Welcome

Print Email

Bloomberg LawBloomberg Law
Business & Practice Newsletter
Jan. 29, 2021, 1:51 PM Coordinated Universal Time
Leading the News
Trump Supreme Court Twitter Spat Highlights ‘Doctrinal Puzzle’

A case involving Donald Trump’s use of his personal Twitter account for official business now pending before the Supreme Court could signal how the justices plan to dispose of several others involving the ex-president’s policies.

Robinhood Users Suing Over Trade Limits Face High Legal Bar (3)

Frustrated investors who sued after getting locked out of trading in frenzied shares like GameStop Corp. aren’t likely to have much luck in court either.

Business of Law
California Supreme Court OKs Plan for Bar Exam Narrow Failures

The California Supreme Court on Thursday approved a plan to let those who narrowly failed the bar exam in recent years to be admitted to the State Bar following completion of 300 hours of supervised legal practice, without retaking another bar exam.

Three Firms Advise in EV Startup Faraday’s Go-Public SPAC Deal

O’Melveny & Myers and Sidley Austin are advising electric vehicle company Faraday Future on its tie-up agreement with Property Solutions Acquisition Corp., a special purpose acquisition company.

Leading Questions: Mintz’s Seth Goldman

Bloomberg Law spoke to Mintz’s Seth Goldman about helping clients address their employment challenges, the firm’s efforts to hire more attorneys of color over the next two years, and how the career advice he gives his sons is the same he’d give to new associates.

Law Firms
Jones Day Hires Trump’s Acting Homeland Security GC Mizelle

Jones Day has hired Chad Mizelle, a politically appointed lawyer in the Trump administration who worked in the Justice Department and White House before serving as acting general counsel of the Department of Homeland Security.

MoFo Female Lawyers to Get Trial on Some Bias Claims, Judge Says

A federal judge in San Francisco said Thursday it’s “clear that some claims are going to trial” in two female lawyers’ lawsuit alleging they were marginalized, denied promotion, and otherwise discriminated against by law firm Morrison & Foerster LLP because of their sex and for taking maternity leave.

Black Davis Polk Lawyer Says Firm’s $100,000 Fee Bid Inequitable

Paul Weiss Rifkind Wharton & Garrison LLP’s request for nearly $100,000 in attorneys’ fees and costs for discovery abuses by a Black former associate suing Davis Polk & Wardwell LLP for alleged race bias highlights racial and economic inequities and should be denied, the lawyer told a Manhattan judge.

Ethics
Florida Supreme Court Suspends Lawyer Involved in Ponzi Scheme

A lawyer who neglected to tell The Florida Bar about his involvement in a Ponzi scheme investigation has been suspended from practice for two years, the state supreme court said Thursday.

Also in the News
John Varvatos Fights Fee Request as Big as Damages in Pay Suit

John Varvatos Enterprises LLC and a class of female sales staff who sued over a disparate compensation policy have resolved a post-verdict dispute over damages but are now arguing over a fee request involving almost as much money, according to a letter the parties jointly filed in the Southern District of New York.

Insights
GameStop Stock Trading Poses ‘Manipulation’ Challenge for Regulators

Despite calls for regulators to investigate trading and the surge in GameStop Corp. stock price, proving market manipulation could be difficult, three Paul Hastings attorneys explain. This “perfect storm” of events does not make for an open-and-shut case, they say.

Undoing Trump Rules Using Congressional Review Act Has Pros, Cons

The Biden administration and its Democratic allies on Capitol Hill could use the Congressional Review Act to quickly undo rules recently issued by the EPA and other agencies under the Trump administration. But Crowell & Moring’s Byron Brown says the CRA is no quick fix and could complicate Biden administration efforts to pursue its regulatory and legislative agendas.

Robust Health-Care M&A Volume Ends 2020, Will Continue in 2021

Life science and pharmaceuticals saw the highest volume of announced or closed deals in December and for 2020 in total, according to Epstein Becker Green attorneys and health industry financial/investment analysts at KPMG and FocalPoint Partners. They predict a strong 2021 for more deals across the health-care industry, as the Biden administration doubles down on the pandemic and economic recovery, vaccine distribution accelerates, and industry innovates to meet evolving patient needs.

A ‘Pro-Life’ Decision Burdens Minorities, Poor Most During a Pandemic

The U.S. Supreme Court’s decision that requires women to pick up one of two medical abortion prescriptions in person from a hospital, clinic, or medical office during a pandemic disproportionately impacts minorities, the poor, and their families, says George Washington University Law Professor Sonia M. Suter. It lays bare the court’s view that preventing abortions is more important than protecting women, even in a pandemic, she contends.

Facebook Finds New Compliance Chief in ViacomCBS Lawyer Moniz

Facebook Inc. is making corporate lawyer Henry Moniz the social media giant’s first-ever chief compliance officer. The move comes as the company faces a variety of legal and regulatory issues and is weighing an antitrust lawsuit against rival Apple Inc.

Compliance Chops: Moniz jumps to Facebook following a decade at Viacom, where he was named the company’s top compliance officer shortly after its merger with CBS Corp. last year. Facebook also added Winston & Strawn antitrust litigator Eric Meiring and Venable financial services lawyer Gerald Sachs in Washington.

Legal Fights: Facebook is currently facing a Federal Trade Commission antitrust case, which seeks to force it to divest from popular applications like Instagram and WhatsApp. CEO Mark Zuckerberg said Thursday that the company is considering an antitrust action of its own against Apple over app store rules.

Facebook Hires First Compliance Chief, Adds Two Big Law Partners

Jan. 29, 2021, 12:29 AM Coordinated Universal Time

Facebook Inc. has hired Henry Moniz as its first-ever chief ethics and compliance officer and brought on two former Big Law litigators to bolster an internal team coping with new legal challenges.

Moniz, who a year ago was tapped to be chief compliance officer and audit executive at media conglomerate ViacomCBS Inc., is poised to join Facebook next month.

“Henry Moniz will be joining Facebook to lead our strategy and execution of compliance matters in the U.S. and around the world,” Facebook spokeswoman Nneka Norville told Bloomberg Law.

Moniz marks the latest in a string of prominent legal hires by the social media company, which in January recruited Winston & Strawn antitrust litigation partner Eric Meiring and Venable financial services litigation partner Gerald Sachs in Washington.

Both law firms confirmed the departures of their partners, who bring expertise to Facebook as the Menlo Park, Calif.-based company faces pressure from competitors, lawmakers, and regulators.

Meiring, who has joined Facebook as an associate general counsel for litigation, is a former acting chief and assistant chief of the Justice Department’s antitrust division. The Global Competition Review, an antitrust and competition trade publication, touted Meiring as one of its rising stars in 2020. He joined Winston & Strawn in mid-2018 to handle antitrust and investigations work.

Sachs, now an associate general counsel for financial payments at Facebook, spent the past three years at Venable. Prior to that, he was an of counsel at Paul Hastings. He also was senior counsel for enforcement strategy at the Consumer Financial Protection Bureau when the agency was formed during the Obama administration.

Sachs spoke with Bloomberg Law last year about Federal Trade Commission policy. He was an attorney at the FTC after starting his legal career as an associate at Skadden, Arps, Slate, Meagher & Flom.

Facebook is currently facing an antitrust case filed by the FTC and several states in December that seeks to force the company to divest itself of popular applications like Instagram and WhatsApp.

Facebook CEO Mark Zuckerberg said during a quarterly earnings call Thursday that his company is considering an antitrust action of its own against rival Apple Inc.

Earlier this month, in an effort to confront claims that it hasn’t done enough to fight hate speech on its social media platforms, Facebook hired its first-ever vice president of civil rights in deputy general counsel Roy Austin Jr. He is a former partner at Harris, Wiltshire & Grannis in Washington who served as White House domestic policy adviser and a civil rights lawyer at the Justice Department during the Obama administration.

As for Moniz, he prepares to join Facebook after being named earlier this month to the board of Kimco Realty Corp., a Jericho, N.Y.-based real estate investment trust that invests in shopping centers.

Business Insider first reported the news of Moniz’s hire Thursday, noting that he will start Feb. 8 and report to Facebook General Counsel Jennifer Newstead and the audit and risk oversight committee of the company’s board of directors. Moniz, a former Bingham McCutchen partner who spent nearly 16 years in-house at Viacom Inc., wasn’t available for comment about his new role at Facebook.

Moniz’s departure makes him the third former top lawyer at ViacomCBS to leave the newly combined media company within the past three months. ViacomCBS paid $20 million to five lawyers in 2019.

Laura Franco left her role as general counsel of the CBS-branded businesses in November to become chief legal and compliance officer for dating app Bumble Trading Inc. ViacomCBS General Counsel Jonathan Anschell on Jan. 1 became the new chief legal officer at toy maker Mattel Inc.

