DOJ Expands Opioid Enforcement Efforts Using Data Analytics
By Richard S. Hartunian, Partner, Corporate Investigations and White Collar Defense | Andrew Case, Associate, Litigation
On Jan. 30, 2018, Attorney General Jeff Sessions announced that over the next 45 days, as part of its continued increase in opioid-related enforcement, the Drug Enforcement Agency will “surge” agents and investigators to opioid “hot spots.” The surge will “focus on pharmacies and prescribers who are dispensing unusual or disproportionate amounts of drugs.” He noted that the surge will rely on transaction reports from manufacturers and distributors, and that the agency will “aggregate these numbers to find patterns, trends [and] statistical outliers—and put them into targeting practice.”
This announcement follows on the heels of related initiatives to address the opioid crisis roiling the country. In August, AG Sessions announced the creation of the Opioid Fraud and Abuse Detection Unit. Data analytics will be used to “identify and prosecute individuals that are contributing to this prescription opioid epidemic.” The unit, which assigns a prosecutor to each of 12 participating districts, is particularly focused on the nexus between healthcare fraud and opioid abuse.
In November, AG Sessions ordered every U.S. Attorney to designate an Opioid Coordinator by the close of business on Dec. 15, 2017. These Opioid Coordinators not only will handle cases involving trafficking of heroin and fentanyl, but will manage prescription opioid cases as well. The Opioid Coordinators will work with other law enforcement agencies to determine when a case will be brought as a criminal prosecution and will assess the overall effectiveness of their districtwide strategy. In doing so, they will maintain data on opioid prosecutions.
Taken together, these developments signal a commitment to using a data-driven approach to frame the federal government’s prosecution-focused response, which now clearly targets pharmacies and distributors that handle larger-than-expected doses of opioids. Such metrics have been used to uncover large-scale opioid diversion. A Pulitzer Prize-winning series in the Charleston Gazette-Mail in 2016 found that 780 million doses of painkillers had been distributed, many in small towns where the population would not justify such numbers. A follow-up article on Jan. 29 of this year found that one town had received 20.8 million doses over ten years, despite a population of only 2,900.
Why it matters
Data-driven metrics illustrating opioid distribution have been cited in civil litigation filed against opioid manufacturers, distributors and dispensers, including cases that have been consolidated in the Multi-District Litigation in the Northern District of Ohio. It is now clear that data metrics will become a primary tool to support enforcement actions as well, allowing the Department of Justice to focus its limited resources on the most egregious cases. The announcement of a 45-day surge should serve as a warning not just to pharmacies, but to all those involved in distributing opioids, highlighting the need for rigorous internal compliance and monitoring programs as well as robust investigative follow-up.
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2017 in Review: Significant TCPA Litigation and Regulatory Developments
By Christine M. Reilly, Chair, TCPA Compliance and Class Action Defense | A. Paul Heeringa, Counsel, Financial Services Group
Undeniably, 2017 was a big year for the Telephone Consumer Protection Act (TCPA), from the transition of power at the Federal Communications Commission (FCC) to a slew of cases directly impacting TCPA compliance and litigation. The number of TCPA lawsuits (class actions and, to a lesser extent, individual actions) filed each year in federal and state courts continues to steadily rise, and we have little doubt this trend will continue into 2018 and beyond, making ongoing developments all the more important to businesses (and their counsel) from both a compliance and a litigation-defense perspective. What follows is a summary of several important regulatory and litigation developments from last year that we have reported on in past editions and that will likely impact the TCPA world for the foreseeable future. Here are some of the most significant developments:
Dish Network’s TCPA Troubles Continue (Agency Liability)
In Krakauer v. Dish Network LLC, Thomas Krakauer filed suit against Dish Network, one of the two major satellite network providers in the U.S. (the other being DirecTV), alleging that he received dozens of calls from Satellite Systems Network (SSN) on behalf of Dish, despite the fact that his number was registered on the National Do Not Call (DNC) Registry, and even after he complained to Dish about the calls and Dish said it had placed him on its internal DNC list.
In January 2017, a jury found that SSN acted as Dish’s agent when it made the calls at issue and violated the TCPA, awarding $400 for each of the 51,119 calls at issue for a total of approximately $20.47 million. After the verdict, the parties submitted arguments on willfulness. U.S. District Judge Catherine C. Eagles of the Middle District of North Carolina had little trouble finding that Dish willfully violated the statute and trebled the damage award, entering judgment in the amount of $61 million.
This opinion is only the latest blow for Dish Network, which has had a rough few months, between the staggering $280 million verdict in the government’s case in the Central District of Illinois and Judge Eagles’ judgment of $61 million in the Krakauer dispute. The lesson for other companies? Ensure TCPA compliance, particularly on the part of your vendors hired to make telemarketing calls, or face possible agency liability and significant penalties.
FCC Under Ajit Pai: Pro-business and Other Implications for the TCPA
In January 2017, President Donald Trump appointed Commissioner Ajit Pai to serve as the next chairman of the FCC. While not surprising given that Pai was widely viewed to be the presumptive pick, his appointment as commissioner came sooner than anticipated. Since his appointment to a Republican seat at the FCC in 2012, Pai has been a vociferous critic of the Democrat-controlled FCC on many issues, most notably on TCPA rulings and orders. His appointment will no doubt result in significant changes to the FCC’s position on the myriad of TCPA related-issues.
Pai is perhaps best-known for his lengthy, witty and sometimes scathing dissent in the FCC’s July 2015 TCPA Omnibus Ruling and Order. Beyond that, Pai has made clear that he believes the FCC’s interpretations of the TCPA should be fairly circumscribed to follow the clear text and legislative history. Pai’s appointment may also open the floodgates for petitions seeking clarification of other controversial and muddy aspects of the FCC’s TCPA rulings. Moreover, Pai’s appointment might result in more business-friendly decisions on various petitions currently before the FCC seeking guidance on various other aspects of the TCPA.
While the exact contours of Pai’s influence on the FCC remain to be seen, his tweet on the day he was nominated is promising: “There is so much we can do together to bring the benefits of the digital age to all Americans and to promote innovation and investment.” Hopefully, this includes freeing businesses from the vast uncertainty and litigation exposure caused by simply communicating with consumers.
Defendant’s Calling System Ruled Not an Autodialer
In Smith v. Stellar Recovery Collection Agency, Inc., plaintiff Lakisha Smith alleged that defendant Stellar Recovery Inc. (Stellar) called her cellphone dozens of times without her consent about a debt in violation of both the Fair Debt Collection Practices Act and the TCPA. Under the TCPA, it is unlawful to use an automated telephone dialing system (ATDS) to make debt collection calls without prior consent. Stellar admitted to not obtaining consent, but argued that the third-party program it used to make the calls, LiveVox Human Call Initiator (HCI), is unable to dial phone numbers without “human intervention” because the “the equipment cannot store numbers, nor can it dial numbers without the call being initiated by the clicker agents.”
