Effective Advocacy in a “Virtual” World

by Hon. Hélène Kazanjian

Voice of the Judiciary

We find ourselves during these difficult times trying to operate court business without parties actually coming to court. This is likely the “new normal.” In the short term, while we have begun to open courthouses for some in-person business, the court still encourages virtual hearings for most matters. In the longer term, it is possible that we will continue to handle some court business virtually for quite some time, if not forever.

Courts throughout the Commonwealth have been conducting virtual hearings for several months. It has unquestionably been an adjustment for everyone. Lawyers and judges have had to be flexible and patient as we have grappled with video and audio problems. Many have had to learn how to use virtual conferencing programs such as Zoom. We most certainly have had to keep our sense of humor as the occasional cat, dog, or young child makes a fleeting appearance at a hearing.

In light of these challenges and the limitations of the technology, how can lawyers most effectively advocate for their clients in a virtual environment?

First, it is important that lawyers understand how hearings are being conducted at the courthouses. The short answer is that it differs throughout the Commonwealth because technological capabilities vary. Despite these differences, in all instances, hearings have to be officially recorded, which generally requires the presence of a clerk in the courtroom. Judges will either be physically present in the courtroom or joining the hearing virtually. In some courtrooms, the clerk is able to connect the in-court For the Record (“FTR”) recording system to the virtual platform. Where that technology is not available, FTR will record the sound in the courtroom, which will ordinarily come out of small computer speakers built in or connected to the judge’s or clerk’s laptop.

With this backdrop, here are some suggestions to enhance your ability as lawyers to effectively advocate during a virtual hearing:

  1. Technology, technology, technology: First and foremost, make sure you have working technology. Minimally you need a computer or tablet with a camera, microphone, and speakers. You also need fast and reliable Wi-Fi. It is not ideal to be calling into a hearing from your cell phone. Cell phone callers often cannot join by video or cannot be heard well enough. You also may not be able to see all of the participants on your phone.
  2. Settings: Once you sign into a hearing, make sure the correct microphone is selected on your device. For example, if you are using an external webcam, you have to select the webcam as your operating microphone. The audio settings on your microphone and speakers must be loud enough. In Zoom, there are microphone and audio settings within the Zoom program. That means that in addition to checking the settings on your device, you need to check the program’s audio settings.
  1. Virtual workspace: Make sure you have a workspace that is conducive to a virtual hearing; that is, a place that allows you to participate without distraction. Trying to join a hearing from a cell phone in your car or from a computer in a room where there is other activity is not effective. Look directly at your camera and speak loudly into the microphone. Make sure your background, whether it is real or virtual, is presentable. Likewise, if you use a pin photo, which is an image that appears on your account when you shut down your video feed, make sure it is court appropriate. We know that many of you are juggling a lot. You may be working at home with other family members present who need your attention. That being said, do your best to set aside the scheduled time to focus on the hearing.
  2. Practice: Practice before you appear for your first virtual hearing. Find out in advance if your equipment and Wi-Fi work. Learn how to sign in with both video and audio, and how to adjust the microphone and speaker settings. Because the sound is sometimes better when the parties who are not speaking are muted, make sure you know how to mute and unmute yourself quickly.
  3. Identify yourself: So the record is clear, you should identify yourself each time you speak during the hearing, unless the court addresses you by name.
  4. Documents: If you have documents, pleadings, photographs or other items that you would like to use or “hand” to the judge during the hearing, or if you are planning to offer exhibits into evidence, make sure to get them to the clerk and the other participants in advance. Check with the clerk several days before the hearing about how he or she will accept these items (e.g. email, e-file, mail). Screen sharing can be an effective way to display documents during a hearing. Attorneys should check with the clerk in advance to make sure the host (the judge and/or clerk) is comfortable with that aspect of the technology.
  5. Other participants: In criminal cases, defendants will be present, or virtually present, unless their presence has been waived. Victims, witnesses, clients in civil cases, and members of the public should also be able to attend proceedings virtually, and, in some instances, give testimony. It is advisable to check with the clerk in advance if others want to attend a hearing. Make sure the individuals wanting to attend have the required technology to sign into the virtual call. If you are going to be questioning a witness about documents, pleadings, photographs, or other items, make sure the witness and all parties have copies of those items in advance. Speak to your client and/or witnesses before the hearing about how they should conduct themselves during the hearing so as to not distract from your arguments. It is not helpful to your case if your clients are rolling their eyes or shaking their heads during the hearing.
  6. Breakout rooms: If you and your client are in different locations and you need to speak privately during the hearing, if the court has the capacity you can ask the judge to send you to a virtual breakout room, where you can have a private/unrecorded conversation. This also can be done when multiple lawyers representing a single party or lawyers of different parties want to consult privately during a hearing. Alternatively, parties can mute themselves and briefly communicate with each other off-line.
  1. Demeanor: Conduct yourself in the hearing just as you would if you were in court. Address the judge not the other parties. The usual back and forth is not as easy so be prepared with a short presentation. At the same time, there is sometimes a sound delay, so be aware if the judge is trying to ask you a question. Finally, wear court appropriate attire.

The sudden switch to virtual hearings has required patience and a touch of ingenuity. In the end, virtual hearings can only work if we all accept and adjust to this new way of conducting court business, and if we commit to taking the necessary steps, including technology upgrades and individual training.

 

Judge Hélène Kazanjian has served as an Associate Justice of the Superior Court since 2016. Previously she served as the Chief of the Trial Division at the Massachusetts Attorney General’s Office, and as an Assistant United States Attorney in Washington, D.C. and Maine.  


Why Fraud Matters When Using R&W Insurance: Revising ABRY and EMSI

by Richard French and Alvin L. Reynolds, Jr.

Legal Analysis

Introduction

Representations and warranties insurance (“RWI”) is a common feature of private M&A transactions, aligning the interests of seller and buyer by transferring the risk of a breach of the representations given by the seller in the underlying purchase agreement to an independent, creditworthy insurer. Before “stepping into the shoes of the seller” and issuing a policy to the buyer, the RWI insurer must underwrite several risks, including the seller’s failure to disclose known matters addressed by the representations given in the underlying purchase agreement.

A central pillar of the RWI underwriting process is that parties negotiate at arms’ length, with a seller engaging in a robust disclosure process to ensure known matters are disclosed pursuant to schedules included in the transaction documents. To encourage a thorough “scheduling” process, RWI insurers have historically required sellers to remain liable for a portion of potential losses. A high proportion of transactions are now structured to eliminate the seller’s liability, with such transactions being commonly referred to as “no indemnity” or “public-style” deals.[1] In order to incentivize robust seller disclosure, RWI insurers preserve their right to pursue sellers in the event of seller fraud.

This article explores the rights available to an insurer to mitigate the risk of inadequate disclosure, and those available to a seller to limit the scope of recourse available to a buyer and/or RWI insurer in a transaction.[2]

Representations, Disclosure and Moral Hazard  

The primary purpose of a buyer demanding representations in the underlying agreement is to elicit disclosure from a seller. The information obtained from the disclosure exercise enables a buyer to determine the appropriate purchase price. In this way the representations and disclosure act as a “pre-signing” price adjustment mechanism.[3] The secondary purpose of representations is to act as a “post-signing” price adjustment mechanism, allowing a buyer to recoup any overpayments. When a seller is liable for a breach of the representations, there is a clear incentive to fully disclose known matters, as doing so avoids a post-closing claim against the seller. However, in an RWI-backed deal, the seller has limited or no liability which, prima facie, removes the incentive to disclose; indeed, if an insurer bears the risk of a post-closing claim, the seller is incentivized to limit disclosure in order to achieve a higher upfront price. How do insurers control for this “moral hazard”?

“Moral hazard” is the tendency to increase exposure to risk when the consequences of the risk are borne by a third party (e.g., insurer).[4] As the policyholder, a buyer is a party to the RWI insurance contract, and the RWI insurer can control for the buyer’s moral hazard directly. Matters within its knowledge are carved out of coverage through a “no claims declaration” and corresponding exclusion. The no claims declaration operates as an anti-sandbagging provision, precluding a buyer from making a claim for matters of which it had prior actual knowledge.

Of greater importance to an RWI insurer is mitigating the moral hazard risk of a seller not scheduling known matters. As the seller is not a party to the insurance contract, an insurer has no direct means of controlling seller behavior. The insurer must therefore seek to influence the behavior of the seller indirectly – via the rights of a buyer through the doctrine of subrogation.

Subrogation

The principle of subrogation enables an insurer to attempt to recoup its loss once it has paid the insured under the policy. After payment, the insurer can “step into the shoes” of the insured and proceed against any third party responsible for causing loss.[5] This can be any claim that the insured may have against a third party, including contract, tort or statutory claims. Although an insurance policy will typically contain express subrogation provisions, the rights of subrogation will generally apply even if not stipulated in the policy wording. It is important to understand that an insurer’s right of subrogation derives from the rights of the insured. In the context of RWI, this is the right of a buyer against the seller within the underlying purchase agreement.

Why “fraud” matters

An important mechanism for an RWI insurer to incentivize thorough seller disclosure is to retain the right to recoup from a seller any money paid to the buyer as a result of “fraud.”

As explained below, “fraud” has many interpretations, and it is therefore imperative for a seller to define it appropriately. Undefined or poorly drafted fraud carve-outs in the purchase agreement might expose a seller to unintended claims, e.g., fraud of the management team of which a private equity sponsor had no knowledge. “Fraud carve-out” clauses are frequently included within the “limitation provisions” of the purchase agreement, delineating the instances in which a breaching party will be unable to “shield” itself behind the carefully negotiated limitation (e.g., caps, survival periods).

Two Delaware Court of Chancery cases, ABRY Partners v. F&W Acquisition LLC (“ABRY”) and EMSI Acquisition, Inc. v. Contrarian Funds, LLC. (“EMSI”), demonstrate the importance of carefully drafting limitation provisions and associated fraud carve-outs.[6] While ABRY demonstrates that even a well-crafted limitation provision will not shield a seller from its own intentional fraud with respect to express representations and warranties in a transaction document, EMSI highlights the perils of imprecise drafting in exposing the seller to others’ fraud.

