Recent Articles in Corporate & Commercial Litigation from LexMonitor

Equal Parts Transparency and Competition - Regulating the Derivatives Industry: Does the CFTC Have the Right Recipe?

steven@berklawdc.com (Steven Berk) — Thu, 22 Mar 2012 14:42:11 GMT

It’s the things you don’t see that are often the most dangerous. Think of all those germs and viruses lingering in the air. They are hard to avoid because we don’t know they are there. Well that’s kind of what we have with financial derivatives.

These complex financial instruments are used principally to hedge various price fluctuations, from the price of cane sugar (for companies like Coca Cola) to interest rates (for banks and home builders). But they are also a high stakes tool for “legalized gambling,” making the casinos in Las Vegas and Macau look like a penny-ante basement poker game in comparison. Derivative contracts add up to a $600 trillion dollar industry. That’s not a typo; trillion with a T. Do you know what comes after a trillion? A quadrillion. While these are science fiction numbers, the risk created by these instruments is very real. Think Contagion, Wall Street style. And you can forget about a bailout if this market goes south; there is not enough money in the Treasury or on Main Street to make a dent.

At the behest of then-Federal Reserve Board Chairman Alan Greenspan and then-Treasury Secretary Hank Paulson, the CFTC (and its Chair, Brooksley Born) was strong-armed into letting the derivatives market be free of regulation. But post-financial meltdown, that would be financial suicide. The new sheriff in town, CFTC Chairman Gary Gensler has a plan. Earlier this week, the CFTC officially approved new derivatives rules on the $600 trillion industry that has fought regulation since it helped cripple the U.S. economy years ago. The news has been a long time coming, but Main Street owes the CFTC and Chairman Gensler congratulations and thanks for its efforts.

Regulating the derivatives industry is not a straightforward process. As I have written before, it is a bit like playing pin the tail on the donkey with a real live donkey. Dozens of new types of derivatives have been concocted in the last two decades. Derivatives range in form from simple currency forwards, which companies use to hedge against fluctuations in exchange rate, to credit default swaps, which redistributes the burden of a failure to pay a loan. The more devices, the less they are understood, even by the “experts” paid to buy and sell them.

For this reason, it is important that the CFTC approached the issue with the goal of enforcing transparency and promoting competition. Though the rules themselves are quite complex, their mission is not:

Remove barriers to entry for other banks (JPMorgan, Citigroup, Bank of America, and Goldman Sachs currently control 95 percent of the market); and
Require honest and complete disclosures.

Simple enough? It doesn’t get much more straightforward. Transparency will allow the volatility of these banks’ positions to be tested; the competition will provide Main Street with viable alternatives to banks that refuse to lessen their risk-taking. It is a simple free market concept, complicated by the immense and ever-evolving derivatives industry—the living donkey on which the CFTC has just pinned the tail. For now.

The specifics of the rules must remain dynamic to adjust to the industry’s whims, but the goals of transparency and competition can remain in place no matter what changes occur. Congratulations to Chairman Gensler and the CFTC; may they remain vigilant and a half step ahead of financial instruments that while having some value, can also be the spark that sets off a financial apocalypse of unprecedented proportion.

Assisted by David T. Martin

Dealing With Disputes Over the Reasonableness of Fees at the Advancement Stage

Thu, 22 Mar 2012 14:02:56 GMT

Authored by Peter B. Ladig
This article was originally published in the Delaware Business Court Insider | March 21, 2012

Like many aspects of Delaware corporate law, the law of a corporate director or officer's entitlement to advancement is not black and white, but it is probably one of the more well established areas of law.

The contours of the law in this area have been addressed so often that members of the Delaware Court of Chancery have on occasion expressed frustration with corporations advancing defenses to mandatory advancement provisions that have little merit to them. (See, e.g., Barrett v. American Country Holdings Inc. a 2008 opinion in which the court wrote: "The accumulation of cases like this, where the stockholders get it coming and going because of the corporation's refusal to honor mandatory advancement contracts, is regrettable, and at some point, a case of sufficient dollar value will arise such that a board is sued for wasting the corporation's resources by putting up a clearly frivolous defense.")

One area of advancement law that is less developed than other areas, but has received increasing attention over the last few years, is how the courts should handle disputes arising out of the ongoing requests for advancement after the entitlement to advancement has been established. In its seminal decision on advancement in Citadel Holding Corp. v. Roven in 1992, the Delaware Supreme Court made clear that (1) Section 145(e) of Delaware General Corporation Law requires only the advancement of reasonable expenses and (2) the person seeking advancement has the obligation to demonstrate the reasonableness of the expenses sought. Though the burden to prove the reasonableness of expenses can be shifted by contract or bylaw, corporations, frustrated by the mandatory advancement language of their own bylaws, often use the reasonableness inquiry as an opportunity to frustrate the advancement right. Although the Court of Chancery has repeatedly stated that Citadel does not require an analytical review of the reasonableness of fees at the advancement stage, corporations still use the excuse as a way to delay or avoid the advancement expense.

When these disputes arise, the Court of Chancery is left in a quandary. How can the court be faithful to the Delaware Supreme Court's holding in Citadel that the party seeking advancement demonstrate the reasonableness of the expenses sought and avoid the practical concern that each billing cycle could result in a mini-trial, putting a substantial burden on the courts, all while honoring the clear public policy that advancement disputes must be resolved quickly to have any benefit? The issue becomes even more complex when the court finds that a director or officer is entitled to advancement for some, but not all, of the claims asserted in the underlying proceeding, so the issue is not always one of reasonableness but the more fundamental question of entitlement, as in the Court of Chancery's 2008 opinion in Zaman v. Amedeo Holdings Inc. finding that plaintiffs were entitled to advancement of expenses incurred in defending and prosecuting some, but not all claims.

In Fasciana v. Electronic Data Systems Corp., a 2003 opinion, then-Vice Chancellor Leo E. Strine Jr. ordered counsel for the party seeking advancement to provide an affidavit to certify in good faith that the expenses sought were reasonable. (See also Zaman, requiring certification of counsel that amounts sought were consistent with the opinion establishing entitlement.) Though commendable in its simplicity, at times this approach has not resolved the problem of monthly disputes over bills, or delays in payment. In an attempt to break the "logjam," in Duthie v. CorSolutions Medical Inc., a 2008 opinion, Vice Chancellor John W. Noble proposed a procedure that expanded on the certification of counsel:

"(1) Plaintiffs' counsel, if they have not already done so, shall certify in good faith that the fees and expenses for which advancement has been sought were incurred reasonably as a matter of sound professional judgment; (2) Defendants shall identify those fees which they assert fall outside the standard of Delaware law for advancement; their counsel shall certify their good-faith belief that the advancement of such fees is not appropriate; (3) the fees as to which there is no dispute shall be promptly paid; this includes those fees addressed above; and (4) the fees as to which any dispute remains shall be submitted to a special master."

The benefit of this approach is that the undisputed fees are (or should be) paid immediately, and the corporation cannot simply interpose a blanket objection to all fees to avoid the obligation — its counsel must identify the fees to which it objects and certify in good faith that the advancement of those fees is not appropriate. Noble later modified this process to impose on the corporation the costs of the special master if the objections turn out not to have been made in good faith in Fuhlendorf v. Isilon Systems Inc. Despite the merits of this approach, it also imposes an additional expense of a special master, which increases costs, regardless of who is obligated to pay them. Further, special masters are usually members of the corporate bar, which is known for its collegiality. Given that the special master is likely to know all of the counsel involved, asking him or her to make a finding that a contemporary made a bad-faith objection to an advancement request puts the special master in a very difficult position.

