2017 trade law outline coverpages

Presented by The Iowa State Bar Association's Corporate Counsel & Trade Regulation Sections

2017 Corporate Counsel/ Trade Regulation Seminar

Friday, September 22, 2017

ISBA Headquarters

CaveatThe printed materials contained in this book

and the oral presentations of the speakers arenot intended to be a definitive analysis of the

subjects discussed. The reader is cautioned that neither the program participants nor The IowaState Bar Association intends that reliance beplaced upon these materials in advising your

clients without confirming independent research.

2017 Corporate Counsel/ Trade Regulation Seminar

In-Person: 267553Live Webinar: 267440

CLE credit: 6.50 State CLE hours which includes 1.0 Ethics CLE hours and 4 Federal CLE hours.

ScheduleSchedule8:00-8:45 Registration

8:45-9:00 WelcomeJustice Edward Mansfield, Trade Regulation Chair, Iowa Supreme Court and Charlie Nichols, Corporate Counsel CLE Chair, Principal

9:00-9:45 Class Action Litigation UpdateChantel Kramme, Faegre Baker Daniels LLP

9:45-10:30 Iowa Supreme Court Update Debra Hulett, Nyemaster Goode PC

10:30-10:45 Break

10:45-11:15 Antitrust and Consumer Fraud Enforcement in Iowa: Looking Back and Looking Ahead Tom Miller, Iowa Attorney General

11:15-12:00 Internal Corporate InvestigationsNick Klinefeldt, Faegre Baker Daniels LLP

12:00-12:15 Lunch (provided with registration)

12:15-1:00 Luncheon Speaker – Update on the Affordable Care Act, Better Care Reconciliation Act of 2017 (BCRA) and American Health Care Act of 2017 (AHCA)Scott Sundstrom, Wellmark

1:00-1:45 New Developments in AntitrustJustice Edward M. Mansfield, Iowa Supreme Court

1:45-2:30 Hot Topics in Immigration LawElizabeth Van Arkel and Holly Logan, Davis Brown Law Firm

2:30-2:45 Break

2:45-3:15

3:15-4:15

Franchise Law UpdateMark T. Hamer, Hamer Law Office and Emily Alward, Alward Law Office

Ethics PanelModerator: Tara van Brederode, Assistant Director, Office of Professional Regulation of the Supreme Court of Iowa Panel: Prof. Maura Strassberg, Drake Law School; George Eichhorn, Childserve; Beth Mack, Wells Fargo and Todd Lantz, Weinhardt Law Firm


2017 Corporate Counsel and Trade Regulation Seminar

Class Action Litigation Update

9:00 a.m. - 9:45 a.m.

Presented byChantel Kramme

Faegre Baker Daniels LLP801 Grand Avenue, 33rd Floor

Des Moines, IA 50309Phone: 515-447-4721

Email: [email protected]



Class Action Litigation Update

September 22, 2017 Chantel M. Kramme

1

Overview

►Recent Trends in Class Action Litigation ►Iowa Class Action Litigation Update ►Federal Class Action Litigation Update

► Recent Supreme Court Decisions ► Recent Eighth Circuit Decisions

►Looking Ahead: ► Supreme Court’s October 2017 Term ► Proposed Amendments to FRCP 23

2

Recent Trends in Class Action Litigation

3


►2016 Highlights ► Class action spending: $2.17 billion ► Up for second consecutive year ► Accounts for 11.2% of all litigation spending in U.S. ► Companies managing class actions: 53.8% ► Average number of class actions managed per company: 5.9

►Average number of new matters: 2.0

Copyright © 2017 by Carlton Fields Jorden Burt, P.A. The 2017 Carlton Fields Class Action Survey, available at http://ClassActionSurvey.com/

4


►2016 Highlights ► Most common types of class actions:

► Labor & Employment (37.7%) ► Consumer Fraud (19.0%) ► Product Liability (9.9%) ► Securities (9.6%) ► Intellectual Property (7.5%) ► Antitrust (6.5%) ► Other—contracts, data, privacy, insurance (9.8%)


5


►2017 Projections ► Class action spending: $2.22 billion

►Increase of 2% over 2016 ► Average number of class actions managed per company: 6.2

►Increase of 5% over 2016 ► Average number of new matters per company: 2.6

►Increase of 30% over 2016


6


►2017 Projections ► Most common types of class actions:

► Wage & Hour (25.9%) ► Telephone Consumer Protection Act (TCPA) (22.2%) ► Actions as a Result of CFPB Proposed Rule (13.7%) ► Data Privacy & Security (11.1%) ► Antitrust (11.1%) ► Non-Discrimination provisions of ACA (7.4%)

Copyright © 2017 by Carlton Fields Jorden Burt, P.A.

The 2017 Carlton Fields Class Action Survey, available at http://ClassActionSurvey.com/

7

Iowa Class Action Litigation Update

8


►Freeman v. Grain Processing Corp., 895 N.W.2d 105 (Iowa 2017) ► Background:

► Plaintiffs: Muscatine residents who live near corn wet milling plant. ► Allegation: Air pollution from plant interferes with use of property. ► Claims: State common law and statutory claims based on nuisance,

trespass, and negligence theories. ► Iowa District Court Decision:

► Granted class certification. ► Divided class into two subclasses: close proximity and peripheral

proximity. ► Common issues exist and predominate. ► Nuisance claim—harm is objective; not inherently individual. ► Case law supports proposed use of formulaic damages.

9


►Freeman v. Grain Processing Corp., 895 N.W.2d 105 (Iowa 2017) ► Issues on Appeal:

► Whether District Court abused its discretion in certifying the class. ► GPC:

► Commonality is not present. ► Common issues of law or fact do not predominate over individual

issues. ► Whether certification infringed upon GPC’s due process rights.

► GPC: Certification order violates due process by interfering with its right to litigate individual defenses.

10


►Freeman v. Grain Processing Corp., 895 N.W.2d 105 (Iowa 2017) ► Iowa Supreme Court Decision:

► Affirmed class certification order. ► Whether District Court abused its discretion in certifying the class.

► Commonality requirement satisfied where all class members “allegedly suffered a common injury—air pollution emanating from GPC that interfered with the use and enjoyment of their property.”

► Disparity in injury was resolved by creating two subclasses. ► Predominance requirement satisfied where proving each claim will involve

similar common evidence. ► No issue in plaintiffs’ use of representative testimony to show classwide harm. ► “A possibility that the class includes some uninjured residents will not bar

certification at this time.” ► Assertions that plaintiffs’ expert’s model is “flawed and incapable of calculating

injury and damages to the class as a whole” go to the merits and should not be resolved at class certification.

11


►Freeman v. Grain Processing Corp., 895 N.W.2d 105 (Iowa 2017) ► Iowa Supreme Court Decision (Cont’d):

► Whether certification infringed upon GPC’s due process rights. ► GPC: Residents’ plan to extrapolate harm to surrounding properties from

testimony of twenty to thirty representative class members violates due process by masking individual issues.

► Court: ► District Court has not limited the number of witnesses GPC can present,

nor its exploration of individual defenses. ► Supreme Court has indicated inferences from representative proof are

permissible in certain circumstances.

12


►Freeman v. Grain Processing Corp., 895 N.W.2d 105 (Iowa 2017) ► APPEL, Justice (concurring specially):

► “I concur in the generally thorough majority opinion in this case. I write separately, however, to emphasize the difference between Iowa law and federal law on the question of class certification. Iowa is one of two states that have adopted a version of the Uniform Class Actions Act. One of the purposes of the Uniform Class Actions Act was to create a more generous standard for class certification because federal courts have severely restricted the availability of class actions in their forum. Consistent with the Uniform Class Actions Act upon which they are based, Iowa courts have consistently stated our class-action rules are remedial in nature and should be liberally construed to favor the maintenance of class actions. In light of this legislative history and our caselaw, federal class action precedent is of limited value in determining class certification under Iowa law.” (internal citations and quotation marks omitted).

13

Federal Class Action Litigation Update

Recent Supreme Court Decisions

14

Federal Update: Recent Supreme Court Decisions

►Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663 (2016) ► Background:

► Gomez received unsolicited text message advertising the U.S. Navy. ► Gomez argued Campbell-Ewald violated the TCPA by instructing or allowing a

third-party vendor to send unsolicited text messages on behalf of a client. ► Campbell-Ewald offered Gomez a settlement; Gomez rejected. ► Campbell-Ewald moved to dismiss on ground that Gomez’s rejection of the

settlement offer made the claim moot. ► Lower Courts:

► District Court: Denied motion to dismiss; granted motion for summary judgment on ground that company had derivative sovereign immunity.

► Ninth Circuit: Reversed; held Campbell-Ewald was not entitled to the derivative sovereign immunity defense.

15


►Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663 (2016) ► Issue on Appeal:

► Whether a case becomes moot when a named plaintiff receives an offer of complete relief for his claim.

► Decision: ► An unaccepted settlement offer does not make a plaintiff’s claim moot.

► Under FRCP 68, an unaccepted settlement offer has no force. ► Like contract law, an offer has no force and creates no obligation if not

accepted. ► As long as parties continue to have a concrete interest in the outcome of the

litigation, the case is not moot.

16


►Tyson Foods, Inc. v. Bouaphakeo, 136 S. Ct. 1036 (2016) ► Background:

► Bouaphakeo and plaintiff class were current or former employees of Tyson Foods who worked at the company’s meat-processing facility in Storm Lake, Iowa.

► Employees worked on a “gang-time” system. ► Argued company violated FLSA and Iowa Wage Payment Collection Law by not

properly compensating for time spent putting on and taking off protective clothing.

► Lower Courts: ► District Court: Certified class; jury awarded damages of several million dollars

to plaintiff class. ► Eighth Circuit: Affirmed class certification.

17


►Tyson Foods, Inc. v. Bouaphakeo, 136 S. Ct. 1036 (2016) ► Issues on Appeal:

► Whether differences among plaintiff class members may be ignored for the purpose of class certification when liability and damages are to be calculated based on statistical techniques that presume all class members are identical to an average.

► Whether a class action may be certified and maintained when the class contains members who were not injured and therefore have no legal right to damages.

► Decision: ► Supreme Court declined to adopt “broad and categorical rules governing the

use of representative and statistical evidence in class actions.” ► “Whether a representative sample may be used to establish classwide liability

will depend on the purpose for which the sample is being introduced and on the underlying cause of action.”

18


►Tyson Foods, Inc. v. Bouaphakeo, 136 S. Ct. 1036 (2016) ► Decision (Cont’d):

► In cases “where representative evidence is relevant in proving a plaintiff’s individual claim, that evidence cannot be deemed improper merely because the claim is brought on behalf of a class” as such a holding “would ignore the Rules Enabling Act’s pellucid instruction that use of the class devise cannot abridge . . . any substantive right.”

► The use of statistical sampling and extrapolation was permissible here because “each class member could have relied on that sample to establish liability if he or she had brought an individual action.”

► Tyson had abandoned its argument that the presence of uninjured class members doomed class certification.

► Whether Tyson should not have to pay the class until the employees demonstrated uninjured class members were not factored into class award was not ripe for review.

19


►Microsoft v. Baker, 137 S. Ct. 1702 (2017) ► Background:

► Plaintiffs alleged a design defect in Microsoft’s Xbox 360 scratched game disks. ► Lower Courts:

► District Court: Struck plaintiffs’ class allegations. ► Ninth Circuit: Denied plaintiffs’ petition for permission to appeal under Rule

23(f). ► Plaintiffs then stipulated to a voluntary dismissal with prejudice in an effort to

create an appealable “final decision.” Plaintiffs reserved the right to revive their claims if the Ninth Circuit reinstated their class allegations. Plaintiffs appealed, challenging interlocutory order striking class allegations.

