mistake again.
So, think with me here as to our profession.  Would not real estate title research and opinions, business closings, legal research and litigation filings, estate planning and many other aspects of the practice make logical checklist items?  My argument is that we can take control of the mill run mistake and narrow its occurrence by a simple read back of all essential and required steps on a checklist to get repeat legal tasks done.  Roger that.
This blog was originally posted on February 4 on “Lawyering for Lawyers.” Click here to read the original post. 
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Amendments to FRCP 45 Enacted

Tue, 02/25/2014 - 10:00am

On December 1, 2013 an amended FRCP 45 went into effect.  Why did it require amendment?  “Current Rule 45 creates what the Advisory Committee came to call a ‘three-ring circus’ of challenges for the lawyer seeking to use a subpoena.”  Report of the Civil Rules Advisory Committee, May 8, 2012 (page 80 of the link).  Those with federal cases need to be aware of the changes this post attempts to address.  As always, I encourage you to actually read the rule yourself.

To help put these changes in context, consider this hypothetical.  Assume I am defending a car manufacturer against a product case involving one of their fine automobiles cars.  The case is venued in the District of Nevada.  I want to inspect what remains of the car; envision the car inspection scene from Fight Club.  The purportedly defective car, however, is at a junk yard, partially covered by a tattered blue tarp storage facility, where it is protected from the elements, located in the Eastern District of Michigan.  The storage facility hates lawyers will not permit an inspection without a subpoena.
Which Court Issues the Subpoena?
Under the old rule, the court that could issue the subpoena varied.  A subpoena to appear for a hearing or trial issued from the court where the trial was to occur, but a deposition subpoena issued from the court for the district that encompassed the deposition location and a subpoena just for production or inspection was issued from the court for the district where that production or inspection was to occur.  FRCP 45(a)(2)(A)-(C) (2012).  Applied here, the trial would be in Nevada, but requires an inspection in the Eastern District of Michigan and, for good measure, a deposition in the Northern District of Texas.  Each would require a subpoena from a different court.  Fun times.
The new rule eliminates this game.  “A subpoena must issue from the court where the action is pending.”  FRCP 45(a)(2)(A) (2013).  Applied to the car inspection, the District of Nevada issues the subpoena.  This change spawned many others.
What Does the Caption Look Like?
The old rule permitted multiple courts to issue subpoenas in a case, although only one was actually hearing the case.  Therefore the subpoena needed to state not only the court that issued it, but also the court where the case was actually pending.  FRCP 45(a)(1)(a)(i)-(ii) (2012).  Under the old rule, my subpoena to the storage facility would have been issued from the Eastern District of Michigan, but would have included a slew of information about the case in the District of Nevada.
As the new rule authorizes only the court hearing the case to issue subpoenas, FRCP 45(a)(1)(a)(i)-(ii) were revised to simply require the subpoena identify the issuing court, the caption and case number.  Applied to my car inspection, the same caption I am using for other documents should be sufficient for the subpoena.
Which Attorney May Issue a Subpoena?
Given the possibility of multiple courts in different districts issuing subpoenas, the old rule permitted attorneys to issue subpoenas if the attorney is admitted to practice before the issuing court, wherever that might be.  FRCP 45(a)(3)(A)-(B) (2012).  For my car inspection, if I could not get the clerk to issue the subpoena, the old rule meant I would need an attorney admitted to practice in the Eastern District of Michigan to sign it.
Again, given that now only the court where the action is pending may issue the subpoena, this requirement was also modified.  “An attorney also may issue and sign a subpoena if the attorney is authorized to practice in the issuing court.”  FRCP 45(a)(3) (2013).  Now I can issue the subpoena through the District of Nevada and, since I am admitted to practice there, I can sign it.
Who Gets Notice of the Subpoena?
In Nevada state courts, there are frequently problems where a party issues a subpoena but does not provide notice of that subpoena to the other parties.  This is apparently not an isolated problem.
As it examined Rule 45 issues, the Committee was repeatedly informed that this notice provision is frequently not obeyed. Parties often obtain documents by subpoena without notifying other parties that the subpoena has been served. The result can be that there are serious problems at or before trial when “surprise” documents emerge and arguments may be made that they should not be admissible or that further discovery is warranted.
