by Nicholl B. Garza, a 2014 Judge K.K. Legett Fellow at the Washington Legal Foundation and a student at Texas Tech University School of Law.
Imagine if a commercial truck driver received a citation from the Federal Motor Carrier Safety Administration for failing to keep a record of his driving hours. Further suppose the truck driver lost some of his records, but decided to pay a civil penalty to dispose of the matter. Normal, right? Now imagine three years later the Department of Justice (DOJ) decided to prosecute that person, alleging that he intentionally discarded documents during a federal investigation (a crime under the Sarbanes-Oxley Act (SOX)). While this circumstance may seem absurd, a very similar situation is happening to commercial fisherman John Yates because he allegedly disposed of three fish after being stopped by an official from the Florida Fish and Wildlife Conservation Commission during a commercial fishing trip.
SOX was enacted in 2002. The intended purpose of SOX was to provide (1) criminal prosecution for persons who defrauded investors in publicly traded securities and (2) criminal prosecution for persons who destroyed or altered evidence in certain federal investigations. With regard to “certain Federal investigations,” the SOX Senate Report listed examples such as people committing securities fraud and auditors who intentionally fail to retain audit records. However, the statutory language in SOX does not integrate these specific examples and instead simply references “Federal investigations.” Nevertheless, the Senate Report and previous prosecutions under SOX illustrate that the purpose of the act is to provide a tool to prosecute those who commit financial crimes. Strangely then, in 2010, DOJ decided to prosecute Mr. Yates under SOX. DOJ asserts that in 2007 Yates violated SOX by discarding fish because a federal investigation was taking place.
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
In adopting the Natural Gas Act (NGA), Congress determined that wholesale natural gas pricing issues should be the exclusive preserve of the Federal Energy Regulatory Commission (FERC) and thus that State efforts to regulate the wholesale market were preempted. Courts uniformly barred States from seeking to regulate any “practice . . . affect[ing]” the wholesale rates charged by natural gas companies—until a 2013 U.S. Court of Appeals for the Ninth Circuit decision that is the subject of a pending Supreme Court certiorari petition. ONEOK, Inc. v. Learjet, Inc., No. 13-271. The decision below would permit plaintiffs’ lawyers to proceed with antitrust challenges under state laws to industry practices that directly affected wholesale prices. The court reasoned that preemption was inappropriate because the challenged practices also directly affected a small number of retail natural gas sales.
In response to an invitation from the justices, the Solicitor General of the United States last week filed a brief urging that certiorari be denied. Interestingly, however, the Solicitor General’s brief agrees with the defendants (natural gas suppliers who engage primarily in wholesale transactions) that the Ninth Circuit’s anti-preemption ruling was dead wrong. The Solicitor General recommends against Supreme Court review primarily because he concludes that other courts are unlikely to repeat the Ninth Circuit’s error, particularly with respect to transactions arising after Congress revised the NGA in 2005. But in light of the Ninth Circuit’s fundamental misunderstanding of the scope of NGA preemption, I am far less sanguine that it will eventually see the error of its ways. Unless review is granted, there is every reason to believe that the Ninth Circuit will adhere to its anti-preemption precedent in future cases.
On ten or more occasions every term, the justices request the views of the Solicitor General on whether the Court should grant specific certiorari petitions. The Solicitor General correctly recognizes in his ONEOK brief that merely because the decision below was incorrect is not alone sufficient grounds to recommend that review be granted. The Court has limited the size of its docket to about 75 cases per term. The justices thus usually adhere to the dictates of Supreme Court Rule 10, which states that the Court generally will grant certiorari only in cases that raise an “important question of federal law” and that have decided the question in a manner that conflicts with a relevant decision of the Supreme Court or other appellate courts. Accordingly, the Solicitor General not infrequently recommends that the Court deny a certiorari petition even though he concludes, as here, that the decision below was incorrectly decided.
But the Solicitor General’s principal rationale for recommending a denial of certiorari—that the Ninth Circuit’s error is of reduced importance because it is unlikely to be repeated—is subject to serious question. The plaintiffs accuse natural gas traders of having manipulated privately published price indices in 2001-02. Because buyers and sellers rely on those indices as reference points for pricing all types of natural gas transactions, the direct effect of the alleged manipulation was to raise wholesale natural gas prices. While conceding that wholesale purchasers were barred by the NGA from challenging the alleged manipulation on state antitrust grounds, the Ninth Circuit held that preemption did not extend to suits brought by retail purchasers who challenged the very same manipulation, because retail sales fall outside of FERC’s jurisdiction. The court concluded this despite the fact that the alleged manipulation unquestionably was a “practice . . . affect[ing]” wholesale prices within the meaning of the NGA.
