Prosecutors and often even judges do not appreciate the collateral consequences of a criminal conviction, regardless of whether it results from a trial or a plea agreement. While the direct consequences of conviction are obvious – such as jail time, probation requirements, and fines – the collateral consequences are more insidious. Yet sometimes those consequences can have an even greater impact on a person’s life than the sentence meted out by the court. These consequences may be difficult to identify, though they may be mandated by statutes and regulations scattered throughout state and federal law, and may arise from a misdemeanor conviction, or even a simple arrest.
One of the most serious collateral consequences of a criminal conviction is its effect on a person’s immigration status, and thanks to the United States Supreme Court, it is now one that has great visibility for most defense counsel. In Padilla v. Kentucky (130 S. Ct. 1473 (2010)), the U.S. Supreme Court held that the Sixth Amendment’s guarantee of effective assistance of counsel requires that a defendant must be provided with notice of deportation consequences of a guilty plea he or she is considering. This issue arises most frequently in the context of drug cases because of the draconian treatment of such conduct under U.S. law for non-citizens. Since the Supreme Court’s opinion in Padilla, many courts now specifically include in their allocution during guilty pleas a specific notice regarding the possibility that a guilty plea may result in immigration consequences for the, including deportation, reversal of naturalization and non-admission.
But there are many other collateral consequences that are routine, but are not always referenced in a plea agreement and are often not recognized by defendants. Under federal law, a person convicted of a felony may not possess a firearm – indeed, possession of a firearm by a felon constitutes a felony violation itself. And many state laws require that defendants who commit sex crimes register with local authorities. A conviction for driving under the influence of alcohol or drugs may result in the administrative loss of driving privileges for a period of time.
There are even more serious collateral consequences that persist for long periods of time involving exclusion from employment prospects, eligibility for professional licensing and access to government benefits. For instance, employees in the nursing care industry are generally subject to background checks by their employer and are required to maintain certain licensing in their individual capacity as a condition to working in the industry. But even a relatively minor criminal conviction will raise a red flag on the background check and foil any chance of receiving a license. Similarly, a state agency may refuse to issue a business an operating license if some of its higher level employees have criminal convictions. Not only does this restriction limit a person’s employment prospects, but more broadly, they also harm the person’s chances of earning any livelihood because this person will also be prevented from owning any business that required such a state license.
For these reasons, it is absolutely essential that when considering whether to accept a plea agreement that both counsel and the client understand the consequences of the guilty plea in order to properly evaluate the benefits and the collateral damage of accepting a guilty plea versus proceeding to trial. And it is essential that counsel advise their clients in an effective manner of the consequences of a conviction that may persist long after the clients leave the courthouse or the jail.
The U.S. Supreme Court recently held that Sarbanes–Oxley extends whistleblower protection, not just to employees of public companies, but to employees of private contractors and subcontractors that serve public companies. In a 6-3 decision, the Court rejected the First Circuit’s narrow construction of the statute in favor of the Labor Department’s more expansive interpretation. Now more than ever, affected contractors and subcontractors need to ensure they have robust policies in place for addressing whistleblower complaints.
Congress passed the Sarbanes–Oxley Act in 2002, the year after Enron’s collapse. The Act was intended to protect investors in public companies and restore trust in financial markets. It achieved these goals in part by providing whistleblower protection: 18 U.S.C. § 1514A makes it unlawful for employers to retaliate against employees who report suspected fraud. The provision certainly protects employees of publicly traded companies. It was less clear whether § 1514A protects employees of private contractors that service public companies. The plaintiffs in Lawson v. FMR, LLC, claimed it did.
Jackie Lawson and Jonathan Lang were employees of private companies that serviced the Fidelity family of mutual funds. As is often the case with mutual funds, the Fidelity funds were subject to SEC reporting requirements, but had no employees. Private companies contracted with the funds to provide accounting and investment advisory services. In this case, the private companies were Fidelity-related entities referred to collectively as FMR. Lawson was a 14-year veteran and Senior Director of Finance for her employer, Fidelity Brokerage Services. She alleged that she was constructively discharged after raising concerns about cost accounting methods for the funds. Zang was an 8-year veteran of Fidelity Management & Research Co. He alleged that he was fired for raising concerns about misstatements in a draft SEC registration statement related to the funds. Both plaintiffs sued for retaliation under § 1514A.
