Gelfgatt, Jones, and the Future of Compelled Decryption

by Eric A. Haskell

Legal Analysis

As great quantities of data have come to repose in electronic devices, obtaining access to the content of those devices has come to be greatly important to law enforcement in many criminal investigations.  It sometimes happens that law enforcement has a right—typically pursuant to a search warrant—to search for data on a particular device, but is prevented from doing so by the presence of a password or other “key” that makes the data inaccessible or unreadable.  Law enforcement sometimes can bypass the password on its own.  See generally O.S. Kerr & B. Schneider, Encryption Workarounds, 106 Geo. L.J. 989 (2018).  But, other times, the only practical way law enforcement can execute the search is with the help of a person who knows the password.  Because the person who knows the password often is the suspect, their help generally is available only if compelled by court order.  Such “compelled decryption” implicates not only the constitutional requirement that the search of the device be “reasonable,” but also the suspect’s constitutional privilege against compelled self-incrimination.

Basic Principles of the Privilege Against Self-Incrimination

The Fifth Amendment to the federal Constitution provides that “[n]o person . . . shall be compelled . . . to be a witness against himself . . . .”  Article 12 of the Massachusetts Declaration of Rights similarly provides that “[n]o subject shall . . . be compelled to accuse, or furnish evidence against himself.”  Decisional law has interpreted these privileges to bar the government from: (1) compelling a person; (2) to make a testimonial communication; (3) that is incriminating.  Fisher v. United States, 425 U.S. 391, 408 (1976); Commonwealth v. Burgess, 426 Mass. 206, 218 (1997).

The privilege does not protect against compelled provision of a physical identifier such as fingerprints, a blood sample, or a handwriting exemplar.  See generally Schmerber v. California, 384 U.S. 757, 767 (1966); Commonwealth v. Brennan, 386 Mass. 772, 776-83 (1982).  This is because such identifiers do not “extort[] . . . information from the accused” or “attempt to force him to disclose the contents of his own mind,” and thus are not viewed as sufficiently “testimonial” for the privilege to attach.  Doe v. United States, 487 U.S. 201, 210-11 (1988).  Nor does the privilege shield documents from being disclosed pursuant to compulsion, even if their contents are incriminating.  United States v. Hubbell, 530 U.S. 27, 35-36 (2000).  This is because “the creation of those documents was not ‘compelled’ within the meaning of the privilege.”  Id.

The privilege may apply where the mere act of producing a document or a thing is “testimonial” in that it implies an incriminating assertion of fact, such as: that the demanded object exists; that the object produced is authentic; or that the suspect possesses or controls the object.  Fisher, 425 U.S. at 410; Commonwealth v. Hughes, 380 Mass. 583, 588-93 (1980).  But this “act of production” doctrine does not apply where law enforcement already has independent evidence of the incriminating assertions that the act of production would imply.  In other words, if the act of production “adds little or nothing to the sum total of [law enforcement’s] information,” then any facts implied by the act of production are “foregone conclusions” and the privilege does not apply.  Fisher, 425 U.S. at 411; Hughes, 380 Mass. at 592.

Commonwealth v. Gelfgatt

In Gelfgatt, the defendant was arrested in connection with a complex fraud scheme that involved the creation and recording of forged mortgage assignments.  Commonwealth v. Gelfgatt, 468 Mass. 512, 514-15 (2014).  On the day of his arrest, investigators seized several encrypted devices from his home and also interviewed the defendant, who asserted that he was capable of decrypting them.  Id. at 516-17.  After the defendant was charged with forgery, uttering, and attempted larceny, the Commonwealth filed a motion seeking to compel him to enter the passwords into the encrypted devices.  Id. at 517-18 & n.10.  The Superior Court denied the motion and reported the case to the SJC.

The SJC determined that the contents of the devices were not privileged on self-incrimination grounds because they had been “voluntarily created by the defendant in the course of his real estate dealings.”  Id. at 522 n.13.  The SJC then held that the defendant’s act of entering the passwords would be a testimonial act of production, because it would implicitly acknowledge his “ownership and control of the computers and their contents.”  Id. at 522.  But, the SJC continued, the defendant had already acknowledged as much in his statement to the police; thus, any facts implied by his entering the passwords were foregone conclusions.  Id. at 523-24.  In doing so, the SJC commented that the “foregone conclusion” exception would apply where law enforcement already was aware of “(1) the existence of the evidence demanded; (2) the possession or control of that evidence by the defendant; and (3) the authenticity of the evidence.”  Id. at 522 (citing Fisher, 425 U.S. at 410-13).

Commonwealth v. Jones

In Jones, the defendant was arrested and later charged with sex trafficking and deriving support from prostitution.  Commonwealth v. Jones, 481 Mass. 540, 543-44 (2019).  At the time of his arrest, he possessed a cellular telephone that, the police learned from other sources, he had used to facilitate prostitution transactions.  Id.  The Commonwealth filed a motion seeking to compel him to decrypt the telephone (although, as discussed below, the motion imprecisely described what it sought to compel him to do).  The motion judge demurred, interpreting Gelfgatt to require the Commonwealth to establish “(1) the existence of the evidence demanded; (2) the possession or control of that evidence by the defendant; and (3) the authenticity of the evidence,” and concluding that the Commonwealth had failed to demonstrate those propositions with “reasonable particularity.”  Id. at 545, 548, 553 n.14.  The Commonwealth subsequently made a renewed motion, furnishing additional evidence that, it argued, showed that the defendant’s knowledge of the telephone’s password was a foregone conclusion.  Id.  But the motion judge declined to consider the newly-furnished evidence without a showing that it had been unknown or unavailable to the Commonwealth at the time of the initial motion.  Id. at 545, 558-59.  The Commonwealth then sought relief before a single justice of the SJC, who reserved and reported the case to the full Court on three questions: (1) what burden of proof the Commonwealth must bear to establish the “foregone conclusion” exception to the privilege under Gelfgatt; (2) whether the Commonwealth had met that burden; and (3) whether the Commonwealth was required, in a renewed Gelfgatt motion, to show that any newly-furnished evidence had been unknown or unavailable at the time of the initial motion.

Before answering those questions, the SJC addressed a threshold issue:  What factual assertions must the Commonwealth demonstrate are “foregone conclusions” in order to obtain a Gelfgatt order?  The SJC answered that, when the Commonwealth seeks to compel a defendant to enter a password into a device, “the only fact conveyed . . . is that the defendant knows the password, and can therefore access the device.”  Id. at 547-48.  The Court rejected the proposition that the compelled entry of a password also asserts the defendant’s ownership and control of the device, observing that “individuals may very well know the password to an electronic device that is owned and controlled by another person.”  Id. at 547 n.8.  Accordingly, the SJC concluded, the Commonwealth may invoke the “foregone conclusion” exception simply by showing that the defendant knows the password.  Id.

Turning to the reported questions and relying on article 12, the SJC held that the Commonwealth must make that showing beyond a reasonable doubt.  Id. at 551-55.  Applying that standard, the Court found that the Commonwealth had shown the defendant’s knowledge of the password beyond a reasonable doubt, where: (1) the defendant possessed the telephone at the time of his arrest; (2) one month before his arrest, when asked by the police for his number, the defendant had provided the telephone’s number; (3) a woman told the police that the defendant used the telephone to facilitate prostitution transactions; (4) the telephone’s subscriber records were associated with a second number that was associated with the defendant; and (5) the telephone’s cellular site location information (CSLI) placed it in the same locations at the same times as another telephone that was confirmed to belong to the defendant.  Id. at 555-58 (“[S]hort of a direct admission, or an observation of the defendant entering the password himself and seeing the phone unlock, it is hard to imagine more conclusive evidence of the defendant’s knowledge of the [telephone’s] password.”).  Finally, the Court found that the motion judge abused his discretion by declining to consider evidence presented in the Commonwealth’s renewed motion that was not shown to have been unknown or unavailable at the time of the initial motion.  Id. at 558-61.  The Court observed that a Gelfgatt motion, “[m]uch like a search warrant application,” is an “investigatory tool,” the factual support for which may evolve over the course of an investigation.  Id. at 559-60.

The Future of Compelled Decryption

Although Gelfgatt and Jones mark the SJC as a national leader on compelled decryption issues, important questions remain to be answered.

  • Non-Gelfgatt Decryption Procedures

The order in Gelfgatt required the defendant to appear at a digital forensic lab, to enter the password into each device, and “immediately [to] move on . . . .”  468 Mass. at 517 n.10.  It also forbade the Commonwealth from viewing or recording the password entered by the defendant.  Id.  In contrast, the order sought in Jones was “not perfectly clear” as to what it would require the defendant to do, but “suggested that it sought to require the defendant to make a written disclosure of the actual password.”  481 Mass. at 546 n.9.  Acknowledging the possible infirmity with such a procedure, the SJC construed the order sought in Jones as tracking the one sought in Gelfgatt, and approved its issuance on that basis.  Id.

The SJC was correct to hesitate when faced with a request to compel the defendant to disclose his password to law enforcement.  This is because the compelled disclosure of a password is not a testimonial act of production to which the “foregone conclusion” exception might apply: Rather, it is a “pure” testimonial statement to which the “foregone conclusion” exception cannot apply.  See id. (acknowledging as much in dicta); see also United States v. Oloyede, Nos. 17-4102, 17-4186, 17-4191, & 17-4207, — F.3d —, 2019 WL 3432459 (4th Cir. Jul. 31, 2019) (distinguishing between suspect’s typing password into device and giving password to law enforcement).

Furthermore, in both Gelfgatt and Jones, the suspect was not compelled to produce any particular files from the device after decrypting it; that was left to the analyst executing the warrant.  In Jones, the SJC highlighted this aspect of the decryption procedure, observing that “the analysis would have been different” if the suspect had been compelled to produce particular files, because doing so “would implicitly testify to the existence of the files, [the suspect’s] control over them, and their authenticity.”  481 Mass. at 548 n.10.  In that situation, the Commonwealth would have been obligated to prove, beyond a reasonable doubt, that those additional assertions were foregone conclusions before it could obtain a corresponding Gelfgatt order.  Cf. Hubbell, 530 U.S. at 44-45 (act of production is privileged where grand jury subpoena would require recipient to produce documents whose existence and location were previously unknown to government).

  • Cloud-Based Storage

Gelfgatt and Jones both involved a tangible device that was in the physical possession of law enforcement.  But their holdings as to the privilege against compelled self-incrimination can also be applied to a request to compel decryption of a cloud-based digital space.  Such a request would follow the same analysis, with law enforcement required to: (1) have a right to search the cloud location; (2) show beyond a reasonable doubt that the suspect knows the password to access the cloud location, thereby availing itself of the “foregone conclusion” exception; and (3) allow the suspect to input the password in a way that law enforcement does not see or record.

  • Biometric Keys

In both Gelfgatt and Jones, the sought-after “key” was an alphanumeric password.  But a key can also take the form of a biometric such as a facial scan, retinal scan, or fingerprint.  Biometric keys introduce two novel questions:  (1) is compelled biometric decryption properly viewed as a testimonial act of production, and thus within the scope of the privilege against compelled self-incrimination?; and, if so, (2) what must law enforcement show is a “foregone conclusion” before it can compel such biometric decryption?

Courts have answered the first question both ways.  Some have viewed the compelled biometric decryption as no different than compelled provision of a traditional physical identifier, and thus nontestimonial.[1]  See, e.g., State v. Diamond, 905 N.W.2d 870, 875-76 (Minn. 2018); In re Search of [Redacted], 317 F. Supp. 3d 523, 535-37 (D.D.C. 2018); In re Search Warrant Application for [Redacted], 279 F. Supp. 3d 800, 803-05 (N.D. Ill. 2017); Commonwealth v. Baust, 89 Va. Cir. 267, 2014 WL 10355635 (Va. Cir. Ct. Oct. 28, 2014).  Others have reasoned that, unlike providing a physical identifier, compelled biometric decryption implies factual assertions about the suspect’s relationship with the device.  See, e.g., Seo v. State, 109 N.E.3d 418 (Ind. App. 2018), vacated and transferred to Ind. Supreme Court, 112 N.E.3d 1082 (Ind. 2018); In re Application for Search Warrant, 236 F. Supp. 3d 1066, 1073-74 (N.D. Ill. 2017); In re Search of a Residence in Oakland, Cal., 354 F. Supp. 3d 1010, 1015-16 (N.D. Cal. 2019); In re Search of White Google Pixel 3 XL Cellphone, No. 1:19-mj-10441, 2019 WL 2082709 at *3-4 (D. Idaho May 8, 2019).  No Massachusetts court has yet issued a published opinion on this issue.

