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Legal News Report 6-19-15
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Could A Legal Ruling Instantly Wipe Out Uber? Not So Fast
Jun 19, 2015 | Forbes
By AP
Could the world wake up one morning and find ride-hailing service Uber struck dead, shackled to hundreds of thousands of drivers that have suddenly been deemed expensive employees? -
Feds fight Jeh Johnson testimony in Petraeus-related lawsuit
Jun 19, 2015 | Politico
By Josh Gerstein
The Justice Department is fighting an effort to force Homeland Security Secretary Jeh Johnson to give a deposition in a privacy invasion lawsuit a Florida woman has filed over the federal government's handling of the investigation into former CIA Director David Petraeus. -
Walmart: Report On $76 Billion Hidden In Tax Havens 'Flawed'
Jun 18, 2015 | Forbes
By Claire O'Connor
For the second time in as many days, Walmart has been forced to defend itself against reports of serious financial misdeeds.
Legal News
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Could A Legal Ruling Instantly Wipe Out Uber? Not So Fast
Jun 19, 2015 | Forbes
By AP
Could the world wake up one morning and find ride-hailing service Uber struck dead, shackled to hundreds of thousands of drivers that have suddenly been deemed expensive employees?
In the wake of a ruling from a California Labor Commissioner Wednesday that said Uber driver Barbara Berwick was an employee, it sounded like it was possible. The ruling was called Uber’s “worst nightmare,” a bad omen that “should frighten” and “blasts a big hole in” all contractor-based businesses. One reporter wondered on Twitter if Uber’s $50 billion valuation priced in the fact that it could be “instantly vaporized” and said he’d been told the lawsuits were “an existential threat” to the company and others like it.
Well, not quite. A legal decision that could instantly cripple Uber would be years off and would likely only apply to part of its operations — and in the meantime, Uber would have time to lobby for new regulations or tweak its business model to stay afloat, legal experts say.ADVERTISING
“Nothing happens fast in the law,” said attorney Beth Ross. She would know — she’s been going after FedEx Ground for misclassifying some of its drivers since 2000. But her biggest win wasn’t until last year, when the Ninth Circuit Court of Appeals ruled that FedEx had misclassified some 2,300 drivers. FedEx settled that case last week for a whopping $228 million, one of the biggest employment settlements in recent history, she said. FedEx did eventually change its business model to make its contractors more like franchisees than drivers in the trucks, but that change didn’t come until 2009.
The Berwick ruling doesn’t look good for Uber. But it doesn’t actually set any precedent for other cases — it only applies to Berwick, and it’s already been appealed. When it’s re-heard in San Francisco Superior Court, it’ll also be heard fresh — de novo, in lawyer terms — meaning the new decision won’t take the Labor Commissioner’s decision into account.
What Happens Next With The Case?
State and federal courts both have three levels: trial courts, courts of appeal and a Supreme Court. Only decisions made at the appeals level or higher are “binding” — that is, that other courts in that jurisdiction have to follow them when faced with similar cases. The Berwick case will now go through San Francisco trial court, and then if that is appealed, it will go through the court of appeals — a process that could take one and a half to two years total, said labor attorney David Rosenfeld. Uber is also appealing a ruling from a Florida agency that said a driver is an employee.
Meanwhile, a case in federal court filed by Shannon Liss-Rordan could advance. This one has gotten attention because it’s not class-action yet but hopes to be, and because judges have made early rulings that seem to favor the employee argument. It will have a class-action certification hearing in August and is set to go to a jury trial after that, but “federal courts take even longer,” said UC Hastings law professor Reuel Schiller. If the case becomes a class-action suit, the stakes are raised, and it might present a scarier financial risk to Uber.
Another limitation: the findings in both the Berwick state case and the federal case would be limited to California, even if they were upheld at the highest levels of court. The federal case was originally filed as a nationwide suit, but a judge limited it to California drivers last year.
