by Daniel Lyons
Like many popular tourist destinations, Boston benefits from the sharing economy. Innovative intermediaries such as Airbnb have helped middle-class residents supplement their incomes by monetizing their greatest assets: their homes. The new short-term rental market allows homeowners to keep up with rising living costs while providing additional capacity to attract tourists who contribute to the local economy.
Also like many cities nationwide, Boston has struggled with the unintended consequences of this new marketplace. Policymakers are concerned that the new market is incentivizing owners to remove long-term rentals from the housing stock, particularly in popular and space-constrained areas like Chinatown. To mitigate this risk, a new City of Boston ordinance (City of Boston Code, Ordinances, § 9-14) requires homeowners to register short-term rental properties with the City and prohibits certain categories of properties from being offered as short-term rentals.
But it is the enforcement mechanism that has drawn the most controversy. In addition to punishing individual homeowners who run afoul of the rules, the ordinance fines intermediaries like Airbnb $300 per day for each ineligible rental booked on the site. Presumably, the fine is designed to entice these intermediaries to police their sites for violations. But while this attempt to deputize Airbnb reduces the City’s enforcement costs, it cuts against one of the fundamental tenets of Internet governance: that platforms generally are not liable for a user’s misuse of a neutral tool. This immunity, codified in Section 230 of the Communications Decency Act, 47 U.S.C. § 230, makes it possible for companies from eBay to Twitter to connect millions of users without having to monitor their every interaction for potential legal violations. In Airbnb v. City of Boston, 386 F. Supp. 3d 113 (D. Mass. 2019), the federal district court upheld the Ordinance against a Section 230 challenge, in a decision that weakens this core statutory protection and may have significant ramifications for the broader Internet economy.
Background: Section 230
Section 230 is the legal cornerstone of the modern Internet economy. Jeff Kosseff, Professor of Cybersecurity at the United States Naval Academy describes it as The Twenty-Six Words That Created the Internet. The statute provides that
No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.
Congress passed Section 230 in 1996 to address the holding of Stratton Oakmont v. Prodigy Services Co., 1995 WL 323710 (N.Y. Sup. Ct. May 24, 1995), which held that online service providers could be held liable as publishers for defamatory statements made by their users. Section 230 itself states that it was designed to “preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or State regulation,” 47 U.S.C. § 230(b)(2), by giving platforms discretion to decide when and how to police their sites. It contains exceptions for claims arising under federal criminal statutes (including, in particular, sex trafficking), intellectual property laws (which are governed by a different intermediary liability regime), or state laws that “are consistent with this section.” 47 U.S.C. § 230(e).
The following year, the seminal case Zeran v. America Online, 129 F.3d 327 (4th Cir. 1997), displayed the expansive scope of the statute in the defamation context. This case involved ads posted on America Online (AOL) selling offensive T-shirts that made light of the 1995 Oklahoma City terrorist bombing. The ads falsely listed plaintiff Ken Zeran as the vendor and included Zeran’s home telephone number, prompting irate AOL users to inundate Zeran with angry calls and death threats. Zeran sued AOL, alleging that he notified the company of the defamatory posts but it unreasonably delayed in removing them. The Fourth Circuit found that Section 230 immunized AOL from liability even for messages that the company knew were defamatory. The court justified this broad immunity by noting that with “millions of users,” interactive computer services process a “staggering” amount of information. Id.. “Faced with potential liability for each message republished by their services, interactive computer providers might choose to severely restrict the number and type of messages posted,” a threat to free speech that Congress sought to guard against. Id..
Subsequent court cases have extended Section 230 far beyond the defamation context, to immunize Craigslist against claims of facilitating housing discrimination, eBay from products liability claims, and StubHub from violations of state ticket scalping laws. It is the resulting broad immunity, protecting intermediaries from liability for most user misconduct, that has shaped much of the current Internet ecosystem. Section 230 entices online news outlets and blogs to permit comment threads without fear of what readers may say. It allows Amazon, TripAdvisor, and Yelp to aggregate and display consumer feedback about products and services. Without Section 230, social media platforms like Facebook and Twitter likely would not exist—or would not be free—because of the high cost of screening every post for potential liability.
Of course, while Section 230 shields the platform from intermediary liability, the user remains liable if the underlying post violates the relevant law. And as the Ninth Circuit explained in Fair Housing Council of San Fernando Valley v Roommate.com, 521 F.3d 1157 (9th Cir. 2008), the platform loses its immunity if it is responsible, in whole or in part, for formulating the offending message.
Section 230 and Boston’s Short-Term Rental Ordinance
Given this robust history of Section 230, it seemed an uphill battle for Boston and similar cities seeking to deputize platforms to enforce short-term rental regulations. Like eBay and StubHub listings, the content of an Airbnb listing is written by the individual homeowner. While a local ordinance could penalize individual homeowners for listing ineligible properties, Section 230 prohibits a local ordinance from forcing Airbnb to “verify” that listed properties comply with the law by punishing it for listing an illegal unit. In 2012, a court struck down a comparable attempt by the State of Washington to fine online classified ad publishers unless they verified that models featured in online prostitution ads were adults. See Backpage.com v. McKenna, 881 F. Supp. 2d 1262 (W.D. Wash. 2012).
Boston sought to circumvent Section 230 by punishing not the listing of an illegal unit, but rather providing booking services for an illegal unit. The law provides that “any Booking Agent who accepts a fee for booking a unit as a Short-Term Rental, where such unit is not an eligible Residential unit, shall be fined” $300 per violation per day. Airbnb sued to enjoin the provision, arguing that the focus on a booking fee rather than the listing was a distinction without a difference, that the effect of the ordinance was to hold intermediaries liable for their users’ misrepresentations, and that Section 230 therefore preempts the ordinance.
On preliminary injunction, the court sided with the City. The court found that the penalty provision punished Airbnb for the company’s own conduct, namely accepting a fee for booking an ineligible unit. The court explained that the fine is not tied to the content of the underlying listing, and noted that Airbnb remains free to list ineligible units without incurring liability, as long as it does not provide booking services for one. In essence, it requires the company, at the booking stage, to confirm that a listing is eligible under the statute before collecting a fee to complete the transaction. The decision mirrored, and relied upon, two recent decisions upholding similar ordinances in California: HomeAway.com, Inc. v. City of Santa Monica, 918 F.3d 676, 680 (9th Cir. 2019), and Airbnb, Inc. v. City & Cty. of San Francisco, 217 F. Supp. 3d 1066, 1071 (N.D. Cal. 2016). In the process, the court rejected Airbnb’s argument that the First Circuit has interpreted Section 230 more broadly than the Ninth Circuit.
Although Airbnb appealed the decision to the First Circuit, it ultimately settled before argument to reduce its financial exposure. Under the settlement agreement, the company agreed to require any user posting a Boston listing to provide a City-issued Registration Number. The company also agreed to send Boston a monthly report of active listings within the City. The City will then notify Airbnb of listings that it believes are ineligible, which Airbnb will deactivate within 30 days. The agreement provides that compliance with this procedure will constitute a safe harbor shielding against booking agent liability under the ordinance.
Unintended Consequences of Court Decision
One can sympathize with Boston’s desire to rein in the excesses of the short-term rental market. Tourist demand for alternatives to traditional lodging remains high, increasing the risk that short-term rentals will siphon off housing stocks in an already capacity-constrained residential market. This is especially problematic if the properties in question receive benefits (such as low-income assistance) designed to encourage residential stability, if the property poses a risk to tourists, or if increased tourist activity harms the local community.
In that sense, it is both expected and appropriate that the City would regulate Boston homeowners who seek to participate in the short-term rental market, just as it does innkeepers and landlords. Boston has authority to decide which properties can be made available and on what terms. And it is free to enforce those regulations directly against individual violators, by dedicating resources to reviewing listings, identifying properties that are out of compliance with the ordinance, and bringing appropriate enforcement action against the lawbreakers.
But the court’s approval of the City’s plan to commandeer platforms to aid enforcement reflects a potentially problematic shift in Section 230 jurisprudence. As an initial matter, the court’s distinction between listing and booking seems strained. The court posited that Airbnb remains free to list illegal units, as long as it doesn’t actually book them. But as Professor Eric Goldman of Santa Clara University notes in connection with the similar San Francisco ordinance, listing properties that the company cannot or will not book could set up Airbnb for a false advertising suit; if it wishes to adhere to its preexisting business model and avoid bait-and-switch liability, the company effectively must verify that listings are eligible before posting.
