The Law Responds: How North Carolina Law Protects Consumers After Hurricane Florence

Written by Tyler Sankes

 

As Hurricane Florence continues its path along the eastern United States, a temporary law is in effect in North Carolina that aims to clean up the hurricane’s destruction. Although the statute cannot remove debris or fix powerlines, it has succeeded in affording hundreds of consumers an avenue to voice their concerns in a time of need.

The law, North Carolina General Statutes Chapter 75 Article 38, prohibits producers of goods and services to charge unreasonably excessive prices and requires violators to refund the consumer and pay up to $5,000 per violation. But before your inner curiosity questions the generality of the statute and/or its market interventionist nature, there are constraints and language that act as guideposts to insure the law is used as intended.

Timing

The statue can only be in effect for 45 days from the triggering event and cannot continue beyond the threshold unless renewed by the Governor. In North Carolina, the triggering event was not Florence’s landfall, but rather occurred when the state declared a State of Emergency on September 7th, 2018. Therefore, the law is currently projected to be in place until at least October 22, 2018.

Triggering Event

An event must take place that causes the statute to come into effect. In addition, the event is only ‘triggering’ when North Carolina declares a State of Emergency or when it causes a significant market disruption. Market disruptions, whether actual or imminent, are considered significant when goods or services that are needed by consumers as a direct result of an emergency or are used to protect one’s self or property. Some examples include natural disasters, strikes, civil disorders, war, and terrorist attacks.

Intent

The characteristic and price of the good or service, by itself, cannot show that the price gouging law was violated; consumers are required to show intent. Not only must the goods be consumed as a direct result of the emergency, but the producer must possess knowledge and intent to charge unreasonably excessive prices.

Excessive

To help determine if a producer is charging excessive prices, the law provides several characteristics that should be considered. Increases in supply cost, price compared to previous sales or local competition, greater macroeconomic forces (such as inflation or interest rates), and increased business risks are factors that may be analyzed to help determine whether a price is excessive.

Results So Far

Over 500 complaints have been received by Attorney General Josh Stein’s office. Although these are only complaints and have not been proven in a court of law, the resounding response by North Carolina citizens show that there is a need and the law is responding.


 

Sources

Christina Maxouris, There have been more than 500 reports of price gouging in North Carolina after Florence, CNN (Sep. 17, 2018).

N.C. Gen. Stat. § 75-38

Photo courtesy of AP Photo.

Understanding Securities Laws: Why Elon Musk Might Be in Hot Water after Tweeting About Taking Tesla Private

Written By Nolan Kokkoris

 

Background

On September 6, 2018, prominent short-seller Andrew Left filed a class action complaint against Tesla, Inc. and its Chief Executive Officer Elon Musk for alleged violations of Rule 10b-5 of the Securities Exchange Act of 1934 (SEA). Left claims that Musk “artificially manipulated the price of Tesla securities to damage [Tesla’s] short-sellers . . . by issuing materially false and misleading information.” Short-sellers are those who sell stocks they believe will go down in price, in order to later purchase them back at the lower price to gain a net profit. This lawsuit is the most recent development following an August 7, 2018 tweet, in which Musk announced that he was “considering taking Tesla private” once shares reached $420, and that funding to do so had been secured. Musk’s tweet caught investors off guard and led to a surge in Tesla share prices, which saw an increase of more than 13 percent by the end of the day. Ultimately, Tesla’s board of directors concluded that it would not turn Tesla into a privately-owned company. As Musk discussed in a blog post on August 24, despite his belief that there is more than enough funding to take Tesla private, the board determined, and investors agreed, that Tesla is better suited as a public company. Despite this reversal by Tesla, the company, which was already under investigation by the S.E.C., could be on the hook for the losses suffered by short-sellers in the wake of Musk’s tweet. Left estimates that Musk’s tweet cost short-sellers upwards of $1.3 billion in one day.

The Legal Standard

Rule 10b-5 creates two bases for liability in connection with the purchase or sale of any security: (1) making any untrue statement, or (2) omitting any material fact necessary to keep a statement from becoming misleading. Actions under either of these avenues of liability require plaintiffs to establish that the defendant made the false or misleading statement either consciously or recklessly. In applying Rule 10b-5, courts have held that companies may be liable for statements of opinion by top corporate officials, but only if they are made without a reasonable basis.

However, the law differentiates between different types of statements. Where liability arises out of a forward-looking statement, courts look at whether there was actual knowledge that the statement was false or misleading. Under certain circumstances, section 230.175 of the SEA gives “safe harbor” to forward-looking statements and protects issuers of such statements from incurring liability. As defined by statute, forward-looking statements may include statements of management’s plans and objectives for future operations, as well projections of capital structure. Capital structure is most frequently understood as “the mix of debt and equity by which a business finances its operations” and includes both short-term and long-term debts, as well as capital stocks. Under these circumstances, plaintiffs bear a greater burden of proof and can only prevail by showing that the forward-looking statement “was made or reaffirmed without a reasonable basis or was disclosed other than in good faith.”

Finally, if a defendant makes a statement that was reasonable at the time it was made, but the statement is later proven to be misleading after new factual developments, the defendant can still avoid 10b-5 liability by correcting the previous statement. Under these circumstances, the defendant has a duty to correct their previous statement in a timely manner, preferably through the same medium through which the initial error was disseminated.

What Happens Next

A major focus of the class action suit against Tesla will likely be whether Elon Musk knew his statements were false or made such statements with a highly reckless disregard for the potential that they were untrue or misleading. Because this determination requires more than mere conclusions of law, Left must include a detailed factual record which indicates Musk’s statement of opinion was made without a reasonable basis or in bad faith. The complaint provides detailed allegations that Musk knew that he did not have the funds to take Tesla private, as well as his possible bad faith intentions for making such an announcement. Although Musk has clashed with short-sellers in the past, and in one instance sent a hedge fund manager shorts as a consolation for the firm’s losses in betting against Tesla, Left is still likely to face an evidentiary hurdle in demonstrating that this particular tweet by Musk was motivated by bad faith.

The safe harbor protection given to forward-looking statements will likely provide another challenge for Left’s case. The complaint makes alternate arguments on the issue of safe harbor—both that the “funding secured” portion of Musk’s tweet was not a forward-looking statement, and that even if it is a forward-looking statement, safe harbor does not apply because Musk knew that it was false. Since the statutory definition of a forward-looking statement includes future plans and projections regarding capital structure, Left faces an uphill battle on his first argument. In the event that the district court treats Musk’s tweet as a forward-looking statement, Left will have the added burden of establishing that the safe harbor does not apply.

Finally, even if Left succeeds in demonstrating that Musk’s announcement was misleading, that does not guarantee a slam dunk for his class action suit. Tesla may still be able to sidestep liability by arguing that Musk’s statement on August 24 of Tesla’s decision to remain public constituted a timely correction of Musk’s initial error.

Conclusion

From the outset, neither side has a clear path to victory in this lawsuit. Though federal law provides protections for issuers of forward-looking statements, it only does so on the conditions that such statements are made on a rational basis and in good faith. Depending upon how the facts are presented, Left could offer a compelling incentive for Tesla to swiftly settle, even given Musk’s public history of disdain towards Tesla’s short-sellers. Although this case is not likely to reach the trial stage, it remains an important lesson in thinking before tweeting.


Sources

17 CFR 230.175 (2018).

17 CFR § 240.10b-5 (2018).

Brittany De Lea, Elon Musk taunts Tesla short seller David Einhorn, sends shorts, Fox Business (Aug. 10, 2018).

Capital Structure, Black’s Law Dictionary (10th ed. 2014).

Complaint, Left v. Tesla, Inc. et al, No. 3:18-cv-05463 (N.D. Cal. Sept 06, 2018).

Elon Musk, Staying Public, Tesla Blog (Aug. 24, 2018).

Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976).

In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410 (3d Cir. 1997).

Jonathan Stempel & Sweta Singh, Tesla, Musk sought to ‘burn’ Citron, other short-sellers – lawsuit, Reuters (Sept. 6, 2018, 1:42 PM).