In a recent opinion, Vice Chancellor J. Travis Laster expanded the Duthie procedures further to streamline the process and impose a greater obligation on the Delaware counsel involved in the advancement action. In Danenberg v. Fitracks Inc., a March 5 opinion, Laster lauded the work done by special masters in advancement proceedings, but noted that, although special masters are not cheap, corporations nonetheless will "resist advancement vigorously before the special master, take advantage of the opportunity to raise objections before this court, and then still may pursue an appeal." Starting from the premise that Delaware counsel should be able to work in good faith to process advancement requests, the court imposed a detailed procedure for processing advancement claims, with a substantial focus on Delaware counsel.

In summary, the procedure involves the following steps:

1. By the 10th of every month, the plaintiff will submit his advancement demand for the previous month, including a detailed invoice with time entries and descriptions, along with a certification from the senior member of the Delaware bar that he or she personally reviewed the invoice, the expense falls within the scope of the plaintiff's advancement right and is reasonable pursuant to Rule 1.5(a) of the Delaware Rules of Professional Conduct.

2. By the 20th calendar day of the month, the defendant's counsel will respond to the advancement demand in writing. The response must identify each specific time entry or expense to which the defendant objects, explain the nature of the objection and cite any legal authority supporting the objection. Any objection not included in the response is deemed waived. The senior member of the Delaware bar representing the defendant must certify that he or she personally reviewed the advancement demand and, in his or her professional judgment, the disputed fees and expenses are not reasonable or otherwise fall outside the scope of the advancement right.

3. The defendant is required to pay the undisputed amount contemporaneously with the response, i.e., no later than the 20th calendar day of the month. If the defendant disputes more than 50 percent of the amount sought in any advancement demand, the defendant shall pay 50 percent of the total amount sought and plaintiffs counsel shall hold the amount exceeding the undisputed amount in its escrow account pending resolution of the dispute regarding such portion.

4. Plaintiffs counsel must reply in writing to the objections to advancement by the 25th of each month, supplying any additional information and legal authority.

5. Before the last calendar day of the month, the senior members of the Delaware bar representing each side will meet, in person, and confer regarding any disputed amounts. Any additional advancement that results from the meet-and-confer session will be paid with the next month's payment of undisputed amounts.

6. Not more frequently than quarterly, the plaintiff may file an application pursuant to Court of Chancery Rule 88 seeking a ruling on the disputed amounts. Briefing shall consist of a motion, an opposition filed within 15 days of the motion, and a reply filed within 10 days of the opposition. Neither party is permitted to raise any new arguments or authorities not previously raised with the other side in the applicable demand, response, reply or meet-and-confer. The court will determine if a hearing is warranted.

7. If the court grants an application in whole or part, then prejudgment interest is due on the adjudicated amount from the date of the applicable advancement demand. In addition, in parallel with the next advancement demand, the plaintiff may demand indemnification for the fees and expenses incurred in connection with the granted application, proportionate to the extent of success achieved. The parties shall address the indemnification demand in the same manner as the advancement demand. Except in connection with a successful application, petitioner Noam Danenberg shall not seek or receive advancement or indemnification for time spent preparing invoices and advancement demands, addressing responses or conferring regarding advancement requests.

What does this procedure do that is different from Duthie? First, and most obviously, it imposes a greater burden on the Delaware lawyers to resolve as many differences as they can. Second, it specifies that undisputed amounts must be paid by a certain date, and that in no event will plaintiffs counsel hold less than 50 percent of the amount sought in its escrow account, even if the defendant objects to the entire amount. This procedure avoids a corporation using a "slow pay" technique to impose economic burdens on plaintiffs counsel. Third, it avoids the expense of a special master, thereby putting the burden to resolve objections back onto the court, but only on a quarterly basis. Fourth, the process draws from the recently released "Guidelines to Help Lawyers Practicing in the Court of Chancery" to borrow the concept that disputes could be resolved much sooner if the parties made all of their arguments in the time before the dispute is brought to the court, so the court will not consider arguments not made in the objection, reply or meet-and-confer process.

Whether this process will prove to be successful in streamlining advancement requests will be proven only over time. Indeed, the premise of this article is not to say that the Danenberg approach is better than Duthie. The point is that balancing the competing interests under Delaware law in the processing of advancement requests is a difficult task, not subject to a ready solution. The procedures used currently by the various members of the court have benefits and risks for each side. Though corporations may avoid this dilemma by establishing an advancement processing procedure in their bylaws, as a general rule, advancement bylaws do not include such provisions. Therefore, directors and corporations engaged in a dispute over advancement should anticipate that there will be a procedure imposed upon them to resolve advancement disputes going forward if they cannot agree on a procedure themselves.

New York City Medical Insurance Hits $54,000 Per Year for Family POS Plan

structures@aol.com (John D. Darer) — Thu, 22 Mar 2012 13:46:02 GMT

Medical insurance for a family living in the five boroughs of New York City has entered another galaxy as the lowest cost of a family point of service (POS) plan has sprinted past $54,000 annually....

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Gene Patents and Myriad in Light of Prometheus - The Big View, and Comments from Biotech Patent Lawyers on Prometheus, and Myriad

khartley@cdglawyers.com (Kirk Hartley) — Thu, 22 Mar 2012 13:14:44 GMT

Biotech patent bloggers are starting to weigh in on the Prometheus decision rejecting a claim to a patent for providing medical advice. The Genomics Law Report includes thoughtful commentary and concludes - I'd say - that Myriad's patent claims are dead in terms of any ability to exclude others from sequencing genes and providing answers to patients. On the other hand, the post at Patent Docs is a disappointment as it rants against Justice Breyer in particular, and flogs the entire Court for not deferring to the purported analytic wisdom of the Federal Circuit's majority view derived from patent-think.

In short, as indicated by my post yesterday, I'd say: Bravo for the Court. It rejected narrow "patent- think" and instead addressed the subject from the proper perspective: patent law is subject to broader constitutional principles, and patent law ultimately will be counter-productive if it impedes scientific progress. Justice Robert is famed for wanting to provide certainty to business, and it seems plain the Court's message in Prometheus is that it will not sustain patents that are simply statements of medical/scientific conclusions following from factual analysis. Accordingly, the logical outcome is that patents will not be allowed to stop gene sequencing (analysis of facts about something inside a body) and reporting to persons the conclusion on whether they have one or more genetic mutations of potential medical importance.

Overall, It should be obvious that there are huge differences between awarding patents for creating new machines or new creatures, as contrasted against awarding patents for reporting on the medical/scientific conclusion that follows from using well-known scientific rules to analyze facts about conditions inside a person's body. But the Federal Circuit could not "get" that obvious distinction. Happily, that's why the views of that specialty court are subject to review by a Supreme Court comprised of judges who do not spend all day thinking through the lens of patent law, and instead bring to bear a broader view of the constitution, science and the world.

Hartford Life Insurance Company to Exit Structured Settlement Business

structures@aol.com (John D. Darer) — Thu, 22 Mar 2012 12:59:57 GMT

Hartford Life Insurance Company will cease writing new structured settlement annuity business effective April 27, 2012. The Hartford had only re-entered the business last summer after a brief hiatus,...

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Consumers Strike Again: Bye, Bye, Pink Slime

steven@berklawdc.com (Steven Berk) — Thu, 22 Mar 2012 12:56:50 GMT

The Corporate Observer would like to thank Rosemary M. Rivas with Finkelstein Thompson LLP for this article.