Even if, as the court suggested, Airbnb need only verify eligibility at the point of booking, the verification obligation imposes significant costs upon these intermediaries. The court minimized this obligation, stating the ordinance “simply requires Airbnb to cross-reference bookings against the City’s list of ineligible units before collecting its fees.” But this simplifies the burden that Airbnb faces. Boston’s ordinance punishes the accepting of a fee for booking an ineligible unit, a category that includes:
- Units subject to affordability covenants or housing assistance under local, state, or federal law;
- Units prohibited from leasing or subleasing under local, state, or federal law; and
- Units subject to three or more violations of any municipal ordinance or state law relating to excessive noise, improper trash disposal, or disorderly conduct within a six-month period.
While the ordinance requires the City to create an ineligible units list, it does not provide a safe harbor for booking agents that cross-reference bookings against that list. On its face, then, booking agents must independently determine whether each Boston booking violates any of the myriad eligibility requirements.
The settlement reduced Airbnb’s compliance costs, but the ordinance remains as written for other booking agents. Of course, the cost of even the settlement’s modified monitor-and-takedown procedure is not trivial—particularly if, as Professor Goldman notes, other cities follow Boston’s example. Airbnb and other intermediaries must keep abreast of nuanced ordinances in myriad cities and states nationwide and tailor their algorithms to verify eligibility. While this increased cost may not make the booking model uneconomic, it could lead some booking companies to withdraw from more heavily regulated markets.
The proliferation of ordinances like Boston’s could also entrench existing companies by raising the costs of entry for new entrepreneurs in this space. Indeed, this could be one reason why Airbnb settled the Boston case and similar litigation in Miami Beach, Florida: as the market leader, Airbnb can perhaps bear these compliance costs easier than its competitors. The settlement agreement itself suggests that Airbnb is using regulation to secure its position: a provision titled “Fairness Across Platforms” requires the City to negotiate with Airbnb’s competitors, three of which are listed by name, mandates that the City provide Airbnb a copy of any agreement it enters with another platform, and provides for Airbnb to modify its agreement if another platform receives a more favorable provision. It also requires the City to confer with Airbnb to discuss compliance efforts taken against platforms that have not entered such agreements.
Ramifications for the Broader Internet Economy
The Boston Airbnb decision shows that the erosion of Section 230 immunity is now spreading beyond the Ninth Circuit. Other cities that share Boston’s concerns about the growth of the short-term rental market now have a model to enlist platform providers as enforcers. For Airbnb and similar platforms, this likely means staffing additional compliance resources to learn and respond to a growing number of local regulations.
Entrepreneurs and those advising platform-based startups should also recognize that this erosion is not necessarily limited to the short-term housing market. The court’s approval of a verification obligation could potentially open the door to significant state and local regulation of the Internet economy. For example, Professor Goldman notes that licensing boards could require that online marketplaces verify that sellers have appropriate business licenses before completing a transaction. Cities may require ride share operators to assure that drivers meet local qualifications. States could require eBay and other clearinghouses to confirm that goods comply with local commerce and product liability laws. And payment processors further up the supply chain could find themselves saddled with similar verification requirements.
The court’s decision also shapes how future tech entrepreneurs should structure their businesses. By bifurcating Airbnb’s listing and booking functions, the decision favors certain business models over others. Airbnb faces liability for facilitating rental of an ineligible property, while online classified ad companies like Craigslist retain Section 230 immunity for the same action, based solely on how each company chooses to fund its activities. Going forward, this decision incentivizes companies to move away from collecting fees for facilitating transactions, and instead to embrace advertising-based revenue models, or models that charge a fee per listing—both of which would remain protected under Section 230.
It is too early to state with precision what effect this decision will have on the development of the sharing economy. But the court’s decision, coupled with the San Francisco and Santa Monica cases, suggest that local regulators may have a powerful new tool to address their public policy concerns. Internet-based platform providers must adapt if they wish to continue relying upon Section 230 to shield innovative new efforts to connect buyers and sellers online.
 As the court clarified, “ineligible” properties are those that categorically cannot be offered as short-term rentals. The statute does not punish booking agents for booking eligible but unregistered properties.
 Airbnb, 386 F.Supp.3d at 120.
 Id. at 120-121.
 The Court contrasted this Penalty Provision with another part of the statute, the “Enforcement Provision,” which prohibits Airbnb from operating within Boston unless it enters an agreement with the city to “actively prevent, remove, or de-list any eligible listings.” See id. at 123-124. At oral argument, the city conceded that the threat of banishment for failure to monitor and remove listings effectively imposed liability on Airbnb for publication of third-party conduct, and on the basis of that concession, the court enjoined the Enforcement Provision. Id. at 123. The court also enjoined parts of a data reporting provision on unrelated grounds. Id. at 124-125.
 Id. at 120 n.5.
 Airbnb, 386 F.Supp.3d at 121.
 See An Ordinance Allowing Short-Term Residential Rentals in the City of Boston, Section 9-14.4A.
Daniel Lyons is a Professor at Boston College Law School, where he researches and writes in the areas of telecommunications, energy, and administrative law. Professor Lyons is also a Visiting Fellow at the American Enterprise Institute, where he regularly blogs about tech policy issues.
Voice of the Judiciary
Our country has been at war for almost 15 years. Deployments take a toll on soldiers and their families. Some get arrested because they suffer from Post-Traumatic Stress or traumatic brain injury and they self-medicate with alcohol and/or drugs. If those defendants are within the Boston Municipal Court Department (BMC) jurisdiction, the Boston Veterans Treatment Court (BVTC) may be an alternative to the regular court trial track.
I served as a Navy Intelligence Officer and had the honor of being attached to Special Operations Command, Korea (SOCKOR). My husband Richard Sinnott, a private attorney practicing in Boston, is a Lieutenant Colonel Judge Advocate in the Army Reserve. He deployed to Kuwait in 2003. My familiarity with military culture both by being a military officer and the spouse of a deployed soldier, and having worked with combat veterans, helps in my interactions with and understanding of veterans as the presiding judge of the BVTC.
Why do I say BVTC “may” be an alternative?
The BVTC focuses on high risk/high needs veterans facing serious charges where there is a nexus between their current problem and their military experience. Individual treatment plans are created for them and each veteran is assigned a mentor. Because the program is usually about
18 months of probation and involves intensive treatment and monitoring, it may not be appropriate for a veteran facing less serious charges.
Probation (which is often pretrial probation), consists of weekly court appearances that taper as the veteran progresses through five phases. Once a treatment plan is established, each week the veteran is tested for drugs and alcohol, must attend three Alcoholics Anonymous or Narcotics Anonymous meetings each week, meet weekly with a probation officer and have mentor contact.
How does a veteran get considered for the BVTC?
If a veteran is arraigned in the BMC Central Division, the case is automatically scheduled for the earliest Friday in the BVTC, for assessment of eligibility. If a veteran is arraigned in one of the other BMC divisions, the veteran’s attorney submits a referral and the case is scheduled for a status date in that same division 4 weeks later. During that time, the veteran is told to visit a BVTC session, given the participant handbook, and a clinical evaluation is scheduled to assess whether there is a nexus between their military service and current case and whether the BVTC can provide the appropriate treatment. (http://www.mass.gov/courts/docs/specialty-courts/veterans-treatment-court-referral-form-boston.pdf)
Because the BVTC session is a voluntary program, the veteran then has the option to opt in or go the normal trial track.
What are the benefits to the veteran?
For most defendants, their cases will resolve by dismissal. Suffolk District Attorney Daniel Conley supports such resolutions because, in his own words: “Veterans are asked to fight and die in defense of their country. But many aren’t given the tools to readjust to peacetime lives. As a result, they’re at a much greater risk of unemployment, substance abuse, and untreated mental illness, which all contribute to increased contact with the criminal justice system. So with Veterans Court, our goal is to help defendants overcome those challenges rather than be overcome by them.” Dismissals give them a better chance at employment and other opportunities. Most importantly, the veterans receive treatment monitoring and support in areas such as housing, employment, possible upgrades in military discharge status, and legal assistance in civil matters.
Who is on the treatment team and why should I trust that they would know what is best for the veteran?
Most team members have extensive military backgrounds and are committed to the BVTC mission: To provide veterans whose underlying service related challenges brought them into the justice system – with a tailored but flexible supervised treatment program that restores their dignity and pride and returns them to being law abiding, productive members of civilian society.
A unique and essential aspect of veterans courts is peer mentoring, described by Judge Robert Russell of New York, as the “secret sauce” for the success of veterans courts. Don Purington is the peer specialist/mentor coordinator for the BVTC and oversees mentoring for all five veterans courts in Massachusetts. Although he is the assigned mentor to several BVTC veterans, he is an unofficial mentor to them all.
