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. Amounts raised have dropped sharply since early 2018, with an estimated $100 million having been raised in the first several months of 2019.
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.
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. 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. 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. 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.
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. 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.
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.
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. 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. 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. 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. It deems virtual currencies to be commodities under the Commodity Exchange Act, 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.
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.
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.
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.
 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.
 #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.
 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
 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.
 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”).
 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.
 The DAO Report, at 1, 3.
 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.
 Gladius Network, LLC, Securities Act Release No. 10608 (Feb. 20, 2019), https://www.sec.gov/litigation/admin/2019/33-10608.pdf.
 Statement on Framework for “Investment Contract Analysis of Digital Assets” (Apr. 3, 2019), https://www.sec.gov/corpfin/framework-investment-contract-analysis-digital-assets.
 TurnKey Jet, Inc., SEC No-Action Letter (Apr. 3, 2019), https://www.sec.gov/divisions/corpfin/cf-noaction/2019/turnkey-jet-040219-2a1.htm.
 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.
 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.
 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);
 McDonnell, 287 F. Supp. 3d at 228 and My Big Coin Pay, Inc., 334 F. Supp. 3d at 498.
 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.
 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.
by Jessica Kelly
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]
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.
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.”).
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.
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 IdaPosted: March 18, 2019
by Laurie R. Bishop
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:
- A statement of intent to close and the general rationale;
- An estimated timeline for the closure, the anticipated final termination date, and the approximate number of students currently enrolled; and
- 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.
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, 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. 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. 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.
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. 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.
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.
 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.
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 MisconductPosted: March 18, 2019
by Daniel Marx
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.
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]
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.
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]
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.
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.
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.
[x] See id. at 726.
[xi] Id. at 730, 733-734.
[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.
[xxvi] Bridgeman II, 476 Mass. at 335 (quoting Scott, 467 Mass. at 352).
by Janet P. Judge and Andrew E. Silvia
The newly enacted Massachusetts Equal Pay Act (“MEPA”)[i] may change the way colleges and universities in Massachusetts think about how they compensate the coaches of their intercollegiate sports teams.
Under preexisting federal law, courts and academic employers across the country have struggled to apply equal-pay concepts to male and female coaches of similar but gender-segregated sport teams (e.g., men’s versus women’s basketball) and coaches of very different sports teams (e.g., field hockey versus football). While few would argue against the principle that persons of different genders should receive equal pay for comparable work, the application of that concept has proven especially thorny in college and university athletic coaching, where pay differentials often are tied to the market value of the sport coached rather than the gender of the coach.[ii] Determining what constitutes comparable work between coaches of different genders when they are coaching different teams has proven to be a complicated legal task.
In practice, many schools have opted to forgo the time-consuming and complicated in-house analyses of comparable work across sports and have focused instead on market-based pay systems that determine compensation for coaches of particular teams based primarily on market data reflecting salaries paid to coaches of those teams at other colleges and universities. While not without controversy, courts have found this market-based pay system to be a “nondiscriminatory factor other than sex,” justifying certain pay differentials under federal pay-equity law. In the sports world, this has resulted in higher compensation, for example, for the almost exclusively male head and assistant coaches of men’s basketball and ice hockey, as compared to their women’s basketball and ice hockey counterparts, who may be male or female.[iii]
This has created an interesting legal issue in Massachusetts, where the newly enacted MEPA no longer permits schools to rely directly on market forces to justify a difference in pay between coaches of different genders performing comparable work, even though it would not prohibit the differential if those same coaches were of the same gender. As a result, schools should consider revisiting their compensation system to ensure compliance with the new law, either by identifying nondiscriminatory factors that justify disparate pay rates or by adjusting the compensation of individual coaches where such factors do not exist.
Equal pay for college coaches of different genders has historically been regulated by and subject to litigation under federal laws, including the federal Equal Pay Act (“EPA”), which prohibits employers from paying an employee less than employees of the opposite sex “for equal work on jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions,” but allows employers to justify certain pay differentials based on “any other factor other than sex.”[iv]
The prevailing market-forces system arose from litigation under the federal statutes to justify disparities in pay between male and female coaches. It traces its roots back to two federal cases decided in 1994. In one, the Ninth Circuit Court of Appeals held in Stanley v. Univ. of So. Cal. that “an employer may consider the marketplace value of the skills of a particular individual when determining his or her salary.”[v] In the other, a federal district court in Minnesota in Deli v. Univ. of Minn.[vi] rejected the pay-equity claim of a female college coach who asserted that pay differentials based on market forces and tied to the gender of the team coached violated the EPA. In Deli, the court noted that the lower market rate for a female women’s gymnastics head coach as compared to the rates for male head coaches of certain men’s teams, including football, basketball, and hockey, was lawful as it was based on market rate analysis and thus fell within the EPA’s statutory exception. Essentially, the Deli court determined that the market rate, even if tied to the gender of the student-athlete coached (and not the gender of the coach), was a “factor other than sex” upon which the school reasonably relied in making its compensation determinations.[vii] The Deli court noted that the EPA “refers to discrimination based on the sex/gender of the claimant; not the gender of those supervised or served by the claimant.”[viii]
With these rulings, the Stanley and Deli courts provided precedential support for schools not to rely on a coaching position’s subjective skill, effort, responsibility, and working conditions, and instead base a coach’s compensation on objective market data, which generally placed a greater economic value on the coaching positions of certain high-profile men’s sports as compared to coaches of women’s and lower-profile men’s teams. As a result of Stanley, Deli, and subsequent cases like them, many colleges and universities have simply relied on market forces to justify the compensation of their coaches rather than developing and documenting an equitable compensation system grounded in nondiscriminatory job-related tasks and responsibilities. That might have to change in Massachusetts under the MEPA.