WARNING: This article contains graphic descriptions of the method used to produce meat for consumption by consumers.

If the videos of the way animals are slaughtered have not turned you into a vegetarian by now, perhaps the recent revelations of what a federal microbiologist coined “pink slime” will. I am by no means advocating a vegetarian lifestyle, but each person should know what he or she is eating, what their kids are eating, and what choices are available to them. But caution: this article is not for the fainthearted, and you should especially not read it if you are in the middle of eating a juicy hamburger.

What is pink slime? It is the fat, sinew, bloody effluvia and bits of meat from carcasses in slaughter houses. According to many reports, it is infected with E. coli, Salmonella and other bacteria. These “trimmings” are heated and spun to remove the fat, “cleaned up” with ammonia hydroxide, and then compressed into blocks for combination with ground beef. Once considered waste product sold mostly as dog food, it is now called “Lean Finely Textured Beef” by Beef Products, Inc., which produces it. According to some estimates, pink slime is in 70% of the ground beef supply and chances are, you have probably already eaten it.

How did pink slime make it into the food supply? According to one source, pink slime was approved by former undersecretary of agriculture, Joanne Smith, who (not surprisingly), also served as president of both the National Cattlemen’s Beef Association and the Florida Cattlemen’s Association. Ms. Smith reportedly told United States Department of Agriculture scientists, “It’s pink, therefore its meat.” Ms. Smith, who later in 1993 was appointed to the board of BPI, reportedly made the decision that the USDA would not require pink slime to be labeled. While the USDA says that Lean Finely Textured Beef is healthy and safe, other nutritionists and scientists say it is made from low quality scraps and has less nutrition than pure ground beef.

Thanks to the Internet and social media, consumers’ voices on this issue are being heard. Thousands of consumers signed an online petition at thelunchtray.com to eliminate pink slime from school lunches, ultimately causing the USDA to change its policies. After reportedly buying 7 billion pounds of the stuff, on March 15, 2012, the USDA announced that it would give schools that receive food through the government’s school lunch program the option to order beef that does not include pink slime. Additionally, Safeway announced today that it would no longer sell ground beef with Lean Finely Textured Beef.

What can you do to avoid pink slime? Apart from becoming a vegetarian, shop wisely and ask questions as you should do with all foods. But thankfully, there are also various news sources indentifying which stores do not sell ground beef with pink slime, such as Whole Foods, Costco, HEB and now Safeway. Large chains such as Target, Walmart, and Albertson’s apparently do sell the stuff, according to recent reports. Most importantly, all consumers should continue using their voices to obtain change.

UK: the future role of the Financial Reporting Council - consultation responses published

r.j.goddard@aston.ac.uk (Robert Goddard) — Thu, 22 Mar 2012 12:12:22 GMT

A consultation on the future role of the Financial Reporting Council closed earlier this year (see here, pdf). The consultation responses have recently been published: see here.

Statement of issue on review in Rose v. Bank of America

uclpractitioner@gmail.com (Kimberly A. Kralowec) — Thu, 22 Mar 2012 12:00:00 GMT

The Supreme Court's docket in Rose v. Bank of America, no. S199074, has been updated to include a statement of the issue on review: Can a cause of action under the Unfair Competition Law (Bus. & Prof. Code, § 17200...

The Supreme Court's docket in Rose v. Bank of America, no. S199074, has been updated to include a statement of the issue on review:

Can a cause of action under the Unfair Competition Law (Bus. & Prof. Code, § 17200 et seq.) be predicated on an alleged violation of the Truth in Savings Act (12 U.S.C. § 4301 et seq.), despite Congress's repeal of the private right of action initially provided for under that Act?

This is rather a narrow statement, and tells us little about the extent to which the Court may elaborate on the scope of the UCL's "unlawful" prong, as the Court of Appeal did in its now-uncitable opinion.

More Things You Cannot Do On a Plane

khartley@cdglawyers.com (Kirk Hartley) — Thu, 22 Mar 2012 11:36:37 GMT

The humor just rolls on in the law - it's now taken us up to the 15th installment of "Things You Cannot Do on a Plane ! Prior here.

Baristas Count As Barristers: Law School Marketing Fraud Lawsuit Dismissed

Thu, 22 Mar 2012 11:18:23 GMT

The point of having law schools, as I’ve written before, is to “lay the foundation for graduates who are capable of learning and developing technical skills and of exercising sophisticated and mature judgment in the face of uncertainty.” These schools exist to prepare students to take the bar and then practice as competent lawyers. We … Continue reading →

These schools exist to prepare students to take the bar and then practice as competent lawyers. We can reasonably presume, then, that every word, clause, sentence or paragraph in a law school’s brochure or on their website is aimed towards describing the school’s sound program of legal education, towards showing how the school prepares its students for passing the bar and then being effective and responsible legal practitioners. When a law school brochure says “classes,” they mean classes on legal issues, typically on the law itself. “Professors” are people with some pretense to being learned in the law. “Exams” assess the student’s understanding of the law and their ability to apply it.

But when they say “employed,” they mean making frappuccinos, or delivering pizza, or receiving a temporary stipend from the law school that’s granted to students for the sole purpose of manipulating U.S. News ranking. At least that’s what a trial judge in New York ruled yesterday. Above The Law had the scoop.

As a matter of background, last summer two enterprising Class of 2003 lawyers in New York City began filing a series of class actions against lower-rated law schools like Thomas M. Cooley, Thomas Jefferson School of Law, and New York Law School, eventually growing to more than a dozen schools. The essence of each lawsuit was the same: that the schools had deliberately misrepresented their employment rates to entice potential students into attending. Everyone who had any job — including temporary “jobs” created by the law school — was counted as “employed,” and survey data was cherry-picked to include only the most successful students.

Yesterday, the court presiding over the lawsuit against New York Law School dismissed the case entirely, holding that, even “accept[ing] plaintiffs’ allegations as true” and giving them “the benefit of every possible favorable inference,” it still had to dismiss several New York Law School students’ claims against their alma mater. In sum:

The court does not view these post-graduate employment statistics to be misleading in a material way for a reasonable consumer acting reasonably. By anyone’s definition, reasonable consumers – college graduates – seriously considering law schools are a sophisticated subset of education consumers, capable of sifting through data and weighing alternatives before making a decision regarding their post-college options, such as applying for professional school. These reasonable consumers have available to them any number of sources of information to review when making their decisions.

Of course, there is one and only one “source of information” that a “reasonable consumer acting reasonably” can consult about a given law school: the law school. If you read a number anywhere in the world about the employment rate of New York Law School graduates, the number was either provided by the school or was made up out of thin air.

The plaintiffs’ lawyers have vowed to appeal.

I’ve been doing plaintiffs’ work long enough that I’m a pessimistic and a cynic, and I figured the case would at some point be dismissed prior to trial, regardless of how deceptive the law school’s brochures. The lead lawyer for the plaintiffs, Jesse Strauss, summed up the feeling among other lawyers perfectly: “I think everyone is cheering for us, but not necessarily betting on us.”

But I wasn’t nearly pessimistic enough. I figured the case would survive the initial motion to dismiss, only to die, the way most consumer class actions die, on one or both of the twin horns of reliance and causation. (Want to be depressed about the future of consumer class actions? Take a look at defense lawyers Andrew Trask’s and Russell Jackson’s predictions for the future.)