► Ninth Circuit: Held it had jurisdiction under Section 1291; reversed District Court’s ruling.

20


►Microsoft v. Baker, 137 S. Ct. 1702 (2017) ► Issue on Appeal:

► Whether a federal court of appeals has jurisdiction to review an order denying class certification or striking class allegations after named plaintiffs voluntarily dismiss their claims with prejudice.

► Decision: ► Under Section 1291, federal courts of appeals are only empowered to review

“final decisions of the district courts.” ► Plaintiffs’ voluntary dismissal was not a “final decision” for purposes of Section

1291: ► Finality “is to be given a practical rather than a technical construction.” ► Plaintiff’s “tactic undercuts Rule 23(f)’s discretionary regime.” ► Voluntary dismissal tactic was one-sided.

21


►CalPERS v. ANZ Securities, 137 S. Ct. 2042 (2017) ► Background:

► CalPERS purchased millions of dollars in securities from Lehman Brothers. ► In 2008, another retirement fund filed a putative class action against

Lehman Brothers, alleging violations of Section 11 of the Securities Act. ► In 2011, CalPERs opted out of the class and separately brought suit; the

case was merged with the other retirement fund’s lawsuit and transferred to New York. Soon thereafter, parties in initial suit settled.

► Lower Courts: ► District Court: Dismissed case; American Pipe tolling does not apply and

individual claim was not timely filed. ► Second Circuit: Affirmed.

22


►CalPERS v. ANZ Securities, 137 S. Ct. 2042 (2017) ► Issue on Appeal:

► Whether the filing of a putative class action satisfies the three-year time limit in Section 13 of the Securities Act with respect to individual claims of other class members.

► Decision: ► The three-year deadline in Section 13 of the Securities Act is a statute of

repose, not a statute of limitations, and is not subject to equitable tolling. ► Statutes of limitation run from accrual, or “when the plaintiff can file suit and obtain

relief.” ► Statutes of repose run from “the date of the last culpable act or omission.” ► Statutes of repose are not subject to equitable tolling because they reflect the

legislature’s decision to set a “specific time beyond which a defendant should no longer be subjected to protracted liability.”

23

Federal Class Action Litigation Update

Recent Eighth Circuit Decisions

24

Federal Update: Recent Eighth Circuit Decisions

►Arbitration Provisions ► Cellular Sales of Mo., LLC v. NLRB, 824 F.3d 772 (8th Cir. 2016)

► Arbitration provisions mandating individual arbitration of employment-related claims do not violate the NLRA.

► McLeod v. General Mills, Inc., 856 F.3d 1160 (8th Cir. 2017) ► Section of ADEA prohibiting individual from waiving right or claim unless

waiver was knowing and voluntary did not override FAA mandate to enforce agreements to arbitrate ADEA claims.

►Ascertainability ► Sandusky Wellness Center, LLC v. Medtox Scientific, Inc., 821 F.3d

992 (8th Cir. 2016) ► Court adopted less rigorous ascertainability analysis, requiring only that the

class be defined in reference to objective criteria.

25

Federal Update: Recent Eighth Circuit Decisions

►Review of Class Action Settlements ► In re Target Corp. Customer Data Security Breach Litig., 847 F.3d

608 (8th Cir. 2017) ► Remanded because “the district court failed to articulate its analysis of the

numerous disputed issues of law and fact regarding the propriety of class certification.”

► Keil v. Lopez, 862 F.3d 685 (8th Cir. 2017) ► Distinguished review of class settlement approval from review of class

certification decision. ► A court’s failure to state its reasons for class certification constitutes failure

to meet “rigorous analysis” standard; “rigorous analysis” standard does not apply to settlement approvals.

26

Looking Ahead

Supreme Court’s October 2017 Term

27

Looking Ahead: Supreme Court’s October 2017 Term

►Epic Systems Corp. v. Lewis, No. 16-285 ►Ernst & Young LLP v. Morris, No. 16-300 ►National Labor Relations Board v. Murphy Oil USA, No. 16-307

► Whether employment arbitration agreements that bar class actions are prohibited as an unfair labor practice.

►Cyan v. Beaver Co. Employees Retirement Fund, No. 15-1439 ► Whether state courts lack subject matter jurisdiction over covered class

actions that allege only Securities Act of 1933 claims.

28

Looking Ahead

Proposed Amendments to FRCP 23

29

Looking Ahead: Proposed Amendments to FRCP 23

►Process: ► August 2016: Proposed amendments published. ► February 2017: Public comments due. ► June 2017: Approved by Standing Committee. ► September 2017: Judicial Conference review to be completed. ► By May 1: Supreme Court review to be completed. ► December 2018: Absent Congressional action, effective December 1.

30


►Proposed Amendments ► Settlement Approval (Amended Rule 23(e)(2))

► Identifies factors courts must consider when determining whether a settlement is “fair, reasonable, and adequate.”

► Adequacy of representation; ► Whether the proposal was negotiated at arm’s length; ► Adequacy of relief (taking into account various factors); ► Whether class members are treated equitably relative to each other.

► Settlement Notice (Amended Rule 23(e)(1)) ► Requires a court determine a proposed settlement is likely to earn final

approval before sending notice to class; requires parties to submit sufficient information for that determination to be made.

31


►Proposed Amendments ► Electronic Notice for Rule 23(b)(3) Classes (Amended Rule 23(c)(2)(B))

► Permits notice via electronic or other means. ► Retains requirement that notice is the best practical under the circumstances.

► Class Member Objections (Amended Rule 23(e)(5)) ► Requires objectors to state “with specificity” the grounds for the objections

and whether the objection applies to the entire class, a subset of the class, or just the objector.

► Prohibits objectors from receiving consideration for withdrawing an objection except with court approval.

► Appeals (Amended Rule 23(f)) ► Clarifies that orders under Rule 23(e)(1) cannot be appealed under Rule

23(f).

32

Iowa Supreme Court Update

9:45 a.m. - 10:30 a.m.

Presented byDebra Hulett

Nyemaster Good PC700 Walnut St

Suite 1600Des Moines, IA 50309Phone: 515-283-3114



1

Iowa Supreme Court Update

Debra HulettNyemaster Goode, P.C.

Welcome to

ISBA Corporate Counsel & Trade Regulation SeminarSeptember 22, 2017

Overall Opinion Authorship212223

26263034

Overall Opinion Authorship

C.J. CADY J. WIGGINS

J. HECHT

J. APPEL

J. WATERMAN

J. MANSFIELD

J. ZAGER

2

Overall Opinion AuthorshipTOTAL

OPINIONSMAJORITY OPINIONS

CONCURRING OPINIONS

DISSENTING OPINIONS

CADY 26 13 10 3WIGGINS 26 13 4 9APPEL 34 16 6 12HECHT 23 14 2 7WATERMAN 22 16 3 3MANSFIELD 30 16 4 10ZAGER 21 15 2 4

182 103 31 48

Reversal Rates: Court of Appeals

AFFIRMED24%

REVERSED66%

MIXED: 10%

Reversal Rates: District Court

AFFIRMED47%

REVERSED29%

MIXED: 12%OTHER: 12%

3

Source of Jurisdiction

DIRECT

FURTHER REVIEW

ATTORNEY DISCIPLINE

JUDICIALDISCIPLINE

CERTIORARI CERTIFIEDQUESTION

DIRECT

FURTHER REVIEW

ATTORNEY DISCIPLINE

JUDICIALDISCIPLINE

CERTIORARI CERTIFIEDQUESTION

Source of Jurisdiction2016-2017 2015-2016

Source of Jurisdiction2016-2017Direct 42% Further Review 35% Attorney Discipline 16% Judicial Discipline 0% Certiorari 5% Certified Question 2%

2015-2016Direct 49% Further Review 34% Attorney Discipline 11% Judicial Discipline 3% Certiorari 2% Certified Question 1%

4

4-3 Decisions OnlyAUTHOR MAJORITY DISSENT SPECIAL CONCUR

orCONCUR, DISSENT

CADY 4 21 0 6WIGGINS 2 10 11 2APPEL 5 10 11 3HECHT 0 10 11 3WATERMAN 2 12 9 0MANSFIELD 5 12 9 0ZAGER 2 12 9 1

Justice Agreement:Non-Unanimous Cases 2016-2017

Does not include attorney discipline cases.

WIGGINS APPEL HECHT WATERMAN MANSFIELD ZAGERCADY 58% 50% 48% 61% 58% 70%

WIGGINS 85% 85% 21% 15% 27%APPEL 94% 12% 6% 18%

HECHT 12% 6% 24%WATERMAN 94% 88%

MANSFIELD 82%ZAGER

CEDAR RAPIDS OFFICE 625 FIRST STREET SE, STE 400,CEDAR RAPIDS, IA 52401-2030

P 319-286-7000F 319-286-7050

AMES OFFICE1416 BUCKEYE AVENUE, STE 200,

AMES, IA 50010-8070P 515-956-3900F 515-956-3990

DES MOINES OFFICE700 WALNUT, STE 1600,

DES MOINES, IA 50309-3899 P 515-283-3100F 515-283-3108

We know Iowa like nobody’s business.

Internal Corporate Investigations

11:15 a.m. - 12:00 p.m.

Presented byNick Klinefeldt

Faegre Baker Daniels LLP801 Grand Ave., 33rd Floor

Des Moines, IA 50309Phone: 515-447-4717



Internal Corporate Investigations

Iowa State Bar Association September 22, 2016

Nick Klinefeldt

INITIAL CONSIDERATIONS

When to conduct an investigation

►Notice of government investigation ► Government subpoena ► Search warrant ► Regulatory inquiry

►Civil lawsuit ►Media report ►Employee complaint ►Whistleblower complaint

Why conduct an investigation

►Stop/prevent future wrongdoing ►Limit legal exposure ►Get ahead of problem ►Ability to cooperate – Yates Memo

► Cooperation is all or nothing ► Must include relevant facts about individuals ► Proactive Cooperation/“Yates Presentations”

IMPORTANT STEPS

Representation Considerations

►Who to have conduct the investigation? ► In-House Counsel vs. Outside Counsel ► Knowledge about potential legal exposure ► Credibility

►Who does that attorney represent? ► Company ► Board or Committee ► Individuals

Collecting & Producing Documents

►First step: Litigation Hold ► Recipients ► Scope ► Directions to employees to hold documents ► Directions to IT Dept. to stop deletion of emails

Collecting & Producing Documents

►Next considerations: ► ESI Protocol of subpoena or future discovery request ► Taking advantage of metadata

► Advanced searches ► Search term reports

► Contract reviewers ► Budgets ► Clawback agreements – Fed. R. Evid. 502(b)

Conducting the Interviews

►Upjohn Warning: ► We represent the company, and not you. ► We are here to gather information for the purpose of providing legal

advice to the company, and therefore, our conversation with you is protected by the attorney-client privilege.

► The privilege is between the company and our law firm, not you and our law firm.

► The company controls the privilege, and the company may decide to waive the privilege and reveal the content of this conversation to the government or other parties, without your permission or notice to you.