U.S. District Judge Stephen J. Murphy of the Eastern District of Michigan agreed with the defendant, adopting the magistrate judge’s finding that because of the function of the clicker agent confirming each telephone number individually, human intervention is “clearly required” to dial numbers with the HCI system. The court pointed to other cases in which calling systems that relied on “human clickers” to initiate calls were found to not be an ATDS. In fact, one federal judge in Florida had previously analyzed the defendant’s HCI system, also ruling that it was not an ATDS.
This decision adds to the growing progeny of cases finding that a calling system that is “clearly an advanced and efficient method of contacting debtors [or consumers]” is not necessarily an ATDS. Systems that require employees to operate them and initiate calls do not qualify as an ATDS, and the more human intervention there is, the better.
California TCPA Defendant Gets Mixed Rulings
In Nghiem v. Dick’s Sporting Goods, Inc., et al., plaintiff Phillip Nghiem alleged that he enrolled in the Dick’s mobile alerts program by texting the word “JOIN” in February 2015 and later texted the word “STOP” in December 2015 to remove himself from the program. Dick’s responded with a text confirming his unsubscription. But according to Nghiem, he continued to receive messages from Dick’s (at least nine texts) through January 2016. Based on these text messages, he filed a putative class action alleging violations of the TCPA. The parties then filed pretrial motions: a motion to dismiss from Dick’s, arguing that the plaintiff lacked standing, and a motion from the plaintiff to certify a class represented by Nghiem.
U.S. District Judge Cormac J. Carney of the Central District of California denied both motions. First, falling in line with opinions from other federal courts in California, Illinois and West Virginia, Judge Carney disagreed with Dick’s that Nghiem had not alleged a concrete and particularized injury-in-fact as required by Article III of the U.S. Constitution, and rejected the defendant’s interpretation of Spokeo, Inc. v. Robins, the U.S. Supreme Court’s watershed ruling on standing in the context of the Fair Credit Reporting Act. The court did, however, consider the plaintiff’s motivation and character when it turned to the motion to certify the class in the suit. As a plaintiffs’ attorney who handles consumer and debtor disputes himself, Nghiem has represented plaintiffs in TCPA cases on at least six occasions and enrolled in several promotional campaigns that have been challenged by his law firm.
Faced with a novel issue regarding a plaintiff’s motivation in bringing a case, Judge Carney rejected Nghiem’s motion for class certification because his role as both lead plaintiff and counsel would require him to address defenses that would be unique to him, thus failing the “typicality” requirement for certification under Federal Rule 23(a).
Revocation? Think Again
In August 2017, the U.S. Court of Appeals for the Second Circuit issued what might be the most business-friendly TCPA decision we have seen in a long time, in Reyes v. Lincoln Automotive Financial Services. The decision is available here.
The named plaintiff, Alberto Reyes Jr., leased a new luxury Lincoln in 2012 and provided his cellphone number in his lease application. The application included a provision that Reyes “expressly consent[ed]” to contact via “prerecorded or artificial voice messages, text messages . . . and/or automatic telephone dialing systems.” Not long after he signed the lease, Reyes stopped making payments. Lincoln called Reyes many times to cure his default. Reyes claimed he mailed Lincoln a letter demanding that all calls to his cellphone cease, but the calls continued.
In 2015, Reyes filed a TCPA lawsuit in the U.S. District Court for the Eastern District of New York against Lincoln, seeking $720,000 in damages for the allegedly unlawful phone calls. The district court granted summary judgment in Lincoln’s favor, finding that Reyes failed to prove he revoked consent, and that regardless, the TCPA does not permit a party to a legally binding contract to unilaterally revoke bargained-for consent to be contacted.
Reyes appealed. The Second Circuit disagreed that Reyes failed to prove he revoked consent, but agreed that the TCPA does not permit a consumer to revoke his or her consent to be called “when that consent forms part of a bargained-for exchange.” The court’s decision is grounded on the difference between the definitions of “consent” in tort law and in contract law. In tort, consent is generally a “gratuitous action,” and its effectiveness is extinguished upon termination. In contract, however, consent to another’s action can become irrevocable when provided in a legally binding agreement. Thus, the Second Circuit affirmed.
So far, the decision has not been appealed. For now, businesses should consider reviewing their contracts and including a strong, unambiguous “consent to contact” provision. These provisions could not only allow companies to continue collection efforts in the event of a default, even in the face of a purported revocation, but they also serve more fundamental purposes of ensuring consent is properly obtained in the first instance and in managing consumer expectation.
Would-Be Employer Targeted in New TCPA Suit (Revocation by Silence or Inaction?)
Preceding the Reyes case, an important district-level, business-favorable decision was issued by U.S. District Judge Sara L. Ellis of the Northern District of Illinois, in the Dolemba v. Kelly Services, Inc. case in January 2017.
The named plaintiff, Herminia Dolemba, submitted an application to defendant Kelly Services, Inc., a temporary staffing company, in March 2007. She indicated an interest in positions using office skills such as accounts payable and accounts receivable. She also provided her cellphone number on the application form. Signing the application, Dolemba “authorize[d] Kelly to collect, use, store, transfer, and purge the personal information that [she] provided for employment-related purposes.” Dolemba did not hear back from Kelly until February 2016 (i.e., nearly a decade later), when her cellphone allegedly received a call made using an ATDS, soliciting individuals for employment as machine operators in certain locations. She responded with a putative TCPA class action, arguing that the call exceeded the scope of her consent and that her consent expired long before she received the call in 2016.
Moving to dismiss, Kelly told the court that Dolemba’s signature on the employment application indicated her consent to receive calls regarding employment opportunities, which encompassed the call at issue. Judge Ellis agreed, and she granted Kelly’s motion with prejudice.
The decision is a victory not just for employers concerned about using modern technology to reach out to job applicants, but for TCPA defendants more generally. Judge Ellis confirmed that a consumer’s “silence or inaction” cannot revoke consent and that the plaintiff’s broad consent to be contacted for “employment-related purposes” even encompassed a job opportunity in which she may not have been interested.
Yet Another Blow to Spokeo Strategy in TCPA Cases (Third Circuit)
In Susinno v. Work Out World, the U.S. Court of Appeals for the Third Circuit reversed an order from the U.S. District Court for the District of New Jersey, which had dismissed a putative TCPA class for lack of standing where the plaintiff had received a single prerecorded call from the defendant offering a VIP gym membership but otherwise suffered no damages, in July 2017.
