By Julie G. Reiser, Raymond M. Sarola, Molly J. Bowen, and Sally Handmaker Guido
Given the epidemic levels of gun violence in America and the increasing shift to online commerce, a recent suit in Oregon established new legal precedent at the state and federal level to hold dealers accountable for unlawful straw sales and provides a roadmap for attorneys representing gun violence victims.
The wrongful death lawsuit was brought by attorneys at Cohen Milstein and the Brady Center to Prevent Gun Violence on behalf of the family of Kirsten Englund, who was murdered by a mentally troubled man who had illegally obtained a gun from an online dealer via a straw purchaser. In this case the straw purchaser was his mother, herself a mental health professional, who used her credit card and had her background checked before the purchase despite allegations that the son was the true purchaser. (Estate of Kirsten Englund v. World Pawn Exchange et al., No: 16-cv-598 (Coos Cty. Circuit Court)).
In this first-of-its-kind litigation, Englund established that online gun dealers can be liable for shooting deaths despite the bifurcated nature of online firearms sales and a major obstacle in the Protection of Lawful Commerce in Arms Act (PLCAA).
Before Englund: Dealers Must Verify ID
A fundamental premise of our federal gun control regulatory scheme is that firearms dealers must know who is buying a firearm, perform a background check on that person, transfer the firearm only to the person who cleared the background check, and maintain certain records regarding the purchaser.
This framework ensures that the dealer looks the true purchaser in the eye and determines whether he is legally permitted to purchase a gun. Firearms dealers also are required to consider whether a purchaser presents red flags that call into question the legality of the purchase and whether it is acting reasonably in selling a gun to that purchaser.
As evidenced in Enrique Marquez’ plea agreement in the 2015 San Bernadino shooting that killed 14 people and wounded 22 more, in a straw purchase the true purchaser and ultimate user of the gun does not go into the store and purchase it; instead, he sends in another person to pretend to be the purchaser, undergo the background check, complete the forms, and accept the gun. In Following the Gun: Enforcing Federal Laws Against Firearms Traffickers (June 18, 2000), the Bureau of Alcohol, Tobacco, Firearms & Explosives identifies straw-purchased guns as “a significant overall crime and public safety problem” due to their use by criminals and firearms traffickers.
Despite their illegality, straw sales are alarmingly frequent – in part because firearms dealers have not consistently identified and stopped these sales.
As decided in Abramski v. United States (134 S. Ct. 2259, 2269 (2013)), because straw purchases involve the provision of false information on federally mandated forms, they violate gun control statutes even if the purchaser is otherwise legally entitled to buy a gun. Therefore, prior to Englund, the illegality of straw purchases from brick-and-mortar sellers was well-established.
Online Gun Transactions: Different Process, Same Rules?
In online firearms sales, the transaction responsibilities are split between two different federally-licensed dealers. First, the online seller interacts with the customer at the point of purchase. However, because federal law prohibits a dealer from shipping a firearm directly to a customer, the online seller must ship the firearm to another dealer in the customer’s home state.
Next, the customer selects the dealer to which the gun will be transferred, and that dealer is required to perform the background check on the customer, obtain completed ATF transaction documents, and transfer the firearm to the actual purchaser and to no one else.
In Englund, the online dealer was the principal “seller” of the firearm, as it was sold from the dealer’s inventory to the purchaser. An unemployed, mentally ill young man alleged to be the true purchaser selected the weapon and interacted with the online seller through a web portal and email. Over the course of multiple transactions, his name and email were identified, as were those of the straw purchaser, his mother. The online seller neither asked any questions about the disparity between these individuals nor spoke directly with either one.
More people living near the Chemours plant could qualify for alternate water supplies if the EPA’s initial findings on the toxicity of GenX, released last week, are finalized.
The basis for the potential switch is the EPA’s draft report proposing a chronic reference dose for GenX that translates to a health goal of 110 parts per trillion in drinking water. (The EPA is taking public comment on the draft. Scroll down for instructions.)
A chronic reference dose is the daily amount of GenX a person can be exposed to for decades without suffering adverse health effects. A health goal is non-enforceable but is widely used by states and tribal nations to issue recommendations. North Carolina’s provisional health goal for GenX in drinking water is 140 ppt.
In the Wilmington area, concentrations of GenX in drinking water are already below 110 ppt.
However, some people who live near the Chemours plant are on private wells that have tested between 110 ppt and 140 ppt. Those households could switch to bottled water, whole-house filters or connection to a public water system. Chemours would be responsible for the cost of installing or connecting those systems.
