Honest Services Fraud Back in the Spotlight with “Operation Varsity Blues”

Featured Expert Contributor, White Collar Crime & Corporate Compliance

Gregory A. Brower, a Shareholder with Brownstein Hyatt Farber Schreck, LLP in Las Vegas, NV and Washington, DC, with Stanley L. Garnett, a Shareholder in the firm’s Denver, CO office.

The charges federal prosecutors have filed in the “Operation Varsity Blues” college-admissions corruption scandal have thrust the federal crime of honest services fraud back into the spotlight.  Over the past two or three decades, this section of the federal criminal code has been the subject of much controversy.  Although the facts alleged in the various Operation Varsity Blues charging documents are unseemly, at best, and the evidence seems overwhelming, the government’s reliance on the honest services fraud statute is likely to renew the debate in white collar defense circles about what exactly the statute means and whether it is appropriately applied to private-sector actors. Continue reading “Honest Services Fraud Back in the Spotlight with “Operation Varsity Blues””

Third Circuit Builds on Post-Spokeo “Bare Procedural Violation” Standing Jurisprudence

Featured Expert Contributor—Civil Justice/Class Actions

Frank Cruz-Alvarez, a Partner in the Miami, FL office of Shook, Hardy & Bacon L.L.P., with Erica E. McCabe, an Associate in the firm’s Kansas City, MO office.

On March 8, 2019, the U.S. Court of Appeals for the Third Circuit, in Kamal v. J. Crew Grp., Inc., et al., ___F.3d___, 2019 WL 1087350 (3d Cir. Mar. 8, 2019), affirmed the U.S. District Court for the District of New Jersey’s judgment that plaintiffs’ putative class complaint failed to properly assert Article III standing under the guidelines established by Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016) (Spokeo I).  In so holding, the Third Circuit joined its sister courts from the Second, Eighth, and Ninth Circuits in establishing that alleged procedural violations do not create Article III standing unless “the violation actually harms or presents a material risk of harm to the underlying concrete interest.”  Kamal, 2019 WL 1087350, at *17.  

In Kamal, the putative class alleges that J. Crew Group, Inc. (“J. Crew”) violated provisions of the Fair and Accurate Credit Transactions Act of 2003 (“FACTA” or the “Act”), 15 U.S.C. § 16801c(g), when it printed receipts showing the first six and last four digits of plaintiffs’ credit card numbers.  Kamal, 2019 WL 1087350, at *3.  In addition to the bare statutory violation, the putative class alleges that the offending receipts put them at an increased risk of identity theft. Continue reading “Third Circuit Builds on Post-Spokeo “Bare Procedural Violation” Standing Jurisprudence”

Third Circuit Limits the FTC’s Authority to Challenge Ceased Conduct

Featured Expert Contributor, Antitrust & Competition Policy — Federal Trade Commission

M. Sean Royall, a Partner at Gibson, Dunn & Crutcher LLP, with Richard H. Cunningham, a Partner and Emily Riff, an Associate, both with the firm.

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On February 25, 2019, the Third Circuit issued a decision affirming the District of Delaware’s dismissal of the FTC’s “sham petitioning” case against Shire ViroPharma (Shire), the manufacturer of the branded drug Vancocin.  The Court of Appeals held that to proceed pursuant to § 13(b) of the FTC Act, the FTC must plead facts plausibly showing that Shire is “about to violate” the antitrust laws, but failed to do so because the challenged conduct ceased years before the lawsuit and the FTC’s allegations were otherwise insufficient to meet the “about to violate” standard.

The decision may substantially limit the FTC’s ability to invoke § 13(b) in cases where the challenged conduct is not ongoing.  This is significant because the agency has, for years, successfully used § 13(b) to challenge past conduct in both the antitrust and consumer-protection contexts in federal court to obtain injunctive and equitable monetary relief.   Continue reading “Third Circuit Limits the FTC’s Authority to Challenge Ceased Conduct”

Mr. Hinman’s Metaphysics: Some Thoughts on Reexamining the Utility Token

Featured Expert Contributor, Legal & Regulatory Challenges for Digital Assets

Alter_Daniel_web2_8784879218361By Daniel S. Alter, a Shareholder in the New York, NY office of Murphy & McGonigle P.C.

A common criticism of Sigmund Freud is that he built a theory of the human psyche based largely upon experiences of the mentally ill.  The U.S. Securities and Exchange Commission’s (SEC) approach to regulating crypto assets labors under a similar bias.  The agency has developed a regulatory construct largely in response to a period of widespread abusive conduct in the digital markets.  Although the SEC’s intervention was historically justified, it may be time to reexamine and refine that regulatory construct in ways that still protect investors but better promote innovation.