The named plaintiff, Noreen Susinno, alleged that she suffered harm from defendant Work Out World’s single, unsolicited call to her cellphone—which she did not answer, was left on her voicemail, and resulted in no fees or other expense to her—because it reduced her available cellular minutes, wasted her time retrieving the voicemail, depleted her cellular phone battery and was a “nuisance.” In essence, the Third Circuit agreed with the plaintiff, ruling that the single call was an invasion of the plaintiff’s privacy and was precisely the type of harm against which the TCPA was designed to protect despite the marked lack of monetary harm.
The Third Circuit’s opinion is the most recent of a growing, primarily district-level (at least so far) trend among various federal courts to find in favor of plaintiffs on an Article III standing challenge under Spokeoeven in the face of a one-time, seemingly intangible injury. While in our experience the Third Circuit is typically plaintiff-friendly in the consumer protection arena, this decision demonstrates that the Spokeo card will be a difficult one to play in TCPA cases pending there. As Spokeo has not been the silver bullet some in the defense bar (optimistically) hoped it would be, knowledge of the TCPA and creativity in defending these cases remain critical.
D.C. Circuit Invalidates FCC's Solicited Fax Rule
In a significant victory for TCPA junk fax defendants in spring 2017, a split panel of the U.S. Court of Appeals for the District of Columbia Circuit invalidated the FCC’s “Solicited Fax Rule.” Created by the FCC in a 2006 order, the Solicited Fax Rule required that fax advertisements sent with a recipient’s prior express invitation or permission contain an opt-out notice requiring specific information.
The impact of this is likely to be felt for years to come, particularly in pending TCPA litigation, assuming it is not overturned on further appeal. It is generally accepted that the D.C. Circuit’s rulings on agency actions are binding on courts across the country because the Hobbs Act grants the D.C. Circuit primary jurisdiction on administrative law and agency issues. The decision could be the death knell for pending TCPA class actions involving solicited faxes sent without the detailed opt-out notice required by the regulations. The decision might also very well pull the rug out from under the cottage industry of plaintiff law firms that have been capitalizing on the Solicited Fax Rule. Indeed, up to this point, plaintiffs have been successful in making junk fax claims under the TCPA based merely on an improper opt-out notice, which alone was a $500-per-fax minimum penalty. Now plaintiffs will have to focus on whether the fax was solicited.
As expected, the decision has been appealed to the U.S. Supreme Court, but as of January 2018, the Court has not yet decided to take the case. As for the FCC, given that Chairman Pai dissented from the FCC’s 2014 order confirming the scope of the Solicited Fax Rule, stating that the commission’s statutory construction amounted to “convoluted gymnastics,” the new FCC under a Trump administration is unlikely to support further appeal. For now, we can likely expect class action plaintiffs to use an appeal as a way to keep their cottage industry alive.
Reassigned Numbers: Commenters Embrace Database, Split on Safe Harbor
In July 2017, the FCC released a Notice of Inquiry asking for feedback on handling unwanted phone calls to reassigned numbers. Feedback included questions about the ways in which providers could report number reassignments and what information should be reported. The commission also sought comment on the appropriate mechanism for reporting, suggesting the creation of a central database of reassigned numbers, where providers could report information and to which robocallers could turn for a list. Options included FCC overseeing the database, each voice service provider operating its own list, having a publicly available database, or having providers report reassigned number information to robocallers directly.
Many commenters expressed support for the FCC’s plan to establish a database of reassigned numbers as well as for the related idea of a corresponding safe harbor for companies that scrub their calling lists based on the database. Other commenters praised the database idea but sought to limit the safe harbor. Together, eight consumer groups (including the National Consumer Law Center, Public Citizen and Consumer Action) joined forces to advocate for a “simple, inexpensive, ubiquitous and transparent” design of a database, with all telephone service providers required to participate.
Identifying reassigned numbers with only imperfect market solutions available is one of the biggest problems created by the FCC’s July 2015 ruling. The solution of establishing a central database for reassigned numbers appeared to receive support from the majority of commenters, despite disagreement in the debate over the creation of a safe harbor. Industry groups advocated for the safe harbor, emphasizing the potential for liability under the TCPA and the “excessive litigation” they could face as a result of an error. Alternatively, consumer groups argued against the need for total relief from liability and instead pushed for more limited protection based on use of the database. Now that the time for comments has ended, hopefully the FCC will review the submissions and decide how to move forward in short order.
Human Intervention Means Program Not ATDS, Illinois Federal Court Rules
In Arora v. Transworld Systems, Inc., the named plaintiff, Ashok Arora, claimed that the defendant, Transworld Systems Inc. (TSI), called his cellphone with an ATDS and without prior express consent on a dozen occasions. He filed suit in Illinois federal court alleging violations of the TCPA. According to the company’s records, TSI placed a total of 13 calls to Arora using a web-based dialing program called Live Vox Human Call Initiator (HCI)—i.e., the same system used in the Smith case discussed above. Thus, like the defendant in Smith, TSI argued that the program is a human-initiated and human-controlled dialing system. Specifically, each call initiated from HCI must be launched by a human “clicker agent” who is responsible for confirming that the number to be dialed is the correct number and who then must physically click the number in order for it to be called. The call cannot be made without the clicker agent, who also monitors a real-time dashboard for information about “closer agent” availability, the number of calls in progress and other metrics.
Based on HCI’s requirement of human intervention, the plaintiff failed to allege the defendant used an ATDS, necessitating dismissal of the suit, as TSI argued. U.S. District Judge Charles P. Kocoras of the Northern District of Illinois agreed, noting that HCI was specifically designed to comply with the requirements of the TCPA, and thus granted summary judgment in TSI’s favor in August 2017.
This decision, out of a frequently plaintiff-friendly jurisdiction and one with a great deal of TCPA litigation, adds to a growing body of law stating that a click-to-call dialing system using human intervention is not an ATDS for purposes of the TCPA, joining federal courts in Florida and Michigan. While uncertainty abounds, after the FCC’s July 2015 ruling, on the question of what an ATDS is, this decision can provide some measure of comfort to companies using click-to-call dialing systems while we await the D.C. Circuit’s ruling.
