Our colleague Stuart Gerson of Epstein Becker Green has a new post on SCOTUS Today that will be of interest to our readers: “The Justices Show Again That They Are Not Politicians in Robes.”

The following is an excerpt:

A short note about the Supreme Court’s decision today in Borden v. United States, in which it considered whether a felon-in-possession gun charge qualified as a “violent felony” under the Armed Career Criminal Act (“Act”), 18 U. S. C. §924, which provides enhanced penalties for criminals convicted of certain firearms offenses who have at least “three previous convictions . . . for a violent felony or a serious drug offense.” The case centered around the Act’s definition of a “violent felony” as a “crime punishable by imprisonment for a term exceeding one year” that either “has as an element the use, attempted use, or threatened use of physical force against the person of another” (the elements clause) or “involves conduct that presents a serious potential risk of physical injury to another.” The Court concluded that a crime of mere recklessness did not contain the mens rea that would fall within the statute’s “elements clause.” This holding is certainly of interest to accused career felons whose latest misconduct is reckless but not violent, and to those who represent them. But that is not why I write about it.

Click here to read the full post and more on SCOTUS Today.

Our colleague Stuart Gerson of Epstein Becker Green has a new post on SCOTUS Today that will be of interest to our readers: “The Court Takes a Literal Approach to Statutory Interpretation Again – This Time, to Immigration Laws.”

The following is an excerpt:

This term’s potential blockbusters still are unresolved, but this morning’s unanimous decision in Sanchez v. Mayorkus is worthy of at least a passing note. In an opinion written by Justice Kagan, the Court held that an individual who entered the United States unlawfully and was later granted Temporary Protective Status (TPS) by the government is not entitled to Lawful Permanent Resident (LPR) status by virtue of the TPS designation. This is yet another case where Justice Kagan has become a leading Court liberal voice for the application of textual principles long espoused by more conservative Justices. This is not to say that there are not cases where various judges examine text, yet reach differing conclusions. It is to say, though, that, increasingly, there are opinions authored or joined by Justices from the liberal wing of the Court that don’t lead with policy or interpretive pronouncements but, instead, with a literalist approach to statutory text.

Click here to read the full post and more on SCOTUS Today.

Our colleagues Janene Marasciullo and Daniel J. Green of Epstein Becker Green have a new post on Trade Secrets & Employee Mobility that will be of interest to our readers: “The Pennsylvania Supreme Court Nixes a No-Poach Agreement Between Business Partners as Overbroad.”

The following is an excerpt:

As reported here and here, in December 2019 and January 2020, the United States Department of Justice brought its first criminal charges against employers who entered into “naked” wage fixing agreements and no-poach (e.g., non-solicitation and/or non-hire) agreements with competitors. According to DOJ’s 2016 Antitrust Guidance for HR Professionals, such agreements are “naked,” and, therefore, illegal per se, because they are “separate from or not reasonably related to a larger legitimate collaboration between competitors.” Although DOJ recognized that such agreements may not be illegal per se when made in furtherance of legitimate joint ventures or business, it provided scant guidance on what it would deem to be a legitimate joint venture or collaboration. The Pennsylvania Supreme Court recently addressed the issue in Pittsburgh Logistics Systems v. Beemac Trucking, 2021 WL 1676399, at *1 (Pa. Apr. 29, 2021).  Relying in part on DOJ’s Guidance, the Court found that the no-poach agreement was unenforceable because it was overbroad and contrary to public policy.

Click here to read the full post and more on Trade Secrets & Employee Mobility.

Over the past 15 years, chief compliance officers (“CCOs”) for financial services firms have come under increased scrutiny as the Securities and Exchange Commission (“SEC”) and Financial Industry Regulatory Authority (“FINRA”) have brought more frequent enforcement actions seeking to hold CCOs personally liable. CCOs understandably have been concerned about this trend and financial service firms have focused on the chilling effect that the enforcement actions may have on the vital role CCOs play in their organizations and the quality of the COO applicant pool.