Christa D’Alimonte, a former top lawyer at Viacom who now serves as the top in-house lawyer at New York-based ViacomCBS, didn’t respond to a request for comment about Moniz’s potential replacement as compliance chief.

Newstead, who received more than $19 million in total compensation during her first year as legal chief for Facebook in 2019, didn’t respond to a request for comment about its latest legal hires. Newstead took over from former Facebook General Counsel Colin Stretch, who stepped down that same year.

Bloomberg data shows that Newstead currently owns nearly $296,000 in Facebook stock. Securities filings show that Newstead sold off roughly $218,570 in company stock in January after unloading more than $3.5 million in Facebook stock last year.

To contact the reporter on this story: Brian Baxter in New York at bbaxter@bloomberglaw.com

To contact the editor responsible for this story: Chris Opfer at copfer@bloomberglaw.com
John Hughes at jhughes@bloombergindustry.com

Leading the News

Trump Supreme Court Twitter Spat Highlights ‘Doctrinal Puzzle’

Jan. 29, 2021, 9:44 AM Coordinated Universal Time

A case involving Donald Trump’s use of his personal Twitter account for official business now pending before the Supreme Court could signal how the justices plan to dispose of several others involving the ex-president’s policies.

The dispute revolves around a 2019 ruling from the New York-based U.S. Court of Appeals for the Second Circuit that found Trump’s use of @realDonaldTrump for official business created a “public forum” entitled to First Amendment protection. The court held that Trump violated the Constitution when he blocked followers because they were critical of him.

The Justice Department and the Twitter users who sued the president agree that the case is moot now that Trump is out of office and has been banned from the social media platform. But they disagree about how to get rid of it.

The case presents the justices with the “doctrinal puzzle” of what to do with an adverse judgment from a lower court that the losing party no longer has the ability to challenge, said civil procedure professor Robin Effron of Brooklyn Law School.

The Justice Department under Trump asked the court to dismiss the suit and throw out the lower court’s adverse ruling, which it said “exposes federal and state employees to constitutional liability when using their own personal property to speak.”

Under the Munsingwear doctrine, named after a 1950 ruling, the justices could “duck actually considering the merits of the First Amendment issue but also wipe the lower court slate clean of any judgments or precedents for future cases,” Effron said.

But they will only vacate a lower court judgment under Munsingwear if the party who lost in the lower court didn’t cause the case to become moot, said civil procedure professor Adam Steinman of the University of Alabama. The idea is that a party that makes a voluntary decision to settle rather than pursue an appeal shouldn’t then be able to benefit from vacatur, Steinman explained.

Determining which party is responsible for making a case moot isn’t always easy.

The Justice Department argued that the 2020 election won by Joe Biden mooted the case.

Twitter users who sued the president said Trump’s use of the social media platform on which he had tens of millions of followers in the aftermath of the Jan. 6 Capitol riot “to tweet misinformation about the election” led Twitter Inc., a public company, to permanently suspend the account, thus mooting the case.

“In short, Petitioners’ own actions caused this case to be moot, and for that reason, vacatur under Munsingwear would be inappropriate,” they argue.

“It remains to be seen whether Munsingwear will come up in pending challenges to Trump administration policies that may be changed under the Biden administration,” Steinman said.

It is “obviously way more complicated” to determine who is responsible for mooting a case “when we move away from private parties and into the government realm,” Effron said.

In Munsingwear itself, the case became moot because an executive order repealed the challenged regulation, Steinman said. But a footnote in a later case suggested that repeal of regulations could be attributed to the government in determining the party responsible for mooting the case.

That issue is likely to play out in a handful of cases pending at the court dealing with federal policies likely to be changed under the Biden administration.

Those include a trio of cases challenging the changes to the Title X family planning program to make it harder for abortion providers to receive federal funding.

Additionally, there’s the challenge to the Trump administration’s “public charge” rule, refusing entry to immigrants who are likely to need public assistance.

And the court is scheduled to hear arguments in a challenge to the funding for Trump’s border wall and his administration’s “Remain in Mexico” program requiring immigrants to wait there for their asylum claims to play out in the U.S.

The court in all of these cases will have to decide whether to leave the adverse rulings in place or wipe the slate clean.

The justices are on winter break, and won’t return to the virtual bench until Feb. 22.

The Twitter case is Trump v. Knight First Amendment Institute, U.S., No. 20-197.

To contact the reporter on this story: Kimberly Strawbridge Robinson in Washington at krobinson@bloomberglaw.com

To contact the editors responsible for this story: Seth Stern at sstern@bloomberglaw.com; John Crawley at jcrawley@bloomberglaw.com

Robinhood Users Suing Over Trade Limits Face High Legal Bar (3)

Jan. 29, 2021, 3:02 AM Coordinated Universal Time

Frustrated investors who sued after getting locked out of trading in frenzied shares like GameStop Corp. aren’t likely to have much luck in court either.

Online brokerage Robinhood Markets was named as a defendant Thursday in several federal suits demanding it reinstate trading of shares including GameStop, BlackBerry Ltd., Nokia Oyj and AMC Entertainment Holdings Inc. Just hours earlier, Robinhood, Interactive Brokers and others took steps to curtail activity in the high-flying stocks after several dizzying days of trading on their platforms whipped up volatility.

While users of the trading platforms claim in court filings that they suffered losses from the restrictions, legal experts say brokerages have broad powers to block or restrict transactions -- all of which is spelled out as part of customer agreements everyone signs to gain access to the services.

Watch: Vlad Tenev, co-founder and chief executive officer at Robinhood Markets, discusses why he decided to restrict buying on 13 securities on the platform, the criticism he and the platform have endured and his business strategy.
(Source: Bloomberg)

“I’m looking at the Robinhood contract, and it says in black and white they can block or restrict trades at any time,” said Jeff Erez, who runs a Miami-based law firm specializing in securities-fraud litigation and represents plaintiffs in a lawsuit filed last year against Robinhood related to service disruptions. “I’m not aware of any law that would guarantee you a right to purchase a certain security at a certain brokerage firm.”

Maverick Traders

The legal fight comes after a group of maverick, digitally oriented traders who gather in Reddit’s WallStreetBets forum sent shares of GameStop and other companies soaring, with the apparent goal of earning millions of dollars in profits and causing billions in losses to hedge funds that were shorting the stocks.

In a lawsuit filed in New York, Robinhood user Brendon Nelson of Massachusetts said the company removed GameStop from its trading platform in the midst of an “unprecedented stock rise,” depriving individual investors of the ability to invest and manipulating the market. The decision was a breach of its customer agreement and was in violation of financial industry rules, according to the complaint.

Read More: Robinhood Users Are Furious Over Its Stock-Trading Clampdown

In a Chicago lawsuit, Robinhood user Richard Joseph Gatz of Naperville, Illinois, said the halt of trading in BlackBerry, Nokia and AMC “was to protect institutional investment at the detriment of retail customers” and is in “lockstep” with other trading platforms. “The halt of retail trading for these stocks has caused irreparable harm and will continue to do so,” Gatz said.

Robinhood Chief Executive Officer Vlad Tenev denied the company had been pressured to curtail trading in the stocks by institutions.

“We weren’t directed by a market maker, or any other market participant,” Tenev said in an interview with Bloomberg Television. “This was a technical and operational decision that we made.”

He said the company’s financial requirements, such as deposits to clearing houses, increase when there’s a lot of volatility in the market, so “to protect the firm and to protect our customers we temporarily disabled buying in these securities.”

Other client suits were filed in Florida, California and New Jersey. And New York Attorney General Letitia James said her office is “aware of concerns raised regarding activity on the Robinhood app, including trading related to the GameStop stock. We are reviewing this matter.”

Robinhood has faced criticism in the past for allowing relatively unsophisticated investors to engage in risky trades that resulted in massive losses, and some commentators have expressed concern about the losses that individual investors are likely to suffer when the Reddit-driven bubbles burst.

Broad Discretion

Brokerages are permitted broad discretion in limiting trades to provide flexibility in handling unusual situations like technical glitches, mechanical errors and mistakes, or to preserve an orderly market, said Columbia Law School professor Joshua Mitts, who specializes in corporate law.

“There is no obligation that a broker-dealer has to unconditionally accept orders to buy, sell or short-sell securities,” said Cam Funkhouser, a former executive at the Financial Industry Regulatory Authority, a Wall Street-backed regulator that oversees broker-dealers. “If they do accept orders, it is expected that the transaction is executed and settled in compliance with the applicable rules,” said Funkhouser, who worked at Finra for 35 years and oversaw its national fraud-detection office.

The lawsuits “are likely subject to dismissal based on customer agreement language,” said Elliott Stein, a senior litigation analyst at Bloomberg Intelligence.

“It is understandable that many investors are upset by the sudden restrictions to trade certain stocks,” especially if they didn’t read the user agreements very carefully, said Tom Lin, a law professor at Temple University’s Beasley School of Law whose specialties include securities regulation. “Whether brokerages should exercise that power in the current circumstances is up for legitimate debate. There is likely so much more to this story than we know at the moment.”

