Friday, July 30, 2021

Trump Loses His Valued Secrecy in Arbitration Case

Buried deep in the small print of many contracts is a provision stating that disputes will go into arbitration. That provision is typically inserted by the party having the higher degree of power: landlords, franchisors, etc. The two main reasons why arbitration (rather than lawsuits) are beneficial for the party with greater power are: (1) arbitration is a more streamlined and less costly option that proceeding through the court system and (2) arbitration proceedings are private, not subject to the same kind of public scrutiny as lawsuits.

The applicability of arbitration agreements came into sharp focus in a decision earlier this week by the Second Circuit Court of Appeals (one step below the U.S. Supreme Court).

Here is an oversimplification of the facts.  ACN Opportunity, LLC (ACN) is a "multi-level marketing" company that enlists individuals to work on its behalf as "Independent Business Owners" (IBOs) in exchange for a sign-up fee and annual renewal fees. A large class of people signed up. When most people hear the term “multi-level marketing,” something goes ding, ding, ding in their brains and they slowly walk away. These investors did not. Why?

The answer is Donald Trump and the Trump Organization. Through various forums, including at ACN events, recruiting publications and videos, and on two episodes of "The Celebrity Apprentice" television show, ACN was strongly promoted. This series of messages by the Trump group was critical, the plaintiffs asserted, in convincing consumers – including them – to invest in ACN as IBOs. The court noted that the investors’ chances of success were minimal at best: 

Contrary to the defendants' [Trump] representations that ACN's business opportunity was a low-risk entrepreneurial venture that offered investors a viable source of income, investigations by regulatory agencies allegedly have demonstrated that ACN's business was high-risk and that investors had a minimal likelihood of commercial success. Despite claims that ACN's business opportunity would be highly profitable for investors, it is nearly impossible for IBOs to profit or earn a satisfactory income from such multi-level marketing arrangements.

The problem wasn’t that Trump endorsed ACN. He endorses things all the time. The issue was that Trump claimed that the profitability of ACN was based on an “independent evaluation.” But was it?

[T]he plaintiffs allege that in exchange for millions of dollars in secret payments from ACN to the defendants[Trump] between 2005 and 2015, the defendants fraudulently promoted and endorsed ACN as offering legitimate business opportunities that were likely to afford IBOs success.

The plaintiffs had a choice. They could have pursued ACN for damages. However, under the terms of the IBO agreement, this would have gone to arbitration. So the plaintiffs sued Trump and the Trump Organization in the federal district court.

Trump cried foul, claiming that arbitration was required. Both the district court and court of appeals ruled against Trump, noting that since Trump was not one of the parties who signed the contract, arbitration did not apply.

Because of the court’s ruling (which specifically said it was not addressing the merits of the lawsuit), the case can proceed in the federal district court.

Why would Trump and his organization work so hard to keep this in arbitration? Public access to information.

Arbitration proceedings are conducted in private and the only thing that the public will typically ever hear is who won. Court cases, however, are widely reported, pleadings by the parties are public, and information that comes out during the lawsuit often reveals facts that some people would prefer remain hidden.

For an individual such as Trump who regularly uses arbitration agreements and nondisclosure agreements as a silencing measure, this defeat will be highly disconcerting.

Monday, July 12, 2021

Michigan Sanctions Hearing - Seven Lawyers Meet the Judge

Today there was a six-hour hearing in the Michigan Federal District Court. This is the latest stage in one of the multiple dismissed lawsuits claiming election fraud in the 2020 election. The purpose of the hearing was for the judge to decide whether the seven lawyers who brought this case should be punished (sanctioned) for filing the lawsuit and continuing to argue it after the case was finished.

Although you will hear a lot of posturing from those lawyers following the hearing, the reason why they were called into court to answer for their actions is a relatively simple one.

When lawyers file a lawsuit and sign their names to it, they are putting their reputations on the line. Their signatures affirm that the allegations contained in the complaint are true and accurate to the best of their knowledge.

What that means is that the lawyer has taken every reasonable precaution to make sure that the court is not mislead. This is also called “due diligence.” The lawyer’s responsibility extends beyond the complaint itself. It also includes sworn statements (affidavits) that are attached to the complaint. If you fail to exercise due diligence, the court may punish you with fines, suspension to practice law in that court, and referral to the state bar association who may take away your license entirely.