► We request you keep this conversation confidential. Upjohn Co. v. U.S., 449 U.S. 383 (1981)

Memorializing the Interviews

►Have a second attorney takes notes and prepare a memo ►Memo is protected by attorney-client privilege and attorney work

product ►Document basis for attorney work product

► Not a verbatim transcript ► Contains thoughts, mental impressions, and conclusions of attorney

►Document Upjohn warning as given and witness acknowledgement of warning

Additional Considerations

►Joint Defense Agreements (a.k.a. Common Interest Agreements) ► Oral vs. written ► Conflict waivers ► Control of privilege

►Third parties & experts ► Must be necessary to attorney’s ability to provide effective legal advice ► Must be under supervision and control of attorneys ► Carefully set up w/ written engagement setting forth basis

REPORTING THE RESULTS

Reporting to the Client

►Written Report ►PowerPoint Presentation ►Oral Report

Update on the Affordable Care Act, Better Care Reconciliation

Act of 2017 (BCRA) and American Health Care Act of 2017 (AHCA)

12:15 a.m. - 1:00 p.m.

Presented by Scott Sundstrom

Wellmark Blue Cross and Blue Shield1331 Grand Ave

Station 5W528Des Moines, IA 50309Phone: 515-376-5537



UPDATE ON THE AFFORDABLE CARE ACT

1

CORPORATE COUNSEL TRADE REGULATION SEMINAR – SEPTEMBER 22, 2017

SCOTT SUNDSTROM Vice President, Government Relations

2

BACKGROUND BACKGROUND

FEDERAL

IOWA

WHO’S COVERED? AND HOW?

[CELLRANGE] [PERCENTAGE]



2015 Health Care Coverage

3

Source: Kaiser Family Foundation analysis of the Census Bureau’s Current Population Survey

WHO’S COVERED? AND HOW?







2015 Health Care Coverage

4

Source: Kaiser Family Foundation analysis of the Census Bureau’s Current Population Survey

HEALTH CARE IS NOT CHEAP U.S. Health Care FY 2017 Federal Appropriations

• $3.2 trillion

• 17.8% of Gross Domestic Product (GDP)

• $9,990 per person

• Total health care employment: ~13 million

• $592 billion: Medicare

• $389 billion: Medicaid

• $51 billion: Health insurance subsidies and related spending

• $15 billion: Children’s Health Insurance Program (CHIP)

5

Source: Congressional Budget Office

PATIENT PROTECTION AND AFFORDABLE CARE ACT (ACA) Market reforms

• Individual mandate – must have insurance or pay fine • Guaranteed issue with no underwriting • Coverage requirements

Subsidies to purchase coverage • Exchange/Marketplace • Premium subsidies reduce monthly premiums • Cost-sharing reductions (CSRs) lower out-of-pocket costs

Medicaid expansion Fees and taxes

6

“IF YOU'VE GOT A HEALTH CARE PLAN THAT YOU LIKE . . .” GRANDFATHERED PLANS • Purchased before 3/23/2010

No material change affecting benefits, contributions, deductibles, coinsurance, copayments

May not include all ACA benefit reforms

Premium rates different from ACA plans

GRANDMOTHERED PLANS • Purchased after 3/23/2010, but before 2014

Approved by the Obama administration in 2013, with extensions through 2018

Also known as “transitional” plans

7

ACA IN THE FALL OF 2016

Politically unpopular

Individual market unstable

But under President Clinton . . . it’s not going to be repealed

8

Confidential and Proprietary – Wellmark Blue Cross and Blue Shield 9

FEDERAL: REPEAL AND REPLACE THE ACA

BACKGROUND FEDERAL

IOWA

FEDERAL: REPEAL AND REPLACE THE ACA

BACKGROUND

FEDERAL

IOWA

FEDERAL: REPEAL AND REPLACE THE ACA?

BACKGROUND

FEDERAL

IOWA

13

CONGRESS


THE PROCESS “RECONCILIATION”

• PRO: No filibuster – only 50 senators (+VP) to pass

• CON: “Byrd Rule” requires any provisions to affect spending, revenues, or the deficit

THE POLITICS

• DEMOCRATS: “No” • CONSERVATIVES: Repeal it all • MODERATES: Alternative?

Medicaid?

REPEALING/REPLACING THE ACA — THE PROCESS AND POLITICS

REPEALING/REPLACING THE ACA – STUMBLING BLOCKS


PREMIUM SUBSIDIES

FULL OR PARTIAL REPEAL?

MEDICAID FUNDING

COVERAGE LOSSES

STABILITY FUNDING COVERAGE INCENTIVES

IT DIDN’T END WELL

March 24: Vote delayed May 4: Passed House 217-213 DOA in Senate

June 27: Vote delayed July 25: Failed 43-57

July 26: Failed 45-55

July 28: Failed 49-51


CLOSE, BUT THIS AIN’T HORSESHOES OR SLOW DANCIN’

HOUSE SENATE AHCA

(Repeal & Replace) BCRA

(Repeal & Replace) ORRA

(Repeal Only) HCFA

(“Skinny” Repeal)

ONE LAST TRY: GRAHAM-CASSIDY ACA funding Block grants Increased state flexibility But . . . • Less funding for Medicaid

and private market • Repeals coverage mandate

without a substitute • States can waive important

consumer protections


18

THE TRUMP ADMINISTRATION

ADMINISTRATIVE RELIEF — MARKET STABILIZATION RULE (APRIL 2017)


SEP VERIFICATION (Submit supporting docs. to

qualify)

TIMELINES FOR QHPs

(More time for filings)

PAYMENT OF PREMIUMS

(Collect late payments before enrolling)

METALLIC TIERS (Expand de minimus range)

NETWORK ADEQUACY

(States determine)

OPEN ENROLLMENT (Nov. 1 – Dec. 15)

21

“LET OBAMACARE IMPLODE.” −President Trump, July 28, 2017

“LET OBAMACARE IMPLODE”



Cost Sharing Reductions (CSRs) paid in August Senate HELP Committee held four hearings in September Bipartisan stabilization bill?

• Fund CSRs • Expand 1332 waivers • Reinsurance funding

GLIMMERS OF HOPE


MEANWHILE, BACK IN IOWA . . .

BACKGROUND

FEDERAL

IOWA

25

IOWA INDIVIDUAL MARKET

Grandfathered 38,500

Grandmothered 38,200

[CATEGORY NAME] [VALUE]

[CATEGORY NAME] [VALUE]

Iowa <65 Individual Commercial Insurance Market

Information based on 2017 Iowa Insurance Division enrollment data

? No change to Grandmothered and Grandfathered plans

26

Which Path for the Iowa Individual ACA Market?

IOWA INDIVIDUAL MARKET: WHICH PATH?

27

Two Choices

Continue with the ACA

Know what you

get 57% rate increase

20,000 fewer

insured

Iowa Stopgap Measure

Lower rates

Need federal

approval Novel & complex

28

IOWA STOPGAP MEASURE 1. STANDARDIZED PLAN

Single plan Insurance Division develops a single, standardized plan • Includes all essential health benefits • Silver-level actuarial value

29



2. REDESIGNED PREMIUM SUBSIDIES

Flat subsidies based on age and income Funded with $400 million in expected 2018 Iowa APTC payments

30





3. SPREADING CATASTROPHIC COSTS

Reinsurance for large claims 85% reinsurance for claims between $100,000 and $3 million 100% reinsurance for claims above $3 million

31





3. SPREADING CATASTROPHIC COSTS

Reinsurance for large claims 85% reinsurance for claims between $100,000 and $3 million 100% reinsurance for claims above $3 million

4. ADMINISTRATIVE HELP

No exchange Eligibility determination and subsidy payments handled by the State of Iowa

Eligibility for enrollment outside open enrollment period

IOWA STOPGAP MEASURE: PROCESS


Consumer visits state eligibility

web portal during open enrollment

Consumer enters information (name, age,

income, SSN, etc.)

Vendor batches submissions and sends to IDR and

DHS

IDR and DHS validate

submissions and inform vendor of

results

Vendor mails consumer •If eligible:

subsidy amount and code

•If not eligible: appeal process

Consumer applies for

coverage with carrier and enters code

Carrier enrolls consumer and

applies premium subsidy from

code

Wellmark Blue Cross and Blue Shield of Iowa, Wellmark Health Plan of Iowa, Inc., Wellmark Synergy Health, Inc., Wellmark Value Health Plan, Inc. and Wellmark Blue Cross and Blue Shield of South Dakota are independent licensees of the Blue Cross and Blue Shield Association.

Confidential and Proprietary – Wellmark Blue Cross and Blue Shield

SCOTT SUNDSTROM

THANK YOU!

New Developments in Antitrust

1:00 p.m. - 1:45 p.m.

Presented by Justice Edward M. Mansfield

Iowa Supreme CourtJudicial Branch Building1111 East Court Avenue

Des Moines, IA 50319



Ed Mansfield, Iowa Supreme Court [email protected]

515-281-8054

mailto:[email protected]

ANTITRUST IN 2016-17 To do anything well you have to do it a lot. Today’s question: Are courts seeing too few antitrust

cases and, therefore, making mistakes when they do get an antitrust case?

Other than the 2nd and 3rd Circuits, I’m concerned that courts just aren’t getting enough antitrust experience.

TODAY’S AGENDA We will cover:

(1) The US Supreme Court (2) Some interesting federal appellate court decisions (3) The Iowa Supreme Court (4) Antitrust enforcement activities We will give the NCAA a time-out for this year but will

discuss one sports law case. You can consider whether my theme for this year’s

presentation holds water or not.

THE SUPREME COURT IN 2016-17 The Supreme Court did not decide any antitrust cases

this past term even though it had one on the docket: Osborn v. VISA, Inc., 797 F.3d 1057 (D.C. Cir. 2015),

cert. granted, 136 S.Ct. 2543 (June 28, 2016).

VISA, INC. v. OSBORN

VISA, INC. v. OSBORN Say you are an independent ATM operator. As the operator you make money

(1) by charging the card holder an access fee and (2) by receiving an interchange fee from the card holder’s bank. From the interchange fee you have to pay a network services fee to a network – e.g., Visa, MasterCard, Star, etc.

Both Visa and MasterCard have required ATM operators to give them MFN status. That is, if you the operator want to accept their cards, you can’t charge a higher access fee to the Visa or MasterCard card holder than you do for other cards.

However, Visa and MasterCard charge higher network service fees to the operators, so the operator receives a smaller amount net on a Visa or MasterCard transaction than on a transaction through another network.

Because of the MFN provisions, independent operators can’t say to cardholders, “We will charge you $2.00 for a Visa or MasterCard transaction, but if your card has a Star logo on it, we will charge you only $1.75.”

VISA, INC. v. OSBORN There was no claim that Visa and MasterCard had

conspired with each other. The claim was that the member banks in Visa and in MasterCard conspired among themselves. Visa and MasterCard are both publicly held companies today, but the rules in question were adopted when they were owned by the member banks.

ATM operators and consumers sued, alleging violations of § 1 of the Sherman Act.

VISA, INC. v. OSBORN The district court dismissed the case on a 12(b)(6)

motion, but the 2nd Circuit reversed. “The Plaintiffs have adequately alleged an agreement

that originated when the member banks owned and operated Visa and MasterCard and which continued even after the public offerings of these associations.”

The Supreme Court granted cert.

VISA, INC. v. OSBORN The defendants argued mere membership in an association

can’t be enough to make you a conspirator even if the association has an anticompetitive rule.

The argument seemed to have several different strands: (1) Under Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007), you

need to allege enough detail to demonstrate that an antitrust conspiracy is plausible. Here there is no allegation that any bank communicated with any other bank.