Neal E. Boudette, Tesla Will Not Go Private, Elon Musk Says, Capping Month of Turmoil, N.Y. Times, (Aug. 24, 2018).

Neal E. Boudette & Matt Phillips, Elon Musk Says Tesla May Go Private, and Its Stock Soars, N.Y. Times, (Aug. 7, 2018).

Peter J. Henning, How the S.E.C. May Pursue a Case Against Elon Musk and Tesla, N.Y. Times, (Aug. 24, 2018).

United States v. Schiff, 602 F.3d 152 (3d Cir. 2010).

Photo courtesy of YouTube.

What RBG Says (Or Doesn’t Say) Goes: Understanding the Debate Over The Ginsburg Standard’s Application in the Upcoming Confirmation Hearings of Supreme Court Nominee Brett Kavanaugh

written by Nicolette J. Zulli

 

It is believed that by 1801, when John Marshall became Chief Justice, the Justices were in the habit of wearing black. Today, every federal and state judge in the country wears a very similar, simple, black robe. Retired Associate Supreme Court Justice, Sandra Day O’Connor has said, “I am fond of the symbolism of this tradition. It shows that all of us judges are engaged in upholding the Constitution and the rule of law. We have a common responsibility.”

While the donning of the black robe is a symbolic act that historically prioritizes the court over the individual, some believe that when it comes to the Supreme Court, the emperor is expected to ‘wear no clothes’.” That is, that the Senate and we, as the American public, should mandate full transparency of an individual nominee’s past rulings and opinions on certain issues,

in order to understand how he or she can be expected to exercise their power as a U.S. Supreme Court Justice. However, Justice Ruth Bader Ginsburg said, or rather, did not say otherwise.

The Ginsburg Standard

Friday, August 3, 2018, was the 25th Anniversary of Ruth Bader Ginsburg’s confirmation to the Supreme Court of the United States. In the wake of Supreme Court nominee Brett Kavanaugh’s confirmation hearings next month, the anniversary of Ginsburg’s confirmation has revived conversation among liberals and conservatives on Capitol Hill about a precedent set during her hearings all those years ago, which has become known as “The Ginsburg Rule” or “Ginsburg Standard”.

Under the so-called “Ginsburg Standard,” a nominee for the Supreme Court may withhold from commenting on topics or cases that could come up before the bench in the future.

The standard originated when Justice Ginsburg, during her confirmation hearings, declined to answer certain questions that she believed could come back before the Court in the future. For example, she did not comment on topics such as the right to bear arms, the death penalty and private school vouchers. A recent Supreme Court Nominee Responsiveness Study (“Responsiveness Study”) conducted by Lori Ringhand, Professor of Law at the University of Georgia, and Paul M. Collins Jr., Professor of Political Science and director of Legal Studies at the University of Massachusetts, found that Ginsburg refused to respond approximately 10% of the time.

Ginsburg is famous for her quote during the U.S. Senate Judiciary Committee Hearing on July 20, 1993, in which she stated: “A judge sworn to decide impartially can offer no forecasts, no hints, for that would show not only disregard for the specifics of the particular case, it would display disdain for the entire judicial process.”

While she declined in her hearings to talk about future cases, Ginsburg did address key issues during her hearings, including touchy topics ranging from abortion, to the right of privacy, to gender discrimination, to free speech. To this end, she was willing to comment on precedent, explained Margo Schlanger, a current professor at the University of Michigan Law School and former Ginsburg clerk. “So when she is asked about prior cases, she talks about her views in those cases. What she declined in her hearings to talk about was future cases.”

The Model Code of Judicial Conduct was created in 1989 ― before Ginsburg’s hearings ― to reflect norms for judges and safeguard public confidence in the judicial system. Rule 4.1(A)(12) counsels judges not to opine on subjects that may later arise at the bench. Thus, some view The Ginsburg Standard or Rule less as a novel precedent set by the Justice, and more so her memorable articulation of Rule 4.1(A)(12) for the Committee.

Judges today have taken the Ginsburg Standard much farther. According to Aaron Saiger, a former Ginsburg clerk and current law professor at Fordham School of Law, “What has happened to the Rule since is that, as the nominations and the hearings became more and more partisan, the reticence of the nominees grew. I wouldn’t say I can say that with respect to every nominee . . . but as a trend, the unwillingness of judges to answer questions has gone up.”

Despite vocal objections from senators, in recent hearings, a number of lower court judges have refused to express an opinion on whether or not they affirm the Supreme Court’s landmark decision in Brown v. Board of Education. For example, Supreme Court Justice Neil Gorsuch would not explicitly agree with the outcome of the decision, only going as far as to say it was “a correct application of the law of precedent.” When pressed further, Gorsuch later called it a “great and important” decision. In direct comparison, Ginsburg fully affirmed the Brown decision in her Senate testimony. She also opined on other major cases, stating that Dred Scott v. Sandford and Korematsu v. United States were unequivocally wrong. The Responsiveness Study noted that Ginsburg expressed many more opinions than Gorsuch. In fact, it showed that Ginsburg responded to eight times as many civil rights questions, and her “responsiveness ratio” ― which compares the number of firm answers to the number of demurrals ― was far higher than Gorsuch’s. The study concludes that Gorsuch went further than Ginsburg by avoiding commentary on even settled precedent. The Responsiveness Study showed that Gorsuch was the least responsive nominee in 50 years, refusing to clearly answer questions about even canonical cases, such as Brown v. Board of Education. The study showed that Ginsburg was among the most responsive nominees ever to appear before the Senate Judiciary Committee. According to the study, the evasiveness titleholder was Justice Abe Fortas, nominated by President Lyndon Johnson to be Chief Justice in 1968.

While judicial nominees have invoked the Ginsburg Rule for decades, it is only recently that nominees have been accused of abusing this “Rule” to avoid answering questions in any meaningful way.

The Issue

With President Donald J. Trump’s latest nomination of Brett Kavanaugh to the Supreme Court, a significant debate between liberals and conservatives is whether the “Ginsburg Rule” is a well-tenured excuse for nominees to avoid answering the Senate’s questions during confirmation hearings, thereby threatening constitutional power.

Conservatives are now rebroadcasting portions of Ginsburg’s testimony to argue that her example should apply to Brett Kavanaugh. On July 10, 2018, the day after Kavanaugh’s nomination, Senate Majority Leader Mitch McConnell referred to Ginsburg’s “no forecast, no hints” soundbite and said, “I think we all should remember that [S]tandard.”

This is because conservatives believe that, as a result of forcing nominees to opine on such matters, the Supreme Court’s hands have become patently obvious and predictable – a failure of our judicial system. The conservative view is that a Supreme Court Justice should be entirely unpredictable, not a “hardened ideologue.”

While conservatives concede that a Justice’s past rulings will reveal his or her leanings, the concern is that placing such extreme emphasis and dependence on a Judge’s past rulings to inform and be predictive of his or her future rulings is transforming the judiciary into a “mockery.” This way, a party coming before the court can win simply by tailoring their argument to a particular Justice. There would be no need for written briefs, oral arguments, contemplation, or written opinions if we already knew how each Justice will decide.

When the Justices decide the fewer than 80 cases that make it to the Court each year, they must exercise not just sharp legal reasoning, but also sound legal judgment. They must take the mélange of possibilities rendered by tools of constitutional interpretation and mold them into a coherent body of law, consistent with our most fundamental constitutional commitments. This is their constitutional onus.

Until recently, nominees of both parties have seemingly understood this. They combined their privilege to avoid some questions with the recognition that they have a corresponding duty to answer others. Liberals argue that Senators — and the American public — should insist that Brett Kavanaugh do so as well, during his confirmation hearings in September.

They argue that a nominee’s willingness to accept, in public and under oath, the correctness of previously contested, but no longer controversial, constitutional cases and issues is critical to the success of the confirmation process.

Seeing as the entire structure of the U.S. federal government is one of checks and balances, the liberal view is that our founders almost certainly saw the confirmation process as an essential check on how Supreme Court power is exercised — a feature to allow indirect control over the court. That is, by putting the appointment of Supreme Court justices in the hands of elected officials, they ensured that the court is part of that system.