Seven lawyers had their names associated with the Michigan election fraud case. The judge called them all into court to find out who was responsible for what appeared to be an attempt to mislead the court or, as a related matter, to use this lawsuit to make political points.

The judge was interested in three things from each of them:

Question number one: did you actually READ the complaint and exhibits before you signed the paperwork?

Question number two: was there anything in the affidavits supporting the complaint that made you go: “Huh? That doesn’t make sense.”

Question number three: did you actually speak to the people who prepared to affidavits to make sure that their information was accurate? 

These are all yes and no questions that get at whether you did your basic job as a lawyer and acted ethically.

The vast majority of the hearing consisted of those seven lawyers (and the two lawyers they had hired) studiously trying to avoid answering those three questions. On the other side of the aisle, the lawyer for the City of Detroit (who was asking for the sanctions) spent a lot of his time giving his opinion of the evidence, which was similarly improper.

At the conclusion of the hearing, the judge gave all the parties the opportunities to file additional legal arguments before she renders her decision.

Do not believe for a moment that the judge will have been confused by either side’s extraneous arguments. She got the information she needed to make a ruling, as a good judge does.

The post-hearing posturing will likely contain complaints about how “we weren’t allowed to present evidence.” This argument completely misses the point of the hearing and is designed to simply make points.

How the judge will ultimately rule remains an open question. If I had been one of the seven lawyers facing sanctions, you can be sure I would have been remorseful. But then, I would not have put myself in that tenuous position in the first place.

Side note: the judge showed extraordinary patience during this hearing. Even when she could have been justified in losing her cool, she did not.

Friday, July 9, 2021

MAGA - My Attorneys Got Attorneys

Of the more than 60 post-election challenge cases that went down to defeat in states across the nation, one of the most high profile was in Michigan. Gov. Gretchen Whitmer and the City of Detroit among others were sued unsuccessfully in the U.S. District Court case in a case alleging voter fraud.

You may recall that one of the allegations of the complaint was that in some counties there were more votes cast than there were registered voters. What did not impress the judge was that the person doing this analysis used actual voting records from Michigan but related them to registered voters in Minnesota that had counties with the same name. Making this kind of allegation in a sworn affidavit has a name – a fraud on the court. The case was dismissed as having no merit.

Based on this and other defects, both procedural and substantive, the Michigan Attorney General and the City of Detroit told the court that the attorneys who filed and promoted this case should be sanctioned and fined. The sanction motion from January 28 stated:

It was never about winning on the merits of the claims, but rather plaintiffs’ purpose was to undermine the integrity of the election results and the people’s trust in the electoral process and in government. … The filing of litigation for that purpose is clearly an abuse of the judicial process and warrants the imposition of sanctions.”

These lawyers included “release the Kraken” proponent Sidney Powell who was one of Trump's lawyers at the time.

It is not unusual for winning lawyers to ask for sanctions against a losing party, especially when their conduct was unprofessional or incompetent. Typically, though, a motion for sanctions is denied or resolved based on briefs written by the parties.

However, U.S. District Court Judge Linda Parker took a somewhat remarkable approach. On June 17th, she issued the following order:

Each attorney whose name appears on any of the Plaintiffs’ pleadings or brief shall be present [virtually] at the motion hearing. 

This is not an order that a plaintiff’s attorney wants to receive. Judge Parker set the hearing for July 6th.

Nine days later, one of the plaintiffs’ attorneys asked that the hearing be rescheduled to a later date due to an emergency conflict with her schedule. The emergency? A previously scheduled family vacation. Out of what can only be described as the goodness of her heart, Judge Parker granted that request and reset the case for this coming week.

It gets better. Following the order resetting the hearing, the plaintiffs’ lawyers … got lawyers. These lawyers’ lawyers then asked the Court if they could appear in court on behalf of their clients (so that the original lawyers would not need to personally appear). The judge was not amused. In a one word order, she simply said “DENIED.” As one commentator noted, this was the equivalent of answering with a strong verb and a pronoun.

One more aside. As if the lawyers hiring lawyers at this late date in the proceedings isn't unusual enough, one of the original plaintiffs' lawyers (who now had her own lawyer) filed a pleading on her own yesterday. Without her lawyer. She misspelled her own name on the signature line.