In ABRY, the purchase agreement contained a limitation provision capping the seller’s liability at a defined amount with no fraud carve-out. Citing public policy, the court found that, notwithstanding the limitation cap in the agreement, the seller was unable to shield itself from a claim by the buyer in respect of its own intentional fraud that contradicted the express representations and warranties given by it in the agreement.

EMSI highlights the dangers of “inelegant” drafting and the potential for fraud to be imputed on all sellers as a result. In EMSI, the purchase agreement included a fraud carve-out provision that included “any action or claim based upon fraud.” At the pleading stage, the court ruled that such broad language could be interpreted to permit recovery against all sellers, even if those sellers had no knowledge of the fraud and/or were not responsible for the management of the business. Thus, the defendants’ motion to dismiss was not granted. This position highlights the need for sellers to explicitly limit the fraud carve-out as desired.

As a matter of law, the absence of a clearly defined fraud carve-out could result in an extensive scope of possible recourse against a seller, as “undefined fraud is an ‘elusive and shadowy term,’ which may not be limited to deliberate lying despite that common notion.”[7] More specifically, fraud has many meanings, including “common law fraud” (which includes recklessness), “equitable fraud,” “promissory fraud” and “unfair dealings fraud.”[8] Therefore, the possible interpretations of fraud by courts extend beyond “lies” of a seller.

Notably, ABRY ruled with respect to the express representations and warranties set forth in the purchase agreement that “when a seller lies — public policy will not permit a contractual provision to limit the remedy of the buyer to a capped damage claim.” Consistent with ABRY, RWI insurers are primarily concerned with sellers who knowingly make false representations. Therefore, based on ABRY, practitioners representing sellers should seek to limit the definition of “fraud” to a seller’s actual (not constructive) knowledge of the inaccurate representation expressly given in a purchase agreement, made with intent to induce the other party to rely on the misrepresentation. Defining fraud in such a way avoids future claims by buyers/insurers premised on (i) alleged “reckless” or “equitable fraud”; (ii) alleged fraud based on extra-contractual statements (e.g., statements made in meetings but not enshrined as representations in the contract); or (iii) alleged fraud committed by third parties such as management.

Agreement provisions

As noted above, the subrogation rights of an RWI insurer against a seller derive from those rights of a buyer against the seller. An understanding of an insurer’s subrogation rights therefore requires an examination of a buyer’s rights against the seller. While there are numerous “limitation provisions” in agreements that limit a buyer’s rights against a seller, the principle clauses are the “non-reliance,” “exclusive remedy and “indemnification and limitation” clauses. Additionally, in an RWI deal, a seller will often require that the agreement contains a “subrogation waiver” clause to limit any claims the insurer, through subrogation, may have against the seller.

Examining each provision in turn:

Through a non-reliance clause, a seller disclaims liability for all representations other than those contained in the agreement; that is, a buyer is unable to make a claim for statements made in management presentations, data rooms, Q&A trackers and other deal documents. This limits a buyer’s rights to the four corners of the agreement. Given the wide scope of potential statements that may be made by the various parties on an M&A transaction (management, advisors, consultants), buyers typically accept that there should be no fraud carve-out to the non-reliance clause, regardless of whether RWI is used on the deal.

Through an exclusive remedy clause, a buyer’s claims (contract and tort) against a seller for a breach of the representations are limited solely to: (i) the indemnification clause and RWI policy on seller indemnity deals; or (ii) the RWI policy for “no indemnity” or “public-style” deals. It is common for buyers to insist on a fraud carve-out to the exclusive remedy provision. This is often accepted by sellers, but only if fraud is appropriately defined.

Through an indemnification and limitation clause, a seller will indemnify a buyer for a breach of the representations, subject to predetermined monetary caps and survival periods. On an RWI-backed deal with limited seller indemnity rights, the representations will typically survive for 12-18 months and be capped at 0.5% of the enterprise value. On a “no indemnity” or “public-style” deal, there will be no indemnification provisions in the agreement. It is common for buyers to insist on a fraud carve-out to the limitation provisions, and this is often accepted by sellers but only if fraud is appropriately defined.

Through a subrogation waiver, a buyer: (i) acknowledges the seller has limited or no liability for a breach of the representations given in the agreement; and (ii) covenants that the RWI insurer will waive any subrogation rights against the seller, save in the event of fraud. Certain sellers will desire that this waiver be given without the fraud carve-out, but this is typically unacceptable to RWI insurers.

Considerations for buyers and sellers

First, sellers must insist that “fraud” is appropriately defined so that it is limited to the seller’s intentional misrepresentation of the express representations in the agreement with intent to deceive.

Second, the parties must assess whether it is reasonable for the “non-reliance,” “exclusive remedy,” “indemnification & limitation” and “subrogation waiver” provisions to contain a fraud carve-out, taking into account RWI insurer requirements.

As previously noted, the “non-reliance clause” will typically not contain a fraud carve-out. An RWI insurer will never require a fraud carve-out, given the RWI policy only covers a breach of the representations given within the four corners of the underlying agreement. The insurer will never be liable for extra contractual representations, so it would be unreasonable and unnecessary for an insurer to request a fraud carve-out to the non-reliance clause.

In light of ABRY, there is a strong argument that RWI insurers should not require a fraud carve-out for “exclusive remedy” and “indemnification and limitation” provisions. This is because, as a matter of law, the seller is unable to shield itself from the type of fraud of which RWI insurers are primarily concerned, so an RWI insurer’s subrogation rights will be unhindered for circumstances in which it will pursue subrogation. Certain insurers (particularly if the agreement is governed by Delaware law) can accept this, while others require a fraud carve-out to the “exclusive remedy” and “indemnification and limitation” provisions. For agreements governed by the laws of other jurisdictions, particularly New York where the case law is less certain, there are still reasonable arguments for RWI insurers to accept no fraud carve-out to the “exclusive remedy” and “indemnification and limitation” provisions, but the arguments are less compelling.

With very rare exceptions, RWI insurers require the “subrogation waiver” provision to include a fraud carve-out. However, as emphasized above, a seller should insist this fraud carve-out is limited to “actual fraud” with “intent to deceive.”

Conclusion

Given the increasing prevalence of “no indemnity” deals, RWI insurers’ requirement to maintain subrogation rights in the event of seller fraud has never been more important. However, it is imperative that “fraud” is appropriately defined to preserve the delicate balance between an RWI insurer’s need to ensure robust disclosure and a seller’s need to avoid post-closing disputes. Lawyers representing sellers should seek to limit an RWI insurer’s rights of subrogation against a seller to instances of “fraud” that law and public policy do not permit to be limited by contract. Consistent with the ruling in ABRY, this means that the definition of fraud should be limited to a seller’s actual knowledge of an inaccurate misrepresentation given in an agreement with intent to induce a buyer to rely on such misrepresentation.

[1] Atlantic Global Risk, Atlantic Global Risk: M&A Insurance Market – 2019 Insights 7 (2020)

[2] Special thanks to Glenn D. West, Partner, Weil, Gotshal & Manges LLP, for his wonderful insights and input; and special thanks to Virginia Wong, Senior Analyst, Atlantic Global Risk, for her hard work and contributions to this article.

[3] See Sean J. Griffith, Deal Insurance: Representation and Warranty Insurance in Mergers and Acquisitions, 104 U. Minn. L. Rev. 4 (Forthcoming) (2020)

[4] See Sean J. Griffith, Deal Insurance: Representation and Warranty Insurance in Mergers and Acquisitions, 104 U. Minn. L. Rev. 4-5 (Forthcoming) (2020)

[5] Sean J. Griffith, Deal Insurance: Representation and Warranty Insurance in Mergers and Acquisitions, 104 U. Minn. L. Rev. 53 (Forthcoming) (2020); C.L. Tyagi & Madhu Tyagi, Insurance Law and Practice, 146

[6] ABRY Partners V, L.P. v. F&W Acquisition LLC, 891 A.2d (Del. Ch. 2006); EMSI Acquisition, Inc. v. Contrarian Funds, LLC, et al., C.A. No. 12648-VCS (Del. Ch. May 3, 2017)

[7] Glenn D. West, That Pesky Little Thing Called Fraud: An Examination of Buyers’ Insistence Upon (and Sellers’ Too Ready Acceptance of) Undefined “Fraud Carve-Outs” in Acquisition Agreements, The Business Lawyer, Vol. 69 1053 (2014)

[8] Glenn D. West, That Pesky Little Thing Called Fraud: An Examination of Buyers’ Insistence Upon (and Sellers’ Too Ready Acceptance of) Undefined “Fraud Carve-Outs” in Acquisition Agreements, The Business Lawyer, Vol. 69 1055 (2014)

 

Richard is a Managing Director and Co-Founder of Atlantic Global Risk, a specialist transactional risk insurance broker. Richard is responsible for directing Atlantic’s strategic growth and direction, including identifying and developing new product lines.

Alvin is an Executive Director and the head of Atlantic’s Boston office, where he counsels clients on risk mitigation solutions for complex regulatory issues and other matters.


DACA, Dreamers, and the Limits of Prosecutorial Discretion: DHS v. Regents of the University of California

by Ilana Etkin Greenstein

Heads Up

On June 18, 2020, the U.S. Supreme Court issued a narrow 5-4 opinion in Department of Homeland Security et. al. v.  Regents of the University of California et.  al., Slip Op. No. 18-587 591 U.S. __ (2020) (“Regents”) that halted the Trump Administration’s plan, announced in September 2017, to “immediately terminate” the Deferred Action for Childhood Arrivals (“DACA”) program. The decision extended the life of an immigration policy which, since inception in 2012 under the Obama Administration, has provided more than 600,000 young undocumented immigrants with stays of deportation and the opportunity to live and work with authorization in the United States. In response to the Regents setback which left the DACA Memorandum in place, on July 28, 2020, DHS announced interim changes that pending its reconsideration of the DACA termination, DHS would continue to reject all new and pending DACA requests and associated employment authorization applications as it had been since 2017, would shorten the renewal of DACA and associated work authorization to one year, and exercise its discretion to reject applications for advance parole and to terminate or deny any deferred action requests. This article reviews Regents’ affirmation of the principles of reasoned agency decision-making and its implications for the DHS’ future actions to scale back or completely and permanently terminate DACA.