Instead, the case was dismissed on the merits as to everybody, regardless of the class action. It’s not that the court didn’t understand the plaintiffs’ allegations that “a graduate could be working part-time as a barista in Starbucks – or toiling away in any job – and be deemed employed in ‘business,’ although such employment is temporary and does not require a law degree,” because that quote comes from the court itself.

Despite recognizing the absurdity and falsity of the law school’s claims, the court held that “the reasonable consumer of legal education must realize that these omnipresent realities of the market obviously trump any allegedly overly optimistic claims in their law school’s marketing materials.”

Whatever happened to the “omnipresent realities” of expecting an ABA accredited law school that charges nearly $150,000 for a juris doctorate to describe the legal careers of its students accurately? Then again, if the “reasonable consumer” already knows the numbers are a sham, why should a law school limit itself to having merely 100% of students employed nine months after graduating? If a recent graduate works three different coffee shop jobs to pay their student debt, count them as three lawyers.

Rhetoric - Oddball Cases and Slaughtered Hogs

atrask@mcguirewoods.com (Andrew Trask) — Thu, 22 Mar 2012 10:20:05 GMT

At the DePaul symposium a few weeks back, Professor Suja Thomas argued that the Supreme Court should not take on "oddball" cases, because the outlying facts make for decisions that are too sweeping. (She's made this argument before about Iqbal and Twombly, so you don't have to wait for the DePaul Law Review's Symposium Issue to get the basics.)

As I've mentioned before, Professor Thomas is no fan of oddball cases. She argues that:

the Supreme Court and some scholars, including Professor Richard Epstein, have justified the new standard on the basis of the costs in Twombly, an “oddball” case—with massive costs and significant asymmetry of costs—and have not shown that the new standard should apply transsubstantively to cases that do not have such costs, including typical employment discrimination cases. This Essay also shows that Iqbal, while different than Twombly in types of costs, is similarly “oddball” in nature. Moreover, this Essay argues that, despite the lack of significant justification for why the new standard should apply transsubstantively, and also contrary to a prediction of Professor Epstein, the new standard will likely have a revolutionary impact on cases, without the same types of costs as Iqbal and Twombly, including employment discrimination cases.

In other words, what Professor Thomas doesn't like about oddball cases is that the extreme facts drive results that she believes undermine good legal rules.

While she didn't write in direct response to Professor Thomas, Professor Suzanna Sherry has produced an essay (to appear in the Supreme Court Review) that takes this argument head on: Hogs Get Slaughtered at the Supreme Court. Professor Sherry's argument starts from an interesting premise: the reason that the Supreme Court made the sweeping rulings it did in Concepcion and Dukes is not because the majority was necessarily pro-business or anti-plaintiff, but because the lower court (in this case, the Ninth Circuit) had overreached in each case.

And these two cases are not isolated tragedies; they provide a window into a larger problem. Rule 23 turns class counsel into powerful private attorneys general and tempts them to raise the stakes. It allows plaintiffs’ lawyers to chart a course not only for their own clients, but for future litigants. If that course is ill-advised – as it is when the lawyers have incentives, as they often do, to frame issues broadly for the “big win” – the consequences can be disastrous for those future litigants.

If anything, the largest flaw with Professor Sherry's argument is that it's incomplete: hogs don't just get slaughtered on the plaintiff's side. As the Halliburton and Smith v. Bayer decisions show, defendants who push radical arguments (and the appellate courts that endorse them) can also get reversed quite easily. (Although in those cases, there is more likely to be a client that constrains the attorneys from going too far afield.)

I'd say that in this debate, Professor Sherry has the better end. Oddball cases provide oddball results because they take the rules as they stand, and bring them to absurd results, and courts do not like absurd results. From a policy standpoint, that means that while Professor Sherry's position--courts that want to preserve current good rules shouldn't overreach--has practical policy implications, Professor Thomas's position--the Supreme Court should allow oddball results to stand to preserve otherwise good rules--really doesn't.

More importantly, Professor Sherry's approach provides some valuable advice for defense (and plaintiff's) counsel, particularly when arguing on appeal: don't get greedy. Appellate litigation, like class action litigation, is a long game . An decisive win at the motion to dismiss is a great outcome, but a defendant who structures their strategy to aim solely for that is likely to face avoidable strategic problems if going all in doesn't work out. On the other hand, planning carefully, and encouraging the court to make a series of well-grounded rulings that lead to a decision defensible on appeal? That's your jackpot.

BREAKING NEWS: Review granted in Sanchez v. Valencia Holding Co.

uclpractitioner@gmail.com (Kimberly A. Kralowec) — Thu, 22 Mar 2012 03:54:50 GMT

Today, the California Supreme Court granted review in Sanchez v. Valencia Holding Co., no. S199119. This is the case in which the Court of Appeal declined to enforce a no-class-action arbitration clause notwithstanding Concepcion. Sanchez v. Valencia Holding Co., LLC,...

Today, the California Supreme Court granted review in Sanchez v. Valencia Holding Co., no. S199119.

This is the case in which the Court of Appeal declined to enforce a no-class-action arbitration clause notwithstanding Concepcion. Sanchez v. Valencia Holding Co., LLC, 201 Cal.App.4th 74 (2011). The Court of Appeal reasoned that ordinary state-law unconscionability principles were preserved by Concepcion.

As I mentioned in this post last Friday and another post this morning, this reading of Concepcion finds support in two recent Ninth Circuit decisions, Kilgore v. KeyBank, N.A., ___ F.3d ___ (9th Cir. Mar. 7, 2012) and Coneff v. AT&T Corp., ___ F.3d ___ (9th Cir. Mar. 16, 2012).

The docket in Sanchez has not yet been updated to indicate the issues on review.

Changes to Chapter 53, Mechanic's & Materialman's Lens

Thu, 22 Mar 2012 03:15:00 GMT

The 2011 Legislative Session resulted in a number of changes to Chapter 53 of the Texas Property Code (addressing Mechanic's, Contractor's, or Materialman's Liens). Included below are the revisions to Chapter 53, along with brief commentary regarding these revisions.

Clarification regarding landscapers’ lien rights.

§ 53.021. Persons Entitled to Lien

(d) A person who provides labor, plant material, or other supplies for the installation of landscaping for a house, building, or improvement, including the construction of a retention pond, retaining wall, berm, irrigation system, fountain, or other similar installation, under or by virtue of a written contract with the owner or the owner's agent, contractor, subcontractor, trustee, or receiver has a lien on the property.

Clarification regarding the accrual of a claim for retainage.

§ 53.053. Accrual of Indebtedness

(e) A claim for retainage accrues on the earliest of the last day of the month in which all work called for by the contract between the owner and the original contractor has been completed, finally settled, terminated, or abandoned.

Prior to the the changes to Section 53.047, the deadline for a subcontractor to give a notice of contractual retainage was the 15th day of the second month following its delivery of materials (or performance of work) under a contractual retainage agreement. However, given the way the statue was written, a subcontractor who gave proper notice could still lose its lien rights because it waited to file its lien affidavit within the extended time period permitted under Section 53.052 (i.e., the 15th day of the fourth month after the claimant's indebtedness accrues). What’s more, if the subcontractor did not include “fund-trapping” language its notice of contractual retainage, the subcontractor’s claim would be limited of the owner’s statutory retainage—which could be released 30 days after final completion. Under the former statutory scheme, a subcontractor could end up with a “timely” but worthless claim. The changes, below, attempt to address this scenario.