FMR responded by asking the district court to dismiss the claims on grounds that § 1514A protects employees of public companies, not employees of privately held companies. The trial judge rejected FMR’s argument, but the First Circuit Court of Appeals reversed. Months later, the Labor Department’s Administrative Review Board issued a decision in another case, making clear that ARB agreed with the trial judge. Last year, the Supreme Court agreed to consider the question.
On March 4, the Court issued its opinion that § 1514A shelters employees of private contractors, just as it shelters employees of public companies served by those contractors. Speaking for the majority, Justice Ginsburg explained that the Court’s broad construction finds support in the statute’s text and broader context. As relevant to the plaintiffs’ claims, § 1514A provides, “‘No public company . . . , or any officer, employee, contractor, subcontractor, or agent of such company” may take adverse action “against an employee . . . because of [whistleblowing or other protected activity].’” Boiled down to its essence, the phrase in question states that “no . . . contractor . . . may discharge . . . an employee.” In ordinary usage, the phrase means that no contractor (of a public company) may retaliate against its own employees. After all, those are the people contractors have power to retaliate against. According to the Court, if Congress had intended to limit whistleblower protections to employees of publicly traded companies, as FMR argued, Congress would have said “no contractor may discharge an employee of a public company.” The statute doesn’t say that because Congress was not attempting to remedy a nonexistent problem. Enron did not collapse because its private contractors retaliated against Enron employees who tried to report the company’s fraud.
The Lawson Court explained further that its interpretation flows logically from the statute’s purpose to prevent another Enron debacle. Often, the first-hand witnesses of corporate fraud are employees of private companies that service a public company—law firms, accounting firms, and business consulting firms, for example. Without adequate protections against retaliation, contractor employees who come across fraud in their work for public companies will be less likely to report misconduct. The Court’s point was particularly relevant with respect to the Fidelity funds. Like most mutual funds, the Fidelity funds had no employees. A narrow reading of § 1514A would insulate a $14 million industry from retaliation claims. Congress could not have intended that result.
Given the Court’s decision in Lawson v. FMR, LLC, privately held companies that service public companies should consider how best to deal with whistleblower complaints. At a minimum, robust whistleblower policies will (i) safeguard whistleblower anonymity to the extent possible; (ii) encourage whistleblowers to exercise discretion without discouraging them from reporting misconduct; (iii) address the preservation of evidence relating to putative fraud; and (iv) establish procedures for the conduct of internal investigations into suspected fraud.
We have previously reported on the arrangements being made by the Garden City Group for remittance of money to the former customers of Full Tilt Poker. Since that time, there has been a lengthy process for the submission of claims to the group for administration.
It appears that players’ waiting has not been all for naught.
The Garden City Group reports that, on February 28, 2014, it issued more than 27,500 payments totaling approximately $76 million to former Full Tilt Poker players who timely confirmed the balance of their Full Tilt Poker accounts. GCG reports that petitioners will receive ACH transfers of the funds anywhere from the day it was issued until several business days later, depending on the practices of their banks.
These payments are only the first round of anticipated payments. The deadline for affiliates to submit a petition for remission is this Sunday, March 2.
A recent decision by the Court of Appeals for the Fourth Circuit limiting the reach of the False Claims Act demonstrates how relators who pursue cases in which the government declines to intervene can end up making law that is unfavorable to the government’s enforcement of that statute.
United States ex rel. Rostholder v. Omnicare, Inc., et al., No. 12-2431, a qui tam case alleging violations of the False Claims Act (FCA), 31 U.S.C. §§ 3729, arose from a whistleblower’s claim that defendants violated certain Food and Drug Administration (FDA) safety regulations requiring that penicillin and non-penicillin drugs be packaged in complete isolation from one another. The violation of these regulations resulted in a legal presumption of penicillin cross-contamination. The relator asserted that the contaminated drugs were not eligible for reimbursement by Medicare and Medicaid and, therefore, claims presented to the government for reimbursement of these drugs were false under the FCA.
In affirming the district court’s grant of Omnicare’s motion to dismiss, the Court of Appeals focused on the specific requirement of the FCA that there be a claim that is, indeed, false. The Court noted that the statutes providing for reimbursement require that the drug in question be approved by the FDA but these statutes do not require compliance with FDA safety regulations as a precondition for reimbursement.