Depends on Situation

Still, while user agreements “tend to be pretty broad” in allowing brokerages to decline working with anyone, they aren’t always an absolute protection from aggrieved clients, said Timothy Blood, a partner with Blood Hurts & O’Reardon in San Diego, who has represented investors in disputes with brokerages.

“It’s going to depend on the particular situation that arises,” Blood said.

There might be liability if a brokerage allows trades by some clients but not others, especially if the one being denied needs access to the market to complete a longer-term strategy with additional trades, Blood said.

“If a long-term plan gets cut off midstream, the clause helps Robinhood but won’t be the last word on the issue,” he said.

Double Standard?

“I think it’s extraordinarily rare for brokers to halt that trading” without a determination by regulators that it was necessary, said Adam Gana at the national securities-arbitration law firm Gana Weinstein.

The surge in share prices was the result of “a band of investors getting together to purchase a security,” not some “insider collusion pumping up the price,” he said. The filing of lawsuits “tells me that the broker-dealers who stopped trading by their own volition are potentially going to be in a lot of trouble -- both on a regulatory level and on a civil-litigation level,” he said.

While Robinhood’s customer agreement clearly states that it can suspend trading at any time, it does raise questions about whether the platform treated some users differently than others, especially after cases in the past decade of market manipulation by short sellers that disadvantaged retail investors, said Mitts, the Columbia Law School professor.

“When hedge funds are going to lose from a trading suspension, they don’t face any lockup like this, any suspension, any halt at the retail level,” Mitts said. “But when retail investors find themselves locked in, they find themselves unable to exit the trade.”

(Updates with Robinhood CEO comments in 8th paragraph. An earlier version corrected a reference to Bloomberg Intelligence.)

--With assistance from Misyrlena Egkolfopoulou, Olga Kharif, Matt Robinson and Hari Govind.

To contact the reporters on this story:
Chris Dolmetsch in Federal Court in Manhattan at cdolmetsch@bloomberg.net;
Christopher Yasiejko in Wilmington, Delaware, at cyasiejko1@bloomberg.net;
Christian Berthelsen in New York at cberthelsen1@bloomberg.net

To contact the editors responsible for this story:
David Glovin at dglovin@bloomberg.net

Joe Schneider, Peter Blumberg

© 2021 Bloomberg L.P. All rights reserved. Used with permission.

Wake Up Call

• Davis Wright Tremaine’s new vaccine policy for employees and lawyers allows for paid time off to get the jab and to recover from side effects, Cari Brunelle, founding partner at communications firm Baretz + Brunelle reports in an email. The policy calls for only vaccinated staff to be allowed to enter the firm’s offices or attend firm-sponsored events. “In the coming months, proof of vaccination will also be required,” it says.

• The National Conference of Bar Examiners said it approved a task force’s recommendations for revisions to create the “next generation of the bar exam” and said it expects their implementation to take four to five years. (NCBex.org)

• Squire Patton Boggs hired a global director of talent acquisition as it plans to handle more of its own recruiting. (SquirePattonBoggs.com)

Read these and other legal industry stories in today’s Wake Up Call.

Wake Up Call: DWT Will Require Vaccine Proof to Enter Offices

Jan. 29, 2021, 1:45 PM Coordinated Universal Time

In today’s column, the National Conference of Bar Examiners approved a task force’s recommendations for creating a “next generation” bar exam; Squire Patton Boggs hired a global director of talent acquisition as it plans to handle more of its own recruiting; U.K. firm Addleshaw Goddard opened a Paris office with 22 lawyers snatched from U.S. rivals; despite a 2020 full of upheavals, most Big Law firms don’t seem to be changing their partnership strategies.

  • Leading off, Davis Wright Tremaine’s new vaccine policy for employees and lawyers allows for paid time off to get the jab and to recover from side effects. The policy calls for only vaccinated staff to be allowed to enter the firm’s offices or attend firm-sponsored events, “allowing for a reasonable period of time to get vaccinated once eligible.” “In the coming months, proof of vaccination will also be required,” it says.
  • “As vaccines against Covid-19 become increasingly available, we are adopting a policy to safeguard the health of our employees and their families, our clients and visitors, and our communities. We believe it is our responsibility to do our part, and we need everyone’s help to be able to get back to more normalized operations as quickly as we can,” said the firm’s managing partner, Jeff Gray. (DWT)
  • The National Conference of Bar Examiners said it approved a task force’s recommendations for revisions to create the “next generation of the bar exam,” and said it expects their implementation to take four to five years. The task force, in a report issued earlier in January, said states should overhaul bar exams to focus on “lawyering skills” rather than knowledge of niche practices. (NCBex.org)
  • Despite a dramatic 2020, Big Law firms don’t seem to be drastically changing their strategies for 2021 partner classes, some industry observers said. (American Lawyer)
  • DLA Piper’s bonus scale is so “opaque” that some associates at the firm suspect it might be below market scale, a report says. (Above the Law)
  • Some law firms are starting to consider virtual offices because of the pandemic. But it’s not clear the trend will last. (ABA Journal)
  • Freshfields Bruckhaus Deringer’s 2021-2025 environment strategy includes plans to slash its use of air travel, as attorneys increasingly interact with overseas colleagues via video call. (Law.com International)
  • Meanwhile, it looks like videoconferencing and other digital marketing tools will remain a big part of client connection post pandemic. (Legaltech News)
  • The shift to remote work forced by the pandemic proved the value of legal operations, their tech-enabled processes, and the professionals that manage them, a report says. (Law.com)

Biden Administration, Election Litigation, Fallout From Capitol Riots

  • Jones Day hired the Trump administration’s former acting general counsel of the Homeland Security Department, Chad Mizelle. (BLAW)
  • Many Kirkland & Ellis attorneys went to work in the Trump administration. So far, few have returned. (National Law Journal)
  • Michigan’s attorney general wants sanctions against attorneys who filed frivolous lawsuits challenging election results. (Detroit Free Press)

Lawyers, Law Firms

  • Squire Patton Boggs said it hired law-firm focused management consultant Steven Clarke for its new global position of director of talent acquisition. Clarke arrives from management consulting firm Korn Ferry, where he was a senior client partner. Squire said the move follows its decision to do much of its hiring in house rather than using external headhunters and placement agents. “We expect it to be more efficient both in time and money,” a spokesman said in an email. (SquirePattonBoggs.com)
  • DLA Piper’s new chairman Frank Ryan says the firm’s “growth mindset” is setting its compass as it faces the challenge of staying nimble and agile amidst rapid changes in the legal industry, and life. (American Lawyer)
  • BakerHostetler’s health care industry group and employee benefits group formed a team to address strategic issues that employers face when forming and delivering their health plans. (BakerLaw.com)
  • Over 130 top law firms notched a perfect score on the Human Rights Campaign Foundation’s latest Corporate Equality Index, which rates businesses’ efforts that affect their LGBTQ employees. (Reuters)
  • Deal Update: Covington & Burling is advising Veritas Capital on government contracts and other regulatory aspects of its $7.1 billion acquisition of information services tech company Perspecta Inc. Schulte Roth & Zabel is also advising Veritas, while Paul, Weiss is advising Perspecta in that deal. (BLAW)

Reports

  • Skadden, Arps published its annual insights report for 2021; Paul Hastings’ latest U.S. IPO market report looks back at 2020 and ahead to 2021; Hogan Lovells posted its 2021 global bribery and corruption outlook; Dechert released its annual survey on securities fraud class actions filed against life sciences companies. (Dechert)

Laterals, Moves

  • U.K. firm Addleshaw Goddard opened an office in Paris, grabbing attorneys from Bryan Cave Leighton Paisner and K&L Gates. (The Lawyer)
  • Buchalter is adding two shareholders from Bryan Cave Leighton Paisner in its Arizona office: Robert Miller joins the insolvency and financial law practice group and Quinn Wheeler joins the commercial finance practice group. (Buchalter.com)
  • Greenspoon Marder said veteran tax lawyer Jeannette Bond joined the firm as of counsel in its public finance practice group. She arrives after spending over 22 years at McCarter & English. (GMLaw.com)
  • Gunderson Dettmer announced two partner hires: it got executive compensation attorney Romica Singh in New York. She arrives from Cravath, Swaine & Moore. Corporate attorney Heidi Walas joined in its emerging companies practice in its Silicon Valley office, arriving from Silicon Legal Strategy. (Gunder.com)
  • Alternative dispute resolution services provider JAMS said retired New York federal chief magistrate judge Steven M. Gold joined its New York panel. (JAMSadr.com)
  • Kelley Kronenberg added veteran insurance industry in-house attorney Steve Simeonidis as a personal injury partner and business unit leader in Miami. (PRNewswire.com)