The History: Failed Legislation and the Dreamers

Beginning in 2001 with the Development, Relief, and Education for Alien Minors (“DREAM”) Act,[1] and in the 18 years that followed, at least ten versions of legislation were introduced in Congress, including most recently in May 2019,[2] to provide undocumented minors with a path to immigration status and citizenship. A movement of popularly known as the “Dreamers” sprang up in support. While the various versions of the Dream Act contained some key differences, each would have provided a pathway to legal immigration status for certain undocumented individuals brought to the U.S. as children. Although each bill enjoyed voter and bipartisan Congressional support[3]—with some versions garnering as many as 48 co-sponsors in the Senate and 152 in the House—none became law.[4]

Acts of Administrative Grace: DACA and DAPA

DACA was established on June 15, 2012 as an act of administrative grace for the Dreamers in the absence of Congressional action. The program was instituted and implemented through a DHS policy memorandum entitled “Exercising Prosecutorial Discretion with Respect to Individuals Who Came to the United States as Children” (“DACA Memorandum”) and issued at the direction of then-President Barack Obama. Unlike the Dream Act, DACA does not confer an immigration status or provide a pathway to citizenship, but is the exercise of prosecutorial discretion to forbear from exercising removal actions with respect to certain non-citizens between the ages of 15 and 30, who had been brought to the United States as children more than five years previously, and who had either graduated from high school or college in the U.S., earned a G.E.D., or served in the U.S. Armed Forces. DACA-eligible individuals who are granted deferred action in two-year increments are also eligible under preexisting regulations for certain attendant benefits, such the opportunity to apply for employment authorization, renewable for as long as the recipient remains eligible for DACA and the DACA Memorandum remains in effect. The valid scope of the DACA program depends on the Executive Branch’s inherent authority to exercise prosecutorial discretion within the framework of existing law.

Two years after the initial DACA memo, DHS issued a new memorandum to expand DACA eligibility by removing the age cap, extending the DACA renewal and work authorization to three-year increments, and adjusting the date-of-entry requirement from June 15, 2007 to January 1, 2010, and to create a new, related, program titled Deferred Action for Parents of Americans and Lawful Permanent Residents (“DAPA Memorandum”). DAPA would have offered approximately 4.3 million undocumented parents of U.S. citizen or lawful permanent resident children the same forbearance from removal and opportunity to apply for work authorization as afforded to DACA recipients. Like the DACA Memorandum, the DAPA Memorandum expressly stated that the DAPA policy “confer[s] no substantive right, immigration status or pathway to citizenship.”

Litigation, an Administrative About-Face, and More Litigation

Before DAPA went into effect, Texas and 25 other states with Republican governors filed suit against the U.S. seeking injunctive relief from both DAPA and the DACA expansion, arguing that DAPA violates the Constitution and federal statutes. On February 16, 2015, a preliminary injunction issued barring the implementation of DAPA, which was affirmed by a three-member panel of the Fifth Circuit Court of Appeals with one dissent, and by a deadlocked 4-4 Supreme Court which left the lower court’s preliminary injunction in place. On June 15, 2017, the newly inaugurated Trump Administration rescinded the DAPA Memorandum, and the state plaintiffs voluntarily dismissed the pending litigation, terminating the hope that the case would reach the Supreme Court on the merits.

Three months later, on September 5, 2017, then-Attorney General Jefferson B. Sessions III announced that DACA conferred federal benefits that exceeded the scope of DHS’s authority. Subsequently, in 2017 and 2018, DHS issued memoranda to rescind the 2012 DACA Memorandum, with then-Acting Secretaries Elaine Duke and Kirstjen Nielsen, respectively, ordering their constituent bureaus to wind down the program.

In response, several groups of plaintiffs filed suit in federal district courts in California, New York, and the District of Columbia, arguing that DHS’s decision to rescind DACA was arbitrary and capricious in violation of the Administrative Procedure Act (“APA”) and infringed the plaintiffs’ right to equal protection under the Fifth Amendment. The cases made their ways up through the Second, Ninth, and D.C. Circuits, respectively. While those appeals were pending, the government filed for certiorari in three of those cases—Regents (18-587), Trump v. National Ass’n for the Advancement of Colored People (18-588), and Wolf v. Batalla Vidal (18-589)—which were granted and consolidated for Supreme Court review and oral argument on November 12, 2019.

The Regents Decision:  Federal Jurisdiction and the Limits of Prosecutorial Discretion

On June 20, 2020, Chief Justice John Roberts, joining the Court’s four more liberal justices, wrote the narrow Regents decision that vacated the DHS’s 2017 rescission of the DACA Memorandum. The scope of the Regents decision was limited. The Court did “not decide whether DACA or its rescission are sound policies,”[5] did not affirm the legality of the DACA program, or order the DHS to restore and maintain the DACA policy in full force pending any agency reconsideration of the policy. Indeed, there was no dispute that the scope of DHS’ prosecutorial discretion includes the legal authority to rescind the program. Rather, the dispute was narrowly about whether the agency followed reasoned agency decisionmaking procedures in doing so, and whether the Court had jurisdiction to review the agency’s decision.[6]

As a preliminary matter, on the threshold issue of reviewability, the Court held that neither of the jurisdiction-stripping provisions of the Immigration and Nationality Act (“INA”), 8 USC §1252(b)(9), which bars judicial review of claims arising from an “action or proceeding brought to remove an alien” from the United States, nor §1252(g), which bars review of cases “arising from” decisions “to commence proceedings, adjudicate cases, or execute removal orders,” divested it of jurisdiction to review whether DHS’s termination of the DACA program was arbitrary and capricious under the Administrative Procedure Act.  Slip Op. at 12.

The Court also determined that there was no plausible inference that the rescission was motivated by racial animus in violation of the Equal Protection Clause of the Fifth Amendment.

Turning to the merits, the Court considered whether DHS’s decision to rescind DACA was arbitrary and capricious or, as the government asserted, an appropriate response to the Attorney General’s determination that the DACA program violated the INA and raised important policy concerns. The Court acknowledged that “[w]hether DACA is illegal is, of course, a legal determination, and therefore a question for the Attorney General.” The Court also recognized that DHS has the discretion to determine how to address the DOJ’s finding of illegality and relevant policy concerns.[7] Nonetheless, the Court held that the APA required the agency to engage in a reasoned assessment of those legal and policy issues, including potential reliance on the program, in determining whether and how to end it.

In deciding that the agency termination of DACA was arbitrary and capricious because DHS failed to provide a reasoned explanation of the scope of the agency’s prosecutorial discretion and failed to exercise that discretion in a reasonable manner, the Court distinguished between dual facets of DACA that DHS had erroneously painted with a single brush:  (1) protection from deportation (forbearance) and (2) eligibility for certain attendant benefits under other preexisting regulations, including employment authorization. The Court reasoned that, although the Attorney General had determined that DACA conferred federal benefits that exceeded the scope of DHS’s authority, there was not also consideration of “whether to retain forbearance and what if anything to do about the hardship to DACA recipients” with “legitimate reliance” on the DACA program benefits. Accordingly, the agency acted arbitrarily and capriciously without explanation, in violation of the requirement for reasoned decision-making under the APA, and the rescission must be vacated:[8]

“Here the agency failed to consider the conspicuous issues of whether to retain forbearance and what if anything to do about hardship to DACA recipients. That dual failure raises doubts about whether the agency appreciated the scope of its discretion or exercised that discretion in a reasonable manner. The appropriate recourse is therefore to remand to DHS so that it may consider the problem anew.”[9]

Tomorrow and Beyond:  What Does the Future Hold for the Dreamers?

While Regents was pending before the Supreme Court, a separate suit was in the federal district court in Maryland, Casa de Maryland v DHS, also challenging the DACA rescission. On July 17, 2020, the court in that case entered its order vacating the DACA rescission memo in light of the Supreme Court’s decision in Regents, and enjoining the agency from implementing or enforcing the rescission.[10] Casa de Maryland, in other words, explicitly restores the program to its pre-September 5, 2017 status.

On July 28, 2020, however, Acting DHS Secretary Chad F. Wolf issued yet another memorandum to the three constituent bureaus charged with implementing the DACA program.  The Wolf memorandum clarifies the agency’s legal and policy concerns with continuing the program, rescinds DHS’ 2017 Duke and 2018 Nielsen memoranda, and instructs that DHS shall, among other things, reject all initial DACA requests.[11] Whether the 2020 Wolf memorandum will withstand a legal challenge remains to be seen.

So where do these developments leave the hundreds of thousands of young people who are potentially eligible for DACA benefits?  For those who had applied for and been granted DACA at some point in the past, the answer is relatively clear.  Under the agency’s guidance as it existed prior to Regents:[12]

  • Current DACA recipients: People who currently have DACA can apply to renew it;
  • Expired DACA recipients (less than one year): People whose DACA expired one year ago or less can apply to renew it;
  • Expired DACA recipients (more than one year): People whose DACA expired more than one year ago may not apply for renewal, but may make an initial DACA request.[13]
  • Terminated DACA: People whose DACA has been terminated may file an initial request.

There is, however, no guarantee that the program will remain in place in the long term. The Executive has full authority to end the DACA program; all the Supreme Court required was that it refrain from doing so in an arbitrary and capricious manner, and that it articulate a reasoned explanation for its decision.  Whether individuals who had never been granted DACA, but who are arguably eligible to apply now, remains unclear.[14] The Supreme Court and Maryland District Court orders each require DHS to maintain the program under the 2012 guidelines unless and until the agency follows correct procedures to terminate it.

Additionally, for all that Regents did to provide a respite for those who have relied on DACA, a separate case remains pending in the federal district court in the Southern District of Texas that could have even greater stakes. In Texas v. U.S. (1:18-cv-068), state attorneys general challenge the constitutionality of DACA. That case, which is before the same judge who issued the injunction barring implementation of the DAPA memorandum, was stayed pending Regents. Now, with each side claiming that Regents supports its position, Plaintiffs have sought to have their summary judgment motion heard in August 2020, while the intervening DACA recipients have sought to stay the action.

Of course, even Texas v U.S. side-steps the core issue: the millions of young people who are working, studying, serving in our armed forces, contributing to our society every day and continue to have no immigration status at all.[15] Although certainly a welcome respite for the hundreds of thousands of young people who have been protected under the policy over the years, DACA is still nothing more than an act of administrative grace with no permanent benefits and no potential for durable relief.  It is not, strictly speaking, a legal status,[16] and confers nothing more than an impermanent limbo. It remains that Congress has the ultimate authority to decide the future of the Dreamers – to let them languish in the shadows or to provide a path to durable legal status by legislation.