Conclusion
These are but a few notable examples that lead to one conclusion: The TCPA world in 2017 was just as tumultuous as it was in previous years on both the litigation and regulatory fronts. Spokeo standing challenges in TCPA cases continue to be a problem for the defense bar, yet counsel have bravely soldiered on and have pressed that argument despite few successes. We see this continuing. Agency liability for TCPA violations should also be front of mind for defendants in light of the recent Dish Network decisions and judgments. But defendants have had particular successes at the district and appellate levels, both in arguing that significant human intervention in a calling platform means the platform is not an ATDS and on the issue of consent revocation, among other things. And arguably the biggest defense “win” of the year came from the D.C. Circuit’s invalidation of the Solicited Fax Rule.
Looking ahead to 2018 and beyond, we expect the trend in the number of TCPA class actions being filed to continue its steady growth, and there is no end in sight absent major regulatory changes by the Trump administration. Many cases are being filed in the Northern District of Illinois, which tends to tilt heavily (but not exclusively) toward the plaintiffs’ bar, with more being filed seemingly every day. We expect that many cases also will be filed at the state level in 2018, in the hopes that state judges will be more plaintiff-friendly and that less sophisticated defendants may not remove. We also expect that the Trump administration and the new FCC chairman will push toward more business-friendly regulations and that there will be more FCC petitions clarifying prior rulings which, in turn, will help defendants. Finally, we note that many courts have been reluctant to make dispositive rulings in TCPA pending cases until the D.C. Circuit decides the ACA International v. FCC case, which we expect (or hope) will be issued in 2018—although oral argument was held in October 2016, so we won’t hold our breath.
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2017 Year in Review: Data Breaches
By Donna L. Wilson, Partner, Financial Services Group | Ethan D. Roman, Associate, Litigation
The year 2017 saw the number of data breaches grow, and the trend is expected to continue and intensify. From Yahoo’s announcement that three billion of its user accounts were compromised to the Equifax breach and resulting fallout, data breaches never strayed far from the front pages.
In raw numbers, data breaches have been increasing each year. According to the Identity Theft Resource Center (ITRC), there was a 29% increase in the number of breaches during the first six months of 2017 over the same period in 2016. The majority—63%—of those breaches involved hacking, which the ITRC defines as including phishing, ransomware, malware and skimming. Of the data breaches attributable to hacking, nearly half involved phishing, and nearly one in five involved ransomware.
Perhaps the most newsworthy breach of 2017 was the theft from Equifax of over 143 million records, including names, Social Security numbers, birthdates, addresses and driver’s license numbers. The breach spawned legislative hearings, multiple class actions, proposed legislation and regulations, and other responses.
Approximately one month after the Equifax breach became public, Yahoo, which suffered a breach in 2013, announced that every single customer account—over three billion in total—was affected by the breach. The huge number of impacted accounts made this the largest data breach ever.
In data breach litigation, a number of financial institutions sued retailers to recover consumers’ losses stemming from breaches. For example, Veridian Credit Union filed suit against Eddie Bauer after hackers accessed Eddie Bauer’s point-of-sale register system. Veridian claimed that the data breach and its costs, which included reissuing payment cards to Veridian customers, were the foreseeable result of Eddie Bauer’s inadequate data security measures. District Judge James L. Robart denied Eddie Bauer’s motion to dismiss the suit, applying Washington law because it defines the standard of conduct for businesses that suffer breaches. Judge Robart also allowed the suit to continue, based on a theory that Eddie Bauer engaged in an unfair or deceptive act or practice. Going forward, other financial institutions are likely to assert claims under similar theories.
Legislative and regulatory approaches to preventing data breaches also expanded in 2017. Following the Equifax breach, New York Attorney General Eric T. Schneiderman introduced the SHIELD Act, a bill designed to protect New Yorkers’ personal information from data breaches. If enacted, the Act would require businesses to adopt “reasonable” safeguards for sensitive data and expand the triggers for reporting breaches. The Office of the Comptroller of the Currency (OCC) has also announced the intent to focus on cybersecurity. The OCC’s Committee on Bank Supervision, in its operating plan for fiscal year 2018, included cybersecurity in its areas of focus as well. This will entail OCC examiners “review[ing] banks’ programs to determine to what extent they assess the evolving cyber threat environment and banks’ cyber resilience,” in part to ensure banks are prepared to prevent data breaches.
There is no reason to think that the pace of data breaches will slow down, nor will governmental scrutiny of companies’ cybersecurity efforts. It is more important than ever for companies to be familiar with the data they store, be aware of emerging threats, and know how to respond when—not if—they are subject to a cyberattack or breach.
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2017 Year in Review: Developments in Payments
By Anita L. Boomstein, Chair, Global Payments
2017 was a year of continued innovation in the payments space as the adoption of digital payments continued to increase. Below we highlight recent developments in the payments sector.
Card Network Developments:
Signatures are no longer required at the point of sale.
Will signatures on sales slips go the way of “knuckle-busters” (the original manual “terminals” that created an impression of a credit card) and become obsolete? It appears so!
Historically, card network operating rules required the signature of the cardholder on the charge slip. Over the years, to accommodate merchants seeking greater speed at the cash register, the card networks allowed low-value charges, initially those under $25 and later those under $50, and charges at certain types of merchants, such as quick-service restaurants, to be submitted without a signature.
In the fall of 2017, concluding that signatures are no longer relevant in limiting fraud as a result of advances in security, MasterCard, American Express and Discover Card each amended their rules to remove all signature requirements, starting in April 2018. Can Visa be far behind?
Merchants should keep in mind, however, that a signature is required under Regulation E for “preauthorized debits,” and shows express consent required under federal law and some state laws for negative option plans and recurring billing.
Update on Payments-Related Litigation:
State laws banning credit card surcharges have been attacked as a violation of free speech rights.
Credit card surcharges were once unthinkable because they had been subject to a total ban by the card networks since their inception. However, as part of the 2012 settlement of the merchant interchange litigation, credit card (but not debit card) surcharges were authorized, subject to several conditions.
Most merchants have no interest in passing along the credit card fees to their customers. But those that do must face an additional obstacle because the laws of ten states and Puerto Rico prohibit credit card surcharges.
A group of merchants sued to invalidate the laws in New York, California, Florida and Texas, alleging that they are a violation of free speech rights. The states argued that the laws regulate pricing, not speech.
The first case to reach the U.S. Supreme Court was the New York case. In March 2017, the Supreme Court issued its decision in Expressions Hair Design, et al. v. Schneiderman, Attorney General of New York, et al. In a somewhat inconclusive decision, the court ruled that the New York statute regulated speech because it governed how the merchant could communicate its price, rather than what the merchant could charge. However, the court remanded the case back to New York’s Second Circuit Court of Appeals—which had ruled in favor of the state in upholding the law—to determine whether New York’s law violated the constitutional rights of the merchants. This was an issue that the appellate court did not analyze. The Supreme Court’s ruling applies to the other states where the no-surcharge law is being challenged. As described in further detail below, the U.S. Court of Appeals for the Ninth Circuit recently ruled that California’s statute banning surcharges on credit card purchases is unconstitutional.