In-House

  • PepsiCo, Inc. said in-house lawyer David Flavell takes over March 1 as executive vice president, general counsel and corporate secretary, from current top lawyer Dave Yawman, who’s retiring after 22 years. Flavell, whose current title is SVP, deputy general counsel and chief compliance & ethics officer, has been at PepsiCo for about a decade. (PRNewswire.com)
  • Entertainment company MRC hired entertainment industry veteran Kenneth Christmas as general counsel based in California. Among his previous roles at studios, production companies, and law firms in a 30-year legal career, Christmas was VP for television business and legal affairs at Lionsgate, in-house leader at MarVista Entertainment, and he started his career as at O’Melveny & Myers. (Deadline)
  • Facebook Inc. hired ViacomCBS compliance chief Henry Moniz as its first-ever chief ethics and compliance officer and brought on two former Big Law litigators. (BLAW)
  • U.K.-based Apperio, a legal spending and matter-tracking platform, appointed a technology entrepreneur and a private equity specialist to its board as the company looks to expand. (Apperio.com)

Legal Education

  • The California Supreme Court approved a plan to let people who narrowly failed the bar exam get licenses as lawyers in the state. (BLAW)

To contact the correspondent on this story: Rick Mitchell in Paris at rMitchell@correspondent.bloomberglaw.com

To contact the editors responsible for this story: Rebekah Mintzer at rmintzer@bloomberglaw.com; Darren Bowman at dbowman@bloomberglaw.com

Business of Law

California Supreme Court OKs Plan for Bar Exam Narrow Failures

Jan. 28, 2021, 7:28 PM Coordinated Universal Time

The California Supreme Court on Thursday approved a plan to let those who narrowly failed the bar exam in recent years to be admitted to the State Bar following completion of 300 hours of supervised legal practice, without retaking another bar exam.

“This means so much to many people,” said 2019 Santa Clara University School of Law graduate Evan Miller. “The bar exam puts your life on hold.”

The court’s unanimous order reverses its initial refusal to make the state’s lower cut score, from 1440 down to 1390, retroactive. That refusal had spurred many who scored in that range, like Miller, to advocate for retroactivity, even though he recently learned that he passed the exam last October.

The order expands the state’s Provisional Licensure Program, first approved by the court last October. The program has allowed 2020 law school graduates who have yet to sit for the exam a limited right to practice under the supervision of a licensed attorney until June of 2022, unless the program is extended by the court.

The expanded program will apply to the test takers regardless of when they graduated from law school. The graduates, however, first will need to complete the 300 hours of practice. The State Bar of California will implement the program changes by March 1, according to a court press release.

Graduates also will need to receive a positive evaluation by an eligible supervising lawyer, who now include judges in the California judicial branch.

The ruling will make more than 2,000 additional individuals eligible to apply for provisional licensing, State Bar of California spokeswoman Teresa Ruano said in a statement earlier this month.

The court in August had refused to allow the new passing score to be applied retroactively. The decision had been a rebuke to California law school alumni who had come close to passing the test—and deans, who had become allies in their fight.

Alumni, anxious to start their careers without retaking the test, had argued that the passing score was too high, resulting in a historically low pass rate for the February 2020 bar exam of under 27%.

The issue had become especially important during the pandemic for many beginning-stage Golden State attorneys, often weighted with significant law school loan debt.

On Jan. 8, a State Bar of California panel voted unanimously to expand the state’s existing Provisional Licensure Program, so that it could be applied to individuals who scored 1390 or higher on a bar exam from July of 2015 through February of 2020.

The Bar gave the court two options—graduates could complete either 360 or 600 hours of supervised practice before being admitted—yet the court went even lower than the shortest path to licensure suggested by the bar.

“This is lower than anyone suggested,” Miller said. “It’s better than anyone suggested. A lot of us had been pessimistic.”

To contact the reporter on this story: Sam Skolnik in Washington at sskolnik@bloomberglaw.com

To contact the editors responsible for this story: Chris Opfer at copfer@bloomberglaw.com;
John Hughes at jhughes@bloombergindustry.com

Three Firms Advise in EV Startup Faraday’s Go-Public SPAC Deal

Jan. 29, 2021, 11:55 AM Coordinated Universal Time

O’Melveny & Myers and Sidley Austin are advising electric vehicle company Faraday Future on its tie-up agreement with Property Solutions Acquisition Corp., a special purpose acquisition company.

Latham & Watkins is advising Property Solutions on the transaction, which values the combined company at about $3.4 billion and gives Faraday Future about $1 billion in gross proceeds, according to a statement.

“We are excited to enter into this partnership,” said Faraday Chief Executive Officer Carsten Breitfeld. “This is an important milestone in our company’s transformation.”

The deal is expected to close in the second quarter. It calls for the combined company, named Faraday Future Inc., to be listed on the Nasdaq exchange under the ticker symbol FFIE.

Los Angeles-based Faraday Future said it has invested over $2 billion dollars since its inception and expects to begin selling its first model, FF 91, within 12 months after the merger closes.

The company said research & development work is progressing on a second model, FF 81, and that it expects to sell over 400,000 units, cumulatively, over the next five years.

To contact the correspondent on this story: Rick Mitchell in Paris at rmitchell@correspondent.bloomberglaw.com
To contact the editor on this story: Chris Opfer in New York at copfer@bloomberglaw.com
John Hughes in Washington at jhughes@bloombergindustry.com

Leading Questions: Mintz’s Seth Goldman

Jan. 29, 2021, 10:31 AM Coordinated Universal Time

Lawyers are great at asking questions, but how are they at answering them? Bloomberg Law is talking with lawyers and other legal industry players at the top of their fields to find out what makes them tick, what challenges they face, and how they do what they do.

Seth Goldman, division head of the litigation and employment practice at Mintz, sees employers as “increasingly vulnerable” to lawsuits with a Covid-19 angle.

“We have continued to urge our clients to be proactive about creating a safe working environment,” Goldman says, “whether at a physical workspace or virtual.”

Goldman, who’s based in Mintz’s New York office, has more than two decades of commercial, corporate employment, and securities litigation. His clients include professional sports franchises, institutional investors and bond holders, medical technology companies, and real estate investors.

Goldman sets the strategic direction for client development and lateral hiring initiatives across litigation and employment practice groups at Mintz. The firm’s litigation practice has more women than men, though he says Mintz is focused on closing the gender gap in the partnership ranks.

“While the pandemic has not altered our hiring strategy, it has altered how we recruit candidates,” Goldman says. “We’ve needed to become more creative and flexible.”

Bloomberg Law spoke to Goldman about helping clients address their employment challenges, the firm’s efforts to hire more attorneys of color over the next two years, and how the career advice he gives his sons is the same he’d give to new associates.

This conversation has been edited for clarity and length.

Bloomberg Law: What is the biggest challenge currently facing your practice area?

Seth Goldman: We are working with so many clients who have been managing a job on top of a job given the impact of Covid-19.

Our clients are dealing with workforce management issues, data security concerns, force majeure with contracts, as well as various business disputes. We have been helping clients deal with their most pressing and important matters, recognizing that some other litigation concerns have been temporarily put on hold.

We also have a number of clients experiencing the current backlog in the courts, and we have been helping them resolve matters through alternative dispute resolution methods.

BL: How will the health challenges posed by the pandemic affect employment litigation?

SG: An unprecedented year forced employers to quickly re-imagine their workplaces and confront other unique challenges, including a sudden increase in potential exposure to employment-related claims, some familiar, some not.

Employers remain increasingly vulnerable to leave, wage and hour, and discrimination lawsuits, but now with a Covid-19-related angle. These include such issues as a failure to grant leaves or accommodate those unable to work because of Covid-19, tracking hours worked by remote workers, and harassment via virtual means.

As we move into the next phase of the pandemic, employers will continue to be susceptible to a bevy of employment-related litigation emanating from Covid-19. Accordingly, we have continued to urge our clients to be proactive about creating a safe working environment, whether at a physical workspace or virtual, and to ensure compliance with all applicable employment laws and regulations to mitigate their exposure and avoid future litigation.

Seth Goldman
Courtesy of Mintz

BL: How has the pandemic shifted how you recruit and hire laterals and new attorneys?

SG: While the pandemic has not altered our hiring strategy, it has altered how we recruit candidates. We’ve needed to become more creative and flexible in the hiring process, striking a balance between virtual and socially-distanced, in-person meetings so we can retain some of the personal elements that are critical to determining fit.

In 2020, Mintz added 21 lateral partners, and 12 joined our litigation practices. These were strategic hires that added depth to our nationally recognized securities litigation and insurance practices, along with bolstering our litigation capabilities in New York, Washington D.C., and Los Angeles.

We are focused on recruiting and promoting attorneys from diverse backgrounds. While the litigation section has more female lawyers than male lawyers, we are focused on closing the gender gap in our partnership ranks. We are committed to hiring more attorneys of color, including our firm goal of increasing the number of Black attorneys by 50% by June 2022.