In this author’s view, law enforcement should be prepared for a Massachusetts court to depart from the traditional treatment of compelled provision of a physical identifier, and instead to view compelled biometric decryption as a testimonial act of production.  Compelled provision of a physical identifier has been deemed nontestimonial not because it does not assert facts, but rather because the facts that it does assert are so “self-evident” as to be “[in]sufficiently testimonial for purposes of the privilege.”  Fisher, 425 U.S. at 411 (compelled handwriting exemplar is nontestimonial for purposes of the privilege, despite its asserting both that handwriting belongs to suspect and that suspect is literate); accord Commonwealth v. Nadworny, 396 Mass. 342, 363-64 (1985) (fact that defendant is right-handed, unlike handwriting exemplar itself, is testimonial, although “trivial”).  But, when law enforcement seeks to compel biometric decryption, its object is not merely provision of the biometric standing alone:  If it were, the method of capturing the biometric would not matter, and investigators could just as well take a photograph of the suspect’s face, or ink-and-paper impressions of his fingerprints.  Rather, the object of compelled biometric decryption is the interaction of the biometric, in a pre-programmed fashion, with a particular device.  The successful interaction of biometric and device, in contrast to the biometric standing alone, asserts at least one fact that neither is trivial nor is self-evident from the biometric—specifically, it asserts that the suspect’s biometric is capable of decrypting the device.[2]  See In re Application for Search Warrant, 236 F. Supp. 3d at 1073.  In other words, compelled biometric decryption asserts facts that are basically similar to those asserted by compelled decryption using a password.

This reasoning simultaneously answers both the first question of whether compelled biometric decryption should be viewed as a testimonial act of production (it should) and the second question of what law enforcement must establish is a “foregone conclusion” before it can compel such a biometric.  If the assertion implied by the compelled biometric decryption is that the suspect’s biometric is capable of decrypting the device, then, pursuant to Jones, that is what the Commonwealth must prove beyond a reasonable doubt.  As in Jones, the Commonwealth can do so through either direct evidence (e.g., that the suspect actually used his biometric to decrypt the device) or circumstantial evidence (e.g., that the suspect used the device in a manner indicating that he must have had the ability to do so).

As a practical matter, the utility of compelled biometric decryption to law enforcement may be circumscribed.  This is because some biometric-based security technologies—including Apple’s popular fingerprint-based Touch ID—self-disable if, since the last time the device was unlocked, too much time has passed, or the device has been restarted or has lost power, or multiple attempts to unlock the device have been unsuccessful.  See About Touch ID Advanced Security Technology.  In addition, law enforcement may have limited ability to both maintain power to a biometrically locked device and to secure it from network activity (i.e., to minimize the risk of remote wiping or deletion of data).  Perhaps for these reasons, federal practice has often encountered requests to compel biometric decryption made as part of an application for an omnibus search warrant to also authorize law enforcement: (1) to seize the device; and (2) to search the device for particular data after it has been seized and decrypted using the compelled biometric.  See, e.g., In re Search of a Residence in Oakland, 354 F. Supp. 3d at 1013; In re Search of [Redacted], 317 F. Supp. 3d at 525-26; In re Search Warrant Application for [Redacted], 279 F. Supp. 3d at 801-02; In re Application for Search Warrant, 236 F. Supp. 3d at 1066-67.

  • Ex Parte Gelfgatt Proceedings

Gelfgatt and Jones each arose in the posture of a motion filed in a criminal case in the Superior Court.  This posture suggests that, in those cases, any evidence contained on the encrypted device was not necessary to support charges against the defendant.  But some investigations will require a compelled decryption before charges can be brought.  It thus seems likely that some Gelfgatt motions will arise in an ex parte posture.

The Appeals Court has already addressed a Gelfgatt motion arising out of a grand jury investigation, concerning a device that the police had previously obtained a warrant to search.  See In re Grand Jury Investigation, 92 Mass. App. Ct. 531 (2017), further appellate review denied, 478 Mass. 1109 (2018).  The Commonwealth filed a sealed Gelfgatt motion in the Superior Court and attached documents containing grand jury evidence that, the Commonwealth argued, satisfied its burden under the “foregone conclusion” exception.  Id. at 532.  The Commonwealth served the motion, but not the attachments, on counsel for the individual whom it sought to compel.  The Appeals Court affirmed the Superior Court’s issuance of a Gelfgatt order, concluding that the attachments showed that it was a foregone conclusion that the individual knew the password, among other things.  Id. at 534-35; see also Burgess, 426 Mass. at 215-16 (Fifth Amendment applies in same way to grand jury witness/target as to indicted defendant).  The Appeals Court also specifically affirmed the non-disclosure of the attachments to counsel, reasoning that grand jury materials are secret, and that both the Superior Court judge and the appellate court could review the attachments on an ex parte basis.  Id. at 535-36.

It is a small step from In re Grand Jury Investigation to think that at least some Gelfgatt orders may be sought as part of a search warrant application.  Indeed, search warrant applications bear similarities to the motions sustained in Gelfgatt, Jones, and/or In re Grand Jury Investigation:  They are ex parte, they rely on affidavits rather than live testimony, and they form an “investigatory tool that aids investigators in obtaining material and relevant evidence related to a defendant’s conduct.”  Jones, 481 Mass. at 559.  As noted, search warrant applications seeking compelled biometric decryption have appeared in federal practice.  See, e.g., In re Search of a Residence in Oakland, 354 F. Supp. 3d at 1015-16; In re Search of [Redacted], 317 F. Supp. 3d at 535-37; In re Search Warrant Application for [Redacted], 279 F. Supp. 3d at 803-05; In re Application for Search Warrant, 236 F. Supp. 3d at 1073-74.  Nonetheless, a search warrant application seeking a Gelfgatt order in state court would entail innovations to Massachusetts search warrant practice that the applicant must be prepared to address.

The applicant must be prepared to show that the act sought to be compelled is of a type of evidence for which the Legislature has authorized issuance of a search warrant.  See G.L. c. 276, § 1 (enumerating categories of evidence that may be sought by search warrant).  Compelled biometric decryption likely will fall into that category.  See, e.g., In re Lavigne, 418 Mass. 831, 834-35 (1994) (statute authorizes use of warrant to procure bodily sample from suspect); cf. In re Search of [Redacted], 317 F. Supp. 3d at 540 n.13 (declining to decide whether Fed. R. Crim. P. 41 authorizes issuance of warrant to compel biometric decryption, and instead issuing warrant under All Writs Act, 28 U.S.C. § 1651).  Compelled decryption using a password, on the other hand, might not.

The applicant must also be prepared to show that the application does not trigger an adversarial hearing, which the SJC has required as a prerequisite for issuance of warrants for some especially invasive searches.  E.g., Lavigne, 418 Mass. at 835 (warrant to extract blood sample from suspect must be preceded by adversarial hearing at which court can weigh intrusiveness of procedure against need for evidence); Commonwealth v. Banville, 457 Mass. 530, 539-40 (2010) (warrant to obtain suspect’s DNA using buccal swab would have been preceded by adversarial hearing if it had occurred in Massachusetts).  So long as compelled biometric decryption “[does] not involve penetration into [the suspect’s] body,” Banville, 457 Mass. at 539 n.2, it likely will not trigger such a hearing.  See also Commonwealth v. Miles, 420 Mass. 67, 83 (1995) (ex parte order compelling suspect to appear and have his body inspected for poison ivy need not be preceded by hearing).

The applicant must take care to particularly identify the person whose biometric is to be compelled, perhaps by including a photograph and/or detailed physical description of that person in the warrant application papers.  This stems in part from the “particularity” requirement applicable to any search warrant.  See G.L. c. 276, § 2.  It also follows from this author’s view (above) that compelled biometric decryption may be analyzed under the “foregone conclusion” exception to the “act of production” privilege: If that view is accepted, the identity of the person whose biometric is to be compelled would form one aspect of the “foregone conclusion” that, under Jones, the Commonwealth must prove beyond a reasonable doubt.  The need for particularity in identifying the person whose biometric is to be compelled likely precludes law enforcement from obtaining a warrant to compel “any person present” at the warrant execution to apply his/her biometrics to a device.  Cf. In re Search of a Residence in Oakland, 354 F. Supp. 3d at 1014 (denying such authorization); In re Application for Search Warrant, 236 F. Supp. 3d at 1068-70 (same).

And the applicant should be explicit about the different burdens it must sustain to obtain such a warrant.  That a crime has occurred and that evidence related to the crime reasonably may be expected to be found in a particular place—requirements for issuance of any search warrant—need be demonstrated only to the level of probable cause.  That it is a foregone conclusion that a particular person’s biometric is capable of decrypting the device, however, must be demonstrated beyond a reasonable doubt in accordance with Jones.[3]  The applicant should consider explicitly articulating the applicable burdens in the warrant application papers, for the benefit of the reviewing judicial officer.

 

Eric A. Haskell is an Assistant Attorney General and a member of the BBJ Board of Editors. This article represents the opinions and legal conclusions of its author 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.

[1] To ensure that even the act of placing a finger on the screen of a device does not disclose the suspect’s thoughts, the orders in some of those cases have required the police—not the suspect—to select the finger that the suspect must place on the screen.  See In re Search of [Redacted], 317 F. Supp. 3d at 537, 539; In re Search Warrant Application for [Redacted], 279 F. Supp. 3d at 804.

[2] It also strongly implies that the suspect was the person who previously programmed the device to decrypt in response to his biometric; unlike an alphanumeric password, a biometric is unique and non-transferable.  Contrast Jones, 481 Mass. at 547 n.8 (suspect’s knowledge of password to device does not necessarily imply that he owns or controls device, because password can be transferred between persons).

[3] An additional showing might be required to authorize the suspect’s temporary detention for the purpose of compelling his biometric, although that showing may well be subsumed by the two discussed in the body text.  See Hayes v. Florida, 470 U.S. 811, 816-17 (1985) (holding that police cannot transport suspect to station for fingerprinting without probable cause or prior judicial authorization, but suggesting that seizure of suspect in field for fingerprinting may be permissible based on less than probable cause in some circumstances); see also In re Search of [Redacted], 317 F. Supp. 3d at 532-33 (applying Hayes to authorize warrant to detain person for compelled biometric decryption if: “(1) the procedure is carried out with dispatch and in the immediate vicinity of the premises to be searched, and if, at time of the compulsion, the government has (2) reasonable suspicion that the suspect has committed a criminal act that is the subject matter of the warrant, and (3) reasonable suspicion that the individual’s biometric features will unlock the device, that is, for example, because there is a reasonable suspicion to believe that the individual is a user of the device”); cf. Commonwealth v. Catanzaro, 441 Mass. 46, 52 (2004) (search warrant implies authority to detain occupants of premises while search is conducted).


Spaulding v. Town of Natick School Committee: Allowing Free Speech while Accomplishing Municipal Work

by Mina Makarious and Paul Kominers

Legal Analysis

The Middlesex Superior Court’s November 2018 decision on cross-motions for partial summary judgment in Spaulding v. Town of Natick School Committee, MICV2018-01115 (Nov. 21, 2018) (Kirpalani, J.), is a reminder that all constitutional rights (like all politics) are local. The case arose from a series of School Committee meetings, the type of quintessential local government activity repeated daily in hundreds of cities and towns throughout the Commonwealth. Notwithstanding this seemingly banal background, the issues in the case are at the heart of the First Amendment’s powers and its limits — namely, how strictly a governmental entity can regulate speech in a public forum it has itself created. The answer, according to Spaulding, is that a local government body can control speech just enough to allow it to focus on the tasks at hand, but no more.

Factual Background

In Spaulding, two mothers of former Natick Public School students had attempted to speak during “Public Speak” portions of Natick School Committee meetings. The School Committee reserved the Public Speak portion of each meeting to permit members of the public to address the School Committee without response from its members. The Committee had a participation policy for this portion of the meetings that, among other things, (1) limited each speaker to three minutes of time; (2) advised speakers that “[i]mproper conduct or remarks will not be allowed. Defamatory or abusive remarks are always out of order,” and (3) instructed speakers that they “may offer such objective criticisms of the school operations and programs as concern them, but in public session the [School] Committee will not hear personal complaints of school personnel nor against any member of the school community.”

The School Committee applied this policy to restrict or prevent the two mothers from speaking on at least three occasions. The ACLU, on behalf of Ms. Spaulding and Ms. Sutter, challenged the School Committee’s participation policy facially, and as applied to the two mothers. The plaintiffs argued that the policy was not content-neutral and failed to set definite standards on what speech was allowed. The plaintiffs sought partial summary judgment declaring portions of the participation policy unconstitutional.

Facial Challenge

The court first assessed whether Public Speak was a traditional, designated, or limited public forum, quickly concluding that the Public Speak is a “designated” public forum, or a forum “which the government has opened for use by the public as a place to assemble or debate.” In designated public fora, the government may impose reasonable time, place, and manner restrictions on the exercise of free speech rights. However, any content-based restrictions must pass strict scrutiny, meaning they must be narrowly tailored to advance compelling government interests.

The court accepted that the School Committee had a compelling interest in conducting its business in an orderly and efficient fashion and that it therefore had the right to manage public participation at its meetings so long as it did so using rules narrowly tailored to advance that end.  To assess whether the School Committee’s rule barring “personal complaints of school personnel,” or complaints “against any member of the school community” was narrowly-tailored, the court first reviewed the School Committee’s jurisdiction. It determined that the School Committee had jurisdiction over their district’s superintendent, budget, and overall goals and policies.  The School Committee exercised no direct control over personnel other than the superintendent, and therefore could properly bar personal complaints against personnel other than the superintendent from Public Speak. Attendees could, however, voice personal complaints about the superintendent, and the participation rules were unconstitutional insofar as they barred such complaints.