Although SEC Commissioners and Staff members, as well as various FINRA executives, have attempted to ease the concerns and offer guidance on when they will pursue an action against a CCO personally for conduct relating to their compliance-related duties (COO Conduct Charges), there is no formal framework that lays out the factors for regulators to consider in determining whether to charge CCOs.

In a recently released report, the New York City Bar Compliance Committee (the “Committee”) attempted to fill that void with a “proposal of non-binding factors for the SEC to consider in creating a Framework under which to evaluate whether to bring . . . CCO Conduct Charges under the federal securities laws.”

The Committee recommended one general affirmative factor that should be considered in all CCO Conduct Charges and specific affirmative factors relevant to three types of claims brought against CCOs: 1) the CCO exhibited a “wholesale failure” to carry out responsibilities; 2) the CCO obstructed the investigation; and 3) the CCO participated directly in the fraud. The Committee also recommended certain mitigating factors that should be considered in the decision to bring charges.

Affirmative: General Factor

The Committee recommended that in all cases, the SEC “should carefully consider whether [charging the CCO] helps the SEC fulfill its ultimate regulatory goals.” One of those primary goals is deterrence and the Committee argues that CCO Conduct Charges do not meaningfully deter CCO’s from improper conduct. Instead, it may actually increase future securities law violations because it may lead to the departure from the profession by qualified individuals or result in their withdrawal from deep involvement in their organizations due to the fear of future prosecution. Thus, the Committee recommended fewer enforcement proceedings and resolving the conduct underlying many CCO Conduct Charges through a deficiency letter or other nonpublic methods. At bottom, the Committee recommended that the SEC should have a “slightly higher standard for charging CCOs than against a registrant or a businessperson.”

Affirmative: Wholesale Failure Factors

The Committee noted that the compliance community was most concerned about cases brought against CCOs for “wholesale failures in carrying out responsibilities that were clearly assigned to them” or failing “meaningfully to implement compliance programs, policies and procedures for which he or she has direct responsibility.” Accordingly, the Committee recommended that regulators should exercise judicious discretion in such cases and conclude that the following factors were present prior to charging a CCO in such cases:

  • Did the CCO not make a good faith effort to fulfill his or her responsibilities?
  • Did the wholesale failure relate to a fundamental or central aspect of a well-run compliance program of the registrant?
  • Did the wholesale failure persist over time and/or did the CCO have multiple opportunities to cure the lapse?
  • Did the wholesale failure relate to a discrete, specified obligation under the securities laws or the compliance program at the registrant?
  • Did the SEC issue rules or guidance on point to the substantive area of compliance to which the wholesale failure relates?
  • Did an aggravating factor add to the seriousness of the CCO’s conduct?

The proposed guidance is grounded in the SEC’s prior statements that “good faith judgments of CCOs made after reasonable inquiry and analysis should not be second guessed,” and the reality that CCOs must frequently make decisions in real time with limited guidance. Given the number of issues that CCOs handle, the Committee recommended that CCO liability only apply to certain types of incidents and when aggravating factors were also present. Specifically, the Committee recommended that CCO liability apply to claims related to core aspects of compliance such as fulfillment of a fiduciary duty, failing to disclose fees and expenses or conflicts of interest, or other cases involving monetary impact to investors or clients. The Committee also provided examples of aggravating factors, including that the CCO already had a discussion with the SEC about the issue and failed to change course, or that the “CCO exhibited indicia of intentional conduct, a disregard for the SEC’s regulatory mission, or extreme disregard for the CCO’s responsibilities.”

Affirmative: Obstruction Factors

The SEC may bring claims against a COO if they obstruct the SEC in an examination or investigation. Prior to bringing such an action, the Committee recommended that the SEC seek to establish one of more of the following as a means to evaluate any kind of obstruction:

  • Were the acts of obstruction or false statements repeated?
  • Was the obstruction denied when confronted, or did the CCO not immediately reverse course and cooperate?
  • Did the obstruction relate to a necessary or highly relevant part of the examination or investigation?
  • Did evidence show other indicia of intent to deceive or disregarding for cooperation with the SEC’s regulatory mission?