Coaching Compensation under the MEPA
The MEPA, which took effect on July 1, 2018, provides that “[n]o employer shall discriminate in any way on the basis of gender in the payment of wages, or pay any person in its employ a salary or wage rate less than the rates paid to its employees of a different gender for comparable work.”[ix] “Wages” are defined as including “all forms of remuneration,” including bonuses, commissions, paid time off, retirement plans, and any other benefits.[x]
Like the EPA, the MEPA defines “comparable work” as work that “requires substantially similar skill, effort, and responsibility and is performed under similar working conditions,” and provides that the job title or job description alone does not determine comparability.[xi] “Skill” includes the “experience, training, education, and ability required to perform the jobs.”[xii] “‘Effort’ refers to the amount of physical or mental exertion needed to perform a job.”[xiii] And “‘[r]esponsibility’ encompasses the degree of discretion or accountability involved in performing the essential functions of a job, as well as the duties regularly required to be performed for the job.”[xiv] According to the Massachusetts Attorney General’s interpretation, however, the MEPA’s “comparable work” standard is “broader and more inclusive than the ‘equal work’ standard of the federal Equal Pay Act.”[xv]
Any MEPA claim involving college coaches of different genders would face the threshold question of whether the coaches are performing comparable work. A female coach of the women’s basketball team who earns less than her male counterpart coaching the men’s basketball team, for example, might argue that both basketball coaches perform comparable work—they both coach the same sport, oversee a similar number of assistants, coach a comparable number of student-athletes, play the same number of games, and bear responsibility for rules compliance, recruiting, budget, and general program oversight. To justify a pay difference in accordance with MEPA on the grounds that the work is not comparable, the school would have to show that the men’s head coaching position requires differing skill, effort, or responsibility, or is performed under differing conditions. Otherwise, a school would have to show that one of the law’s carefully enumerated exceptions (which are discussed below) applies. Depending on the facts, a school may or may not be able to make either showing before a Massachusetts court. In an interesting twist, a male coach of the same women’s team would not be able to make a claim under the law, because if both coaches are male, there would not be a higher-paid employee of a different gender performing comparable work.
With respect to the threshold question of whether the two jobs referenced above—coach of the women’s basketball team and coach of the men’s basketball team—are “comparable work,” it is worth noting a February 2018 pay-equity decision, again by the Minnesota federal district court, in Miller v. Bd. of Regents of Univ. of Minn.[xvi] In Miller, the court found that under the federal EPA, the level of responsibility required of a Division I women’s ice hockey head coach was not comparable to that required of a Division I men’s ice hockey head coach because the men’s team “attracts vastly more attention, draws vastly higher attendance, and earns vastly more revenue than the women’s hockey team” and “the men’s hockey coach is under more pressure to win—and has more demands on his time—than the women’s hockey coach.”[xvii] The court determined that the additional pressure to win and the time demands imposed on the male coach of the men’s team constituted “a substantial difference in responsibility” that justified the pay differential.[xviii] In the Miller case, the court made this finding even where the two coaches had identical written job responsibilities and where the women’s program, which was coached by a woman, had significant success at the national level.[xix] Massachusetts courts have yet to consider such arguments regarding similar skill, effort, and responsibility under the MEPA.[xx]
In cases where two coaches are found to be performing comparable work under the MEPA, schools must then show that any pay disparity is the result of one of the following factors in order to justify the gender pay differential: (1) a system that rewards seniority with the employer; (2) a merit system; (3) a system that measures earnings by quantity or quality of production, sales, or revenue; (4) the geographic location in which the job is performed; (5) the education, training, or experience of the employee to the extent such factors are reasonably related to the job; or (6) travel, if it is a regular and necessary condition of the job.[xxi] Importantly, in order to rely on any of the first three permissible reasons, a school must be able to show that it has developed a compensation “system.”
The MEPA does not incorporate the EPA’s “any factor other than sex” provision and, while it authorizes pay differentials based on a system that measures earnings by quantity or quality of revenue, it does not permit simple reliance on “market forces” or “market rates” to justify differences in pay for comparable work among workers of different genders.[xxii] In assessing a pay-equity claim involving college coaches of different genders, the primary issues at stake will be whether they are performing comparable work, and if so, whether any of the six permissible factors described above apply. Based on arguments like those discussed in the case law described above, schools considering coaches’ compensation under the MEPA likely will focus on the ability of the men’s programs to generate sales or revenue at rates greater than the women’s programs. In order to do so, however, schools must be able to point to a compensation “system,” consisting of a plan, policy, or practice that is predetermined and predefined, which is used to make compensation decisions, and which is uniformly applied without regard to gender.[xxiii] This will require considerably more from schools than has been necessary to justify pay disparities under federal law.
The MEPA is a new statute, and the meaning of its provisions have yet to be interpreted by the Massachusetts courts. Whether the MEPA will have any real effect on pay equity in collegiate coaching remains to be seen. It may prompt schools to raise the compensation of female coaches of women’s teams. One certain implication of the statute is that Massachusetts colleges and universities that have traditionally relied on market-based factors to justify pay disparities between coaches of different genders will need to review their compensation models for compliance with the MEPA and may need to modify them. Some schools may find the need to completely revamp their compensation structure, while others may be able to adapt their current scheme to fit the parameters of the MEPA and its permitted factors. Schools may also consider conducting a pay-equity audit, as the MEPA provides a complete affirmative defense to employers who have conducted a good-faith, reasonable self-evaluation within the previous three years and before an action is filed against it, and have made reasonable progress towards eliminating any unlawful gender-based wage disparities revealed by the audit.[xxiv]
Janet P. Judge is a partner at Holland & Knight LLP where she co-chairs the Collegiate Sports group. Recognized by Best Lawyers as the 2019 Lawyer of the Year for Sports Law in Boston, Ms. Judge represents colleges and university clients on a wide variety of higher education matters.
Andrew E. Silvia is a litigation associate in Holland & Knight’s Boston office. He represents employers and educational institutions in all aspects of labor and employment law.
[i] M.G.L. c. 149, § 105A (2018).
[ii] For example, a recent study found that individuals surveyed generally agreed with the concept of wage equality, but the lowest level of agreement was with respect to individuals in sporting professions, including college coaches and professional athletes. Emily Dane-Staples, “Update in Attitudes Towards Wage Equality in Gendered Professions,” The Sport Journal, June 19, 2018, available at https://thesportjournal.org/article/update-in-attitudes-towards-wage-equality-in-gendered-professions/ (last accessed Jan. 4, 2019). The study participants provided qualitative responses that explained that revenue generation, profits, success, and other monetary reasons justified their more forgiving attitude towards wage inequality in the area of athletic coaches. Id.