The court also took issue with the requirement that the comments be “objective.”  It held (after reviewing definitions of “objective” and “subjective”) that while a requirement that comments be based on “externally verifiable phenomena” might be proper, the School Committee acted improperly in prohibiting subjective comments rooted in individuals’ concerns.

Finally, the court held that the portion of the policy barring those making otherwise germane and appropriate comments from identifying the parties involved was unconstitutional.  The public’s free speech rights, the court held, superseded any interest the School Committee had in protecting community members’ privacy.

The court then turned to the section of the Participation Policy prohibiting “defamatory” or “improper and abusive” remarks, holding that the policy banning “defamatory” remarks was constitutional only to the extent that it barred speech that had actually been adjudicated defamatory. Otherwise, the policy would be an unconstitutional prior restraint on speech concerning public officials and public business. The court read a similar limit into the policy on “improper and abusive” remarks, holding it was only constitutional to the extent that it barred threats, fighting words, or obscene content – all types of speech at the outer limits of First Amendment protection.

As-Applied Challenges

The court then ruled on the plaintiffs’ as-applied challenges to the plaintiffs’ treatment at the January 8, February 5, and March 12 meetings.

On January 8, Spaulding had introduced herself as “the mother of a child that was mercilessly bullied into suicide here in Natick” before School Committee members cut her off. After hearing just her first sentence, the court ruled, School Committee members could not have known whether Spaulding’s comment would pertain to business within their jurisdiction. If particular students or teachers had bullied her child, then she had no right to say so at Public Speak, but if the bullying had somehow been committed by the superintendent, school operations, or school policies, then she did.

On February 5, Sutter began to speak about the “retaliation and retribution” she and her family had received “at the hands of the Natick Public Schools.” School Committee members quickly reprimanded her, insisted that she stop speaking, and then suspended the meeting. As with the analysis of the January 8 meeting, the court held that the School Committee cut Sutter off before she could make clear whether her complaints were about aspects of the school system within or outside of the School Committee’s jurisdiction. The court also noted that the Participation Policy did not bar discussion of Public Speak itself.

On March 12, Sutter again began to speak about “retaliation and retribution.” The School Committee reminded her that, under the participation policy, she could not discuss individuals or make defamatory statements. The court held that, again, Sutter had the right to discuss the superintendent or discuss operations or policies within the School Committee’s jurisdiction, whether her comments were positive or not.

What the Court’s Decision Means for Cities and Towns

Spaulding was settled shortly after the trial court’s decision, so there will be no appellate review. Nonetheless, the case holds some important lessons for local government entities.

First, Spaulding’s conclusion that Public Speak was a “designated” public forum implies that if the Natick School Committee had not included the Public Speak portion of the meeting in the first place, it would not have created a public forum in which it had to hear the plaintiffs. Government entities cannot choose whether traditional public fora like sidewalks and parks will be open to speech, but they can decide whether to designate and maintain non-traditional public fora.

Second, the fact that the plaintiffs sought to speak during the “Public Speak” portions of the school committee’s meetings, rather than during the School Committee’s conduct of its scheduled business, is also important because the Massachusetts Open Meeting Law requires public bodies to set agendas for their meetings and adhere to the topics on the agenda. G.L. c. 30A, § 20(b). The plaintiffs did not appear to challenge, for instance, the School Committee chair’s asking certain audience members to restate their comments at a later part of the meeting when particular issues were due to be taken up. Further, as noted in the case, the Open Meeting Law also gives the chair of a local public body the authority to determine whether to allow public input at all during the conduct of its business. Id., § 20(g). Thus, absent an open-ended portion of an agenda such as the “Public Speak” portion of the Natick School Committee meetings, public bodies may have significantly more power to ask members of the public to focus their comments on the particular issue at hand. In other words, public bodies certainly may do their jobs, and may focus on doing so.

Third, notwithstanding these first two lessons, refusing to create opportunities for public dialogue is likely a shortsighted approach to addressing First Amendment issues. No local government entity can completely immunize itself from criticism, and neither should it be able to.  Van Liew v. Stansfield, 474 Mass. 31, 38–39 (2016) (remarks about a local official are “at the core of the speech that the First Amendment to the United States Constitution protects”). Providing opportunities for public input, as uncomfortable as it may be for elected or appointed officials to hear, promotes good governance and an opportunity for those officials to engage on important issues. Thus, local governments should think very hard before simply closing off all opportunities for public input at public meetings.

Fourth, the court made clear that public bodies could limit public comments to issues within the public body’s jurisdiction. However, where that jurisdiction begins and ends can be difficult to determine. In Spaulding, the court agreed that if the plaintiffs had in fact begun to discuss particular personnel (other than the superintendent) or students, the School Committee could end those comments because the Committee’s role was limited to policy issues. Local government officials therefore need not fear that they will entertain comments that are outside of their roles or face pressure to assert jurisdiction over issues on which they legally have no say. On the other hand, one could argue that the School Committee’s jurisdiction was broad enough to include investigating those incidents to determine whether they warranted policy changes. Further, while not at issue in Spaulding, one can easily imagine a situation in which a local board or committee had previously asserted that it did have broad jurisdiction to address a particular issue, which could make it difficult to exclude speech on that issue later.

Finally, once the government body permits the public to speak on a topic within the government body’s jurisdiction, and the speaker does so at the appropriate time, the government body cannot silence the speaker based on what they say on that topic. This is at the core of First Amendment jurisprudence. The government cannot tell the public what to say; rather, it can only place reasonable restrictions on where and when to say it. The School Committee’s key error in Spaulding, it appears, was not in opening the School Committee meetings for speech, or in requiring speakers to stay on topic.  Rather, the mistake was in prematurely cutting off speakers they believed would discuss topics the public officials deemed inappropriate.  Although it can be difficult to do so, public officials should remain open to letting members of the public make their complete comments and, only if necessary, redirect speakers to stay on topic. Further, fears that what a member of the public might say could create liability for public officials (e.g., if members of the public discuss private matters) can be overstated: given the speech courts require be permitted, it is unlikely that a court could construe a public officials’ mere listening to speech as endorsing a particular viewpoint.

Biography

Mina S. Makarious is a partner at Anderson & Kreiger LLP in Boston. He is Town Counsel to the Towns of Concord and Lexington, and advises these and other municipalities on constitutional, governance, and other issues. He is the Co-Chair of the BBA’s Environmental Section.

Paul M. Kominers is an associate at Anderson & Kreiger LLP. He advises municipal and other governmental clients on litigation, constitutional, governance, and other issues.


Taming a Strange New Beast: Securities Regulators Take on Digital Currency

by Jack Falvey and Brendan Radke

Legal Analysis

The emergence of blockchain technology led in recent years to a surge in sales and trading of digital currencies – including well-known currencies like Bitcoin as well as hundreds of offerings of so-called digital “tokens” issued for use on individual websites. In 2017 and 2018 alone, more than $20 billion was raised through “initial coin offerings,” in which technology companies, typically startups, sold tokens for use on their web- based platforms. Federal and state regulators have scrambled to understand the technologies behind this new class of assets, including whether and by whom they should be regulated. The federal Securities and Exchange Commission (“SEC”) has been at the forefront in these efforts. In April 2019, after two years of proceeding in fits and starts, it recently issued guidance that finally seeks to set firm ground rules for issuers. This article reviews the SEC’s and other regulatory and enforcement responses to date, and the landscape going forward.

Digital Currency Basics

What is Blockchain Technology?

Digital currency is built on blockchain technology, often described as a “distributed ledger” digital technology. A blockchain is a form of online database that operates upon a peer-to-peer network of computers. Those networks may be decentralized, meaning that transactions upon the ledger are independently verified by individual computers (called nodes) accessing the network rather than being routed through a proprietary central data system. In a blockchain transaction, a user requests a transaction; that request is broadcast to the network of nodes; and those nodes verify the transaction and the user’s status through a known algorithm. Once verified, the transaction is combined with others and memorialized in entries called “blocks” of data for the ledger. Finally, the new block is cryptographically (i.e., securely) linked to the previous block after validation by the network, and added to the existing blockchain. The resulting blockchain is immutable, and the new block of data then is available to the next user on the chain. Major financial and technology firms have embraced and invested heavily in blockchain: it is widely expected to cut costs and processing times sharply in fields such as financial services and supply chains.

What is Digital Currency?

The best-known application of blockchain is Bitcoin, the digital currency created over a decade ago whose market value rose as high as $20,000 per digital coin at its peak in 2017 before falling sharply since. Bitcoin and its competitors (such as Ether and Litecoin) are sometimes referred to as “cryptocurrencies” – digital assets that can be used as exchange media in online commercial transactions with parties. The novelty of cryptocurrency is that it requires no third-party bank or other agency to clear transactions: the transfer occurs directly between two parties and is permanently memorialized on the blockchain. Cryptocurrencies are now exchange-traded and widely distributed, with growing acceptance among mainstream businesses.

Digital currency also includes so-called digital “tokens,” a term used because conceptually, they are said to operate like arcade tokens – they function like money on the host’s website. A digital token typically works on the framework of an existing blockchain (say, on the Ethereum blockchain) rather than a blockchain unique to the issuing company, and is generally capable of use only upon the issuing company’s application. Hundreds of companies have issued tokens as a feature of their applications – typically to attract users to the site and seek to build loyalty in a wide range of uses.

What is an Initial Coin Offering?

Issuers have offered tokens for sale in a process referred to as an “initial coin offering” or “ICO.” In advance of token sales, offerors have issued an offering document, usually referred to as a “white paper,” that generally described the company, its plans for the token sales and their intended use, and, to varying extents, how the issuer plans to use the proceeds from the token sales. Until recently, the offerors usually didn’t conceive of the tokens as securities, in part because the tokens had a designated utility on the offeror’s web-based platform, and in part because they were referred to as “tokens” or “coins.” The offering materials typically had nowhere near the required content of a registration statement that would need to have been filed with the SEC in an offering of securities.

Despite the often scant offering information, ICOs in the last several years attracted a community of purchasers who collected and traded the tokens. Issuers sold tokens in limited supply; and third parties launched unregulated, online trading exchanges through which tokens could be traded and their value bid higher than the issuing price. The result was a considerable amount of speculation on their value.

The market for digital tokens exploded in 2017 and early 2018. While available data is inexact, hundreds of ICOs are thought to have raised roughly $20 billion in those two years alone. Total funds raised through ICOs increased from 2017 to 2018, while at the same time the average offering size was halved, from an average of $24 million in 2017 to $12 million in 2018. ICOs were launched around the globe. Initially, China had the largest presence in this market (until it essentially outlawed them in late 2017). The United States accounted for most of the market in 2017, and the United Kingdom, Singapore, and Eastern European countries also became popular forums.[1] Amounts raised have dropped sharply since early 2018, with an estimated $100 million having been raised in the first several months of 2019.[2]

The SEC Takes on Digital Currency

The success of many ICOs and the subsequent climb in many tokens’ trading value commanded the attention of state and federal regulators in 2016 and 2017. The SEC saw a need to balance “support [of] innovation and the application of beneficial technologies” with concerns that issuers were essentially raising capital in defiance of securities laws.[3]

The DAO Report and Munchee Order

In mid-2017 – after billions had already been raised through ICOs – the SEC began a series of incremental steps to delineate its regulatory and enforcement reach.[4] In the so-called DAO Report issued in July 2017 (involving a virtual organization known as “the DAO”), the SEC announced that digital currencies were securities if they met the test for an “investment contract,” an enumerated type of security under the federal securities laws.[5] The SEC applied the Supreme Court’s 1946 decision in SEC v. W.J. Howey Co. that defined an investment contract – essentially, any contract that involves an investment of money in a common enterprise with a reasonable expectation of profits from the efforts of others.[6] The DAO Report found the digital token at issue to be a security, but under a relatively unique set of facts; the DAO currency carried with it voting and profit-sharing rights, which most digital currencies lack and which strongly resemble rights associated with common stock.[7]

The next SEC action of note was its December 2017 Cease and Desist Order to a token issuer called Munchee that provided more generally-applicable guidance.[8] The Munchee Order indicated that a token would likely be deemed a security if a company: primed purchasers to expect profits (e.g., by describing how a token would or could increase in value); broadly marketed tokens rather than targeting sales to users of the platform; and/or used proceeds from the token sale to further develop the platform. All of these activities suggested that the Munchee token met the key Howey factors: purchasers reasonably expected to profit from the efforts of others by holding the tokens and were investing in a common enterprise, i.e., development of the platform. The company agreed to shut down its offering.

SEC Enforcement Remedies for Failure to Register

In late 2017 and most of 2018, the SEC stepped up its public statements referring to digital currencies as securities. Top SEC officials noted that they were proceeding carefully but also that, as SEC Chairman Clayton stated in late 2017, he had “yet to see an ICO that doesn’t have a sufficient number of hallmarks of a security.” The SEC had issued dozens of investigatory subpoenas to issuers in 2017, but it had commenced few actions against digital currency offerors.