The wells of 225 households in that area have already tested above 140 ppt.
The full article can be accessed here.
A group of twenty-seven legislators has authored a letter asking President Trump and the Department of Labor (“DOL”) to provide the ESOP industry with guidance on substantive issues, most importantly the issue of valuation, and to stop engaging in what it termed “regulation through litigation”. The letter asks the DOL to collaborate with the ESOP community and basically requests the President and the DOL to stop engaging in enforcement activities until such meaningful guidance is provided.
ESOPs, ERISA, and the DOL
An ESOP is a qualified defined-contribution employee benefit plan designed to invest primarily in the stock of the sponsoring employer. While ESOPs are often used to give the employees a vested interest in the company’s success, they can be used for improper purposes, which harms employees and violates the Employee Retirement Income Security Act (“ERISA”), a federal statute that protects employee retirement assets from abuse. Because ESOPs must comply with ERISA, there is a fiduciary duty for those who administer, manage, or control ESOP plan assets, and the fiduciaries must act solely in the interest of plan participants and beneficiaries.
EBSA’s Role
The Employee Benefits Security Administration (“EBSA”) is the division of the DOL responsible for investigating ESOPs for compliance. Although the letter from Congress suggests that no guidance is provided by the DOL, EBSA’s website lists ESOPs as a national enforcement project, a position held since 2005, and EBSA makes clear that it investigates and enforces ERISA violations in ESOPs in several areas:
- Ensuring that when plan sponsor stock is bought or sold by an ESOP the plan fiduciaries make such exchanges for the fair market value of the stock;
- Conflicts of interest in ESOP purchase and sale transactions, particularly when one of the persons engaged in the transaction also serves in some fiduciary role over the plan itself;
- Ensuring the duty of fiduciaries to control waste and monitor the plan, as well as the duty to pay benefits due under the ESOP, are complied with; and
- Ensuring that sound procedures and practices are in place by the institutional trustees overseeing plan operations
What does Congress Want?
The signatories of the letter are seeking drastic action:
We request your assistance in protecting ESOPs and employee ownership. Specifically, we believe the Department could immediately eliminate some of the regulatory uncertainty by collaborating with the ESOP community to develop clear guidance with respect to valuation and other important issues. Furthermore, the Department should consider immediately halting controversial oversight practices currently in use while the agency develops more efficient investigatory mechanisms that limit the burdens and costs on small businesses.
Anyone reading that would be under the impression that DOL has given no guidance, or murky guidance, with respect to valuation. Yet nothing could be further from the truth.
DOL Guidance on Valuation and other ESOP-related Issues
The letter from Congress is puzzling, given that the DOL EBSA enforcement site has a clickable link titled ESOP Agreement – Appraisal Guidelines. Clicking on that link provides all the guidance an ESOP practitioner could want, and indeed everything sought in this letter. The link is to a 2014 settlement agreement with GreatBanc. It gives guidance on a myriad of issues, including how to select a valuation advisor, how to avoid conflicts of interest with the valuation advisor, how to exercise proper oversight of the advisor, the necessary financial statements, how to engage properly in the fiduciary review process, how to use the valuation report, the fair market value transaction requirements, and additional concerns. While the appraisal guidelines in the GreatBanc settlement are legally binding only on GreatBanc, the DOL suggested that the ESOP industry would “do well to take notice” of the process steps it put in place. There are more recent settlements in two other cases which build on the guidance set forth in GreatBanc and explain in detail every question raised in the Congressional letter.
Conclusion
It appears as if certain Congressional constituents (or donors) are annoyed at being aggressively monitored and sued by the DOL and want the government to lay off. The letter appeals to the current administration’s desire to undo and rollback regulations from the prior administration, noting that the enforcement tactics being employed against ESOPs “began under the prior Administration, but unfortunately have continued under this Administration.” Of course, since ESOP’s have been a national enforcement project since 2005, heightened action actually began under the Bush administration, and hopefully the current administration is not fooled by the naked appeal to stop enforcing the law against the ESOP community.
Contact Us
If you think you may have suffered losses to your retirement savings because of an ESOP transaction, we would be interested in investigating your case. Cohen Milstein’s attorney Michelle Yau is here to answer your questions and to learn about your experience with your ESOP. To schedule a phone appointment, please call our office at (202) 408–4600.