BL: What sets your firm apart from other Big Law firms?

SG: Mintz has a culture that focuses on collaboration. We bring each other into opportunities, and we think holistically about our client relationships. Everyone—across the entire firm, at all levels—feels like they are part of our success.

BL: Will there be a mix of work at home and work at office, and if so, what is the mix?

SG: I expect when we emerge from Covid-19, there will be a mix of work at home and work in the office. We have been fully operational in a remote environment and gained many efficiencies through our use of technology. This includes interacting with and working with our clients in a virtual manner. That said, Mintz has a terrific culture and I know we all miss the spontaneous conversations and collaborations that occur in the hallways and coffee break rooms. I expect we’ll adapt to being in and out of the office, just as many of our clients will be doing the same.

BL: What is your most interesting war story from your career/practice?

SG: Because everyone loves an underdog, I think my favorite “war story” is about a derivative action in Delaware Chancery Court where I was told by a myriad of opposing counsel that we had a 0% chance of success. We were representing the minority shareholders of an international fragrance retailer, and our client was alleging major breaches of fiduciary duties by the company’s majority shareholders. First, we successfully opposed the defendants’ efforts to dismiss the case, then we proceeded to persuade the court to reject a Special Litigation Committee settlement – a long shot, but we believed in our case. Following the rejected settlement, the majority stockholders realized we would prevail at trial and decided to sell the company. After seven years of litigation, the judge presiding on the case approved a settlement that was very favorable to our clients, amounting to roughly $40 million.

BL: What advice would you give an associate just starting out his/her Big Law career?

SG: My three sons are of the age where they are thinking about career paths, and I have been advising them to ask questions, be observant, be patient, and learn from others. As a new associate in a Big Law career, I think this same advice applies. Ask questions and observe others to help you truly understand the career choice you have made and to confirm it’s what you want for yourself. Be patient. If you demonstrate intensity of effort and produce excellent work, you will be rewarded with new opportunities over time. And be open to learning from everyone. You will never stop learning in this career and your clients, peers, mentors, and team members will teach you so much if you remain open to it.

To contact the reporter on this story: Mary Ellen Egan in New York at maryellenegan1@gmail.com
To contact the editor responsible for this story: Chris Opfer at copfer@bloomberglaw.com;
John Hughes at jhughes@bloombergindustry.com

Law Firms

Jones Day Hires Trump’s Acting Homeland Security GC Mizelle

Jan. 28, 2021, 4:45 PM Coordinated Universal Time

Jones Day has hired Chad Mizelle, a politically appointed lawyer in the Trump administration who worked in the Justice Department and White House before serving as acting general counsel of the Department of Homeland Security.

The hire extends Jones Day’s connections to former Trump administration lawyers at a time when many Big Law firms are distancing themselves from the former president. After graduating law school in 2013, Mizelle worked as an associate at Gibson Dunn & Crutcher, another prominent Big Law firm, before his work at the Justice Department began in 2017.

Among Big Law firms, Jones Day had arguably the closest connections to former President Trump, starting with Don McGahn, who was a lawyer for the 2016 campaign and served as Trump’s first and most prominent White House counsel before returning to Jones Day in 2019. The firm sent more than a dozen lawyers into government positions early in Trump’s term.

Noel Francisco, who served as solicitor general under Trump, was promoted to head Jones Day’s Washington office earlier this week.

Mizelle will be “of counsel” at Jones Day, a position below partner that doesn’t receive compensation from a law firm’s annual profit pool. The firm said Mizelle’s work at DHS included advising on transactions reviewed by the Committee on Foreign Investment in the U.S. (CFIUS). That committee has become more important in the types of international transactions Jones Day and other large law firms compete to handle.

Mizelle will work out of the firm’s Miami and Washington offices as a member of its government regulation practice.

Mizelle’s wife, Kathryn Kimball Mizelle, is a former Jones Day associate who was nominated by the Trump administration to serve as a federal judge in central Florida. She became one of the youngest federal judges last year despite the American Bar Association rating her “not qualified” due to lack of experience.

A number of Big Law firms dropped the former president as a client following the Jan. 6 riot on Capitol Hill that resulted in at least five deaths and Trump’s second impeachment. Before that, major law firms working on lawsuits challenging election results received criticism from groups such as The Lincoln Project, which consists of conservative lawyers who opposed president Trump.

Jones Day leaders came under fire for the firm’s role in a Pennsylvania lawsuit that challenged a rule change extending time for mail-in ballots to arrive, Bloomberg reported in November. At the time, Kevyn Orr, now the firm’s partner-in-charge for the U.S., defended the firm’s work in an internal conference call with Jones Day’s own lawyers and said it wouldn’t become involved in any other post-election challenges.

To contact the reporter on this story: Roy Strom in Chicago at rstrom@bloomberglaw.com

To contact the editors responsible for this story: Rebekah Mintzer at rmintzer@bloomberglaw.com; Chris Opfer at copfer@bloomberglaw.com

MoFo Female Lawyers to Get Trial on Some Bias Claims, Judge Says

Jan. 28, 2021, 9:08 PM Coordinated Universal Time

A federal judge in San Francisco said Thursday it’s “clear that some claims are going to trial” in two female lawyers’ lawsuit alleging they were marginalized, denied promotion, and otherwise discriminated against by law firm Morrison & Foerster LLP because of their sex and for taking maternity leave.

Which claims from among the many Joshua Ashley Klayman and Sherry William assert against the firm will have to be decided by a jury still needs to be determined, Magistrate Judge Jacqueline Scott Corley of the U.S. District Court for the Northern District of California said at the end of the summary judgment hearing, stopping short of issuing a bench ruling.

But any trial will have to be pushed back from the current scheduled March 15 start date until “something like August” because of the Covid-19 pandemic, in the absence of the parties agreeing to virtual jury proceedings, the judge said. But she encouraged the sides to rejoin efforts to resolve their dispute amicably, noting how “litigation can be harmful” to people and that the pandemic has reminded everyone that life can be “fragile and short.”

Klayman is a finance attorney and a pioneer in blockchain and digital assets law. Her claims include that Morrison & Foerster made it clear that she needed to continue working while out on maternity leave if she wanted to make partner. She says she did so but that her leave was still held against her and she was denied promotion.

William says she was warned when she first became pregnant while working as an associate in the firm’s Project Finance Group that her pregnancy would hold her back. She wasn’t advanced to the next associate level with the rest of her class when she returned from leave, and her path forward at the firm stagnated from that time on, she says

Morrison & Foerster says the careers of both women stalled because of their own choices and underperformance.

The two women previously were part of a group of lawyers who sued the firm in April 2018 for alleged systemic sex bias. But five women informed the court in December 2019 that they had settled their individual claims and the classwide allegations were subsequently dropped.

Sanford Heisler Sharp LLP represents Klayman and William. Gibson, Dunn & Crutcher LLP represents MoFo.

The case is William v. Morrison & Foerster LLP, N.D. Cal., No. 3:18-cv-02542, summary judgment hearing 1/28/21.

To contact the reporter on this story: Patrick Dorrian in Washington at pdorrian@bloomberglaw.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Steven Patrick at spatrick@bloomberglaw.com

Black Davis Polk Lawyer Says Firm’s $100,000 Fee Bid Inequitable

Jan. 28, 2021, 5:05 PM Coordinated Universal Time

Paul Weiss Rifkind Wharton & Garrison LLP’s request for nearly $100,000 in attorneys’ fees and costs for discovery abuses by a Black former associate suing Davis Polk & Wardwell LLP for alleged race bias highlights racial and economic inequities and should be denied, the lawyer told a Manhattan judge.

The asymmetries in wealth, power, and resources between the parties are so significant that he and his counsel, who is also Black, “would almost certainly be crippled” were the firms’ fee application granted, Kaloma Cardwell told the U.S. District Court for the Southern District of New York Wednesday.

The firms’ “improper and unjust” request comes as legal scholars are documenting the long history of money being used to punish communities of color, Cardwell said.

It would also deter workers and pro bono attorneys from pursuing plausible claims for job discrimination and other employment abuses “against corporate employers in federal court,” he said.

The firms filed the application Jan. 20 following a Jan. 15 bench ruling by Judge Gregory H. Woods that found Cardwell’s responses to Davis Polk’s document requests and interrogatories didn’t meet the requirements of the Federal Rules of Civil Procedure.

Cardwell sued Davis Polk and eight current or former partners in November 2019, alleging he was subjected to rigged performance review processes and other persistent racial bias during his four years with the firm. He also says he was denied work then fired for complaining to federal and New York state employment rights agencies.

The request comes at a time when he is experiencing financial instability directly related to Davis Polk’s mistreatment and retaliatory firing, Cardwell said.

The firms didn’t bring the application of their own volition but instead were “encouraged” to do so by the court, Cardwell said. That’s a factor Woods should consider in denying the application, he said.