In late 2018, the SEC brought and settled two enforcement actions spelling out, for the first time, the remedies that it would demand where it determined that an ICO amounted to an unregistered securities offering. In each case it: imposed penalties of $250,000; required implementation of a public claims process whereby investors who purchased the tokens in the initial offering would notified of their rights to sue and a mechanism by which they could recover the consideration paid for the tokens plus any amounts to which they are entitled under Section 12(a) of the Securities Act; required registration of the tokens as securities; and required ongoing compliance with its public reporting requirements.[9]

The SEC’s settlement in February 2019 settlement with Gladius Network was also significant, since it signaled the somewhat softer line it would take in a scenario where the issuer self-reported and cooperated. As with the prior settlements, the company agreed to register its tokens and establish a notice and claims process, but avoided any monetary penalty due to its self-report, cooperation, and remedial steps.[10]

The April 2019 Investment Contract Framework and First No-Action Letter

Finally, and most recently, the SEC announced on April 3, 2019 two significant actions. First, it issued a “Framework for ‘Investment Contract’ Analysis of Digital Assets” (“Framework”) that, though not a rule or regulation, provides a roadmap for how the SEC intends to apply Howey.[11] It states essentially that two factors drive its analysis: whether the purchaser would be relying on managerial efforts of others, and whether he or she anticipated profits from those efforts. Key factual considerations are: the state of development of the issuer’s network; whether company management continued to oversee it; and whether the issuer had taken any steps to enhance the token’s market price including its tradability on secondary markets. A token has a better chance of avoiding classification as a security if (1) the token is not designed for use as an investment, (2) the network on which it is utilized is complete prior to the sale, and (3) there is little, if any, opportunity for price appreciation.

On the same date, the SEC’s Corporation Finance Division issued is first “no-action letter” to a token issuer, allowing it to proceed with an unregistered token issuance on the issuer’s proposed terms, which aligned with the Framework factors.[12] The requestor, TurnKey Jet, Inc. proposed to issue a token usable to purchase private jet services through its network. The SEC stated it would take no action against the company if the unregistered sale adhered to the proposed terms. Among the terms prescribed in the letter were that the tokens were usable immediately upon sale, TurnKey Jet would not use sale proceeds to develop its network, the tokens’ value was fixed at a dollar, they would be repurchased only at a discount and could not be used or transferred elsewhere, and that marketing would focus solely on the tokens’ functionality.

The Framework and no-action letter together provide a guide to whether and how an offeror may avoid having its token classified as a security and being subject to SEC registration and regulation. Alternatively, token issuers whose tokens will be deemed securities might be able to structure more restricted offerings so as to comply with any of several different exemptions: Regulation D, applicable to private offerings to qualified investors; Regulation S, a safe harbor applicable to offerings occurring solely overseas; or Regulation A+, providing a streamlined process for SEC registration, disclosure, and review of certain offerings capped at $50 million, with other restrictions.[13] Finally, more established digital-token offerors may just bite the bullet and pursue a traditional securities offering. For example, in April 2019, blockchain software provider Blockstack filed with the SEC a securities registration statement for a $50 million token sale pursuant to Regulation A+.

Other Federal and State Law Enforcement

While the SEC has been the most visible actor, a range of government agencies have sought to regulate or launch enforcement matters in connection with ICO activity. They include:

U.S. Department of Justice: The Department of Justice has actively investigated and prosecuted a number of high-profile cases against individuals for fraud and money laundering based on deliberate and materially misleading statements in connection with ICOs and other token sales. Recent cases include United States v. Zaslavskiy, No. 17-CR-647 (E.D.N.Y.) (filed October 2017), the first federal criminal action against an ICO issuer; United States v. Rice, No. 3:18-CR-587-K (N.D. Tex.) (filed November 2018); and United States v. Crater, No. 19-CR-10063 (D. Mass.) (filed February 2019).

U.S. Commodity Futures Trading Commission: The Commodity Futures Trading Commission (“CFTC”) views certain digital currencies as commodities and has pursued enforcement actions and published extensive guidance in the area.[14] It deems virtual currencies to be commodities under the Commodity Exchange Act,[15] which prohibits fraud in the sale or trading of commodities and derivative instruments based upon commodities. Recently, two federal courts upheld the CFTC’s position that digital currencies are commodities.[16]

Financial Crimes Enforcement Network: FinCen, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network, has issued guidance concerning digital currency since 2013. In 2018, it announced that it too intends to apply its regulatory requirements to digital currencies, and on May 9, 2019, it issued extensive guidance describing how crypto businesses may be considered “money transmitters” and thus subject to the restrictions of the Bank Secrecy Act and other laws.[17]

State regulators and Cross Border Actions: Securities and financial services regulators in Texas, Massachusetts, and New York all have brought recent enforcement matters. Cross-border, the North American Securities Administrators Association, an organization of state, provincial, and territorial securities regulators, announced a coordinated series of state and provincial enforcement actions in the United States and Canada.[18]

Conclusion

The SEC has proceeded cautiously in its early years of addressing digital currency offerings. Ultimately, though, its enforcement matters in 2017 and 2018, capped by its April 2019 guidance, have sought to thwart the use of ICOs to raise operating capital without complying with securities laws. Going forward, those involved in digital currency offerings will need to navigate carefully the federal securities laws, other federal and state laws, and the efforts of myriad enforcement authorities who will be closely watching the digital currency arena for currency, antifraud, and other regulatory compliance.

 

Jack Falvey is a partner at Goodwin in Boston, where he represents companies and individuals in securities-related and other white collar matters as well as a range of complex civil litigation. He has represented digital currency issuers in matters before the SEC and other enforcement agencies. He was a federal prosecutor in Boston from 1994 to 2000. 

Brendan Radke is a senior associate at Goodwin in San Francisco. His practice includes a variety of work within the cryptocurrency and blockchain sectors, as well as commercial, intellectual property, securities, and white collar litigation.

 

[1] Daniele Pozzi, ICO Market 2018 vs 2017: Trends, Capitalization, Localization, Industries, Success Rate, Cointelegraph (Jan. 5, 2019), https://cointelegraph.com/news/ico-market-2018-vs-2017-trends-capitalization-localization-industries-success-rate.

[2] #Crypto Utopia, Autonomous NEXT, https://next.autonomous.com/crypto-utopia (last visited May 16, 2019); Paul Vigna, Bitcoin Is in the Dumps, Spreading Gloom Over Crypto World, WSJ (Mar. 19, 2019), https://www.wsj.com/articles/bitcoin-is-in-the-dumps-spreading-gloom-over-crypto-world-11552927208?mod=searchresults&page=1&pos=5.

[3] Public Statement on Digital Asset Securities Issuance and Trading (Nov. 16, 2018), https://www.sec.gov/news/public-statement/digital-asset-securities-issuance-and-trading

[4] William Hinman, Director, Division of Corporation Finance, Remarks at the Yahoo Finance All Markets Summit: Crypto (June 14, 2018), https://www.sec.gov/news/speech/speech-hinman-061418.

[5] Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO, Exchange Act Release No. 81207 (July 25, 2017), https://www.sec.gov/litigation/investreport/34-81207.pdf. (“The DAO Report”).

[6] Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO, Exchange Act Release No. 81207 (July 25, 2017), SEC v. W.J. Howey Co., 328 U.S. 293, 299 (1946) (the definition embodies a “flexible rather than a static principle, one that is capable of adaptation to meet the countless and variable schemes devised by those who seek the use of the money of others on the promise of profits”);Tcherepnin v. Knight, 389 U.S. 332, 336 (1967) (“form should be disregarded for substance”); United Hous. Found., Inc. v. Forman, 421 U.S. 837, 849 (1975) (the emphasis should be “on economic realities underlying a transaction, and not on the name appended thereto.”); see 15 USC § 77(b)(a)(1) , Section 2(a)(1) of the Securities Act of 1933 and 15 U.S.C. § 78c(a)(10), Section 3(a)(10) of the Securities Exchange Act of 1934.

[7] The DAO Report, at 1, 3.

[8] Public Statement, SEC Statement Urging Caution Around Celebrity Backed ICOs (Nov. 1, 2017), https://www.sec.gov/news/public-statement/statement-potentially-unlawful-promotion-icos; In the Matter of Munchee Inc., Securities Act Release No. 10445 (Dec. 11, 2017), https://www.sec.gov/litigation/admin/2017/33-10445.pdf.

[9] Press Release, SEC, Two ICO Issuers Settle SEC Registration Charges, Agree to Register Tokens as Securities (Nov. 16, 2018) https://www.sec.gov/news/press-release/2018-264

[10] Gladius Network, LLC, Securities Act Release No. 10608 (Feb. 20, 2019), https://www.sec.gov/litigation/admin/2019/33-10608.pdf.

[11] Statement on Framework for “Investment Contract Analysis of Digital Assets” (Apr. 3, 2019), https://www.sec.gov/corpfin/framework-investment-contract-analysis-digital-assets.

[12] TurnKey Jet, Inc., SEC No-Action Letter (Apr. 3, 2019), https://www.sec.gov/divisions/corpfin/cf-noaction/2019/turnkey-jet-040219-2a1.htm.

[13] See 17 C.F.R §§ 230.500 et seq.; 17 C.F.R. §§ 230.901 et seq.; 17 C.F.R. §§ 230.251 et seq.

[14] The SEC largely concedes that the cryptocurrencies Bitcoin and Ether aren’t securities, in light of their decentralized and operational networks, but this will remain a fact-specific inquiry. The Director of its Division of Corporate Finance observed in June 2018: “[W]hen I look at Bitcoin today, I do not see a central third party whose efforts are a key determining factor in the enterprise… Applying the disclosure regime of the federal securities laws to the offer and resale of Bitcoin would seem to add little value… Over time, there may be other sufficiently decentralized networks and systems where regulating the tokens or coins that function on them as securities may not be required.” W. Hinman, Remarks at the Yahoo Finance All Markets Summit, https://www.sec.gov/news/speech/speech-hinman-061418; see also https://www.cftc.gov/Bitcoin/index.htm.

[15] See 7 U.S.C. § 1a(9) (commodities include “all other goods and articles … and all services, rights and interests … in which contracts for future delivery are presently or in the future dealt in”); In the Matter of Coinflip, Inc., d/b/a Derivabit, CFTC No. 15-29 (Sept. 17, 2015), https://www.cftc.gov/sites/default/files/idc/groups/public/@lrenforcementactions/documents/legalpleading/enfcoinfliprorder09172015.pdf; CFTC v. McDonnell, 287 F. Supp. 3d 213 (E.D.N.Y. 2018); CFTC v. My Big Coin Pay, Inc., 334 F. Supp. 3d 492 (D. Mass. 2018);

[16] McDonnell, 287 F. Supp. 3d at 228 and My Big Coin Pay, Inc., 334 F. Supp. 3d at 498.

[17] U.S. Dep’t of Treas., Letter to The Honorable Ron Wyden (Feb. 13, 2018), https://coincenter.org/files/2018-03/fincen-ico-letter-march-2018-coin-center.pdf; Kenneth A. Blanco, Director, FinCEN, Prepared Remarks at the 2018 Chicago-Kent Block (Legal) Tech Conference (Aug. 9, 2018), https://www.fincen.gov/news/speeches/prepared-remarks-fincen-director-kenneth-blanco-delivered-2018-chicago-kent-block; Kenneth A. Blanco, Director, FinCEN, Prepared Remarks at the 11th Annual Las Vegas Anti-Money Laundering Conference and Expo (Aug. 14, 2018), https://www.fincen.gov/news/speeches/prepared-remarks-fincen-director-kenneth-blanco-delivered-11th-annual-las-vegas-1; FIN-2019-G001, “Application of FinCEN’s Regulations to Certain Business Models Involving Convertible Virtual Currencies,” (May 9, 2019), https://www.fincen.gov/sites/default/files/2019-05/FinCEN%20CVC%20Guidance%20FINAL.pdf.

[18] In the Matter of Mintage Mining, LLC, Tex. State Sec. Board, Order No. ENF-19-CDO-1774 (Feb. 21, 2019), https://www.ssb.texas.gov/sites/default/files/Mintage_ENF_19_CDO-1774.pdf; 2018 Enforcement Report, Tex. State Sec. Board (Feb. 7, 2019), https://www.ssb.texas.gov/sites/default/files/YEAR_IN_ENF_2018_post.pdf; Press release, NASAA, State and Provincial Securities Regulators Conduct Coordinated International Crypto Crackdown (May 21, 2018), http://www.nasaa.org/45121/state-and-provincial-securities-regulators-conduct-coordinated-international-crypto-crackdown-2/; Letter, N.Y. Dep’t of Fin. Servs., In re Bittrex, Inc. (Apr. 10, 2019), https://www.dfs.ny.gov/system/files/documents/2019/04/dfs-bittrex-letter-41019.pdf.


Recovering Punitive Damages in Attorney Malpractice Cases

by Jessica Kelly

Legal Analysis

Former clients of attorneys frequently assert Chapter 93A claims in legal malpractice cases, but they do not often win Chapter 93A damages.  In Massachusetts, a plaintiff, in extreme circumstances, may recover under Chapter 93A as a result of an attorney’s unfair and deceptive conduct.  It is unclear, however, whether a former client can recover Chapter 93A damages he or she could have recovered in an underlying case in a subsequent legal malpractice action.  Available Massachusetts case law, including an unreported decision on a motion in limine by the Superior Court in Chafetz v. Day Pitney LLP, et al., No. SUCV 1484-03597 (Mass. Super. Ct. May 25, 2018), suggests that lost punitive damages, such as those available under Chapter 93A, are not recoverable in a professional negligence case.

