Crime in the Suites: An Analyis of Current Issues in White Collar Defense
Posts Tagged ‘Constitutional law’
Sep 13
2013

FBI Hacking Into Electronic Devices: An Effective But Invasive Tool

Privacy and national security interests are notoriously tricky to balance.  Lean too far one way, and you lose an important tool in preventing and detecting crime; lean too far the other way, and you are depriving Americans of their liberty through persistent government intrusion and observation. This balancing act has been an especially hot topic given recent revelations about the National Security Agency’s surveillance and data-gathering networks. While attention has been focused on the NSA and the mass surveillance disclosures that took place earlier this summer, a particularly startling revelation about the FBI’s actions has flown largely under the radar.

A recent New York Times article revealed that the FBI has been gathering information from suspects by remotely hacking into their electronic devices and covertly tapping into the information that can be found on and through the devices.  The FBI accomplishes this in much the same way that criminal, civilian hackers do: by delivering spyware to the devices through web or email links. When the user clicks on the link, either on a computer or a smartphone, the government can use the spyware either to collect existing files or to activate the device’s recording devices for continuing surveillance.  According to the article, one former U.S. official confirmed that the FBI can remotely activate the microphones in phones running the Android operating system to record conversations.

This sort of government intrusion goes well beyond the NSA’s acknowledged collection of telephone and email metadata.  This spyware is programmed to collect full conversations, real-time photos and videos, and stored files of all types, from devices that people have near them 24 hours a day.  This type of intrusive government intrusion into a device in which an individual has a reasonable expectation of privacy is the type that the Constitution’s Fourth Amendment is meant to address.  And, in theory, it does.  The FBI and other law enforcement agencies are required to obtain a warrant each time that they implement this technology to gather content such as computer files, and must meet a stricter standard for wiretaps when conducting surveillance using the webcam or microphone.

As technology advances, it becomes easier for the government to watch our every move.  Whereas once the government could listen to conversations only on wiretapped telephones or bugged areas, it is now able to keep an open microphone on a device that people keep on them no matter where they are.  We hope that law enforcement and the courts will seek and allow the use of this incredibly invasive and effective technique only rarely where no other surveillance is sufficient and not as a matter of course in standard investigations.

Aug 12
2013

Federal Judge Rejects NYPD’s ‘Stop and Frisk’ Policies

In a decision issued today that could potentially change the way police operate in the Big Apple, U.S. District Judge Shira A. Scheindlin (S.D.N.Y.) ruled that, for years, New York City police officers have been systematically stopping innocent people in the street without any objective reason to suspect that they were engaged in any kind of wrongdoing. The 195-page decision, issued after a lengthy trial, accuses the NYPD of a widespread disregard for the Fourth Amendment – particularly as the “stop-and-frisk” episodes soared in number over the last decade. To address the issue, Judge Scheindlin said she planned to designate an independent private attorney as a monitor for the police department’s compliance with the Constitution.

Judge Scheindlin’s ruling is a brave rebuke to the department’s increasingly aggressive policing policies.During the two-month trial, the court heard testimony regarding some 4.3 million stops between 2004 and mid-2012. The U.S. Supreme Court has long sanctioned stopping and frisking an individual based upon reasonable suspicion that he or she is engaged in wrongdoing. But experts testified in the trial that in about 88 percent of the stops, police found no contraband or other evidence of illegal behavior – an incidence so high that it suggests that there was no credible basis on which to stop many of those individuals in the first place.

Given that the individuals in question were usually young minority men, a policing policy that essentially permitted police to treat as suspicious behavior that was perfectly innocent had the effect of watering down the Constitution’s protection against illegal searches and seizures. In her ruling, Judge Scheindlin rejected the testimony of numerous police officers and commanders who typically defended the legality of stops and said that they were made only when officers reasonably suspected criminal behavior.