Uber is quick to point out that not all labor commissioners feel their drivers are employees. In 2012, a California labor commissioner ruled that a driver was an independent contractor. Labor commissioners or labor departments in six other states — Georgia, Pennsylvania, Colorado, Texas, Illinois and New York — have come to the same conclusion.
If Berwick wins at the appeals level, that could open the floodgates of other plaintiffs who want to claim they are employees and get expenses covered. (Berwick was granted more than $4,000 for two months of work as an Uber driver.)
“That’s when all hell breaks loose because everybody in the world can go to the labor commissioner and be told this is what you’re owed,” Rosenfeld said. “Lawyers will file more lawsuits.”
But those lawsuits would be limited to drivers with the resources and energy to seek it out — not a decision that would have sweeping consequences for all drivers. And many drivers who enjoy the flexibility of a contractor schedule — 73% of drivers according to an Uber survey — might not want it at all.
“There’s no law that requires Uber or any other company to say, ‘Oh, well, Schiller won, therefore we need to change our employment practices,” Schiller said. “If Uber wanted to, they could contest every case. They could argue that the facts are that Schiller drives fewer hours than you, or any number of different factual distinctions.”
“Does Uber mind paying out $4,000 a couple of times a month to the drivers who have the resources and time to bring these individual cases?” he added. “I don’t know, but we both know they have that kind of money. … The class-action mechanism is a more potent mechanism to generate a response.”
A court could also issue an injunction against Uber from engaging drivers under its current contract, though those can be appealed, Ross said.
Could Uber Proactively Change Its Business Model?
Maybe. Ross once litigated an employment case against Carey Limousine, a large limousine company, on behalf of some of its employees but not a class-action suit. On the eve of trial — “I was writing my opening statement,” she said — the company suddenly said it would switch all of its independent contractor drivers to employees. (The company appears to have since gone into bankruptcy, so there’s that.)
Uber doesn’t seem likely to pull an about-face for all of its drivers. But Uber and Airbnb have a history of making some accommodations to comply with the law. Airbnb, after initial resistance and regulatory tussles in San Francisco and New York, now has regulations in place in those areas, though it remains unregulated and operating almost everywhere else. Same with Uber: it has added insurance for drivers, but only when legislation — which they lobbied hard to keep their costs down — was about to pass or take effect.
Uber could draw out these legal battles long enough to reach some kind of regulatory resolution through other channels, Schiller said.
“If I had to guess going forward, Uber’s strategy is not going to be to capitulate and declare all their drivers are employees, nor do I think they will tinker with the contracts they have with drivers,” Schiller said. ”They will probably to try to shape the regulatory environment.”
But in the end, Uber could see the writing on the wall — especially with the weight of a class-action suit — and choose to make some changes to driver classification or contracts. “Those (legal) opinions do not bode well for Uber,” Schiller said.
What About Other On-Demand Companies?
Another fear is that every other on-demand startup that uses independent contractors, like Postmates, Instacart, Handy and Luxe, is watching how cases like Berwick’s play out to see if their business model has the same vulnerability. But George Grellas, a start-up lawyer, says that’s not usually on founders’ minds — least of all deterring them from launching their companies.
“When I see founders doing companies like this, they’re focused almost entirely on the tremendous changes that can come from the new model,” Grellas said. “They know there’s potentially regulatory and legal obstacles, but the attitude I’ve always seen is, ‘We’ll deal with those as needed.’ Their fundamental assumption is the law will tend to evolve and allow for new models.”
Grellas said he would be “utterly shocked” if a single legal decision severely affected Uber or similar businesses. Laws reflect changing social principles, which may grow to include workers who want flexibility more than they want the security of an employment relationship.
“I think they’re a smart company and they’ll do what it takes,” he said of Uber. “Even if that means adapting some of their practices to shield themselves a little more on the side in ways that don’t fundamentally affect the model.”