     I.      General Law on Damages Recoverable in Legal Malpractice Actions

Legal malpractice claims represent a hybrid of contract and negligence causes of action, yet recovery is generally limited to tort-based damages, e.g. direct and consequential damages for the reasonably foreseeable losses plaintiff suffered as a result of the attorney’s negligent conduct.  Plaintiffs often try these claims as a “case-within-the-case,” having to prove that they would have obtained a better outcome in the underlying matter had the attorney not breached the standard of care.  Plaintiffs also have to prove both the damages they would have recovered, and the collectability of those damages.

Direct damages are those reasonably flowing from the tortious conduct, such as the value of a lost settlement or judgment or the attorneys’ fees incurred to fix an attorney’s mistake.  Consequential damages are those losses that occur as a result of the direct loss, such as damage to reputation, lost profits and other economic losses.  The economic loss doctrine, which usually precludes recovery for purely economic losses in negligence actions, is inapplicable to legal malpractice claims.[i]

Plaintiffs must also prove that their damages are more than speculative and, if relevant, that they would be recoverable in the underlying action.  Emotional distress damages are probably not recoverable in a Massachusetts legal malpractice action absent exceptional circumstances (such as a client being imprisoned as a result of attorney negligence), because emotional distress is usually not a reasonably foreseeable result of an economic loss.[ii]  As discussed in detail below, punitive damages and attorneys’ fees incurred to prosecute a malpractice action are also not recoverable, unless the former client can also prove that the attorney’s conduct violated Chapter 93A.

     II.     Recovery of Legal Malpractice Damages Under Chapter 93A

Chapter 93A, which protects consumers and businesses against unfair and deceptive business practices, applies broadly to the conduct of any business engaged in trade or commerce.  Legal malpractice plaintiffs often plead a Chapter 93A claim on the assumption that the threat of treble damages and attorneys’ fees can lead to quicker and more favorable settlements.  The reality, however, is that it is rare for a legal malpractice plaintiff to recover damages under Chapter 93A.  This is because ordinary negligence or breach of contract alone does not rise to the level of unfair and deceptive conduct.  To recover under Chapter 93A, evidence of something more, such as self-dealing or fraudulent acts, must exist.[iii]  It is also unlikely, albeit unsettled, that plaintiffs can recover lost Chapter 93A damages in a subsequent malpractice action.

     A.  Direct Claims Against Attorneys For Violation of Chapter 93A

The ability of a plaintiff to bring a direct claim under Chapter 93A in a legal malpractice action depends on whether the alleged conduct of the defendant attorney occurred within trade or commerce and whether the conduct is unfair or deceptive.  Courts have held that “the practice of law constitutes trade or commerce for purposes of liability under [Chapter] 93A,” but the outcome is very fact dependent.[iv]

The closer question is whether the attorney’s conduct was actually unfair or deceptive.  An attorney will only be directly liable for violation of Chapter 93A for conduct involving “dishonesty, fraud, deceit or misrepresentation.”[v]  There are few decisions where a Massachusetts court has allowed a claim against an attorney to proceed past a dispositive motion[vi] and even fewer where the attorney was actually found liable under Chapter 93A.[vii] This limited set of case examples suggests, however, that conflicts of interest, financial misconduct and dishonesty are common themes for successful direct Chapter 93A claims regarding attorney misconduct.

     B.  Claims to Recover Lost Chapter 93A Damages

Although there is no Massachusetts appellate precedent on the issue, legal malpractice plaintiffs are likely barred from seeking punitive damages that they would have recovered in the underlying case absent their attorney’s negligence.  Stated differently, it is unlikely that plaintiffs can seek from a former attorney in a legal malpractice action their missed opportunity to recover under Chapter 93A in the original litigation.  The rationale was set forth in a motion in limine decision in a recent Superior Court action, Chafetz v. Day Pitney LLP, et al.

In Chafetz, the former clients sued two attorneys and two law firms alleging negligence in the handling of a lawsuit against the builder of the former clients’ home and in the builder’s eventual bankruptcy.  Specifically, in relevant part, the former clients alleged that the defendants failed to file a non-dischargeable Chapter 93A claim in the builder’s bankruptcy action.  The former clients claimed that the “lost potential punitive damages” were a “‘reasonably foreseeable loss’ caused by [their attorneys’] negligence and thus recoverable in the malpractice action.”

On its face, the former clients’ claim made sense, assuming they could prove that the defendant in the underlying matter actually violated Chapter 93A.  If it turned out that the attorneys were negligent in not bringing the Chapter 93A claim, the former clients’ missed opportunity to bring such a claim was an actual harm.  The former clients’ ability to pursue damages for that harm is founded on the notion that plaintiffs in tort actions should be compensated “for all of the damages proximately caused by the defendant’s negligence.”[viii]

The position that lost punitive damages are compensable in a legal malpractice action, however, is the minority view.  This view was stated in Jacobsen v. Oliver, 201 F. Supp. 2d 93, 102 (D.D.C. 2002) where the United States District Court for the District of Columbia held that the former clients could assert claims for “lost punitives” in their legal malpractice action.  The Court held that the policy reasons for compensating the plaintiffs for their actual harm caused by their attorneys’ negligence was more important than the policy reasons for shielding attorneys in a subsequent malpractice case from lost punitive damages.  The Court also noted that “[a]ttorneys who appreciate that they will be liable in malpractice actions for ‘lost punitives’ will be motivated to exercise reasonable care in investigating or defending punitive damages claims.”[ix]  Courts in other jurisdictions have taken similar positions.[x]

The Chafetz Court, however, took the majority view and granted Defendants’ motion in limine to preclude the recovery of punitive damages and/or any mention of them during trial.  The Court held that plaintiffs could not seek the lost Chapter 93A damages because the public policy behind the statute is to punish and deter the wrongdoer, e.g. the defendant in the underlying case, and thus, would not be served by making the attorney defendants pay them.  The Court also held that the Legislature enacted Chapter 93A to encourage the wrongdoer to settle and take responsibility early on for unfair and deceptive behavior.  The Court wrote that the “public policy goal is not fostered by permitting recovery of lost punitive damages in a negligence case against a lawyer.”

The Chafetz Court relied, in substance, on three cases.  The first was Kraft Power Corp. v. Merrill, 464 Mass. 145, 159 (2013), where the Supreme Judicial Court held that a plaintiff cannot seek Chapter 93A damages against a defendant who becomes or is deceased.  This is because Chapter 93A “can no longer achieve the goals of punishing a defendant or deterring him from future misconduct when the wrongdoer has died.”  While not on point to the circumstances in Chafetz, the Kraft case emphasizes that the purpose behind Chapter 93A is no longer served when the punitive and deterring effects of Chapter 93A are no longer directed at the actual wrongdoer.

The second case was Dwidar-Kotb v. Altman & Altman, LLP, NO. MICV2011-04614, 2013 LEXIS 840 (Mass. Super. Ct. Mar. 13, 2013), another Superior Court decision.  In Dwidar-Kotb, the former client sued his lawyer for negligence arising from an employment matter in which the former client had sought, among other claims, damages under the Massachusetts Wage Act, which, like Chapter 93A, allows for the recovery of punitive damages.  The Court held that the plaintiff could not seek punitive damages under the Wage Act in the subsequent malpractice action, holding that the “purpose of awarding punitive damages would not be accomplished or served in a malpractice claim against attorneys.”  In other words, where the attorneys were not responsible for the Wage Act violations, but rather for the failure to bring the Wage Act claims, the purpose of imposing punitive damages no longer existed.[xi]

The third case was Ferguson v. Lieff, Cabraser, Heimann & Bernstein, LLP, 69 P.3d 965 (Cal. App. 4th 2003), in which the California Supreme Court disallowed the recovery of lost punitive damages in a legal malpractice action.  In Ferguson, the Court focused on, among other things, the “moral determination” involved in the award of the punitive damages and that such a determination is a highly subjective decision for the judge or jury in the first instance.  As such, the Chafetz Court noted that it would be speculative for it to determine whether and what the Bankruptcy Court may have awarded as punitive damages in the underlying case assuming that the former clients proved that the attorney defendants had been negligent in not bringing the Chapter 93A claim.

The Chafetz Court distinguished the case before it from cases where the legal malpractice plaintiff was a defendant in the underlying case who then sought to recover the punitive damages awarded against him or her, which the plaintiff alleges would not have been assessed but for attorney negligence.  Other courts have not made this distinction and have cited to cases involving both situations interchangeably.[xii]  From a practical standpoint, seeking to recover punitive damages against an attorney that were actually assessed in an underlying action, is much less speculative than seeking to recover damages that may or may not have been awarded in an underlying action.  Perhaps the Chafetz Court left the door open for such claims in Massachusetts because of this significant difference.

In the end, the Chafetz Court entered an order precluding plaintiffs from seeking lost treble damages under Chapter 93A as part of their damages in the legal malpractice action.  The decision is in line with the majority view and the purpose of Chapter 93A.  Punitive damage are not compensatory, but rather provide the plaintiff a windfall “to punish and deter the wrongdoer”.[xiii]  Therefore, lost punitive damages should not become compensable in a later malpractice action.[xiv]

     III.      Conclusion

In sum, legal malpractice plaintiffs can recover for their actual damages, assuming they are not speculative and can be proven to a reasonable certainty. Their ability to recover under Chapter 93A, however, is very limited, unless the lawyer’s own conduct was unfair or deceptive.  It is also likely that Massachusetts will follow the rationale of Chafetz and Dwidar-Kotb in regards to the recovery of lost punitives in a legal malpractice action if and when that issue reaches the appellate level.

 

Jessica is a litigation partner at Sherin and Lodgen LLP, where she assists clients in a variety of industries with complex business litigation, including finance, biotech, and national retail. She also represents lawyers and law firms in professional liability malpractice disputes and disciplinary investigations before the Massachusetts Board of Bar Overseers (BBO).

 

[i]  See Clark v. Rowe, 428 Mass. 339, 342-343 (1998).

[ii]  See Meyer v. Wagner, 429 Mass. 410, 423 (1999).

[iii]  See id., at 424.

[iv]  Compare Brown v. Gerstein, 17 Mass. App. Ct. 558, 571 (1984) (plaintiffs satisfied trade or commerce element because attorney represented them in the context of commercial real estate business), with First Enterprises, Ltd. v. Cooper, 425 Mass. 344, 348 (1997) (internal business dispute was not trade or commerce for purposes of Chapter 93A).

[v]  Poly v. Moylan, 423 Mass. 141, 151 (1996).

[vi]  See Blast Fitness Grp., LLC v. Dixon (In re Blast Fitness Grp., LLC), Ch. 7 Case No. 16-10236-MSH, Adv. No. 18-01011, 2019 WL 137109 (D. Mass. Jan. 8, 2019) (court held that a breach of duty of loyalty to clients was sufficient to state a claim for violation of Chapter 93A); Baker v. Wilmer Cutler Pickering Hale and Dorr LLP, 91 Mass. App. Ct. 835 (2017) (allegations that company’s lawyers participated in unlawful freeze out of minority members stated a claim for violation of Chapter 93A); Brown v. Gerstein, 17 Mass. App. Ct. 558 (1984) (trier of fact should have been allowed to determine whether attorney’s misrepresentation that he had filed complaint on behalf of clients to stop foreclosure violated Chapter 93A).  Of course, the more egregious allegations of lawyers violating Chapter 93A may never appear in court decisions because those cases often settle early in the litigation.

[vii]  See Sears, Roebuck & Co. v. Goldstone & Sudalter, P.C., 128 F.3d 10, 19 (1st Cir. 1997) (affirming judgement on Chapter 93A where attorney engaged in illegal billing practices); Guenard v. Burker, 387 Mass. 802, 809-810 (1982) (affirming finding that attorney’s reliance on unlawful fee agreement held to be a violation of Chapter 93A); Walsh v. Menton, No. 932738H, 1994 WL 879470, at *4 (Mass. Super. Ct. Sept. 23, 1994) (failing to apprise plaintiff “of the status of her account and to return her money upon demand was unfair as a matter of law”).

[viii]  Jacobsen v. Oliver, 201 F. Supp. 2d 93, 102 (D.D.C. 2002) (internal quotation omitted).

[ix]  Id. at 102.

[x]  See also Haberer v. Rice, 511 N.W.2d 279, 288 (S.D. 1994); Hunt v. Dresie, 740 P.2d 1046, 1057 (Kan. 1987); Scognamillo v. Olsen, 795 P.2d 1357, 1361 (Colo. App. 1990); Elliott v. Videan, 791 P.2d 639, 645 (Ariz. Ct. App. 1989); Herendeen v. Mandelbaum, 232 So. 3d 487, 492 (Fla. Dist. Ct. App. 2017), review denied, No. SC18-132, 2018 WL 3239289 (Fla. July 3, 2018).

[xi]  The same rationale would likely apply to bar claims seeking “lost punitives” in malpractice actions where punitive damages were potentially recoverable in the underlying case under the Massachusetts wrongful death statute, M.G.L. c. 229, or the Massachusetts employment discrimination statute, M.G.L. c. 151B.