Cohen Milstein Sellers & Toll PLLC
1100 New York Avenue, N.W., Suite 500
Washington, D.C. 20005
Telephone: 888-240-0775 or 202-408-4600
Florida’s statute of repose for product liability actions is found at §95.031(2)(b), Fla. Stat., and provides, in part, that “[u]nder no circumstances may a claimant commence an action for products liability, including a wrongful death action or any other claim arising from personal injury or property damage caused by a product, to recover for harm allegedly caused by a product with an expected useful life of 10 years or less, if the harm was caused by exposure to or use of the product more than 12 years after delivery of the product to its first purchaser or lessee who was not engaged in the business of selling or leasing the product or of using the product as a component in the manufacture of another product.”1
With limited exception, all products, including motor vehicles, are conclusively presumed to have an expected useful life of 10 years or less.2 However, “[a]ircraft used in commercial or contract carrying of passengers or freight, vessels of more than 100 gross tons, railroad equipment used in commercial or contract carrying of passengers or freight, and improvements to real property, including elevators and escalators” are not subject to the statute of repose.3 For these products, “except for escalators, elevators, and improvements to real property, no action for products liability may be brought more than 20 years after delivery of the product to its first purchaser or lessor who was not engaged in the business of selling or leasing the product or of using the product as a component in the manufacture of another product. However, if the manufacturer specifically warranted, through express representation or labeling, that the product has an expected useful life exceeding 20 years, the repose period shall be the time period warranted in representations or label.”4
The full article can be accessed here.
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1. Fla. Stat. §95.031(2)(b)
2. Id.
3. Fla. Stat. §95.031(2)(b)(1)
4. Fla. Stat. §95.031(2)(b)(3)
With bipartisan politics virtually nonexistent, the upcoming midterm elections could have an outsized impact on federal policy, not only for the hot-button issues that have dominated the headlines since President Trump took office, but also in areas like investor protection.
Whether or not that happens depends on whether Republicans maintain control of both the House of Representatives and the Senate, or cede one or both of their majorities to the Democrats. All 435 members of the House are subject to elections, as they are every two years. For the Democrats to take back the House, they would need to add 25 new seats to their current 193. For the 100-member Senate to change hands, the Democrats would have to pick up two of the 35 seats up for election to gain a majority (if they win only one seat, the Senate would be tied 50-50, with Vice President Pence breaking any deadlock). To secure additional seats, Democrats are keenly focused on potential pickup opportunities in Arizona, Nevada and Tennessee, while the Republicans are looking to flip seats in Florida, Missouri, Montana, North Dakota and Indiana.
As of October 1, the Realclearpolitics.com “poll of polls” gives Democrats a 7.4% advantage in the generic Congressional ballot, which along with historical trends would indicate the Democrats have a good chance of winning control of the House. On September 27, Kyle Kondik, Managing Editor of Larry J. Sabato’s Crystal Ball of the University of Virginia’s Center for Politics said, “Our best guess right now is a Democratic House gain of somewhere in the low-to-mid 30s. But there are enough very close races that something like a 30-seat gain could turn into more like a 20-seat gain and leave the Democrats short of a majority. Back in July, we said the Democrats were ’soft favorites‘ to win the House. Their odds have likely gotten better since then, or at the very least have not gotten worse, but the GOP still has an opportunity to retain the House with some breaks.”
As for the Senate, most pundits think it will likely stay within a vote or two on either side, especially given the particular seats up for election, with Democrats needing to defend 26, including some in states where President Trump is very popular, and Republicans defending only nine, all but a handful considered relatively safe. Charlie Cook, Founder of The Cook Political Report, said on September 23 that: “What we are dealing with this year is actually very simple: there is a blue wave and a red sea wall. This election all turns on whether the blue wave rises above the Republican sea wall.” From Cook’s perspective, the sea wall has been created by the Republican institutional advantages from the 2010 redistricting effort and the fact Republican voters are more evenly spread out, whereas Democratic voters are clustered generally on the coasts and specifically in large cities.