Affirmative: Active Participation in Fraud

The Committee recommended that if there is a CCO Conduct Charge related to alleged fraudulent conduct that the SEC demonstrate that the “CCO’s conduct ‘added value’ in some way to the fraud committed by the firm or the other individuals charged.” The SEC may demonstrate such conduct with evidence indicating that the “CCO’s conduct aided the primary violators in avoiding detection, increased harm to investors or otherwise exacerbated the fraud.” The Committee was clear that if the fraud is not connected to the CCO’s compliance duties then the SEC should not consider any additional factors in bringing charges against the CCO.

Mitigating Factors

The Committee also suggested specific mitigating factors that the SEC should consider in its charging decision, including:

  • Did structural or resource challenges hinder the CCO’s performance?
  • Did the CCO at issue voluntarily disclose and actively cooperate?
  • Were policies and procedures proposed, enacted or implemented in good faith?

The Committee’s suggested mitigation factors reflect a concern that the CCO or compliance function may not be provided adequate resources or have the necessary authority to make decisions that could have prevented the alleged misconduct and, thus, it would be unfair to hold CCO’s liable, particularly where they were prevented from fully doing their job.


Much of the Committee’s proposed framework has been suggested by Commissioners and Staff in speeches, at conferences or in other communications. Hopefully, the Committee’s report will lead to further dialogue between the securities industry and the SEC to develop official guidance regarding situations where the SEC will pursue claims against a CCO. We note that the Committee’s report only applies to the SEC and does not address oversight of CCOs by other regulatory agencies such as FINRA, the Office of the Comptroller of the Currency, Commodity Futures Trading Commission, or National Futures Association. Many CCOs work for entities that are regulated by multiple regulators, and they may seek to have a broader dialogue with all of their regulators to formalize guidance on when CCOs may have personal liability.

Do plaintiffs’ attorneys smell blood in the water? A raft of class-action suits recently initiated against dietary supplement manufacturers, alleging deceptive practices in the sale of fish oil products, suggests that they might.

These suits, filed in California federal courts (a favorite jurisdiction for the plaintiffs’ bar), are nearly identical in that they allege that the manufacturers’ fish oil products do not actually contain fish oil. To date, plaintiffs’ class action lawyers have already targeted well-known dietary supplement products, such as Dr. Tobias Omega 3 Fish Oil Triple Strength (by Mimi’s Rock) and GNC-brand Triple Strength Fish Oil (by International Vitamin and Nutra Manufacturing). More litigation may be forthcoming.

The allegations focuses on the process used to create fish oil supplements—transesterification. Transesterification is a chemical process used to obtain fatty acid ethyl esters from fish oil achieved by introducing an alcohol catalyst to the fatty triglycerides.

The lawsuits claim that the transesterification process intrinsically leaves the finished supplement products without any of the Omega-3 fatty acids DHA or EPA. The plaintiffs also allege that the resulting Omega-3 molecules in the finished post-transesterification product are different than the Omega-3 molecules naturally found in fish oil.

Thus, according to the lawsuits, “Once trans-esterified, fish oil is irrevocably transformed, such that it is no longer fish oil and therefore cannot be so named or labeled.” As a result, plaintiffs claim that these products mislead the public with false and deceptive labeling that is in violation of federal and state laws.

The lawsuits are still in their early stages, so their ultimate success remains to be seen. But the potential impact is substantial. Fish oil supplements constitute a large consumer market. Indeed, the lawsuits put that figure at almost $2 billion per year worldwide with an expectation of nearing $3 billion per year by the end of the decade.

Given the sheer size of the market, a lot of dietary supplement manufacturers potentially face copycat suits. And, were the plaintiffs to succeed on their theory that “once trans-esterified, fish oil is irrevocably transformed, such that it is no longer fish oil,” then dietary supplement manufacturers may also have to worry about the Federal Trade Commission pursuing civil liability or even an aggressive Department of Justice considering criminal charges.

Supplement companies can take action to mitigate potential risks from litigation. A manufacturer should always review and ensure adequate and solid substantiation for any and all claims (express or implied) about products.