Judge Scheindlin’s ruling in the case comes on the heels of what some have characterized as an effort by the administration of NYC Mayor Michael Bloomberg to influence the judge or to create some kind of extrajudicial bias against her ruling in the Second Circuit Court of Appeals (which will doubtless be hearing an appeal of this decision). In June, the mayor’s office offered to a number a press outlets a “study” it had conducted that purported to show that Judge Scheindlin grants motions to suppress evidence for constitutional violations in a much higher percentage of criminal cases than do her colleagues in the Southern District of New York. Today’s decision certainly makes clear that Judge Scheindlin was not influenced by those communications in favor of the city, and it is left to be seen whether press reports on that study will have the unlikely consequence of influencing the appellate court.

Judge Scheindlin’s decision is important because it seeks to address constitutional violations on an institutional level and also because it addresses those violations that befall individuals who are not charged with any crime. In a case in which a person faces criminal charges, he or she usually can challenge the admission of physical evidence or his or her own statements based on a claimed violation of constitutional rights, and a favorable ruling will result in the exclusion of that evidence from any trial on those charges. But for a person whose civil rights are violated by an illegal search that results in no criminal charges, the recourse is less obvious.

While there are circumstances in which an individual could sue individual police officers based on an illegal search, the burdens of litigation and the proof required usually are high enough that few if any people pursue such cases. Indeed, a police department policy that encouraged officers to engage in searches of questionable legality appears to rely on those disincentives to protect the officers and the department from liability and scrutiny. By finding an institution-wide set of violations, and by imposing a requirement that an independent monitor ensure compliance, Judge Scheindlin’s ruling (if upheld on appeal) has the potential to provide a more reliable guarantee of constitutional rights to New Yorkers.

If some will decry the decision as threatening the ability of police to control crime, they have forgotten the historical lessons about the importance of safeguarding the rights of minorities in our country, and the important role that the Constitution plays in protecting the rights of the innocent.

posted in:
State Criminal
Jun 26
2013

Appeals Court Hears Argument on N.J. Sports Betting Law, With Uncertain Outcome

Very lively oral arguments were held today, June 26, in the U.S. Court of Appeals for the Third Circuit on the New Jersey sports betting law, in a case that will have an enormous impact on the future of sports betting in the United States.

At issue in the case is the federal Professional and Amateur Sports Protection Act of 1992 (PASPA), which prohibits any state from offering sports betting unless that state had a sports betting scheme in place between 1976 and 1990. Last year, New Jersey Governor Chris Christie signed into law a bill authorizing single-game sports betting in the state. In August, the four major professional sports leagues and the National Collegiate Athletic Association (NCAA) filed suit arguing that the state’s sports gambling law was in violation of federal law.

In December 2012, Judge Michael Shipp of the U.S. District Court for the District of New Jersey held oral arguments to determine whether the sports leagues had standing to bring the lawsuit and determined that they did have standing. The U.S. Department of Justice (DOJ) later intervened in the case to defend the constitutionality of the statute. Oral arguments were held in February, and Judge Shipp held that the New Jersey law was invalid as conflicting with PASPA, which he found to be a valid exercise of congressional power. In March, New Jersey filed an appeal with the Third Circuit, appealing both the standing and constitutionality rulings.

Today in the Third Circuit, the judges dictated the path that the oral arguments took for both sides. Ted Olson, a former United States Solicitor General arguing on behalf of New Jersey, began the arguments by stating that PASPA is “plainly unconstitutional.” Olson also argued that the sports leagues did not have standing to bring the lawsuit because they did not meet the Article III requirement that they actually suffered harm from the New Jersey wagering law.

On the issue of anti-commandeering, which could be crucial to the court’s decision on the constitutionality of PASPA, the judges peppered Olson with questions regarding precedent on the issue and whether “commandeering” is limited to instances in which the federal government forces a state to take affirmative steps. There seemed to be some skepticism from the judges that PASPA should be considered an instance of commandeering because New Jersey did not have to do anything to comply with the statute. Olson argued that PASPA is a federal initiative and the responsibility for enforcing it is on the states, thus making this an instance of commandeering.

The issue of state sovereignty was not an issue that New Jersey focused on in the district court or in their briefs in the Third Circuit, but today Olson focused more on the issue by citing Supreme Court decisions that were issued yesterday and today, arguing that those cases support the position that PASPA is a violation of state sovereignty. Olson took contention with the argument made by their opponents in the briefs that the issue of state sovereignty only applies to states that are newly admitted to the Union.