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Feds fight Jeh Johnson testimony in Petraeus-related lawsuit
Jun 19, 2015 | Politico
By Josh Gerstein
The Justice Department is fighting an effort to force Homeland Security Secretary Jeh Johnson to give a deposition in a privacy invasion lawsuit a Florida woman has filed over the federal government's handling of the investigation into former CIA Director David Petraeus.
Lawyers for Jill Kelley subpoenaed Johnson to testify about his knowledge of a complex inquiry that unfolded after Kelley complained to the FBI in 2012 that someone was sending derogatory statements and threats about her to various of her associates, including Marine Gen. John Allen and Petraeus, and seemed aware of private details about their schedules.
The probe revealed an extramarital relationship between Petraeus and his biographer, Paula Broadwell. That discovery led to Petraeus's resignation shortly after the 2012 elections. However, in a lawsuit filed in 2013 Kelley alleged that the FBI and the Defense Department leaked personal information about her to the media, including suggestions that she had a sexual relationship with Allen. Kelley has adamantly denied any impropriety.
Johnson was the Defense Department's general counsel at the time and played a key role in managing the agency's response. But in a court filing Thursday evening (posted here), government lawyers argue that as a busy cabinet member Johnson should simply be required to answer written questions in the lawsuit and not be subjected to the videotaped depositions most witnesses face.
"Presently, as the head of the Department of Homeland Security, the third largest cabinet-level agency, Secretary Johnson oversees more than 240,000 federal employees. He holds ultimate responsibility for DHS’s mission, which includes preventing terrorism and enhancing national security; managing the borders of the United States; administering immigration laws; securing cyberspace; and ensuring disaster resilience," the Justice Department argues. "Owing to these responsibilities and the incredible demands they impose on the Secretary’s time and resources, defendants informed plaintiffs that they object to Secretary Johnson’s deposition absent a clear and convincing showing that he possesses unique, non-privileged, relevant information that cannot be obtained through other means."
The court filing also reveals that lawyers for Kelley have already obtained records of at least one journalist's communications with Johnson about the Petraeus investigation. In an email sent to U.S. District Court Judge Amy Berman Jackson and attached to the filing, Kelley lawyer Alan Raul said he wants to question Johnson about a Kelley-related email Daily Beast reporter Dan Klaidman sent to Johnson on his personal gmail account in November 2012.
Raul also wants to ask about "Mr. Johnson’s responses and/or prior communications to or from Mr. Klaidman, who addressed him as 'Jeh' and to whom it appears he subsequently granted an 'exclusive' story about his nomination as DHS Secretary."
Klaidman—now an editor at Yahoo News—declined to comment.
Kelley's lawyers also want to question Johnson about the identity of anonymous sources described as "senior defense officials" or "senior military officials" who discussed the investigation with journalists at around the same time. Raul pointed to articles from the Associated Press, USA Today and Washington Post as ones of particular focus. Kelley's team is also asking for information on Johnson's contact with Tampa Tribune reporter Howard Altman and for information on who at the Department of Defense may have spoken with one or more reporters for ABC News about Kelley.
It's possible the journalists themselves could face demands to testify in the case, but that does not appear to have happened yet.
The Justice Department filing does disclose that the government has agreed to make three former senior officials available for depositions in the suit: former Defense Secretary Leon Panetta for a two-hour session, Panetta's former chief of staff Jeremy Bash for a four-hour session and former Defense Department public affairs chief George Little for a seven-hour session.
Kelley's lawyers face an uphill battle in trying to force a sitting Cabinet member like Johnson into a deposition. Last year, another federal judge in Washington ordered Agriculture Secretary Tom Vilsack to appear at a deposition in lawsuit brought by fired Ag Department employee Shirley Sherrod, but an appeals courtissued an unusual order blocking the deposition.
The government also has one more argument in the current dispute: Johnson is a lawyer, so at least some of his actions on the Petraeus/Kelley matter may have been covered by attorney-client privilege or protection for attorney "work product."