Scores of insureds have sued their insurance carriers seeking coverage for business interruption losses stemming from the COVID-19 pandemic and related governmental closure orders. A vast majority have lost. Time and again, courts presiding over these cases have rejected them on the ground that there was no physical loss or damage to the insured’s property. In one Pennsylvania state court, that trend has changed.

In MacMilles, LLC d/b/a Grant Street Tavern v. Erie Insurance Exchange, Judge Christine Ward of the Court of Common Pleas of Allegheny County, Pennsylvania, recently awarded summary judgment to a tavern that was forced to close “[a]s a result of the spread of COVID-19 and the Governor’s orders.” Unlike other cases of this character, the court determined that MacMilles’ “loss of use of its property was both ‘direct’ and ‘physical’. The spread of COVID-19, and a desired limitation of the same, had a close logical, causal, and/or consequential relationship to the ways in which Plaintiff materially utilized its property and physical space.”

The Income Protection provision in the commercial general liability policy issued by Erie offered coverage for “direct physical ‘loss’ of or damage to Covered Property…caused by or resulting from a peril insured against.” The term “loss” was defined as the “direct and accidental loss of or damage to covered property.” Further, “Income Protection” was denoted as “loss of ‘income’ and/or ‘rental income’ you sustain due to partial or total ‘interruption of business’ resulting from ‘loss’ or damage to property…” “Interruption of business” was the period of time the applicable business was “partially or totally suspended.”

The court determined that the critical inquiry hinged on whether MacMilles had suffered “direct physical loss of or damage to its property.” The insurer, as insurers have done in courts across the country over the last 16 months, argued that “direct physical loss or damage” required a physical alteration or harm to the property itself. Demurring, plaintiff asserted that the operative phrase did not mandate a physical alteration of the property insofar as that loss of use of the property was also covered.

Recognizing that some courts had interpreted “‘direct physical loss of or damage to’ property to require some degree of physical alteration or harm to the property in order for coverage to attach, Judge Ward noted that such an interpretation conflated “direct physical loss of” and “direct physical…damage to”, and ignored the separate nature of these phrases, which were separated by the disjunctive “or.” Moreover, an interpretation not distinguishing these separate phrases would reduce some words in the policy to mere surplusage, and contradict the “vital principle of contract interpretation” that all words be given effect. Consequently, it was clear to Judge Ward that “due to the presence of … ‘or’”, “direct physical ‘loss’ of” meant something different than “direct physical …damage to.”

Turning next to the oft-cited Merriam-Webster Dictionary, the court determined that the ordinary meaning of “loss” included the act of losing possession and/or deprivation of property, rather than damage, destruction, or ruin to property. The distinction lied in the fact that “damage” could encompass all forms of harm to property, while “loss” could involve a deprivation of use of the property without any per se harm. The court also considered the meaning of “direct” which it saw as “‘proceeding from one point to another in time or space without deviation [and/or ] characterized by close logical, causal or consequential relationship’”; and, “physical”, which it defined as “of or relating to natural science…having a material existence…[and/or] perceptible…through the senses and subject to the laws of nature…’”

In granting summary judgment against the insurer, the court held that the tavern had indeed suffered a direct physical loss of use of the property absent any harm to the property itself. The spread of COVID-19 and the desire to stunt its proliferation had a causal/consequential relationship to plaintiff’s ability to utilize its physical space. Moreover, it was COVID-19’s spread and related social distancing measures (with or without the Governor’s orders) that, according to the court, caused the tavern to “physically limit the use of property and the number of people who could inhabit physical buildings at any given time, if at all.”

This holding does not appear to be a mere parsing of words by some renegade court. Its reasoning, while in the clear minority of cases dealing with COVID-19 related business interruption insurance disputes, indicates that courts will continue to make coverage determinations based on  the express terms of the specific contract of insurance at issue and applicable state law.

Our colleague Stuart Gerson of Epstein Becker Green has a new post on SCOTUS Today that will be of interest to our readers: “The Supreme Court Limits the Effective Reach of the Computer Fraud and Abuse Act.”