Mr. Purington’s story is one of redemption. He is a combat veteran who served in the United States Marine Corps from 2005 – 2009 as a fire team leader and squad leader during combat operations in Iraq in 2006. Upon discharge, Mr. Purington was addicted to opiates and began breaking the law to obtain drugs. After detoxing in a jail cell, he was offered the opportunity for treatment and help putting his life back on track. He received inpatient treatment for more than a year and was able to move past his legal issues. A veteran served as a mentor to Mr. Purington, which started him on his path to working with veterans.
Mr. Purington connects with BVTC veterans by sharing his journey, which is a source of strength for them. As he explains: “Some of the most comforting words to someone who is at rock bottom are ‘I understand what you are going through.’ Had I not gotten the mentor that I did and the opportunity to get the help I needed I would be either dead or in jail. It has been 6 years since I started my journey of sobriety and I will continue to use my mistakes to try and help others.” A BVTC veteran described him as “… the most inspirational and biggest positive influence of them all. He is truly like a big brother to me, blood or not. I sincerely love and appreciate this man for everything! … I really hated disappointing him more than anyone.”
The gateway to the BVTC is through probation officer Geri Jurczak (email@example.com). After receiving the one page referral, the eligibility assessment begins. As part of that process, the veterans are drug and alcohol tested and must abide by the program requirements. Ms. Jurczak conducts home visits and offers referrals to the veterans’ families as needed. A veteran described his experience with Ms. Jurczak like this:
… I have been on probation once before and it made me feel as if I was being set-up for failure … [Ms. Jurczak] was the complete opposite of what I believed a probation officer to be… She was there for me whenever I had struggles or problems. … She was a huge part of my success and I owe her more than I can give. BVTC is very unorthodox compared to conventional courtrooms because they recognize the need to help veterans returning home from combat. It takes a very special person … to work with combat veterans. … I will forever be grateful for her help in bettering my life.
Suffolk Assistant District Attorney Brett Walker (firstname.lastname@example.org ) is assigned to the BVTC. A West Point graduate and a Ranger, who was awarded two Bronze Stars, ADA Walker has served for 12 years as a light infantry officer in the U.S. Army and the Massachusetts National Guard. An Army Major, he has deployed to Afghanistan and Iraq. He makes a habit of shaking hands with the defendants at each session.
Attorney Vanesa Velez of the Committee on Public Counsel Services (CPCS) regularly represents BVTC veterans (email@example.com). While providing zealous advocacy she understands the BVTC treatment approach.
Thomas Palladino, a licensed social worker, is the BVTC Veterans Justice Outreach Coordinator. He creates the treatment plans and is responsible for the initial assessments and continuing case management. The team meets weekly before the regular Friday session. Because the BVTC is a high risk, high needs court, Mr. Palladino frequently makes last minute changes to treatment plans. He has found immediate placement in detox or residential treatment programs when veterans have been in crisis.
All combat veterans can obtain VA benefits through the Boston Vet Center. Amy Bonneau, a Captain in the Massachusetts National Guard, who deployed to Kabul, Afghanistan in 2010, is a licensed social worker and works as a readjustment counselor at the Boston Vet Center.
John Quinn is a Veteran Outreach Coordinator for the Home Base Program (http://homebase.org) – a partnership with the Red Sox Foundation and Massachusetts General Hospital, which provides eligible veterans with world-class clinical care, fitness, wellness and family counseling. Mr. Quinn proudly served in the 101st Airborne Division, U.S. Army Military Police.
Paul Connor, a Captain in the Army National Guard, assists the BVTC with veterans who suffer a severe relapse. Early this year, Mr. Connor was asked by Sheriff Peter Koutoujian to implement the first Massachusetts correctional unit for incarcerated veterans or pretrial detainees. The Middlesex County Sheriff’s Housing Unit for Military Veterans (HUMV) allows veterans to share experiences and offers programs tailored to them.
The final team member is Assistant Clerk Magistrate Christopher Phillips, who served in the Marine Corps from 1984 –1997 and is currently a judge advocate major in the Army Reserve.
Judge Eleanor C. Sinott is the presiding judge of the Boston Veterans Treatment Court.
Last February, the Massachusetts Alcoholic Beverages Control Commission (ABCC) presented an Everett-based beer distributor, Craft Brewers Guild, with a draconian choice: either face a lethal 90-day suspension of licensed activities, or pay an unprecedented $2.6 million fine, equal to half of projected profits for the time of suspension. This “choice” stemmed from admitted-to violations of laws forbidding bribery and price discrimination. In its Chapter 30A suit appealing the fine, however, the Craft Brewers Guild principally claims that (like its competitors) it simply did what was necessary—that “pay to play” is the industry norm, practiced by all or most, necessary for survival. And when viewed in context, this perhaps unusual defense forces the observer to take a second glance at how we regulate the industry and ask again: is this the best way?
First some background. The volcanic growth in the number of U.S. breweries is no secret. In 1978, American beer drinkers were served by an estimated 89 breweries, a post-Prohibition nadir. In line with the oft-dubbed “craft beer revolution,” last year saw an 18% increase over 2014’s record numbers, with the total number of breweries chiming in at 4225. Regardless of whatever paradox lies with choice, the market has permanently and fundamentally changed. And one consequence is simply space: no matter a bartender’s ingenuity, there are only so many actual tap lines in bars available to pour such unprecedented variety and creativity. Resultant competition for those lines is predictably fierce and growing fiercer.
Despite this altered market, these competing actors play on an old stage: an entrenched tapestry of regulation governs the alcohol market. In Massachusetts (like most states), the alcohol industry is artificially divided into three parts. Generally, (i) licensed manufacturers of alcoholic beverages (like a brewery) sell their goods to (ii) licensed distributors (like Craft Brewers Guild), who in turn sell to (iii) licensed retailers, such as a bar or liquor store—which then may serve the consumer. Vertical integration or substantial ownership between these three “tiers” is highly restricted; for the most part, they must operate independently. Notwithstanding its many critics, this tripartite demarcation at least intends to prevent organized and monopolistic crime, increase orderliness in what was once a disorderly market, and artificially inflate prices to bolster temperance.
Further, the Commonwealth extensively regulates the means and methods of business across the borders it erected. For example, if a brewer (one tier) wishes to stop selling beer to a particular distributor (another tier), it may not simply re-negotiate the contract. It must show cause to the satisfaction of the ABCC before doing so.
At issue in the Craft Brewers Guild story, however, is the regulatory decision to restrain the methods these tiers may use to compete.
The statute and regulation at play are G.L. ch. 138, §25A and 204 CMR 2.08. Section 25A forbids brewers and distributors from offering the same product to different purchasers on different terms. What is offered to one—be it price, credit or favor—must be offered to all. In turn, 2.08 forbids paying purchasers to carry a particular brand of alcohol. (For good measure, the federal Alcohol and Tobacco Tax and Trade Bureau forbids the same). Together, these rules intend to eliminate discrimination and prevent monopolization by a single major brand, in theory conserving fertile soil for up-starts and innovators while stifling disorderly conduct throughout the industry.
So on one hand, there’s unprecedented competition among a rapidly growing number of brands seeking increasingly scarce tap lines. On the other, a regulatory framework—codified in a different era—that artificially partitions alcohol distribution among three distinct entities and then attempts to prevent those entities from purchasing an advantage from one another. More players, scarcer resources, and tight restraints: this is context in which the ABCC’s fine of Craft Brewers Guild (and pending investigation into five bars) must be considered.
With that context in mind, this is what happened. Craft Brewers Guild, as part of a “pay to play” scheme, kicked back varying levels of cash and other favors to bars for putting its beers on tap (and thereby taking another distributor’s beer off). Although no brewers were cited in the decision, the ABCC speculated that Craft Brewers Guild would then accept (or demand) reimbursements from the benefited breweries. The legal issue is therefore clear: not all bars received the same kickbacks, and some received none at all, violating Section 25A’s prohibition on price discrimination; and tap space was purchased at the expense of other beer, violating 2.08’s prohibition on bribery. Media coverage reveals that the practice may be (perhaps necessarily) very common. But it was Craft Brewers Guild that was hit with the fine. And that sparks some thoughts.