While liberals agree that a nominee’s refusal to offer opinions on current disputes is understandable, they contend that his or her affirmation of the contemporary constitutional canon is an important way in which we as a society validate the Supreme Court’s constitutional choices over time.

Does the Naked Emperor Really Validate SCOTUS’ Constitutional Choices?

But, does a Judge’s responsiveness during his confirmation hearings really paint a definite picture of his judicial philosophy for the Senate and American Public? History suggests that a greater understanding of a Judge as an individual, including his responsiveness, may not always foreshadow his or her rulings on certain issues.

A prime example is that of newly retired Supreme Court Justice Anthony Kennedy. Kennedy’s resume might have made his ideology seem straightforward. Before he became a judge, Kennedy worked as a Republican lobbyist in California. He was then appointed to the federal bench by Republic president, Gerald Ford, and to the Supreme Court by Republican President, Ronald Reagan.

However, his views proved much harder to pigeonhole. His tenure at the High Court was marked by his ability to cross ideological lines and serve as a deciding swing vote. Notably, he sided with the court’s liberals more frequently on issues involving LGBTQ rights, criminal justice, and, in some cases, abortion rights, including the Whole Women’s Health and Obergefell decisions. Yet, he also backed conservatives in decisions that blew up campaign finance restrictions and weakened the Voting Rights Act. He voted consistently against affirmative action before upholding The University of Texas’s race-conscious admissions policy in 2016.

The point being, that despite a resume and paper trail riddled with past rulings and political leanings of a certain persuasion, a Judge’s past does not truly envisage his future when he owes a duty of impartiality.

Similarly, Justice O’Connor demonstrated her political prowess as an Arizona assistant attorney general and Republican majority leader of the Arizona Senate. She then arrived at the Supreme Court. Over the years, as her influence grew in an increasingly polarized nation and as ideological divisions intensified on the Court, O’Connor managed to find the middle ground, taking an incremental approach to the law, while persuading her colleagues to accept her views. She developed a highly specific, fact-based jurisprudence, which made it difficult for attorneys to predict how she would vote.

Overall, “the social construction of judicial power is a complicated process, particularly in hybrid political regimes,” like that of the current Court.

Regardless of party affiliation or political inclination, none of us are true cognoscente when it comes to the art of human behavior. Liberals and conservatives in this debate are missing the point. Because to accurately understand a Judge as an individual, would mean not only seeking out his or her opinions on landmark decisions like Obergefell or Brown or Dred Scott, but understanding his or her political positions, religious views, life experiences, and childhood upbringing – all things that create the lens or reality through which that Judge views his decision-making. Perhaps then we might inch closer to predicting his or her decision on future rulings.

However, understanding a Judge on this level would mean prioritizing the individual over the Court. Fundamentally, we must remember that politics and realpolitik are two very different things. Understanding a Judge’s politics has no place in the formation of an impartial Court, because such an inquiry inherently involves a seeking out of moral and ideological, rather than practical, considerations.

From this perspective, it may seem the Ginsburg Rule is not so much an excuse to avoid answering the Senate’s questions, so much as it is a means by which a Judge can ensure the information he or she provides only goes to understanding his or her judicial philosophy — not his or her personal views.

The Likely Role of “The Ginsburg Standard” in Kavanaugh’s Confirmation Hearings

That said, a Judge’s background, resume, religious beliefs, and political affiliation is inextricably connected to his or her judicial philosophy. In this sense, understanding his or her judicial philosophy is a much better, and more appropriate, predictor of his or her future rulings.

In the Responsiveness Study, Ringhand observed that for Ginsburg, given how much she had written about abortion, it would have been very hard not to answer questions about that subject at her confirmation hearing. And, Ringhand observes, there will be similar issues that Kavanaugh will likely have to address.

“Judge Kavanaugh, with his paper trail, will actually give us quite a few firm responses to non-controversial issues that he’s written about,” she said. Perhaps, he may give us responses on some controversial ones — including his one opinion about abortion, and his many opinions and other writings about presidential power, national security, and his suggestion that presidents should be immune from criminal investigation.

Therefore, despite the ongoing debate among conservatives and liberals as to whether “The Ginsburg Standard” may be properly invoked, it is likely that Judge Kavanaugh will produce a well-balanced set of responses to satisfy all partisan concerns when appearing before the Senate Judiciary Committee next month.

Only time will tell, but it appears that at least as applied to Judge Kavanaugh, the Ginsburg Standard remains a viable tool to quiet the noise of party-political probing and preserve the sanctity of what it means to don the black robe.

 


Sources

https://www.washingtonpost.com/opinions/answer-the-senates-questions-judge/2018/07/09/31cfb24c-83b0-11e8-8589-5bb6b89e3772_story.html?noredirect=on&utm_term=.e546974cbd7a

http://time.com/5357068/ruth-bader-ginsburg-anniversary-confirmation-fight-standard/

https://www.cnn.com/2018/07/10/opinions/supreme-court-justice-should-be-swing-vote-coates/index.htmlhttps://www.vox.com/policy-and-politics/2018/6/27/17510960/anthony-kennedy-conservative-ideology

https://www.grassley.senate.gov/news/news-releases/ginsburg-standard-no-hints-no-forecasts-no-previews-and-no-special-obligations

https://www.washingtonpost.com/opinions/answer-the-senates-questions-judge/2018/07/09/31cfb24c-83b0-11e8-8589-5bb6b89e3772_story.html?utm_term=.3c14daff1f82

https://www.americanbar.org/groups/professional_responsibility/resources/judicial_ethics_regulation/mcjc.html

https://www.npr.org/2018/07/13/628626965/the-ginsburg-rule-false-advertising-by-the-gop

https://www.wilsoncenter.org/article/the-supreme-court-judging-unpredictable

https://www.smithsonianmag.com/history/justice-sandra-day-oconnor-on-why-judges-wear-black-robes-4370574/

https://www.amazon.com/Supreme-Confirmation-Hearings-Constitutional-Change/dp/1107039703

https://www.washingtonpost.com/politics/kavanaugh-confirmation-hearings-not-likely-until-september-senate-judiciary-chairman-says/2018/08/01/66ce9ee2-95a6-11e8-a679-b09212fb69c2_story.html?utm_term=.bb07995dc6a5

https://www.jstor.org/stable/10.1086/674528?seq=1#page_scan_tab_contents 

https://www.vox.com/policy-and-politics/2018/6/27/17510960/anthony-kennedy-conservative-ideology

Supreme Court to Decide iPhone App Store Case

Written By Stefani Joslin

 

On Monday, June 18, the United States Supreme Court decided that it will hear arguments regarding allegations that Apple’s iPhone customers are paying high prices for apps.

Background

In 1977, the Supreme Court ruled in Illinois Brick Co. v. Illinois that only direct purchasers, not purchasers who buy products further downstream, may sue under the federal antitrust law. Today, four Apple iPhone customers are seeking damages alleging that Apple has violated antitrust law by “monopolizing the app market”.

The case stems from a lawsuit that was initiated in California seven years ago. Prior to bringing this to the Supreme Court, a federal court decided that the company could not be sued by consumers since the consumers were not directly overcharged. The panel stated that Apple was merely serving as a distributor and selling the apps directly to customers and only pocketing a part of the apps’ profits. In 2017, the 9th U.S. Circuit Court of Appeals reversed the decision, reasoning that consumers had a right to sue since the consumers were buying the apps through Apple’s App Store. Apple had won the initial suit.

The Lawsuit

Seven years ago, Robert Pepper and three other iPhone users initiated this lawsuit in federal court in Oakland, California and sought class action status. The suit accused Apple of monopolizing the iPhone app market and selling the apps at a high cost to its customers by only approving apps if the developers agreed to allow the apps to be exclusively distributed within the App Store. This fight is threatening to expose not only the Apple company but also its technology industry peers to antitrust scrutiny. According to these plaintiffs, Apple has “total control” over games and other offerings that are within the App Store.