(2) When a joint venture acts as a joint venture and pursues the interest of that venture as a whole, that cannot be the basis for a § 1 claim.

(3) A § 1 complaint challenging a joint venture must plausibly suggest that the venture’s members were pursuing separate economic interests.

VISA, INC. v. OSBORN In October 2016, the United States filed a merits brief in

support of the judgment below. (Note that Supreme Court failed to ask for the views of the government before granting cert.)

The government essentially made the point that the petitioners were confusing (1) whether there is concerted conduct for purposes of Sherman 1 (the threshold issue presented by the 12(b)(6) motion) with (2) when does a joint venture violate the antitrust laws (the ultimate merits of the case).

The government pointed out that this case is governed by…

AMERICAN NEEDLE v. NFL

AMERICAN NEEDLE v. NFL A unanimous Court, per Justice Stevens, held that to decide whether

there is concerted action to trigger section 1 coverage, you do not look at whether a single legal entity is technically involved, or whether the parties involved “seem like one firm or multiple firms in any metaphysical sense.”

Instead, you perform a “functional analysis.” You look at whether there are “independent centers of

decisionmaking.” Here, each NFL team was an independent center of decisionmaking, so

an agreement among them was subject to § 1. The fact that a single entity, NFL Properties, was formed, does not

shield the arrangement from § 1 if there are independent centers of decisionmaking.

By analogy, in Visa, Inc. v. Osborn the member banks are “independent centers of decisionmaking.”

VISA, INC. v. OSBORN On November 17, 2016, less than 3 weeks before scheduled O/A, the Supreme

Court dismissed the writ as improvidently granted. “Writ of certiorari DISMISSED as improvidently granted. These cases were

granted to resolve “[w]hether allegations that members of a business association agreed to adhere to the association�’s rules and possess governance rights in the association, without more, are sufficient to plead the element of conspiracy in violation of Section 1 of the Sherman Act.” After having persuaded us to grant certiorari� on this issue, however, petitioners �chose to rely on a different argument� in their merits briefing. The Court, therefore, orders that the writs in these cases be dismissed as improvidently granted.”

Not sure I agree. Maybe just the SC giving cover to the law clerk who wrote the cert pool memo.

Regardless, I tend to concur the case didn’t warrant the Court’s attention. The 2nd Circuit was right on the only issue before it – namely, whether the plaintiffs had adequately pled concerted activity.

Note the date when the SC granted cert – June 28, 2016.

JUSTICE GORSUCH’S ANTITRUST CASES How will Justice Gorsuch approach antitrust cases? I could find only one majority opinion he wrote on the 10th Circuit. Novell, Inc. v. Microsoft Corp., 731 F.3d 1064 (10th Cir. 2013). The opinion employs a very concentrated Chicago School approach –

maybe too concentrated for my taste. When rolling out a new version of the Windows in the mid-1990’s,

Microsoft originally gave access to its application programming interfaces (API’s) to competing software developers like Novell (WordPerfect).

Then after giving access during the Beta version, Microsoft pulled access before the final version in order to provide “a real advantage” to its own software (as Bill Gates put it).

Novell sued under Sherman § 2. The district court granted JML to Microsoft. Novell appealed.

NOVELL v. MICROSOFT The 10th Circuit per Judge Gorsuch affirmed on the basis of

insufficient evidence of exclusionary conduct. Relying on the US Supreme Court’s decision in Law Offices of Curtis V. Trinko, the 10th Circuit basically said this is a refusal to deal and refusals to deal generally don’t constitute exclusionary conduct.

Remember, though, that in Aspen Skiing the Supreme Court upheld a § 2 plaintiff ’s verdict based on a refusal to deal – i.e., where the dominant ski operator in Aspen refused to continue selling a combined lift ticket with the smaller ski operator. Trinko distinguished Aspen Skiing largely on the ground that the monopolist in Aspen Skiing had discontinued a prior cooperative arrangement.

Why isn’t Novell an Aspen Skiing-type case?

NOVELL v. MICROSOFT The Trinko Court said, “The unilateral termination of a voluntary

(and thus presumably profitable) course of dealing suggested a willingness to forsake short-term profits to achieve an anticompetitive end.”

Judge Gorsuch juiced up this holding: “[A]s in Aspen, the monopolist's discontinuation of the preexisting course of dealing must ‘suggest[ ] a willingness to forsake short-term profits to achieve an anti-competitive end.’” This rearranges the logic of Trinko a bit.

Judge Gorsuch then analogized refusal to deal cases to predatory pricing cases and said that Novell had to present independent evidence from which “a reasonable jury could infer that Microsoft’s discontinuation of this arrangement suggested a willingness to sacrifice short-term profits.” Since no such evidence was presented, Novell’s claim failed as a matter of law.

https://1.next.westlaw.com/Link/Document/FullText?findType=Y&serNum=1985131122&originatingDoc=I47ec4efe246611e3a341ea44e5e1f25f&refType=RP&originationContext=document&transitionType=DocumentItem&contextData=(sc.UserEnteredCitation)

NOVELL v. MICROSOFT Maybe a little strong. As in Aspen Skiing, doesn’t the fact

that Microsoft used to share its API’s suggest that the sharing was profitable? That is what Trinko said. In short, the 10th Circuit required additional proof that the monopolist was sacrificing profits, instead of allowing an inference from the fact that the monopolist discontinued a cooperative arrangement that had previously been in place and seemed satisfactory to everyone.

So far, the US Supreme Court has not equated refusal to deal cases with predatory pricing cases. Predatory pricing cases are a special animal because low prices are clearly a good thing for consumers.

IN RE PRE-FILLED PROPANE TANK ANTITRUST LITIGATION

IN RE PRE-FILLED PROPANE TANK ANTITRUST LITIGATION 860 F.3d 1059 (8th Cir. 2017). A proposed class action brought against distributors of pre-filled

propane exchange tanks. The allegation was that when the price of propane rose in 2008,

the defendants acted in concert to reduce the fill level of the tanks from 17 to 15 pounds of propane.

There was a settlement in 2010. But the plaintiffs allege the conspiracy continued. In fact, the FTC issued a complaint in 2014, which prompted this new lawsuit.

The defendants moved to dismiss this new lawsuit based on the 4-year statute of limitations in the Clayton Act, i.e., 2008 was more than 4 years ago. The district court agreed with the defendants and dismissed.

Plaintiffs appealed, arguing a continuing violation.

IN RE PRE-FILLED PROPANE TANK ANTITRUST LITIGATION The 8th Circuit panel affirmed the district court. Judge Benton dissented. Last year, I discussed the panel decision and said, “I think the decision is

maybe a bit questionable.” This year the court reversed en banc. The issue is: When you have an agreement to inflate prices outside the

limitations period, and the same prices continue to be charged inside the limitations period, can suit be filed? Is there a continuing violation?

New majority (written by Judge Benton): “[S]ales at artificially inflated prices are overt acts that restart the statute of limitations.” (However, you can only sue over sales within the limitations period.)

The new dissent (written by the judge who wrote the panel majority) offers a different standard: “[T]he plaintiffs must sufficiently allege that the defendants engaged in a live ongoing conspiracy sometime in the limitations period to survive a motion to dismiss.”

Remember, the 2010 settlement and the 2014 FTC complaint kind of complicate things.

IN RE PRE-FILLED PROPANE TANK ANTITRUST LITIGATION In a sense, the issue is kind of the same as in Visa v.

Osborn: You start out with a conspiracy or agreement. The conduct enabled by the conspiracy continues, but the defendants say it is no longer being undertaken pursuant to the conspiracy. Are the defendants home free?

I agree with the en banc majority in Propane. If you have a conspiracy and the conduct enabled by the conspiracy continues, then the defendants have to show some kind of break in the action – i.e., affirmative proof of a time period when there was independent conduct - to avoid the continuing violation rule.

UNITED STATES v. AMERICAN EXPRESS

UNITED STATES v. AMERICAN EXPRESS 838 F.3d 179 (2nd Cir. 2017). AmEx typically reimburses merchants less than Visa or MasterCard. At the same time, AmEx requires merchants to enter into

nondiscrimination provisions (NDP’s). These forbid the merchant from trying to discourage customers from using AmEx or charging differently for use of AmEx as opposed to other credit cards.

This case arose when the DOJ and a number of states (including Iowa) sued AmEx.

The allegation was that these vertical arrangements (the NDP’s) unreasonably restrained competition in violation of Sherman § 1. A rule of reason case.

After a trial, the district court found for the government and permanently enjoined AmEx from enforcing the NDP’s.

UNITED STATES v. AMERICAN EXPRESS The oversimplified facts are as follows: The credit card

market has four firms (Visa, MasterCard, AmEx, and Discover) with high barriers to entry.

AmEx accounts for about 26% of credit card purchase volume. Ordinarily this would not seem like market power. However, the district court emphasized that “cardholder insistence” (certain customers’ preference for AmEx cards) gave AmEx market power.

The 2nd Circuit reversed. The appellate opinion is fairly complicated, but I think

the gist is this…

UNITED STATES v. AMERICAN EXPRESS AmEx doesn’t have market power. 26% is not market power. The credit

cards all compete in one market. “It was error for the District Court to have relied on cardholder insistence as support for its finding of market power. Cardholder insistence results not from market power, but instead from competitive benefits on the cardholder side of the platform and the concomitant competitive benefits to merchants who choose to accept Amex cards.”

In other words, Visa and MasterCard compete by offering merchants more and cardholders less. AmEx competes by offering merchants less and cardholders more. But they still compete.

The court notes that lots of merchants refuse to accept AmEx. My take: Maybe (?) an unfair trade practice but not an antitrust

violation. Note how inconsistent we all are on when you should and shouldn’t

unbundle. Think about airline fees. Cable TV.

UNITED STATES v. AMERICAN EXPRESS One more twist: The United States (Trump

Administration) decided not to ask for cert and is opposing efforts by the participating states (including Iowa) to obtain review of the 2nd Circuit decision.

MIRANDA v. SELIG

MIRANDA v. SELIG 860 F.3d 1237 (9th Cir. 2017). All minor league ballplayers are employed by a major

league team. Allegedly, MLB requires that all first-year minor leaguers

earn $1,100 per month, Class-A $1,250, Class-AA $1,500, Class-AAA $2,150.

Minor league players do not belong to a union. So probably no labor exemption.

Miranda, et al. brought a class action alleging conspiracy by the major league teams in violation of Sherman § 1.

Case was dismissed by the trial court based on the baseball exemption.

Here, the dismissal is affirmed by the 9th Circuit.

MIRANDA v. SELIG The 9th Circuit refers to the baseball exemption as the

“business of baseball” exemption. What is ironic about that? In 1998, after Curt Flood died, Congress passed the Curt

Flood Act named in his honor. The Act partially repeals the baseball exemption but only

subjects “the conduct, acts, practices or agreements of persons in the business of organized professional major league baseball directly relating to or affecting employment of major league baseball players” to the antitrust laws.

What is ironic about that?

CHICOINE v. WELLMARK, INC. 894 N.W.2d 454 (Iowa 2017). The Iowa Supreme Court’s only antitrust case this past

year. The court didn’t get to the merits but it illustrated an important point about antitrust law.

And maybe illustrated the theme of today’s presentation.