Report of the Civil Rules Advisory Committee, May 8, 2012 (page 83 of the link).  The committee considered it such a problem that it amended the rule.
The notice provision was previously buried in FRCP 45(b)(1) (2012).  “If the subpoena commands the production of documents, electronically stored information, or tangible things or the inspection of premises before trial, then before it is served, a notice must be served on each party.”  The committee elected to emphasize this requirement by relocating and slightly modifying it.  “If the subpoena commands the production of documents, electronically stored information, or tangible things or the inspection of premises before trial, then before it is served on the person to whom it is directed, a notice and a copy of the subpoena must be served on each party.”  FRCP 45(a)(4) (2013). Before serving a federal subpoena, a notice containing a copy of the subpoena must be itself served on the parties.  This gives them an opportunity to potentially object or serve their own subpoenas.
How does this impact my site inspection hypothetical?  I must give notice to the other parties of the subpoena before I serve it on the storage facility.  How much notice is open to interpretation depending upon the circumstances.
Where Can I Serve a Subpoena?
The old rule imposed a variety of potential geographic restrictions upon serving a subpoena and litigation about whether a person was more than 100 miles from the courthouse.  The fix?  “A subpoena may be served at any place within the United States.”  FRCP 45(b)(2) (2013).  This means I can issue the subpoena from the District of Nevada for a site inspection to occur in the Eastern District of Michigan and then serve that subpoena in the Eastern District of Michigan.
Location of Compliance
The old rule had various, scattered restrictions as to the location the subpoena could specify for compliance.  The committee was also concerned because some courts had determined a subpoena could still compel a person to attend trial even when the subpoena violated the geographic limits in effect.  See In re Vioxx Products Liability Litigation, 438 F.Supp.2d 664 (E.D. La. 2006).
The fix was to create FRCP 45(c).  “It collects the various provisions on where compliance can be required and simplifies them.”  Committee Notes on Rules – 2013 Amendment.  The committee also explicitly rejected In re Vioxx Products Liability Litigation’s interpretation of the geographic restrictions.  In other words, a subpoena can be served anywhere, but it does not mean it is enforceable if it requires compliance beyond the geographic limits of FRCP 45(c).
This change has little impact upon my hypothetical because the subpoena is being issued for a site inspection.  The changes primarily affect subpoenas for other discovery or trial purposes.  I could not, for example, serve a subpoena on a witness in Michigan to attend a trial in Nevada.
Which Court Enforces the Subpoena?
If the storage facility balks at the subpoena, where do I file the motion to compel?  The old rule required the motion to quash to be heard in the district for compliance, here the Eastern District of Michigan.  The advisory committee acknowledged authority holding there are some instances where it might be better for the court hearing the case (Nevada) to hear the motion to quash than the enforcing court (Michigan).  Why?  The issuing court is hearing the whole case and may have a better handle on the situation.
The committee decided to create FRCP 45(f) to address this scenario.  Applied to my hypothetical, the Eastern District of Michigan “may transfer a motion under this rule to the issuing court if the person subject to the subpoena consents or if the court finds exceptional circumstances.”  Id.  The drafter’s notes make quite clear, however, that the protection of the person subject to subpoena is to be given significant consideration.
Who Can Hold the Person Subject to Subpoena in Contempt?
FRCP 45(e) formerly stated contempt power for compliance was only vested in the court that issued the subpoena.  The new rule permits transfer of subpoena related motions, so FRCP 45(g) specifies both the issuing and enforcing court possess contempt power.  Under my hypothetical, if the storage facility fails to comply with the subpoena, both the Eastern District of Michigan and the District of Nevada possess contempt power.
This blog was originally posted on Posted on January 6, 2014 on Michael P. Lowry's "Compelling Discovery" blog. Click here to read the original entry. 
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Another Class Certification Victory for “All Natural” Food Labeling Defendants