First, there’sirony in a distributor of mostly craft beers running afoul a law meant in part to protect craft beers from larger market forces. And the irony is compounded by the fact the entire ABCC investigation grew from a seed planted by a series of angry tweets from the owner of the now-closed craft brewery Pretty Things, whose beers were carried by Craft Brewers Guild (but who presumably was not benefitting from the practice). At first blush his anger makes sense—the law should be followed, there’s a large variance in economic power even within the “craft” sector of the beer market, and consumer choice could still be largely inhibited by prices offered (or demanded) for tap lines that burden already-thin profit margins of emerging breweries. Yet, the fact that a craft brewer triggered an investigation into its own craft distributor indicates that a law meant in part to protect small companies from allegedly law-breaking “big guys” may in actuality be causing unintended consequences. One wonders whether emerging entities are most in need of market freedom to purchase space in a crowded field. Further, roles have been reversed: entities that typically resist what they consider byzantine restrictions are now essentially calling for stricter government enforcement. All of which is to say that it’s complicated: a simple pro/anti-regulation dichotomy is, as always, insufficient.
But fundamentally, when presented with a complicated background and a choice between a less-fettered market (with its risks) and rather ironic, sporadic and ineffectual enforcement of old laws with antiquated origins (by an agency that has regulated hesitantly in the past), one is hard-pressed to gleefully embrace the latter. The Suffolk Superior Court’s Chapter 30A review of the ABCC decision will, therefore, make for interesting reading. Arbitrary and capricious? Perhaps.
Eric Hawkins is an associate who works on a diverse range of matters within WilmerHale’s Litigation/Controversy Department. Prior to joining WilmerHale, Mr. Hawkins worked in the Administrative Law division of the Massachusetts Attorney General’s Office, where he researched, drafted and argued motions on behalf of various Massachusetts agencies facing administrative appeals and constitutional challenges. Throughout law school, Mr. Hawkins worked part time as a Brewery Ambassador for the Samuel Adams brewery in Boston.
The Rise of the On Demand Economy: The Tension between Current Employment Laws and Modern Workforce RealitiesPosted: January 13, 2016
Over the last several years, startups brought convenience to the masses by providing virtually anything on demand. Rides, groceries, takeout service, house cleaning, and more are all accessible with a few taps on your smartphone. The sheer volume of human capital needed to make these on demand businesses function, along with the unpredictable demands of consumers, caused companies such as Uber, Lyft, Postmates, and Instacart (to name a few) to make the business decision to classify these service workers as independent contractors.
Building the infrastructure for an on demand business that serves many customers in multiple cities, or even multiple countries, is an incredibly expensive endeavor. For example, Uber has gone through 13 rounds of funding and raised over $6.6 billion to support its large-scale operation. By necessity, these startups must be cost conscious with their capital or risk failure. Classifying their workers as independent contractors saves them substantial sums of money on employment taxes and benefits. These businesses claim that independent contractor status is also beneficial for the workers who are permitted to retain flexibility to work on their own terms as often as they want. For valid reasons, some (though not all) on demand workers do not agree.
Workers classified as independent contractors do not have access to company-provided benefits and protections such as paid time off. They are not given the payment protections of minimum wage, and overtime pay. Nor do they have the safeguards of worker’s compensation and unemployment insurance. These workers also shoulder the cost of the business expenses incurred in performing their jobs, such as their tools, supplies, or the cost of vehicle operation (though those are deductible business expenses). In addition, workers are responsible for paying all taxes on pay, which means the company is not contributing to employment taxes, Social Security, or Medicare. Opponents to the present on demand economy practice of classifying workers as independent contractors argue that tight standards on employee classification provide better protections and more financial security for workers.
Around the country, workers, businesses, and localities are approaching the shift to the independent contractor model in a variety of ways. A host of lawsuits were filed by workers against a number of on demand businesses asserting claims for worker misclassification. These lawsuits are costly and place tremendous pressure on the companies, often resulting in stagnating growth or even closure of the business. For example, in July 2015, on demand home services business, Homejoy, shut down because it ran out of money defending worker lawsuits and could not raise an additional round of investment due to pending litigation.
Some on demand businesses are attempting to avoid or prevent additional misclassification lawsuits by preemptively classifying their workers as employees. Instacart (which is defending its own misclassification lawsuit) announced, in June 2015, that it would be commence classifying its workers as employees. Other companies are maintaining their practice of classifying workers as independent contractors while they wait for the outcome in the bellwether case on the issue, O’Connor v. Uber Technologies et al, C13-3826 EMC, pending in the Northern District of California.
In general, things have not gone Uber’s way in the litigation. On March 11, 2015, the Court denied Uber’s motion for summary judgment. On September 2, 2015, the Court certified the case as a class action. What’s more, during the pendency of the lawsuit, the California Labor Commission ruled that a specific Uber driver was an employee, and not an independent contractor. While the ruling was non-binding and impacted only one driver, it received considerable attention. The trial is set to commence on June 20, 2016 and the outcome will have a substantial impact on the freelance economy.
In another approach, the Seattle City Council voted in December 2015 to approve a bill that would permit drivers for Uber, Lyft, and other ride-hailing apps to form unions and negotiate wages. Such a city ordinance is unprecedented as it would be the first to allow independent contractors to engage in collective bargaining. Still, the ordinance may face legal challenges based on the contention that it is preempted by federal law and, if not preempted, that collective bargaining by independent contractors could constitute illegal price-fixing under antitrust law.
Here in Massachusetts, there is a presumption that a worker who provides services to a business is an employee unless all of the following are met:
- The worker is free from the company’s control and direction;
- The services provided are outside the company’s usual course of business; and
- The worker is customarily engaged in an independently established trade, occupation, or business of the same nature that is involved in the services performed for the company. M.G.L. c. 149, § 148B.
Given such stringent guidelines, the safe default position is that a company should classify its workers as employees, not independent contractors. However, in April 2015 the Supreme Judicial Court took a narrower approach than some anticipated in Sebago v. Boston Cab Dispatch, Inc., 471 Mass. 321 (2015).
In Boston Cab, the Court found: (i) taxi drivers did not provide services to the cab companies or garages; (ii) drivers were free from the direction and control of the cab companies; (iii) services provided by drivers were not in the ordinary course of business of cab companies; and (iv) drivers were engaged in an independently established trade, occupation or business. As a result, the Court found that the drivers were properly classified as independent contractors. In reaching this decision, the Court determined that the cab companies “are not concerned with the results of plaintiffs’ operations, as drivers are not required to remit a percentage of their revenues, which includes both fares and tips.” Id. at 334.
What sets the Boston Cab case apart from the Uber case is the existence of a regulatory framework that applies to cab companies and drivers that does not (at least not presently) apply to Uber drivers. The Court specifically stated that its conclusion rested in large part on the existence of the regulatory framework of Boston Police Department Rule 403, Hackney Carriage Rules and Flat Rate Handbook (2008) (Rule 403), which creates a system whereby drivers can “operate as either employees or entrepreneurs with their own separately defined and separately regulated business.” Boston Cab, 471 Mass. at 338. In holding that drivers were properly classified as independent contractors, the Court found that the “harmonious reading” of Rule 403 and the independent contractor statute as set out in M.G.L. c. 149, §148B led to the outcome that the Legislature intended to preserve the ability of cab drivers to operate either as employees or independent contractors. Id.
There is no denying that regardless of the still-unresolved employment classification issue, there has been a cultural shift to more independent contractors as more people want to be their own bosses. In fact, the number of freelance workers in the U.S. grew from 20 million in 2001 to 32 million in 2014. A recent poll conducted by Time Magazine finds that now 22% of American adults—45 million people—have picked up some form of “gig” work for these on demand companies.
Some are advancing the position that perhaps there needs to be a new path forward to balance the realities of the rise of freelancing and the on demand economy. On November 10, 2015, a number of stakeholders, including startups, more established companies, labor activists, and academics, published on open letter advocating that “we must find a path forward that encourages innovation, embraces new models, creates certainty for workers, business, and government and ensures that workers and their families can lead sustainable lives and realize their dreams.”
To that end, these stakeholders advocate for the creation of a universal set of benefits accessible to all workers, whether independent contractor or employee, that would be portable and flexible. Following that open letter, many of the letter’s signatories participated in a policy discussion that included the Secretary of Labor, Tom Perez to discuss possible solutions.
Given the volume of worker misclassification lawsuits, the rise of freelancing as an increasingly popular choice for U.S. workers in lieu of more “traditional employment,” and the public interest in ensuring that the large number of independent contractors are provided certain basic protections, an innovative approach that provides more safeguards for independent contractors and more certainty to businesses regarding proper classification may be the right path to protect both workers and businesses.