CHICOINE v. WELLMARK, INC. As you know, most states have a single BC/BS health

insurer. In Iowa and South Dakota, it is Wellmark. An MDL is pending in the Northern District of Alabama

involving suits brought by various health care providers alleging that the various BC/BS entities have conspired to keep out of each other’s markets (e.g., other BC/BS entities don’t enter Iowa or South Dakota). Allegedly, this market division has monopsony effects: It allows Wellmark and the other BC/BS entities to drive down reimbursement rates for health care providers.

One of the MDL plaintiffs is an Iowa chiropractor.

CHICOINE v. WELLMARK, INC. Meanwhile, in Polk County District Court there is

putative class litigation brought by Iowa chiropractors including Chicoine against Wellmark under the Iowa Competition Act.

Wellmark persuaded the district court here to stay the Chicoine litigation “in favor of further proceedings in [the MDL], until further order of this court.”

Chicoine, et al. appealed.

CHICOINE v. WELLMARK, INC. The Iowa Supreme Court reversed. Both the Alabama MDL and the Iowa state court litigation were

antitrust cases involving the BC/BS network, but… “[A]s the district court found, the plaintiffs raised approximately ‘ten

detailed specifications of wrongdoing’ concerning Wellmark's treatment of Iowa chiropractors while MDL No. 2406 focused on two allegations concerning the BCBSA's treatment of all healthcare providers. Although there appears to be an allegation common to both cases that the BCBSA entities have generally conspired to stay out of each other's territories (i.e., Iowa and South Dakota in the case of Wellmark), the present case alleges discriminatory treatment of chiropractors instead of artificially low reimbursements for all healthcare providers. In addition, the present case alleges other anticompetitive agreements, including between Wellmark and self-insurers. It is unclear in our view whether any resolution of claims in MDL No. 2406 would result in the resolution of claims in this action.”

CHICOINE v. WELLMARK, INC. Two takeaways… Not all antitrust cases which overlap as to parties and

time period are identical. The specific antitrust claims matter.

Antitrust doesn’t necessarily = too burdensome to litigate.

Maybe a third takeaway… It’s ok for Iowa courts to get more practice handling

antitrust cases.

ANTITRUST ENFORCEMENT ACTIVITIES US v. Anthem US v. Aetna EU v. Google

855 F.3d 345 (DC Cir. 2017). Anthem is the BC/BS entity in 14 states (not Iowa/South Dakota

– Wellmark). DOJ sued to block the proposed Anthem/Cigna merger under

Clayton § 7. Not entirely clear to me why State of Iowa joined the case.

Anthem and Cigna are pretty invisible in Iowa. I didn’t see any Iowa market pled in the complaint.

The key claim was that there would be a substantial reduction in competition in the “national accounts” market – employers purchasing health insurance for more than 5K employees across more than one state. Basically it’s a market for self-insurance. The insurer provides claims administration and access to a network. Anthem is #2 with 41% and Cigna #4 with 6%.

US v. ANTHEM/CIGNA

US v. ANTHEM/CIGNA Anthem responded that any anticompetitive effects would be

outweighed by two procompetitive benefits: (1) the merged company could negotiate lower rates, and (2) the merged company could offer Cigna innovative programs to more customers.

The government’s complaint had featured the innovative competitor theory: “Cigna has been particularly effective in using its innovative wellness programs to compete with Anthem.” “Cigna has been particularly focused on investing time and resources in value-based arrangements…”

The government’s theory: Cigna is the little engine that could and post-merger the innovative Cigna programs would go away.

I’m skeptical of the innovative competitor theory. If the programs are good, the new company will use them. If they’re bad, it won’t. This kind of thing shouldn’t be a significant antitrust consideration.

Anyhow, Anthem tried to turn the innovative competitor theory around against the government.

US v. ANTHEM/CIGNA The district court enjoined the proposed merger under Clayton § 7. The DC Circuit majority affirmed, upholding the district court’s

conclusion that the anticompetitive effects of the merger were not outweighed by procompetitive effects.

In assessing anticompetitive effects the court used a structural approach focusing on HHI’s. In assessing procompetitive effects the court used more of an anecdotal approach. It questioned the ability of a merged entity to renegotiate provider contracts and simultaneously maintain the innovative Cigna programs. “It was perfectly reasonable for the district court to find that some providers, even if they are unwilling to accept less money, will simply respond by offering customers less in the way of Cigna high-touch service.”

Additionally, the DC Circuit majority questioned in dicta whether efficiencies can be a defense to a merger, citing some old 1960’s US Supreme Court precedent.

US v. ANTHEM/CIGNA The dissent (Judge Kavanaugh) quantifies both anticompetitive

and procompetitive effects. He concludes the merger would enable the merged company to raise fees somewhat, but this would be easily outweighed by the lower provider rates that would be obtained. Therefore, on a net basis these large employers would receive substantial savings.

“For large employers, therefore, the savings from the merger would far exceed the increased fees they would pay to Anthem-Cigna as a result of the merger.”

“[T]he Government’s expert… never did a merger simulation that calculated the amount of the savings that would result from the lower provider rates and be passed through to employers… So we are left with Anthem-Cigna’s evidence showing $1.7 to $3.3 billion annually in passed-through savings for employers.”

US v. ANTHEM/CIGNA Also the dissent criticizes the majority’s invocation of

merger cases from the 1960’s: “In landmark decisions of the 1970’s… the Supreme Court indicated that modern antitrust analysis focuses on the effects on the consumers of the product or service, not the effects on competitors. In the horizontal merger context, the Supreme Court in the 1970s therefore shifted away from the strict anti-merger approach that the Court had employed in the 1960s…”

Is the DC Circuit out of practice?

US v. ANTHEM/CIGNA Two qualifiers in the dissent: 1. The dissent would remand for consideration of anticompetitive

monopsony effects (see Chicoine supra): “That said, on my view of the case, the Government could still

ultimately block this merger based on the merger's effects on hospitals and doctors in the upstream provider market. At trial, the Government asserted an alternative ground for blocking the merger: The Government claimed that the merger between Anthem and Cigna would give Anthem-Cigna monopsony power in the upstream market where Anthem-Cigna negotiates provider rates with hospitals and doctors. The District Court did not decide that separate claim. I would remand for the District Court to decide it in the first instance.”

“Monopsony power describes a scenario in which Anthem-Cigna would be able to wield its enhanced negotiating power to unlawfully push healthcare providers to accept rates that are below competitive levels. That may be an antitrust problem in and of itself.”

US v. ANTHEM/CIGNA “As a result, the legality of the merger should turn on the answer to the

following fact-intensive question: Would Anthem-Cigna obtain lower provider rates from hospitals and doctors because of its exercise of unlawful monopsony power in the upstream market where it negotiates rates with healthcare providers? Given the way it resolved the case, the District Court never reached that critical question. Therefore, I would remand for the District Court to expeditiously decide that question in the first instance.”

2. The dissent doesn’t buy “innovative provider” as an argument for or against the merger. In fact, it doesn’t think Cigna is all that innovative:

“The majority opinion also says that Cigna provides programs that help reduce utilization and that those could be jettisoned after the merger. But there is no good reason to think that those programs would be jettisoned rather than adopted by the merged company. Moreover, this speculation does not account for the fact that Anthem already has lower utilization rates than Cigna. So is it not likely that Cigna customers would utilize health care more after the merger than they do now.”

U.S. v. AETNA/HUMANA 2017 WL 3251892017 (D.D.C. 2017). Will just talk briefly about this one. There were two problems in this merger: (1) Medicare Advantage plans, (2) the

Obamacare exchanges. Regarding #1, the court unsurprisingly found anticompetitive effects if Aetna

and Humana merged their Medicare Advantage plans. The real issue was whether these proposed divestiture of approximately 290,000 plans to Molina, a third party, would resolve their effects. The court said no, because Molina was primarily a Medicaid company and wouldn’t be successful with running the Medicare Advantage business.

Regarding #2, Aetna had already pulled out of the exchanges in the counties in Fla, Ga, and Mo where it was competing with Humana. The court did not find an adverse effect on competition in Ga or Mo, because Aetna was losing money there and you can’t expect a company to keep losing money. In Fl, however, the court said this was a litigation strategy, because Aetna had been making money there. So the court found anticompetitive effects of the merger on the exchanges in Fl.

US v. AETNA/HUMANA On a quick read this seemed like a sound decision to

me, recognizing that one must give weight to the facts found by the district court.

Aetna did not appeal and abandoned the merger.

EU v. GOOGLE

EU v. GOOGLE I really didn’t understand the motivation behind Brexit until I read this

case. $2.9 billion fine. Actually 2,424,495,000 euros. Explanation for the fine is four pages long. $725,000,000 per page. “Google has abused its market dominance in general internet search by

giving a separate Google product (… “Google shopping”…) an illegal advantage in the separate comparison shopping market.”

“Google has systematically given prominent placement to its own comparison shopping service…”

“On the other hand, rival comparison shopping services are subject to Google’s generic search algorithms, including demotions…”

“Google has to respect the simple principle of equal treatment in its search results for its own comparison product…”

All boldface is in the original.

EU v. GOOGLE What’s wrong here? Let me count the ways. 1. Google favors the Google product in its search results. So what? The Google

product has the Google name. Who is misled by that? It’s transparent. 2. Google searches are a valuable service that’s free. So Google has to monetize

the service. This is just one way of monetizing. Ads are another. Ads in a sense “bias” the search results as well. If the end result is not misleading, who cares?

3. Google isn’t tying sales of two products (like Microsoft in U.S. v. Microsoft years ago). Google is offering a product – searches. Why can’t it tailor that product however it wishes as long as it isn’t misleading? What if Google’s results showed only its own shopping service?

4. In comparison shopping, Google isn’t the dominant player. Amazon is. A way of trying to break down Amazon’s advantage.

However… 5. Note the hypocrisy of Google campaigning for “net neutrality” but not

practicing “search neutrality.” Neutrality should be a requirement for other businesses, not Google.

CONCLUSION Thank you for your attention. Questions?

Hot Topics in Immigration Law

1:45 p.m. - 2:30 p.m.

Presented by Elizabeth Van Arkel

Holly LoganDavis Brown Law Firm

The Davis Brown Tower215 10th Street, Suite 1300

Des Moines, IA 50309



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I-9 Compliance: How to Prepare for the New Enforcement Focus

Holly Logan and Elizabeth Van Arkel

I. Is anything really changing? A. Compliance level:

1. New I-9 2. New M-274 3. Iowa E-Verify mandate?

B. Enforcement level: 1. Immigration & Customs Enforcement (ICE) is exempt from the hiring

freeze 2. 20% increase planned 3. 3,000 I-9 audits in FY2017 from 1,000 in FY2016 4. Focus on IT businesses 5. Executive Orders on immigration enforcement

C. However . . . 1. A budget requires money, which requires Congressional approval

eventually 2. New officers require training 3. Rules are not yet clear 4. Preparation is wise

II. Covered Topics A. Hot I-9 compliance issues B. How to prepare for and respond to an audit C. How to respond in a law enforcement visit

III. New I-9 A. New form in effect September 18, 2017 (07/17/17 version) B. New M-274, Handbook for Employers released February 15, 2017 (dated

01/22/2017) C. I-9 can be completed electronically D. See PDF attachment

IV. Additional Compliance Issues

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A. Electronic version has imbedded instructions. If using the paper form, the full written instructions must be provided.

B. Electronic version has auto-fill. If using the paper version, best practice is to fill “N/A” in blanks, even in Section 1.