The hearing Monday morning on all pending sanctions motions should be interesting.

Unrelated update to a previous article: Following and based upon Rudy Guiliani’s suspension to practice law in New York, the D.C. Court has also suspended his right to practice in that court.

Thursday, July 8, 2021

Fundraising Stalled? File High-profile Lawsuits!

When you initially sign up on a social media site, you first provide basic information about yourself. You are then directed to check a box that says something like “I have read the Terms of Service and agree to their terms.”

By checking the box (whether you ACTUALLY read the terms or not), you have entered into a contract with the provider. As with other contracts, the provider normally has full discretion to decide how or when to enforce the contract’s terms. These contract terms are markedly different than the enforcement of a law, which much be applied fairly and equitably to all people.

This is where a lot of people get it wrong, often because they are being sold bad information. They assume that because laws must be enforced uniformly across the board that the same rules apply to contracts. This is simply wrong.

Donald Trump just filed “class action” lawsuits against Twitter, Facebook and Google under great fanfare. His chances of success on any of these suits are minimal at best. We will only discuss the highlights here.

We should eliminate a misnomer first. Just because you have filed a lawsuit, it is not automatically a class action, even though that sounds impressive. When a lawsuit is filed with claims similar to numerous people, one of the first things filed with the court is a REQUEST to certify the case as a class action. The point you are making is that the number of people who are similarly affected is so numerous that it is impractical to name all of those people as plaintiffs.

Assuming that the court agrees (and that is no sure thing), an attempt is made to identify the members of that class. These possible members are then individually notified and given the option to opt out. This process should be familiar. We have all received those notices. Class actions are seldom certified in contract disputes (because everybody checked the box), but that remains a possibility.

Next, the Terms of Service contract often states the location of the court where an aggrieved person may bring a lawsuit. It is usually in a court that is conveniently located to where the service provider operates. The Terms of Service provided that the proper court would be in California. Trump’s lawsuits were filed elsewhere (at least one was filed in Florida). A basic, basic, basic rule is to file suit in the correct court. Otherwise, the judge may very well dismiss the case for having filed it in the wrong place.

If I wanted to be cynical, and perhaps I am, I would suggest that the cases may have been intentionally filed in the wrong court. Then, when the case is dismissed, the plaintiff can do a “poor me,” complaining that the judge did not really want to hear the case and dismissed it on technical grounds. If that sounds familiar, it should. You heard that a lot when election challenge cases were dismissed for having been filed in the wrong place.

Maybe Trump can get past the jurisdictional issues. If so, the crux of these lawsuits appears to be that getting kicked off the social media platforms were attempts at censorship and a violation of Trump’s first amendment rights to freedom of speech. That makes for a great sound bite (and he repeatedly uses it), but it has questionable legal basis.

Try this analogy. I enter into a franchise agreement (contract) with Tupperware that gives me the exclusive right to sell their products in the greater Portland area. Other people have similar exclusive rights in other areas. Being a successful entrepreneur, I decide to sell products in New Hampshire in violation of the contract. Tupperware shuts me down. I complain that Tupperware has violated my first amendment rights. I have no chance of success in this lawsuit for two reasons: First, I was the one who violated the contract, and second, freedom of speech does not apply to private contracts. Even if I can show that other franchisees have dome similar things, it simply does not matter.

This analogy breaks down, of course, as analogies do. However, the central point is this. You can claim censorship and first amendment violations all you want, but the courts have consistently held that these claims do not apply in contract cases. Social media companies are private and not, to use legal jargon, “state actors.”

Finally, if you wanted to file a groundbreaking first amendment case, who would you hire as a lawyer? My guess is that you would enlist a top-notch Constitutional law specialist. None of them would touch this case.

So if these lawsuits are simply longshots (and that is being charitable), why were they filed? In his press conference, Trump said:

"I stand before you this morning to announce a very important and very beautiful, I think, development for our freedom and our freedom of speech — and that goes to all Americans. Today in conjunction with the American First Policy Institute, I am filing, as the lead class representative, a major class-action lawsuit against the Big Tech giants including Facebook, Google, and Twitter as well as their CEOs Mark Zuckerberg, Sundar Pichai, and Jack Dorsey."