Two years back, when billions of dollars in initial coin offerings (ICOs) hit the market—many of which were rife with fraud—the SEC invoked SEC v. W.J. Howey Co., 328 U.S. 837 (1946), to bring matters under control.  Applying the Howey test, the agency concluded that digital tokens, when used to raise capital, can fall within the definition of a “security” under the Securities Act and are thus subject to federal regulation as such.  A digitized security or “security token,” the SEC reasoned, is still a security—regardless of its transactional medium. Continue reading Mr. Hinman’s Metaphysics: Some Thoughts on Reexamining the Utility Token”

Update: Second Circuit Affirms Dismissal of “Diet Sodas Cause Weight Gain” Class Action

diet pepsiLast May on the eve of Memorial Day, we wrote about a Southern District of New York decision dismissing a class action against Pepsi-Cola. On Friday, March 15, a three-judge panel of the U.S. Court of Appeals for the Second Circuit issued a Summary Order (which has no precedential value) affirming the lower court’s decision.

The plaintiff in Manuel v. Pepsi-Cola Co. alleged that a reasonable consumer would conclude that the use of the term “diet” in Diet Pepsi meant that the beverage assisted in weight loss. Because the non-nutritive sweeteners Pepsi used as substitutes for sugar led to weight gain, the plaintiffs argued, use of the term “diet” was misleading in violation of state consumer-protection laws. The trial court held that no reasonable consumer would interpret “diet” in “Diet Pepsi” in the same manner as the plaintiff argued it meant. In addition, the court found that the studies the plaintiff cited in support of her claim that sugar substitutes caused weigh gain in fact offered no such support.

The Second Circuit concluded that even if a reasonable consumer would interpret the “diet” in Diet Pepsi to mean consumption=weight loss, the studies the plaintiff cited did not establish a causal relationship between sugar substitutes and weight gain “to a degree that is sufficiently strong.” The appeals court also affirmed the lower court’s decision to dismiss Manuel’s complaint with prejudice.


This Justin: Timberlake Out of Suit but False-Labeling Action against Bai Beverage Mostly Survives

bai-brasilia-blueberry-202x4841Here at the WLF Legal Pulse, we routinely discuss class-action lawsuits filed against consumer-product makers, especially those who manufacture packaged foods. Plaintiffs’ lawyers have been clogging the aisles of grocery stores for years dissecting food labels for any possible regulatory misstep and perhaps signing up new clients in the process. We could write far more often on this subject, but frankly it’s increasingly difficult to find a decision that breaks new ground or a suit that is uniquely ridiculous. One recent decision was irresistible, however.

The Southern District of California’s March 7, 2019 decision in Branca v. Bai Brands LLC seems like a run-of-the-mill “your product isn’t completely natural” claim. It wasn’t the debate over whether the malic acid in Bai beverages is natural or artificial (though that is perversely interesting) that intrigued us, but the court’s personal-jurisdiction determinations. And Justin Timberlake. Plaintiff Kevin Branca sued Timberlake, a Bai investor, as well as Dr. Pepper Snapple Group CEO Larry Young and former Bai CEO Ben Weiss (Dr. Pepper ousted him when it bought Bai), individually. Continue reading “This Justin: Timberlake Out of Suit but False-Labeling Action against Bai Beverage Mostly Survives”

Update: Pre-Approval Requirements Announced for Federal Wire Act Prosecutions

Featured Expert Contributor, White Collar Crime & Corporate Compliance

Gregory A. Brower, a Shareholder with Brownstein Hyatt Farber Schreck, LLP in Las Vegas, NV and Washington, DC, with William E. Moschella, a Shareholder in the firm’s Washington, DC office.

We recently posted about the Department of Justice’s new take on what the federal Wire Act says and does not say, and noted the Deputy Attorney General’s issuance of a memorandum instructing Department prosecutors to refrain from applying OLC’s new interpretation in criminal or civil actions until April 15, 2019.  As a next step toward clarifying its Wire Act enforcement policy going forward, DOJ has announced an update to the Justice Manual (formerly known as the U.S. Attorneys Manual) to include a new provision requiring federal prosecutors in the 93 U.S. Attorneys offices to obtain Main Justice approval before initiating any criminal prosecution under the Wire Act (18 U.S.C. § 1984).  The new requirement is found in the Justice Manual at new § 9-110.901, and provides as follows:

No criminal prosecution under 18 U.S.C. § 1084 shall be initiated by indictment, information, or complaint without the prior approval of the Organized Crime and Gang Section (OCGS). All requests for approval must be submitted at least 7 days in advance and accompanied by a prosecution memorandum and final proposed indictment, information, or complaint.

This new policy suggests an intent on the part of DOJ leadership to take a measured, deliberate, and consistent approach to Wire Act prosecutions.

Moreover, it is likely that before the Department approves any such prosecutions, it will wait to see the outcome of two federal lawsuits now pending in New Hampshire.  In one of those cases, the company that provides New Hampshire’s state lottery platform is seeking a declaration from the federal district court that the Wire Act prohibits only sports-betting-related activities.  The complaint in that case alleges that the reasoning of the new OLC opinion is “deeply flawed” and contradicts the holdings of two separate federal courts of appeals.  Specifically, the complaint argues that OLC “ignored key structural features of the statute, all of which indicate a limited scope,” and “neglected the substantial legislative history of the Wire Act, all of which points to a narrow understanding and purpose of the Act.”

This all makes for a fascinating case study in the intersection of legislative intent, statutory interpretation, and prosecutorial discretion.  Stay tuned.