C. Use Section 3 or new Section 2 of new form when re-verifying for someone who completed an old form.

V. Who do you I-9? A. “Employee”

1. “Ghost employees”? a) U.S. v. Saidabror Siddikov d/b/a Beyond Cleaning Services

(OCAHO Aug. 14, 2015) b) “Walmart” rule

2. Joint employment? a) Browning-Ferris Industries of California, Inc., 362 NLRB No. 186

(Aug. 27, 2015)

VI. Other Hot Topics A. Remote hires – original documents required

1. Agent review B. Re-verifying

1. Don’t re-verify List B or “green cards” 2. Don’t require the same document to be produced 3. Keeping track of and documenting automatic extensions

C. Electronic I-9 systems

VII. Remember the Flip Side A. Employment verification rules are balanced by anti-discrimination rules

1. For all employers: a) Unfair documentary practices related to verifying the employment

eligibility of employees b) Retaliation

2. Employer > 4 employees: a) Citizenship or immigration status discrimination with respect to

hiring, firing, and recruitment or referral for a fee b) USC, “recent” LPRs, temporary residents, asylees/refugees

3. Employers with 15> employees > 3

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a) National origin discrimination with respect to hiring, firing, and recruitment or referral for a fee

b) Bigger employers are covered by EEOC in national origin discrimination

c) Place of birth, country of origin, ancestry, native language, accent, looking or sounding “foreign”

VIII. M-274 A. Table of Changes – 50+ pages!

IX. E-Verify A. Mandated in Iowa? B. Not a substitute for an I-9 C. Does not catch all unauthorized workers (but better than it was) D. Limited information sharing (for now) E. MOU with the government F. Required for STEM OPT extensions

X. “Internal” Audits A. A liability unless it is done right B. Assuring I-9s exist for current workforce C. Correcting errors – do not backdate! D. Separating from personnel files E. Destroying those no longer required to be kept (what is that rule?) F. Updating internal procedures to assure compliance G. Training to show good faith

XI. Government Audits A. Who can take your I-9s?

1. ICE 2. DOL Wage and Hour Division 3. DOL OFCCP 4. DOJ IER

B. Other law enforcement? 1. Possible privacy violations (SSNs) – can require a subpoena

XII. Fines and Penalties A. Only ICE can fine for I-9 violations B. IER can fine for discrimination violations

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C. I-9 fines were recently adjusted for inflation D. Negotiation is possible and appeal is often effective at reducing fines E. Criminal penalties possible for “knowing hires” if a pattern or practice.

Harboring?

XIII. Preparing for Site Visits A. Do you have a procedure?

1. “First thing we do is kill CALL all the lawyers” B. Who speaks for the company? C. Dos and don’ts for employees D. Do employees know their rights?

XIV. What’s Hot Now: A. Fraud and misuse of visas, permits, and other documents (18 U.S.C. § 1546) B. Form I-9 issues

1. False statements, concealment (18 U.S.C. § 1001) 2. Conspiracy to defraud the U.S. (18 U.S.C. § 371)

XV. Stages of the Criminal Investigation A. The government gets interested. B. Document gathering and examination. C. Informal interviews. D. Grand jury investigation. E. Grand jury indictment. F. The stages overlap. G. It can take a long time.

XVI. How Do You Know There is An Investigation? A. Anything from a grand jury. B. Interviews by:

1. ICE / HSI 2. Dept. of Labor – Wage and Hour Division 3. Office of Federal Contract Compliance

C. Search warrant. D. Event that triggers government interest. E. The government tells you. F. You tell the government.

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XVII. Categories of Persons in the Investigation A. Witnesses B. Subjects C. Targets

XVIII. 18 U.S.C. § 1503(a) A. “Whoever…corruptly…influences, obstructs, or impedes, or endeavors to

influence, obstruct, or impede, the due administration of justice, shall be punished…”

XIX. Wait a Minute. We Need How Many Lawyers? A. Targets and subjects must be separately represented. B. This applies to the company as well. C. Witnesses can be jointly represented. D. Take care about using in-house counsel. E. Company can – and sometimes must – pay for counsel for officers, directors,

employees.

XX. What to Do: Perform a Parallel Investigation A. Why:

1. Provides a realistic evaluation of exposure. 2. Permits a credible presentation to the government before the charging

decision. 3. Strategy: Respond before the government makes a charging decision. 4. You are preparing for trial. 5. Rationale: The time between indictment and trial is short.

B. How: 1. Follow the same path as the government: Documents, then witnesses. 2. Time is of the essence. 3. Use outside counsel.

C. Be Careful with the Parallel Investigation 1. Corporate cooperation with the government is often the key to avoiding an

indictment. 2. “Cooperation” often means sharing the results of an internal investigation

– including a waiver of all privileges. 3. Can pit the company and its officers/employees against each other.

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XXI. What to Do: A. Make the Case Before Charges are Filed B. May head off prosecution or limit its scope. C. Avoids undoing the government’s commitment to the case. D. No civil vs. criminal bargaining. E. Credibility is your biggest asset.

Holly Logan and Elizabeth Van Arkel [email protected]

[email protected] 515.288.2500



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Franchise Law Update

2:45 p.m. - 3:15 p.m.

Presented byMark Hamer

Hamer Law Office PLLC2710 N Dodge St, Suite 5

Iowa City, IA 52245Phone: 319-248-4870

Emily AlwardAlward Law Office

2710 N Dodge St, Suite 5Iowa City, IA 52245

Phone: 319-248-4870



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Annual Franchise Update

September 22, 2017

Emily Alward Alward Law Office

[email protected]

Mark T. Hamer Hamer Law Office, PLLC

[email protected]

2710 N. Dodge Street, Suite 5 Iowa City, IA 52245

Telephone: 319/248-4870 Fax: 319/338-0834



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Franchise Update Trade Regulation/Corporate Counsel Joint Seminar

The past year has not had any major shake ups in the world of franchise law; however it

has given rise to a few areas to keep an eye on. The biggest shake ups seem to be coming from

the change in the White House. A potential redirection of the Department of Labor and National

Labor Relations Board focus could provide some breathing room for franchisors concerned with

joint employer liability. Over the past several years there have been a myriad of state law joint

employer rulings which have impacted franchise systems. Concerns over government action only

added pressure on franchisors to avoid a joint employer relationship while trying to run an

organized and uniform franchise system. The change in the federal administration will not

overwrite case law precedent based on state statutes but it may relax the pressure on franchisors.

Regardless, franchisors will always face difficulties keeping abreast of all of the local, state, and

federal regulations which impact different aspects of their systems.

Franchise Case Update

Franchise law is a subset of general business and corporate law and as such decisions by

the court involving business more generally may impact a franchise system. In recent years

decisions dealing with healthcare policy have had impact on franchisors and franchisees in a

direct way, even though the decisions do not mention franchising at all. This Case Update is

limited to cases dealing directly with franchises and franchise law and does not specifically

include decisions which more broadly affect businesses. This Case Update is further limited to

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jurisdictions which directly affect the practice of franchise law in Iowa – the Iowa Courts, Iowa

U.S. District Courts, Court of Appeals for the Eighth Circuit, and United States Supreme Court.

Since the last update there have been no U.S. Supreme Court decisions dealing directly

with franchises and franchise law. This past year, however, the Court of Appeals for the Eighth

Circuit has had two cases which involve franchise law: Neubauer, et al., v. FedEx Corporation,

et al.1 and Martinizing Int’l, LLC v. BC Cleaners, et al.2

Neubauer v. FedEx Corporation dealt with several issues including breach of contract,

fraud, the North Dakota Franchise Investment Law, and the definition of a franchise. In 2004,

Plaintiff Neubauer entered into a Standard Operating Agreement (SOA) with FedEx, “whereby

Neubauer would pick up and deliver FedEx packages in return for weekly payments based on

stops made and packages handled.”3 The agreement stipulated that Neubauer would be an

independent contractor and not an employee of FedEx. FedEx had designated primary service

areas (“PSA”) for these types of contractors and the contractors could assign their contract to

other qualified service providers. When a SOA was assigned, “FedEx would ‘enter into a new

agreement with Replacement Contractor on substantially the same terms and conditions’ as those

for the outgoing contractor.”4 Neubauer was assigned his SOA as a replacement contractor and

paid the outgoing contractor $75,000 for the PSA. By 2011, Neubauer had renewed this SOA

several times and had purchased two additional PSAs from two additional outgoing contractors.

In 2011, FedEx transitioned to a different business model whereby FedEx discontinued

renewals of SOAs. Contractors, including Neubauer were offered ISP Agreements which

contained materially different terms. “Most importantly, under the SOA, FedEx would enter into

1 U.S. Court of Appeals, Eighth Circuit, Fastcase No. 15-3694 (Feb. 17, 2017). 2 U.S. Court of Appeals, Eighth Circuit, Fastcase No. 16-1069 (Apr. 28, 2017). 3 Neubauer, page 2. 4 Id. (quoting Plaintiff’s amended complaint).

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a new SOA for a full term with a replacement contractor, but the ISP Agreement only allowed a

replacement contractor to provide services for the remaining term of the original ISP

Agreement.”5 Neubauer signed the ISP Agreement and FedEx paid him $10,000 to execute

releases. FedEx and Neubauer continued under the ISP Agreement until FedEx terminated the

relationship alleging breaches by Neubauer. Neubauer then assigned his rights under the ISP

agreement to a replacement contractor. FedEx would only enter an agreement with the

replacement contractor for the remainder of Neubauer’s term under the ISP Agreement, rather

than a full term as they did under the SOAs.

One of the claims Neubauer made “alleged that FedEx offered and sold him an

unregistered franchise in violation of North Dakota’s Franchise Investment Law.”6 According to

the North Dakota Franchise Investment Law a franchise is “a contract or agreement, either

expressed or implied, whether oral or written, between two or more persons by which: (1) A

franchisee is granted the right to engage in the business of offering, selling, or distributing goods

or services under a marketing plan or system prescribed in substantial part by a franchisor; (2)

The operation of the franchisee's business pursuant to such plan or system is substantially

associated with the franchisor's trademark, service mark, trade name, logotype, advertising, or

other commercial symbol designating the franchisor or its affiliate; and (3) The franchisee is

required to pay, directly or indirectly, a franchise fee.”7 Neubauer claimed his services provided

using the FedEx name and trade dress, along with the fees he paid to purchase the PSAs added

up to a franchise.

5 Id at 4. 6 Id at page 9. 7 N.D.C.C. § 51-19-02(5)(a)

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The Court of Appeals determined that “Neubauer was an independent contractor…and

that Neubauer received his payments not from customers, but from FedEx.”8 Therefore, his

claimed failed on first element of a franchise since FedEx did not grant him the right to offer,

sell, or distribute goods or services. The Circuit Court of Appeals upheld the district court’s

dismissal of all claims in this case, including the franchise law claim.

The Court of Appeals case, Martinizing Int’l, LLC v. BC Cleaners, primarily dealt with a

Lanham Act claim.9 Plaintiff Martinizing Int’l (“Martinizing”) asserted action by BC Cleaners,

LLC (“BC Cleaners”) and its individual owners constituted Lanham Act trademark infringement

and violation of the Minnesota Deceptive Trade Practices Act. An interesting aspect of this case

is that defendants never appeared before either the district court or Court of Appeals. The district

court granted a default judgment against BC Cleaners concluding they had willfully infringed on

Martinizing’s trademark and engaged in deceptive trade practices.10 The District Court also

granted a permanent injunction against BC Cleaners from using Martinizing’s trademarks. The

district court, however, denied a default judgment against the two member-managers of BC

Cleaners for personal liability and also denied monetary damages and attorney’s fees.