The Court therefore held that, while the cross-contamination might be a violation of safety regulations, it did not transform Omnicare’s requests for reimbursement into false claims. The Court observed statements in its own earlier cases that “the correction of regulatory problems is a worthy goal, but is ‘not actionable under the FCA in the absence of actual fraudulent conduct.’” (citing Mann v. Heckler & Koch. Def., Inc., 630 F.3d 338, 346 (4th Cir. 2010)). If it were “to accept relator’s theory of liability based merely on a regulatory violation,” the Court noted, “we would sanction use of the FCA as a sweeping mechanism to promote regulatory compliance, rather than a set of statutes aimed at protecting the financial resources of the government from the consequences of fraudulent conduct.” Given the FDA’s “broad powers to enforce its own regulations,” to permit the FCA to be used in this manner “could ‘short-circuit the very remedial process the Government has established to address non-compliance with those regulations.’” (citing U.S. ex rel. Wilkins v. United Health Grp., Inc., 659 F.3d 295, 310 3d Cir. 2011)).
Based on these principles, the Court of Appeals found that the relator had failed adequately to allege the existence of a false statute or fraudulent conduct, and that he could not plausibly allege that Omnicare acted with the requisite scienter when submitting the claims in question to the government.
This Court of Appeals decision could offer support for companies in highly regulated industries that face qui tam cases under the False Claims Act that arise from violations of safety regulations. In industries such as pharmaceutical manufacturing and packaging in which payment reimbursements are not expressly tied to compliance with safety rules, those companies may face regulatory enforcement for those violations, but will not also face assertions that they have also violated the False Claims Act.
The beginning of 2014 has brought many new laws into effect and we have written on a number of them. But few laws have received more mainstream media exposure than Colorado’s legalization of recreational marijuana. Of more importance to us, the legalization of recreational marijuana has posed some interesting problems for regulators.
The most obvious effect of the law was to allow the recreational use of marijuana, but there has also been a significant side effect: Colorado has seen an explosion of food products with marijuana additives (known as “marijuana edibles”). A big reason for the wide variety of marijuana infused products is because it is relatively simple to manufacture them. The regular food manufacturing process is used and then cannabis oil is added to the recipe, which adds THC (tetrahydrocannabinol) the main psychoactive substance in marijuana, to the food. Marijuana edibles range from candies and sweets (e.g. chai mints, truffles) to sodas to cake (e.g. cookies, brownies), and even peanut butter. These products are especially attractive to people who want to avoid the coughing and inhaling of pot smoke, or, to partake of marijuana in a place where smoking is not permitted.
We are not generally in favor of more regulation, but we do think that there is a need for more robust regulation of marijuana edibles. These are standard food products with all the associated risks (e.g. going rancid, food poisoning like salmonella). Also, THC is not particularly stable as a good additive. Yet, despite these characteristics that pose risks associated with food products, marijuana edibles are not being monitored by the experienced federal food regulators (such as the Centers for Disease Control and Prevention and the Food and Drug Administration). Moreover, Colorado Department of Public Health also cannot provide oversight because part of their funding comes from the federal government. And while Colorado’s Marijuana Enforcement Division may monitor these products, its original purpose was to regulate the medical marijuana industry and it is therefore ill equipped to regulate the entire recreational marijuana industry from the perspective of experience and resources. The Marijuana Enforcement Division has taken some significant steps to ensure marijuana edibles’ safety – such as requiring laboratory certification of edibles and implementing a tracking program that would be able to trace any food poisoning outbreaks directly back to the plant – but the absence of experienced food regulators from this process is worrisome.
Like many new laws, the legalization of recreational use of marijuana in Colorado is creating unforeseen challenges for regulators necessary to ensure the health and safety of the public. We are confident that, even in the continued absence of federal agency involvement, Colorado state authorities will find new and effective ways to meet these challenges.
A November 2013 ruling from the United States District Court in a bankruptcy case may create an obstacle for a tactic increasingly popular among federal prosecutors – the seizure of a defendant company’s domain name.
The statutes permitting civil and criminal forfeiture in U.S. District Courts – Title 18, United States Code Sections 981 and 983, respectively – both authorize seizure of “property.” In a number of prominent (and not so prominent) cases, federal prosecutors have seized a defendant company’s domain name, which may shut down the company’s operations during the pendency of the case. But it does not appear that any Court has squarely considered, in a forfeiture context, whether a domain name constitutes “property” that may be seized and forfeited.
