SCOTUS Fishing for a Way to Overturn Conviction in “Yates” without Tossing Law Overboard

supreme courtIt is notoriously difficult—if not foolish—to predict the outcome of a Supreme Court case from the questions the justices pose at oral argument. The case of Yates v. U.S., concerning a commercial fisherman who was convicted and sentenced under the Sarbanes-Oxley Act, is no exception.

And yet, after today’s argument (transcript here), it appears that some members of the Court are grappling for a way to overturn Yates’s conviction without completely rewriting the statute.

Three years after Mr. Yates received an administrative fine for harvesting undersized fish, the U.S. Attorney indicted him for destroying a “record, document, or tangible thing” under the “anti-shredding” provision of Sarbanes-Oxley. The “tangible things” at issue, the government insisted, were undersized red grouper Yates evidently ordered crew members to throw overboard.

Although the government seemingly got the better of the statutory interpretation argument today, a number of justices appeared uncomfortable with the breadth of the government’s application of the statute. While conceding that the government made some good arguments, Justice Alito nevertheless told the government’s attorney, “[Y]ou are really asking the Court to swallow something that is pretty hard to swallow.” Many justices were concerned that the statute contains a 20-year maximum sentence and applies to any matter within the jurisdiction of any department or agency of the United States.

red grouper

red grouper

Even more troubling, the government attorney informed the Court that once a decision is made to prosecute, the U.S. Attorney’s Manual recommends that the “prosecutor should charge the offense that’s the most severe under the law.” That assertion drew concern from many justices, including Justice Scalia, who responded that if that is the DOJ’s position, then the Court would need to be much more careful about how extensively and broadly it construes severe statutes in the future. Justice Kennedy even went so far as to question whether the Court should even mention the concept of prosecutorial discretion ever again.

For his part, Justice Breyer exhibited keen interest in void-for-vagueness objections to the statute, expressing his concern that the language of the anti-shredding provision is so broad that it encourages arbitrary and discriminatory enforcement. Although counsel for Yates did not devote very much space to that issue in his merits briefs, that was precisely the issue that WLF focused on as amicus curiae.

Also published by Forbes.com on WLF’s contributor site

Eleventh Circuit Ruling a Welcome Judicial Pushback against Criminal Enforcement of Regulations

strickly skillz

On a balmy late August day in Orlando, Florida, nearly a dozen Orange County police officers, some dressed in ballistic vests and masked helmets, swept into Strictly Skillz barbershop with their guns drawn. As their colleagues blocked off the parking lot entrances and exits, the officers declared that the shop was closed and ordered its patrons to leave, depriving the shop of business and perhaps deterring future patrons. Two barbers and the owner were handcuffed. A plain-clothed member of the raiding party demanded to see the barbershop’s business license.

Yes, you read that correctly. On August 21, 2010, a veritable SWAT team of heavily armed police conducted a warrantless inspection to check for barbers’ licensing violations. The Florida Department of Business and Professional Regulation (DBPR) inspector soon determined that Strictly Skillz barbers were properly licensed (which, as you’ll learn below, they already knew), so the police uncuffed the detained barbers and owner and left the shop.

The owner and three barbers sued a number of the officers involved for violating their Fourth Amendment rights against unreasonable search and seizure, and a federal district court denied the defendants’ motion for summary judgment on qualified immunity grounds. On September 16, the U.S. Court of Appeals for the Eleventh Circuit issued a strongly worded opinion affirming the lower court (Berry v. Leslie). The ruling provides a forceful reminder that the Fourth Amendment protects businesses (and their employees) from overzealous regulatory inspections. Continue reading

Common Sense Prevails as D.C. Circuit Overturns Trial Court’s Denial of Attorney-Client Privilege Protection

829-Brower_GregjohnsonGuest Commentary

by Greg Brower and Brett W. Johnson, Snell & Wilmer LLP*

Government contractors and other companies subject to internal investigation requirements won some relief from the United States Court of Appeals for the D.C. Circuit last week with a decision that firmly reiterated that Upjohn v. United States does indeed stand for the proposition that confidential employee communications made during a business’s internal investigation led by company lawyers are privileged.