§ 53.057. Derivative Claimant: Notice for Contractual Retainage Claim

(a) A claimant may give notice under this section instead of or in addition to notice under Section 53.056 or 53.252 if the claimant is to labor, furnish labor or materials, or specially fabricate materials, or has labored, furnished labor or materials, or specially fabricated materials, under an agreement with an original contractor or a subcontractor providing for retainage.

(b) The claimant must give the owner or reputed owner notice of contractual retainage not later than the earlier of:

(1) the 30th day after the date the claimant’s agreement providing for retainage is completed, terminated, or abandoned; or

(2) the 30th day after the date the original contract is terminated or abandoned.

(b-1) If an agreement for contractual retainage is with a subcontractor, the claimant must also give the notice of contractual retainage to the original contractor within the period prescribed by Subsection (b).

(1) the name and address of the claimant; and

(2) if the agreement is with a subcontractor, the name and address of the subcontractor.

(d) The notice must be sent to the last known business or residence address of the owner or reputed owner or the original contractor, as applicable.

(e) If a claimant gives notice under this section and Section 53.055 or, if the claim relates to a residential construction project, under this section and Section 53.252, the claimant is not required to give any other notice as to the retainage.

(f) A claimant has a lien on, and the owner is personally liable to the claimant for, the retained funds under Subchapter E if the claimant:

(1) gives notice in accordance with this section and:

(A) complies with Subchapter E; or

(B) files an affidavit claiming a lien not later than the earliest of:

(i) the date required for filing an affidavit under Section 53.052;

(ii) the 40th day after the date stated in an affidavit of completion as the date of completion of the work under the original contract, if the owner sent the claimant notice of an affidavit of completion in the time and manner required;

(iii) the 40th day after the date of termination or abandonment of the original contract, if the owner sent the claimant a notice of such termination or abandonment in the time and manner required; or

(iv) the 30th day after the date the owner sent to the claimant to the claimant’s address provided in the notice for contractual retainage, as required under Subsection (c), a written notice of demand for the claimant to file the affidavit claiming a lien; and

(2) gives the notice of the filed affidavit as required by Section 53.055.

(g) The written demand under Subsection (f)(1)(B)(iv):

(1) must contain the owner’s name and address and a description, legally sufficient for identification, of the real property on which the improvement is located;

(2) must state that the claimant must file the lien affidavit not later than the 30th day after the date the demand is sent; and

(3) is effective only for the amount of contractual retainage earned by the claimant as of the day the demand was sent.

Subchapter L to Chapter 53 is new; and Section 53.085 incorporates Subchapter L. Specifically, Section 53.085 allows a person making payment to require, as a condition of payment, an affidavit of bills paid and waiver of mechanic’s lien (or payment bond) claims by the person who furnished labor and/or materials to the subject project. Subchapter L provides the form of such waivers.

§ 53.085. Affidavit Required

(1) a waiver or release of lien rights or payment bond claims by the affiant that is conditioned on the receipt of actual payment or collection of funds when payment is made by check or draft, as provided by Subchapter L;

Section 53.103 incorporates the new Section 53.057(f).

§ 53.103. Lien on Retained Funds

(2) except as allowed by Section 53.057(f), files an affidavit claiming a lien not later than the 30th day after the earliest of the date:

(A) the work is completed;

(B) the original contract is terminated; or

Section 53.015 provides clarification regarding the owner’s liability for failure to retain.

§ 53.105. Owner’s Liability for Failure to Retain

(a) If the owner fails or refuses to comply with this subchapter, the claimants complying with Subchapter C or this subchapter have a lien, at least to the extent of the amount that should have been retained from the original contract under which they are claiming, against the house, building, structure, fixture, or improvement and all of its properties and against the lot or lots of land necessarily connected.

Section 53.106 incorporates the changes to Section 53.057.

§ 53.106. Affidavit of Completion

(a) An owner may file with the county clerk of the county in which the property is located an affidavit of completion. The affidavit must contain:

* * *

(6) a conspicuous statement that a claimant may not have a lien on retained funds unless the claimant files an affidavit claiming a lien not later than the 40th day after the date the work under the original contract is completed.

* * *

(d) Except as provided by this subsection, an affidavit filed under this section on or before the 10th day after the date of completion of the improvements is prima facie evidence of the date the work under the original contract is completed for purposes of this subchapter and Section 53.057. If the affidavit is filed after the 10th day after the date of completion, the date of completion for purposes of this subchapter and Section 53.057 is the date the affidavit is filed. This subsection does not apply to a person to whom the affidavit was not sent as required by this section.

Section 53.106 incorporates the changes to Section 53.057.

§ 53.107. Notice Relating to Termination of Work or Abandonment of Performance by Original Contractor or Owner

(b) The notice must contain:

* * *

(7) a conspicuous statement that a claimant may not have a lien on the retained funds unless the claimant files an affidavit claiming a lien not later than the 40th day after the date of the termination or abandonment.

* * *

(d) If an owner is required to send a notice to a subcontractor under this section and fails to send the notice, the subcontractor is not required to comply with Section 53.057 to claim retainage and may claim a lien by filing a lien affidavit as prescribed by Section 53.052.

Section 53.156 gives a trial court discretion to award fees and costs with respect to a mechanic’s lien or payment bond claim arising out of a “residential construction project.” Note: The term “residential construction project” refers to the construction or repair of a “residence”; and the term “residence” refers to a [house] that is used or intended to be used as a dwelling by an owner. Thus, a spec-house that is being constructed by a developer (i.e., someone who has no intention of occupying the dwelling as their residence) is not a “residential construction project” under the statute.

§ 53.156. Costs and Attorney’s Fees

In any proceeding to foreclose a lien or to enforce a claim against a bond issued under Subchapter H, I, or J or in any proceeding to declare that any lien or claim is invalid or unenforceable in whole or in part, the court shall award costs and reasonable attorney’s fees as are equitable and just. With respect to a lien or claim arising out of a residential construction contract, the court is not required to order the property owner to pay costs and attorney’s fees under this section.

Section 53.159 expands the scope of information that an owner or contractor must provide. These changes also maintain consistency with the new Section 53.057, i.e., dealing with notice for contractual retainage.

§ 53.159. Obligation to Furnish Information

(a) An owner, on written request, shall furnish the following information within a reasonable time, but not later than the 10th day after the date the request is received, to any person furnishing labor or materials for the project:

(1) a description of the real property being improved legally sufficient to identify it;

(2) whether there is a surety bond and if so, the name and last known address of the surety and a copy of the bond;

(3) whether there are any prior recorded liens or security interests on the real property being improved and if so, the name and address of the person having the lien or security interest; and

(4) the date on which the original contract for the project was executed.

(b) An original contractor, on written request by a person who furnished work under the original contract, shall furnish to the person the following information within a reasonable time, but not later than the 10th day after the date the request is received:

(1) the name and last known address of the person to whom the original contractor furnished labor or materials for the construction project;

(2) whether the original contractor has furnished or has been furnished a payment bond for any of the work on the construction project and if so, the name and last known address of the surety and a copy of the bond; and

(3) the date on which the original contract for the project was executed.

* * *

(g) A subcontractor who does not receive information requested under Subsection (a)(4) within the period prescribed by Subsection (a) is not required to comply with Section 53.057 and may perfect a lien for retainage by filing a lien affidavit under Section 53.052. This subsection expires September 1, 2013.

Section 53.160 includes the permissible grounds for a motion to summarily remove an invalid or unenforceable lien. The section permits the filing of a motion on grounds that the deadline for perfecting a lien claim for retainage have passed.