Alexandria Surveys, LLC v. Alexandria Consulting Group, LLC, Civil Action 1:13—CV-00891, Bankr. Case No. 10-11559-BFK, was not a forfeiture case, but it may have set the table for a forfeiture defendant to argue successfully that a domain name may not be seized. In Alexandria Surveys, the District Court reviewed a ruling in the Bankrupcty Court relating to the sale of certain assets previously belonging to the debtor. In the case, the debtor argued, among other things, that the sale of the debtor’s web address and telephone numbers was improper because neither were the “property” of the bankruptcy estate, and therefore neither could be sold by the trustee.
In considering the issue, the Court noted a split in the Circuits as to whether a telephone number constitutes property of an estate. Compare Rothman v. Pacific Tel. & Telegraph Co., 453 F.2d 848, 849-50 (9th Cir. 1971) (trustee lacks right to distribute telephone number as property of the estate); Slenderalla Sys.of Berkeley, Inc. v. Pacific Tel. & Telegraph Co., 286 F.2d 488, 490 (2d Cir. 1961) (same) withDarman v. Metropolitan Alarm Corp., 528 F.2d 908, 910 n.1 (1st Cir. 1976) (permitting trustee to distribute telephone number as property of estate); In re Fontainebleau Hotel Corp., 508 F.2d 1056, 1059 (5th Cir. 1975) (same).
The Court observed that, while the Fourth Circuit Court of Appeals has not yet addressed the issue, state law determines the contours of property interests assumed by the trustee. In that regard, the Court noted the Virginia Supreme Court’s relatively recent decision in Network Solutions, Inc. v. Umbro International, Inc., 529 S.E.2d 80 (Va. 2000), in which that court specifically held, in the context of a garnishment action, that a web address and telephone number could not be garnished by a judgment creditor because the debtor lacked a property interest in them. 529 S.E.2d at 86-87.The court held that a domain name registrant acquires the contractual right to use a unique domain name for a specified period of time, and that the domain name is not property, but rather, “the product of a contract for services.” Id. Without diminishing the importance and significance of web addresses and domain names, the Alexandria Surveys court followed the holding in Network Solutions that they did not constitute “property.”
While Alexandria Surveys did not deal specifically with the law of forfeiture, the holding that domain names do not constitute property has significant implications for civil and criminal forfeiture cases. The case is not binding on other courts, but given the paucity of precedent characterizing domain names, this analysis may be viewed as instructive by courts considering claimants’ and defendants’ challenges to domain name seizures. And a shift in the law that did not permit those seizures would deprive the government of a significant piece of leverage that it now wields in many cases.
LinkedIn has filed a suit against John Does in response to a spate of “data scraping” perpetrated by unknown individuals, in violation of the website’s terms and conditions.This is the latest federal case in the Northern District of California in which a tech company seeks to enforce its contractual provisions through the criminal statute Computer Fraud and Abuse Act (CFAA).
Starting in May 2013, unidentified individuals unleashed automated software programs which bypassed LinkedIn’s security measures in order to create thousands of new member accounts. Once established, these new accounts could be used to view millions of LinkedIn member profiles. The software bots copied personal information off of those viewable pages, which contain extensive personal information. Although we can’t know exactly what the information was used for until the perpetrators are identified, these individuals could potentially use this personal information to steal members’ identities or conduct phishing or other scams.
LinkedIn has since disabled the bot-created accounts and implemented additional security measures to prevent a similar incident. The company instituted the “John Does” lawsuit in order to use the legal discovery process to serve subpoenas which may help identify the attackers. LinkedIn based its legal complaint, in part, on violations of the CFAA. But is the CFAA a sound legal basis on which LinkedIn can bring its claims?
The CFAA states that whoever “intentionally accesses a computer without authorization or exceeds authorized access, and thereby obtains…information from any protected computer” violates the CFAA and commits a crime. In this case, the bots created LinkedIn member accounts in order to view other LinkedIn member accounts and gather information. According to LinkedIn, the use of bots violates the terms and conditions that each user must agree to when opening an account. Did the drafters of the CFAA intend to reach this type of conduct? If LinkedIn is right, what appears to be conduct supporting a traditional breach of contract may become fodder for a potential criminal violation.