Paul Clement, also a former United States Solicitor General, argued for the sports leagues. He pointed to the Third Circuit’s previous decision in Office of the Commissioner of Baseball v. Markell, a case that he conceded did not directly address standing, to support his position that the leagues have standing in the case. Clement also pointed to other cases, such as copyright cases, that show that the leagues are entitled to protect their product, and in sports wagering, it is their product, the games, that is at issue.

Clement was questioned about the recent Supreme Court decisions and was asked why PASPA was not a violation of state sovereignty. Clement attempted to distinguish the cases by arguing that they did not apply to PASPA because it was passed under the Commerce Clause, which affords the federal government broad powers to regulate interstate commerce. The U.S. Attorney for the District of New Jersey, Paul Fishman, argued on behalf of the federal government and agreed with Clement’s stance that PASPA is distinguishable from those cases.

There is no definitive timetable for a decision in the case, but it may take several months before an opinion is issued. Regardless of the decision reached by the Third Circuit, the losing party will have the option of seeking a rehearing en banc in that court or filing for a writ of certiorari to the United States Supreme Court. However, both these steps are subject to court discretion.

The ruling from the Third Circuit in this case will have far-reaching implications. A decision in New Jersey’s favor would remove the primary hurdle preventing states from offering sports betting within their borders. The panel today left no clear impression about which way they are leaning in their decision. and ultimately it may take a Supreme Court ruling before there is a definitive answer on PASPA.

posted in:
State Criminal
Mar 29
2013

Judge Strikes Down FBI’s Use of ‘National Security Letters’

In a recent decision, U.S. District Judge Susan Illston of the Northern District of California struck down the FBI’s use of National Security Letters (NSLs) as unconstitutional. Unbeknownst to most Americans, the FBI has been issuing thousands of NSLs every year. The letters demand that recipients, such as banks and telephone companies, provide customers’ information such as their transactional records, phone numbers dialed, and email addresses mailed to and from. This doesn’t involve the content of the phone calls or emails but does involve the names of addressees or participants. One reason most Americans didn’t know about these letters is because more than 95 percent of them contain gag orders, barring the recipient from disclosing their content or even their existence.

This case began nearly two years ago, in May 2011, when a nonprofit advocacy group, the Electric Frontier Foundation (EFF), filed suit on behalf of an unnamed telecom company that had received an NSL. In defense of the NSLs, the government argued that this level of secrecy is necessary to protect the nation against potential security threats. NSLs were designed in the 1970s as a means to gather information on suspected foreign spies during terrorism and espionage investigations. However, the Patriot Act greatly expanded their reach to allow the FBI to secretly compel companies to provide data on American citizens.

The constitutionality of NSLs is dubious for two distinct reasons. Not only does the nondisclosure clause infringe on their recipients’ free speech, but, unlike a standard subpoena or search warrant, the NSLs do not have to be authorized by a judge. Accordingly, Illston concluded that NSLs and their nondisclosure provisions violate the First Amendment and separation of powers principles, and she ordered the FBI to stop issuing NSLs and cease enforcing all gag provisions. That said, we are uncertain whether Illston’s order will ever go into effect. Due to the gravity of the First Amendment and national security issues at stake, Illston issued a 90-day stay, giving the government time to appeal her decision to the U.S. Court of Appeals for the 9th Circuit.

Although the lawsuit was filed anonymously, various media sources have suggested that the unnamed defendant may be Credo Mobile, a phone provider that supports progressive causes. The day after the ruling was released, Credo’s CEO Michael Kieschnick released the following statement:

“This decision is notable for its clarity and depth. From this day forward, the US government’s unconstitutional practice of using national security letters to obtain private information without court oversight and its denial of the first amendment rights of national security letter recipients have finally been stopped by our courts.”

According to Matt Zimmerman, an EFF attorney, the NSL gags “have truncated the public debate on these controversial surveillance tools,” and his unnamed client “looks forward to the day when it can publicly discuss the issue.”

As we await the higher court’s ruling, which we hope leaves Illston’s decision in place, one thing has already been accomplished of a positive nature. A federal district judge has shined some light on a little-known and highly dubious federal law enforcement technique.