Mon, 02/24/2014 - 1:51pm

A recent decision from the Northern District of California provides defendants with reason for cautious optimism regarding food labeling class actions.  In Sethavanish v. ZonePerfect Nutrition Co., No. 12-20907-SC (N.D. Cal. Feb. 13, 2014), the court denied the plaintiff’s motion for class certification. That plaintiff alleged that the “all natural” representations on ZonePerfect bars were false and misleading because the bars contain at least one of ten specified non-natural ingredients.  The plaintiff alleged that she regularly purchased those bars for her then-fiancé, who was an active-duty Marine who eventually deployed overseas.  The plaintiff alleged that she and her fiancé relied on those representations and paid more for the ZonePerfect bars than she would have paid for other bars that were not all natural.  She alternatively alleged that she would have purchased another brand of nutrition bar that truly was all natural.

In ruling on class certification, the court first addressed whether the plaintiff had standing to bring her claims.  While the court’s ruling in this regard is not helpful to defendants, it is also not surprising.  The defendant argued that the plaintiff did not suffer any injury because its bars are less expensive than the Pure Protein bars that the plaintiff now purchases.  The defendant also noted that the plaintiff admitted that she and her fiancé were willing to purchase non-natural nutrition bars so long as they were less expensive than “all natural” alternatives.  Plaintiff also admitted that she has always been willing to eat foods with artificial and synthetic ingredients.  While the court saw some tension among the plaintiff’s declaration, her pleadings, and her deposition testimony, that tension was not enough to eliminate standing.  From the court’s perspective, “[i]t is enough that she has asserted that she would not have purchased the product but for Defendant’s alleged misrepresentation.  She bargained for a nutrition bar that was all natural, and she allegedly received one that was not.”  Again, the standing threshold is not a terribly difficult one to overcome, so this ruling is not too surprising.                More helpful for defendants, however, is the court’s ruling on ascertainability.  The court agreed with the defendant that the plaintiff could not define an objectively ascertainable class.  The defendant overwhelmingly sells to retailers, and not directly to consumers.  Records could only identify a very small fraction of consumers who purchased ZonePerfect bars in the last several years.  Thus, no method existed to identify the members of the class.                The district court noted that courts in the Ninth Circuit are split on the issue.  It cited Xavier v. Philip Morris USA, Inc., 787 F. Supp. 2d 1075 (N.D. Cal. 2011), as an example of a case concluding a class could not be certified when there is no way to ascertain class membership.  That court declined to rely on affidavits from potential class members, reasoning that such a procedure could invite fraudulent or inaccurate claims.  In that respect, the Third Circuit’s opinion in Carrera v. Bayer Corp., 727 F.3d 300 (3d Cir. 2013), also was instructive.  There, the Third Circuit found that retailer records were not sufficiently thorough or accurate to identify class members.  In addition, the Carrera court “held that fraudulent or inaccurate claims could dilute the recovery of absent class members, and, as a result, absent class members could argue that they were not bound by a judgment because the named plaintiff did not adequately represent them.”  The court also pointed to Ries v. AriZona Beverages USA LLC, 287 F.R.D. 523 (N.D. Cal. 2012), as an example of a court rejecting a defendant’s ascertainability argument when dealing with “all natural” claims.  Nonetheless, this court found the reasoning in Xavier and Carrera more persuasive.  While those cases may restrict types of consumer class actions that may be certified, they do not bar such classes altogether.  Because this plaintiff did not identify any method to determine class membership, let alone an administratively feasible method, the court denied class certification without prejudice.                One effect of such decisions may be to encourage class counsel to try to certify narrower classes.  For example, if a manufacturer sells directly to consumers through its website, a class action plaintiff may contend that a court could certify a class of those consumers.  Of course, that assumes that the manufacturer maintains adequate records of such customers.  Similarly, class representatives may argue that the court may certify a class of consumers who purchased the products at retail locations with robust consumer loyalty programs.  Those types of programs often track individual customer’s purchases, though the extent of data maintained varies considerably. This is not to say that such narrowed classes would be appropriate.  They would bring a host of other difficult issues.  Nonetheless, it would not be surprising to see plaintiffs resort to that tactic in hopes convincing a court to certify a class.  Such class certification would, of course, provide the type of leverage that class counsel seek to negotiate a broader settlement.  
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