Nancy Cremins is a partner at Gesmer Updegrove, LLP, assisting entrepreneurs with a range of issues, including employment matters and dispute resolution. She is the co-founder of SheStarts, which helps women entrepreneurs start and grow their businesses.
by Lisa Goodheart
I recently attended a conference on diversity and inclusion and the future of Boston law firms in a global economy. The event, which was ably organized by Macey Russell, Co-Chair of the BBA’s Diversity & Inclusion Section, was well-attended, and the discussion was lively and constructive, with a panel of impressive and thoughtful speakers and active participation by an engaged audience. But the issue of diversity and inclusion within the Boston legal community remains a problematic one, and progress has been painfully slow.
Recent statistics reflect a disappointing reality. For example, NALP recently reported that among all firms and offices listed in its nationwide 2011-2012 NALP Directory of Legal Employers, just 6.56% of partners were racial or ethnic minorities, and just 2.04% of partners were minority women. About 29% of the firms or offices reported no minority partners at all, and 57% reported no minority women partners. The reported numbers for associates were not much better – over 17% of the firms or offices reported no minority associates, and over 27% of offices reported no minority women associates. NALP’s numbers for openly gay, lesbian, bisexual and transgender lawyers also remain relatively low, with 1.44% of partners and 2.43% of associates at the reporting firms and offices being openly LGBT lawyers, as of 2011.
Looking to Boston-specific numbers does not provide a more comforting perspective. As reported by NALP, the percentages of diverse partners and associates remain lower in Boston than in many other major cities. For the 2011-2012 reporting cycle, just 3.21% of partners were minorities, and just 1.01% were minority women. Over 48% of the reporting Boston firms and offices had no minority partners, and over 74% had no minority women partners. Over 11% had no minority associates and nearly 23% had no minority women associates. (City-specific statistics for LGBT lawyers are not included in the available NALP reports.)
How should we respond to this state of affairs? One refrain that is frequently heard is the need for better education about the “business case” for diversity and inclusion. In a nutshell, the business case for diversity rests on the premise that as our economy becomes more global in nature, significant corporate clients are themselves becoming more diverse and inclusive, as they serve an increasingly diverse customer base and answer to an increasingly diverse shareholder base. It follows that the law firms best positioned to serve these increasingly diverse corporate clients will be those that are able to offer correspondingly diverse teams of legal talent. Law firms should therefore pursue diversity within their ranks to gain a competitive edge.
Certainly, it’s logical to think that appealing to the self‑interest of law firms and other law offices might be the most persuasive way to get them to make a more serious, intense and sustained commitment to the recruitment, development, support and retention of more diverse lawyers. But does the business case for diversity really provide the most productive way for us to think about this issue? It is by now a familiar argument, and it has not succeeded to date in producing a true sea change in law firm demographics. The status quo has proven to be a remarkably stubborn thing.
At the BBA’s Law Day dinner in May, Harvard professor Michael Sandel spoke to us about what he calls the moral limits of markets, and what money can’t buy. Professor Sandel highlighted the degree to which economic analysis has permeated virtually all spheres of modern life, with sometimes pernicious and counter intuitive effects. Sometimes, he suggested, things have a non-monetizable value, and the relentless drive to convert our values into marketplace terms can have a corrupting effect that paradoxically undermines that value. In terms of diversity within our profession, perhaps we need to acknowledge that a robustly diverse and inclusive Boston legal community is one of the inherently valuable things that are worth pursuing for reasons that are not rooted in concerns about market share or enhancing profitability.
At the BBA, the investment in fostering a more diverse and inclusive legal profession is manifested in many ways. It is embodied in our partnerships with various affinity bar associations, in the annual BBA Beacon Award for Diversity and Inclusion, and in the establishment of the Diversity and Inclusion Section for our members. It is reflected in initiatives such as the Mentoring Program, the BMC Internship Program, other pipeline and recruitment work with area law schools and the Boston public schools, and events like the above-mentioned conference. What lies behind this investment of effort? No doubt, these programs and initiatives are pursued in part because they are attractive to the BBA’s members, potential members and sponsor organizations. In that respect, they are part of the BBA’s own “business case.” But the driving impulse behind theBBA’s commitment to diversity and inclusion is something much more fundamental.
The true motivation for the BBA’s emphasis on diversity and inclusion, in my view, is – and should be – that we are inspired to build the kind of legal community that we want to be a part of and are proud to claim as our own. The BBA is an organization of members who choose to come together, not only for reasons of professional self-interest, but also to advance the causes and promote the values we collectively care about, and to find the professional fulfillment and personal satisfaction that comes from doing so. Those values include justice, equality and opportunity. A profession with a homogeneous and exclusionary demographic profile is simply not consistent with those values.
Achieving a substantially greater degree of diversity and inclusion is hard, subtle, time‑consuming work. Of course, if it were easy, it would have already been accomplished by now. But lawyers relish hard problems and are relentless in pursuing solutions. And I am confident that we will collectively muster the resourcefulness and creativity to do much better. Ultimately, the reward for doing so will be the greater strength, energy and richness of a legal community that all of us fully claim as our own.
by Dimitri P. Racklin
On November 22, 2011, Governor Deval Patrick signed into law “An Act Establishing Expanded Gaming in the Commonwealth” (the “Act”), codified primarily at M.G.L. ch. 23K §§1 ff. (available here). With the Act’s authorization of commercial casino gambling and creation of a regulatory framework for the casino industry in the Commonwealth, Massachusetts has joined the growing list of states which have legalized commercial (as contrasted with Indian tribal) casinos in recent years.
The Act reflects the legislature’s decision to establish a limited-franchise gaming industry, opting for a limited number of licensed casinos guaranteed regional exclusivity rather than open-ended authorization of unlimited participation – and competition – in the industry (subject only to licensing requirements focused on ensuring probity, suitability and financial stability). The choice likely means that the development of the Massachusetts gaming industry will take place in two related but in some ways distinct phases. The initial phase will involve the initial award of up to four casino/racino licenses and the various activities associated with start-up (approval/permitting, construction, fit-out and launch). “Initial” should not be confused with “short” in this context, however; recent remarks by Stephen Crosby, the Commission’s first chairman, reportedly suggest a period of three to four years before the casinos open for business. Once the initial phase is completed, the industry (and the Massachusetts gaming commission (the “Commission”) regulating it) will likely settle into the second phase, focused on day-to-day operational and regulatory tasks and an occasional potential transaction such as sale of a licensee – until the initially granted licenses expire and renewal applications bring back, at least in part, the more concentrated activity of the initial phase.
The gaming industry is, of course, a heavily regulated one in all relevant U.S. jurisdictions, and Massachusetts will be no exception. Overseeing the new Massachusetts gaming industry will be the new five-member Commission which is granted wide regulatory, licensure and enforcement powers under the Act. Since one of the Commission’s primary regulatory tasks will be to ensure the financial stability, integrity and suitability of gaming industry participants, see M.G.L. ch. 23K §§1(2), 1(3), 1(9)(iii), 12(a)(1)-(2), the Commission will have within it an investigations and enforcement bureau (the “Bureau”) as the primary enforcement agent for the Commonwealth’s gaming regulatory regime. M.G.L. ch. 23K §6(a). The Bureau will work together with the gaming enforcement unit of the Massachusetts State Police, the division of gaming enforcement in the department of the Attorney General and the gaming liquor enforcement unit of the Alcoholic Beverages Control Commission. See M.G.L. ch. 23K §§6(c), 6(d), 6(g). The Act designates the Bureau as a law enforcement agency, M.G.L. ch. 23K §6(b), and expressly grants it the authority to exchange information with other gaming authorities and law enforcement agencies, both domestic and international. M.G.L. ch. 23K §6(e).
Perhaps not surprisingly given its long gestation, the Act is much more than simply enabling legislation, and is quite detailed – indeed, prescriptive – in a number of respects. Not only are the gaming tax rates and minimum capital investment amounts and licensing fees set by the Act, but numerous topics of arguably lesser import are also spelled out in detail. Nonetheless, many issues which will doubtless be of interest to industry participants remain to be addressed by regulation and Commission practice. In fact, M.G.L. ch. 23K §5(a) is devoted entirely to a list of matters which the Commission is directed to address by regulation, and some of the Commission’s powers enumerated in M.G.L. ch. 23K §4 could effectively constitute such matters as well. Even from the face of the Act alone, the Commission is unlikely to run out of things to do.
As the gaming regulatory regime develops, below are a few topics for gaming business clients and their lawyers to consider.