[iii] While the coaches of men’s intercollegiate teams are almost exclusively male, the coaches of female intercollegiate teams are not almost exclusively female. Indeed, according to a recent NCAA article, more men than women are coaching women’s teams. Rachel Stark, “Where are the Women?” NCAA Champion Magazine, Winter 2017, available at http://www.ncaa.org/static/champion/where-are-the-women/ (last accessed Feb. 4, 2019).
[iv] 29 U.S.C. § 206(d). Litigators have also raised claims involving equal pay for college coaches under Title IX, which prohibits discrimination in any education program on the basis of sex, including in employment, recruitment, and distinctions in rates of pay, and Title VII, which prohibits gender discrimination in the terms, conditions, or privileges of employment. See 20 U.S.C. § 1681 (Title IX); 42 U.S.C. § 2000e-2(a)(1) (Title VII).
[v] Stanley v. Univ. of So. Cal., 13 F.3d 1313, 1322 (9th Cir. 1994) (“Unequal wages that reflect market conditions of supply and demand are not prohibited by the [federal Equal Pay Act]” (citing EEOC v. Madison Community Unit Sch. Dist. No. 12, 818 F.2d 577, 580 (7th Cir. 1987))).
[vi] Deli v. Univ. of Minn., 863 F. Supp. 958, 961 (D. Minn. 1994).
[vii] Id. at 960-61.
[viii] Id. at 961 (quoting earlier Seventh Circuit non-athletic case). The court further found that absent market justifications, the comparable work analysis also justified certain pay inequities where the comparators coached more student-athletes, supervised more staff, attracted greater crowds, brought in more revenue, and had additional responsibilities due to their team’s higher media profiles. Id. at 961-62.
[ix] M.G.L. c. 149, § 105A(b). Massachusetts’ previous equal-pay law, which was the first of its kind in the country when enacted in 1945, prohibited discrimination in the payment of wages “as between the sexes . . . for work of like or comparable character.” M.G.L. c. 149, § 105A (1945). “Comparable” work under that earlier version of the law came to be defined relatively narrowly by courts, effectively leaving Massachusetts’ law no stronger than the federal EPA enacted in 1963.
[x] M.G.L. c. 149, § 105A(b); Office of the Attorney General, An Act to Establish Pay Equity: Overview and Frequently Asked Questions, Mar. 1, 2018 (the “AG’s Guidance”) sec. 4, available at https://www.mass.gov/files/documents/2018/05/02/AGO%20Equal%20Pay%20Act%20Guidance%20%285-2-18%29.pdf (last accessed Feb. 4, 2019).
[xi] M.G.L. c. 149, § 105A(a).
[xii] AG’s Guidance sec. 3.
[xvi] Miller v. Bd. of Regents of Univ. of Minn., No. 15-CV-3740, 2018 WL 659851 (D. Minn. Feb. 1, 2018).
[xvii] Id. at *7.
[xix] See id. at *1, 7.
[xx] The most well-publicized case filed under the new MEPA involved a claim by the principal flutist in the Boston Symphony Orchestra that she was compensated significantly less than the principal oboist, who was male. The case settled in February 2019 without any judicial opinion, but it highlights the type of issues courts may be required to address—namely, were the female flutist and male oboist performing comparable work? Rowe v. Boston Symphony Orchestra, Inc., No. 18-02040D (Mass. Super.).
[xxi] M.G.L. c. 149, § 105A(b) (2018).
[xxii] AG’s Guidance sec. 5.
[xxiii] AG’s Guidance sec. 5.
[xxiv] M.G.L. c. 149, § 105A(d); AG’s Guidance sec. 10.
by Mason Kortz and Christopher Bavitz
In 2014, the Supreme Judicial Court of Massachusetts ruled in Commmonwealth v. Augustine, 467 Mass. 230 (2014) that, under the Massachusetts Declaration of Rights, police must obtain a warrant in order to access cell phone records that can reveal a single person’s location over an extended period of time. Last year, the United States Supreme Court reached the same conclusion under the Fourth Amendment in Carpenter v. United States,138 S. Ct. 2206 (2018). However, neither decision addressed the practice of so-called “tower dumps,” which involve access to a different type of location information–namely, the identity of all cell phones that were in a particular location at a particular time. This article addresses law enforcement use of tower dumps, providing a technical description, an examination of current law, and some thoughts on trends in widescale data collection efforts
Technical Overview: What Are Cell Tower Dumps?
A cellular network is composed of numerous fixed-location cell towers or “cell sites,” each of which covers three or more directional “sectors.” Whenever a cell phone sends or receives data over a cellular network, it connects to one of these cell sites. The network continually tracks which phones are connected to which sites and sectors at any given time. This information — called cell site location information or CSLI — can be logged by the cellular service provider and stored, in some cases for multiple years. Depending on the density of the cellular network in a particular location, CSLI can be used to track a phone’s location with precision varying from a few miles down to a single city block. Newer cellular technologies allow for even greater detail.
The historical CSLI at issue in Augustine and Carpenter could be defined as information on all of the cell sites that a particular device had connected to over a particular interval. The Supreme Court in Carpenter defined a cell tower dump, on the other hand, as “information on all the devices that connected to a particular cell site during a particular interval.” Carpenter, 138 S. Ct. at 2220. The following examples highlight the distinction between the historical CSLI (Scenario A) and tower dumps (Scenario B):
- SCENARIO A — Police are investigating a crime that took place between November 15 and 19, 2018. Officers have probable cause to believe Smith committed the crime. Smith claims to have been nowhere near the scene of that crime, but officers question his alibi based on eyewitness testimony and other evidence. Officers seek a warrant that would require Smith’s cell phone provider to turn over CSLI indicating the location of Smith’s phone between November 15th and 19th.