[xii]  See, e.g., Jacobsen, 201 F. Supp. at 100.

[xiii]  See M. O’Connor Contracting, Inc. v. City Of Brockton, 61 Mass. App. Ct. 278, 285 & n.12 (2004) (holding that punitive damages against municipality “punishes only the taxpayers, who took no part in the wrongful conduct, but who nevertheless may incur an increase in taxes or a reduction in public services as a result of the award”).

[xiv]  According to the Chafetz docket, the case settled shortly thereafter and thus, the appellate courts will have to wait for another case to decide this issue as binding precedent.  Just as asserting a punitive damages claim can hasten settlement, so can removing it from consideration.


Look Before You Click: The Enforceability of Website and Smartphone App Terms and Conditions

by Kevin Conroy and John Shope

Legal Analysis

Modern technology allows individuals to conduct an ever-increasing number of activities through websites and internet-connected smartphone apps.  The proprietors of those platforms frequently make their use subject to terms and conditions, some of which—such as arbitration clauses, forum selection clauses, waivers, licenses, and indemnification provisions—carry potentially significant legal consequences.  Most users will not have read the terms and, in some instances, may not have even seen the terms or any reference to them.  Do these terms amount to an enforceable contract?  In at least some circumstances, the answer may be “no.”  Answering the question in particular cases involves fact-intensive analysis and potential evidentiary challenges.  Businesses offering such platforms, and their counsel, should be aware of these complexities and take precautions to maximize the likelihood that courts will enforce their terms.

The First Circuit and the Massachusetts Appeals Court have addressed this issue in cases involving the terms and conditions of a ride-sharing app and an email account.  See Cullinane v. Uber Techs., Inc., 893 F.3d. 53 (1st Cir. 2018); Ajemian v. Yahoo!, Inc., 83 Mass. App. Ct. 565 (2013).  In each case, the court concluded that users were not bound by the terms and conditions.  Cullinane, 893 F.3d at 64; Ajemian, 83 Mass. App. Ct. at 575-76.  Both courts employed a two-part test to assess whether the terms at issue amounted to an enforceable contract, asking: (1) whether the terms were “reasonably communicated” to the user, and (2) whether the terms were accepted by the user.  Ajemian, 83 Mass. App. Ct. at 574-75; Cullinane, 893 F.3d at 62 (citing Ajemian).  This two-part test is consistent with the approach taken by other courts around the country.  E.g., Meyer v. Uber Techs., Inc., 868 F.3d 66, 76 (2d Cir. 2017) (applying California law and articulating the test on a motion to compel arbitration as whether “the notice of the arbitration provision [contained in the terms] was reasonably conspicuous and manifestation of assent unambiguous as a matter of law.”).

A Spectrum of User Interfaces

Analysis of whether the requirements of “reasonable communication” and “acceptance” are satisfied begins with the interface presented to the user.  While the possible variations are endless, interface designs tend to fall within three general categories, often referred to as “clickwrap,” “browsewrap,” and “sign-in-wrap” (sometimes called “hybridwrap”).  In “clickwrap” interfaces, the user is required to take a distinct, affirmative action to indicate assent to the terms, such as checking a box or clicking a button stating “I agree.”  Courts considering this category of interface generally have little trouble finding the necessary notice and assent.  E.g., Wickberg v. Lyft, Inc., 356 F. Supp. 3d 179, 184 (D. Mass. 2018).

On the other end of the spectrum is “browsewrap,” where a user receives notice of the terms only by means of a link at the bottom of the webpage (often undifferentiated from other links) or buried in the menus or settings of an app.  A typical browsewrap interface does not offer any notice outside of the terms themselves that the user is purportedly agreeing to be bound.  Nor does it offer the user any reason to follow the link and read the terms.  Courts generally find that browsewrap interfaces do not create enforceable agreements.  See Ajemian, 83 Mass. App. Ct. at 576 (“[W]e have found no case where [a forum selection clause] has been enforced in a browsewrap agreement”).

The question becomes more complicated and fact-intensive in the case of “sign-in-wrap” interfaces, where the user is informed that signing in, creating an account, or taking some other specified action (but not an action distinct from the user’s intended use of the website or app) will signify assent to the terms, which are often available by following a link within or adjacent to the text of the notice.  In such cases, the enforceability of the terms depends on how clearly the interface design notifies the user that he or she will be bound by taking the specified action.  Compare Cullinane, 893 F.3d at 64 (finding that the design of Uber’s account creation interface did not provide adequate notice to user) with Meyer, 868 F.3d at 79 (assessing a different version of Uber’s account creation interface and finding that the design did provide adequate notice).

The Importance of Good Design

Several common design features of “sign-in-wrap” interfaces have received judicial attention in determining issues of enforceability.  While courts do not demand perfection, incorporating multiple design features that promote notice of the terms and make clear the user’s manifestation of assent will increase the likelihood that the terms will be enforced.

Clearly important are the size and color of the language informing the user that proceeding will signify agreement to the terms and the link to the terms.  Making these elements as large as other elements on the screen (preferably larger) and in a color that contrasts with the background so as to promote their readability will bolster the argument that the terms were reasonably communicated to the user.  A perception that the notice or link is hidden in tiny or otherwise difficult-to-read font may cause a court to find that the user did not have adequate notice.  Compare Meyer, 868 F.3d at 78-79 (enforcing terms where text notifying user that creating account would signify assent to the terms, although small, was clearly visible, in contrasting color on an uncluttered screen) with Cullinane, 893 F.3d at 62-64 (holding terms unenforceable in part because the notification appeared in a dark gray, small, non-bold font on a black background and because the screen contained many other elements in equal or larger font size).

The design of the interface should also make obvious to the user that the full content of the terms are available to read by following a link.  See Cullinane, 893 F.3d at 63 (questioning “whether a reasonable user would have been aware that the gray rectangular box was actually a hyperlink”).  Although blue underlined text may be the quintessential indicator of a hyperlink, other appearances may also be adequate, so long as they are sufficiently differentiated from the surrounding text.  E.g., Wickberg v. Lyft, Inc., 356 F. Supp. 3d 179, 181 (D. Mass. 2018) (pink, non-underlined link); Selden v. Airbnb, Inc., No. 16-cv-00933 (D.D.C. Nov. 1, 2016) (red, non-underlined links).

The placement of the notice and link are also important.  If the notice and link appear above the button a user clicks to proceed, a user reading from top to bottom would encounter these elements, and have an opportunity to investigate the linked terms, before encountering the button to proceed.  Courts have also enforced terms where the notice and link are placed below, but in reasonable proximity to, the relevant button.  Compare Meyer, 868 F.3d at 78 (finding that placement of the notification text and link directly below the relevant button, immediately visible without any scrolling, contributed to enforceability of terms) with Specht v. Netscape Communs. Corp., 306 F.3d 17, 23 (2d Cir. 2002) (not enforcing terms where reference to the terms would have been visible “only if [the user] had scrolled down to the next screen”); see also McKee v. Audible, Inc., No. CV 17-1941-GW(Ex), 2017 U.S. Dist. LEXIS 174278, at *27-28 (C.D. Cal. July 17, 2017) (placement of notice and link to terms at the bottom of the screen “approximately 30-40% of the screen’s length below” the button to proceed, separated by a horizontal line, contributed to inadequate notice).

Placing the notice and link below the relevant button creates another potential obstacle to enforcement of the terms:  if the screen prompts the user to enter information such as a username, password, or email address, users on a smartphone or tablet may see a software keyboard appear on the screen when they begin to enter the requested information.  Because this software keyboard generally appears at the bottom of the screen, it may obscure the notice and link.  At least one court has found that this contributed to lack of the necessary notice, see McKee, 2017 U.S. Dist. LEXIS 174278, at *27-28, although it is reasonable to argue that what matters is what the user sees before he or she engages the keyboard.

Courts also give attention to the particular words used to inform the user that proceeding will signify assent to the terms.  If the user is not required to take any action to assent to the terms other than the actions inherent in the ordinary use of the website or app (such as signing in or creating an account), the consequences of that action should be clear to the user.  One way to accomplish this is to match the language of the notice to the action the user takes.  For example, if the user is required to click a button labelled “Create Account,” the notice should inform the user that “by clicking ‘Create Account’ you indicate acceptance of our terms and conditions.”  Where the words used for the notice do not parallel the description of the action, a court may question whether it is sufficiently clear to a user that he or she is assenting to the terms by taking that action.  See, e.g., TopstepTrader, LLC v. OneUp Trader, LLC, No. 17 C 4412, (N.D. Ill. Apr. 18, 2018) (declining to enforce terms where user clicked a button labelled “Sign Up,” accompanied by a statement reading “I agree to the terms and conditions,” because the website “gave the user no explicit warning that by clicking the ‘Sign Up’ button, the user agreed to the [t]erms”); see also McKee, 2017 U.S. Dist. LEXIS 174278, at *22-23 (identifying lack of parallel wording as a factor weighing against enforcement of the terms); but see Meyer, 868 F.3d at 80 (“Although the warning text used the term ‘creat[e]’ instead of ‘register,’ as the button was marked, the physical proximity of the notice to the register button and the placement of the language in the registration flow make clear to the user that the linked terms pertain to the action the user is about to take.”).

Finally, the timing and context in which the terms are presented can also contribute to the enforceability of the terms.  Several courts have observed that, where the terms are presented in conjunction with a purchase or the creation of an account involving a transactional relationship, an average user is more likely to understand that the transaction or relationship will be subject to the terms.  See Meyer, 868 F.3d at 80 (“The transactional context of the parties’ dealings reinforces our conclusion.”); Selden v. Airbnb, Inc., No. 16-cv-00933 (D.D.C. Nov. 1, 2016) (“The act of contracting for consumer services online is now commonplace in the American economy.  Any reasonably-active adult consumer will almost certainly appreciate that by signing up for a particular service, he or she is accepting the terms and conditions of the provider.”).

Litigation Challenges

Litigating the question of whether a user is bound by the terms of a website or app can present challenges beyond analyzing the interface type and design choices.  Because the party seeking to enforce the terms bears the burden to prove adequate notice and manifestation of assent, that party (often the proprietor of the website or app) will need to present evidence of what the user actually saw and did.  Where that party is seeking to enforce an arbitration or forum selection clause, it will likely want to satisfy this burden early in the case, before conducting discovery.

The proponent of the terms thus should maintain records of when the user accessed the website or app and what it looked like at those times.  Because websites and apps are occasionally redesigned, and terms are occasionally updated, simply presenting screenshots of the current version of the website or app is unlikely to satisfy the burden of establishing what the user saw and did.  Instead, the proponent of the terms must be prepared to establish when the user took the relevant action on the website or app, what the operative version of the website or app looked like at that time, and which version of its terms were presented to the user.  Providing such evidence may be particularly challenging depending on the amount of time that has passed and the ability of the proponent to access or recreate historic versions of the website or app.

Presenting evidence of how the interface appeared to a particular user may be further complicated if the appearance varied based on the device used to access it.  A website, for example, may appear differently when viewed on a laptop or desktop computer screen than when viewed on a smartphone.  The differing screen size may affect what is immediately visible to the user without scrolling and the relative conspicuousness of the notice and terms vis-à-vis other elements.  In the case of smartphone users, there might also be meaningful variation in the appearance of the interface depending on the size of the phone used.  See, e.g., Cullinane, 893 F.3d at 56 n.3 (noting the 3.5 inch screen size of the iPhone used to access the app in question and reproducing the screenshots in the opinion to correspond to that size).  Inability to identify the device used could prevent early enforcement of an arbitration clause or forum selection clause and require further discovery.  Conversely, the party challenging the terms might argue insufficient notice by offering competing evidence as to what he or she saw when using the website or app.  For example, even if the proponent can establish that the user accessed the website on a desktop computer, the user may have done so in a browser window that occupied less than the full screen, changing the appearance of the interface and potentially the adequacy of the notice.  A user will not, however, avoid enforcement of the terms simply by asserting that he or she does not recall seeing notice of the terms or did not read the terms.

Conclusion

Given the potential consequences of enforcement of terms, such as application of an arbitration clause foreclosing a class action, challenges to enforcement will likely continue to arise.  Prudent counsel will do well to guard against such challenges through recommending careful design choices and electronic records retention.

John A. Shope is a partner in the Boston office of Foley Hoag, where he specializes in class action defense, consumer law, and commercial arbitration. He also serves as an arbitrator for the AAA and CPR.

Kevin J. Conroy is a litigation associate Boston office of Foley Hoag. Kevin focuses on complex business disputes and shareholder disputes.


Calling it Quits or Moving in Together? Considerations for Small Liberal Arts Colleges in the Wake of Mount Ida

Laurie Bishop_102x126

by Laurie R. Bishop

Legal Analysis

Last year’s abrupt closure of Mount Ida College in Newton—and its rapid acquisition by the University of Massachusetts at Amherst—highlights a new and frightening reality for many small, private colleges in the Commonwealth and nationwide. Advancing the legacy and mission of many such institutions, while simultaneously navigating between the desire to retain independence and the importance of avoiding sudden closure, now seems to require a new level of ingenuity and appetite for organizational change. Nor is this challenge unique: in Massachusetts alone, over the past few months Newbury College announced its impending closure, while Hampshire College is exploring a merger.