- In the initial phase, the Commission is tasked with determining whether “the purchase or lease price of the land where the gaming establishment will be located or any infrastructure designed to support the site” will be included in the minimum capital investment requirement for a Category 1 license. M.G.L. ch. 23K §10(a). Obviously, the Commission’s decision on the topic could have a material impact on the economics of an applicant’s license proposal.
- The Act requires an applicant for a gaming license and “any person required by the commission to be qualified for licensure” to “establish its individual qualifications for licensure to the commission by clear and convincing evidence.” M.G.L. ch. 23K §13(a). Qualification for licensure is also required under the Act for “anyone with a financial interest in a gaming establishment, or with a financial interest in the business of the gaming licensee or applicant for a gaming license or who is a close associate of a gaming licensee or an applicant for a gaming license,” M.G.L. ch. 23K §14(a), as well as “any person involved in the financing of a gaming establishment or an applicant’s proposed gaming establishment.” M.G.L. ch. 23K §14(e). Clearly, terms such as “financial interest,” “involved in the financing” and “close associate” (and the related term “significant influence” comprising part of the definition of “close associate,” M.G.L. ch. 23K §2), are deliberately broad and designed to permit the Commission the greatest latitude in requiring industry participants to be qualified for licensure.
The gaming industry licensure qualification process is often seen as quite burdensome, however. For example, the Multi Jurisdictional Personal History Disclosure Form promulgated by the International Association of Gaming Regulators (“IAGR”) is 66 pages long and requires disclosure of, among many other things, all places of residence in the last 15 years and all employment in the last 20 years (or since the age of 18, if less), including any employment-related “infractions” in the last 10 years. Nonetheless, industry participants much prefer use of that form across multiple jurisdictions to having a separate form for each jurisdiction, and so will doubtless advocate for adoption of the IAGR form by the Commission. Experience from other jurisdictions indicates that cost (borne by the applicant) of background investigations relating to gaming licensing applications conducted by the gaming regulatory authorities (i.e., the Bureau in the Commonwealth) can reach hundreds of thousands of dollars even in only moderately complicated cases. Therefore, it will be interesting to see whether regulations and Commission practice as it develops over time will offer any further guidance as to whether particular financing mechanisms (such as conventional debt financings) or arguably de minimis amounts will receive any systematic relief from the qualification requirements.
Given the nature of the licensure qualification process, it will come as no surprise that many traditional commercial loan market participants – commercial banks, private equity firms, hedge funds – have little experience with gaming licensing requirements and are typically reluctant to subject themselves to the qualification process. Yet, the wording of the Act could, if read literally, subject even Main Street banks and other institutional providers of the plainest of commercial loans to the gaming licensing regime. These days, of course, many conventional loan arrangements come with equity features, such as warrant coverage or equity “kickers,” which could be even more troublesome for the Commission (or the Bureau) interested in vetting everyone with a “financial interest.” Convertible debt in material amounts will be even more easily viewed as an equity equivalent and therefore require qualification for licensure. As a result, therefore, the parameters of these requirements as they are established by the Commission over time and applied to debt capital providers will likely be of interest to many practitioners and their clients.
In the equity realm, it will be interesting to see whether the Commission finds it appropriate to give any regulatory relief from the general licensure requirements to employee stock options, restricted stock or similar incentive equity instruments held in immaterial amounts by employees who are not “key gaming employees” subject to licensure in any event, see M.G.L. ch. 23K §2 (definition of “Key gaming employee”). Arguably, such instruments in the hands of rank-and-file employees not directly involved in gaming operations could be natural candidates for an express (if carefully limited) regulatory exemption from the qualification requirements.
- Another topic of particular interest to transactional lawyers will be whether the Commission will permit any pre-clearance procedures for transactions involving change of control of a business subject to licensure or any related assets. See M.G.L. ch. 23K §21(b) (prohibiting such transfers without Commission approval, subject to a specific grant of authority to the Commission to create exemptions by regulation). Such a business does not have to be a multi-billion dollar casino – it could be a gaming equipment manufacturer, a security system installer or software company, or another vendor whose products or services “directly relate to gaming,” see M.G.L. ch. 23K §2 (definition of “Gaming vendor”). Even much more mundane casino-related businesses (e.g., a laundry service provider to a casino-related hotel) could be subject to registration or, depending on volume of business, even full-fledged licensing requirements. See M.G.L. ch. 23K §31(d). The Act, however, requires that, with respect to any contract for sale of, or grant of a security interest in, a gaming-related business “under circumstances which require that the transferee obtain licensure under [the Act]…, the contract shall not specify a closing or settlement date which is earlier than 121 days after the submission of a completed application for licensure or qualification, which application shall include a fully executed and approved trust agreement.” M.G.L. ch. 23K §23(c). Obviously, a very considerable amount of uncertainty and delay could be removed if the prospective buyer of a gaming-related enterprise could be pre-cleared by the Commission prior to the closing of the acquisition. Availability of a pre-clearance process could be very attractive to the industry despite the not insignificant cost of the Bureau’s investigation that the prospective transferee would likely have to bear in advance of its purchase of the gaming-related business in question.
The above topics represent only a few examples of areas where future Commission action will likely be of great interest to industry participants and their counsel. Any number of others easily merit attention. For example, a number of Commission decisions are stated by the Act not to be subject to any further review, raising questions about the extent to which a Commission decision may be challenged on the ground that it is arbitrary or capricious, or on any other grounds. Answers to this and many other questions are likely to be forthcoming only in the fullness of time. It is already clear, however, that the development of the gaming industry and its regulation and oversight in the Commonwealth over the years to come should provide many opportunities and challenges for the practitioners and clients alike – and for the regulators as well.
 Prior to 1989, casino gaming was permitted only in Nevada (since 1931) and New Jersey (since 1976). Iowa and South Dakota each legalized casino gaming in 1989, and since then another 19 states joined the list in one form or another, with Massachusetts being the most recent addition as of this writing.
 The Act authorizes establishment of three Category 1 casinos (one each in the Greater Boston area and in the southeastern and western regions of Massachusetts, with the southeastern Category 1 casino subject to some extent to the Commonwealth’s efforts to negotiate a compact with one or more Indian tribes seeking to operate casinos in the region), envisioned as full-fledged destination casino and entertainment complexes, and a single Category 2 “racino” featuring slot machines only (not table games) which could be established at a live or simulcast racing venue.
 See D. Ring, Massachusetts Gaming Commission chairman defends timetable for licensing casino resorts, MassLive.com, published at http://www.masslive.com/news/index.ssf/2012/04/leader_of_massachusetts_gaming.html (April 25, 2012).
 The Act provides that Category 1 licenses will be granted for 15-year terms (presumably, from the date of issuance by the Commission, although the Act is less than specific on this point). If it is granted, the single Category 2 license will be for a five-year term.
 Legislative debate on the issue of gaming in the Commonwealth dates back to 2002 if not earlier. See, e.g., Dice or No Dice: The Casino Debate in Massachusetts, University of Massachusetts Boston, College of Management, Financial Services Forum Spring 2011 Report (available at http://www.umb.edu/editor_uploads/images/centers_institutes/financial_services_forum/DiceOrNoDice.pdf), at 4.
 At 25% (of gross gaming revenue), $500 million and $85 million for Category 1 licenses and 40% (plus a 9% Race Horse Development Fund assessment), $125 million and $25 million for the Category 2 license, respectively. See M.G.L. ch. 23K §§10(a), 10(d), 11(a), 11(b), 55. The Commission does retain discretion to impose higher capital investment requirements and licensing fees (but not tax rates).
 For example, the Commission’s findings on a given casino application must address, among other things, the applicant’s proposal for “procuring or generating on-site 10 per cent of its annual electricity consumption from renewable sources qualified by [the Commonwealth’s] department of energy resources…” M.G.L. ch. 23K §18(8)(vi).
 See, e.g., M.G.L. ch. 23K §4(14) (granting the Commission the power to “determine a suitable debt-to-equity ratio for applicants for a gaming license”).
 See, e.g., Ring, supra n. 7 (reporting that “Ameristar [Casinos] paid $16 million for a 41-acre site… in Springfield” apparently intended for a planned casino).