On June 18th, 2018, the Supreme Court decided that the case will be taken from the 9th U.S. Circuit Court of Appeals. The lawsuit stated that when Apple customers purchase an app from the App Store, “the price includes a 30 percent markup that goes to Apple.”. Apple’s argument is that the company does not actually sell the apps, but rather acts as a “middle man” between the app developers and consumers.

Apple’s Argument

Apple has argued that it cannot be sued due to the fact the commission is levied by the app developers, not by the consumers bringing suit. Other companies, such as Google, Amazon, and Facebook may also be affected from the aftermath of this lawsuit. According to Apple, “[t]his is a critical question for antitrust law in the era of electronic commerce”.

What Could Happen Next

If the Court decides in Apple’s favor, the case could open the door for companies to run similar online marketplaces and have these types of interactions with customers through third-party sellers. The Supreme Court will hear arguments in the case, titled Apple v. Pepper, 17-204, during its upcoming nine-month October term.


 

Sources

Debra Cassens Weiss, Can IPhone users sue Apple for charges to app developers? Supreme Court to decide, ABA Journal (June 18, 2018, 3:06PM).

Greg Stohr, Apple Gets U.S. Supreme Court Review on iPhone App Fee Suit, Bloomberg, (June 18, 2018, 9:31AM).

Ann E. Marimow, Supreme Court to consider cases on the seizure of a $40,000 Land Rover, iPhone apps, and a moose hunter, The Washington Post (June 18, 2018).

Supreme Court to Take Up Apple iPhone App Lawsuit, NBCDFW, (June 18, 2018, 9:26AM).

 

 

 

The Molineux Rule: How This Exception to the Rules of Evidence Could Impact the Harvey Weinstein Trial

Written by Sara Lupi

 

On May 30, 2018, a grand jury in Manhattan indicted film producer Harvey Weinstein and charged him with Rape in the First Degree, Rape in the Third Degree, and Criminal Sexual Act in the First Degree. Although several women have alleged that Weinstein committed these and similar crimes, the indictment brought by the Manhattan District Attorney’s Office only named two victims. If the case proceeds to trial however, the prosecution may attempt to bring in evidence of Weinstein’s similar past behavior, for the purpose of establishing a pattern of sexual assaults.

Earlier this year, during comedian Bill Cosby’s retrial for sexual assault charges, prosecutors in Pennsylvania utilized the “Doctrine of Chances” as a way to call five other accusers to testify against Cosby. In Pennsylvania, the Doctrine of Chances is a narrow exception which operates similarly to Federal Rule of Evidence 404(b), which bars evidence of prior bad acts for the purpose of establishing propensity to commit a certain crime, but allows such evidence for other purposes. Evidence of prior bad acts can be admitted in order to establish something other than propensity “such as proving motive, opportunity, intent, preparation, plan, knowledge, identity, absence of mistake, or lack of accident.” In the Cosby trial, the five other accusers had reported sexual assaults similar to the sexual assault on the victim by Cosby. In a pretrial motion, the Montgomery County District Attorney wrote, “as the number of victims reporting similar, drug-facilitated sexual assaults by defendant increases, the likelihood that his conduct was unintentional decreases … defendant’s prior bad acts are admissible under the “doctrine of chances” to negate the presence of any non-criminal intent and, concomitantly, to establish an absence of mistake.”

The Molineux Rule

In New York State, where Weinstein is going to be tried, the Doctrine of Chances is known as The Molineux Rule, which gets its name from a New York State Court of Appeals decision in the case of People v. Molineux. Under this rule, prosecutors can bring in proof of a defendant’s prior bad acts or crimes not to show criminal propensity, but to “establish motive, opportunity, intent, common scheme or plan, knowledge, identity or absence of mistake or accident.” [1] It should be noted that New York State has not adopted Federal Rule of Evidence 413, which allows evidence of similar crimes in sexual assault cases for the purpose of proving propensity to commit sexual crimes. So, even though Molineux has the potential to let evidence of similar prior bad acts in at trial, the bad acts cannot be used to prove propensity, but rather to show one of the previously mentioned purposes.

The exception is used rarely in New York State, because evidence of prior similar bad acts is considered highly prejudicial. The probative value must be weighed against the prejudice the evidence would cause the defendant. Additionally, the “evidence must be ‘highly probative’ and ‘directly relevant’ to the purpose for which it is offered and have a natural tendency to prove such purpose.” This is an extremely high threshold for prosecutors. The rationale behind Molineux is that if a defendant commits the same bad acts, or commits the same crime multiple times, in a similar manner, there is a high probability that this is not just coincidence.

How Molineux May Be Used in the Case Against Weinsten

Here, many of Weinstein’s accusers have brought forth similar stories of his abuse, which has been called “casting-couch abuse.” Women allege that Weinstein took advantage of his position as a Hollywood producer to force young actresses into having sex with him or performing other sexual acts. Weinstein’s own defense attorney, Benjamin Brafman, told the press after his arraignment that Weinstein “did not invent the casting couch in Hollywood,” which has been seen as a glimpse into a possible defense for his client: that this was not rape, but rather a choice made by each actress in an effort to advance their careers. However, this comment also foreshadows the possible use by prosecutors of the Molineux Rule, to show that Weinstein’s alleged actions were part of a common scheme or plan.

Currently, it is unclear whether Weinstein’s case will proceed to trial. While he has entered a plea of not guilty, some experts believe the case may end with a plea bargain. His defense attorney has stated that if the case does go to trial, he will consider attempting to sever the rape charges from the charge of criminal sexual act, and proceed with two separate trials. His next court date is scheduled for September 20th in Manhattan.


Sources

Aaron Katersky and Bill Hutchinson, Harvey Weinstein pleads not guilty to rape charges, ABC News (June 5, 2018), https://abcnews.go.com/US/harvey-weinstein-pleads-guilty-rape-charges/story?id=55659315.

Danny Cevallos, How Weinstein lawyer’s ‘casting couch’ comment could impact his defense strategy, NBC News (May 27, 2018), https://www.nbcnews.com/news/us-news/how-weinstein-lawyer-s-casting-couch-comment-could-impact-his-n877916.

Debra Cassens Weiss, Harvey Weinstein is indicted; could other accusers testify at trial? ABA Journal (May 31, 2018), http://www.abajournal.com/news/article/harvey_weinstein_is_indicted_could_other_accusers_testify_at_trial.

Fed. R. Evid. 404(b), 413.

Montgomery County District Attorney’s Office Motion to Introduce Evidence of 19 Prior Bad Acts of Defendant, Jan. 18, 2018.

People v. Molineux, 168 N.Y. 264 (1901).

People v. Cass, 784 N.Y.S.2d 346 (Kings County 2004).

Tracy Connor, Harvey Weinstein surrenders to NYC police, is charged with rape, NBC News (May 25, 2018), https://www.nbcnews.com/storyline/harvey-weinstein-scandal/harvey-weinstein-surrenders-nyc-police-station-face-sex-charges-n877416.

 

 

Controversial Cake: The Masterpiece Cakeshop Decision

Written by Michael Varrige

 

Background

Masterpiece Cakeshop, Ltd. v. Colorado Civil Rights Commission originated as a complaint made to the Colorado Civil Rights Commission by a gay couple against a baker who refused to bake a custom wedding cake for their wedding back in 2012 due to his religious objection to same-sex marriage (though the baker did offer to sell any other product to the couple, just not a custom wedding cake). The Commission ruled in favor of the couple, finding that the baker’s refusal to make the wedding cake violated Colorado’s Anti-Discrimination Act. The Commission’s decision was affirmed by the Colorado Court of Appeals and was not heard by the Colorado Supreme Court. The Colorado Anti-Discrimination Act states, in part, “it is a discriminatory practice and unlawful for a person . . . to refuse, withhold from, or deny to any individual or group because of . . . sexual orientation . . . the full and equal enjoyment of the goods, services, facilities, privileges, advantages, or accommodations of a place of public accommodation”. It also delineates the process by which a complaint will be heard—by the Commission and eventually appealed to the Colorado Court of Appeals and the Colorado Supreme Court.