- SCENARIO B — Police are investigating a crime that took place at 2:00 pm on November 19, 2018 in the 100-block of Main Street. Officers have no indication as to the identity of the perpetrator. Officers seek warrants that require cellular service providers with towers in the area to turn over CSLI for all cell phones that contacted towers near 123 Main Street between 1:50 pm and 2:10 pm on November 19th.
A tower dump, by its nature, involves access to more users’ data than historical CSLI does; indeed, one federal district court has noted that “[a]ny order authorizing a cell tower dump is likely to affect at least hundreds of individuals’ privacy interests.” In the Matters of the Search of Cellular Telephone Towers, 945 F. Supp. 2d 769, 770 (S.D. Tex. 2013). That said, a typical tower dump is confined in the sense that it covers both a small area and a relatively short time period — often a few hours or even a few minutes. Thus, a tower dump reveals less about any given individual’s movements over a period of time than does historical CSLI.
Current State of the Law
The primary legal question concerning cell tower dumps is whether they require a warrant or, alternatively, can be obtained under the Stored Communications Act (“SCA”), 18 U.S.C. § 2703(d). If the warrant requirement applies, the government would need to show probable cause in order to obtain a tower dump. Section 2703(d) of the SCA, on the other hand, requires only “specific and articulable facts showing that there are reasonable grounds to believe that the contents of [the cell tower dump] are relevant and material to an ongoing criminal investigation.”
Proponents of the warrant requirement argue that individuals have a reasonable expectation of privacy in their location information and that cell tower dumps therefore fall within the ambit of the Fourth Amendment. Alternatively, they argue that even if cell tower dumps do not infringe on any one person’s privacy, the sheer number of data points collected with each dump constitute “dragnet surveillance,” which the Supreme Court has suggested may be unlawful.
The majority of courts to consider the question have rejected these arguments and held that a warrant is not required to obtain a cell tower dump. Many of these decisions rely on the third-party doctrine, which provides that an individual has no legitimate privacy interest — and, therefore, no Fourth Amendment protection — in information that he/she voluntarily discloses to a third party (in this case, that person’s cell phone service provider). Such courts have also noted that, although cell tower dumps collect information about a large number of subscribers, they often cover relatively limited time periods.
On the other hand, at least one United States Magistrate Judge has held that cell tower dumps implicate the Fourth Amendment and therefore require a warrant. See In re United States ex rel. Order Pursuant to 18 U.S.C. Section 2703(d), 930 F. Supp. 2d 698 (S.D. Tex. 2012) (denying § 2703(d) application to obtain tower dump, holding that warrant is required). The court expressly relied on an order extending Fourth Amendment protections to historical CSLI, a decision later reversed by the Fifth Circuit. By its nature, a cell tower dump includes information that turns out not to be relevant to the investigation in question, and the Magistrate Judge was concerned that the government had made no plans for how to handle or dispose of that information. Thus, the court declined to approve an application for a cell tower dump until both (a) it was supported by probable cause; and (b) the government presented a protocol for minimizing the intrusion into the privacy of technological bystanders.
Looking Ahead: Developments Post-Carpenter
Although the Court in Carpenter did not reach the question of cell tower dumps, its decision will certainly have an impact on this evolving body of law. In holding that a warrant is not required to obtain cell tower dumps, many lower courts have expressly relied on appellate decisions permitting warrantless access to historical CSLI. Carpenter has now abrogated those decisions. Historical CSLI and tower dumps raise different privacy concerns, though, so lower courts applying Carpenter and Augustine to tower dumps will still need to engage in an independent analysis of whether the information the government seeks would invade individuals’ reasonable expectations of privacy.
Carpenter set forth two important holdings. First, it limited the application of the third-party doctrine to historical CSLI on the grounds that the pervasiveness of cell phones (and the essentially invisible way in which they generate location information) rendered any disclosure of CLSI effectively non-voluntary. The application of this holding to tower dumps should be straightforward: because tower dump CSLI and historical CSLI are generated in the same fashion, it stands to reason that the third-party doctrine does not apply to either one.
Second, Carpenter made clear that the collection of seven days of historical CSLI infringes on a cell phone user’s reasonable expectation of privacy and, absent exceptional circumstances, requires a warrant. The application of this holding to cell tower dumps is less certain. While tower dumps implicate the privacy of far more people than access to historical CSLI does, they are arguably less invasive at the individual level. The Court in Carpenter declined to state whether there is some lower limit to the collection of CSLI below which a warrant is not required. The SJC in Augustine did reach this question, setting the limit at six hours of CSLI. However, the SJC was presumably thinking of six hours CSLI for a single person–not six hours of CSLI for everyone whose cell phone passed by a specific location in that time period. Thus, the analogy between historical CSLI and tower dump CSLI is imperfect.
Finally, because the Court in Carpenter did not address tower dumps, it did not reach the question of what to do with hundreds, perhaps thousands, of innocent bystanders’ location information. Regardless of whether the warrant requirement applies, future courts that address the question of cell tower dumps will need to consider how to craft — or ensure that government entities requesting CSLI craft — mechanisms to minimize potential privacy harms caused by these broad and far-ranging requests.
Warrantless tower dumps, widely approved up until recently, are now on uncertain footing. Tower dumps that cover more than a few hours without a warrant are questionable under Carpenter and almost certainly unlawful in Massachusetts under Augustine. Even narrower tower dumps raise questions due to the number of people affected, although courts may focus more on minimizing harm through search protocols than on the warrant requirement. Courts and practitioners should also keep in mind that, as both the Supreme Court and the SJC observed, the granularity and precision of CSLI continues to increase dramatically as new network technologies are rolled out. The arguments that prevailed in Carpenter and Augustine are likely to become even more compelling as the relevant technologies continue to evolve.
Mason Kortz is a Clinical Instructor at the Harvard Law School Cyberlaw Clinic, part of the Berkman Klein Center for Internet & Society. His areas of practice include electronic search and seizure, online speech and privacy, open records and government transparency, and the law of artificial intelligence.