The following is an excerpt:

Those of us who deal regularly with cybersecurity matters have been waiting eagerly for the Supreme Court’s decision in Van Buren v. United States, which raised the question of whether the language of the Computer Fraud and Abuse Act of 1986 (CFAA), 18 U. S. C. §1030(a)(2), which subjects to criminal liability anyone who “intentionally accesses a computer without authorization or exceeds authorized access,” also forbids a person who accesses a computer with authorization “to use such access to obtain or alter information in the computer that the accesser is not entitled so to obtain or alter.” §1030(e)(6). In an interestingly divided Court, six Justices, in an opinion written by Justice Barrett, have held that an individual “exceeds authorized access” when he accesses a computer with authorization, but then obtains information located in particular areas of the computer—such as files, folders, or databases—that are supposed to be off limits to him.

Click here to read the full post and more on SCOTUS Today.

Our colleague Stuart Gerson of Epstein Becker Green has a new post on SCOTUS Today that will be of interest to our readers: “A Placid Beginning to the Last Month of the Term.”

The following is an excerpt:

This morning begins what many are anticipating to be an exciting last month of the 2020 term. Among other things, we expect to find out about the continued viability of the Affordable Care Act, and several First Amendment matters, including the extent to which religious expression trumps antidiscrimination laws, and the ability of a school to sanction off-campus speech. These matters could produce divisive results. However, the month appears to be starting peacefully, with two unanimous opinions in cases that have not had Court watchers sitting at the edge of their seats.

Click here to read the full post and more on SCOTUS Today.

Our colleague Stuart Gerson of Epstein Becker Green has a new post on SCOTUS Today that will be of interest to our readers: “A Unanimous Court Rules That District Courts Can’t Modify Appellate Cost Awards.”

The following is an excerpt:

The case of City of San Antonio v. Hotels.com L.P. has ended with a long opinion, reaching a simple and direct conclusion. A unanimous Supreme Court, in an opinion written by Justice Alito, has held that Fed. R. App. P. 39 does not permit a district court to modify or eliminate an allocation of costs awarded by a court of appeals to a successful appellant. The judgment of a court of appeals, says SCOTUS, would mean little if it could be reviewed and changed by a lower court.

Click here to read the full post and more on SCOTUS Today.

The trend in New York State to provide relief for expired claims by waiving statutes of limitation in sex-abuse cases may be continuing. As its current session winds down, the New York State Legislature is considering legislation that would provide a “revival” one-year period of the statute of limitations within which survivors of adult sexual abuse may file civil claims against individuals, companies and institutions, even if the statute of limitations for the claims has expired, and/or the claims were previously dismissed because of late filing. Entitled “Adult Survivors Act” (S.66/A.648), the bill recognizes that New York’s current statute of limitations effectively bars individuals who were eighteen years old or older at the time of the alleged sexual abuse, from seeking civil redress because the statute of limitations fails to take into account the number of years it may take for survivors of adult sexual abuse to process the abuse and come forward to confront their abusers.

This is not the first time the New York Legislature has sought to temporarily waive the statute of limitations for abuse victims. In August of 2019, New York enacted the Child Victims Act. The Child Victims Act similarly permitted a one-year “revival” period of the statute of limitations for individuals who assert civil claims of child abuse to file claims against individuals and institutions, even if those claims had been previously time-barred or dismissed due to late filing. In August 2020, the Child Victims Act’s “revival period,” which was originally scheduled to close in August 2020, was extended through August 13, 2021. Over five thousand cases have been filed in New York State courts under the Child Victims Act, and many more are expected to be filed in the two and a half months leading up to the August 14th deadline.

Like the Child Victims Act, the Adult Survivors Act would establish special trial preference for cases filed pursuant to the revival of the statute of limitations and requires that the Chief Administrative Judge of the Office of Court Administration promulgate rules concerning the timely adjudication of claims revived by the Act. If the Adult Survivors Act, which would allow a claimant to file a civil suit against any company or institution – such as a workplace, school, house of worship, doctor’s office, etc. – where the abuse took place, is enacted, it will likely result in a similar, if not greater, number of cases being filed.

This blog will provide updates as the Legislative Session continues.