 See, e.g., M.G.L. ch. 23K §17(g) (“[a]pplicants have no legal right or privilege to a gaming license and shall not be entitled to any further review if denied by the commission”).
by Michael J. Pelgro
Possession of child pornography now makes up an increasing proportion of the crimes charged in federal district courts. Hardly a week goes by without a fresh news story concerning a person charged in federal court because his computer contained child pornography images. As for all federal crimes, sentencing in child pornography cases is influenced by the United States Sentencing Guidelines (“Guidelines”). The Guidelines were promulgated in November 1987 by the United States Sentencing Commission (“Commission”), a bipartisan agency established by Congress in the Sentencing Reform Act of 1984. The Commission’s mandate was to construct, and revise annually, mandatory Guidelines encompassing all federal crimes, with a goal of ensuring certainty and fairness, and avoiding unwarranted disparities, in federal criminal sentencing decisions. In 2005, the Supreme Court decided United States v. Booker, which rendered the Guidelines advisory. United States v. Booker, 543 U.S. 220, 261-63 (2005). No longer mandatory, but backed by the Commission’s study and expertise, the Guidelines continue to play a “central role” and provide “gravitational pull” in federal sentencing. The primary guideline for child pornography cases, §2G2.2, however, has been criticized as “an eccentric Guideline of highly unusual provenance which, unless carefully applied, can easily generate unreasonable results.” United States v. Dorvee, 616 F.3d 174, 188 (2d Cir. 2010). This guideline resulted from Congressional dictates, rather than the Commission’s traditional “empirical approach,” an unusual history that has generated widespread judicial and commentator disagreement with the sentencing ranges recommended by this guideline.
The controversy is reminiscent of the longstanding criticism of the 100:1 ratio that Congress used in determining minimum mandatory penalties in cocaine cases. In the mid-1980s, fueled by the perception that crack cocaine was more addictive and more dangerous than powder cocaine, Congress directed that five-year and ten-year minimum mandatory prison sentences apply to quantities of crack cocaine 100 times less than powder cocaine. The Commission followed the same proportionality in fashioning the crack cocaine guidelines, thus mandating lengthy federal prison sentences in cases involving small amounts of crack cocaine. Judicial and commentator backlash against this 100:1 ratio caused the Commission to reassess the fairness of the penalties and the assumptions on which they were based, which in turn led Congress to abandon the 100:1 ratio in the Fair Sentencing Act of 2010, thus allowing the Commission to lower the crack cocaine guidelines.
Now, in a similar groundswell, an increasing number of federal judges are speaking out against the child pornography guideline and, in this post-Booker sentencing era, are refusing to follow its recommended imprisonment ranges. This backlash is now causing the Commission to study the guideline and the assumptions on which it is based. These developments suggest that Congressional action may be forthcoming.
II. The History of the Child Pornography Sentencing Guideline
While the Supreme Court’s landmark Booker decision rendered the Guidelines advisory, the Court has made clear that they remain “the starting point and the initial benchmark” in the federal sentencing process and that they “deserve some weight in the sentencing calculus, as they are ‘the product of careful study based on extensive empirical evidence derived from the review of thousands of individual sentencing decisions.’” Much time and attention is still devoted in federal court to the proper calibration of the Guideline imprisonment ranges precisely because federal judges continue to give weight to them and often defer to the Commission’s historical expertise in fashioning recommended ranges of imprisonment.
The Commission’s usual empirical approach was not followed, however, in the development of the child pornography guidelines, which were substantively revised to increase penalties nine times in the 22 years following their promulgation in 1987. The Commission was not allowed to play its traditional institutional role in fashioning recommended imprisonment ranges for such offenses. Rather, Congress took over the process, “prompting the Commission to respond to multiple public laws that created new child pornography offenses, increased criminal penalties, directly (and uniquely) amended the child pornography guidelines, and required the Commission to consider offender and offense characteristics for the child pornography guidelines.” Id. at 54. Courts and commentators have remarked on Congress’s unique exertion of its authority and influence in the development of the child pornography guidelines. As one commentator put it, the child pornography guidelines were not “the product of an empirically demonstrated need for consistently tougher sentencing” but rather were “largely the consequence of numerous morality earmarks, slipped into larger bills over the last fifteen years, often without notice, debate, or study of any kind.” The result is a guideline — §2G2.2 — that recommends years of imprisonment for all child pornography defendants, no matter their “history and characteristics” or the “nature and circumstances of the offense.” 18 U.S.C. §3553(a)(1).
A. The Amendments
When the Guidelines were promulgated in 1987, possession of child pornography was not a federal crime. Section 2G2.2 encompassed the crimes of transport, distribution, and receipt of child pornography; it set the Base Offense Level (“BOL”) at 13. The BOL determines the proposed length of a sentence before consideration of any aggravating or mitigating factors. In November 1990, Congress passed a statute which criminalized possession and directed the Commission to increase penalties for sexual crimes against children. Thus began a years-long process involving Commission study and proposals to achieve proportionality in punishment and Congressional rejection of the proposals in favor of increased punishment across the board.
In 1991, for example, the Commission proposed setting a lower BOL (10) for the similar crimes of receipt and possession of child pornography. In response, Congress insisted that the crimes of receipt, transportation, and distribution remain in the same guideline and that the BOL for those crimes be increased. It also directed the Commission to create a separate guideline for possession (§2G2.4) with a higher BOL (13) than that recommended by the Commission and with an enhancement for possession of 10 or more items.
A similar back-and-forth took place in 1995, when the House of Representatives passed a proposal to increase the BOL to 15 and to add a use-of-computer enhancement for possession offenses. The amendment, passed over the Commission’s objection, did both. This enhancement increases the imprisonment range in virtually every child pornography case now prosecuted in federal court.
In 2003, Congress passed the PROTECT Act, directly amending the Guidelines for the first time. Insertion of the Feeney amendment into the popular Amber Alert bill dramatically changed the child pornography guidelines by creating 5-year minimum mandatory sentences for trafficking and receipt, raising the statutory maximum for possession from 5 to 10 years, and directly amending the possession guideline (§2G2.4) to add an escalating enhancement based on the number of images. Despite objection by the Commission and others, including a former United States Attorney, the PROTECT Act and the Feeney amendment (which was debated in Congress for just 20 minutes), became law in April 2003.
To remedy the ensuing confusion and harmonize sentences for receipt and possession offenses, the Commission proposed in 2004 consolidating the possession guideline (§2G2.4) with the transport, distribution, and receipt guideline (§2G2.2). These amendments took effect in November 2004. Now a single guideline — §2G2.2 — encompasses possession, receipt, and trafficking offenses.
III. Judicial Reaction To The Child Pornography Guidelines
Courts have recognized that the Congressionally-manipulated guideline has resulted in unusually severe sentences in many child pornography cases. With the flexibility allowed by Booker, courts are giving little or no deference to the child pornography guidelines, concluding that they do not reflect the Commission’s traditional empirical approach and do not further the sentencing objectives embodied in 18 U.S.C. §3553(a). Federal judges are giving little or no deference to the child pornography guidelines, relying for support on judicial treatment of the crack cocaine guidelines.
In Kimbrough v. United States, a 2007 crack cocaine case, the Supreme Court reaffirmed Booker and held that a sentencing court has the discretionary authority to disagree with the policy embodied in a guideline if it determines that the guideline’s recommended imprisonment range is “greater than necessary to serve the objectives of sentencing.” Kimbrough v. United States, 552 U.S. 85, 91 (2007)(quoting 18 U.S.C. §3553(a)). The Court observed that the Commission’s adoption of the 100:1 crack/powder cocaine sentencing ratio in the drug guideline was based not on empirical research, but on the minimum mandatory sentences dictated by Congress. Therefore, the Court ruled, a sentencing court may impose a sentence below the guidelines. Similarly, in Spears v. United States, the Court explained in 2009 that a court may sentence below the crack-cocaine guidelines based solely on a policy disagreement with the guidelines even where a defendant presents no special mitigating circumstances warranting a below-guideline sentence. Spears v. United States, 555 U.S. 261, 263-64 (2009)(per curiam).
Kimbrough and Spears paved the way for sentencing courts to depart from the guidelines in all cases, providing flexibility to sentence on a more individualized basis. Courts have, as a result, begun to reject or give little deference to §2G2.2. In United States v. Dorvee, relying on the unique history of Congressional involvement in amending the child pornography guidelines, the Second Circuit affirmed a below-guideline child pornography sentence, observing that §2G2.2 “is fundamentally different from most and that, unless applied with great care, can lead to unreasonable sentences that are inconsistent with what §3553 requires.” Dorvee, 616 F.3d at 184. In United States v. Grober, the Third Circuit affirmed on Kimbrough grounds a variant child pornography sentence based on the view that §2G2.2 “leads to a sentence that is too severe in a downloading case.” United States v. Grober, 624 F.3d 592, 596 (3rd Cir. 2010)(quoting United States v. Grober, 595 F.Supp.2d 382, 394 (D. N.J. 2008)). After reviewing §2G2.2’s history, the Court concluded that “the Commission probably did the best it could under difficult circumstances but to say that the final product is the result of Commission data, study, and experience simply ignores the facts.” Grober, 624 F.3d at 608 (quoting United States v. Diaz, 720 F.Supp.2d 1039, 1045 (E.D. Wis. 2010)). While the First Circuit has yet to issue a similar type of opinion, it has observed that Kimbrough applies to the child pornography guidelines, which are “harsher than necessary.” United States v. Stone, 575 F.3d 83, 89-94 (1st Cir. 2009).