Christopher Bavitz is the WilmerHale Clinical Professor of Law at Harvard Law School, Managing Director of the Law School’s Cyberlaw Clinic, and a faculty co-director of the Berkman Klein Center for Internet & Society.
by Jeffrey J. Pyle
Debates about free speech on campus have long centered on “speech codes”—overt policies that restrict constitutionally-protected speech deemed offensive to others. Groups such as the American Association of University Professors (AAUP), the American Civil Liberties Union (ACLU), and the Foundation for Individual Rights in Education (FIRE), consistently oppose such policies because, in the AAUP’s words, “On a campus that is free and open, no idea can be banned or forbidden. No viewpoint or message may be deemed so hateful or disturbing that it may not be expressed.”
Speech codes, however, are not the only restraint on freedom of expression on today’s college campus. Public and private universities and state governments have adopted policies that pose a less direct but substantial threat to peaceful protest and debate on important issues. This article discusses two of them: the practice of charging student groups that invite controversial speakers to campus for security costs based on the likely reaction to the speech, and state anti-“Boycott Divestment Sanctions” legislation that applies to public universities.
- Security Fees Based on Likely Reaction to Speech.
In Forsyth Cty., Ga. v. Nationalist Movement, 505 U.S. 123, 134 (1992), the Supreme Court struck down a Georgia county ordinance that permitted the assessment of security fees for demonstrations on public property. Under the ordinance, county administrators had discretion to impose higher fees for events featuring controversial speakers, based on the anticipated hostile reaction to the speech. This, the Court held, amounted to unconstitutional content regulation: “Speech cannot be financially burdened, any more than it can be punished or banned, simply because it might offend a hostile mob.” Id., 505 U.S. at 134-35.
In recent years, courts have applied this principle to speeches on public university campuses. In Young America’s Foundation v. Napolitano, No. 17-CV-02255-MMC, Doc. 62 (N.D. Cal. Apr. 25, 2018), the University of California, Berkeley, billed $15,738 to a conservative group that had invited right-wing commentator Ben Shapiro to campus, allegedly to cover necessary security for the event. The relevant university policy adhered to Forsyth’s directive that the amount of the fee cannot be based on the likely reaction of hecklers. However, Berkeley failed to explain why it charged three times as much for Shapiro as it had charged for a different high-profile speaker, U.S. Supreme Court Justice Sonya Sotomayor. Accordingly, the Court denied Berkeley’s motion to dismiss the as-applied First Amendment challenge to the fee assessed on the conservative group.
Private universities, of course, are not legally bound by the First Amendment, but they still face the important policy question of whether to pass security costs onto organizers of campus events. Significant security costs will often be unaffordable to student groups, and a policy imposing them can sometimes work to prevent the exchange of ideas on campus. Such fee policy may also embolden persons seeking to shut down speech through threats of violence, thereby perpetuating the “heckler’s veto.” Accordingly, even private universities should craft their policies on this subject with regard for their impact on First Amendment principles.
- Anti-“Boycott Divestment Sanctions” Statutes
The First Amendment includes the right to organize boycotts that are intended to change government policy. NAACP v. Claiborne Hardware Co., 458 U.S. 886 (1982) (holding that boycotts intended to “influence governmental action” are protected under the First Amendment). However, according to the National Coalition Against Censorship, at least 17 states have passed statutes that seek to penalize those who join the “Boycott Divestment Sanctions” (“BDS”) campaign, a movement that seeks to influence Israel’s policy toward the Palestinians through economic pressure. A Texas statute, for example, provides that any company wishing to contract with the state must certify that it “does not boycott Israel,” and will not do so during the term of the contract. See Tex. Gov’t Code Ann. § 2270.001 et seq.
The provisions of state anti-BDS statutes differ, but they generally apply by their terms to public universities, as to any other state institution. Last year, the University of Houston required an external speaker to pledge she would not support BDS before she could be paid for conducting a workshop on campus. She refused, and an administrator faked her signature to process payment. (The administrator later resigned.)
Anti-BDS statutes are of doubtful constitutionality even outside academia. Koontz v. Watson, C.A. No. 17-4099-DDC-KGS, Doc. 15 (D. Kan. Jan. 30, 2018) (issuing preliminary injunction against Kansas anti-BDS statute). Within the academy, their application would frustrate the free interchange of ideas by depriving students of the ability to hear speakers—on any subject—who happen to support the BDS movement, or who on principle object to signing pledges as a condition of speaking. The AAUP recently released a statement condemning any requirement that academic speakers sign anti-BDS pledges, while reiterating its opposition to all academic boycotts, including those against Israel. At the very least, states with such laws on the books should clarify that they have no application in the academic context.
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To protect free speech on campus, universities must do more than foreswear speech codes. They must also ensure that other policies governing campus life do not impinge on the interchange of ideas “that is the basis of our national strength and of the independence and vigor of Americans who grow up and live in this relatively permissive, often disputatious, society.” Tinker v. Des Moines Indep. Cmty. Sch. Dist., 393 U.S. 503, 508–09 (1969).
Jeffrey J. Pyle is a partner in the Media and First Amendment Practice Group at Prince Lobel Tye, LLP in Boston, Massachusetts. As a high school student, Jeffrey and his brother brought a successful challenge to his school district’s speech code. Pyle v. School Committee of South Hadley, 423 Mass. 283 (1996).
by M. Bradford Bedingfield
In December 2017, Congress changed the tax laws in a number of ways that affect incentives for individuals and businesses to make charitable contributions. Pub. L. 115-97 (Dec. 22, 2017) (Tax Cuts and Jobs Act of 2017) (“Act”). A variety of studies published since the new law was enacted predict an overall drop in 2018 charitable giving of as much as $22 billion (down about 5 percent from 2017 levels), and reports from the first two quarters of 2018 do appear to show a significant drop in charitable giving compared to 2017. While many attribute this drop to the Act, opinions differ on whether the changes in legal tax incentives are truly driving, or will drive, changes in charitable giving patterns. So what incentives changed beginning 2018, and how might those changes affect decisions whether and when to give to charity?
Changes in Tax Incentives
The Act increases certain incentives for charitable giving, and decreases others. However, all of the changes described below – other than the reduction in the corporate income tax rate – are temporary, and, barring further action from Congress, will expire at the end of 2025.