By Laura H. Posner and Eric S. Berelovich
In June 2018, the Supreme Court agreed to hear Lorenzo v. SEC, a case in which the Securities and Exchange Commission (“SEC”) found Francis Lorenzo liable for emailing false and misleading statements to investors that were originally drafted by his boss. The SEC asserted claims under the scheme liability provisions of Rule 10b-5(a) and (c), as well as the false-and-misleading statements provision of Rule 10b-5(b). A divided panel of the U.S. Circuit Court of Appeals for the District of Columbia held that, under the Supreme Court’s precedent in Janus Capital Group, Inc. v. First Derivative Traders, Lorenzo did not “make” a false and misleading statement as required for liability under Rule 10b-5(b), because he did not have “ultimate authority” over the statements. The D.C. Circuit held, however, that Lorenzo was liable under the scheme liability provisions. Before his confirmation to the Supreme Court, Judge—now Justice—Kavanaugh wrote a dissenting opinion arguing Lorenzo is not liable under any provision of the federal securities laws. Lorenzo appealed the D.C. Circuit’s decision, arguing that an individual cannot be liable for false and misleading statements under the scheme liability provisions where the same individual did not “make” the statements under Rule10b-5(b). Lorenzo’s appeal raises complicated issues regarding, among other things, the line between Rule 10b-5(b) and the scheme liability provisions, the line between primary and secondary liability in SEC enforcement actions, and the scope of the scheme liability provisions.
In an amicus curiae (i.e., friend of the court) brief filed in the Supreme Court, Cohen Milstein recently argued that the Court need not decide these thorny issues. It can uphold the D.C. Circuit’s ruling simply by applying Janus to find that Lorenzo was a “maker” of the statements at issue, and thus find he is liable under Rule10b-5(b).
Janus held that “[o]ne ‘makes’ a statement by stating it.” Janus, 564 U.S. at 142. “For purposes of Rule 10b-5, the maker of a statement is the person or entity with ultimate authority over the statement, including its content and whether and how to communicate it.” Id. Similar to Lorenzo’s argument here, after Janus, corporate officers who signed documents containing untrue statements attempted to avoid liability by arguing that their company or board of directors had “ultimate authority” over the statements. See, e.g., In re Smith Barney Transfer Agent Litig., 884 F. Supp. 2d 152, 163-64 (S.D.N.Y 2012). But this strategy was roundly rejected. See id.Thus, in our amicus curiae brief, we argue that the fact that Lorenzo signed the emails is decisive. Just like a corporate officer who puts her signature on a corporate statement written by others, Lorenzo adopted the emails as his own by signing them.
Eight years after the U.S. Supreme Court ruled that the federal securities laws only applied to securities acquired domestically, courts continue to differ over how to apply that “transactional test” to American Depositary Receipts (“ADRs”), tradeable certificates issued by U.S. banks that correspond to shares of foreign stock.
In the latest example, Stoyas, et al. v. Toshiba Corp., the Ninth U.S. Circuit Court of Appeals has ordered a lower court to give purchasers of Toshiba ADRs the opportunity to pursue a case against the Japanese company under Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”). The district judge had dismissed the lawsuit, which involves ADRs acquired on an over-the-counter (“OTC”) market, not ones listed on a stock exchange.
In its July 17 ruling to reverse and remand, the Ninth Circuit said plaintiffs could successfully argue that their ADR purchases met the conditions established by the Supreme Court in its 2010 decision in Morrison v. National Australia Bank Ltd., which found the Exchange Act could only apply to “transactions in securities listed on domestic exchanges, and domestic transactions in other securities.” The three-judge panel cited plaintiffs’ claims that the Toshiba ADRs were purchased in the United States by U.S. entities from depositary banks based in New York and stated, “Accordingly, an amended complaint could almost certainly allege sufficient facts to establish that [the plaintiffs] purchased [their] Toshiba ADRs in a domestic transaction.”
The Ninth Circuit opinion explicitly rejected the Second Circuit Appeals Court’s reasoning in Parkcentral Global Hub v. Porsche Automobile Holdings, and in so doing effectively created a different set of standards in the two federal jurisdictions where most traditional securities lawsuits are brought—the Ninth Circuit, which includes California, and the Second Circuit, based in New York. The Ninth Circuit panel put the Stoyas case on hold after Toshiba said it planned to ask the Supreme Court to resolve the split.
The full article can be accessed here.
Investors in one of the world’s largest gaming companies, a bankrupt energy producer and a drug manufacturer have recently won significant procedural victories in matters in which Cohen Milstein holds court-appointed leadership positions. Here are brief summaries of the cases at issue.
In the In re Wynn Resorts, Ltd. Derivative Litigation, lead plaintiffs scored an important ruling against the Wynn Resorts Board of Directors (“Board”) and certain of its senior executives when the District Court of Clark County, Nevada, denied defendants’ motion to dismiss the case, allowing lead plaintiffs to pursue claims against the Board and executives for failing to prevent founder and director Steve Wynn’s pattern of sexual harassment when the Board had knowledge of his improper conduct, but decided to the look the other way.