Moments later, an email went out to a group of his supporters that read:

Pres Trump: I am SUING Facebook & Twitter for UNCONSTITUTIONAL CENSORSHIP. For a short time 5X-IMPACT on all gifts. Donate NOW: (with a link) 

You may ask yourself whether the timing of this fundraising email was coincidental. If you do, follow the link.

Wednesday, July 7, 2021

Photography, a Governor’s Lies, and the Ultimate Irony

I enjoy taking photographs. The entire process feeds my soul. What I do with those photographs is up to me alone. Some I delete, some are shared freely with friends, and others are sold.  Their greatest value, though, is that they remain mine and nobody can reproduce them without my permission. They are my “intellectual property.”

Matt Halverson is a highly respected professional photographer. In 2005 he created a beautiful composite photograph of Mount Rushmore and published it with “Matt Halverson Photography” in the photo’s lower right-hand corner.  This ensured, at the very least, that any reproduction would contain proper attribution.

The past Independence Day, South Dakota governor Kristi Noem ridiculed President Biden for not having fireworks at Mount Rushmore and tweeted side-by-side photos. One of these showed Mount Rushmore fireworks under former president Trump which she captioned “Trump’s America”; the other, sparklers under President Biden.

Putting her snark aside, the problem is that she lied about the Trump fireworks photo. It was in fact Halverson’s photo, taken during the Obama administration. The lie was compounded by cropping Halverson’s photo to remove attribution.

Once the lie and misrepresentation came to light, photographers were livid and rightly so. If someone used my photograph for their own political purposes (and even lied about when the shot was taken), my reaction could well be to sue. MY problem is that the legal cost of enforcing my intellectual property rights has traditionally been exorbitant and time-consuming.

Here comes the ironic part. In December of 2020, then-president Trump signed the Copyright Alternative in Small-Claims Enforcement Act of 2020 (CASE Act), The CASE Act created the equivalent of a Small Claims Court for copyright infringement. As is the case in all small claims matters, the money damages you can recover are limited. Here it is $30,000.

So, should he decide to do so, Halverson will be able to sue Noem for copyright infringement under streamlined Trump administration rules concerning a photograph that purportedly showed “Trump’s America.”



Tuesday, July 6, 2021

Cosby’s Release from Prison Had Nothing To Do With Guilt or Innocence

When the Pennsylvania Supreme Court reversed Bill Cosby’s conviction for sexual assault and ordered him released from prison, the reaction was immediate, vociferous, and often wrong.

Over the last few years, allegations about Cosby have arisen with such frequency that his public persona no longer bears any resemblance to Cliff Huxtable. His trial and subsequent conviction for sexual assault effectively put an end to a reputation tied smilingly to JELLO commercials.

As a general rule, a state’s supreme court will overturn a conviction based on some flaw that occurred during trial. These flaws cover a large variety of problems, ranging from bad legal representation to improperly admitted evidence to jury misconduct. The Cosby conviction had none of these. So why was the conviction reversed and what does it way about his guilt or innocence?

To understand what happened here, we need to talk about something called “prosecutorial discretion.” Prosecutors are given a tremendous amount of leeway in deciding whether or not to prosecute someone and to decide what charges, if any, should be brought. 

When a prosecutor declines to bring charges, many factors come into play. There may not be enough clear evidence of the crime. The witnesses may not be reliable. The alleged criminal may be cooperating in another investigation. Considering the prosecutor’s workload, the case may simply not be as important as others that are pending. The list goes on and on. 

The decision about whether to bring charges may also change over time. Cold cases may be resurrected with newly discovered evidence or charges may be dismissed when it becomes clear that the defendant was not really guilty. 

The Cosby case put a spotlight on prosecutorial discretion in the context of one’s right not incriminate yourself. 

At the time that prosecutors were considering bringing criminal charges, Cosby was also facing lawsuits brought by some of his sexual assault victims. These were “civil” lawsuits looking for money damages.  The plaintiffs in these cases had a problem. The only person, other than the victim, who could describe the circumstances of the alleged assaults was the defendant, Cosby. Cosby was refusing to testify in these cases, claiming that whatever he said in the civil cases could also be used against him in a criminal case. On other words, his right against self-incrimination in one arena (the criminal court) meant that he could refuse to testify in the civil cases.