The Ninth Circuit addressed a somewhat similar issue in United States v. Nosal, a case in which a former employee, David Nosal, convinced some of his former colleagues to help him start a business by downloading customer lists from the former employer’s computer network. Although the employees had unrestricted access to the lists, their use of the lists violated the employer’s policy prohibiting the use of work computers for non-business purposes. The Department of Justice indicted Nosal under the CFAA for aiding and abetting this action. Nosal filed a motion to dismiss, which the district court granted. On appeal to the Ninth Circuit, the government argued that the CFAA applied to the employees’ use of the customer listseven though their access to the lists was permitted.
The Ninth Circuit rejected the government’s argument, stating that “[t]he government’s interpretation would transform the CFAA from an anti-hacking statute into an expansive misappropriation statute. If Congress meant to expand the scope of criminal liability to everyone who uses a computer in violation of computer use restrictions—which may well include everyone who uses a computer—we would expect it to use language better suited to that purpose.”
Fiscal year 2013 marked the fourth consecutive year in which the Department of Justice has recovered at least $2 billion from cases involving charges of healthcare fraud. Make no mistake: these record-setting yields were no accident. The Obama Administration has prioritized busting healthcare fraudsters since it took office, and for good reason. A 2009 analysis by the AHIMA Foundation, estimated that only 3 to 10 percent of healthcare fraud was being identified. To help crackdown, Attorney General Eric Holder and Human Services Secretary Kathleen Sebelius formed the Health Care Fraud Prevention and Enforcement Action Team (HEAT) in 2009.The Government also launched www.stopmedicarefraud.org in an effort to curb ongoing fraud. From January 2009 through the end of the 2013 fiscal year, the Justice Department used the False Claims Act to recover an unprecedented $12.1 billion in federal healthcare dollars.
In this past year alone, DOJ successfully recovered $2.6 billion. More than half of that amount related to alleged false claims for drugs and medical devices under federally insurance health programs, including Medicare, Medicaid and TRICARE.
Many of the DOJ settlements involved allegations that pharmaceutical manufacturers engaged in “off-label marketing” –that is, promoting sales of their drug products for uses other than those for which the Food and Drug Administration (FDA) approved them. A notable “off label” settlement was with Abbott Laboratories, which paid $1.5 billion to resolve allegations that it illegally promoted the drug Depakote to treat agitation and aggression in elderly dementia patients and schizophrenia – neither of which was the use for which the FDA had approved the drug as safe and effective. Abbott’s settlement included $575 million in federal civil recoveries, $225 million in state civil recoveries and nearly $700 million in criminal fines and forfeitures. DOJ also reached a settlement in 2013 with biotech giant Amgen, Inc., which paid $762 million (including $598.5 million in False Claims Act recoveries) over allegations that included promotion of Aranesp, approved to treat anemia, in doses and for purposes not approved by the FDA.
DOJ settlements in the past year also addressed allegations of the manufacture and distribution of adulterated drugs. For example, in May, Ranbaxy USA Inc. paid $505 million, including $237 million in federal civil claims, $118 million in state civil claims and $150 million in criminal fines and forfeitures, due to adulterated drugs from its facilities in India.
Kickbacks were the subject of other DOJ enforcement in 2013. DOJ obtained a $237 million judgment against Tuomey Healthcare System Inc. after a four week trial. Tuomey was accused of violations\ the Stark Law (which prohibits hospitals from submitting Medicare claims for patientsreferredto the hospital by physicians with a prohibited financial relationship with the hospital) and the False Claims act. Tuomey’s appeal is pending; if upheld, the judgment will be the largest in the history of the Stark Law. DOJ’s $26.3 million settlement with Florida dermatologist Steven J. Wasserman M.D., arising from allegations of illegal kickbacks from a pathology lab, was one of the largest with an individual in the history of the False Claims Act.
DOJ Civil Division’s Consumer Protection Branch was likewise active during 2013, obtaining 16 criminal convictions and more than $1.3 billion in criminal fines, forfeitures and disgorgement under the Federal Food, Drug and Cosmetic Act.
These numbers make clear that DOJ continues to view healthcare fraud as a priority. Providers and others who operate in this highly regulated space ignore this law enforcement focus at their peril in 2014.