The court should alternatively make an across-the-board 90% cut to the firms’ application or reduce the “exorbitant” hourly rates, which range as high as $1,485 per hour, Cardwell said.

Black lawyers and others “of limited means” shouldn’t be forced to pony up such amounts, particularly in cases in which at least some of the asserted claims are plausible, Cardwell said.

In a separate filing in the case Wednesday, Davis Polk reiterated its position that it is entitled to partial dismissal of Cardwell’s claims.

He has offered no credible reason for restoring his previously dismissed claims and has abandoned others, the firm said. Other claims lack any factual support and impute knowledge of certain events to some partners that they clearly lacked, Davis Polk said.

The court should also rejected Cardwell’s 11th-hour bid to recast his intentional race discrimination claim as a disparate impact or inadvertent bias claim, Davis Polk said. The time to change his pleadings has passed and he never exhausted a disparate impact theory with federal authorities prior to suing as required by Title VII of the 1964 Civil Rights Act, it said.

The court will hold a pre-motion conference Feb. 1 on a separate planned request by Davis Polk for sanctions for what it says are defamatory statements about a former partner that Cardwell and his lawyer allegedly have refused to withdraw from his lawsuit.

David Jeffries of New York represents Cardwell.

The case is Cardwell v. Davis Polk & Wardwell LLP, S.D.N.Y., No. 1:19-cv-10256, opposition to application for fees and costs 1/27/21.

To contact the reporter on this story: Patrick Dorrian in Washington at pdorrian@bloomberglaw.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Nicholas Datlowe at ndatlowe@bloomberglaw.com

Ethics

Florida Supreme Court Suspends Lawyer Involved in Ponzi Scheme

Jan. 28, 2021, 5:59 PM Coordinated Universal Time

A lawyer who neglected to tell The Florida Bar about his involvement in a Ponzi scheme investigation has been suspended from practice for two years, the state supreme court said Thursday.

Charles Paul-Thomas Phoenix was general counsel and senior vice president for Cay Club Resorts and Marinas from 2005 until 2007. When the alleged vacation rentals scheme collapsed, Phoenix cooperated with federal authorities in order to avoid prosecution, according to the court’s opinion.

But Phoenix never told the state bar about his 2014 agreement with prosecutors. After finding out, the bar filed a complaint with the court in 2017....

Also in the News

John Varvatos Fights Fee Request as Big as Damages in Pay Suit

Jan. 28, 2021, 5:15 PM Coordinated Universal Time

John Varvatos Enterprises LLC and a class of female sales staff who sued over a disparate compensation policy have resolved a post-verdict dispute over damages but are now arguing over a fee request involving almost as much money, according to a letter the parties jointly filed in the Southern District of New York.

The $3.5 million verdict was halved earlier this month after Magistrate Judge Gabriel W. Gorenstein of the U.S. District Court for the Southern District of New York vacated the jury’s compensatory and punitive awards.

The plaintiffs accepted Gorenstein’s proposed reduction Tuesday, avoiding a new trial on the issue. Although Varvatos agreed to the plaintiffs re-calculation of damages in a Wednesday filing, counsel for the men’s clothier is arguing for a commensurate reduction in attorneys’ fees.

Plaintiffs counsel seek a fee award of about $1.73 million. If left untouched, the attorneys’ fees would now be “almost equal to the damages awarded” and excessive, Varvatos said.

The reasonableness of attorneys’ fees is primarily measured by the degree of success obtained, so “it follows that the attorneys’ fees awarded must also be reduced based on the amended judgment,” according to Varvatos.

In their fee application, counsel for plaintiffs rely “at least in part” on having obtained 100% of the compensatory damages sought, according to Varvatos.

Counsel for the plaintiffs argue in response that courts “regularly decline to reduce fee awards after remittiturs,” and that a fee award can’t be reduced solely because the fees would be disproportionate to the financial recovery.

And although they agree that the degree of success obtained is the most critical factor for assessing the reasonableness of fees, counsel for the plaintiffs argue that the the remittitur doesn’t change anything.

“Plaintiffs succeeded on the merits of all four claims they brought and secured compensatory, liquidated, and punitive damages,” they said.

Varvatos also argues that because it’s in bankruptcy proceedings, “the higher attorneys’ fees will mean lesser recovery for the class members.” But plaintiffs counsel counter that the “most likely source of recovery for plaintiffs will be the insurance policy of Varvatos.”

The underlying lawsuit involved a clothing ‘stipend’ provided to male sales professionals but not female sales professionals of $3,000 worth of John Varvatos clothing for every season.

Gorenstein reduced compensatory damages from $3,000 to $1,500, proportionately reducing punitive damages also, after deciding that $1,500 was enough to put the female sales professionals in the same position they would have been but for the discrimination.

Plaintiffs are represented by Dunnegan & Scileppi LLC. Varvatos is represented by Hughes Hubbard & Reed LLP.

The case is Knox v. John Varvatos Enters. LLC, S.D.N.Y., No. 1:17-cv-00772, 1/25/21.

To contact the reporter on this story: Holly Barker in Washington at hbarker@bloombergindustry.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Steven Patrick at spatrick@bloomberglaw.com

Insights

GameStop Stock Trading Poses ‘Manipulation’ Challenge for Regulators

Jan. 29, 2021, 9:00 AM Coordinated Universal Time

Sudden surges in the share prices of GameStop Corp., which has led to multiple NYSE trading halts in the past few days on the stock, have gotten the media’s attention. Questions are being raised about the role of online chatrooms in the quick price increases in GameStop and whether regulatory investigations are appropriate.

Though matters like this are likely to give rise to scrutiny by the Securities and Exchange Commission or other regulators, these issues are challenging to enforce.

In order to show a violation of federal securities laws in these actions, the SEC must demonstrate that defendants had an intent to manipulate, deceive, or defraud through false and material statements or omissions of a material fact, and demonstrated an intent to set a misleading share price. That may be difficult in this instance, and it is unclear to what degree regulators can and should intervene.

A Stunning Run Up in Share Price

As background, GameStop’s shares rose over 800% in the past month—a seemingly unusual occurrence given the dying breed of shopping mall video-game retailers in the era of e-commerce—following extensive discussions of the stock in Reddit chatrooms.

GameStop’s net income has seen a sharp decline in recent years—from earning $408 million on $9.5 billion in revenue in 2011 to seeing a net loss of $275 million on $5.2 billion in revenue in the past year.

But this month, traders have flocked to r/wallstreetbets, a popular Reddit forum for day traders with over two million subscribers, to discuss their interest in buying GameStop stock.

Large purchases of GameStop options prompted by the Reddit frenzy have forced big Wall Street players who shorted GameStop stock—assuming the price would go down—to purchase more GameStop stock to cover the short positions or hedge against further massive losses, driving up the share price even more.

This contest between WallStreetBets forum members and institutional Wall Street players has continued, resulting in an unprecedented week for GameStop stock.

But Is It Manipulation?

There are now public calls for investigations by the SEC and other regulators as to whether this internet chatter led to a market manipulation—a potential pump-and-dump scheme of sorts.

Pump-and-dump schemes have long existed in the markets. These matters generally involve a party or entity acquiring a position in a financial instrument, like a stock, then artificially inflating the stock through fraudulent promotion before selling its position at an inflated price, which generally crashes after the sale. As the SEC describes, “promoters ‘pump’ up the stock price by spreading positive rumors that incite a buying frenzy and they quickly ‘dump’ their own shares before the hype ends.”

To successfully show a violation of federal securities laws in these actions, the SEC must demonstrate that a defendant had not only the intent to manipulate, deceive, or defraud, but also that the defendant did this through statements that were both false and material (or omitting a material fact). In these schemes, regulators must be able to demonstrate an intent to set a misleading share price.

The SEC frequently investigates and brings enforcement actions in alleged pump-and-dump cases, as do other regulators. Of course, investigations by the SEC, the Commodity Futures Trading Commission, the Financial Industry Regulatory Authority, and state regulators are likely here, particularly when the activity has led to halts in market trading and “trials” have already begun in the court of public opinion. On the night of Jan. 27, the SEC and the White House unsurprisingly announced that they are “monitoring” the ongoing market volatility here.

However, the degree to which the regulators can and should intervene is unclear. We have already seen trading on GameStop halted at times and restricted on various platforms, including Robinhood and TD Ameritrade. While trading suspensions are also possible (the SEC can stop trading in any publicly traded stock), the SEC is likely hesitant to take such drastic measures where it is not clear that any violation of securities laws took (or is taking) place.

There is nothing that says that the company or some other entity is intentionally spreading material misinformation. Suspending trading based on a hunch is basically unprecedented.

Enforcement Action Challenges

Any enforcement action will also face its own challenges. It is not a per se violation to merely chat about a stock or an intent to purchase a stock in an internet chatroom—or even for a group of individuals to decide to purchase a stock at the same time.