§ 53.160. Summary Motion to Remove Invalid or Unenforceable Lien

(b) The grounds for objecting to the validity or enforceability of the claim or lien for purposes of the motion are limited to the following:

* * *

(4) the deadlines for perfecting a lien claim for retainage under this chapter have expired and the owner complied with the requirements of Section 53.101 and paid the retainage and all other funds owed to the original contractor before:

(A) the claimant perfected the lien claim; and

(B) the owner received a notice of the claim as required by this chapter;

(5) all funds subject to the notice of a claim to the owner and a notice regarding the retainage have been deposited in the registry of the court and the owner has no additional liability to the claimant;

Section 53.281 is the beginning of Subchapter L, which subchapter is new to Chapter 53. Subchapter L provides the sole manner in which mechanic’s lien and bond claims under Chapter 53 may be waived.

§ 53.281. Waiver and Release of Lien or Payment Bond Claim

(a) Any waiver and release of a lien or payment bond claim under this chapter is unenforceable unless a waiver and release is executed and delivered in accordance with this subchapter.

(b) A waiver and release is effective to release the owner, the owner’s property, the contractor, and the surety on a payment bond from claims and liens only if:

(1) the waiver and release substantially complies with one of the forms prescribed by Section 53.284;

(2) the waiver and release is signed by the claimant or the claimant’s authorized agent and notarized; and

(3) in the case of a conditional release, evidence of payment to the claimant exists.

§ 53.282. Conditions for Waiver, Release, or Impairment of Lien or Payment Bond Claim

(a) A statement purporting to waive, release, or otherwise adversely affect a lien or payment bond claim is not enforceable and does not create an estoppel or impairment of a lien or payment bond claim unless:

(1) the statement is in writing and substantially complies with a form prescribed by Section 53.284;

(2) the claimant has actually received payment in good and sufficient funds in full for the lien or payment bond claim; or

(3) the statement is:

(A) in a written original contract or subcontract for the construction, remodel, or repair of a single-family house, townhouse, or duplex or for land development related to a single-family house, townhouse, or duplex; and

(B) made before labor or materials are provided under the original contract or subcontract.

(b) The filing of a lien rendered unenforceable by a lien waiver under Subsection (a)(3) does not violate Section 12.002, Civil Practice and Remedies Code, unless:

(1) an owner or original contractor sends a written explanation of the basis for nonpayment, evidence of the contractual waiver of lien rights, and a notice of request for release of the lien to the claimant at the claimant’s address stated in the lien affidavit; and

(2) the lien claimant does not release the filed lien affidavit on or before the 14th day after the date the owner or the original contractor sends the items required by Subdivision (1).

(c) Subsection (a)(3) does not apply to a person who supplies only material, and not labor, for the construction, remodel, or repair of a single-family house, townhouse, or duplex or for land development related to a single-family house, townhouse, or duplex.

§ 53.283. Unconditional Waiver and Release: Payment Required

A person may not require a claimant or potential claimant to execute an unconditional waiver and release for a progress payment or final payment amount unless the claimant or potential claimant received payment in that amount in good and sufficient funds.

§ 53.284. Forms for Waiver and Release of Lien or Payment Bond Claim

(a) A waiver and release given by a claimant or potential claimant is unenforceable unless it substantially complies with the applicable form described by Subsections (b)-(e).

(b) If a claimant or potential claimant is required to execute a waiver and release in exchange for or to induce the payment of a progress payment and is not paid in exchange for the waiver and release or if a single payee check or joint payee check is given in exchange for the waiver and release, the waiver and release must read:

“CONDITIONAL WAIVER AND RELEASE ON PROGRESS PAYMENT

“Project ___________________

“Job No. ___________________

“On receipt by the signer of this document of a check from ________________ (maker of check) in the sum of $__________ payable to _____________________ (payee or payees of check) and when the check has been properly endorsed and has been paid by the bank on which it is drawn, this document becomes effective to release any mechanic’s lien right, any right arising from a payment bond that complies with a state or federal statute, any common law payment bond right, any claim for payment, and any rights under any similar ordinance, rule, or statute related to claim or payment rights for persons in the signer’s position that the signer has on the property of ________________ (owner) located at ______________________ (location) to the following extent: ______________________ (job description).

“This release covers a progress payment for all labor, services, equipment, or materials furnished to the property or to __________________ (person with whom signer contracted) as indicated in the attached statement(s) or progress payment request(s), except for unpaid retention, pending modifications and changes, or other items furnished.

“Before any recipient of this document relies on this document, the recipient should verify evidence of payment to the signer.

“The signer warrants that the signer has already paid or will use the funds received from this progress payment to promptly pay in full all of the signer’s laborers, subcontractors, materialmen, and suppliers for all work, materials, equipment, or services provided for or to the above referenced project in regard to the attached statement(s) or progress payment request(s).

“Date ____________________________

“_________________________________ (Company name)

“By ______________________________ (Signature)

“_________________________________ (Title)”

(c) If a claimant or potential claimant is required to execute an unconditional waiver and release to prove the receipt of good and sufficient funds for a progress payment and the claimant or potential claimant asserts in the waiver and release that the claimant or potential claimant has been paid the progress payment, the waiver and release must:

(1) contain a notice at the top of the document, printed in bold type at least as large as the largest type used in the document, but not smaller than 10-point type, that reads:

“NOTICE:

“This document waives rights unconditionally and states that you have been paid for giving up those rights. It is prohibited for a person to require you to sign this document if you have not been paid the payment amount set forth below. If you have not been paid, use a conditional release form.”; and

(2) below the notice, read:

“UNCONDITIONAL WAIVER AND RELEASE ON PROGRESS PAYMENT

“Project ___________________

“Job No. ___________________

“The signer of this document has been paid and has received a progress payment in the sum of $___________ for all labor, services, equipment, or materials furnished to the property or to _____________________ (person with whom signer contracted) on the property of _______________________ (owner) located at ______________________ (location) to the following extent: ______________________ (job description). The signer therefore waives and releases any mechanic’s lien right, any right arising from a payment bond that complies with a state or federal statute, any common law payment bond right, any claim for payment, and any rights under any similar ordinance, rule, or statute related to claim or payment rights for persons in the signer’s position that the signer has on the above referenced project to the following extent:

“Date ____________________________

“_________________________________ (Company name)

“By ______________________________ (Signature)

“_________________________________ (Title)”

(d) If a claimant or potential claimant is required to execute a waiver and release in exchange for or to induce the payment of a final payment and is not paid in good and sufficient funds in exchange for the waiver and release or if a single payee check or joint payee check is given in exchange for the waiver and release, the waiver and release must read:

“CONDITIONAL WAIVER AND RELEASE ON FINAL PAYMENT

“Project ___________________

“Job No. ___________________

“On receipt by the signer of this document of a check from ________________ (maker of check) in the sum of $____________ payable to _____________________ (payee or payees of check) and when the check has been properly endorsed and has been paid by the bank on which it is drawn, this document becomes effective to release any mechanic’s lien right, any right arising from a payment bond that complies with a state or federal statute, any common law payment bond right, any claim for payment, and any rights under any similar ordinance, rule, or statute related to claim or payment rights for persons in the signer’s position that the signer has on the property of _____________________ (owner) located at ______________________ (location) to the following extent: ______________________ (job description).

“This release covers the final payment to the signer for all labor, services, equipment, or materials furnished to the property or to __________________ (person with whom signer contracted).

“Before any recipient of this document relies on this document, the recipient should verify evidence of payment to the signer.