Standard Deduction. Most accounts of the impact of the Act focus on the increase in the standard deduction – from $6,300 to $12,000 for single filers and $12,600 to $24,000 for married and joint filers – which, along with the elimination or diminution of many itemized deductions, will convert many taxpayers from itemizers (those who itemize their deductions, and forego the standard deduction) to non-itemizers (those who instead claim the standard deduction, foregoing the ability to take itemized deductions). This change matters because the income tax charitable deduction is an itemized deduction, and therefore provides no tax benefit whatsoever to those who claim the standard deduction. Because each taxpayer chooses either to claim the standard deduction or to itemize, those who claim the standard deduction get no tax benefit from charitable contributions. Studies have estimated that more than 20 million taxpayers will convert from itemized to non-itemized filers this year as a result of the Act.
While the increase in the standard deduction clearly will change tax incentives for charitable giving, it is unclear to what extent that change will affect actual charitable giving. Many taxpayers make charitable gifts regardless of whether they will receive a tax benefit, and it is unclear the extent to which the value of that deduction actually encourages or discourages people from supporting causes that are dear to them. The effect of this change may also vary dramatically depending on the state in which a person resides. Taxpayers in states like Massachusetts are likely to have other significant itemized deductions, such as state and local taxes (despite the new $10,000 cap on those deductions) and mortgage interest (despite new limitations on deductibility of interest from certain home equity loans), meaning that they are more likely to remain as itemizers..
Furthermore, a strategy known as “bunching” can provide a work-around for the impact of the increase in the standard deduction on charitable tax incentives. Imagine that a single taxpayer gives $10,000 to charity per year and has no other itemized deductions. That $10,000 per year provides no tax benefit, as the donor is better off just taking the $12,000 standard deduction instead. But if the donor instead gives $50,000 once every five years (and nothing in other years), the donor can file as an itemizer in the “on” year (claiming a $50,000 itemized deduction), and as a non-itemizer in the “off” years (claiming the $12,000 standard deduction in each of those years). While this “bunching” strategy will provide some incremental tax benefit for those who otherwise would fall below the standard deduction threshold, it will also create a certain “lumpiness” in charitable giving patterns, and the lumpiness is likely to be back-loaded if donors, choosing to wait to see more precisely how the Act’s changes will affect their personal returns, give their $50,000 in later years rather than in the first year after the new changes.
Lower Taxes. Most taxpayers will find that they are paying taxes at a lower aggregate federal tax rate than before. This reduction in tax rates generally makes the income tax charitable deduction less valuable – because there is less tax liability to offset – even for individuals who itemize their deductions. (It also makes the charitable deduction less valuable for corporations, which now pay income tax at 21%, reduced from up to 39% before the Act). Whether, and how much, this decrease in the “value” of the tax deduction will affect charitable giving is debatable. In fact, some tout this as a change that may spur an increase in charitable giving, to the extent that lower taxes may increase cash available for charitable giving.
Estate Taxes. Federal estate taxes have been virtually eliminated for all but a very small number of taxpayers, as the federal estate tax exemption amount has increased to over $11 million per person (or over $22 million per married couple). Many fear that this will likewise reduce estate tax incentives to leave property to charity. However, the extent to which changes in the estate tax will affect the disposition of donors’ assets on death is likewise open to debate. The fact that donors are paying less in estate taxes might in fact increase charitable bequests, especially where donors (for non-tax reasons) choose to leave the residue of their estates to charity. Furthermore, because many states continue to have their own estate or inheritance taxes (especially in New England, the northern Midwest states, and the Pacific Northwest), donors in those states are less likely to change estate plans already optimized to minimize state estate taxes, many of which include charitable gifts as part of that optimization.
Ticket Rights. One minor decrease in tax incentives (although a significant one for many college football fans) is that Congress has eliminated the partial charitable deduction previously available for gifts to colleges and universities in exchange for priority rights to buy season tickets. In anticipation of this change, many colleges encouraged ticket holders to “pre-fund” their ticket-related contributions at the end of 2017. Otherwise, it is unlikely that this change will have a significant impact on charitable giving as a whole – as a graduate of a large, Southern state university, I am quite certain that, for most college sports fans, the incentives of securing priority season ticket rights far outweigh any reduced tax incentives.
While the general consensus is that the net effect on tax incentives for charitable giving is negative, the Act provided some minor boosts to charitable tax incentives.
Elimination of Pease Limitations. Prior to the Act, the so-called “Pease” limitations reduced certain itemized deductions, including certain charitable gifts, for high-income taxpayers, and thus potentially reduced the tax effectiveness of certain charitable gifts for those taxpayers. The Pease limitations have been suspended under the Act, which may provide a modest boost in tax incentives. On the other hand, it was never clear how much of an effect the Pease limitations actually had on charitable giving patterns, and so the effect of this change is likewise uncertain.
Increased AGI Limit for Cash Gifts. The primary “boost” to tax incentives for charitable giving relates to the percentage of a donor’s adjusted gross income (AGI) that may be deducted each year. Previously, donors could deduct up to 50% of their AGI for cash gifts to public charities (non-cash gifts, and gifts to so-called “private foundations,” are subject to less favorable AGI limits). Gifts in excess of this AGI limit are not deductible in the year of the gift, but may be deducted in future years, for up to five years.
The Act increased the AGI limit for cash gifts to public charities from 50% to 60%, potentially allowing certain donors to enjoy higher income tax deductions more quickly. However, because of the rather complicated way in which this increase was integrated into the existing tax code, the higher 60% AGI limit is available only when a donor is relying solely on gifts of cash to public charities, and not gifts of stock or other assets (or any gifts to private foundations), to make up that 60% amount. Many donors who give that much of their annual income are likely to have low-basis stock or other property, and the tax benefits of giving low-basis stock (namely, avoiding capital gains tax on the stock’s appreciation) to public charities significantly outweighs the benefit of this increased AGI limitation. In other words, on balance, most donors will still effectively be capped at the lower 50% of AGI limit. Although it is too early to know for certain, it seems likely that very few taxpayers will see any practical benefit from this increase.