The media coverage of this week’s announcement that federal prosecutors have charged former Virginia Governor Robert F. McDonnell and his wife, Maureen, with illegally accepting gifts from a wealthy Richmond area businessman have largely focused on what the Commonwealth’s first family may have given in return. To be sure, the question of whether and how these gifts corrupted the state government is an important one, and the effect on a man once considered a potential 2016 Presidential candidate is a significant political story.
But the story of how the allegations against Governor McDonnell first surfaced is also a cautionary tale about the vulnerabilities that can lead prosecutors to the evidence they need to bring down rich and powerful people. During his tenure at the Virginia gubernatorial mansion, chef Todd Schneider kept records and photographs of a variety of things he viewed as suspicious. When Schneider was accused of wrongdoing involving his outside catering company’s relationship with the state – allegations that proved to be unfounded – Schneider revealed to prosecutors all of the documents and photographs he had that suggested corruption on the part of the Governor and his family. The indictments announced this week are the product, at least in part, of that treasure trove of carefully preserved incriminating evidence.
The defense in this case will likely be that gifts were accepted but no favors were granted in exchange, and that may be a winning strategy but there is also a lesson here. Corporate officers and public officials need to understand that, when they engage in behavior that comes close to crossing the line between proper and improper, their acts need to be explained and not kept private. They also need to understand that leaders are often judged by and held to a higher standard of conduct. From the mail room on up, employees expect the most from their leaders. Anything less than that may look suspicious and can literally turn into a federal case.
This saga is by no means the first in which a lowly employee who is discharged or accused of wrongdoing becomes a whistleblower that leads to headline-grabbing criminal charges against a company or a political figure. But it is a good reminder that those who cut corners or even commit crimes in organizations are vulnerable to the evidence collected by others in that organization.
A Massachusetts man, whose ex-girlfriend had a restraining order out against him, was recently arrested for sending her an invitation to join Google+. This unfortunate drama sheds light on the disparate impact of ordinary things.
According to the Salem News, after receiving a Google+ invitation, Tom Gagnon’s ex-girlfriend went to the police station with a copy of the invitation and the restraining order in hand. The police agreed that the invitation violated the terms of the restraining order; certain Massachusetts orders require that the defendant “refrain from contacting the plaintiff, unless authorized by the court.”The police obtained an arrest warrant, and Gagnon was arrested at his home roughly 90 minutes later.
In court, Gagnon’s counsel argued that the charges were “absolutely unfounded,” asserting that Gagnon had no idea how his ex-girlfriend received the invitation. Judge Brennan, of the Salem District Court,said that he didn’t know how the invitations work either. He set bail at $500, released Gagnon, and ordered him to comply with the terms of the restraining order. A status hearing is set for February 6.
The defendant’s argument is simple: he didn’t send the invitation; Google sent it “automatically” without his (express) consent; and he should not be held criminally liable for Google’s unauthorized actions on his behalf. The Court’s Model Jury Instructions on violations of such restraining orders indicate that Gagnonwill likely prevail – if he can show that the invitation was the accidental, incidental, or inadvertent result of an automated message from Google+. If, on the other hand, the government shows that Gagnon intentionally sent the invitation, he may be found guilty.
Separate from how this plays out in Salem District Court, this incident highlights very important issues for criminal defendants and social media companies more broadly.
For criminal defendants and others under court supervision, Gagnon’s experienceoffers a (relatively obvious) teachable moment: make sure you understand your account settings to ensure that you do not inadvertently land yourself in jail. Post-arrest exoneration is good, avoiding jail in the first place is arguably better.
For the social media companies themselves, the issues are knottier and the lessons more nuanced. Perhaps there is a fundamental disconnect between Google’s machinations of complete interconnectedness and their appreciation for how that could negatively affect users’ real lives. Indeed, persons under court supervision are marginalized, silenced, and regulated in ways that the “average” American never encounters. As a result, companies large and small may (inadvertently) fail to consider how seemingly innocuous product features might affect those customers’ lives.
The line between corporate and personal responsibilities is subjective, broad and hazy. Social media companies have a lot to consider when rolling out new technology, and they can’t think of every possible eventuality. But maybe, just maybe,this worst-case-scenario come to life will make them reconsider those default settings…