[1] S. 1291, 107th Cong. (2001).

[2] S. 1291, 107th Cong. (2001); S. 1545, 108th Cong. (2003); H.R. 1648, 108th Cong. (2003); S. 2075, 109th Cong. (2005); H.R.5131, 109th Cong. (2005); S.2205, 110th Cong. (2007); H.R. 1275, 110th Cong. (2007); H.R. 5241, 111th Cong. (2010); S. 729, 111th Cong. (2010); S. 3992, 111th Cong. (2010); H.R. 1842, 112th Cong. (2011); S. 952, 112th Cong. (2011); H.R. 1468, 115th Cong. (2017); H.R. 3591, 115th Cong. (2017) H.R. 2820, 116th Cong. (2019).

[3] In a recent survey by the Pew Research Group, 91% of Democrats and 54% of Republicans favored granting legal status to undocumented immigrants who were brought to the U.S. as children.

[4] In 2010, the bill fell just five votes short of the 60 necessary to proceed in the Senate.  H.R. 5241, 111th Cong. (2010); 12/18/2010.

[5] Slip Op. at 29.

[6] Slip Op. at 9.

[7] Slip Op. at 19.

[8] Slip Op. at 21.

[9] Slip Op. at 29.

[10] CASA de Maryland, et al. v. Dept. of Homeland Security, et al., 8:17-cv-02942 (D.Md.)

[11] In addition to precluding new initial applications, the 2020 memo limits DACA extensions and associated employment authorization to periods of one year, and precludes the agency from granting DACA recipients authorization to travel outside the United States (advance parole).

[12]  https://www.uscis.gov/humanitarian/deferred-action-for-childhood-arrivals-response-to-january-2018-preliminary-injunction

[13] The distinction between initial and renewal applications relates only to the documentation required for each:  Initial applicants must submit documentation to establish all of the eligibility requirements; renewal applicants are not required to resubmit documentation filed with their initial applications.  https://www.uscis.gov/sites/default/files/document/forms/i-821dinstr.pdf

[14] Because most DACA recipients must be at least fifteen years old, there are a significant number of young people who did not qualify for DACA prior to the 2017 rescission, but who are now potentially eligible to apply.  The Migration Policy Institute puts this number at approximately 66,000.  https://twitter.com/MigrationPolicy/status/1273662071146778624

[15] In 2012, just prior to DACA’s implementation, the Migration Policy Institute estimated that there were approximately 3.2 million undocumented children and young adults under the age of 24 living in the United States.  https://newscenter.sdsu.edu/education/cescal-conference/files/06163-7_Data_One_Sheet.pdf

[16] https://www.uscis.gov/archive/consideration-of-deferred-action-for-childhood-arrivals-daca

 

Ilana Etkin Greenstein is Senior Technical Assistance Attorney at the Immigration Justice Campaign.


Protecting Trade Secrets During (and After) a Global Pandemic: Practical Tips for Employers

by Russell Beck and Hannah Joseph

Practice Tips

 

The evolution toward a cloud economy has made it easy and often profitable for employees to misappropriate valuable data from their employers. Indeed, pre-pandemic estimates suggested that over 50 percent of employees take – and most of them are willing to use – their employer’s information when leaving a company.[1]

Against this backdrop, COVID-19 unexpectedly caused the world to shut down in early 2020, resulting in mass layoffs, the highest unemployment rates since the Great Depression, and a fundamental and perhaps permanent shift toward a predominately remote workforce.

Together, these factors have created a precarious environment for trade secrets, as well as customer relationships and other legitimate business interests. Employees working from home have more opportunity to convert company information and customers, and some, particularly those facing involuntary unemployment, may feel driven to do so. Moreover, the ongoing crisis has made preliminary injunctive relief (the judicial remedy most often used to protect trade secrets and other legitimate business interests) more elusive, as courts are typically less willing to restrain employees from competitive employment during economic downturns. See, e.g., All Stainless, Inc. v. Colby, 364 Mass. 773, 781 n.2 (1974).

Whether during or after the pandemic, it is vital for companies to have strong measures in place for protecting their trade secrets and other legitimate business interests, rather than to solely rely on after-the-fact litigation. Below are some practical tips for how to do so.

Tips for protecting trade secrets and other legitimate business interests during and after a global pandemic

Know your trade secrets. A remote workforce means that employees are developing, accessing, and using their employer’s trade secrets from home (and elsewhere). Accordingly, understanding the categories, sources, and life cycles of the company’s trade secrets, and the risks of exposure to which such information is most susceptible, is necessary for establishing and implementing policies and practices that are best suited to protect that information during and after the pandemic. Depending on the organization, the analysis will likely need to involve management, human resources, legal, corporate governance, sales, information technology, information management, research and development, manufacturing, and other relevant stakeholders.

Firm up policies and procedures. Once a company has categorized its trade secrets, both existing and under development, it must ensure that its policies and procedures are appropriately designed to protect the information against likely sources of risk. Such policies and procedures, which should be reviewed on a regular basis, are also critical to protecting other legitimate business interests, such as customer goodwill.

Among other things, employers should have policies that establish clear criteria, protocols, and expectations for the access, use, and disclosure of confidential information, including third-party information; working from home; the use of the employer’s devices, systems, and accounts (and, if applicable, the employer’s policies concerning monitoring such devices, systems, and accounts); the use of personal devices; the use of social media accounts, including as they relate to client communications; the use and protection of passwords; and the post-employment return of information and property. In addition, employers should have a policy that instructs employees to report incidents of unauthorized access, use, or disclosure of confidential information, and provides clear instructions for how to make such a report. This list is not comprehensive, and policies are not one-size-fits-all; they must be tailored to meet the unique needs of the employer and be reasonable in the context of the company’s needs, capabilities, and culture.[2]

Employers should also work closely with their remote employees to ensure that the employees’ at-home work environments are secured against both external threats and inadvertent disclosure. For example: home Wi-Fi routers should be secured with strong passwords; passwords, non-guessable meeting IDs, and other security settings should be used for video conference solutions like Zoom; confidential information should not be reviewed where others in the household may see or overhear it; and confidential information should not be left out in the open when the workspace is unattended. Employers should be prepared to run through a comprehensive checklist with their employees to make sure that employees are taking necessary precautions to protect their workspaces.

Finally, the unfortunate reality of increased furloughs and layoffs during the pandemic dictates that employers have a system in place for off-boarding employees remotely. The system should include, at the least, a mechanism for terminating exiting employees’ access to the employer’s information and information systems (including the remote wiping of company data from devices in the employee’s possession), for securing the full return of all equipment and confidential information, and for the employee to acknowledge their obligation to return (and not retain, use, or disclose) the employer’s confidential information (as well as to comply with their other post-employment contractual obligations).

Educate your employees. Policies and procedures are worthless, and can hurt more than help, if they are not disseminated, understood, and followed. This means that employers must, on an ongoing basis, educate their employees about company policies and practices. While in-person trainings are ill-advised in the era of social distancing, they may be easily replaced by online trainings, whether live or pre-recorded. Processes should be in place that require employees to not only read the policies and procedures, but also to acknowledge that they understand and agree to abide by them. Policies and procedures should provide an avenue for employees to ask questions and obtain answers that will be consistent throughout the company, either through legal or other channels. Employers are well-served by maintaining accurate records of policies and procedures and any amendments thereto, training dates, and employee acknowledgments. While training and acknowledgments will not necessarily prevent all willful misconduct, they may serve as a deterrent, help to limit incidents of inadvertent disclosure (or unauthorized solicitation) and, if litigation becomes necessary, help to establish the company’s reasonable efforts to protect its trade secrets and other legitimate business interests.

Monitor your workforce. Trade secret misappropriation and other forms of employee misconduct do not usually happen in a vacuum. Oftentimes, there will be warning signs that an employee is unhappy (e.g., a lack of engagement, an attitude shift or sudden change in behavior, increased activity on LinkedIn[3]). Moreover, employees who take their employer’s information with the intention of using it at their next place of employment frequently commit multiple acts of taking in the days and weeks leading up to their termination. Similarly, employees who plan to solicit customers may begin well before termination. For those reasons, employers should consider monitoring their employees’ email activity as well as their activity on other information systems to determine whether the employees are accessing information that they do not have a business need to know or are accessing appropriate information, but with unusual frequency. Periodic monitoring may enable an employer to detect and address internal threats earlier, thereby obviating the need for judicial intervention. Before engaging in any kind of monitoring, employers should disseminate policies that put employees on notice that the employers’ devices, systems, and accounts belong solely to the employer and may be monitored on a periodic or ongoing basis.

Conclusion

While these steps are intended to help employers protect their legitimate business interests, they are not comprehensive and are not guaranteed to protect against every threat of disclosure and other forms of misconduct. When implemented correctly, however, they should substantially reduce overall risk. In addition, where litigation is necessary, an employer that has implemented the above steps will have ample evidence to show that it both identified its legitimate business interests to its employees and notified them of their legal obligations to protect such interests. This can dramatically improve an employer’s chances of prevailing in court.

[1] SeeWhat’s Yours is Mine: How Employees are Putting Your Intellectual Property at Risk,” White Paper by the Ponemon Institute and Symantec Corporation (2013), available at https://www.ciosummits.com/media/solution_spotlight/OnlineAssett_Symantec_WhatsYoursIsMine.pdf.

[2] For a comprehensive checklist of steps employers can take, see “A primer and checklist for protecting trade secrets and other legitimate business interests before, during, and after lockdown and stay-at-home orders,” available at https://www.faircompetitionlaw.com/2020/05/17/a-primer-and-checklist-for-protecting-trade-secrets-and-other-legitimate-business-interests-before-during-and-after-lockdown-and-stay-at-home-orders/.

[3] See, e.g., “13 Signs That Someone Is About to Quit, According to Research,” by Timothy M. Gardner and Peter W. Hom, Harvard Business Review (Oct. 20, 2016), available at https://hbr.org/2016/10/13-signs-that-someone-is-about-to-quit-according-to-research.