Developments in Privacy and Data Security:
The New York Department of Financial Services (the DFS) passed a regulation imposing data security requirements on New York-chartered or licensed banks, insurance companies, money transmitters, mortgage brokers, and other financial services companies it regulates.
New York regulations now require such entities to comply with several requirements, including having a written cybersecurity program, appointing a chief security officer, having a written incident response plan and notifying the DFS within 72 hours of a cybersecurity event. The requirements have been phased in starting in August 2017, with a transitional period lasting until March 2019 for full compliance with all of the requirements.
Financial institutions may already be in compliance with most, if not all, of these requirements due to their compliance with federal law (the GLBA); other state laws, such as that of Massachusetts; or simply because they are best practices. However, New York-regulated institutions now have another layer of cybersecurity regulation, and potential civil liability, to contend with.
EU General Data Protection Regulation (GDPR)
Starting in May 2018, the GDPR will replace the requirements of the EU Data Directive relating to the privacy rights of citizens of the EU. Compliance with the Data Directive has always been a challenge for U.S. institutions since it is more comprehensive than U.S. law and affords greater (and different) rights to data subjects. Now, the compliance requirements of the GDPR will be even more challenging. Significantly, any company that markets or sells goods or services to residents of the EU is subject to the GDPR, regardless of its location.
State Regulation of Auto-Renewals:
California amended its 2010 law relating to automatic renewal starting in July 2018.
California’s law requires a merchant to make a clear and conspicuous disclosure of auto-renewal terms, cancellation policies and methods; obtain express consumer consent for recurring billing on their credit card accounts; and send a confirmation when a consumer accepts auto-renewal terms.
The law triggered numerous class-action suits challenging the compliance of merchants, due to the somewhat vague requirements. Because the revised law clarifies the requirements, it hopefully will reduce the costly litigation that has plagued merchants in recent years.
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Ninth Circuit: California Surcharge Law Unconstitutional
By Brett J. Natarelli, Financial Services Group | Anita L. Boomstein, Chair, Global Payments
The U.S. Court of Appeals for the Ninth Circuit, following decisions from three other circuit courts and the Supreme Court, ruled that California’s statute banning surcharges on credit card purchases is unconstitutional.
What happened
California is one of 11 states that ban a merchant from imposing a surcharge on credit card sales. Consistent with the laws in the other states, the California law, Section 1748.1, enacted in 1985, provides: “No retailer in any sales, service, or lease transaction with a consumer may impose a surcharge on a cardholder who elects to use a credit card in lieu of payment by cash, check, or similar means.” However, the California statute permits a retailer to “offer discounts for the purpose of inducing payment by cash, check, or other means not involving the use of a credit card, provided that the discount is offered to all prospective buyers.”
Enforcement of the ban on surcharges was virtually nonexistent, primarily because for decades card network rules prohibited merchants from imposing surcharges on credit card sales. As a result of the settlement of the merchant “swipe fee” litigation in 2013, the prohibition on credit card surcharges was partially lifted, under certain conditions. This led to court challenges in four states that enacted laws prohibiting credit card surcharges: California, Florida, New York and Texas.
In California, five businesses claimed the statute violated both their First Amendment free speech rights and their due process rights under the Fourteenth Amendment, requesting that the law be declared unconstitutional. Each plaintiff represented that it would impose a credit card surcharge if it were legal to do so. The district court judge sided with the plaintiffs, declared the ban unconstitutional and permanently enjoined its enforcement.
The Ninth Circuit affirmed that ruling, albeit with a tweak to the remedy, citing the Supreme Court’s recent decision in Expressions Hair Design v. Schneiderman. In Expressions, the Supreme Court considered New York’s surcharge ban and held that the statute regulated “the communication of prices rather than prices themselves.” While the law told merchants nothing about the amount they are allowed to collect from a cash or credit card payer, it did regulate how sellers are allowed to communicate their prices, the Supreme Court explained.
“Like the plaintiffs in Expressions, plaintiffs in this case want to post a single sticker price and charge an extra fee for credit card use,” the Ninth Circuit wrote. “Section 1748.1 prohibits plaintiffs from expressing their prices in this way, but it does allow retailers to pose a single sticker price and offer discounts to customers paying with cash—despite the mathematical equivalency between surcharges and discounts. Thus, Section 1748.1, like New York’s surcharge ban, regulates commercial speech.”
While the California attorney general expressed concern about deceptive surcharges and bait-and-switch changes at the register, “nothing in the record suggests that plaintiffs desire to impose credit card surcharges in this way,” the court wrote. “To the contrary, plaintiffs’ declarations all state that plaintiffs want to communicate, not conceal, credit card surcharges.”
“Section 1748.1 prevents retailers like plaintiffs ‘from communicating with [their customers] in an effective and informative manner’ about the cost of credit card usage and why credit card customers are charged more than cash users,” the panel said. “We fail to see how a law that keeps truthful price information from customers increases the accuracy of information in the marketplace.”
Finding no reasonable fit between the broad scope of the statute and the asserted state interest of preventing deception, the court said California has “other, more narrowly tailored means of preventing consumer deception,” such as banning deceptive or misleading surcharges or requiring retailers to disclose their surcharges both before and at the point of sale. “These alternatives would restrict less speech and would more directly advance California’s asserted interest in preventing consumer deception,” the court said.
Although the Ninth Circuit agreed with the district court that Section 1748.1 is unconstitutional, because the five merchants pressed only an “as applied” challenge, the relief applies only to the plaintiffs and only with respect to the specific pricing practice that the plaintiffs—by express declaration—sought to employ, the court said.
To read the opinion in Italian Colors Restaurant v. Becerra, click here.
Why it matters
The opinion striking down California’s no surcharge law aligns the Ninth Circuit with the Eleventh Circuit’s ruling on Florida’s statute and the expected result from the courts in New York and Florida, which currently are reconsidering their decisions based on the Supreme Court’s ruling. Nevertheless, the surcharge question remains complicated due to the status of surcharges at the card network level. Although the swipe fee settlement signaled a change in the landscape by authorizing limited and conditional surcharges, that settlement has been voided by the court overseeing the case, and the ultimate position of the card networks remains unclear.