Faced with mounting debt, shrinking enrollment, and a failed attempt at merging with a sister school, Mount Ida appeared left with few options. The resulting transaction left students, staff, faculty, politicians, regulators, and lawyers with more questions than answers. Students, staff, and faculty felt betrayed; the Massachusetts Senate launched an inquiry into the speedy purchase by UMass Amherst with state funds; the Attorney General opened an investigation into whether top officials at Mount Ida College violated fiduciary obligations; even Governor Charlie Baker called for new Board of Higher Education regulations requiring institutions to provide notice of “any known liabilities or risks which may result in imminent closure.”  Overall, it seemed an ignoble ending for an institution that had survived for over a century.

Yet this need not have been the outcome. Colleges and their counsel facing similar circumstances can take key concrete steps to help avoid the Mount Ida pitfalls.  Early and ongoing institutional consideration of key warning signs, understanding the array of options short of outright closure, remaining cognizant of legal requirements and deadlines, and deploying effective public relations are all critical in guiding institutions through such existential challenges.

Recognize Early Warning Signs

Small, private institutions like Mount Ida usually exhibit early warning signs well before closure is imminent. Senior administrators and board members should be aware of their institution’s financial conditions and demand frequent updates on comparative market data with objective gauges. Warning signs include excessive deferred maintenance (sometimes paired with incongruous investment in new facilities meant to jump start growth), low endowment levels, and falling enrollment numbers with corresponding deep tuition discounts to increase yield.

When warning signs surface, institutions need to be realistic rather than idealistic about what improvements or corrections can be made, and how long they may take. “Giving it the old college try” for too long—instead of seriously exploring other options—can prove fatal.

If a merger or acquisition is a possibility, acting when time is still on your side—before the major repercussions of those early warning signs have begun to emerge, such as staff layoffs and cuts to programs—will pay dividends. Combining institutions is a lengthy process, and doing it well, with a view towards respecting and maintaining the individuality of each, takes even longer. Merger counsel and other advisors, including public relations support, should be retained early. Working with merger counsel is critical not only because they are experts in the field, but also because as the merger begins to develop and grow, in-house counsel for the institution will be engrossed in tasks such as managing board, presidential, and cabinet questions, along with the continued day-to-day operations of the College.

Assess Your Options

Distressed small colleges should be aware that their options are not limited to closing entirely (like Mount Ida) or to traditional acquisition by a larger institution (that may or may not care about maintaining some semblance of the smaller college’s identity). Legal counsel has a key role in assisting institutions in evaluating the viability of the wide range of options that are available.

One alternative is to solidify an existing long-term partnership to provide enhanced offerings for students and a deeper reserve of resources—financial and otherwise—to draw upon. Depending on the existing depth of the relationship, this may also lessen the distraction and upheaval often caused by mergers and acquisition. The School of the Museum of Fine Arts recently adopted this approach with Tufts University, with which it has partnered since 1945. The result is the innovative “SMFA at Tufts,” where students have the option of pursuing a BFA or 5-year combined BFA + BA/BS degree in conjunction with Tufts.

Another option is to capitalize on natural and mutually beneficial geographic or program synergies. For instance, the 2016 merger between Berklee College of Music and The Boston Conservatory, the oldest music conservatory in the United States, presented such opportunities. With directly adjacent campuses in Boston’s Back Bay and similar commitments to the arts, the institutions were able to capitalize on and maintain their different areas of strength while providing additional and related opportunities to students of each. Similarly, Wheelock College’s merger into Boston University leveraged a natural geographic relationship to combine Wheelock’s unique focus on early childhood and education studies with Boston University’s significant resources.

Even when the fit seems natural to outsiders careful attention must be paid to the individual “identities” and missions of the merging institutions. Current students retain expectations of the pre-merged entity, and incoming students will expect an institution that reflects the one to which they applied. Donors may also remain loyal to the pre-merged entity, and expect future donations to support continuation of some of the pre-merged entity’s programs. In other words, the success is often based not only on synergies, but also (in part) on the preservation and respect of both institutions’ missions. Choosing a partner that complements your institution — as opposed to one that competes for the same students in the same area —can help in continuation of the missions of both.

Understand the Legal Requirements

If closure or a merger is imminent, counsel must ensure that key legal obligations are not overlooked or postponed by the institution’s administration. Under current regulations, institutions of higher education must notify the Massachusetts Department of Higher Education (DHE) of their intention to close “as far in advance as possible.” 610 C.M.R. § 2.07(3)(f)(2). The president of the institution must provide DHE with a signed Notice of Intent to Close, sent to the Commissioner of Higher Education. Per DHE guidelines, the written notice should include:

  1. A statement of intent to close and the general rationale;
  2. An estimated timeline for the closure, the anticipated final termination date, and the approximate number of students currently enrolled; and
  3. Disclosure of any preliminary discussions or plans with other institutions that may offer the potential for articulation.

The school must then complete the Independent Institution Notice of Closure and keep in direct communication with DHE during the closure process. This includes, but is not limited to, forwarding copies of all communications to students, former students, alumni, and the media regarding the closure.[1]

Similarly, notice must be given to, and approval obtained from, the Attorney General’s Office when a public charity (such as a college or university) sells “all or substantially all” of its assets, or where there will be a material change in the nature of the activities conducted by the public charity. G.L. c. 180 § 8A(c). In practice, the Attorney General expects to receive an 8A(c) notice if more than 75 % of the organization’s assets are being disposed of. While this notice must be provided no later than 30 days before the closing of the transaction, the Attorney General’s office should be notified as soon as possible after the details of the transaction have been agreed, to avoid delay in closure. If an institution of higher education dissolves completely, it must file a dissolution complaint with the single justice of the Supreme Judicial Court for Suffolk County. G.L. c. 180, § 11A.

In the wake of Mount Ida and the growing number of closures, institutions in the Commonwealth may soon be held to earlier disclosure requirements and increased oversight. In early January 2019, the Massachusetts Board of Higher Education proposed a new process to screen, monitor, and potentially intervene when a private college or university exhibits symptoms of financial distress. The Board’s Final Report and Recommendations,[2] which remains subject to discussion and debate, proposes that (1) the Department of Higher Education screen all private colleges using a metric designed to estimate whether the college has the resources “to fully teach out its current students”; (2) schools identified in the screening process be subject to an active monitoring protocol; and (3) if a school could not, in the Department’s judgement, ensure by December 1 that it has the financial means to complete the current and subsequent academic year, the institution would be required to notify students and complete a full contingency plan approved by the state.[3] Schools that fail or refuse to take part in the process would be subject to potential sanctions.

When to Tell Your Students and What to Tell the Press

While certain merger/closure notice requirements are mandated by law, a far more difficult strategic question is when to tell students, parents, faculty and employees — and how to handle the press that will inevitably follow.

One of the key criticisms following the Mount Ida closure was the lack of transparency by the administration and the Board in announcing the closure. Not until March of 2018 — two months before the end of the school year — did Mount Ida officials reveal that they were in merger talks with Lasell College. Just two weeks after this announcement, the sale to UMass Amherst was announced, giving students, faculty, and staff minimal warning.

Given the significant disruption that closures and mergers can cause, critical to any successful merger is the early involvement and coordination of outside counsel with public relations professionals. Together, they can tailor a sound strategy for senior administrators that balances the critical importance of transparency with the need to maintain confidentiality for some period of time (to identify potential options, merger partners, and/or contingency plans). Wheelock College gave its faculty nearly two years’ notice that closure was imminent, and sent out over 60 requests for proposals to potential merger partners before their ultimate merger with Boston University. This allowed faculty, students, and staff time to evaluate their options, and allowed Wheelock to proceed with the best deal possible for the school and its constituents.

More School Closures Are On the Horizon

According to recent reports from the Chronicle of Higher Education, U.S. colleges expect to see a steady decline in enrollment, and more schools are likely to close or merge in the coming years. In Massachusetts, the decline in enrollment among all categories of colleges has been between 1.3 – 1.7% annually from 2013 through 2016.[4] The result is that colleges and universities without large endowments rely disproportionately on enrollment numbers and tuition to stay afloat from year to year, and the amount they disburse in student aid determines their bottom line.[5]

Indeed, Moody’s reported in July of 2018 that approximately 25 percent of private nonprofit colleges and universities spent more than they earned in the 2017 fiscal year.[6] The July 2018 Moody’s report expanded on its close-to-accurate 2015 prediction that closure activity would as much as triple and mergers would double by 2017, observed that a future increase in closures toward the range of 15 per year, and reported that one in five small private colleges nationwide is under fundamental stress.[7]

In light of these general trends and the Mount Ida debacle, counsel has a particularly important and valuable role to play at all stages: (1) Identifying risks early by reminding administrators to remain vigilant for financial red flags; (2) Keeping DHE and the Attorney General on notice when required if closure is possible; and, possibly most importantly; (3) Advising administrators on how to stay honest and transparent with your students, faculty, and staff while still meeting their fiduciary responsibilities.

Laurie R. Bishop is a partner at Hirsch Roberts Weinstein LLP, where her practice focuses on advising colleges, universities, and non-profit organizations on policies, procedures, and risk-management decisions. She serves as acting general counsel to Berklee College of Music, and assisted in their successful merger with Boston Conservatory of Music. Laurie is a member of the Planning Committee for the annual BBA Higher Education Legal Conference.

[1] http://www.mass.edu/foradmin/closures/documents/GuidelinesClosureSeptember2016.pdf

[2]https://www.insidehighered.com/sites/default/server_files/media/THESIS%20Working%20Group%20Final%20Report.pdf

[3] The report does not specify which entity would be responsible for annually screening colleges’ financial condition, what score on the metric would trigger closer state monitoring and how, specifically, the 18-month warning would be triggered.

[4] https://www.huffingtonpost.com/entry/us-colleges-are-facing-a-demographic-and-existential_us_59511619e4b0326c0a8d09e9

[5] Id.

[6] https://www.insidehighered.com/quicktakes/2018/07/25/moodys-private-college-closures-11-year

[7] Id.


CPCS v. AG – The SJC Establishes an Unprecedented, Global Remedy for the Victims of the Amherst Drug Lab Scandal to Address Extraordinary Lab Misconduct that Was Compounded by Intentional Prosecutorial Misconduct

Dan Marx_102x126

by Daniel Marx

Legal Analysis

In Committee for Public Counsel Services v. Attorney General, 480 Mass. 700 (2018), the Supreme Judicial Court provided an unprecedented remedy for the victims of the Amherst lab scandal, thousands of people who were wrongfully convicted based on evidence tainted by former state chemist Sonja Farak. Although the SJC recently established a protocol for the Hinton lab scandal to vacate the wrongful convictions that resulted from Annie Dookhan’s misconduct,[i] the Amherst case was different—and worse. Not only did Farak engage in extraordinary lab misconduct with far-reaching consequences, but her misdeeds were compounded by the prosecutorial misconduct of Assistant Attorneys General Anne Kaczmarek and Kris Foster, who minimized the scope of the scandal by withholding evidence about Farak’s drug abuse and misleading defense attorneys, the courts, and the public. As the SJC concluded in CPCS v. AG, “the government misconduct by Farak and the assistant attorneys general was ‘so intentional and so egregious,’” that “harsher sanctions than the Bridgeman II protocol [were] warranted.”[ii] Therefore, the SJC ordered the wrongful convictions of all “Farak Defendants” to be dismissed with prejudice, and the implementation of that remedy is now underway.

Lab Misconduct

Sonja Farak worked as a state chemist for 10 years, beginning at the William A. Hinton State Laboratory Institute in Jamaica Plain (“Hinton lab”) in 2003. Farak transferred to the satellite facility in Amherst (“Amherst lab”) in 2004, and she worked there until her arrest in January 2013. The Amherst lab was smaller, employed fewer chemists, and had “basically … no oversight.”[iii] Throughout her decade-long tenure there, Farak engaged in shocking misconduct.

As a chemistry graduate student, Farak smoked marijuana and also experimented with cocaine, ecstasy, and heroin. Shortly after joining the Amherst lab in 2004, Farak began to consume the “standards,” illegal substances used to test evidentiary samples. Over several years, she nearly exhausted the methamphetamine oil, and by 2009, she had stolen ketamine, cocaine, and ecstasy. Then, Farak turned to evidentiary samples submitted by police departments. During the worst periods of her addiction, through 2013, Farak abused drugs on a daily basis.

Farak’s misconduct also undermined the reliability of her colleague’s work. Farak had “unfettered access” to the entire lab, and in later years, she tampered with samples assigned to other chemists, violated security protocols, and manipulated inventory information. As the SJC recognized, her “extensive and indeterminable” misconduct, over many years, “diminishe[d] the reliability and integrity of forensic testing at the Amherst lab.”[iv]

Prosecutorial Misconduct

Unlike the Hinton case, the Amherst lab scandal also involved prosecutorial misconduct that the SJC characterized as “egregious, deliberate, and intentional.”[v] This troubling confluence of lab and prosecutorial misconduct prompted the SJC to impose “the very strong medicine of dismissal with prejudice” for all tainted convictions.[vi]

After Farak’s arrest in January 2013, investigators searched her car and collected drugs, paraphernalia, and counseling records that revealed Farak struggled with addiction and abused drugs in 2011. But neither the victims of the Amherst scandal nor the public learned about this critical evidence until almost one year later. Despite their legal and ethical obligations, AAG Kaczmarek (who prosecuted Farak) and AAG Foster (who handled to discovery requests about the Amherst lab) intentionally hid the documents, stonewalled defense attorneys, and misled the courts.