 

Russell Beck is a founding partner of Beck Reed Riden LLP. He has authored books on trade secrets and restrictive covenants, assisted the Obama Administration on a Call to Action on noncompetes and trade secrets, drafted much of the Massachusetts Noncompetition Agreement Act, and revised the Massachusetts Uniform Trade Secrets Act. Russell teaches Trade Secrets and Restrictive Covenants at the Boston University School of Law and is President Elect of the Boston Bar Foundation.

Hannah Joseph is senior counsel at Beck Reed Riden LLP and focuses her practice on trade secrets and restrictive covenants law. Hannah regularly publishes and speaks on the topics of intellectual property law and restrictive covenants, including at the American Intellectual Property Law Association, Boston Bar Association, and Practising Law Institute. In addition, Hannah co-teaches the course Trade Secrets and Restrictive Covenants at Boston University School of Law.


Getting It Right: Bar Counsel’s Ethical Helpline Helps Lawyers Resolve Ethical Dilemmas and Avoid Sleepless Nights

by Robert M. Daniszewski and David A. Kluft

The Profession

It was a situation that would fray the nerves of any lawyer, even one inured by three decades of experience in handling criminal cases and the ethical issues that can go along with such a practice. The lawyer’s client was on trial for first-degree murder; he had allegedly attended a party hosted by the family of his ex-girlfriend and, while there, robbed and shot her new boyfriend. The Commonwealth rested its case after presenting evidence that included eyewitness testimony, surveillance video, and ballistics. The client, rather than exercise his Fifth Amendment right not to testify, and against the lawyer’s advice, told the lawyer that he planned to take the stand in his own defense. The lawyer understood that some specific aspects of the testimony the client planned to give would be false, which meant that the lawyer was now faced with a serious ethical problem if the client insisted on being called to the stand. Rule 3.3(e) of the Massachusetts Rules of Professional Responsibility prohibits attorneys from knowingly eliciting false testimony from a witness or referring to such evidence in closing arguments. The lawyer therefore needed to negotiate a path between two potentially conflicting ethical duties. As counsel for a criminally accused defendant, he needed to safeguard his client’s rights to a fair trial while zealously advocating for his acquittal. But as an officer of the court, he was forbidden from participating in the presentation or use of perjurious testimony. Failing to find the appropriate middle ground between these competing requirements could lead to dire consequences.

The solution to the lawyer’s dilemma came as a result of a telephone call to the “Ethical Helpline,” a service of the Office of Bar Counsel (OBC). The evening before the trial was set to resume, the lawyer called the Ethical Helpline and was put in touch with an experienced assistant bar counsel (ABC) to whom he explained the situation. She listened, directed the lawyer to the relevant rules, comments, and case law, and helped him outline the steps he would need to take during the trial to avoid assisting in the presentation of false testimony. As a result, the client offered his testimony in the form of a narrative rather than through the usual process of question and answer.

The procedure used by this lawyer, and the results of the case, are recounted by the Supreme Judicial Court in its recent decision, Commonwealth v. Leiva, 484 Mass. 766 (2020). Rejecting the client’s argument that having to testify by narrative was prejudicial to his defense, the justices noted the probity the lawyer had displayed, not only in the way he had handled the Rule 3.3 issue when it was time for his client to testify, but also in his decision the evening before to call OBC for guidance on how to proceed. Because of his “prudent advance consultation with bar counsel,” the lawyer had, in the Court’s words, “exemplified conduct befitting a member of our profession.” Id. at 784-85.

The Leiva case may be the first time a call to the Ethical Helpline has figured into a decision of the Supreme Judicial Court, but Leiva by no means represents the first time the Ethical Helpline has assisted an attorney in working through a difficult and stressful ethical problem. A staff of approximately a dozen ABCs collectively field about 2,000 calls every year through the Ethical Helpline as an adjunct to their usual duties investigating and prosecuting cases of alleged misconduct.

Unsurprisingly, the range of topics presented to the OBC through the Ethical Helpline is immense, covering nearly every aspect of the practice of law. On any given afternoon’s session, the Ethical Helpline may hear from a caller who is uncertain about how to deal with a client who has disappeared, a lawyer needing help applying the rules on advertising and solicitation to her marketing idea, or a sole practitioner attempting to untangle a knotty conflict-of-interest question that arises because of a promising job opportunity. Many of the calls, like the one in Leiva, supra, raise serious and urgent questions that go to the heart of the lawyer’s duties to a client.  For example, the Ethical Helpline has assisted numerous lawyers in deciding whether a client’s menacing words or declining cognitive state justify taking actions that might require disclosure of otherwise confidential information. The Ethical Helpline provides an opportunity to get immediate, practical guidance on these and many other situations that arise in a lawyer’s practice.

Both the evolving, technology-driven nature of the practice of law as well as the intrusion of outside events can shape the kinds of questions presented to OBC on the Ethical Helpline.  Callers increasingly inquire about emerging issues such as the ethical implications of storing case files in the cloud, or whether a firm can post a rebuttal to a negative online review. In connection with the coronavirus pandemic, helpline staff have fielded a variety of calls from lawyers who were attempting to cope with their inability to meet or appear in court with clients, comply with discovery deadlines, or otherwise attend to the needs of a case as they would have in the absence of Covid-19-related restrictions. The Ethical Helpline assists callers in dealing with these novel ethical problems while providing the added benefit of keeping ABCs abreast of real-world issues that are transforming the practice landscape.

Not all calls or questions are appropriate for the Ethical Helpline and there are limitations on how the information a caller receives should be used. The service is only offered to attorneys admitted in Massachusetts, rather than out-of-state lawyers, non-lawyer staff, or members of the general public. Moreover, the service is expressly offered for the purpose of assisting lawyers in resolving their own ethical dilemmas, not complaining about another attorney’s conduct. (Such complaints, which may be mandatory under Mass. R. Prof. C. 8.3 depending on the seriousness of the misconduct, should be directed to the Attorney and Consumer Assistance Program which performs the intake and screening functions for OBC.)

Importantly, the Ethical Helpline cannot offer legal opinions or legal advice, and lawyers who avail themselves of the service remain responsible for their own ethical conduct at all times. Because of the informal nature of the consultation and the limited facts presented on the call, the purpose and focus of the call is to assist lawyers in identifying  the ethical rules and principles that apply to their situation and clarifying any particular points  the caller needs to consider in order to address the situation appropriately. Depending on the nature of the problem, the Ethical Helpline may refer the caller to any of dozens of existing OBC web articles addressing topics that are relevant to the caller’s predicament. When a question is not clearly addressed by the rules or the comments thereto, and especially where the answer to a question depends on a question of substantive or procedural law outside the area of legal ethics, callers are advised to conduct their own further legal research in deciding how to proceed. In some instances, the ABC handling the call may suggest seeking a formal ethics opinion from the Massachusetts Bar Association or the Boston Bar Association.

Although callers to the Ethical Helpline do not identify the client or case that prompted the call, they do have to identify themselves; the Ethical Helpline does not take anonymous calls. However, bar counsel will not disclose the content of a call to third parties and generally will not act on any information provided by a caller except to offer guidance in construing the caller’s ethical responsibilities. The calls are not recorded, but the Office of Bar Counsel keeps a record indicating the date a call took place and the name of the ABC with whom the caller spoke. As in Leiva, the fact that a lawyer sought guidance from the Ethical Helpline on an issue may prove relevant in a subsequent ethical or court proceeding, whether as an indication of the lawyer’s good faith desire to resolve a problem appropriately, to show that, subsequent to the call, the lawyer acted in manner inconsistent with the guidance he or she had received, or for some other purpose. For the most part, however, lawyers contact the Ethical Helpline not with a view to create a record of having consulted OBC, but out of a sincere desire to make the right decision in addressing a complicated or unfamiliar ethical problem, and to get the peace of mind that comes when the right decision comes into focus.

The telephone number for the Ethical Helpline is (617) 728-8750. The service operates from 2:00 to 4:00 p.m. on Mondays, Wednesdays, and Fridays, although inquiries outside those days and hours can usually be accommodated for lawyers in need of emergency assistance. Lawyers who find themselves in an ethical quandary with no obvious solution, or who think they have arrived at the correct answer to an ethical dilemma on their own but simply want to talk it through before taking final action, should call the Ethical Helpline for assistance.

 

Robert Daniszewski is an Assistant Bar Counsel with the Massachusetts Board of Bar Overseers since 2014. In his prior civil practice, he concentrated on matters involving attorney professional responsibility, representing both lawyers and clients in such cases. He is a 1990 graduate of Boston College Law School.

Dave Kluft is an Assistant Bar Counsel with the Massachusetts Board of Bar Overseers. He graduated from Boston University Law School in 2003 and clerked for the Supreme Judicial Court. He is a former partner at Foley Hoag, and previously served on the Boston Bar Journal board of editors.


Bostock v. Clayton County, Georgia, 590 U.S. ___, 140 S. Ct. 1731 (2020)

by Amanda Hainsworth

Case Focus

Title VII of the Civil Rights Act of 1964 has protected employees from discrimination “because of … sex” for more than half a century. 42 U.S.C.§ 2000e-2. Over time, Title VII has been construed to prohibit a range of different forms of sex discrimination, including sex stereotyping and sexual harassment. Yet some lower courts have stopped short of including LGBTQ workers within Title VII’s ambit, leaving LGBTQ employees in more than half of the states across the country without employment discrimination protections.

This changed in June when the Supreme Court of the United States held, in a landmark 6-3 decision, Bostock v. Clayton County, Georgia, 590 U.S. __, 140 S. Ct. 1731, 1737 (2020), that Title VII’s ban on sex discrimination includes discrimination based on sexual orientation and transgender status. This decision is a major victory for LGBTQ people and advocates, and has significant implications that extend well beyond the employment context.

Background

The issue came to the Supreme Court in a trio of cases that raised essentially the same question: does Title VII bar employers from discriminating against a person because they are gay or transgender?

In Altitude Express, Inc., et al. v. Zarda, No. 17-1623, Donald Zarda was fired from his job as a skydiving instructor within days of mentioning to his employer that he was gay.

In R.G. & G.R. Harris Funeral Homes, Inc. v. EEOC, No. 18-107, Aimee Stephens was fired from her job after penning a letter to her employer disclosing her transgender status and intent to live and work full-time as a woman.