Here is where prosecutorial discretion came in. The prosecutor told Cosby that he would not be charged in a criminal case. Thus, with the threat of self-incrimination removed, he had no option but to testify in the civil cases. Although Cosby ended up paying significant money in the civil cases, at least he was not charged as a criminal. 

Years passed and a new prosecutor came onto the scene. Using the prosecutorial discretion discussed above, the prosecutor determined that there was now enough evidence to bring Cosby to trial—that evidence being his testimony in the civil cases. Cosby was convicted and sentenced to jail. 

Cosby appealed the conviction (while serving time). He said that even though prosecutors have wide discretion, they may not later change their minds after I have incriminated myself. Cosby had relied on the good faith of the prosecutors and suffered for it. The state’s attorney countered that if a concern about self-incrimination was really that important, you should have gotten the agreement in writing at the time. 

The Pennsylvania Supreme Court reversed the conviction in a 79-page opinion.  It was not an easy decision to make. 

We do not dispute that this remedy is both severe and rare. But it is warranted here, indeed compelled. … Society’s interest in prosecution does not displace the remedy due to constitutionally aggrieved persons. 

What makes this case so unique is that there is nothing in the opinion that talks about Cosby’s guilt or innocence. There was no claim that the jury erred in finding Cosby guilty of sexual assault. Rather, the Court emphasized that prosecutors, even with all of their discretion, may not take away one’s Constitutional rights by later deciding to bring charges.

This case illustrates why justice is never an easy matter. Cosby’s new-found freedom does not come with innocence. And we should take solace in that.

Friday, July 2, 2021

It Helps if You Actually Read the Indictment

There is a lot to unpack from the indictments Thursday of Allen Weisselberg and the Trump Organization. As I always say, remember that an indictment is not proof of guilt. That is why there are pre-trial motions and ultimately a trial on the merits.

At this stage of the proceedings, you can expect a lot of posturing. Remember that none of what the lawyers and political pundits say is relevant to the proceedings. In particular, you should disregard “whataboutism.” If I’m a line of 20 speeding cars and I’m the one who gets pulled over, it is no defense to go in front of a judge and say “others were speeding too.” It is also no defense to say that I’m a Democrat and the arresting officer was a Republican. The correct, and only, defense is that I was not speeding.

Much of the initial defense and media focus is on the treatment of “fringe benefits.” The argument is that this a gray area in the tax code and a great many businesses reward their most valued employees in the same way. Therefore, the defendants here are being singled out for doing what a lot of others are also doing.

If these fringe benefits are, in fact a gray area, would you, as a large organization want to take the chance (over a period of more than 10 years) that you and your employees could be criminally liable?

Assuming that you wanted to avoid potential liability, there is a mechanism in place to protect yourself. It is to request a private letter ruling (PLR) from the IRS. These letters are issued all the time and offer specific protection to the individual or company requesting them. Most non-lawyers have not even heard of PLRs, mostly because they get little media attention and appear to be tediously dull and boring. Naturally, I enjoy reading them.

Weisselberg and the Trump Organization did not go the PLR route to protect themselves.

Back to the title of this article, it helps if you actually read the indictment. The most clearly illegal conduct, if proven, has nothing to do with fringe benefits. I’ll focus on just one of those allegations here.

Weisselberg was obviously a long-term employee of the Trump Organization. So, whether you include or exclude some of the fringe benefits, we know that he received a wage statement (W-2) that reflected his earnings during the year.  However, he also received checks as a NON-employee from Mar-a-Lago and other Trump organizations. In other words, he, as an employee of the Trump Organization, simultaneously claimed he was an independent contractor as far as Mar-a-Lago was concerned. As a non-employee, the money he received from Mar-a-Lago was reported on tax form 1099.

Why was it beneficial for Weisselberg to simultaneously be an employee and an independent contractor? The answer has to do with a special tax benefit available to independent contractors that is not available to employees. As an independent contractor, he was able to contribute to a KEOUGH plan, which is a tax-deferred pension plan.

Thus, in one pocket Weisselberg was collecting benefits associated with employment, and in another pocket he was collecting benefits for being an independent contractor. You can’t do both for the same organization.

As next steps, you can expect a number of preliminary motions from the defense. It would also not be surprising the see additional charges against Weisselberg (and perhaps other defendants) coming from the grand jury.

Regardless, this process will unfold over a series of months, not weeks.