The improper efforts to minimize Farak’s misconduct were nearly as extensive as the lab misconduct itself. The AAGs mischaracterized exculpatory evidence as “assorted lab paperwork,” including the counseling records investigators forwarded under the subject line: “FARAK admissions.” They falsely insisted such documents were “irrelevant” and baselessly asserted “privilege” claims. They denied discovery requests, moved to quash subpoenas, and misled then-Superior Court Justice Jeffrey Kinder to believe that all evidence had been disclosed.

This prosecutorial misconduct severely undermined the judicial process. Relying on the “misleading evidentiary record,” Judge Kinder ruled Farak’s misconduct began in July 2012 and only affected her work. As a result, thousands of Farak Defendants received no post-conviction relief. In Commonwealth v. Cotto, 471 Mass. 85 (2015), and Commonwealth v. Ware, 471 Mass. 97 (2015), the SJC concluded “the scope of Farak’s misconduct [did] not appear to be . . . comparable to the enormity of Dookhan’s misconduct” and, for that reason, refused to extend to Farak Defendants the conclusive presumption of egregious government misconduct that, in Commonwealth v. Scott, 467 Mass. 336 (2014), it granted to Dookhan Defendants.[vii]

CPCS v. AG

More than two years after Cotto and Ware, the victims of the Amherst scandal still had not been identified, much less notified of their tainted drug convictions and afforded any meaningful relief. Thus, in September 2017, Petitioners in CPCS v. AG filed an action pursuant to G.L. c. 211, § 3, to address: (i) the scope of the scandal; (ii) the appropriate remedy for the victims; and (iii) specific policy proposals to prevent (and, if necessary, respond to) future crises.

Petitioners contended “all convictions based on drug samples tested at the Amherst lab during Farak’s tenure should be vacated and dismissed with prejudice, regardless of whether Farak signed the drug certificate,” because Farak’s lab misconduct, compounded by Kaczmarek and Foster’s prosecutorial misconduct, tainted the evidence in those cases.[viii] The AG conceded Farak undermined the reliability of samples that other chemists analyzed. Yet, based on Farak’s uncorroborated claim that she did not tamper with her colleagues’ work until June 2012, the AG argued any “whole lab” remedy should start at that later time.[ix] Taking a narrower view, the DAs insisted only defendants for whom Farak signed drug certificates were entitled to relief.[x]

Regarding the remedy to which “Farak Defendants” would be entitled, Petitioners asked the SJC to vacate all tainted convictions and dismiss the underlying charges with prejudice. The AG concurred, but only for the more limited class whom it considered Farak’s victims. Meanwhile, the DAs argued the Bridgeman II protocol was sufficient and no further remedy was required.

Finally, as a “prophylactic remedy” to avoid the need for protracted litigation to address any future scandal, Petitioners proposed the SJC issue: (i) a “Brady order” “requiring specific disclosures” by the Commonwealth in all criminal cases and, further, “setting forth specific disclosure deadlines”; (ii) a “Bridgeman II order” to “require a prosecutor that knew, or had reason to know, that misconduct had occurred in a particular case” to notify the Trial Court and CPCS within 90 days and to provide a list of affected defendants; and (iii) a Cotto order to “require a government attorney who knows that attorney misconduct affected a criminal case to notify” the Trial Court, CPCS, and the Office of Bar Counsel within 30 days.[xi] Recognizing the need for real reform, the AG endorsed the proposed orders. The DAs, however, disagreed, arguing the existing discovery rules are adequate and the SJC should not fashion a “one size fits all” solution for future problems.

“Farak Defendants”

The SJC defined the “Farak Defendants” to be narrower than “all Amherst lab cases” but broader than “only Farak cases.” It held that, in addition to persons for whom Farak signed drug certificates, “Farak Defendants” include all defendants whose cases were analyzed by any Amherst chemist on or after January 1, 2009, and all defendants convicted of methamphetamine offenses whose cases were handled by the Amherst lab during Farak’s tenure.[xii] For all those defendants, the SJC held their tainted convictions must be vacated and the underlying charges dismissed with prejudice.

The SJC explained its expanded definition of “Farak Defendants” reflected the “extensive and indeterminate nature” of Farak’s misconduct, which involved methamphetamine since 2004 and “spiraled out of control at the beginning of 2009,” when Farak began to manipulate lab systems, steal from police-submitted samples, and tamper with samples assigned to other chemists.[xiii] Such misconduct, the SJC held, “diminishe[d] the reliability and integrity of the forensic testing at the Amherst lab” and “reduce[d] public confidence in the drug certifications from other labs.”[xiv]

“Brady Checklist”

In addressing the proposed Brady order, the SJC affirmed the basic principle that, to fulfill his or her “core duty . . . to administer justice fairly,” a prosecutor must provide all material, exculpatory evidence to a defendant “without regard to its impact on the case.”[xv] This “Brady obligation” has long been recognized under the due process guarantees of Massachusetts Declaration of Rights and the U.S. Constitution; procedural rules, such as Mass. R. Crim. P. 14(a), the “automatic discovery” rule for criminal cases; and ethical rules, such as Mass. R. Prof. C. 3.8(d), (i), and (g), which prohibit prosecutors from avoiding the discovery of exculpatory evidence and require prosecutors to make timely disclosures. Nevertheless, rather than issue a standing Brady order, the SJC asked the Advisory Committee “to draft a proposed Brady checklist to clarify the definitions of exculpatory evidence.”[xvi] The ABA has promoted such checklists, and several federal courts have implemented them.[xvii]

As the SJC acknowledged, however, “no checklist can exhaust all potential sources of exculpatory evidence.”[xviii] Ironically, a detailed list of discoverable materials may obscure the more basic commitment to fundamental fairness. It is not hard to foresee disputes in which prosecutors elevate form over substance by arguing that evidence is not Brady material because it does not correspond to any category on a Brady checklist. Moreover, no checklist could have prevented the intentional misconduct that exacerbated the Amherst scandal. AAGs knowingly possessed exculpatory evidence about Farak’s misconduct, but they intentionally refused to turn it over to defendants.

Even for law-abiding, ethical prosecutors, there remains a deeper problem. CPCS v. AG demonstrates how evidence, such as Farak’s counseling records, appears from the conflicting prosecution and defense perspectives. Although prosecutors dismissed these materials as “irrelevant,” Attorney Luke Ryan, who represented several Farak Defendants, immediately realized their exculpatory importance and notified the AG’s Office:  “‘[I]t would be difficult to overstate the significance of these documents.’”[xix] In our adversarial system, prosecutors tend to see evidence in the context of proving a defendant’s guilt, and defense counsel must examine evidence to establish a defendant’s innocence. Put simply, prosecutors are not trained, experienced, or motivated to consider evidence in that way.

Standing Orders

The SJC cited two reasons for declining to issue the proposed Bridgman II and Cotto orders. First, the remedies in those cases reflected the alarming magnitude of the Hinton and Amherst scandals.[xx] Second, in the event of “similar, widespread abuse” in the future, the remedy must “correspond to the scope of the misconduct.”[xxi] The SJC suggested “the balance of equities” may not always justify a “global remedy” rather than a case-by-case response.[xxii]

All agree the recent scandals were unprecedented, and remedies for such government misconduct should be tailored to the harms. A key lesson, however, has been that “existing professional and ethical obligations,” which the DAs consider sufficient, are not self-executing. Affirmative litigation by advocacy groups and defense attorneys as well as repeated judicial intervention by the SJC was needed to reveal the full scope of the misconduct and to provide meaningful remedies.

At first, the AG assumed that Farak’s misconduct began only six months before her arrest. But as Superior Court Justice Richard Carey found, that “assumption was at odds with the evidence uncovered even at that early juncture.”[xxiii] Then, after Cotto and Ware, the AG appointed former Superior Court Justice Peter Velis and AAG Thomas Caldwell to investigate, and it also convened grand juries in Hampshire and Suffolk, calling Farak and many others from the Amherst lab to testify. These efforts erroneously concluded Farak’s misconduct neither affected the work of other chemists nor involved misconduct by prosecutors.

Meanwhile, on remand from Cotto and Ware, Judge Carey conducted an extensive evidentiary hearing at which Kaczmarek, Foster, and others were subjected to cross-examination under oath in open court. That adversarial proceeding revealed more misconduct. Judge Carey found that, by their “intentional and deceptive actions,” the AAGs “ensured that justice would certainly be delayed, if not outright denied.”[xxiv] Both prosecutors “perpetrated a ‘fraud upon the court’” and “‘violated their oaths as assistant attorneys general.’”[xxv] Even then, however, Judge Carey mistakenly concluded Farak’s misconduct impacted only her cases.

Finally, when the SJC took up the issue again in CPCS v. AG, three years after Cotto and Ware, the record established far more extensive lab misconduct and the outrageous prosecutorial misconduct that further prejudiced the victims of the Amherst scandal. Affirming Judge Carey’s view, the SJC held Farak, Kaczmarek, and Foster had all engaged in egregious misconduct. But departing from Judge Carey’s more limited ruling, the SJC also decided the remedy could not be confined to those defendants whose drug certificates Farak signed.

In retrospect, the problem has not only been the slow pace of justice but also the need to litigate with the AG and DAs, for many years, to secure relief from the SJC. Shortly after Farak’s arrest, the ACLU of Massachusetts and CPCS reached out to prosecutors and proposed that both sides work collaboratively to ensure a swift, meaningful response. Those overtures were ineffective, and another G.L. c. 211, § 3 petition to the SJC was required. When confronted with a “lapse of systemic magnitude,”[xxvi] the criminal justice system should not depend on defendants to bring lawsuits, like CPCS v. AG, to vacate wrongful convictions.

Conclusion

Farak was arrested in January 2013, and CPCS v. AG was decided in October 2018, nearly six years later. As of this writing, it is estimated that more than 10,000 individuals were wrongfully convicted as a result of the Amherst lab scandal, and the total number could prove to be significantly higher. Most of these “Farak Defendants” have only recently been notified of their vacated convictions, and many still have not been identified or had their records cleared.

CPCS v. AG was an important effort by the SJC to remedy the harm from unprecedented lab and prosecutorial misconduct. It is also a crucial reminder that further reforms are needed to prevent such malfeasance and, in the event of a future scandal, to ensure that all stakeholders in the criminal justice system—most importantly, prosecutors—will immediately, effectively, and cooperatively investigate the full extent of the problem and, if necessary, proactively implement an appropriate remedy to see that justice is done.

Daniel Marx is a founding partner of Fick & Marx LLP, a boutique firm in Boston, Massachusetts, focused on representing diverse clients in criminal prosecutions, complex civil litigation, and appeals. Along with attorneys from the ACLU of Massachusetts, Mr. Marx served as pro bono counsel for Petitioners Hampden County Lawyers of Justice, Herschelle Reaves, and Nicole Westcott in CPCS v. AG. In addition, Mr. Marx previously served as pro bono counsel for the petitioners in Bridgeman v. District Attorney for Suffolk County.

[i] Bridgeman v. District Attorney for the Suffolk District, 476 Mass. 298 (2017) (“Bridgeman II”).

[ii] CPCS v. AG, 480 Mass. at 725 (emphasis added); see id. at 704 (recognizing the prosecutorial misconduct by AAGs Kaczmarek and Foster “compounded” the lab misconduct by Farak).

[iii] Id. at 706.

[iv] Id. at 727, 729.

[v] Id. at 705 (quoting Bridgeman II, 476 Mass. at 316).

[vi] Id. at 725.

[vii] Id. at 717 (quoting Cotto, 471 Mass. at 111).

[viii] Id. at 725.

[ix] See id. at 727.

[x] See id. at 726.

[xi] Id. at 730, 733-734.

[xii] See id. at 734-735.

[xiii] Id. at 729.

[xiv] Id. at 727.

[xv] Id. at 730 (quoting Commonwealth v. Tucceri, 412 Mass. 401, 408 (1992), and citing Brady v. Maryland, 373 U.S. 83, 87 (1963)).

[xvi] Id. at 732.

[xvii] ABA Resolution 104A (as revised) (Feb. 4, 2011); see, e.g., Standing Brady Order, No. XX-XX (EGS), at http://www.dcd.uscourts.gov/sites/dcd/files/ StandingBradyOrder_November2017.pdf.

[xviii] CPCS v. AG, 480 Mass. at 733.

[xix] Id. at 716 (quoting Attorney Ryan’s letter to the AG’s Office).

[xx] See id. at 734.

[xxi] Id.

[xxii] Id.

[xxiii] Id. at 711.

[xxiv] Id. at 720.

[xxv] Id. at 702, 720 (quoting Judge Carey’s opinion).

[xxvi] Bridgeman II, 476 Mass. at 335 (quoting Scott, 467 Mass. at 352).