Good or Bad for Charitable Giving?
It is too early to know whether the Act will result in more or less charitable giving. Many popular strategies for saving taxes by making charitable gifts – for example, making gifts of appreciated property, or direct charitable IRA rollovers – remain effectively unchanged. For many taxpayers, the effects of the Act may not become evident until they see their first tax returns in 2019, and it may not be until then that they start to consider changing their charitable giving strategies. While it does appear that giving is down in 2018 (compared to 2017), this could be attributable to a number of things. For example, 2017 was a record year for charitable giving, in part because many tax advisors urged donors to make large charitable gifts at the end of 2017, at least in part to offset the higher 2017 tax rates. A corresponding drop in charitable giving in early 2018 might be a natural consequence of the fact that many taxpayers effectively pre-funded their anticipated 2018 contributions at the end of 2017. Other taxpayers may be temporarily holding off on giving in anticipation of “bunching” contributions in later years, or may otherwise be delaying the timing of their gifts, even if they intend to maintain past levels of giving in the aggregate.
At the end of the day, it is likely that only a particular subset of donors who will be significantly affected by these changed tax incentives. Donors who were non-itemizers before these changes are likely to remain so, and will see no meaningful change in tax incentives for charitable giving. Conversely, donors who previously were itemizers and, because of significant other itemized deductions, will remain so, still have plenty of incentives to find tax-efficient ways to reduce the burden of income or estate taxes by making charitable gifts. Anecdotal discussions with charitable giving and estate planning professionals indicate no significant shifts in donor interest in long-term charitable giving, including planned giving, among filers already likely to itemize. However, donors who are in that intermediate space between itemizing and not itemizing should take a close look at their particular tax profiles and consider “bunching” and other strategies to allow them to maximize the impact of their income tax charitable deductions over the long term under the Act.
 On September 28, 2018, the House of Representatives passed a series of bills, together dubbed “Tax Reform 2.0,” that would make these changes permanent, but as of this article, there appears to be no movement in the Senate in that regard.
 House Bill 6760, 115th Cong. (2017-2018) (Protecting Families and Small Business Tax Cuts Act of 2018), part of the “Tax Reform 2.0” initiative passed by the House on September 28, 2018, would expand the ability of taxpayers to take advantage of the higher AGI threshold – however, it is unclear whether the Senate intends to participate in “Tax Reform 2.0,” or whether this provision might make its way into some other bill with bicameral support.
Brad Bedingfield is counsel at Hemenway & Barnes LLP. Brad works extensively with nonprofit organizations, navigating tax, regulatory, and governance matters, guiding charities and other nonprofits through formation, reorganizations, mergers, affiliations, and dissolution, and advising on innovative use of charitable assets, including social impact bonds and other forms of impact investing.
by Marlies Spanjaard
Even if you haven’t heard the term “school-to-prison pipeline,” you probably know what it describes: The national trend by which students are funneled out of the public schools and into the juvenile and criminal justice systems. Instead of getting the education they need, generations of our state’s most vulnerable children have been pushed out of the classroom and into jail by schools with inadequate educational programs and zero tolerance disciplinary policies and practices. Suspension or expulsion from school can play a major role in pushing students into this pipeline. Unfortunately, these types of exclusions have increased dramatically in the last fifty years across the country. Massachusetts is no exception. Since the 1970s, schools have experienced a massive shift in how they respond to misbehavior in the classroom. The suspension rate for all students has nearly doubled, with students of color and students with disabilities incurring exclusion at an even greater rate. In Massachusetts, 17% of all incidents involved low-income Black or Latino students receiving special education, a rate that is estimated to be 10 times greater than their enrollment. See http://lawyerscom.org/wp-content/uploads/2014/11/Not-Measuring-up_-The-State-of-School-Discipline-in-Massachusetts.pdf.
In 2012, the Legislature enacted G.L. c. 71, § 37H¾, the first law to address school discipline reform in almost twenty years. The legislature sought to address distressingly high rates of exclusions and provide education services for children who are excluded.
Unlike the preexisting §§ 37H and 37H½, the new § 37H¾ provides procedural protections for students receiving both short term and long term suspensions – short term being under 10 days and long term being 10 days or more. Reflecting current research and best practices demonstrating that school exclusion is harmful to children and should be a last resort, § 37H¾: (1) requires that the decision maker, typically the school principal, exercise discretion, consider ways to reengage the student, and avoid any long term exclusion until other non-exclusionary alternatives have been tried; (2) prohibits a student’s exclusion for non-serious offenses from exceeding ninety days in a single school year; and (3) requires school districts to provide educational services to students who have been excluded from school for more than 10 days in order for them to make academic progress during the period of their exclusion. (Prior to the law, a non-special needs student excluded from school had no right to any educational services).
Now, four years into the implementation of § 37H¾, much still remains to be done to address the school to prison pipeline in Massachusetts. Massachusetts is heralded as having the best public schools in the nation, but access to this system is not equitable. Massachusetts schools continue to have high suspension and expulsion rates; racial disparities in exclusions continue to be higher than the national average; and the academic services offered to excluded students continue to vary greatly in quality. Massachusetts must do better, and this article suggests four ways that it can do so.
Provide Robust Procedural Protections for Students Facing Even Short Term Exclusions
First, § 37H¾ provides few procedural protections for students receiving short term suspension – defined as suspensions that are less than 10 days. Under the current law, students who are excluded for less than 10 days receive the opportunity to be heard, but there is no requirement that a parent be present. While the regulations require the principal to articulate the basis for the charge and to allow the student to present mitigating circumstances, this rarely happens. Often, a school official informs the student of his suspension while face-to-face, or by calling his parent. There is also no mechanism for appealing short term suspensions to the superintendent, so these determinations are often final.