Many district courts across the country have similarly opined, expressing variations on the view that §2G2.2 is “seriously flawed and accordingly entitled to little respect,” with federal judges declaring that §2G2.2 “is just as flawed as the crack guideline” or that a sentencing judge is “entitled to reject it entirely.” Federal district judges in Massachusetts have not yet issued similar written opinions but have imposed below-guideline sentences in child pornography cases, expressing their disagreement with the severity of §2G2.2. The latest Commission statistics on federal sentencing decisions reflect the reality that federal judges across the country are increasingly using their Kimbrough authority to impose below-guideline sentences in child pornography cases. 2011 Sourcebook of Federal Sentencing Statistics (available at www.ussc.gov/Data_and_Statistics/Annual_Reports_and_Sourcebooks/2011/SBTOC11.htm ) (last checked May 25, 2012).
Like the crack cocaine guidelines, the child pornography guidelines have generated negative reaction based on the unique level of Congressional involvement in their development. In response, after producing a comprehensive report documenting the history of these guidelines, the Commission has made the study of this serious crime, and the appropriate punishment of it, one of its top priorities in 2012. It is ultimately up to Congress, however, to address the perceived disproportionality of these guidelines, as it eventually did with crack cocaine. Given the strong emotions and revulsion among the public about this crime, it is unclear at this time whether Congress will do so. In the meantime, the controversy rages on in federal courtrooms here in Massachusetts and across the country.
Michael J. Pelgro is a Partner at Perry, Krumsiek & Jack, LLP in Boston, where he specializes in criminal defense, internal investigations, and civil litigation. He spent several years as a state and federal prosecutor and was Chief of the Drug Unit at the U.S. Attorney’s Office in Boston.
 U.S. Sentencing Commission, Transcript of Public Hearing on Federal Child Pornography Crimes at 6 (Feb. 15, 2012)(Introductory Statement of The Honorable Patti B. Saris, Chair) (available at www.ussc.gov/Legislative_and_Public_Affairs/Public_Hearings_and_Meetings/20120215-16/Agenda_15.htm ) (last visited May 25, 2012).
 United States Sentencing Commission, Prepared Testimony of Judge Patti B. Saris, Chair, United States Sentencing Commission, Before the Subcommittee on Crime, Terrorism, and Homeland Security, United States House of Representatives at 1 (Oct. 12, 2011) (available at www.ussc.gov/Legislative_and_Public_Affairs/Congressional_Testimony_and_Reports/index.cfm) (last visited May 25, 2012).
 Gall v. United States, 552 U.S. 38, 49-50 (2007); Rita v. United States, 551 U.S. 338, 349-50 (2007); United States v. Martin, 520 F.3d 87, 90 (1st Cir. 2008)(quoting Gall, 552 U.S. at 46)).
 United States Sentencing Commission, Report on the History of the Child Pornography Guidelines at 54 (Oct. 2009) (available at www.ussc.gov/Publications/Offense_Types/index.cfm/20091030_History_Child_Pornography_Guidelines.pdf) (last visited May 16, 2012) (hereinafter referred to as “Commission Report”).
 T. Stabenow, Deconstructing the Myth of Careful Study: A Primer on the Flawed Progression of the Child Pornography Guidelines at 3 (2009)(available at www.fd.org/navigation/select-topics-in-criminal-defense/common-offenses/child-pornography-and-other-sex-offenses ) (last visited May 25, 2012) (hereinafter referred to as “Stabenow Article”).
 Commission Report at 10 and fn. 45; Stabenow Article at 3-4.
 Commission Report at 17; Stabenow Article at 4.
 Commission Report at 38-39; Stabenow Article at 18.
 See also United States v. Twitty, 612 F.3d 128, 131-32 (2d Cir. 2010)(vacating sentence on plain-error review where district court mistakenly believed that it could not consider a broad, policy-based challenge to the child pornography guidelines); United States v. Dattilio, 2011 WL 4485165 at *6 (6th Cir. 2011)(holding that a district court disagreeing with the child-pornography GSR for policy reasons may reject that GSR based on that disagreement); Henderson, 649 F.3d at 963 (holding that, “similar to the crack cocaine Guidelines, district courts may vary from the child pornography Guidelines, §2G2.2, based on policy disagreement with them, and not simply based on an individualized determination that they yield an excessive sentence in a particular case.”). See generally M. Hamilton, The Efficacy Of Severe Child Pornography Sentencing: Empirical Validity Or Political Rhetoric, 22 Stan. L. & Pol’y Rev. 545, 559-73 (2011)(collecting and discussing cases); Note, Congressional Manipulation Of The Sentencing Guideline For Child Pornography Possession: An Argument For Or Against Deference, 60 Duke L.J. 1015, 1032-35 (Jan. 2011)(collecting cases).
 The Court noted that a Sentencing Commission survey “found widespread dissatisfaction with §2G2.2” in that 70% of responding judges who sentenced defendants after Kimbrough and Gall “reported that the Guidelines range for possession was too high.” Id. at 606-07.
 See also United States v. Apodaca, 641 F.3d 1077, 1082-83 (9th Cir. 2011) (observing that several circuit courts “have criticized the Guidelines-recommended sentence for possession-only offenders … as being unduly severe” and that “an increasing number of district courts have refused to follow the Guidelines and have departed downward when sentencing possession-only defendants”).
 In affirming the sentence in a transportation of child pornography case, the Court added a “coda” that “[w]ere we collectively sitting as the district court, we would have used our Kimbough power to impose a lower sentence.” Id. at 97.
 United States v. Donaghy, 2010 U.S. Dist. LEXIS 77007 at *6-7 (E.D. Wis. 2010)(collecting cases); Diaz, 720 F.Supp.2d at 1041-42 (collecting cases); Phinney, 599 F.Supp.2d at 1040); United States v. Beiermann, 599 F.Supp.2d 1087, 1104 (N.D. Iowa 2009). See also United States v. Cameron, 2011 WL 890502 at *6 (D. Me. 2011)(“This Court joins other courts which have expressed unease with §2G2.2 and the escalating impact of its enhancements.”); United States v. Zapata, 2011 WL 4435684 at *3 (N.D. Ind. 2011)(“[J]udges across the country have declined to impose sentences within the range recommended by Guideline §2G2.2.”); Gordon v. United States, 2011 U.S. Dist. LEXIS 72592 at *7, 10-11 (S.D. N.Y. 2011)(granting §2255 petition to vacate child pornography sentence on the ground that the court committed a fundamental defect resulting in a miscarriage of justice in assuming that more expertise underlay §2G2.2 than was the fact).
 See, e.g., United States v. Paul Proulx, Crim. No. 11-10274-JLT (Court rejected GSR of 51-63 months’ imprisonment in favor of sentence of 5 years’ probation with home detention in possession case); United States v. Shalin Bhavsar, Crim. No. 10-40018-FDS (Court rejected GSR of 41-51 months’ imprisonment in favor of sentence of 3 months’ imprisonment in possession case based, in part, on Congress’ “unique” involvement in the development of the guideline); United States v. Lawrence Follett, Crim. No. 10-10316-GAO (Court rejected GSR of 51-63 months’ imprisonment in favor of sentence of 18 months’ imprisonment in possession case based, in part, on view that a sentence within the GSR would be greater than necessary to accomplish the goals of §3553(a)); United States v. Simeon Stefanidakis, Crim. No. 10-10174-WGY (Court rejected GSR of 151-188 months’ imprisonment in favor of sentence of 84 months’ imprisonment in transportation case); United States v. Johnny Pires, Crim. No. 08-10063-RWZ (Court rejected GSR of 135-168 months’ imprisonment in favor of minimum mandatory sentence of 60 months’ imprisonment in receipt case based, in part, on belief that §2G2.2 is “arbitrary and unreasonable”); United States v. Tyler Helbig, Crim. No. 08-30052-MAP(Court rejected GSR of 30-37 months’ imprisonment in favor of sentence of 5 years’ probation in possession case).