And in Bostock v. Clayton County, Georgia, No. 17-1618, Gerald Bostock was fired from his job after he began participating in a gay recreational softball league.

Each of these employees brought suit under Title VII, alleging unlawful discrimination because of sex. The Second and Sixth Circuits concluded that Title VII bars employers from firing people because of their sexual orientation (as to Mr. Zarda) or their transgender status (as to Ms. Stephens). In Mr. Bostock’s case, the Eleventh Circuit reached the opposite conclusion and held that Title VII does not prohibit employers from firing employees for being gay. The Supreme Court granted certiorari to resolve the circuit split over the scope of Title VII’s protections. Sadly, Mr. Zarda and Ms. Stephens both passed away before the Supreme Court issued its decision.

The Supreme Court’s Decision in Bostock

In Bostock, the Court unequivocally held that an employer who fires an individual for being gay or transgender violates Title VII. This is because, in firing a person for being gay or transgender, the employer has fired that person “for traits or actions it would not have questioned in members of a different sex,” which is exactly what Title VII prohibits. Bostock, 140 S. Ct. at 1737.

The Court relied heavily on the plain meaning of “because of . . . sex” at the time that Title VII was enacted. It proceeded on the assumption that, in 1964, “sex” signified male or female, and concluded that “because of” incorporated a traditional “but-for” causation standard, which the Court explained, “directs us to change one thing at a time and see if the outcome changes.” Bostock, 140 S. Ct. at 1739. Thus, an employer violates Title VII “if changing the employee’s sex would have yielded a different choice by the employer.” Id. at 1741. And, because “it is impossible to discriminate against a person for being homosexual or transgender without discriminating against that individual based on sex,” employers who do so are in violation of Title VII. Id.

To illustrate the point as to sexual orientation, the Court offered an example of an employer with two employees—one male and one female—both of whom are attracted to men and otherwise identical in all material respects. If the employer fired the male employee because he is attracted to men, but retained the female employee who is also attracted to men, then the employer has violated Title VII because the male employee’s sex was a necessary part of the termination decision.

To illustrate the point as to transgender status, the Court provided another example of an employer who fired a transgender woman because she was assigned male at birth. In this scenario, “[i]f the employer retains an otherwise identical employee who was identified as female at birth, the employer intentionally penalizes a person identified as male at birth for traits or actions that it tolerates in an employee identified as female at birth.” Bostock, 140 S. Ct. at 1741.  Here again, the employee’s sex was a necessary and impermissible part of the termination decision.

The Court rejected the employers’ argument that Congress did not intend Title VII to reach discrimination against LGBTQ people in 1964 when it enacted the statute. In doing so, the Court pointed out that there is no such thing as a “canon of donut holes” where Congress’ failure to directly address a specific circumstance that falls within a more general statutory rule creates an implicit exception to that general rule. Bostock, 140 S. Ct. at 1746-47. Instead, Title VII prohibits all forms of sex discrimination, however such discrimination might manifest and regardless of how else the discrimination might be characterized.

The Court also rejected the argument that Congress’ failure to pass amendments to expressly include sexual orientation and transgender status should be relevant to the Court’s interpretation of the statute. The Court noted that “speculation about why a later Congress declined to adopt new legislation offers a ‘particularly dangerous’ basis on which to rest an interpretation of an existing law a different and earlier Congress did adopt.” Bostock, 140 S. Ct. at 1747.

Finally, the Court rejected the employers’ argument that “sex” should be construed narrowly because of the “no-elephants-and-mouseholes canon” which “recognizes that Congress does not alter fundamental details of a regulatory scheme by speaking in vague or ancillary terms.” Bostock, 140 S. Ct. at 1753 (quoting Whitman v. Am. Trucking Assns., Inc., 531 U.S. 457, 468 (2001)). While the Court agreed that the Bostock holding is certainly an elephant, it rejected the idea that Title VII—a major federal civil rights law that is “written in starkly broad terms” and has “repeatedly produced unexpected applications”—is a mousehole. Id. Instead, the Court concluded, “[t]his elephant has never hidden in a mousehole; it has been standing before us all along.” Id.

Implications

The potential implications of the Bostock decision are sweeping.

The largest and most obvious implication is that LGBTQ people now have nationwide protection against discrimination by any employer covered by Title VII (i.e., any employer with fifteen or more employees). Although Massachusetts’s nondiscrimination law has protected LGBTQ people from employment discrimination for years, see G.L. ch. 151B, § 4, Bostock represents a sea change for those states without any employment discrimination protections for LGBTQ people. Employers in those states now need to, among other steps, review and update policies and procedures and employee benefits packages to ensure compliance.

More broadly, while the Court’s holding was limited to Title VII, Bostock may mean that other federal civil rights statutes that prohibit sex discrimination also prohibit discrimination on the basis of sexual orientation and transgender status. This is because courts routinely rely on rulings in Title VII cases to inform rulings in cases involving other civil rights laws with comparable prohibitions on sex discrimination. There are more than 100 different federal laws that prohibit sex discrimination in a wide variety of different contexts, including in education, credit, housing, healthcare, and military service. Bostock means that all of those laws may also protect LGBTQ people. Bostock also calls into question the legality of the Trump Administration’s efforts to roll back federal civil rights protections for LGBTQ people in areas such as education and school athletics (Title IX), the military, and the Affordable Care Act.

Beyond these implications, there will almost certainly be a great deal of litigation related to the interplay between federal civil rights laws and employers’ religious beliefs.  Title VII contains a narrow exception for discrimination on account of religion, but the Court did not address the extent to which employers will be permitted to discriminate against LGBTQ people based on religious beliefs.

Bostock also has potential implications for the standard of review that should be applied to federal equal protection claims involving discrimination against LGBTQ people.  Rational basis review has been applied to such claims since the Court’s decision in Romer v. Evans, 517 U.S. 620 (1996). But sex-based classifications have long been subject to intermediate scrutiny, and Bostock’s holding that discrimination against LGBTQ people is, at core, sex discrimination suggests that intermediate scrutiny should be applied to such claims moving forward.

And, finally, but perhaps most importantly, Bostock may help shine a light toward a world where LGBTQ people—and in particular Black and brown transgender people—can begin to live freely and openly, with a little less fear and a little less pain, and a little more opportunity to succeed and thrive.

*This article represents the opinions and legal conclusions of its author(s) and not necessarily those of the Office of the Attorney General.  Opinions of the Attorney General are formal documents rendered pursuant to specific statutory authority.

 

Amanda Hainsworth is an Assistant Attorney General in the Civil Rights Division of the Massachusetts Attorney General’s Office.


E.K. v. S.C.: A New Family Law Removal Inquiry Established by the Appeals Court

by Jessica Dubin

Heads Up

In E.K. v. S.C., 97 Mass. App. Ct. 403 (2020), the Appeals Court established a new removal inquiry that applies when an out-of-state, non-custodial parent seeks custody of a child living in Massachusetts and requests permission to move the child to the state where that parent resides. Previously, case law had addressed only the standards applicable to requests to remove a child out-of-state by a parent living in Massachusetts, and had established three different inquiries depending on the child’s custodial status.[1]

Background

The parties in this case were never married and had one child. As part of the judgment of paternity, the court awarded the parties shared legal custody of their child, primary physical custody to the mother, and parenting time of one weeknight per week and every other weekend to the father. Approximately six years later, the father filed a Complaint for Modification seeking sole legal custody and permission to move the child to New Hampshire, where the father already lived.  He alleged that the mother was acting contrary to the health, education and welfare of the child by unilaterally stopping the child’s medication, withdrawing him from a special needs school program without the father’s consent, and maintaining uninhabitable living conditions. After a bench trial, the judge found for the father.

The Appeals Court’s Decision

After concluding that the trial judge’s detailed findings of fact supported her conclusion that a material and substantial change of circumstances had occurred warranting a change in custody, the Appeals Court turned to the novel question of what removal inquiry should apply when a non-custodial parent seeks to relocate a child out-of-state to the state where that parent resides. The Court set forth a three-part inquiry:

  1. First, the judge must analyze whether a parent’s move out-of-state was motivated by a desire to deprive the custodial parent of time with the child. If the judge finds that the intent of the move was not to interfere with the custodial parent’s relationship with the child and that the move was not designed to establish a basis to request a change in physical custody, then the judge should proceed to the second inquiry.
  2. Second, the judge must determine whether the out-of-state parent is rooted in the community where that parent seeks to move the child. Factors analyzed as part of this inquiry may include the parent’s employment, financial situation, housing, family composition, and social and emotional benefits of that parent’s circumstances. If the judge finds that the parent is rooted in the community, this may be considered a “real advantage” to that parent. Once the out-of-state-parent demonstrates a “good, sincere reason” for the move, the judge should proceed to the third inquiry.
  3. If the first two inquiries favor the out-of-state parent, then the judge must determine the best interests of the child, including the impact the proposed move would have on each parent and the resultant effect on the child. The factors to be considered in this analysis include: “(1) whether the quality of the child[]’s [life] will be improved, including any improvement that ‘may flow from an improvement in the quality of the custodial parent’s life;’ (2) any possible ‘adverse effect of the elimination or curtailment of the child[ ]’s association with the noncustodial parent’; (3) ‘the extent to which moving or not moving will affect the [child’s] emotional, physical, or developmental needs’; (4) the interests of both parents; and (5) the possibility of an alternative visitation schedule for the noncustodial parent.” Murray v. Super, 87 Mass. App. Ct. 146, 150 (2015), quoting Dickenson v. Cogswell, 66 Mass. App. Ct. 442, 447 (2006).

Applying the “clearly erroneous” standard of review, the Appeals Court affirmed the trial judge’s findings that the father’s move to New Hampshire occurred long before any custody modification proceeding was contemplated and that he was firmly rooted in his community. Accordingly, the Court concluded that the father’s decision to move to and remain in New Hampshire provided him with a real advantage. Proceeding to the best interests of the child analysis, the Court held that the trial judge’s findings addressed all of the Murray factors and were supported by the record. The Court accepted the judge’s final determination that the father had the better ability to address the child’s significant needs.