Even a short term suspension can drastically impact the student’s achievement. Each day of exclusion is a missed day of instruction, and can lead students to fall behind. See https://www.civilrightsproject.ucla.edu/resources/projects/center-for-civil-rights-remedies/school-to-prison-folder/summary-reports/suspended-education-in-massachusetts-using-days-of-lost-instruction-due-to-suspension-to-evaluate-our-schools. Furthermore, a student who is excluded is left to spend his days out of school without any structure or support, which significantly increases his chances of engaging in delinquent behavior and finding himself in court. Given that students facing exclusion are often already struggling academically and emotionally, exclusion, even for a short duration, can have a tremendous impact. Providing robust procedural protections for students facing even short term exclusions would ensure that we are taking the opportunity to address student challenges at their root, rather than waiting until things have already progressed to the point where a student is facing a long term exclusion or expulsion
Clarify The Robust Procedural Protections For Student Facing Exclusion Under Sections 37H And 37H½
Second, § 37H¾ regulates the school’s response to misbehavior that the state has defined as “non-serious exclusions.” Sections 37H and 37H½ in contrast, regulate the school’s response to misbehavior involving weapons, drugs, assault on educational staff, and any felony charges or convictions. Under the current statutory scheme, students who are being disciplined for allegations of non-serious behaviors under § 37H¾ have more robust protections delineated than students who are facing more serious allegations and consequences under §§ 37H and 37H½. The result in practice is that students facing the serious allegations are often not afforded the appropriate due process because it is not specifically delineated in the statute, although it is supported by the case law. This discrepancy in the statutory scheme is difficult to square with the research demonstrating that exclusion for both “non-serious” and “serious” offenses equally impacts student achievement. Requiring additional procedural protections does not prevent schools from implementing serious disciplinary consequences if the principal determines such consequences are warranted; they simply require the school to take steps to ensure that the offense occurred and was committed by the student being disciplined, and to hear the whole story including mitigating circumstances before imposing very serious and potentially life altering consequences. The law should be amended so that it is clear that students who are facing discipline under §§ 37H and 37H½ are entitled to all of the procedural protections received by students facing discipline under § 37H¾.
Limit The Authority Of Principals To Exclude Students For Out Of School Conduct
Third, the provisions of § 37H½ that allow exclusion of a student who has a pending felony charge or conviction upon the principal’s determination that the student’s continued presence would have a detrimental effect on the school’s general welfare sweeps too broadly. Although the layperson thinks of “felonies” as charges such as murder or manslaughter, § 37H½ has been used to exclude students charged with felonies reflecting normal adolescent behavior, such as riding in the backseat of a car that turned out to be stolen, fighting, or stealing an iPhone. The law gives principals the discretion to exclude a student based solely on the existence of a criminal charge. Principals are educators, not judges. They are not trained to make these determinations, and are often being asked to decide a student’s fate with limited information. In fact, the information a principal has is sometimes obtained in violation of student privacy protections as juvenile court proceedings are confidential.
Further, available data illuminate a serious problem with disparities in both race and disability status of the young people who face juvenile court charges. Massachusetts is one of the few states that allow this type of exclusion based solely on an allegation, despite the notion that one ought to be presumed innocent until proven guilty. Barring a complete removal of a principal’s ability to exclude based on a mere allegation, the statute should be amended to reflect the Department of Elementary and Secondary Education’s 1994 advisory, which said that § 37H½ should only be used for serious violent felonies. One approach could be to align § 37H½ with the Youthful Offender Statute.
The Youthful Offender statute, G.L. c. 119, § 54, allows prosecutors in circumstances where they feel a child has committed a serious offense to indict a child as a youthful offender, subjecting them to treatment as an adult. The statute applies to: youth who have previously been committed to DYS or are accused of causing or threatening serious bodily harm, or any charge involving a gun. If the statue focuses on the realistic threat to school safety, those who are alleged to have committed minor, non-violent crimes will be excluded at a lower rate. Furthermore, youthful offender cases are open to the public, which would allow everyone the opportunity to have the same information and wouldn’t incentivize the disclosure of confidential information currently protected by the juvenile court.
Limit The Definitions Of “Assault” And “Weapon” Under Section 37H.
Finally, § 37H should more clearly define the terms “assault” and “weapon.” Section 37H defines “weapon” in a way that explicitly includes guns and knives, but is otherwise vague. This has permitted principals to expand the definition of “weapon” to sometimes comical levels, such as a case in which a student was excluded under § 37H for possessing a paperclip. Similarly, “assault,” which also is not definite under § 37H, has sometimes been applied to include a “menacing” look from a student, unintentional contact with a teacher, or contact made with a teacher by a kindergartener during a tantrum.
Changing § 37H to clarify that all the elements of an “assault” must be present before expulsion, including specific intent and imminent harm, would lower exclusions. Currently, a broad spectrum of actions may be considered an “assault,” including unintentional acts or acts where there was no actual threat of harm. Further, the definition of “weapon” should be changed to match the federal definition of “dangerous weapon” under 18 U.S.C. § 930: A “device, instrument, material, or substance, animate or inanimate, that is used for, or is readily capable of, causing death or serious bodily injury, except that such term does not include a pocket knife with a blade of less than 2½ inches in length.” A school could still short term suspend students under § 37H ¾ for any item banned in their student handbook, but this change would limit the amount of students permanently excluded. These simple changes will reduce exclusions and keep students in the educational environment they so desperately need.
Section 37H¾ has significantly improved school discipline practice in Massachusetts, but much remains to be done. Some schools are excluding upwards of 50 percent of their student body each year. Students of color are still suspended at much higher rates than their white counter parts. By adopting the changes suggested above, Massachusetts can continue to improve on the progress already made. Massachusetts has long been at the forefront of progressive approaches to student misconduct, recognizing students as individual children in need of compassion and support rather than bad apples that need to be pushed out. By amending our laws to reflect the above changes, Massachusetts can continue to play a role as a leader in the field.
Marlies Spanjaard, MSW, JD, is the Director of the EdLaw Project, a statewide education advocacy initiative housed within the Youth Advocacy Division of the Committee for Public Counsel Services. She is a recognized expert on education law and school-to-confinement pathways. A passionate and dedicated advocate for vulnerable youth in Massachusetts, her work focuses on increasing education advocacy among the juvenile and child welfare bars to ensure children are supported to succeed in school and stay out of the court system.