Mar 11
2013

Court: Data on Unsecured Network May Qualify for 4th Amendment Protection

The vast increase in the use of wireless data networks has led to new legal issues regarding network users’ right to privacy. A recent opinion issued by the U.S. District Court for the District of Oregon indicates that, under some circumstances, individuals on an unsecured wireless network have a reasonable expectation of privacy entitling them to Fourth Amendment protection. As a result, police officers must obtain a warrant prior to accessing files on that network.

In United States v. Ahrndt, defendant John Henry Ahrndt moved to suppress evidence that a police officer obtained by accessing Ahrndt’s wireless home network and opening files without a search warrant.

In February 2007, one of Ahrndt’s neighbors connected to Ahrndt’s unsecured wireless internet network. When she opened her iTunes program, she was able to see “shared” files from Ahrndt’s iTunes and LimeWire accounts, and saw a number of titles indicative of child pornography.

The neighbor did not open any of the files, but called the police to report what she saw. A deputy came to her house and she showed him the file names as she had seen them. The deputy asked her to open one of the files. When she did, it opened an image of child pornography.

The deputy questioned the neighbor about whom the unsecured wireless network might belong to. She indicated that the network had been available since she moved into the building, and at the time Ahrndt’s home was the only other one that was occupied. The police ran the license plate of a car parked outside of the home and identified it as belonging to Ahrndt, a convicted sex offender.

Using a general description of what the neighbor and deputy recalled seeing in the list of file names, the police applied for and received a search warrant to access the wireless network again in order to get an IP address. The police then served a summons on the Internet provider. The provider disclosed that Ahrndt was the subscriber in question.

Using that information, the police obtained a search warrant for Ahrndt’s home. They ran a forensic search of his computer and identified images of child pornography in various folders. The forensic report did not mention either iTunes or LimeWire.

In considering the motion to suppress the evidence obtained through the initial warrantless search, the court concluded that it would have been appropriate for the deputy to view the titles of the files without a warrant, since a private party (the neighbor) had already viewed those files and told the police about them. However, the court concluded that it was a violation of Ahrndt’s Fourth Amendment rights for the police to instruct the neighbor to open the file, which she had not previously done. The opened image was no longer within the purview of private search, but a government search.

The court also found that Ahrndt’s privacy expectations were not eliminated by accessing an unsecured wireless network. There was no evidence that Ahrndt had intentionally enabled sharing for those files; rather, the default setting of the LimeWire program enabled sharing. It was Ahrndt’s reasonable belief that those files were contained only on his hard drive, and not shared on a public network. The court said that “[i]n short, the government does not dispute a person has a reasonable expectation of privacy in the files on his home personal computer.”

The court concluded that, lacking specific file names and a description of images, a magistrate would not have found probable cause to issue a search warrant. The only evidence that the police viewed lawfully was the file names, which the neighbor and deputy could not remember with specificity. Since the “partial recollections and characterizations” were too general to support a warrant, all related evidence from the unlawful search must be suppressed.

The court came to the right conclusion on this one. Our reliance on the Internet has become such that what is on our computers is as personal and private as the inside of our homes. The government is no more entitled to search our computer without probable cause than to search our homes. This case does not represent a free pass to intentionally share information on wireless networks and then assert Fourth Amendment rights when the government comes knocking. Rather, it is only that information to which an user has a reasonable expectation of privacy—such as files that he is not aware are accessible to others—that is protected against the government’s unlawful search and seizure.

It’s easy to see how this has implications for potential white-collar cases: the government might try to use financial information unintentionally made available to a neighbor through an unsecured network as a basis to initiate a financial fraud investigation. We hope that the courts will rely on this case and suppress any evidence obtained as a result of this type of unlawful search.

Feb 20
2013

Does ‘Speech or Debate’ Trump the Right to Defend Oneself in Court?

On February 5, 2013, the Bipartisan Legal Advisory Group of the U.S. House of Representatives filed a brief urging the U.S. Court of Appeals for the D.C. Circuit to hold that U.S. legislators and their aides cannot be forced to testify about their legislative activities, even when their expected testimony might help exonerate a criminal defendant.