“The signer warrants that the signer has already paid or will use the funds received from this final payment to promptly pay in full all of the signer’s laborers, subcontractors, materialmen, and suppliers for all work, materials, equipment, or services provided for or to the above referenced project up to the date of this waiver and release.

“Date ____________________________

“_________________________________ (Company name)

“By ______________________________ (Signature)

“_________________________________ (Title)”

(e) If a claimant or potential claimant is required to execute an unconditional waiver and release to prove the receipt of good and sufficient funds for a final payment and the claimant or potential claimant asserts in the waiver and release that the claimant or potential claimant has been paid the final payment, the waiver and release must:

(1) contain a notice at the top of the document, printed in bold type at least as large as the largest type used in the document, but not smaller than 10-point type, that reads:

“NOTICE:

(2) below the notice, read:

“UNCONDITIONAL WAIVER AND RELEASE ON FINAL PAYMENT

“Project___________________

“Job No.___________________

“The signer of this document has been paid in full for all labor, services, equipment, or materials furnished to the property or to ___________________ (person with whom signer contracted) on the property of ______________________ (owner) located at ______________________ (location) to the following extent: ______________________ (job description). The signer therefore waives and releases any mechanic’s lien right, any right arising from a payment bond that complies with a state or federal statute, any common law payment bond right, any claim for payment, and any rights under any similar ordinance, rule, or statute related to claim or payment rights for persons in the signer’s position.

“Date ____________________________

“_________________________________ (Company name)

“By ______________________________ (Signature)

“_________________________________ (Title)”

§ 53.285. Attempted Compliance

<This section expires pursuant to its own terms Aug. 31, 2012.>

(a) A waiver or release shall be construed to comply with this subchapter and is enforceable in the same manner as a waiver and release under this subchapter if the waiver or release:

(1) is furnished in attempted compliance with this subchapter; or

(2) evidences by its terms intent to comply with this subchapter.

(b) Any provision in any waiver or release furnished in attempted compliance with this subchapter that expands or restricts the rights or liabilities provided under this subchapter shall be disregarded and the provisions of this subchapter shall be read into that waiver or release.

§ 53.286. Public Policy

Notwithstanding any other law and except as provided by Section 53.282, any contract, agreement, or understanding purporting to waive the right to file or enforce any lien or claim created under this chapter is void as against public policy.

§ 53.287. Certain Agreements Exempt

This subchapter does not apply to a written agreement to subordinate, release, waive, or satisfy all or part of a lien or bond claim in:

(1) an accord and satisfaction of an identified dispute;

(2) an agreement concerning an action pending in any court or arbitration proceeding; or

(3) an agreement that is executed after an affidavit claiming the lien has been filed or the bond claim has been made.

Australian contract law reform

djacobson@langes.com.au (David Jacobson) — Thu, 22 Mar 2012 00:39:44 GMT

The Australian Government has released a discussion paper to seek views on possible reforms to contract law. The paper considers whether Australian contact law could be reformed to: enhance accessibility, certainty and simplicity set standards of conduct better support innovation and participation in the digital economy better meet of the evolving needs of businesses particularly [...]

The Australian Government has released a discussion paper to seek views on possible reforms to contract law.

The paper considers whether Australian contact law could be reformed to:

enhance accessibility, certainty and simplicity
set standards of conduct
better support innovation and participation in the digital economy
better meet of the evolving needs of businesses particularly small and medium businesses
make the law more “elastic” to promote long-term relationships, and
harmonise and internationalise contract law.

The discussion paper asks about people’s current experiences of the law and whether the law could better support personal and business transactions.

Written submissions will close on Friday 20 July 2012.

Flood insurance and Home Insurance Key Facts Sheet update

djacobson@langes.com.au (David Jacobson) — Thu, 22 Mar 2012 00:29:06 GMT

The Insurance Contracts Amendments Bill 2012 (the Bill) has been passed by both Houses of Parliament. The Bill introduces a legislative framework to establish regulations for: a standard definition of “flood” for riverine flooding in insurance contracts of home building and home contents (combined and individual policies); small business; and strata title insurance policies; and [...]

The Insurance Contracts Amendments Bill 2012 (the Bill) has been passed by both Houses of Parliament.

The Bill introduces a legislative framework to establish regulations for:

a standard definition of “flood” for riverine flooding in insurance contracts of home building and home contents (combined and individual policies); small business; and strata title insurance policies; and
a single-page Key Facts Sheet for home building and home contents insurance policies (combined and individual) which will allow consumers to see, at a glance, what is covered under their insurance policy.

The details of these measures, including the final wording of the standard definition of “flood” and the specific content of the Key Facts Sheet, will be made in regulations contained in the Insurance Contracts Regulations 1985. The draft Regulations for the standard definition of flood were released for public consultation late last year and will be finalised shortly.

A discussion paper seeking public comment on the content, format, structure and provision of the Key Facts Sheet was released earlier this year and the closing date for submissions is 23 March 2012. Prototypes of the Key Facts Sheet will be consumer-tested before the final content, format and structure of the Key Facts Sheet is settled.

Structured Settlement Planner Has Ties To a Factoring Company? Which Broker?

structures@aol.com (John D. Darer) — Wed, 21 Mar 2012 22:57:49 GMT

One or more individuals who solicit trial lawyers and people with special needs to place them into structured settlements have concurrent ties to a factoring company which asks "Why Wait?" (for your...

This is a content summary only. Please click on the title for the full content, If you find yourself on FAEMM community, back out and type in www. structuredsettlements.typepad.com

The "Googling Juror"

Wed, 21 Mar 2012 19:40:24 GMT

In an on-line article titled, “Rely on Instructions to Curb the Socially Networked Juror” (3/19/12), Dr. Ken Broda-Bahm writes that “the ‘Googling Juror’ has emerged as a massive concern in the courts with plenty of stories on the process being thrown into mistrial by panelists who had to look up a fact, couldn’t take their finger off the Tweet button, and felt the need to “friend” parties, attorneys, and other jurors.” Dr. Broda-Bahm references a new article in the Duke Law & Technology Review (St. Eve & Zuckerman, 2012) titled, "Ensuring an Impartial Jury in the Age of Social Media" that discusses a survey of 140 former jurors. He quotes a juror as saying that “nothing” could prevent her from using social media during the trial. The good news is that of a sample of 140 jurors surveyed, only 6 reported a temptation to use social media during their trial, and none of those 6 succumbed to the temptation.

In her article, the Hon. Amy J. St. Eve (Northern District of Illinois) and her law clerk, Michael A. Zuckerman, discuss the juror anecdotes that leave trial lawyers sleepless: the Arkansas death sentence set aside by a tweeting juror, the British juror who conducted a Facebook poll on how she should vote in deliberations, and the Florida juror who may face jail time for “friending” a defendant. Although all these anecdotal examples are important cautionary tales, Dr. Broda-Bahm contends that they do not define the common experience of most jurors.

As a possible solution to social networking abuses, he recommends asking the court for specific social media instructions that take the additional step of explaining why the jurors are being asked to refrain from social networking during trial. However, will a social media instruction be sufficient to curb social networking behavior among jurors?

The JOBS Act, A Felix Salmon And Dave Lynn Outsource

david.zaring@gmail.com (David Zaring) — Wed, 21 Mar 2012 19:21:57 GMT

I've been mulling the JOBS Act, and haven't really come up with anything interesting to say about it. But here's...