In short, the owner of Masterpiece Cakeshop, Jack Phillips, argued that Colorado’s Anti-Discrimination Act violated his First Amendment rights of free exercise of religion and freedom of expression. The Commission countered that a cake was not a form of expression and that the act of baking a cake was neither participating in nor condoning same-sex marriage. For a more thorough look at the arguments made in front of the Supreme Court, please see a prior Legal Pulse post-Review: Masterpiece Cakeshop v. Colorado Civil Rights Commission compiled by Lacey Grummons, the link appears below.

Discussion

            Majority

Justice Anthony Kennedy, writing the majority opinion joined by five of his colleagues, reversed the decision by the Colorado Court of Appeals on the ground that the Commission violated Mr. Phillips’ right of free exercise of religion. Justice Kennedy was joined by traditionally conservative-leaning Justices Neil Gorsuch and Samuel Alito. Typically liberal-leaning Justices Stephen Breyer and Elena Kagan also joined the majority opinion. Justice Clarence Thomas concurred in judgment, but wrote his own separate concurrence instead of joining the majority

The majority determined that “the delicate question of when the free exercise of his religion must yield to an otherwise valid exercise of state power needed to be determined in an adjudication in which religious hostility on the part of the State itself would not be a factor in the balance the State sought to reach.” Essentially, the Court ruled that while Colorado’s Anti-Discrimination Act does not generally violate the free exercise clause, Colorado’s process of determining whether an action has violated the Anti-Discrimination Act must be conducted in a manner that is neutral towards religion. Justice Kennedy pointed to what he called “open hostility” at multiple times throughout the public hearings such as “freedom of religion and religion has been used to justify all kinds of discrimination throughout history, whether it be slavery, whether it be the Holocaust” and “one of the most despicable pieces of rhetoric that people can use” in reference to using religion to deny wedding-related services to a same-sex couple.

The Court further took note that no other commissioners took issue with any of these statements as well as what it perceived as disparate treatment of bakers who refused to bake anti-same-sex marriage cakes along with religious texts. These bakers, who appeared before the same Commission as Phillips, were allowed to refuse to bake cakes with anti-same-sex marriage messages because it violated their anti-discrimination beliefs, while Masterpiece Cakeshop was compelled to by the Commission and the Court of Appeals.

The Court then segued to discuss that the Free Exercise Clause “bars even subtle departures from neutrality” and that the State cannot impose regulations that “are hostile to the religious beliefs of affected citizens and cannot act in a manner that passes judgment.” Justice Kennedy followed this discussion by ultimately determining that weighing the State’s interest in protecting its citizens from discrimination could be weighed with sincere religious objections by owners of public accommodations but only in a way that is neutral towards religion. In this case, the Justices did not believe that the claims were weighed in a religiously neutral way and reversed the lower court’s judgment. While ruling in this manner, the Court also felt it necessary to state “[t]he outcome of cases like this in other circumstances must await further elaboration in the courts, all in the context of recognizing that these disputes must be resolved with tolerance, without undue disrespect to sincere religious beliefs”, leaving the door open for further discussion on the topic, both by the Supreme Court itself and in the states.

           Concurrences

Three separate concurrences were written, one by Justice Kagan joined by Justice Breyer, one by Justice Gorsuch which was joined by Justice Alito and another written by Justice Thomas which was joined by Justice Gorsuch.

Justice Kagan focused her concurrence on the disparate treatment between Phillips and the other bakers, who were allowed to refuse to bake cakes with messages they disagreed with. Justice Kagan further indicated that she believed that Phillips violated the Colorado Anti-Discrimination Act and that the Commission could have found that based on a religiously neutral, plain reading of the statute. However, she did not believe that the Commission was religiously neutral and therefore found for Phillips.

Justice Gorsuch, using the doctrine of strict scrutiny, determined that the Commission failed to act neutrally towards Phillips’ religious beliefs and did not satisfy the strict scrutiny test as required by the Free Exercise Clause. He also focused on what he saw as disparate treatment in bakers as previously discussed, allowing a baker to deny anti-same-sex marriage messages as a result of his religious beliefs but not allowing Phillips to decline to bake a cake which in his view was endorsing same-sex marriage due to his religious beliefs. Justice Gorsuch also focused on what he saw was a lack of discriminatory intent on the part of Phillips and determined that he brought a conclusive First Amendment claim which entitled him to judgment.

Justice Thomas first determined that the Commission violated Phillips’ free exercise rights along with the majority. He, though, went further to discuss the free-speech claim made by Phillips in his brief to the Court. Justice Thomas indicated that public-accommodation laws, like the Colorado Anti-Discrimination Act, generally regulate conduct and do not burden free-speech rights though sometimes these laws can burden free-speech rights. He further notes that “expressive conduct” can be burdened by these laws including many actions relating to the American flag. Justice Thomas found that wedding cakes communicate a message that “a wedding has occurred, a marriage has begun, and the couple should be celebrated” and further found this to be expressive conduct which Colorado could therefore not compel or restrict. He also noted that Colorado could restrict the expressive conduct if it would have punished the conduct with or without the expressive component but seeing as it would not have punished him for generally not making custom wedding cakes, that principle did not apply.

            Dissent

The single dissent in this case was written by Justice Ruth Bader Ginsburg and was joined by Justice Sonia Sotomayor. Justice Ginsburg noted that Colorado could protect gay persons, business owners cannot put up signs saying that they will not serve gay persons, and gay persons may be protected from indignities in an open market, all of which were stated by the majority opinion as well. Justice Ginsburg reconciled the disparate treatment by noting that the bakers who declined to make anti-same-sex marriage cakes did so as a result of the discriminatory message, without regard to the actual characteristics of the requesting person, whereas Phillips declined to make the cake as a result of the identity of the persons requesting the cake. Justice Ginsburg further did not agree that the statements of one or two commissioners could overcome the fact that Phillips refused to bake a cake for a same-sex couple, focusing on the procedural guarantees in Colorado which she believed were followed.

Possible Ramifications

The possible ramifications of this decision on future cases and on the public in general seem to be split along ideological lines, at least in the first weeks following the release of this decision. Some have taken it allow a wide license to discriminate, including a Tennessee business owner who put up a sign saying “No Gays Allowed” in the window of his hardware store. Others see the decision as narrow in scope (while perhaps not narrow in how many justices concurred in judgment), by explicitly stating that further disagreements would still need to be decided based on the facts of those individual cases. Others still see this as a “hollowing out” of same-sex marriage rights and allowing the first affirmation in a “slippery slope” leading to more widespread discrimination. While the ultimate impact of this case on anti-discrimination laws, free exercise of religion, and free speech remains to be seen, one thing that is certain is this is not the end of this conversation but merely the beginning.

 


Sources

Lacey Grummons, REVIEW: Masterpiece Cakeshop v. Colorado Civil Rights Commission, Syracuse L. Rev. Legal Pulse (Dec. 14, 2017).

Masterpiece Cakeshop, Ltd. v. Colorado Civil Rights Commission, 584 U.S. ___ (2018).

Amy Howe, Opinion analysis: Court rules (narrowly) for baker in same-sex-wedding-cake case, SCOTUSblog (June 4, 2018, 4:07 PM).

Mark Sherman, Supreme Court sides with Colorado baker on same-sex wedding cake, Chicago Tribune, (June 4, 2018).

Ewan Palmer, No Gays Allowed’ Sign Returns to Tennessee Store Following Masterpiece Cakeshop Supreme Court Ruling, Newsweek, (June 8, 2018, 9:43 AM).

Rachel B. Tiven, Masterpiece Cakeshop Ruling Is Not As Limited As Some Might Think, Huffington Post, (June 5, 2018, 7:05 PM).

Photo courtesy of Martha Stewart.

Medicaid Covers Treatments for Non-Binary Transgender New Yorkers

The views expressed in this article do not necessarily reflect those of the Legal Pulse Editor or the Syracuse Law Review.