In United States of America ex rel. Harry Barko v. Halliburton Company, et al, defendant Halliburton’s subsidiary, Kellogg, Brown & Root (KBR) filed a petition for writ of mandamus seeking to reverse a district court’s order that KBR produce in discovery, certain reports created as part of internal investigations conducted at the direction of in-house counsel.   Over KBR’s objection, the district court had ordered production of the documents, reasoning that because the KBR investigators who prepared the reports were not lawyers, and because the subject investigations were done pursuant to legal requirements and corporate policy, and not solely for the purpose of obtaining legal advice, the reports were not privileged. For more on the trial court’s opinion, see our March 24 Legal Pulse commentary here.

A three-judge panel of the D.C. Circuit disagreed and vacated the district court’s order.  In so doing, the panel found that the privilege claim by KBR was “materially indistinguishable” from the assertion of the privilege in the seminal Upjohn case.  Specifically, the court of appeals found that because, as in Upjohn, KBR initiated an internal investigation to gather facts and ensure compliance with the law after being informed of potential misconduct, and because the investigation was conducted under the auspices of KBR’s in-house legal department, the privilege applied.  Continue reading

Consumer Product “Plain Packaging” Boomerangs in Australia

boomerangIn publications, formal comments, and here at The Legal Pulse, Washington Legal Foundation has consistently questioned the wisdom and legality of requiring “plain packaging” for disfavored consumer products. We wrote in a December 2011 post that plain packaging laws like the one Australia formally adopted in 2012 will “boomerang  . . . by creating a vigorous black market in cigarettes and forcing tobacco prices down as new and cheaper cigarettes enter the marketplace.”

Recent sales data and studies on the tobacco market in Australia show how that nation’s plain packaging law has, in fact, boomeranged as we predicted it would.

First, a late-2013 study by KPMG revealed that counterfeit tobacco sales in Australia had risen since the passage of the plain packaging law to almost 14% of the Australian market. Illicit sales not only deprive Australia of hundreds of millions in lost tax revenue, they also increase law enforcement costs in reaction to greater criminal black market activity. Australian press accounts demonstrate how the illicit sales are funding larger criminal enterprises, such as gangs. In addition, counterfeit sales have harmed Australia’s small retailers, as a study by an Australian market research firm has demonstrated.

Second, much to the shock of plain-packaging devotees, tobacco sales are increasing Down Under. Reports last month indicate that deliveries to tobacco retailers rose in 2013 for the first time in five years. This news should not be a surprise to anyone who understands basic economics and consumer behavior. Tobacco producers who are no longer able to differentiate their cigarettes from rivals through package branding and imaging, are forced to lower their prices to maintain or expand market share. Lower prices, of course, routinely lead to increased sales. Such a reaction is especially true when generic, lower-cost cigarette companies enter the market, as they have in Australia. WLF explained this effect in its 2010 comments to the Australian Parliament, emphasizing the success generic tobacco brands have had in the U.S.

Other nations such as Britain looking to sweep away trademark and speech rights with plain packaging laws should pay heed to these developments in Australia. Regulators who proceed in the face of such demonstrated economic hazards will be doing so more for ideological, rather than public health, reasons.

Also available at WLF’s Forbes.com contributor page

District Court’s Attorney-Client Privilege Ruling Counteracts Incentives to Perform Internal Investigations

829-Brower_GregjohnsonGuest Commentary

by Greg Brower and Brett W. Johnson, Snell & Wilmer LLP*

It has long been assumed that under the U.S. Supreme Court’s decision Upjohn Co. v. United States, reports generated during an internal investigation undertaken at the direction, and under the supervision, of corporate attorneys are protected from discovery by the attorney-client privilege.  It came as a significant surprise then that the U.S. District Court for the District of Columbia recently held that the privilege does not apply when an investigation is conducted pursuant to a legal requirement, and not purely for the purpose of obtaining legal advice.  Unless reversed, this decision could pose a significant new dilemma for regulated companies, and especially for government contractors, that perform internal investigations to determine whether “credible evidence” of actual wrong-doing exists.