The regulators would have to establish that Reddit posts by seemingly ordinary investors were part of some illicit scheme to manipulate the market—to set a misleading price or volume. Sharing market views and market color is not a violation.

Further, it will be difficult to determine when any purported manipulation started, versus whether individuals were just discussing their own market views in online forums and making their own trading bets in a volatile market.

There will be significant questions regarding whether any online statements were false (or intended to be false) or material. Proving that there was an intent to create a misleading price will be difficult and not easily resolved.

In essence, what seems to have happened here is a perfect storm of events. With the increase in free or low-cost platforms such as RobinHood for ordinary individuals to easily trade, more individuals using these platforms to trade at home during the Covid-19 pandemic, and a volatile market, internet chatter led to this GameStop phenomenon. That does not mean that there is an “open and shut” case for market manipulation.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Write for Us: Author Guidelines

Author Information

Kenneth Breen is a partner in the Litigation Department of Paul Hastings and serves as head the New York White Collar Defense practice. He is a former federal prosecutor in the U.S. Attorney’s Office for the Eastern District of New York and the Justice Department’s Tax Division.

Phara Guberman is a partner in the Litigation Department of Paul Hastings, defending clients in high-stakes and sensitive regulatory enforcement and white collar criminal investigations.

Rita Fishman is an associate in the Litigation practice of Paul Hastings.

Undoing Trump Rules Using Congressional Review Act Has Pros, Cons

Jan. 29, 2021, 9:01 AM Coordinated Universal Time

With Democrats taking control of the Senate and the House, the Congressional Review Act (CRA) has emerged as an important weapon that the Biden administration and Democratic allies on Capitol Hill could use to quickly undo rules recently issued by the Environmental Protection Agency and other agencies. Its use, however, is no panacea and may, in fact, complicate the Biden administration’s efforts to pursue its own ambitious regulatory and legislative agendas.

The CRA allows a new Congress to utilize expedited procedures to review and disapprove rules issued during the final 60 legislative or session days of the previous Congress. These procedures are especially useful in avoiding the Senate filibuster.

Under the CRA, any member may introduce a resolution to disapprove a final rule, and the resolution can be discharged and called up for immediate consideration upon a motion signed by 30 members, with 10 hours of debate split evenly between the two parties.

As a result, other matters before Congress are put on hold while it considers the resolution of disapproval. Early and widespread use of the CRA could divert attention away from the ability of the 117th Congress to consider new legislation, or confirm Biden administration nominees, frustrating its promises to act quickly on Covid-19 relief, infrastructure, and climate change.

The CRA can be used against only those rules published in the Federal Register and submitted to Congress for review after the 60-day cut-off date, which is estimated to be Aug. 21, 2020, based on congressional calendars.

Congress could overturn rules issued before that deadline—such the Navigable Water Protection Rule and the updated National Environmental Policy Act regulations only through the regular legislative process. Likewise, the Biden administration would have to undertake notice-and-comment rulemaking to change such rules.

Hundreds of Actions Subject to Review and Disapproval

Hundreds of actions were published in the Federal Register and submitted to Congress under the Trump administration that could be subject to retrospective review and disapproval under the CRA. However, another CRA provision prohibits the issuance of a rule that is substantially the same as a disapproved rule without new legislative authority, potentially further limiting widespread use of the CRA.

It is interesting to note that the Trump administration issued replacements for two of the 16 Obama administration actions that were disapproved under the CRA in the 115th Congress.

A number of substantive rules issued by the EPA, the Department of the Interior, and other agencies in recent months would be subject to the CRA look-back provision, but the likelihood of them being disapproved under the CRA will depend on whether the Biden administration wants to issue more stringent rules in their place.

For example, EPA’s rule requiring public transparency surrounding certain studies on which regulatory actions are based may be susceptible to a CRA challenge because it is unlikely that the Biden administration would want to issue another rule in its place. Likewise, EPA’s rule for considering costs and benefits for Clean Air Act regulations is more likely to be undone using the CRA, because the Biden administration will want it off the books as soon as possible so it cannot interfere with other regulatory priorities.

For more substantive rules that EPA will want to revise and strengthen, such as the suite of rules regulating emissions from new oil and gas operations or for rules which EPA is required by statute to undertake periodic reviews, such as the national ambient air quality standards for ozone, the Biden administration and congressional Democrats may eschew the CRA in favor of notice-and-comment rulemaking.

CRA Prohibits Judicial Review

In reissuing a Department of Labor drug testing rule, the Trump administration argued its statutory mandate required a rule on the topic but that the new rule was not substantially the same as the rule that had been disapproved. (84 FR 53037). Similarly, the Securities and Exchange Commission has reissued a rule concerning the disclosure of financial payments by the extractive industries on the basis that it was required to issue a rule on the topic and that the new rule was not the same as what had been disapproved. (86 FR 4662).

Whether a subsequent rule is substantially the same as the rule that had been disapproved under the CRA is the sort of question that ordinarily would be settled in the courts. However, the CRA includes a broad prohibition against judicial review.

Although the U.S. Court of Appeals for the D.C. Circuit and other courts have rejected cases based on the CRA’s judicial review ban, other courts have entertained challenges based on the CRA. Uncertainty over whether a replacement rule would survive judicial review may give the Biden administration further pause about using the CRA to sweep away the Trump administration’s regulatory legacy.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Write for Us: Author Guidelines

Author Information

Byron Brown is a senior counsel in Crowell & Moring LLP’s government affairs and environment and natural resources practice groups. He served as deputy chief of staff for policy at the Environmental Protection Agency in 2017-2018, senior counsel for the Senate Committee on Environment and Public Works, the House Committee on Natural Resources, and as an attorney with the EPA Office of General Counsel.

Robust Health-Care M&A Volume Ends 2020, Will Continue in 2021

Jan. 29, 2021, 9:00 AM Coordinated Universal Time

The volume of announced and closed health-care industry deals in December (222) was the highest of any month in 2020 and 2021 should remain a strong year for deals as the Biden administration doubles down on the pandemic and economic recovery, vaccine distribution accelerates, new therapeutics come to market, and providers and health technology companies innovate to meet evolving patient needs.

In 2020, total deal volume for the year ended at 1,936. Although deal volume slowed in Q2 (354 announced/closed) as the country faced the beginning of the Covid-19 pandemic, investor activity accelerated through the second half of the year: Q3 (496) and Q4 (610).

While the economy as a whole was deeply impacted by the effects of the pandemic, the health-care and life sciences industry appears to have remained largely resilient through the significant disruptions caused by Covid-19.

Physician Practices and Services

Physician practices and services finished the year with 25 deals announced or closed in December, and 71 total deals in Q4. The sector closed out 2020 with 208 transactions, down 5% compared to 2019.

What is significant for 2020, however, is the significant volume of physician group deals notwithstanding the virtual standstill for several months due to the pandemic, as many transactions were canceled or postponed at the onset of Covid-19.

However, transaction activity soared during the last four months of 2020, averaging over 23 deals per month, which signals continued robust activity in this sector into 2021. A major driver of the year-end rush to close these transactions in 2020 was the foreseeable push by the incoming Biden administration to increase the capital gains tax rates in 2021 and beyond.

This increasing trend is driven in large part by the challenges faced by medical practices during the pandemic, and their recognition of real and tangible benefits of being part of a larger practice organization with professional management, well-developed corporate infrastructure, and access to substantial capital—all of which is essential to enable medical groups to better weather future uncertainties and to best position physicians to survive and thrive in the future.

Transactions of note in December included the acquisition of Eye Center of Texas by Shore Capital portfolio company, EyeSouth Partners. Shore Capital continues to add density to its platform in Texas and the Southeast, having made five total acquisitions in 2020.

Eye care was one of the hottest specialties in terms of M&A activity in 2020 due to increasing awareness about the importance of eye health and growing coverage for vision care. The transaction serves as an example of the roll-up strategy financial sponsors are deploying in eye care, as well as across other physician specialties, many of which remain highly-fragmented. Transactions of similar motivation are expected to drive M&A volume across the sector in 2021.

Hospitals and Health Systems

Hospitals and health systems saw 14 transactions announced or closed in December, finishing the year with 113 in total, a 14% decline from 2019. However, despite transaction volume being down over 2019, the sector finished the year on a high note with 36 transactions in Q4, up from 21 in Q3.

The decline in transaction volume is due to the fact that hospitals in most metropolitan regions are already substantially consolidated, and because hospitals have been laser-focused on the pandemic.

Once the pandemic subsides, we expect that hospital sector transactions will pick up during the second half of 2021 and into 2022 as favorable transaction dynamics stemming from eased patient capacity constraints and continued recovery as the Covid-19 vaccine is deployed.