Written by Cynthia Moore

 

On May 11, 2018, New York State Department of Health overturned a 2017 decision by an administrative judge, who upheld a Medicaid insurer’s denial of coverage for a mammoplasty procedure for a nonbinary transgender person. This decision affirmed the right to Medicaid coverage for surgeries or procedures for gender nonbinary and nonconforming residents of New York.

Gender Dysphoria as a Diagnosis

“Gender identity disorders” were first introduced in the DSM-III, a diagnostic manual authored by the American Psychiatric Association, as a psychosexual disorder, which later moved to a section on disorders manifested in infancy, childhood, or adolescence. In the DSM-IV, gender identity disorder diagnoses moved to the chapter on sexual and gender identity disorders. In the most current Diagnostic and Statistical Manual of Mental Disorders, the DSM-V, the diagnosis of gender identity disorder was removed and a new chapter named Gender Dysphoria was created. A diagnosis of gender dysphoria is required for Medicaid coverage of medically necessary treatments and procedures related to this diagnosis.

Non-Binary Gender Identity

Non-binary gender identities are generally those that do not exclusively fall within the male or female categories. Examples of these identities include: “genderqueer, gender fluid, agender, and bigender.” Those who identify within this spectrum may reject gender entirely, blend features of both, or fluctuate between the traditional roles of masculinity and femininity.

Statistics

In a 2016 study, the number of transgender individuals in New York was estimated as 78,600 or .51% of the total population. Nationally, the number of adults who self-identified as transgender was estimated as 1.4 million or .6% of the U.S. population. Nevertheless, population estimates are difficult to track since they have not been included on questionnaires for the census and American Community Survey. The U.S. Census Bureau stated that it does not plan to propose this topic to Congress for the 2020 Census and American Community Survey, which may make it difficult to track statistics on Americans who identify within the transgender population.

Background

In 2014, the Legal Aid Society, Sylvia Rivera Law Project, and Willkie Farr filed a federal lawsuit opposing a state regulation that banned Medicaid coverage for treatments and procedures related to sex reassignment. In July 2016, U.S. District Judge Jed Rakoff for the Southern District of New York decided Cruz v. Zucker in favor of the plaintiffs. The ban was repealed and the regulation was amended to require Medicaid to cover medically necessary procedures for those with a gender dysphoria diagnosis. New York was the ninth state to adopt a policy allowing Medicaid to cover gender affirmation surgery.

As a result of this decision, four academic medical centers—Mount Sinai, NYU Langone, Montefiore, and Northwell—created programs to perform these surgeries. In 2015, Medicaid covered 115 procedures and in 2016 it covered 257 procedures, marking a substantial increase in services provided.

Medicaid Denial of Coverage

In 2017, a 27-year-old non-binary transgender individual sought a procedure for a reduction mammoplasty. The patient’s doctor requested Medicaid coverage for the procedure and was denied by the plan, Healthfirst. The patient sought an appeal but the administrative law judge held that the regulation did not apply to non-binary individuals, requiring that the individual transition strictly from male to female or female to male.

Department of Health Overturns the Denial

In April, legal counsel who represented the plaintiff in the 2016 federal case sent a letter to the New York State Office of Attorney General stating that the fair hearing decision was decided incorrectly, since it violated the final judgement and order of Cruz v. Zucker. Two weeks later, the Department of Health amended the decision, noting that the 27-year-old met the requirements of the statute and the insurer should have approved coverage of this procedure. In its decision, the Department of Health noted:

“[r]equiring conformance to the opposite gender is inconsistent with the diagnosis of gender dysphoria as specified by the Diagnostic and Statistical Manual of Mental Disorders (DSM-5), which specifically provides that individuals with [sic] diagnosed with gender dysphoria have a marked incongruence between the gender they have been assigned to (usually at birth, referred to as “natal gender”) and their experienced or expressed gender, and experience stress about this incongruence. Experienced gender may include non-binary gender identity. Therefore, the distress associated with gender dysphoria is not limited to a desire to just be of the opposite gender, but may include a desire to be non-binary.”

Advocates noted the importance of this decision in increasing access to healthcare for non-binary and non-conforming transgender residents of New York, particularly for those who fall below the poverty line. One 2015 survey found that transgender residents of New York were more likely to experience poverty and unemployment than the general population: 37% of survey respondents were living in poverty, more than double the national poverty rate at the time of the survey and 18% were unemployed, which was three times greater than the national unemployment rate.

This decision was made three weeks after the Trump administration expressed a plan to roll back a rule issued by President Obama, which “. . . prevents doctors, hospitals and health insurance companies from discriminating against transgender people.” If President Trump were to revoke this rule, it would apply to doctors who receive Medicaid payments, hospitals that accept Medicare plans, and health insurance companies.

Sources

Andrew R. Flores et al., How Many Adults Identify as Transgender in the United States? 2­–4 (2016).

Arielle Webb et al., Non-Binary Gender Identities Fact Sheet 1 (2015).

Christina Capatides, The type of transgender you haven’t heard of, CBS News (Mar. 27, 2017).

Cruz v. Zucker, 195 F. Supp.3d 554 (S.D.N.Y. 2016).

Dan Goldberg, Transgender programs flourish following New York Medicaid coverage, Politico (Dec. 12, 2017).

Hansi Lo Wang, U.S. Census To Leave Sexual Orientation, Gender Identity Questions Off New Surveys, NPR (Mar. 29, 2017).

In Historic Decision, NYS Acknowledges Gender Non-Conforming New Yorker’s Right to Health Coverage, The Legal Aid Society: News (May 17, 2018).

In the Matter of the Appeal of Redacted, F.H. No. 7510067L (St. of N.Y. Dep’t of Health, Apr. 6, 2017).

Jan Hoffman, Estimate of U.S. Transgender Population Doubles to 1.4 Million Adults, N.Y. Times (June 30, 2016).

Kenneth J. Zucker, Management of Gender Dysphoria: A Multidisciplinary Approach, in The DSM-5 Diagnostic Criteria for Gender Dysphoria 33 (Carlo Trombetta et al. eds., 2015).

MP McQueen, NY Health Dept. Affirms Right to Medicaid Coverage for Gender Dysphoria Treatment, N.Y. L. J. (May 18, 2018).

National Center for Transgender Equality, 2015 U.S. Transgender Survey: New York State Report 1 (2017).

N.Y. Comp. Codes R. & Regs. tit. 18, § 505.2 (2018).

Robert Pear, Trump Plan Would Cut Back Health Care Protections for Transgender People, N.Y. Times (Apr. 21, 2018).

Photo courtesy of WQAD.

Unconstitutionally Blocked: Southern District of N.Y. Rules President’s Twitter Practice Violates First Amendment

Written by Steven L. Foss

 

Background

On May 23, 2018, a federal district judge ruled that President Donald J. Trump’s blocking of Twitter users critical of him violates the First Amendment. Judge Naomi Reice Buchwald of the Southern District of New York, in a 75-page order on cross–motions for summary judgment, determined that the President’s Twitter handle @realDonaldTrump and the “interactive space” it generates constitutes a public forum under First Amendment jurisprudence. Consequently, when the President blocks someone from viewing and interacting with his profile, he commits unconstitutional viewpoint discrimination.

Knight Institute v. Trump

The controversy began when seven individuals who criticized President Trump on Twitter were blocked from the President’s @realDonaldTrump account. The Knight First Amendment Institute at Columbia University filed suit on behalf of the blocked individuals, claiming that the President used the blocking function to suppress political dissent in violation of their First Amendment rights. Judge Buchwald rejected the argument that the President’s personal First Amendment right of association outweighed the plaintiffs’ own First Amendment rights. And, while recognizing that there is generally no “right to be heard” by the government, Judge Buchwald distinguished that principle from the plaintiffs’ claims. She discussed the difference between Twitter’s blocking feature and its “muting” feature, whereby users can choose not to see the activity of a particular user. Unlike blocking, when user A is muted by user B, user A can still view, reply to, and retweet user B’s tweets, even though user B will not see these replies. Blocking users that the President does not wish to interact with is not functionally equivalent to muting them because the blocked users cannot reply to the President’s tweets and engage other users in dialogue concerning those tweets. The court noted that muting users that the President does not wish to engage with would serve the President’s own interests equally well while not infringing on the rights of individuals to speak to — but not necessarily be heard by — the government in a public forum.