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Employers Not Required to Explain Termination, Eighth Circuit Rules
Why it matters
Employers are not required to provide workers with an articulated basis for dismissal at the time of their termination, the U.S. Court of Appeals for the Eighth Circuit held, nor is the employer bound by the reasons that may have been provided. Rock-Tenn Converting Co. fired Aaron Rooney after his primary client complained of quality control and shipping problems. He was told the reason for his termination was “difficulties with interacting with coworkers and failure to support” the client, but he filed suit under Title VII, claiming that he was really fired for not being female or Jewish, like his supervisor. A district court granted summary judgment for the employer, and the federal appellate panel affirmed. The Eighth Circuit disagreed with Rooney that employers have a legal obligation to articulate nondiscriminatory reasons for an adverse employment action when that action is taken; instead, that burden is triggered under Title VII during litigation when an employee meets his or her burden of establishing a prima facie case of discrimination. Rock-Tenn’s later expansion upon the reasons for the plaintiff’s termination was perfectly legal, the court said.
Detailed discussion
Aaron Rooney was hired in March 2010 as an account executive in Rock-Tenn Converting Co.’s Bentonville, AR, office. Rooney was responsible for developing and selling in-store displays, with the Alcon account as one of his primary responsibilities.
In September 2013, Rooney got a new supervisor. Like his former supervisor, she was dissatisfied with Rooney’s communication skills. She was also concerned when Alcon began complaining about problems with quality control and shipping, and she directed Rooney to focus on Alcon. However, the problems with the Alcon account continued, and Rock-Tenn decided to fire Rooney.
Rooney was told he was fired because of “difficulties with interacting with coworkers and failure to support Alcon.” But he filed suit with a different explanation: that he was discriminated against for not being Jewish and for being a man. He claimed his former supervisor was “building a Jewish empire” that included his most recent supervisor and that he was replaced on the Alcon account by a Jewish employee. He also alleged his new supervisor made several remarks about how she “couldn’t wait until there’s more ladies in the office” and that he was replaced on other accounts by women.
A district court judge granted Rock-Tenn’s motion for summary judgment, and Rooney appealed to the U.S. Court of Appeals for the Eighth Circuit.
Before the federal appellate panel, Rooney argued that the district court erred by allowing the employer to expand on the grounds proffered for his discharge at the time of termination, accepting a “number of reasons” for his firing, primarily poor work performance. But the court rejected this “narrow” interpretation of the McDonnell Douglasframework.
“While it is true that the district court mentioned some of Rooney’s performance issues on accounts other than Alcon, the employer’s burden under the McDonnell Douglas framework to articulate non-discriminatory reasons for an adverse employment action does not arise when the adverse employment action is taken—rather, it is triggered during litigation, when an employee meets his burden of establishing a prima facie case of discrimination,” the court said.
“Title VII does not impose a legal obligation to provide an employee an articulated basis for dismissal at the time of firing, and an employer is certainly not bound as a matter of law to whatever reasons might have been provided. Instead, it is well-established that an employer may elaborate on its explanation for an employment decision.”
Evidence of a “substantial” shift in an employer’s explanation for a decision may be evidence of pretext, but an elaboration is not, the panel added.
Rock-Tenn simply provided additional examples of Rooney’s poor performance with clients other than Alcon. This supplemental explanation was not evidence of a substantial shift, the court said, and “there is no contradiction between the explanation given to Rooney at the time of his termination and the non-discriminatory reasons for termination that Rock-Tenn articulated during this litigation.”
Further, Rooney failed to offer sufficient evidence that Rock-Tenn’s proffered reasons for firing him were pretexts for discrimination. The employer provided multiple examples of Rooney’s failures with regard to the Alcon account, and “[n]othing in Rooney’s argument rebuts, or even mitigates, Rock-Tenn’s evidence of repeated errors and omissions on the Alcon account, and there is nothing in Rooney’s argument to suggest that Rooney was not responsible for the mismanagement.”
The panel was also unclear on how Rooney was affected by any alleged discrimination on the basis of either religion or gender, with the record lacking any evidence that gender bias was connected to his termination or that Jewish employees were treated more favorably.
“In sum, the district court did not err in concluding that Rock-Tenn articulated legitimate, non-discriminatory reasons for firing Rooney, and that he was unable to show the reasons proffered by Rock-Tenn were pretexts for discrimination,” the Eighth Circuit concluded, affirming summary judgment for the employer.
To read the opinion in Rooney v. Rock-Tenn Converting Co., click here.
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NLRB Reverses Course in Two Major Decisions
Why it matters
The National Labor Relations Board (NLRB or Board) recently reversed two prior standards with a pair of employer-friendly decisions. First, the Board overruled the Lutheran Heritage Village-Livonia standard with regard to facially neutral workplace rules, policies and employee handbook provisions. Disavowing the “reasonably construe” standard, the NLRB adopted a new test to consider two things when evaluating a facially neutral provision: the nature and extent of the potential impact on National Labor Relations Act (NLRA) rights, and legitimate employer justifications associated with the rule. That 3-to-2 decision was followed by another split ruling overturning Browning-Ferris Industries on the scope of joint employer liability. Going forward, two or more entities will be deemed joint employers under the NLRA if there is proof that one entity has actually exercised control over essential employment terms of another entity’s employees and has done so directly and immediately in a manner that is not limited and routine.
Detailed discussion
In the first major ruling, the National Labor Relations Board (NLRB or Board) considered The Boeing Co.’s policy restricting the use of camera-enabled devices (such as cellphones) on its property. As a designer and manufacturer of military and commercial aircraft, Boeing performs work that is highly sensitive and sometimes even classified. To protect security, the company has a “no-camera” rule.
As the rule was facially neutral and not adopted to explicitly restrict activity protected by Section 7 of the National Labor Relations Act (NLRA), an administrative law judge (ALJ) applied the test set forth in Lutheran Heritage Village-Livonia. Reasoning that employees would “reasonably construe” the rule to prohibit Section 7 activity, the ALJ struck it down.
Boeing appealed to the NLRB, which reversed, tossing out the Lutheran Heritage standard and adopting a new rule.
“The judge’s decision in this case exposes fundamental problems with the Board’s application of Lutheran Heritagewhen evaluating the maintenance of work rules, policies and employee handbook provisions,” the NLRB majority wrote. “[W]e have decided to overrule the Lutheran Heritage ‘reasonably construe’ standard. The Board will no longer find unlawful the mere maintenance of facially neutral employment policies, work rules and handbook provisions based on a single inquiry, which made legality turn on whether an employee ‘would reasonably construe’ a rule to prohibit some type of potential Section 7 activity that might (or might not) occur in the future.”