The decision in United States of America ex rel. Harry Barko v. Halliburton Company, et al. is the latest in a long-running False Claims Act (“FCA”) suit against Halliburton and its former subsidiary, Kellogg, Brown & Root (“KBR”).  In the course of pre-trial discovery, the relator sought the production of reports created by KBR in the course of conducting internal investigations into alleged violations of the company’s Code of Business Conduct (“COBC”).  KBR objected to the production of the COBC reports, contending they were protected from discovery by the attorney-client privilege and work-product doctrine.  On the relator’s motion to compel, the court rejected KBR’s argument that Upjohn was dispositive of the issue, and ordered that the reports be produced.  The court reasoned that because the KBR investigators who prepared the reports were not lawyers, and because the subject investigations were done pursuant to legal requirements and corporate policy, and not solely for the purpose of obtaining legal advice, the reports were not privileged.

Continue reading

Welcome to “Sorrellonia”!: WLF Seminar Assesses Off-Label Drug Speech Ruling

PodiumPic1Off-Label Speech After U.S. v. Caronia: Implications for Drug & Device Regulation and the First Amendment, a Washington Legal Foundation Web Seminar program, is now available for on-demand viewing.

Our program featured analysis and commentary from Coleen Klasmeier of the Sidley Austin law firm and WLF’s Chief Counsel, Richard Samp. Coleen and Rich make reference to a Powerpoint slide deck, which due to a technical problem wasn’t available to viewers during the program.  The slide deck can be downloaded here.

For her presentation, Coleen coined the term “Sorrellonia” because the U.S. Court of Appeals for the Second Circuit two-judge majority in Caronia became the first court to fully apply the holding and rationale of the U.S. Supreme Court’s 2011 Sorrell v. IMS Health opinion.

Coleen’s and Rich’s presentations drew upon their combined years of experience in dealing with FDA’s application of its off-label speech restrictions and the Justice Department’s prosecution of cases where criminal violations of those rules allegedly occurred.

While they both saw great promise in the opinion for greater freedom in the exchange of critical medical information, they also offered firm notes of caution that the ruling not be interpreted as a green light for businesses’ promotion of off-label uses. Great peril still exists in this area they warned, a fact that is all the more apparent today with the announcement of another nearly $1 billion Justice Department settlement with a pharmaceutical company.

Time for Supreme Court Review of Corporate “Status Crime” Legal Doctrine

Cross-posted by Forbes.com at WLF contributor site

Two weeks ago in Friedman v. Sebelius, a divided U.S. Court of Appeals for the District of Columbia Circuit largely upheld what amounts to the lifetime exclusion of three senior pharmaceutical executives from any further involvement in the industry.  Their offense:  pleding guilty to misdemeanor charges that they were executives of Purdue Frederick Co., at a time when (unbeknownst to them) some company employees engaged in the improper promotion of Purdue Frederick drugs.

Criminal prosecution of corporate executives not shown to have a guilty state of mind (or even to have acted negligently) has long been controversial.  Such prosecutions—under what is known as the “Responsible Corporate Officer” (RCO) doctrine—have twice survived constitutional challenges in the Supreme Court by razor-thin 5-4 margins in 1943 and 1975.  The Supreme Court reasoned that the RCO doctrine allows society to make a strong statement regarding its disapproval of corporate misbehavior without unduly punishing largely blameless senior executives, because penalties in RCO cases “commonly are relatively small, and conviction does no grave danger to the person’s reputation.”  Morisette v. United States.  There is serious reason to question whether the lifetime exclusion largely upheld by the D.C. Circuit fits the Supreme Court’s definition of a “relatively small” penalty.  In light of federal officials’ determination to bring more such prosecutions, the Supreme Court ought to revisit the RCO doctrine and decide whether it is being applied in a manner that comports with due process of law. Continue reading