The case raises interesting questions about the balancing of constitutional imperatives – here, the separation of powers and a criminal defendant’s right to present a defense. Fraser Verrusio, a former House staffer, is hoping for a balance struck in favor of defendants’ rights.

In 2011, Verrusio was convicted of accepting an illegal gratuity in connection with his duties as then policy director of the House Transportation Committee. According to the prosecution, Verrusio accepted and failed to report an all-expenses-paid trip to New York City that included a ticket to the World Series and an outing to a strip club. The trip was funded by United Rentals, a construction-equipment company that had stepped up its lobbying efforts to get favorable amendments into the federal highway bill. United Rentals wooed senior staff member Verrusio, who reportedly advised the chair of the House Transportation Committee (as well as the committee) on legislative strategies and policy. Prosecutors alleged that when Verrusio accepted the $1,200 trip, he knew that United Rentals was compensating him for future assistance on the highway bill.

One key piece of evidence against Verrusio was an e-mail that United Rentals lobbyist James Hirni sent to Vivian Curry, legislative director for then-House Committee member John Boozman. In his e-mail, Hirni said, “I have spoken to [Verrusio] and he is good to go. I am resending him the language in the Senate bill, with changes which would represent the 100 percent victory for [United Rentals. Verrusio] asked us to give him the language plus what we would want in the perfect world.”

To address the possible inferences from that e-mail, Verrusio’s attorneys issued a trial subpoena to Curry. The defense expected her to testify that Verrusio had not inserted himself into the legislative process and had not pressured her. But Curry moved to quash the subpoena on grounds that her testimony was privileged under the Speech or Debate Clause of the Constitution. She argued that the testimony sought was protected because it concerned “information gathering for legislative purposes.”

Verrusio countered that the inability to call Curry would violate his rights to due process and to present a complete defense. During the hearing on Curry’s motion, the defense made a potentially critical error when it acknowledged the “high hurdle” imposed by the Speech or Debate Clause and then conceded that the clause “in fact did “appear to cover [the e-mail] communications.” The court held that Curry had properly invoked the privilege and could not be forced to testify.

After the jury returned a guilty verdict on all counts, Verrusio appealed. Among other things, he claims that the trial court erred when it prevented him from calling Curry as a witness. In his view, one of two results must follow. First, Verrusio contends that protections under the Speech or Debate Clause are not absolute but, in some cases, must give way to a defendant’s right to compulsory process. He argues that trial judges should balance a defendant’s need for otherwise-protected testimony against the potential burden on Congress. When the case involves an aide’s testimony regarding informal, passive information gathering from a third party, the potential burden is minimal to non-existent. In such cases, the next question to ask is whether the testimony sought is material. In cases like his — where the jury verdict is already of questionable validity — the “materiality” bar is lower. Thus, he argues, any evidence calling into question the government’s theory could have created reasonable doubt.

Verrusio contends in the alternative that, if the Speech or Debate Clause privilege is absolute, the indictment must be dismissed.

The prosecution replies that Verrusio waived his right to appeal the trial judge’s order to quash. Not only did the defense concede that Curry’s testimony was protected; it first introduced the “balancing test” argument on appeal. Therefore the appellate court may not consider it.

Speaking as friends of the court, the House’s Bipartisan Legal Advisory Group framed the issue as one upon which “the whole American fabric” rests – separation of powers. The decision is simply whether an individual’s right to evidence trumps American liberty in general – an impossible bar to meet. After summarizing the history of the Speech or Debate Clause, the House brief argues that the clause is absolute, regardless of whether the proceedings are civil or criminal. Moreover, the testimony Verrusio sought from Curry was unquestionably protected because it concerned “activities that were ‘an integral part of the deliberative and communicative processes by which Members participate in committee and House proceedings.’” According to the House brief, no court has held that the Speech or Debate Clause privilege is subject to a balancing test. And Verrusio’s reliance on cases recognizing some flexibility with respect to executive privilege is unavailing since executive privilege is not expressly mandated in the Constitution.

But the House brief glosses over the fact that executive privilege is rooted in separation of powers just like the speech or debate privilege. That leaves the question of why the separation of powers in executive-privilege cases need not be guarded so jealously.