Cohen Milstein is representing lead plaintiffs Thomas P. DiNapoli, Comptroller of the State of New York, as Administrative Head of the New York State and Local Retirement System Fund and Trustee of the New York State Common Retirement Fund, and a group of nine New York City public pension funds.
In denying the motion, the court found that it would have been futile for lead plaintiffs to make a pre-suit demand on the Board to pursue their claims because lead plaintiffs’ allegations raised a reasonable doubt as to whether a majority of the Board faced a substantial likelihood of liability for breaching their duty of loyalty to Wynn Resorts for “knowingly failing to take action in the face of credible and corroborated reports that Steve Wynn sexually harassed and abused Wynn Resorts employees” while they “profit[ed] on this information through insider trading that came at the Company’s and shareholders’ expense.”
These days, you don’t have to look beyond the daily headlines to find ethical and fiduciary issues involving social media. Nowhere is this more evident than on Twitter, where a wide variety of users post and share hundreds of millions of messages a day. Today’s scandals on social media are not limited to social gaffes but may include ethical breaches and even cross into the realm of civil or criminal liability.
For example, in August, a tweet by Tesla CEO Elon Musk that he had secured funding to potentially take Tesla private at $420 per share led to lawsuits against Musk claiming that he drove up the value of Tesla shares and materially misled investors. These lawsuits were followed in September by the Securities and Exchange Commission charging Musk with securities fraud and seeking to prohibit him from serving as an officer or director of a public company, and also charging Tesla with failure to have appropriate controls and procedures in place relating to Musk’s tweets. Two days later, Musk and Tesla settled with the SEC; in addition to $40 million in penalties, Musk agreed to step down as Chairman of the board for three years, and Tesla agreed to appoint independent directors to its board and implement additional controls and procedures to oversee Musk’s communications.
By Carol V. Gilden
Elad Roisman has moved one step closer to being sworn in as a U.S. Securities and Exchange Commission member. On Aug. 23, 2018, the Senate Banking Committee approved Roisman as the Republican replacement for former SEC Commissioner Michael Piwowar, who stepped down in July after serving as commissioner since 2013, including a four-month stint in 2017 as acting SEC chairman. Roisman is currently chief counsel to the Senate Banking Committee led by Chairman Mike Crapo; he previously served as counsel for former SEC commissioner Daniel Gallagher, and at one time worked in the legal department at NYSE Euronext and as a corporate and securities attorney with Milbank Tweed Hadley & McCloy LLP. Also stepping down this year is Democrat SEC Commissioner Kara Stein. Stein’s potential replacement likely will be Allison Lee, a Democrat, whose name has been submitted to the president, and who previously served as an aide to Stein and is a former SEC enforcement attorney. Despite these forthcoming changes at the SEC, the balance of power and direction of the SEC is unlikely to change, as the SEC remains in Republican hands which, since Donald Trump took office, has translated to the SEC bringing fewer enforcement actions.
The president, subject to Senate approval, appoints all five commissioners: two Democrats, two Republicans and the chair, who may be of the president’s own party. Since the chair is both the SEC’s chief executive and the tie-breaking vote, the party that controls the White House also controls the SEC’s agenda and direction. While Chairman Jay Clayton is an independent, as a longtime partner at Sullivan & Cromwell LLP specializing in advising clients on public and private mergers and acquisitions and capital-raising efforts, his ideology is viewed as aligning squarely with that of the Republicans. The commissioners’ terms last five years and are staggered, with one commissioner’s term ending each June 5, although, as with Stein whose term ended June 2017, commissioners may continue to serve an additional 18 months if they are not replaced before then or resign sooner.
Until Piwowar’s seat is filled, the commission is temporarily deadlocked, with Clayton and Republican Commissioner Hester Peirce on one end of the political spectrum, and two Democrat commissioners, Robert Jackson Jr. and Stein, on the other. Once Roisman is confirmed, the balance will tilt toward the Republicans; indeed, it is expected that Roisman will become an ally of Clayton on many issues. The vote on Roisman’s confirmation before the full Senate has not been scheduled, and many believe the Senate is waiting for a Democratic nominee to replace Stein to tee up both nominees for Senate confirmation at the same time, as was done with Peirce and Jackson in 2017. However, there are no guarantees that the Senate will abide by this tradition, particularly given the current political climate.
Read SEC Direction Unlikely To Shift Despite Agency Transitions.