Solo hospitals and small health systems have been financially impacted by the pandemic, and realize now more than ever that being part of a larger health system, with substantial infrastructure and access to capital, is important in order to survive and succeed into the future, so that they will always be there to serve the health-care needs of their local communities.

A notable announced transaction in December is Cleveland Clinic’s proposed acquisition of Mercy Medical Center. The transaction would add a 12th regional Hospital for Northeast Ohio-based Cleveland Clinic, and represents an expansion into Southeast Ohio for the health system. The deal is expected to close in Q1 2021 subject to regulatory approval.

Other growing health systems across the country continue to seek out acquisition opportunities as a way to add facilities and providers in core regions and expand geographically.

Health-Care IT and Software

Health-care IT ended the year with 36 announced/closed deals in December, the second highest month of the year. The sector had 266 deals in 2020, up 31% from 2019. The recent rise in Covid-19 cases is likely to continue interest in development of innovative technologies and solutions to meet surges in patient demand and streamline care processes.

The long-term outlook for utilization of telehealth services remains unclear, however, as the pandemic has created new demands and expectations from patients on where, how, and when they receive care, which, in turn, could lead to more regulatory flexibility to broaden the utilization of telehealth services.

Another contributing factor to the spike in health-care IT deals was the increase in internet traffic stemming from the pandemic leading to the need for more creative, practical, and secure solutions for the provision of health-care services over the internet.

Life Science and Pharmaceuticals

Life science and pharmaceuticals (47) had the highest volume of announced or closed deals in December and for 2020 in total, ending the year with 384 announced/closed deals.

Interest in life sciences transactions is likely to remain high in 2021, particularly as vaccine distribution accelerates, additional vaccines and therapeutics are approved, testing continues to expand, and pharmaceutical companies continue to innovate for a post-pandemic market.

Medical Device and Supplies

Medical device and supplies also ended the year on a high note, with 33 announced/closed deals in December and 247 for the year. Just as interest in innovative life science and health IT products increased as a result of the pandemic, medical device and supply demand is likely to stay strong as the sector supports distribution, storage, and administration of Covid-19 vaccines.

As variants and mutations of the virus emerge, potentially requiring continued immunizations in future years, medical device and supply companies are going to see increased volume making them lucrative targets for investors.

Cannabis

Cannabis sector deal volume rose at an astonishing pace in 2020 closing with 159 deals, far exceeding the 57 transactions in 2019. The 15 deals announced or closed in December mark the eighth month in a row of double-digit deal volume, with Q4 being the most active quarter this year at 46 transactions.

We expect this fast-growing trend to continue into 2021 as states continue to loosen regulations and expand legally permissible applications for both recreational and medicinal marijuana use.

Outlook for 2021

With the Biden administration taking over, attention will turn to what policy and regulatory priorities to expect over the next year. However, given the Democrats’ slim majorities in the House and Senate, investors can expect that there will not be significant system reforms in the near-term.

Rather, the policy focus is expected to remain on stimulating the economy, supporting health sector recovery, and ensuring continued progress on Covid-19 vaccines distribution and development of therapeutics. This continued focus on the pandemic is expected to drive investor opportunities and optimism in 2021, especially in the life sciences and pharmaceutical, medical device, and health IT sectors.

The effects of the pandemic will also continue to drive physician groups, hospitals and other health-care providers to further consolidate to better position themselves for a bumpy and uncertain future.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Write for Us: Author Guidelines

Author Information

Gary W. Herschman is a member of Epstein Becker Green in its Newark, N.J., office. Anjana D. Patel is a member of Epstein Becker Green in Newark. Zachary S. Taylor is an associate at Epstein Becker Green in Newark. Hector M. Torres is managing director at FocalPoint Partners LLC in Chicago. Larry Kocot is a principal and national leader, Center for Healthcare Regulatory Insight at KPMG LLP in Washington, D.C. Carole Streicher is U.S. lead partner, deal advisory and strategy at KPMG LLP in Chicago.

Aaron T. Newman, Ryan DeBlaey, and Michael Stotz of FocalPoint Partners; and KPMG’s Ross White, Puja Ghelani, and Shakoor Jilani contributed to this article.

Epstein Becker Green and KPMG did not comment on any particular transaction or party discussed or listed in this article.

A ‘Pro-Life’ Decision Burdens Minorities, Poor Most During a Pandemic

Jan. 29, 2021, 9:01 AM Coordinated Universal Time

The Supreme Court has decided its first abortion case since Amy Coney Barrett joined the court. Not surprisingly, it did not favor reproductive rights. But despite the pro-life view of Justice Barrett and many of her brethren, this was most decidedly not a pro-life decision with respect to women seeking abortions, the majority of whom are minorities and poor.

Instead, the ruling subjects these women and their families to increased risks of Covid-19, contrary to other federal policies that reduce the threat of coronavirus.

FDA Requirement

The decision concerns an FDA requirement for medication abortions, the most common form of abortion during the first 10 weeks of pregnancy. Unlike invasive surgical abortions, which require local anesthesia and must be done in a medical clinic, medication abortions merely require a woman to take two prescription drugs—mifepristone and misoprostol—to induce the equivalent of an early miscarriage.

The process is fairly simple except for one requirement. Women can obtain prescriptions for both drugs through a telemedicine consult, they can obtain misoprostol from a pharmacy by mail, and they can take the drugs at home. But the FDA requires women to obtain mifepristone from a hospital, clinic, or medical office.

The FDA claims this protects women because they receive “in-person counseling about possible complications” and avoid “potential delays” in obtaining the drug. Unpersuasive in ordinary times, this explanation is ludicrous at the height of a raging pandemic. Apparently, six of the nine justices did not think so.

Last July, a federal district court preliminarily enjoined the FDA from enforcing the in-person requirement to obtain mifepristone. Relying on the Supreme Court’s “undue burden” test, it held that the requirement is likely unconstitutional because it imposes a “substantial obstacle” for women seeking medication abortions during the Covid-19 pandemic.

The U.S. Court of Appeals for the Fourth Circuit denied the federal government’s request to overturn that decision, and the case reached the Supreme Court, which allowed the requirement to be reinstated pending further decisions below.

Justice Sonia Sotomayor wrote an impassioned dissent noting how extraordinary the ruling is. The decision would have been galling six months ago, but it is beyond the pale when more than 400,000 Americans have died of Covid-19, the daily deaths have at times exceeded the number killed on 9/11, and a highly contagious variant of the virus is spreading.

Even more extraordinary is how wildly inconsistent it is with various federal policies designed to lessen the spread of the virus. The CDC has encouraged the use of telemedicine “whenever possible” and the FDA and HHS have waived several in-person requirements to obtain certain drugs (including opioids). Yet, throughout the pandemic, the FDA has insisted that women should obtain an abortion drug in person.

Minorities, Poor Women Disproportionately Bear the Risks

As Sotomayor noted, the court’s ruling is astounding in unnecessarily endangering all women seeking the safest form of abortion by increasing their exposure to the virus and the higher risk of severe outcomes from Covid-19 that pregnancy presents. Worse yet, minorities and poor women, who represent a majority of those seeking abortions, will disproportionately bear these risks.

First, the risk of mortality from Covid-19 for people of color is at least 2.7 times that of non-Hispanic white people.

Second, many poor women will have to use public transportation to pick up mifepristone, often at clinics far from home, heightening their exposure to the virus.

Finally, their elderly relatives will face a disproportionate risk of infection because minority and low-income women are more likely to live in intergenerational housing.

The decision presents impossible choices for women seeking early abortions. They can risk Covid-19 infection to obtain medication abortions or they can delay their abortions. But in delaying them, they face the prospect of later and riskier surgical abortions, which will also be in person.

What justifies this ruling? According to Chief Justice Roberts, it’s the obligation to defer to “politically accountable entities with ‘the background, competence, and expertise to assess public health.’” Roberts never explains why deference is owed when a requirement undermines public health.

Nor does he describe why the court once again upheld the Trump administration’s agenda through its “shadow court,” i.e., granting an emergency request for intervention before the legal challenge has been fully resolved. But we know why: to protect the life of the fetus and to gradually erode abortion rights.

That the ruling endangers the lives of pregnant women and a disproportionate number of minority women (and their families) seems to be of no import. This is a pro-life mission, which is ultimately anti-life with respect to women—often poor and minorities—seeking to control their reproductive lives. It always has been.

Just as Covid-19’s disproportionate impact on minorities has laid bare our societal inequities, the court’s decision lays bare its view that preventing abortions is more important than protecting women, even in a pandemic.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Write for Us: Author Guidelines

Author Information

Sonia M. Suter is the Kahan Family Research Professor of Law and founding director of the Health Law Initiative at George Washington University Law School. Her scholarship focuses on issues at the intersection of law, medicine, and bioethics, with an emphasis on reproductive rights and genetics.

Subscribe

Was this email forwarded to you? Subscribe to our Business & Practice newsletter and get the best of our content delivered to your Inbox every morning.