Conclusion

Four different removal inquiries now exist. Which inquiry will apply depends on the facts of each particular case. The four inquiries that exist after E K. v. S.C. are as follows:

  1. when a parent who lives in Massachusetts has sole physical custody and seeks removal to another state, that request is analyzed using the real advantage standard pursuant to Yannas v. Frondistou-Yannas, 395 Mass. 704, 711-712 (1985);
  2. when a parent who lives in Massachusetts has shared physical custody and seeks removal to another state, that request is analyzed using the best interests of the child standard pursuant to Mason v. Coleman, 447 Mass. 177, 184-185 (2006);
  3. when a parent who lives in Massachusetts seeks removal to another state and no prior custody order exists, a judge must first perform a functional analysis regarding the parties’ respective parenting responsibilities to determine whether those more closely approximate sole or shared custody, and then apply the corresponding Yannas or Mason standard, pursuant to Miller v. Miller, 478 Mass. 642, 643 (2018); and
  4. when a non-custodial parent who lives outside of Massachusetts seeks removal to the state where the parent resides, the request is analyzed using the three-pronged inquiry outlined above pursuant to E.K. v. S.C.

[1] Although beyond the scope of this article, the Appeals Court also resolved these procedural issues: (i) motions for reconsideration continue to be subject to the requirements of  Standing Order 2-99 even though such motions were deleted from the Standing Order in 2012; (ii) although the trial judge should not have issued a temporary order changing custody without contemporaneous findings of fact, her failure to do so should not result in reversal on technical grounds when the mother failed to demonstrate prejudice from the delayed findings of fact; and (iii) the trial judge did not abuse her discretion in denying the mother’s motion to reopen evidence.

 

Jessica Dubin is a partner at Lee & Rivers LLP where she concentrates her practice on all aspects of family law.  Jessica is a member of the Boston Bar Association’s Council and Family Law Section Steering Committee, and serves on the Board of Editors of The Boston Bar Journal


IRS Focus on Tax Reporting of Virtual Currency Transactions

by Richard P. Breed, IV

Practice Tips

Virtual currencies, such as Bitcoin or Ethereum, have moved beyond curiosities, and have, for several years, become legitimate and accepted methods of payment and exchange. Federal and state regulators, including the United States Internal Revenue Service (“IRS”), however, have been slow to keep up – until now.

IRS Notice 2014-21

Since publishing its initial general guidance in IRS Notice 2014-21 (“Notice 2014-21”) concerning the tax treatment of certain transactions involving virtual currency, the IRS has taken few steps to enforce compliance. In fact, despite billions of dollars being exchanged through virtual currency, the IRS estimates that a substantial amount of taxable virtual currency transactions have not been reported by taxpayers. GAO-28-188 Taxation of Virtual Currencies at page 11. Recently, however, with the publication of additional guidance in October 2019 pursuant to IRS Revenue Ruling 2019-24 (“Rev. Rul. 2019-24”) and other actions, the IRS is working to increase taxpayers’ understanding of and voluntary compliance with reporting obligations for virtual currency. Tax counsel should be mindful of this policy shift and be prepared to advise clients about the inevitable increase in taxpayer audits and, in egregious cases, criminal charges.

Notice 2014-21 clarified that the IRS will apply existing tax principles applicable to property transactions to virtual currency. Therefore, payments for goods and services using virtual currency, or exchanges from one virtual currency to another, will be treated as sales or exchanges of property that trigger gain or loss for income tax purposes. Such gain or loss will be taxed as ordinary income/loss or capital gain/loss depending on the taxpayer’s circumstances. Taxpayers who receive virtual currency in exchange for goods or services recognize income in the amount of the fair market value of the virtual currency as of the date of the exchange. Taxpayers need to track their tax basis in the virtual currency in order to properly calculate the gain or loss upon its later disposition.

IRS Revenue Ruling 2019-24

Rev. Rul. 2019-24 provided additional guidance limited to the tax consequences of a “hard fork” and an “airdrop,” which are transactions unique to cryptocurrency and its blockchain technology. As explained in Rev. Rul. 2019-24 “cryptocurrency is a type of virtual currency that utilizes cryptography to secure transactions that are digitally recorded on a distributed ledger, such as a blockchain. Distributed ledger technology uses independent digital systems to record, share and synchronize transactions, the details of which can be recorded in multiple places at the same time with no central data store or administration functionality.” Id. at 2. A hard fork “occurs when a cryptocurrency on a distributed ledger undergoes a protocol change resulting in a permanent diversion from the legacy or existing distributed ledger” and “may result in the creation of a new distributed ledger in addition to the legacy cryptocurrency on the legacy distributed ledger.” Id. A hard fork followed by an airdrop results in the “distribution of units of the new currency to addresses containing the legacy cryptocurrency. However, a hard fork is not always followed by an airdrop.” Id.

Rev. Rul. 2019-24 clarified when a taxpayer has receipt, for income tax purposes, of cryptocurrency distributed to the taxpayer from an airdrop. The IRS concluded that such receipt occurs on the date the taxpayer exercises “dominion and control over the cryptocurrency,” such as the ability to “transfer, sell, exchange, or otherwise dispose of the cryptocurrency”, id. at 3, which can occur before or after the date on which the transaction is recorded on the distributed ledger for the cryptocurrency. Id. at 2-3.

Simultaneous with the publication of Rev. Rul. 2019-24, the IRS published (and further revised on December 31, 2019) forty-five “Frequently Asked Questions” (“FAQs”) designed to promote voluntary compliance with tax reporting of virtual currency transactions. The FAQs came on the heels of the IRS Virtual Currency Compliance Campaign, which had been launched in July 2018 and is designed to reduce noncompliance in tax reporting through additional education, outreach, and, if necessary, examinations.

Don’t expect the IRS, however, to rely solely on taxpayer voluntary compliance. For example, in 2018, the U.S. District Court for the Northern District of California granted the IRS’s motion to enforce its summons against Coinbase, Inc. (“Coinbase”), a virtual currency exchange platform, to turn over identification data, including tax ID numbers, on any user who engaged in a virtual currency transaction in excess of $20,000 from 2013-2015. United States v. Coinbase, Inc., 2017 U.S. Dist. LEXIS 196306, *21, Case No. 17-cv-01431-JSC, November 28, 2017. Coinbase ultimately transferred personal data and account information on over 13,000 users to the IRS. Id. Not surprisingly, using this information, the IRS sent 10,000 warning letters in early 2019 to taxpayers whom it thought failed to properly report at least one transaction involving virtual currency. The letters advised taxpayers to amend prior tax returns to report any virtual currency transactions. IR-2019-132, July 26, 2019. See also Shehan Chandrasekera, “How the IRS Knows You Owe Crypto Taxes,” Forbes (January 21, 2020).

IRS Amended Schedule 1 to Form 1040

To assist taxpayers for future years, beginning with calendar year 2019, the IRS also amended personal income tax form, Schedule 1 to Form 1040 to add a question concerning whether or not the taxpayer engaged in any transaction involving virtual currency during the year.  If so, the form directs the taxpayer to disclose such transaction, if taxable. Taxpayers may wish to seek assistance of tax counsel to decipher which transactions must be reported and to calculate any gain or loss.

IRS Solicitation of Virtual Currency Professionals to Assist in Audit of Tax Returns

Most recently, in May of 2020, the IRS began to privately solicit experienced virtual currency professionals to assist the IRS with taxpayer examinations dealing with virtual currency. A copy of that solicitation has been posted online by various sources and is available here.

Conclusion

It should be noted that the IRS has not indicated a plan to offer an amnesty-type program similar to the Offshore Voluntary Disclosure Program, which dealt with taxpayers who previously failed to report income or assets held in accounts the custodian for which is located outside the United States. In addition, it is unclear whether taxpayers who voluntarily amend their tax returns to report taxable income from virtual currency transactions will be entitled to relief from interest and penalties due for failing to report the income.

It is abundantly clear, however, that the IRS is focused on increasing compliance in reporting taxable transactions involving virtual currency, and that taxpayers need to be aware of this. For their part, tax counsel should be mindful of these developments when advising their clients and remain vigilant for additional notices and rulings in the ever-evolving field of virtual currency.

 

Richard P. Breed, IV is an associate with the firm Tarlow, Breed, Hart & Rodgers, P.C., whose practice concentrates on business and tax planning for individuals and privately-held businesses.


Commonwealth v. McCarthy: License Plate Reader Technology Can Trigger Constitutional Protections

by Jessie J. Rossman

Case Focus

In this age of increasing government monitoring of citizens in public spaces, the use of automated license plate readers (ALPRs) by law enforcement agencies has significantly increased the capacity for government surveillance of Massachusetts drivers on the roads and streets. A recent case decided by the Supreme Judicial Court suggests some limits on this surveillance.

ALPR systems capture and retain photographs of every license plate number that comes into view, along with the time, date and location. These systems can retain millions of historical records for months or years on end, and send real-time alerts on any license plate number entered into a “hot list.” According to one recent national survey, in 2016 and 2017 alone 173 law enforcement agencies scanned a total of 2.5 billion license plates.

In Commonwealth v. McCarthy, 484 Mass. 493 (2020), the Supreme Judicial Court addressed ALPRs for the first time. Although the Court affirmed the denial of defendant Jason McCarthy’s motion to suppress the warrantless search of data from four fixed ALPR units that captured information about his vehicle, the Court made clear that it would reach a different conclusion in cases involving more pervasive ALPR systems.

McCarthy joins a growing line of SJC and United States Supreme Court cases addressing the privacy implications of evolving surveillance technology. The Fourth Amendment of the United States Constitution and Article 14 of the Massachusetts Declaration of Rights protect an individual’s reasonable expectations of privacy from warrantless government intrusion. Technology has dramatically increased police officers’ surveillance capacity, overcoming the practical constraints and civilian oversight that historically checked such powers, and in doing so, has provided access to categories of information previously unknowable.