Martinizing appealed the denial of the LLC’s owners’ personal liability, and the denial of

monetary damages and attorney’s fees.

Martinizing franchises dry cleaning businesses and has over four hundred franchised

locations worldwide. In 2011, Martinizing signed two franchise agreements with KM Cleaners,

Inc. (“KM Cleaners”) for stores located in Eagan and Inver Grove Heights, MN. KM Cleaners

entered into an Asset Purchase Agreement with BC Cleaners on August 22, 2014 for the sale of

8 Neubauer, at pages 9-10. 9 Martinizing Int’l, LLC v. BC Cleaners, et al., U.S. Court of Appeals, Eighth Circuit, Fastcase No. 16-1069 (Apr. 28, 2017). 10 Id, at 2.

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both stores. After signing the purchase agreement, but before completing the purchase, BC

Cleaners took over operation of both stores. BC Cleaners operated the stores in the same manner

KM Cleaners did, using and displaying Martinizing’s trademarks.11 On January 15, 2015,

Martinizing sent letter to BC demanding they sign a franchise agreement or stop using

trademarks. Martinizing included a copy of the purchase agreement and demand letter in the

record.12 BC Cleaners continued to operate the stores using Martinizing’s marks and trade dress.

By March of 2015 the purchase had fallen through and BC Cleaners was no longer operating the

stores.

In considering the appeal the Court stated “[w]hen a default judgment is entered, facts

alleged in the complaint are taken as true, but ‘it remains for the [district] court to consider

whether the unchallenged facts constitute a legitimate cause of action, since a party in default

does not admit mere conclusions of law.’”13 Once the district court determined there was a

legitimate cause of action and granted a default, Martinizing still had to prove it was entitled to

the damages and attorneys’ fees sought; this is an issue of law for the Court of Appeals to

determine de novo. Martinizing sought treble damages under the Lanham Act, an injunction,

prejudgment interest, costs, and attorneys’ fees.14

In addition to the copy of the purchase agreement and demand letter, Plaintiff also

submitted a copy of the franchise agreement with KM Cleaners and two emails from BC

Cleaners. The two emails were dated in March and June of 2015. In the March email BC

Cleaners declined to seek a franchise agreement, stated BC Cleaners was no longer operating the

stores, and agreed to comply with the cease and desist letter sent in January. In the June email

11 Id. at 2. 12 Id. 13 Id. at 3, quoting Marshall v. Baggett, 616 F.3d 849, 852 (8th Cir. 2010). 14 Id. at 3.

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BC Cleaners stated that it was never a franchisee of Plaintiff, had operated the stores for KM

Cleaners, and had never fully executed the asset purchase agreement. The purchase agreement

explicitly contemplated assignment of the franchise agreement and referenced the need for

Martinizing’s approval. The purchase agreement also obligated KM Cleaners to continue paying

franchise fees until sale and transfer of franchise agreement were completed. Martinizing did not

make the argument that KM Cleaners at any time stopped paying franchise fees or missed a

payment. Martinizing did not move to terminate the franchise agreements with KM Cleaners.

The Court of Appeals cited Minnesota Pet Breeders, Inc. v. Schell & Kampeter, Inc. (8th

Cir. 1994), and held that the Lanham Act bars punitive remedies when injunction is “sufficient to

do equity”.15 Setting aside the open question of whether the Lanham Act requires a showing of

willful infringement to recover money damages, the Court held that Plaintiff failed to prove BC

Cleaners’ conduct made this an exceptional case which would entitle them to damages or

attorney’s fees. Based on the facts laid out in the decision no more than two months could have

elapsed after the cease and desist letter was sent and BC Cleaners stopped operating the stores.

During this time KM Cleaners continued to have a valid franchise agreement and make all

payments due to Martinizing.

The Circuit Court upheld the District Court’s permanent injunction against BC Cleaners,

the denial of personal liability of the individual owners BC Cleaners, and the denial of monetary

damages and attorney’s fees.

The US District Court Northern District of Iowa published a decision in Sioux City Truck

and Trailer, Inc. v. Ziegler, Inc., (N.D. Iowa, 2016). In this case, the parties entered into an

agreement for Sioux City Truck and Trailer, Inc. (“SCTT”) to become a CAT brand retailer and

service provider. In 2016, Ziegler, Inc. (“Ziegler”), a Minnesota corporation, tried to renegotiate 15 Id. at 6.

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their agreement and reduce SCTT’s role to “parts dealer”. SCTT refused and Ziegler moved to

terminate their agreement. SCTT sued claiming that Ziegler (1) breached the covenant of good

faith and fair dealing, (2) violated the Robinson-Patman Act, and (3) violation of Iowa franchise

law.16 There was no mention of a diversity of citizenship basis for federal jurisdiction in this

decision.

A Robinson-Patman Act (“RPA”) claim alleges seller price discrimination which injures

customers. A claim must satisfy three elements: “(1) the seller sold its products in interstate

commerce; (2) the products were “of like grade and quality”; (3) the seller discriminated in price

between a favored and disfavored purchaser; and (4) the price discrimination is such that it may

injure competition to the advantage of the favored purchaser.”17 According to Bruce’s Juices v.

American Can Co., 330 U.S. 743, 755 (1947), at least two transactions must take place to

constitute a violation of the RPA.18 Here there were no actual transactions which may have

violated the RPA since SCTT refused the parts dealer arrangement proposed by Ziegler, so the

District Court granted Ziegler’s motion to dismiss for failure to state a claim upon which relief

can be granted.

Because the district court dismissed the federal claim upon which the court’s original

jurisdiction rested, the court had to analyze whether the state law claims should be dismissed as

well. The district court held that once the federal claims of original jurisdiction were dismissed,

supplemental Iowa law claims should be dismissed for lack of jurisdiction. The court noted that

in this case the proceedings were in the early stages and Iowa franchise law is relatively

unsettled. It is entirely possible that in a future case, if proceedings are further along or if the

16 Sioux City Truck and Trailer, Inc. v. Ziegler, Inc., (N.D. Iowa, 2016), at 2. 17 Id. at 5. 18 Id. quoting Bruce’s Juices v. American Can Co., 330 U.S. 743, 755 (1947).

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state law claim is in an area of more settled law, the district court could choose to not dismiss

supplemental state law claims upon the dismissal of federal claims.

Sioux City Truck and Trailer was a procedural decision and included no substantive

discussion of Iowa franchise law. However, it is a case to watch for in the state courts. If SCTT

pursues its claims in a state court the case may help interpret the termination provisions under

the Iowa franchise law and help to settle this area of law.

Franchise Litigation Trends

Nationwide, franchise litigation involving statutory claims, breach of contract claims, or

claims involving the termination or nonrenewal of a franchise agreement topped the list again

over the past year. These issues have consistently been at the top of the list of most litigated

claims involving franchises, generally by significant margins over claims involving fraud,

arbitration, violations of the covenant of good faith & fair dealing, requests for injunctive relief,

and other claims.

Issues in Franchising

Joint Employment and Employee Misclassification

In the past few years several federal governmental agencies have issued new rules or

otherwise trended toward stricter employer accountability standards. Franchise lawyers have

been especially aware of actions by the Department of Labor and the National Labor Relations

Board. These agencies have both taken actions to expand the definitions of employer and

employee, and limit the definition of independent contractor. Paramount among other concerns,

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these actions have caused concern in the franchise world that franchisors will be considered joint

employers with their franchisees and consequently jointly liable for their misdeeds.

In January of 2016, the U.S. Department of Labor (“DOL”) released guidance on joint

employment under the Fair Labor Standards Act (“FLSA”).19 The DOL outlined a multi-factor

joint employment test based on “economic realities” and the particular facts of each situation. In

a franchise context, there would be an analysis of whether the employee of the franchised

business was economically dependent on the franchisor. If the answer is in the affirmative the

franchisor would be considered a joint employer with the franchisee for the purposes of the

FLSA.

The DOL did give franchise counsel some assurance with this statement: “[t]he form of

business organization, such as a franchise, does not necessarily indicate whether joint

employment is present. Indeed, the existence of a franchise relationship, in and of itself, does not

create joint employment.”20 So while the guidance caused franchise counsel to be concerned and

counsel their clients on best practices to avoid falling under the expanded joint employer

liability, franchises were not de facto running afoul of the rules.

A new presidential administration, however, can lead to new rules and new mission goals

for governmental agencies. The Trump administration has, in fact, changed the course of the

DOL. In June of 2017, the DOL announced that the previous guidance is retracted. This includes

not only the January 2016 joint employment guidance, but also a guidance from July 2015 on the

misclassification of independent contractors.21

19 Administrator’s Interpretation No. 2016-1, Jan. 20, 2016, available at: http://www.dol.gov/whd/flsa/Joint_Employment_AI.htm. 20 Id. 21 Constangy Brooks Smith & Prophete LLP, U.S. Department of Labor withdraws guidance on independent contractors, joint employment, June 8, 2017, available at: https://www.lexology.com/library/detail.aspx?g=397b9139-fe84-499d-ac3e-52f37660f2d1. The July 2015

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“Misclassification” occurs when a person who meets the standards of an employee – a

fact dependent and qualitative, multi-factor standard – is characterized improperly as an

independent contractor by an employer. The issue with misclassification is that independent

contractors are not afforded the same benefits and protections as employees, and employers are

not required to pay payroll tax on independent contractors, which negatively impacts state and

federal tax revenues. The Obama administration had made employee misclassification a major

issue with the DOL, NLRB, and Internal Revenue Service leading the charge. Several states also

joined in this effort. The Trump administration, by retracting the July 2015 DOL guidance, has

signaled a change in direction on this issue. However, the current administration has not yet

given any specific information on how – or when – the executive branch will approach the issue

of misclassification.

Over the last few years, under the previous administration, the National Labor Relations

Board (“NLRB”) has focused its joint employer standard on “indirect control”. The NLRB is

concerned that the use of subcontractors and independent contractors by companies which

impacts the ability of the workers to collectively bargain. In a 2015 decision the NLRB restated

their standard for a joint employer relationship. The NLRB said that a joint employer

relationship may exist if the entities are both employers within the meaning of the common law,

and if they share or codetermine those matters governing the essential terms and conditions of

employment.22 This standard was much broader than the previous standard: a joint employer had

to possess and exercise the authority to control employee’s terms and conditions of employment

and that control had to be exercised directly and immediately.23

guidance is available at: http://www.constangy.net/nr_images/usdol-administrators-interpretation-davis-weil-no2015-1-fl-c1.pdf. 22 Browning-Ferris Industries of California, Inc., 362 NLRB No. 186 (August 27, 2015), at 15. 23 Id. at 8.

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Currently, there are two open seats on the five-member NLRB. The Trump

administration has two vacant seats to fill on the board and has already made one nomination.

The administration is expected to fill both seats with pro-business/anti-union individuals. The

anticipated change in character of the board is expected to result in a change in the direction of

labor law. There is a high profile pending case in which the NLRB General Counsel issued 86

complaints against McDonald’s franchisees and their franchisor McDonald’s USA, LLC as joint

employers. The McDonald’s case – if it reaches a decision – may be the first major decision of

the new board. Hopefully, it will reach decision and give some guidance to employers and legal

practitioners of the new board’s thinking on these issues.

New FDA Menu Labeling Rules

The FDA issued a new menu labeling rule in 2016 which was initially going to be

enforced beginning on May 5, 2017. The enforcement date has been delayed until May 7, 2018.