Courts decline to address thorny constitutional questions if they can resolve a case on other grounds. It seems likely that the D.C. Circuit will home in on Verrusio’s alleged failure to preserve his argument and save the speech or debate issue for another day. Verrusio’s reply brief is due to be filed by March 13, 2013; the D.C. Circuit will likely issue its decision sometime mid-year.

Jan 25
2013

Court Finds State Ban on Sex Offenders’ Use of Social Media Tramples Speech Rights

In a January 23, 2013, ruling, the U.S. Court of Appeals for the 7th Circuit held that an Indiana law that prohibited most registered sex offenders from using social media websites was unconstitutional because it was “not narrowly tailored to protect the state’s interest.” The decision was restricted to the Indiana statute on sex offenders and did not extend its reasoning to another, related issue – whether courts can permissibly, as a condition of probation or supervised release, restrict white-collar criminals from using the Internet.

The fatal flaw of the Indiana law, the appeals court held, was that it was overbroad because it targeted substantial protected speech, rather than retaining a narrow focus on the specific evil of improper communication to minors.

The 7th Circuit noted that the Indiana statute affected First Amendment rights because it controlled expression via social media and limited the ability to receive information and ideas.

In recent cases of various sorts, including e-commerce cases, federal courts have proved all too willing to imposed Internet bans that trample on various constitutional rights. We focused on this problem in a National Law Journal article a couple of years ago that argued that courts go too far when they impose a broad ban on the use of the Internet against a defendant who had committed online fraud.

In the sex-offender case, Doe v. Marion County Prosecutor, the 7th Circuit acknowledged the strong state interest in protecting minors from harmful online communication, but explained that the ban must be narrowly tailored to target only the appropriate evil. All parties agreed that there is nothing inherently dangerous about using social media – except when a sex offender communicates with minors, which is only a “minuscule subset of the universe of social network activity.”

The same principle ought to be applied to restrictions on Internet use placed upon those who have been found guilty of fraud in e-commerce. Not all Internet usage should be treated as suspect.

Towards the end of its opinion, the court discussed Internet restrictions in the context of conditions of probation or supervised release. The court distinguished between a criminal statute, as in Indiana, that governs the protected speech of the general populace (including registered sex offenders) and the sentences imposed by district courts that may govern Internet usage.

The court said its opinion “should not be read to affect district courts’ latitude in fashioning terms of supervised release.” It elaborated that “Our penal system necessarily implicates various constitutional rights . . . a court could conceivably limit a defendant’s Internet access if full access posed too high a risk of recidivism.”

Somewhat ironically, the court noted that “The alternative to limited Internet access may be additional time in prison, which is surely more restrictive of speech than a limitation on electronics.” Although the 7th Circuit was not willing to expand its protection of Internet usage to the sentencing and probation context, we still think that its strong protection of Internet usage in the First Amendment context bodes well for future challenges in that context.

Nov 21
2012

Domain Names and the First Amendment: The Latest Word

The intersection of domain names and the First Amendment is not new. Indeed, in the early days of the domain name system, courts considered the issue of whether a domain name registrar could prohibit the registration of domain names on the basis of content – for instance, domain names containing profanities. See Nat’l A-1 Advertising, Inc. v. Network Solutions, Inc., 121 F. Supp. 2d 156 (D.N.H. 2000); Seven Words LLC v. Network Solutions, Inc., 260 F.3d 1089 (9th Cir. 2001). However, the U.S. Court of Appeals for the Fifth Circuit recently was confronted, in Gibson v. Texas Dep’t of Insurance, with a new twist on the First Amendment as it applies to domain names: whether a particular domain name is pure “commercial speech” (entitled to only limited First Amendment protection) or “expressive speech” (entitled to more extensive protection).

The Texas Labor Code prohibits the use together of the words and phrases “Texas,” and “Workers Compensation,” or similar abbreviations. Nonetheless, Gibson, a workers compensation lawyer in Texas, registered the domain name texasworkerscomplaw.com. On the associated website, Gibson discusses matters relating to Texas workers compensation law and, of course, advertises his law practice. The Texas Department of Insurance took offense to Gibson’s domain name, and sent Gibson a cease and desist letter. Gibson, being a lawyer, sued in federal court, alleging that the Texas Labor Code restrictions violated his constitutional rights.