Forum Analysis and Viewpoint Discrimination

In analyzing First Amendment claims, a preliminary question asks what type of forum the speech takes place in or is excluded from. The court in Knight Institute v. Trump determined that the President’s Twitter handle @realDonaldTrump and the “interactive space” created around it by virtue of Twitter’s features is a designated public forum for free speech purposes. Judge Buchwald rejected the argument that because the President once used the account as a private citizen, the handle is not a public forum. Rather, because the President chose to use the account in a manner similar to a traditional public forum, the handle must adhere to traditional First Amendment protections of subject matter and viewpoint neutrality.

In traditional and designated public fora, government regulations of speech must be “narrowly drawn to achieve a compelling state interest” in order to pass constitutional muster. While some subject matter and speaker restrictions can be constitutional under certain circumstances, viewpoint restrictions are generally considered to be forbidden. In the Knight Institute case, Judge Buchwald held that the blocking of users critical of President Trump was “indisputably” unconstitutional viewpoint discrimination, and went beyond merely choosing not to amplify the voices of those he disagrees with.

Declaratory or Injunctive Relief?

A more vexing problem for the court and those concerned with separation of powers was the type of remedy available to the plaintiffs. Citing multiple U.S. Supreme Court cases, Judge Buchwald rejected the government’s argument that a court “categorically lack[s]” authority to order the President to unblock Twitter users. However, the court did not grant the plaintiffs both declaratory and injunctive relief, as they had requested. It declared the President’s blocking unconstitutional and left open the possibility that if the President refused to unblock the plaintiffs, an action for injunctive relief could be brought to compel the President or his staff to unblock them. The Court held unblocking to be a purely “ministerial” action, involving little or no discretion (given the court’s ruling that blocking is unconstitutional, and the President’s general duty to comply with the law). Requiring such a ministerial action would be a “minimal” intrusion on the President’s inherent authority as chief executive. The court opined that even if it lacked the power to issue an injunction against the President, it could enjoin his social media director and co–defendant Dan Scavino, who also has access to the account.

Going Forward

In the wake of Knight Institute, it seems that government officials or entities operating social media accounts for official purposes must not restrict users from interaction based on viewpoint. There are similar lawsuits pending in other district courts, and they may take notice of Judge Buchwald’s ruling. They could also be critical of the expansion of First Amendment protections into cyberspace, heeding Justice Samuel Alito’s concurrence in Packingham v. North Carolina where he cautioned against Justice Kennedy’s broad language in striking down a law forbidding sex offenders from accessing vast swathes of the Internet. A federal district court in Kentucky denied a preliminary injunction preventing Governor Matt Bevin from blocking critics on social media, holding that the plaintiffs there were unlikely to succeed because they are simply not being heard by the government. The case is ongoing.

The Department of Justice disagrees with the Knight Institute decision and is reviewing its options, including appeal. We shall have to wait and see. In the meantime, given politicians’ increasing online presence and the growing recognition that public fora extend beyond traditional physical spaces like sidewalks and parks, public officials should exercise caution when deciding how to deal with dissent on social media.


Sources

Hargis v. Bevin, 2018 U.S. Dist. LEXIS 54428 (E.D. Ky. Mar. 30, 2018).

Issie Lapowsky & Louise Matsakis, Trump Can’t Block Critics on Twitter. What This Means For You, Wired (May 23, 2018, 6:29 P.M.).

John Herman & Charlie Savage, Trump’s Blocking of Twitter Users Is Unconstitutional, Judge Says, N.Y. Times, May 23, 2018.

Knight First Amendment Inst. at Columbia Univ. v. Trump, 2018 U.S. Dist. LEXIS 87432 (S.D.N.Y. May 23, 2018).

Packingham v. North Carolina, 137 S. Ct. 1730 (2017).

Press Release, Knight First Amendment Institute at Columbia University, Federal Court Rules that President Trump’s Blocking of Twitter Critics Violates First Amendment (May 23, 2018).

 

Photo courtesy of The Economist.

Gambling with Gamers: The Global Controversy Surrounding the Growth of Virtual Loot Boxes and Their Ties to Gambling

written by Nathan Jerauld

 

Background

In recent years, video game companies discovered a new way to generate profits: loot boxes. “Loot boxes” are randomized rewards that video game players receive in exchange for in-game points, which are earned by playing the game or by paying real-world cash. The rewards offered in loot boxes could be purely cosmetic, or could offer players powerful perks that improve their chances of winning games.

Globally, countries differ on whether loot boxes constitute gambling, and should be regulated accordingly. Earlier this year, the Netherlands outlawed loot boxes because of its association with gambling. Conversely, the United Kingdom concluded it was not gambling. Last month, however, Belgium became the second country to make loot boxes illegal, and required game publishers to remove loot boxes purchasable with cash. Despite the recent turn in Belgium, the CEO of Electronic Arts (EA), a major video game producer, stated early this month that they remain committed to including loot boxes with future game releases.

Ties to Gambling

Loot boxes bare some similarity to gambling, a practice illegal for minors in the United States. According to Black’s Law Dictionary, gambling is “[t]he act of risking something of value, especially money, for a chance to win a prize.” With regards to risking something of value, players must spend in-game currency, which requires them to invest time into gameplay, or use cash to purchase it.

Additionally, loot boxes do not guarantee good prizes. While players receive rewards for every loot box purchase, the most beneficial prizes are rare. In order to obtain the best prizes, players generally need to purchase numerous loot boxes. The hope of obtaining better loot drives players to spend more time or money to get more chances. Players report spending hundreds and thousands of dollars trying to get additional perks. In one notable case, a player spent over $13,000 USD as a minor in pursuit of in-game rewards.

Domestically, lawmakers have concerns about the relationship between loot boxes and gambling. To date, five states (California, Washington, Hawaii, Indiana, and Minnesota) have bills seeking to regulate the use of loot boxes in games marketed to minors. The Minnesota bill, for example, would prohibit the sale of video games with loot boxes to minors, and require publishers to include a clear warning to players that the game “contains a gambling-like mechanism that may promote the development of a gaming disorder . . . and may expose the user to significant financial risk.”

Despite growing concern about loot boxes and gambling, there are notable differences between the two. According to EA, loot boxes always provide the player some type of reward, and they also prohibit players from “cashing out” points for actual currency; the same cannot be said for gambling. Similarly, the Entertainment Software Association, a group representing video game publishers, compared loot boxes to popular, and legal, trading card games that require players to purchase card packs without knowing their contents.

The Way Forward

Video game publishers are unlikely to discontinue the use of loot boxes. Publishers earn about $30 billion dollars from loot box sales globally. In 2017, major video game publishers EA and Activision Blizzard earned over half of their revenues from digital sales, which include the purchase of loot boxes. In the next four years, global earnings from loot boxes are projected to increase to $50 billion dollars globally.

It is unclear if state efforts to regulate loot boxes will succeed. Traditionally, gambling is a state-level issue that falls within its police power. Yet, state bills addressing loot boxes are moving slowly, and hitting political snags. Hawaii’s bill originally attempted to impose regulations similar to Minnesota’s bill, but now would only require publication of the odds for winning loot. California’s bill has been effectively withdrawn. Indiana’s bill, introduced in January, calls for the State Attorney General to study the issue further; as of May, it is still in committee.

Adjusting U.S. policy on loot boxes could produce unintended consequences for other amusement industries. Currently, loot boxes are not regulated domestically. While the production, shipment, and use of video games with loot boxes would likely fall under interstate commerce, loot boxes seem more akin to unrestricted activities than restricted ones. Various activities marketed toward minors involve monetary risk, but do not fall under social conceptions of gambling. Consider popular trading card games like Magic: The Gathering, or other amusements like claw games, and carnival games that involve risking money for prizes. Although these activities have similarities to gambling, they are legal. If the government elects to regulate loot boxes, it is hard to see why it should not elect to regulate access to claw games, capsule vending machines, and Ring Toss.