The new rule applies to restaurants and retail food chains with twenty or more locations. Under

the rules franchised locations should be aggregated in order to determine whether the rule

applies, regardless of independent ownership status. The new rule requires a clear and

conspicuous statement of nutritional information, including a calorie count, for most menu items.

Substantiation and documentation will be required to support the new nutritional information

disclosures.

The new rule has pros and cons for franchisors. On the one hand the rule could help

franchisors maintain uniformity in menus and menu boards. Currently, a hodgepodge of state and

local rules create headaches for larger franchise systems which span multiple jurisdictions.

Because federal rules preempt state and local rules, conformity with the federal guidelines should

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simplify uniformity across the franchise system, barring more restrictive local laws being

enacted. On the other hand, there will be additional costs involved in conforming to the new rule.

Chains will have to have their food analyzed for nutritional information and find ways to ensure

that food is prepared uniformly and consistently throughout the system. There will also be

printing costs for the new menus and increased development costs when coming up with new

menu items. This new rule may negatively affect those franchise systems that have allowed

individual franchised restaurants to vary their menu or food suppliers more than less flexible

systems. This flexibility will likely be eliminated in many systems.

The date for enforcement was extended “for further consideration of what opportunities

there may be to reduce costs and enhance the flexibility of these requirements beyond those

reflected in the final rule”.24

Multi-State Franchise Considerations

Gift Cards

In 2009 The U. S. Congress passed the Credit Card Accountability Responsibility and

Disclosure (“CARD”) Act. The administration of CARD falls to the Federal Trade Commission

(“FTC”) which has issued federal rules on the subject. The FTC rules restrict expiration dates

and fees for gift cards and distinguish between “retail” and “bank” cards. Retail cards are the

traditional gift card purchased at and redeemable for products and services at a specific retailer

(i.e. Amazon or Target gift cards). Bank cards are the prepaid credit cards which can be used at

any retailer which accepts that type of credit card (i.e. a prepaid VISA can be used anywhere that

24 FDA, Menu Labeling Requirements, at https://www.fda.gov/Food/GuidanceRegulation/GuidanceDocumentsRegulatoryInformation/LabelingNutrition/ucm515020.htm.

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accepts VISA).25 There are approximately 39 states have laws which deal with gift card

expiration dates or fees.26

The FTC rules are the default rules for franchises to follow. However, several states have

passed gift card laws which are more restrictive than the federal rules. The law of the state in

which the gift card is redeemed generally controls. The Iowa Code Ch. 556 contains Iowa’s gift

card laws. The Iowa Code contains a definition of “gift certificate”, disallows fees absent a

contract, and contains an escheat provision. There is nothing particularly notable or worrisome

included in the Iowa law.

There are some notable state gift card laws. These laws are more restrictive than the

federal law and franchisors should be aware of them when operating a gift card program. Ten

states allow gift cards to be redeemed for cash if value dips below a specific threshold which

varies by state. Fifteen states prohibit inactivity fees. Eleven states generally prohibit expiration

dates.27

Franchisors generally administer gift card programs but franchisees and their employees

are the ones interacting with the customers. If a worker at a store in one state follows the

program policies which violate that state’s laws franchisors may be held vicariously liable.

Franchisor vicarious liability for violations of state laws could be based on the franchise

25 See FTC, Truth in Advertising, Gift Cards, available at: https://www.ftc.gov/news-events/media-resources/truth-advertising/gift-cards. 26 National Conference of State Legislatures, Gift Cards And Gift Certificates Statutes And Legislation, April 22, 2016, available at: http://www.ncsl.org/research/financial-services-and-commerce/gift-cards-and-certificates-statutes-and-legis.aspx. 27 Evan M. Sauda & Emily I. Bridges, Issuer Beware: The Varied Landscape of State “Baby-CARD” Laws, FRANCHISE LAW JOURNAL, Summer 2016, Vol. 36, No. 1, Page 69.

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documents and prescribed forms which franchisors supply to franchisees and, often, require the

franchisee to use.28

Attorneys should advise their franchisor clients to be aware of federal and state laws for

gift cards. All multistate gift card programs should follow the federal rules and have terms and

conditions which state explicitly that they are “subject to state law”. Franchisors should include

provisions in franchise agreements and gift card program materials which make franchisee

responsible for following state laws and/or indemnify franchisor for state law violations.

Franchisors should also train their franchisees to be aware of how state and local laws might

affect their administration of the gift card program and that franchisees are ultimately responsible

for compliance with state and local laws. The gift card program should include a policy for

dealing with conflicts between state and local laws and the broad multi-state franchisor policies.

Franchise Registration Requirements

A basic and ongoing consideration of franchisors is the annual franchise registration

which is required in fourteen registration states. These registration states require franchisors to

register with a state agency annually in order to sell franchises in that state. If the franchised

location will be in a registration state the franchisor must register its FTC and state law

compliant franchise disclosure document before it can be sold. Some states have expanded the

registration requirement to if the sale takes place in the state or if the potential franchisee is a

resident of that state, regardless of where the franchise will be located.

28 See Hahn v. Massage Envy Franchising, LLC, Case No. 12cv153 (BGS), 2014 WL 5100220 (S.D. Cal. Sept. 25, 2014). This case dealt franchisee employees who did not let customers who had terminated memberships redeem their pre-paid massages after 30 days, in accordance with the franchisor policies and forms. This violated California consumer protections and the court held the franchisor jointly liable because it “retained control over the content of the membership agreement as reflected in the documents governing the franchisor-franchisee relationship.” (Quote at *13).

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An important part of practicing franchise law is educating your client on the various state

laws. The state registration requirements should be considered when determining a franchise

system’s multi-state growth. Individual state requirements can lead to multiple state-specific

versions of a disclosure document. Annual franchise registration can be a time consuming and

expensive process. In addition to attorneys’ fees, initial registration and renewal fees can add up

quickly.

A fundamental problem with new franchise systems and new franchise clients is the one

franchise only client. Short of cash and long on promises to seek your help before moving

forward, many a new franchisor will become attorney fee weary. New to the franchise practice

counsel should be particularly cautious of this client and especially cautious if the discussion

includes plans involving registration states.

Conclusion

So while there have not been any major shake ups in the world of franchise law there

may be more changes to come in the next few years. There is no telling whether Sioux City

Truck & Trailer will reach a state court of appeal for a published decision, but given the lack of

rulings on the law it is something to watch for. For Iowa franchise counsel, the prospect of a case

involving an interpretation of the Iowa franchise relationship law is exciting. Additionally,

attention to joint employment and misclassification for the past several years and the federal

governmental focus shift is expected to lead to many changes for many businesses and franchises

alike.

Ethics Panel

3:15 p.m. - 4:15 p.m.

Presented by



ModeratorTara van Brederode|Assistant DirectorOffice of Professional Regulationof the Supreme Court of Iowa Iowa Judicial Branch Building 1111 East Court AvenueDes Moines, IA 50319Phone: 515-725-8017

Prof. Maura StrassbergDrake University Law School2507 University Ave.Des Moines, IA 50311

Todd LantzThe Weinhardt Law Firm 2600 Grand Ave, Suite 450Des Moines, IA 50312

Beth MackWells Fargo Co.800 Walnut StMac N0001-09ADes Moines, IA 50309

Ethics Panel SEPTEMBER 22, 2017 CORPORATE COUNSEL & TRADE REGULATION SEMINAR

What Rules and procedures govern? Iowa Rules of Professional Conduct Adopted by Iowa Supreme Court in 2005 (replacing older disciplinary rules) Substantially the same as ABA Model Rules of Professional Conduct

Disciplinary system is created and overseen by Iowa Supreme Court Prosecutors / investigators = Attorney Disciplinary Board Reviews, opens, investigates ~400 complaints each year If public discipline is sought (particularly a suspension or revocation, but also public reprimand if the respondent attorney takes

exception to a proposed/draft version), case may be assigned to staff or outside counsel to be prosecuted.

“Trial Court” = Grievance Commission Hears disciplinary matters in panel of 5 (4 lawyers + 1 layperson) Makes findings of facts, conclusions regarding rule violations Submits recommendation for discipline to the Supreme Court

Supreme Court issues all public discipline in the form of an order Attorneys’ public disciplinary histories may be viewed on IA Court Commissions website

Your panelists George Eichorn, General Counsel, ChildServe

Todd Lantz, Weinhardt Law Firm

Beth E. Mack, VP and Senior Counsel, Wells Fargo

Maura Strassberg, Professor of Law, Drake University

Tara van Brederode, Administrator, Attorney Disciplinary Board [moderator]

Ethics concerns for corporate & in-house lawyers:

Client identity problems

Multiple representation issues

Attorney-client privilege & confidentiality

Constituent misconduct & whistleblower concerns

Do the Rules always apply to corporate counsel?

REMEMBER, whether acting in a legal or business capacity, the Rules of Professional Conduct apply to in-house counsel’s conduct.

The Rules always apply to outside counsel’s conduct.

Who’s your client? What’s privileged? What warnings should/must you give?

You are in-house counsel for ABC Corp. ABC Corp maintains a “Termination Review Committee” comprised of you and two non-lawyer employees.

Plaintiff Maria Reynolds sues ABC Corp and her supervisor, Alexander Hamilton, alleging harassment, hostile work environment, discrimination, and retaliation.

Plaintiff seeks to depose you and the other members of the TRC, alleging that the TRC was involved in the decision to fire her.

May she do that? How would you defend against it?

What if ABC Corp files an affidavit indicating that potential terminations are “reviewed, in an attorney-privileged manner, by the TRC,…which provides attorney-client privileged advice concerning any risks associated with the termination…does not make termination decisions”?

Is it enough to CLAIM the privilege? What more (if anything) must you show about the nature and purpose of the communication?


During your TRC discussion, one member of the TRC takes you aside and says to you, “Hamilton is a cad. He’s harassed a number of employees, including me. We named the feral tomcat in the alley after him.

I told Hamilton’s boss, George Washington, about it, and he did nothing at all.

In fact, I am thinking of suing ABC Corp too. Should I do that now or wait until this lawsuit is over?”

What do you do now?


After the TRC meeting, you run into Hamilton near the water cooler.

Hamilton says that he’s concerned about being personally named in the lawsuit and asks whether you can get him dismissed out of the case. He’s just invested heavily in land in Manhattan and wants to protect his personal interests.

He also admits that he and Maria Reynolds have had a long-term affair, but broke up when her husband found out. He thinks that the lawsuit is retaliation for the break-up…though he admits he sometimes “pushes the boundaries with women.”

He is also considering writing a book about it and wonders whether you can recommend a reputable publisher, then invites you to the pub to talk further after work today, saying, “I am so glad that I can count on you to have my back.”

What do you tell Hamilton? What do you do with the information he has disclosed? Do you address his personal involvement in the lawsuit, and if so, how?


Having now had a memorably awful day, you are called into George Washington’s office. He says, “I know Hamilton’s a problem, but he is so talented that I just can’t let him go.”

He demands to review your notes from the day’s conversations, and then directs you to rework them immediately into a memo that is marked “privileged” and protected from any potential disclosure in litigation.

What are your options in this situation? What is the status of your notes and the possible resulting memorandum?

What’s privileged? When is privilege waived?

You return to your office to see an email in your inbox. It appears to be a message prepared by Maria Reynolds and addressed to her attorney, Thomas Jefferson. However, she seems to have clicked “reply all” to a previous message thread and your name is clearly included in the distribution list as the second recipient.

The message starts off, “I can’t believe my plan to blackmail Hamilton is working….”

What do you do?