The Fifth Circuit, in an interesting opinion, addressed the commercial speech/pure speech dichotomy inherent in domain names used by commercial enterprises, but artfully dodged the question of whether the domain name was in fact commercial speech. Instead, the court first analyzed whether, if the domain name was in fact commercial speech (which can under some circumstances be restricted), it was the sort of commercial speech that the Texas Department of Insurance could restrict.

The court found, correctly, that commercial speech can be restricted only if it is “inherently likely to deceive.” The state argued that Gibson’s domain name implied a connection with or approval of the state. The Fifth Circuit dispensed with the state’s argument, noting that since there was nothing to suggest that texasworkerscomplaw.com could not be viewed in a non-deceptive fashion (a truism), the state could not restrict the use of the domain name as commercial speech.

There is a second exception allowing a restriction on commercial speech: A state may regulate non-deceptive commercial speech if the restriction “advances a substantial state interest” and is narrowly tailored to serve that interest. On this issue, the Fifth Circuit sent the case back to the federal district court to develop a factual record. It seems unlikely that the Texas Department of Insurance will prevail in the end, as the statute on which its objection is based is vastly overreaching, and would prohibit anyone providing services relating to workers compensation in Texas from registering domain names that accurately describe what they do. For instance, a physician who performs workers compensation examinations could not register texasworkerscompdoc.com (as of this writing, this domain name is available for the taking).

Obviously, such a domain name is not misleading, and there is no legitimate basis upon which the state can restrict it. Domain names are often a form of speech. Just because they are a relatively new format of expression does not change this fact and give the government a basis to attempt to restrict their use.

posted in:
Internet Law
Oct 05
2012

State AGs Challenge Legality of New Dodd-Frank Regulatory Group

Three states have joined a lawsuit to challenge the constitutionality of the Financial Stability Oversight Council (FSOC), a Dodd-Frank-created regulatory body headed by the Treasury secretary. The panel, composed of top financial regulators, is charged with overseeing broad threats to the financial system, and has the power to liquidate failing non-bank financial institutions it views as a threat to the that system. The attorneys general of Michigan, Oklahoma, and South Carolina are challenging the legality of the FSOC, arguing that the panel is too powerful and should be subject to additional checks and balances.

The states are bringing their claim as a subset of a larger suit filed by the Competitive Enterprise Institute, a conservative think tank that is also challenging the constitutionality of the power granted to the Consumer Financial Protection Bureau (CFPB). The states do not join the challenge to the CFPB but makes claims only against the FSOC. The state attorneys general argue that the FSOC’s liquidation power creates “death panels for American companies” with little outside oversight.

However, the AGs’ argument overlooks both the substance of the provision and the background against it was implemented. Far from lacking oversight, the FSOC must undergo a multi-level, multi-branch review in order to liquidate a financial institution. In order to initiate liquidation proceedings, first there must be a written recommendation for the Treasury Secretary to appoint the FDIC as a receiver for the failing company. The recommendation must contain a host of information including an evaluation of the likelihood of a private-sector alternative to prevent default. Then there must be a two-thirds vote of the Fed Board of Governors and a two-thirds vote of the FDIC or SEC, or the affirmative approval of the Director of the Office of Federal Insurance in order to appoint a receiver.

If the company does not consent to the appointment of the FDIC as a receiver, the matter goes to U.S. District Court for the District of Columbia, where a judge may strike the receivership if it determines that the secretary’s decision was arbitrary and capricious. Finally, the Government Accountability Office must review and report to Congress on any receivership appointment.

This liquidation power is not entirely new. For decades, the FDIC has had the ability to take over failing federally insured banks. The difference is that this new provision extends to non-bank financial companies. This provision was enacted in direct response to the recent financial crisis, in which the federal government had to step in to save financial institutions whose risky investments threatened to collapse the American economy. The role of the FSOC is to eliminate the expectation that the U.S. government will shield the institutions from losses in the event of a future failure, while simultaneously ensuring an orderly liquidation for failed companies.

At this time, the FSOC has not taken action to liquidate any financial institutions. It has, however, designated a number of nonbank financial institutions as “Systematically Important Financial Institutions” (SIFI). Institutions designated as SIFI are subject to more stringent oversight, including stress tests, higher capital levels and tougher liquidity requirements.