Mindful of these dangers, the SJC and SCOTUS have responded to ensure scientific advancements do not destroy traditional expectations of privacy. As the SJC emphasized in Commonwealth v. Almonor, 482 Mass. 35, 41 (2019), “both this Court and the United States Supreme Court have been careful to guard against the power of technology to shrink the realm of guaranteed privacy by emphasizing that privacy rights cannot be left at the mercy of advancing technology but rather must be preserved and protected as new technologies are adopted and applied by law enforcement.” Reflecting this understanding, the highest courts in the Commonwealth and the country have held that the police must obtain a warrant based on probable cause to conduct long-term GPS tracking of a car (Commonwealth v. Rousseau, 465 Mass. 372 (2013) and Commonwealth v. Connolly, 454 Mass. 808 (2009)), to obtain more than six hours of historical cell site location information (CSLI) from a cellphone, (Carpenter v. United States, 138 S. Ct. 2206 (2018), Commonwealth v. Augustine, 467 Mass. 230 (2014), and Commonwealth v. Estabrook, 472 Mass. 852 (2015)), and to use electronic surveillance of a cellphone to obtain real-time location information (Almonor).

McCarthy applied these established principles to a different surveillance-technology: ALPRs. Since 2015, the Massachusetts State Police has operated four ALPRs on the Sagamore and Bourne Bridges. Their cameras automatically feed images into a database maintained by the Executive Office of Public Safety and Security (EOPSS). As part of a narcotics investigation, the Barnstable Police Department searched for the appearance of McCarthy’s license plate in historical and real-time ALPR data from these four cameras without obtaining a warrant. In his motion to suppress, McCarthy argued that this warrantless access violated his constitutionally protected reasonable expectations of privacy, while the District Attorney suggested that art. 14 and the Fourth Amendment did not apply to these images because McCarthy knowingly exposed them to the public. Denying the motion, Superior Court Judge Robert Rufo opined, “[p]erhaps the defendants’ argument would be stronger if the ALPR Hot List was set to issue an Alert every time McCarthy’s vehicle passed any of the ALPR cameras installed at a multitude of locations statewide,” before noting that, “such a scenario is not in keeping with the facts before this court[.]”

The SJC took Judge Rufo’s reasoning one-step further. It affirmed that accessing ALPR data from “four cameras placed at two fixed locations on the ends of the Bourne and Sagamore bridges” did not trigger constitutional protections. But the Court went on to emphasize “[w]ith enough cameras in enough locations, the historic location data from an ALPR system in Massachusetts would invade a reasonable expectation of privacy and would constitute a search for constitutional purposes.” While the SJC did not demarcate the specific threshold that would require a warrant, it did provide some helpful guidance.

First, applying case law developed through cases involving GPS and CSLI, the SJC made clear that its precedents were anchored not in the particular type of technology used to conduct surveillance, but in the type of information collected via that technology. To that end, the SJC confirmed that technology which allows the police to “travel back in time,” obtain “real-time location data,” or conduct surveillance for a period of time that “drastically exceeds what would have been possible with traditional law enforcement methods,” will trigger constitutional protections.

Second, the SJC set forth some guideposts for future ALPR cases. It noted that EOPSS’ year-long retention period for ALPR data “certainly is long enough to warrant constitutional protection.” It also indicated that even a limited number of ALPRs may still trigger constitutional protections when they are placed “near constitutionally sensitive locations” such as “the home [or] a place of worship” that “reveal more of an individual’s life and associations[.]”

Finally, Chief Justice Gants’ concurrence proposed an “analytical framework that might prove useful in future cases.”  He suggested a warrant could be required for ALPR data that created a sufficiently detailed picture to be “the type of mosaic that would constitute a search,” and reasonable suspicion could be required for ALPR data that was less revealing of the individual’s movements “but greater than the four location points established in this record[.]”  This “would mean that law enforcement agencies would need to obtain court authorization more often before retrieving targeted individual historical locational information in their possession because queries that would not require a showing of probable cause might still require a showing of reasonable suspicion.” Chief Justice Gants also warned that, “unless the law enforcement agency has sought prior court approval to search for particularized locational data in its possession, the agency will have to preserve each and every search query for the retrieval of historical locational information regarding a targeted individual” and make it “available in discovery when sought by the defendant.”

McCarthy does not provide all of the answers regarding ALPRs. Additional clarity will ultimately come from future Court cases or new legislation to confer explicit privacy protection on data gathered by ALPRs and other caches of aggregated personal information. McCarthy already makes clear, however, that ALPR data can—and at a certain threshold does—trigger constitutional protections and the warrant requirement.

 

Jessie J. Rossman is a staff attorney at the American Civil Liberties Union of Massachusetts (ACLUM) and one of the authors of an amicus brief submitted in Commonwealth v. McCarthy on behalf of ACLUM, the Committee for Public Counsel Services, the Electronic Frontier Foundation, and the Massachusetts Association of Criminal Defense Lawyers.    


Don’t Say That! Are Non-Disparagement Orders Lawful?

by Fern Frolin and Timothy D. Braughler

Heads Up

 

In an opinion at the intersection of family and constitutional law, the Massachusetts Supreme Judicial Court (SJC) recently examined a parental non-disparagement order issued in child custody proceedings. In Shak v. Shak, 484 Mass. 658 (2020), the SJC held that an order prohibiting parents from disparaging one another was an unconstitutional restraint on speech in violation of the First Amendment to the United States Constitution and Article 16 of the Declaration of Rights, as amended by art. 77 of the Amendments.

Masha and Ronnie Shak had one child. When the child was one-year old, Masha filed for divorce and soon sought an emergency motion requiring Ronnie to vacate the marital home. A Probate and Family Court judge granted Masha temporary sole custody of the child and ordered Ronnie to vacate the home. The judge also issued temporary orders restraining both parents from posting information about the litigation on social media or disparaging the other, “especially when within the hearing range of the child.” Id. at 659.

Masha thereafter filed a complaint for civil contempt alleging that Ronnie had published numerous disparaging posts on social media in violation of the order.  Ronnie answered, in part, that the judge lacked authority “to issue [a] prior restraint on speech.” Id.

At the contempt hearing, a second Probate and Family Court judge held that the non-disparagement order as entered constituted an impermissible prior restraint of speech. The judge concluded, however, that a more narrowly drawn non-disparagement order that furthered a compelling State interest would be acceptable. The second judge redrew the non-disparagement order in language that (1) limited the prohibition on social media posts to disparagement “about the other party’s morality” or parenting ability; (2) prohibited any non-media disparagement only where the child was within 100 feet of the disparaging parent or where the child might otherwise see, hear or read the disparagement; and (3) provided for termination of the order on the child’s fourteenth  birthday. Id. at 660.

Rather than immediately implementing the new, narrower order, the judge reported two questions to the Appeals Court. First, are non-disparagement orders issued in the context of divorce litigation an impermissible restraint on free speech? Second, does protection of a minor child’s best interest render non-disparagement orders issued in the context of divorce litigation a compelling public interest and, therefore, a permissible limitation on free speech? The SJC granted an application for direct appellate review but declined to address the specific reported questions and, instead, considered whether the second judge’s non-disparagement order could stand.

“The term ‘prior restraint’ is used ‘to describe any administrative or judicial order forbidding certain communications when issued in advance of the time that such communications are to occur.’” Id., at 661, citing Alexander v. United States, 509 U.S. 544, 550 (1993), quoting M. Nimmer, Nimmer on Freedom of Speech § 4.03, at 4-14 (1984). By definition, a non-disparagement injunction prevents speech that has not yet happened is therefore a prior restraint. The SJC stressed that prior restraint on otherwise protected speech is the “most serious and the least tolerable infringement on First Amendment rights.” Id. at 661, quoting Nebraska Press Ass’n v. Stuart, 427 U.S. 539, 559 (1976). Therefore, a prior restraint on speech is acceptable only where the harm avoided is “grave”; the probability of the harm absent restriction is “all but certain”; and there exists no less restrictive means to mitigate the harm. Id. at 662. In short, prior restraint on speech requires exceptionally significant justification. Id. at 663, citing Commonwealth v. Barnes, 461 Mass. 644, 652 (2012).

The SJC accepted hypothetically the Commonwealth’s interest in protecting children “from emotional and psychological harm that might follow from exposure to one parent’s … disparaging words about the other,” but declined to hold that the interest is sufficiently “weighty” to justify prior restraints on speech. Id. at 663-64. The SJC held that in Shak, there was no showing that, absent the order, harm to this particular child was “either grave or certain. . .  .” Id. at 664. Noting the child’s young age, inability to read social media, and the absence of evidence of unique vulnerabilities, the SJC held the order unconstitutional due to lack of findings of grave, imminent harm to the child. The SJC continued that concerns about potential harm should the child discover the speech in the future were too speculative to justify a prior restraint. In so concluding, the SJC noted that anti-harassment and tort remedies may be available to a disparaged parent and voluntary non-disparagement agreements entered into by parents remain enforceable. It further reminded lawyers and parents that a parent’s disparaging language may well factor into custody determinations.

Shak instructs family law attorneys seeking non-disparagement orders to offer case-specific evidence of a child’s unique vulnerabilities, perhaps with evidence of past harmful consequences of the child’s exposure to parental conflict. Expert testimony might well bolster such evidence.  However, even if one secures a non-disparagement order, enforcement through contempt proceedings can be difficult. The order must be clear and unequivocal. In re Birchall, 454 Mass. 837, 838-39 (2009). Furthermore, courts may struggle with remedies for parents disparaging one another. But cf. Schechter v. Schechter, 88 Mass. App. Ct. 239, 247-48 (2015) (affirming suspension of parenting time where father’s negative behavior included disparaging mother in child’s presence).

Enforcement difficulties aside, family law attorneys should not misconstrue Shak to mean that non-disparagement orders should be avoided as unconstitutional. Indeed, the SJC especially endorsed voluntary non-disparagement orders, crafted by parties committed to civility, and cooperation. These agreements focus on the children’s best interests and remind parents that children benefit from parental harmony. Voluntary orders repeat what thoughtful parents already know: children experience disparaging language as conflict, and divorce conflict stresses children. The parents’ mutual promises in a notarized, court-approved agreement to refrain from harmful conduct may be far more meaningful to children and parents than a court-imposed speech limiting order ever could be.

 

Fern Frolin is Of Counsel to Mirick O’Connell, where focuses her practice on complex matrimonial cases. She strongly believes that nearly all family law matters can and should be settled and that the best matrimonial lawyers counsel their clients to consider their children’s best interests paramount in their settlement negotiations.

Tim Braughler is a Partner of Mirick O’Connell in the firm’s Boston office. Tim specializes in all aspects of family law including divorce, child custody, child support, alimony, paternity, adoptions, restraining orders, and pre- and post-nuptial agreements.