Market factors will likely discourage predatory uses of loot boxes in the future. Boycotts have already been successful. Last year, EA made in-game payments and loot boxes an integral part of a major game, Star Wars Battlefront II. Players responded with highly negative criticism, and EA failed to meet its sales expectations for the game. Because of the response, EA altered the structure of the game. If players hold publishers accountable for loot box misuse, and refuse to pay, the industry will respond accordingly. Additionally, for younger players, increased awareness of the issue will help parents supervise their children’s use of loot boxes, and mitigate concerns of overspending.


Sources

Actions for Senate Bill 333, Ind. Gen. Assembly, https://iga.in.gov/legislative/2018/bills/senate/333#document-58bc9bc4. (last visited on May 18, 2018).

Call to Regulate Video Game Loot Boxes over Gambling Concerns, BBC (Nov. 24, 2017).

Dave Thier, EA: ‘Star Wars Battlefront 2’ Misses Sales Expectations, Forbes (Jan. 30, 2018, 5:27 PM).

Ellen McGrody, For Many Players, Lootboxes Are a Crisis That’s Already Here, Vice Waypoint (Jan. 30, 2018).

Ethan Gach, Meet the 19-Year-Old Who Spent over $17,000 on Microtransactions, Kotaku (Nov. 30, 2017).

Gambling, Black’s Law Dictionary (10th ed, 2014).

Gamers’ Anger Halts Star Wars Battlefront II’s Payments, BBC (Nov. 17, 2017).

HF 4460, 90th Leg., (Minn. 2018).

Jason M. Bailey, A Video Game Loot Box Offers Coveted Rewards, but Is It Gambling?, N.Y. Times, Apr. 24, 2018.

Matt Perez, Despite ‘Battlefront 2’ Flub, Electronic Arts Posts Record Annual Revenues of $5 Billion, Forbes (May 8, 2018, 7:20 PM).

Mike Wright, Video Gamers Will Be Spending $50 billion on ‘Gambling-Like’ Loot Box Features by 2022, According to Analysts, Telegraph, Apr. 17, 2018.

Nelson Rose & Rebecca Bolin, Game on for Internet Gambling: With Federal Approval, States Line up to Place Their Bets, 45 Conn. L. Rev. 653, 657 (2012).

Press Release, Entm’t Software Ass’n, Entertainment Software Association Commends California Assembly Member Bill Quirk (Apr. 17, 2018).

Rob Thubron, Over Half of Activision Blizzard’s $7.16 Billion Yearly Revenue Came from Microtransactions, Techspot (Feb. 12, 2018, 6:12 AM).

Tom Shea, EA Adamant Loot Boxes Aren’t Gambling, Gameindustry.biz (May 9, 2018).

Video Game Loot Boxes Declared Illegal Under Belgium Gambling Laws, BBC, Apr. 26, 2018.

A Brief Analysis of the Supreme Court’s Recent Decision on Sports Gambling

Written by Jacob Honan 

 

The United States has an undeniable attraction to betting on sports. Recent studies indicate that sports gamblers spend an astounding $105 billion annually through both legal and illegal means. On May 13, 2018, the United States Supreme Court issued their decision in Murphy v. NCAA, giving many gambling fans across the nation reason to celebrate. The primary takeaway from the Court’s 6–3 ruling is that all states are free to decide whether their citizens may gamble on professional sports, overturning prior law. As a result, some states have already implemented measures to make sports gambling widespread and accessible, while owners of professional sports teams are looking forward to seeing their revenue dramatically increase. The rationale for this decision—based on the right of states to be free from commandeering by the federal government—will likely shape other areas of constitutional law for years to come.

Background

 In 1992, Congress enacted the Professional and Amateur Sports Protection Act (“PASPA”), which forbid 46 states from authorizing any form of gambling on sports. This law was intended to protect the integrity of the professional leagues, as legislators feared that allowing such betting would “change the nature of sporting events from wholesome entertainment for all ages to devices for gambling.” Four states (most notably Nevada) were exempted from this regulation, and could allow sports gambling to varying degrees.

Controversy arose in 2012, when New Jersey Governor Chris Christie enacted a law that authorized gambling on professional sports within the state. The statute was in clear violation of PASPA and was prohibited from taking effect. The four major professional sports leagues (MLB, NFL, NHL, and NBA) and the NCAA sued New Jersey, arguing that this state law was invalid because it conflicted with PASPA. New Jersey was defeated in every lower court, but the Supreme Court granted certiorari and reviewed the case.

Murphy v. NCAA 

Surprisingly, the Court overturned every prior decision and ruled in favor of New Jersey, but the decision did not give any explicit endorsement of gambling. The majority of the Court, led by Justice Samuel Alito, relied on the anti-commandeering doctrine from the Tenth Amendment to the Constitution in making its decision. In essence, the anti-commandeering doctrine prohibits the federal government from “commandeering” state governments to implement certain laws. The Court held that PASPA violated the anti-commandeering doctrine because it prohibited states from allowing their citizens to bet on professional sports. While illustrating that PASPA imposes an unconstitutional infringement on state rights, Justice Alito stated that “[a] more direct affront to state sovereignty is not easy to imagine.”

The major sports leagues that sued the state of New Jersey argued that PASPA did not qualify as commandeering because the statute merely prohibited a state from legalizing sports wagering, and did not command any affirmative behavior. The Court rejected this claim, holding that the clear purpose of PASPA was to control activities within the states, which is a violation of the purpose of the Tenth Amendment. The Court also found no evidence that sports wagering qualifies as interstate commerce, which can generally be regulated by the federal government.

Finally, the court did not give explicit approval or disapproval to betting on professional sports, as its decision was based on constitutional concerns, not practical ones. Furthermore, the opinion allows for Congress to choose to ban or allow sports gambling altogether. However, Congress also has the option bypass the issue and let the individual states decide for themselves.

What Does the Court’s Decision Mean Going Forward?

Hypothetically, if Congress does decide to institute a nation-wide ban on betting on professional sports, it is plausible that the Supreme Court would uphold such a law. Experts have speculated that the Court would apply the strict scrutiny standard of review to this issue. A law subject to strict scrutiny will only be upheld if it is necessary to achieve a compelling government interest. If a suit challenging such a law is brought in the future, the government will likely defend a ban on sports gambling by using the same rhetoric as the enactors of PASPA—that ensuring the integrity of professional sports by prohibiting gambling qualifies as a compelling government interest. A challenger to this law would claim that there is no correlation between professional sports gambling and corruption within the leagues, and so a prohibition of gambling would not further the government’s interest. It remains to be seen whether Congress will prohibit sports wagering, but interesting lawsuits would undoubtedly result if they choose to do so.

In addition, the Court’s rationale in Murphy v. NCAA will likely impact claims brought against other laws that involve commandeering of states. For example, this decision appears to give significant ammunition to challengers of federal marijuana regulations, as they now have a credible argument that bans on the substance qualify as commandeering of state sovereignty. In addition, some cities have refused to follow recently-enacted federal immigration laws, and can use this ruling to claim that these laws pose a Tenth Amendment violation. Thus, the impact of this case could travel far beyond the casino, and will likely be relied upon in other areas of constitutional law for years to come.

Sources

Marc Edelman, Explaining the Supreme Court’s Recent Sports Betting Decision, Forbes (May 16, 2018).

Charles Star, Here’s What That Supreme Court Decision About Sports Betting Actually Does, Deadspin (May 15, 2018).

Sean Gregory, The Risks and Rewards of the Supreme Court’s Sports Gambling Decision, Time (May 18, 2018).

Amy Howe, Opinion Analysis: Justices strike down federal sports gambling law, SCOTUSBlog.com (May 14, 2018).

Michael McCann, Why New Jersey Won Its Supreme Court Battle to Legalize Sports Betting, Sports Illustrated (May 14, 2018).

Yancey Roy, What the Supreme Court’s Decision on sports betting actually means, Newsday (May 18, 2018).

Photos Courtesy of WKBW Buffalo & USA Today.