Multiple defects were inherent in the Lutheran Heritage standard, the Board said, beginning with a “single-minded consideration” of NLRA-protected rights without taking into account any legitimate employer justifications associated with policies, rules and handbook provisions. The test also improperly limited the Board’s own discretion and “has defied all reasonable efforts to make it yield predictable results,” the Board added.
As a result, over the past 13 years, the NLRB has invalidated “a large number of common-sense rules and requirements that most people would reasonably expect every employer to maintain,” the Board said. “We do not believe that when Congress adopted the NLRA in 1935, it envisioned that an employer would violate federal law whenever employees were advised to ‘work harmoniously’ or conduct themselves in a ‘positive and professional manner.’”
The NLRB established a new standard in place of Lutheran Heritage for evaluating a facially neutral policy, rule or handbook provision, which requires evaluation of two things: “(i) the nature and extent of the potential impact on NLRA rights, and (ii) legitimate justifications associated with the rule. We emphasize that the Board will conduct this evaluation, consistent with the Board’s ‘duty to strike the proper balance between … asserted business justifications and the invasion of employee rights in light of the Act and its policy.”
As a result of this balancing, the Board delineated three categories of employment policies, rules and handbook provisions. Category 1 includes rules that the Board designates as lawful to maintain “either because (i) the rule, when reasonably interpreted, does not prohibit or interfere with the exercise of NLRA rights; or (ii) the potential adverse impact on protected rights is outweighed by justifications associated with the rule.”
Boeing’s no-camera rule fits into this category, the NLRB said, as do other rules requiring employees to abide by basic standards of civility.
In Category 2, the Board fit rules “that warrant individualized scrutiny in each case as to whether the rule would prohibit or interfere with NLRA rights, and if so, whether any adverse impact on NLRA-protected conduct is outweighed by legitimate justifications.”
Finally, Category 3 will feature rules that the Board will designate as unlawful to maintain “because they would prohibit or limit NLRA-protected conduct, and the adverse impact on NLRA rights is not outweighed by justifications associated with the rule.” An example would be a rule that prohibits employees from discussing wages or benefits with one another.
These categories are not part of the test itself, the NLRB noted, but represent a classification of results from the Board’s application of the new test.
Applying the new standard to Boeing’s no-camera rule, the Board reversed the ALJ’s decision and found that maintenance of the rule did not constitute unlawful interference with protected rights in violation of Section 8(a)(1) of the NLRA.
The dissenting members of the Board offered a stinging rebuke to the majority, arguing that the new test is “overly protective of employer interests and under protective of employee rights,” operating as “a how-to manual for employers intent on stifling protected concerted activity before it begins.”
But the NLRB was only beginning its changes, issuing a second decision that flipped the switch on the legal standard for joint employers.
In 2015, the Board adopted a standard in Browning-Ferris Industries of California, Inc., that even when two entities have never exercised joint control over essential terms and conditions of employment, and even when any joint control is not “direct and immediate,” the two entities will still be joint employers based on the existence of “reserved” joint control, or based on indirect control or control that is “limited and routine.”
An ALJ applied that standard in a case involving Hy-Brand Industrial Contractors and Brandt Construction Co. and found the two entities were joint employers for purposes of the NLRA when they terminated a total of seven workers. When the employers appealed to the Board, the NLRB took the opportunity to establish a new test.
“We find that the Browning-Ferris standard is a distortion of common law as interpreted by the Board and the courts, it is contrary to the Act, it is ill-advised as a matter of policy, and its application would prevent the Board from discharging one of its primary responsibilities under the Act, which is to foster stability in labor-management relations,” the Board majority wrote. “Accordingly, we overrule Browning-Ferris and return to the principles governing joint-employer status that existed prior to that decision.”
The NLRB said that Browning-Ferris rewrote the decades-old test for determining who is the employer, a change that “subjected countless entities to unprecedented new joint bargaining obligations that most may not even know they have, to potential joint liability for unfair labor practices and breaches of collective-bargaining agreements, and to economic protest activity, including what have heretofore been unlawful secondary strikes, boycotts, and picketing.”
The Board found five major problems with Browning-Ferris: (i) It exceeded the NLRB’s statutory authority; (ii) it based its rationale on an incorrect position that present conditions are unique to our modern economy; (iii) it effectively permitted the Board to rewrite the principles of agency; (iv) it abandoned a long-standing test that provided certainty and predictability, and replaced it with a vague and ill-defined standard; and (v) it applied the wrong remedy to a perceived inequality of bargaining leverage in collective bargaining relationships.
In overruling Browning-Ferris, the NLRB reinstated the prior joint employer standard for pending cases and with retroactive application.
“Thus, a finding of joint-employer status requires proof that the alleged joint-employer entities have actually exercised joint control essential employment terms (rather than merely having ‘reserved’ the right to exercise control), the control must be ‘direct and immediate’ (rather than indirect), and joint-employer status will not result from control that is ‘limited and routine,’” the Board said.
Applying the new test to the parties in the case, the Board found Brandt and Hy-Brand were still joint employers. “Substantial evidence supports a finding that the two entities exercised joint control over essential employment terms involving Brandt and Hy-Brand employees, the control was direct and immediate, and it was not limited and routine,” the NLRB wrote.
Again, two members of the Board dissented from the decision. The case was not a proper vehicle for reconsidering the joint employer standard, the dissenters said, and “the resurrected standard not only is impossible to reconcile with the common law of agency, [but] it also violates the explicit policy of the [NLRA]: to ‘encourag[e] the practice and procedure of collective bargaining.’ Today’s decision is an unfortunate and unwarranted step backward.”
To read the decision and order in The Boeing Company, click here.
To read the decision and order in Hy-Brand Industrial Contractors, Ltd., click here.
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Clear Evidence of Consent Defeats TCPA Action
By Christine M. Reilly, Chair, TCPA Compliance and Class Action Defense | A. Paul Heeringa, Financial Services Group
Finding “uncontroverted” evidence of consent, a federal district judge from the Eastern District of Michigan granted summary judgment in favor of the defendant in a TCPA action.
In Thomas v. Abercrombie & Fitch, Melissa Thomas claimed that she received four unsolicited text messages from Abercrombie & Fitch in April 2016 and filed a putative class action under the TCPA. The national retailer moved for summary judgment, arguing that Thomas provided her consent to receive the messages in December 2015 when she responded to a promotion on the Abercrombie Kids website. The promotional webpage read: “We’ve got something for you. Text style to 34824 for a surprise offer and a&f texts**Msg & Data Rates May Apply. By texting the key word to 34824, you consent to receive up to ten (10) marketing text messages per calendar month that may be sent via an automated system. Consent to receive texts at the mobile number provided is not a condition of purchasing goods or services. Text or reply STOP to cancel, and HELP for help.”