I've been mulling the JOBS Act, and haven't really come up with anything interesting to say about it. But here's Felix Salmon with a nicely comprehensive view of the good and the (in his view, mostly) bad. We'll outsource more than we usually do hereabouts:

[in some ways] the JOBS Act comes across rather well:

It’s about to get easier for tech CEOs to ignore the IPO’s siren song. Legislation wending its way through Congress would change SEC rules, meaning no tech company would find itself forced to go public in the way that Facebook has. The bills, which have been supported quite vocally by a number of CEOs at pre-IPO companies in Silicon Valley, as well as VCs who want more control over the timing of their companies’ IPOs, would not count employees toward a company’s 500-investor limit. The legislation would also raise that limit to 1,000 shareholders.

I do think these changes to the 500-shareholder rule make perfect sense. Right now, companies like Facebook (and Google before it) tie themselves up in knots when it comes to giving equity to employees, handing out variations on the stock-unit theme rather than actual equity, just to get around this rule. That benefits no one, really. And ultimately they’re forced to go public anyway, with the timing imposed upon them by SEC regulations rather than being a matter of their own choice.

But this doesn’t mean that I’m a supporter of the JOBS Act more generally, which has been vehemently opposed not only by the usual subjects (Eliot Spitzer, Simon Johnson) but also by the much more centrist editorial board of the New York Times, which almost never saw a bipartisan bill it didn’t like. Even Bloomberg View has come out strongly against the act, in an editorial which, it’s worth remembering, is meant to broadly reflect the views of Mike Bloomberg personally. The SEC opposes it, as do former SEC officials like Arthur Levitt and a long list of consumer organizations.

A lot of the act is very hard to defend. The crowdfunding (a/k/a crowdmuppeting) part, for instance, seems very badly thought out: it’s certain to create a whole new class of startups which raise substantial sums on some Kickstarter-like platform, without having anything like the controls and staffing necessary to do the investor-relations job they’re letting themselves in for. On top of that, of course, there’s enormous scope for outright fraud here, given the lack of real penalties for issuers who lie.

Higher up the food chain, companies going public in an IPO could not only put out incomplete information in glossy sales pitches for themselves; they could also outsource that job to investment-bank analysts hoping their bank will win lucrative mandates down the road. There’s no good reason at all for this: it’s basically a way for unpopular incumbent lawmakers who voted for Dodd-Frank to try to weasel their way back into the big banks’ good graces and thereby open a campaign-finance spigot they desperately need.

What does the JOBS Act do? Here, let's gank from Dave Lynn:

Late last week, the House of Representative passed H.R. 3606, The Jumpstart Our Business Startups (JOBS) Act, with strong bi-partisan support. This bill was comprised of a collection of bills that have been introduced in the House over the past year, all of which focus in one way or another on the ability of companies to raise capital and stay private longer. The key measures included in the JOBS Act are:

Title I, Reopening American Capital Markets to Emerging Growth Companies. This portion of the Act is what is most commonly referred to as the "IPO On-Ramp" legislation, and it is meant to encourage smaller companies to go public through a process where public company obligations would be phased in over time (hence the on-ramp reference). This legislation would amend the 1933 Act and 1934 Act to create a new category of issuer referred to as an "emerging growth company," which is an issuer with total annual gross revenues of less than $1 billion, and would continue to have this status until (i) the last day of the fiscal year in which the issuer had $1 billion in annual gross revenues or more; (ii) the last day of the fiscal year following the fifth anniversary of the issuer's initial public offerings; and (iii) the date when the issuer is deemed to be a "large accelerated filer" as defined by the SEC. The legislation provides for scaled regulation to be applied to the emerging growth company for up to five years following the IPO, including breaks on compliance with things like Section 404(b) of the Sarbanes-Oxley Act, mandatory Say-on-Pay, and the Dodd-Frank CEO pay ratio rules (to come). On the 1933 Act registration front, the legislation would permit greater pre-filing communications, allow for expanded research at the time of the IPO by offering participants, and would provide for pre-filing confidential review of draft registration statements by the SEC Staff.

Title II, Access to Capital for Job Creators. This portion of the legislation would remove the prohibition against general solicitation and general advertising in private offerings under Regulation D, provided that all of the purchasers of securities are accredited investors. Similarly, general solicitation and general advertising would not be prohibited in secondary sales so long as only QIBs are purchasers in the offering. In addition, the legislation would provide that offline and online forums bringing together companies and investors would not be treated as broker-dealers unless they receive transaction-based fees for their activities.

Title III, Entrepreneur Access to Capital. This part of the bill would provide an exemption for crowdfunding, by permitting offerings up to $1 million ($2 million in some cases), provided that investor contributions are limited to $10,000 or 10% of the investor's annual income, whichever is less. Requirements targeted at investor protection are imposed on the issuer and/or the intermediary involved in the crowdfunding effort.

Title IV, Small Company Formation. This part of the legislation is what is commonly referred to as Regulation A reform, raising the limit for Regulation A offerings from $5 million to $50 million. Most importantly, the legislation would exempt Regulation A offering from state securities laws when the Regulation A securities are (i) offered or sold through a broker-dealer; (ii) offered or sold on a national securities exchange; or (iii) sold to a qualified purchaser as defined by the SEC.

Title V, Private Company Flexibility and Growth. This portion of H.R. 3606 increases the 1934 Act registration shareholder of record threshold from 500 to 2,000 (only 500 of which can be non-accredited investors). Employees receiving company securities under employee benefit plans would be excluded from calculating the number of record holders.

Title VI, Capital Expansion. This portion of the Act would increase the shareholder of record threshold from 500 to 2,000 for banks and bank holding companies, and would provide that a bank or bank holding company could terminate 1934 Act registration if the number of holders of record drops to less than 1,200.

Title VII, Outreach on Changes to the Law. This part of the Act requires SEC outreach to certain small and medium-sized businesses informing them of the effect of the law, so that these business are made fully aware of the benefits of the legislation.

New law regulating Internet Information Service Providers comes into force in China

gjacobs@reedsmith.com (Greg Jacobs) — Wed, 21 Mar 2012 18:41:22 GMT

This post was written by Cynthia O'Donoghue and Zack Dong.

New regulations governing the activities of Internet Information Service Providers (“IISPs”) unveiled
by the Chinese Ministry of Industry and Information Technology (“CMIIT”) in December came into
force on 15 March. The “Several Provisions on Regulation of the Market Order of Internet Information Services” (“Provisions”) aim to enhance the protections available to Internet users in China in areas such as Internet security, data protection and online advertising.

For a more detailed analysis, please click here.

Do Not Call registrations to be extended

djacobson@langes.com.au (David Jacobson) — Wed, 21 Mar 2012 18:35:13 GMT

The Do Not Call Register (Duration of Registration) Specification (No. 1) 2010 (Amendment No. 1 of 2012) extends the current registration period for domestic telephone numbers from 5 years to 6 years. The Register commenced on 31 May 2007 and the Do Not Call Register Act initially prescribed numbers entered on the Register were to [...]

The Register commenced on 31 May 2007 and the Do Not Call Register Act initially prescribed numbers entered on the Register were to remain in force for three years. The term was later changed to 5 years and numbers will begin to automatically fall off the Register from 31 May 2012 if they are not re-registered.

The Government is currently examining options for maintaining the accuracy of the Register without the need for periodic re-registration. The extension of the registration period by an additional twelve months will allow further time for a detailed consideration of these options.

The Specification extends the period for which numbers on the Register remain in force to six years, and operates to:

automatically extend the registration period for numbers on the Register at the time the Specification commences so that their registration remains in force for six years from the date of their registration; and
provide that numbers registered subsequent to the commencement of the Specification have a registration period of six years.