The FSOC began making SIFI designations in July of this year, with the fairly uncontroversial designation of eight financial market utilities. On Monday the FSOC announced that it is considering a number of additional non-banks for SIFI designation. AIG has confirmed that it is one of the institutions under consideration, a development that the company said it both expected and welcomes. Other non-banks rumored to be under consideration as SIFIs include MetLife, Prudential, and General Electric.

It appears that the state AG’s are contesting the FSOC’s liquidity authority out of fear that it gives too much power to federal regulators. However, history has shown how economically dangerous it is for financial institutions to be left to their own devices with little oversight or accountability. The FSOC’s powers are constitutional and within the bounds of the law. The states’ challenge should not survive judicial scrutiny, and the FSOC’s liquidation power should be upheld.

Jun 21
2012

Obama Escalates ‘Fast and Furious’ Battle With Congress by Claiming Executive Privilege

On June 20, 2012, President Barack Obama escalated a battle with the GOP-controlled House of Representatives by claiming executive privilege for 1300 executive-branch documents that relate to the White House and the Justice Department’s response to subpoenas about the botched Fast and Furious gun-trafficking operation.

The House Oversight and Government Reform Committee, chaired by Rep. Darrell Issa (R-Calif.) then voted immediately along party lines to approve a contempt of Congress finding against Attorney General Eric Holder Jr. That recommendation is expected to go to the full House next week.

The committee asserts that it needs the documents in its investigation of Fast and Furious and of a possible executive-branch cover-up of that operation. The White House replies that handing over the documents would hamper the ability of government officials to discuss policy matters frankly and without fear that their deliberations would become public.

Confrontations between the President and Congress over documents and over claims of executive privilege are not new. In fact, executive privilege has been claimed by every president since President John F. Kennedy, and the roots of the doctrine go back to actions by President George Washington in 1792.

The privilege to withhold documents from a congressional committee is not found in the Constitution. It is, however, based on the constitutional principle of separation of powers, which provides that the three branches operate independently of each other. Although the Supreme Court rejected the application of executive privilege in 1974 when President Richard Nixon claimed it in relation to a criminal subpoena for Watergate tapes, there is no question that the privilege exists and can be properly claimed under some circumstances.

The problem is that Obama and Holder are claiming the privilege broadly, for all 1300 pages of documents, without specifying why each document or group of documents is privileged.

As Todd Gaziano, a former attorney in the Justice Department’s Office of Legal Counsel, which advises on executive privilege, wrote in the Heritage Foundation’s blog:

Even if properly involved, the Supreme Court has made clear that executive privilege is not absolute. DOJ must provide an explanation why all those documents fit one of the recognized categories of executive privilege. It is questionable whether they all are legitimately subject to executive privilege, for several reasons. First, the Supreme Court in United States v. Nixon (1974) held that executive privilege cannot be invoked at all if the purpose is to shield wrongdoing. . . . Congress needs to get to the bottom of that question to prevent an illegal invocation of executive privilege and further abuses of power. That will require an index of the withheld documents and an explanation of why each of them is covered by executive privilege—and more. Second, even the “deliberative process” species of executive privilege, which is reasonably broad, does not shield the ultimate decisions from congressional inquiry. Congress is entitled to at least some documents and other information that indicate who the ultimate decision maker was for this disastrous program and why these decisions were made.

At the very least, the Administration owes Congress and the American people a better explanation of what it is doing and why.

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Civil Remedies
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Crime in the Suites is authored by the Ifrah Law Firm, a Washington DC-based law firm specializing in the defense of government investigations and litigation. Our client base spans many regulated industries, particularly e-business, e-commerce, government contracts, gaming and healthcare.

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The commentary and cases included in this blog are contributed by founding partner Jeff Ifrah, partners Michelle Cohen, David Deitch, and associates Rachel Hirsch, Jeff Hamlin, Steven Eichorn, Sarah Coffey, Nicole Kardell, Casselle Smith, and Griffin Finan. These posts are edited by Jeff Ifrah. We look forward to hearing your thoughts and comments!

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