Coleen Klasmeier, a partner with Sidley Austin LLP, Geoffrey M. Levitt, Senior Vice President and Associate General Counsel of Pfizer, Inc., and Jonathan L. Diesenhaus, a partner with Hogan Lovells US LLP discussed the impact of the Second Circuit’s December, 2013 Caronia decision on federal health product regulation and identify the latest developments and trends to follow in 2014 for public and private law enforcement targeted at off-label speech.
by John Andren, Washington Legal Foundation*
It’s not often that a court decision like Waldburger, et al. v. CTS Corporation comes along, one which is interesting not only because of its potentially broad impact, but also because of the case’s intriguing ancillary characteristics. The case featured plaintiffs (represented by law students) arguing for federal preemption so they could bring their state law nuisance claim; a defendant and the U.S. government opposing preemption; and a deeply divided 2-1 outcome in the U.S. Court of Appeals for the Fourth Circuit, where all three judges were Obama appointees.
Waldburger was at its core a case about statutory interpretation and the crucial distinction between statutes of limitations—laws barring claims brought after a certain amount of time has elapsed since either the tortious or criminal act was committed or the claim was discovered—and statutes of repose—which bar claims brought later than a (typically longer) set number of years after the date of the defendant’s last action regardless of when any claim was discovered.
Plaintiffs in the case, who were represented at oral argument by a third-year law student from Wake Forest University, sought compensation for real property damage from CTS Corporation for the alleged dumping of toxic chemicals by one of CTS’s subsidiaries almost 30 years ago. CTS argued that CERCLA’s statute of limitations provision did not preempt North Carolina’s 10-year statute of repose, and since the defendant’s last actions were well over 20 years ago, plaintiff’s claims were barred. Interestingly, the Department of Justice shared time with CTS at oral argument to argue against preemption. DOJ is involved in an Eleventh Circuit case where the United States is the defendant and is opposing application of CERCLA’s limitations provision. Continue reading
In our March 15 post Are Antitrust Agencies Nudging Standard Setting Bodies on Patent Licensing?, we discussed a journal article authored by two current and one former senior economists from U.S. and European antitrust agencies which called on patent standard-setting organizations (SSOs) to take a stronger stand against anti-competitive behavior. The economists’ hope was that SSOs could nip in the bud controversies over standard-essential patent holders seeking injunctions or what constitutes a reasonable (i.e. “RAND”) licensing fee.
Yesterday, the American Antitrust Institute (AAI) petitioned the Justice Department and the Federal Trade Commission (FTC) to escalate the nudge into a menacing carrot and stick combination. The petition urges the agencies to adopt joint enforcement guidelines that could act as a “safe harbor” for SSOs from antitrust liability. Why would SSOs need such a safe harbor? Because AAI feels that SSOs should be held responsible for the anti-competitive activity of their members if SSOs don’t have in place “important safeguards against monopoly power.”
The petition suggests that the DOJ/FTC guidelines should require SSOs to adopt as part of their agreements, which are binding on their standard setting members, the following patent policies:
- Disclosure of patents as well as anticipated and pending patent applications supported by “good faith reasonable inquiry”
- Breach of the foregoing disclosure obligation should result in a zero royalty license if an undisclosed patent is incorporated into the standard
- Ex Ante RAND licensing commitment
- Stipulation that participants whose patents are incorporated into the standard are prohibited from seeking injunctions and exclusion orders against willing licensees
- Licensing terms run with the patent
- Licensees should have cash-only licensing options on individual SEPs
- Efficient, cost-effective process to resolve disputes over RAND royalty and non-royalty rates.
As we noted in our March 15 post, SSOs have been reluctant to adopt more demanding policies to which standard-setting participants must adhere, though the United Nation’s International Telecommunications Union intimated last October that it might be open to such changes. A stick-wielding carrot such as a joint DOJ-FTC guidance would likely move SSOs like the ITU beyond mere contemplation.
After obtaining extension after extension from the U.S. Supreme Court (something our Rich Samp criticized here a few weeks ago), the time had come this week for the federal government to “fish or cut bait,” as it were, on whether it would urge reversal in one case involving the FDA’s graphic tobacco warnings, and oppose certiorari in another case.
As reported by several news outlets this morning, the Department of Justice announced that it would not seek Supreme Court review of the U.S. Court of Appeals for the D.C. Circuit’s R.J. Reynolds Tobacco Co. v. FDA decision. There, the court held in a facial challenge that the tobacco warnings violated the companies’ First Amendment rights. DOJ’s decision not to pursue reversal leaves in place a powerful precedent which businesses in other industries might deploy in situations where government labeling or warning requirements go beyond disclosure of pure, noncontroversial facts. The Washington Post story noted that FDA said it would “go back to the drawing board and ‘undertake research to support a new rulemaking consistent with the Tobacco Control Act.'” So that’s the end of the controversy for now, right?
Not necessarily. The government has until Friday to respond to a petition in the Supreme Court that it review another challenge to the graphic warnings, this one an “as applied” challenge rather than a “facial” challenge. The Sixth Circuit upheld the graphic warnings in American Snuff Co. v. United States. No doubt, the Solicitor General will argue that its decision not to appeal R.J. Reynolds Tobacco Co. obviates the need for the Court to grant certiorari in American Snuff. Will the justices take the government at its word that it now realizes the warnings can’t survive First Amendment scrutiny and that FDA will “go back to the drawing board”? If one were to look at the FDA web page on the graphic health warnings, one might question FDA’s interest in giving up the fight.