Johnson was originally subpoenaed to appear for his deposition on Friday, but the session has been postponed until Jackson rules on the dispute.
In April, Petraeus pleaded guilty to a change of mishandling classified information by sharing classified briefing books with Broadwell and maintaining classified information at his home after he was required to turn it in. He was sentenced to two years probation and a $100,000 fine.
The FBI also investigated Broadwell in connection with the episode. No charges have been filed. The status of that inquiry is unclear.
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Walmart: Report On $76 Billion Hidden In Tax Havens 'Flawed'
Jun 18, 2015 | Forbes
By Claire O'Connor
For the second time in as many days, Walmart has been forced to defend itself against reports of serious financial misdeeds.
Earlier this week, the world’s largest retailer denied claims that its nonprofit arm the Walmart Foundation has been directing funds to urban neighborhoods where the big-box giant seeks to open new stores.
Now, Walmart has dismissed a new report that alleges the chain is hiding $76 billion in assets in an extensive, secretive web of 78 subsidiaries located in 15 tax havens where it has no retail presence.
The 51-page investigation by advocacy group Americans for Tax Fairness describes Luxembourg as Walmart’s “tax haven of choice,” claiming it operates 22 shell companies in the European domicile despite having no stores there.
The group’s tax experts allege that Walmart has transferred ownership of more than $45 billion in assets to its Luxembourg subsidiaries since 2011, paying less than 1 percent in tax to Luxembourg on $1.3 billion in profits.
Luxembourg: the center of Walmart’s tax avoidance operations, according to a new report. Photo: Wikipedia.
“Walmart has kept these tax-haven subsidiaries secretive by burying mention of their existence deep inside of SEC filings and financial documents filed by Walmart subsidiaries all around the world, only some of which are available to the public,” the Americans for Tax Fairness report states.
The group added that this sort of alleged financial secrecy is generally considered the province of Wall Street banks, high-tech companies and Big Pharma rather than retail.
“The discovery that Walmart has built an extensive web of tax-haven subsidiaries suggests that a range of exotic international tax avoidance strategies are being adapted in new sectors of the economy,” the report reads.
Walmart spokesperson Randy Hargrove described the report, which can be seen in full here, as “flawed” and “incomplete,” noting that its authors are backed by the United Food and Commercial Workers Union, regular opponents of the retailer’s labor practices.
“This is the same union-supported group that regularly issues similar, flawed reports on Walmart to promote their agenda rather than the facts,” he said. “This latest report includes incomplete, erroneous information designed to mislead readers.”
Hargove called the assertion that Walmart is hiding $76 billion in assets “wrong,” adding that Americans for Tax Fairness’ calculation “includes intercompany assets, primarily investment in our wholly-owned subsidiaries and intercompany loans which both eliminate on consolidation.”
He pointed towards Walmart’s most recent annual report, where the company disclosed $80.5 billion of intercompany eliminations — the vast majority of which, he said, account for retail store buildings, fixtures, inventory and distribution in countries where Walmart has stores.
“We disclose the significant subsidiaries of the corporation in the company’s 10K, which is compliant with SEC regulations,” he said.
Hargrove said Walmart paid a U.S. federal corporate income tax bill of $6.2 billion in 2014, accounting for nearly 2% of all corporate income tax collected by the U.S. Treasury.
He maintains that Walmart obeys the tax laws of each country where the retailer operates, maintaining transparency with the Internal Revenue Service.
“Just as the company uses funds generated from the U.S. market to continue to invest in stores, wages and growth in the US, we keep a large portion of foreign earnings in international markets where they are reinvested for growth,” he said. “Regardless of where the foreign earnings are held, under the current law, they are not subject to U.S. tax until they are repatriated.”
“Even so, and even with non-U.S. operations comprising nearly 30 percent of Walmart’s revenue, Walmart had an effective tax rate of approximately 32 percent over the past three years.”
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