Thomas texted the keyword “Style” to 34824. In response, Abercrombie’s automated system sent a message stating: “Reply YES to confirm u agree to marketing txts via automated system at # provided. Consent 2 receive txts not required 4 purchases. Msg&DataRatesMayApply.”
The defendant’s records showed Thomas responded with a “Yes” and the system replied: “You’re signed up to texts! Msg&DataRatesMayApply. Receive up to 10 ongoing marketing messages per calendar month. Reply STOP to stop, HELP for help.”
Based on these records, Abercrombie argued that Thomas consented to receive the April texts. But the plaintiff countered that she only sent one text, “Style,” to the Abercrombie number, and that she did not recall any other text messages sent between her and the defendant in December 2015.
For support, she offered unauthenticated records from her cellular service provider that showed only her initial “Style” text and a single response from the defendant’s number. Resolving the conflict between Abercrombie’s authenticated business records and the plaintiff’s unauthenticated cellphone records, U.S. District Judge Judith E. Levy sided with the defendant.
With the exclusion of the phone records, the court had little trouble finding Thomas consented to receive the text messages. Although the plaintiff argued that the Abercrombie system may have produced erroneous results or false positives—in this case, the record showing she texted “Yes” to confirm her subscription to the texts—she presented no evidence it could have been falsely generated, the court said.
“The record in this case contains unambiguous and uncontroverted evidence that plaintiff expressly consented to receive up to ten marketing text messages per month on December 4, 2015,” Judge Levy wrote. Thus, the court ruled, “Plaintiff’s available evidence does not contradict that fact, and her testimony precludes her from arguing that she did not consent to receive the text messages at issue in this lawsuit. There is no genuine issue of material fact, based on the evidence available to the Court, as to whether plaintiff consented to receive the April 2016 marketing text messages from A&F. Accordingly, summary judgment must be granted to defendants.”
The court dismissed the case with prejudice.
To read the opinion and order in Thomas v. Abercrombie & Fitch Stores, Inc., click here.
Why it matters: After determining that the plaintiff’s unauthenticated records from her cellular service provider were not admissible, the court was left with only the defendant’s authenticated business records showing that Thomas not only texted in response to a promotional campaign but responded in the affirmative to receive up to ten marketing messages per month. With only the plaintiff’s deposition testimony in contrast, the court found the evidence of consent to be “unambiguous and uncontroverted,” dismissing the suit with prejudice. If anything, this case is a lesson in proper record keeping for plaintiffs and defendants alike.
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Death and Ad Tax Deductions Remain Constant
By Jeffrey S. Edelstein, Partner, Advertising, Marketing and Media
Businesses dodged a major blow when the Tax Cuts and Jobs Act, signed into law by President Donald Trump in December 2017, passed without restrictions on advertising deductions.
As initially proposed, the bill would have permitted advertisers to deduct only half of their advertising costs immediately, with the remainder spread out over five years. Historically, advertising has been treated the same as other regularly occurring business expenses.
Similar attempts have been made in the past to cap the ad deduction, but the industry pushed back against any change.
In support of the status quo, industry groups like the Association of National Advertisers pointed to a 2015 study by IHS Economics and Country Risk. According to the study, advertising contributed $3.4 trillion to the U.S. GDP in 2014, or 19 percent of the nation’s total economic output. Advertising accounted for $5.8 trillion in overall consumer sales, a sum equal to 16 percent of all sales activity in the United States. In addition, advertising generates 20 million jobs annually and every direct advertising job supports another 34 jobs across all industries, the study found.
“We are very pleased that the tax reform package passed by Congress did not restrict the critical advertising deductions that businesses use to market their goods and services,” Dan Jaffe, group executive vice president of government relations for the ANA, said in a statement. “We commend Congress for its leadership in recognizing the key role advertising plays in our economy. ANA has long advocated for commonsense tax reform that lowers corporate rates and guarantees U.S. competitiveness on a global playing field.”
To read the Tax Cuts and Jobs Act, click here.
Why it matters: “The deductibility of advertising costs has been under serious attack for several years in Congress,” Jaffe said. “Preserving our tax treatment in the context of tax reform is a major victory for the entire marketing community.”
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DOJ Drops Plans for ADA Guidance
By Richard P. Lawson, Partner, Consumer Protection
It’s official: After years of waiting, the Department of Justice (DOJ) will not provide online retailers with guidance on the boundaries of website accessibility under the Americans with Disabilities Act (ADA).
In July 2010, the DOJ issued an advance notice of proposed rulemaking to issue regulations under Title III of the ADA. Five years later, the DOJ followed up with a notice of proposed rulemaking promising “to address the obligations of public accommodations to make goods, services, facilities, privileges, accommodations, or advantages they offer via the Internet, specifically at sites on the World Wide Web, accessible to individuals with disabilities” and to “make clear to entities covered by the ADA their obligations to make their websites accessible.”
The agency pushed out the target date to 2018, but in the interim continued to bring actions against web-based entities for alleged violations.
With the change in administration, the DOJ moved the regulations to the “inactive” list of its regulatory agenda last August.
Now the agency has officially withdrawn the advance notice of proposed rulemaking. “The Department is evaluating whether promulgating regulations about the accessibility of web information and services is necessary and appropriate,” the DOJ explained in its Federal Register filing. “Such an evaluation will be informed by additional review of data and further analysis. The Department will continue to assess whether specific technical standards are necessary and appropriate to assist covered entities with complying with the ADA.”
In the absence of federal regulations, consumers have filed class actions across the country accusing retailers of violating the statute by not making their websites accessible. Courts have struggled with the online application of the ADA, with one California judge dismissing a lawsuit over concerns about due process, since online retailers have no guidance as to what is statutorily required to make their websites accessible.
At the other end of the spectrum, a federal court in Florida ruled that a supermarket chain can be liable under the ADA for operating an inaccessible site, in what is believed to be the first trial on the ADA’s applicability to a website. The judge ordered the defendant to make its site accessible to individuals with disabilities who use computers, laptops, tablets and smartphones. He also directed the defendant to adopt and implement a web accessibility policy, to provide mandatory training to all employees who write or develop programs or code for the site, and to conduct tests of the website every three months to ensure compliance.
To read the DOJ’s Notice of Withdrawal, click here.
Why it matters: The DOJ’s decision leaves online retailers with a great deal of uncertainty and the continued risk of litigation from consumer class actions. While businesses rarely call for the creation of new regulations, the lack of a clear standard for online accessibility that would establish a baseline of responsibility—or the potential for safe harbor from liability—could prove disappointing to online retailers.
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