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Legal News Report 4-08-2016
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Justice Department Files Lawsuit Challenging Halliburton-Baker Hughes Deal
Apr 6, 2016 | Wall Street Journal
By Brent Kendall and Alison Sider
The Justice Department on Wednesday filed an antitrust lawsuit challenging Halliburton Co.’s planned acquisition of rival Baker Hughes Inc., alleging that the deal would threaten higher prices and reduce innovation in the oil-field services industry. -
Uber Settles With California Regulators for Up to $25 Million
Apr 7, 2016 | Wall Street Journal
By Douglas Macmillan
Uber Technologies Inc. agreed to pay up to $25 million to settle a lawsuit brought by the district attorneys of San Francisco and Los Angeles in 2014. -
U.S. Presses Bid to Force Apple to Unlock iPhone in New York
Apr 8, 2016 | New York Times
By Eric Lichtblau
In the next battleground in the Justice Department’s fight to unlock some of Apple’s well-encrypted iPhones, the agency on Friday pressed ahead with its efforts to get access to a locked phone linked to a methamphetamine ring in Brooklyn. -
Judge rejects $12M Lyft class-action settlement
Apr 8, 2016 | Ars Technica
By Joe Mullin
A deal between Lyft and lawyers representing some drivers, in which the ride-hailing app would pay $12.25 million to end a lawsuit, has been thrown out by the federal judge overseeing the case.
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Justice Department Files Lawsuit Challenging Halliburton-Baker Hughes Deal
Apr 6, 2016 | Wall Street Journal
By Brent Kendall and Alison Sider
The Justice Department on Wednesday filed an antitrust lawsuit challenging Halliburton Co.’s planned acquisition of rival Baker HughesInc., alleging that the deal would threaten higher prices and reduce innovation in the oil-field services industry.
The lawsuit, filed in a Delaware federal court, asserts that the transaction would eliminate important head-to-head competition in markets for 23 products and services used for U.S. oil exploration and production, from drill bits to offshore cementing services. The effect would be to skew energy markets and harm American consumers, the department said.
Bill Baer, the Justice Department’s antitrust chief, pulled no punches in his criticisms of the merger and made clear the government’s decision to sue wasn't a close call.
“I have seen a lot of problematic mergers in my time. But I have never seen one that poses so many antitrust problems in so many markets,” Mr. Baer said. Some deal proposals should never leave the corporate boardroom, he said, and “this deal falls squarely in that category.”
The companies pledged to fight the Justice Department lawsuit. In a joint statement, they said they “believe that the DOJ has reached the wrong conclusion in its assessment of the transaction and that its action is counterproductive, especially in the context of the challenges the U.S. and global energy industry are currently experiencing.”
The Wall Street Journal reported Tuesday that a government lawsuit challenging the transaction was imminent.
The nearly $35 billion deal,originally announced in November 2014, proposed to combine the world’s second- and third-largest oil-field services firms, behind onlySchlumberger Ltd.
The transaction has faced antitrust resistance around the globe, including in Europe. The U.S. lawsuit Wednesday is the biggest hurdle yet for the merger.
Since the deal was struck, the oil-field services industry has faced severe setbacks, as persistently low oil prices have slashed demand for the business of drilling wells and pumping oil and natural gas.
Mr. Baer said the government was “certainly aware” of what has happened to oil prices. But he said the companies operate in a cyclical business and the downturn “is not a justification for an anticompetitive merger.”
Halliburton and Baker Hughes have been trying to ease concerns that their merger would slash competition by offering to sell off assets worth billions of dollars to other firms, an action called divestiture.
The companies said Wednesday their proposal would “facilitate the entry of new competition in markets in which products and services are being divested.” Halliburton said it strongly believed “that the proposed divestiture package, which was significantly enhanced in response to concerns that the DOJ expressed during the course of its 15-month investigation, is more than sufficient to address the DOJ’s specific competitive concerns.”
The companies said their combination would create a more flexible, innovative and efficient company that could reduce costs for customers.
Baker Hughes Chief Executive Martin Craighead told employees in a letter the company believed it had a strong case. Mr. Craighead said he couldn’t predict how long the litigation would take.
The companies previously set a deadline of April 30 for obtaining all the regulatory approvals for the merger agreement, after which either company could terminate the deal, though they could also choose to stay the course.
The Justice Department was highly critical of the companies’ divestiture proposal, saying the merged firm would retain more valuable assets while selling less-significant ones to third parties.
The department’s Mr. Baer said the government had held off on filing a lawsuit to give a full hearing to the companies’ offer. But he said Halliburton’s proposal for fixing the transaction’s competitive problems “changes by the day” and is “so complicated and convoluted” that it could never work to preserve a competitive marketplace.
Baker Hughes stands to collect a steep $3.5 billion breakup fee from Halliburton if the deal doesn’t pass antitrust muster. But some analysts said Baker Hughes might struggle to regain its footing as an independent company if the deal falls through.
“We believe the biggest risk with a suddenly stand-alone BHI is the state of the company’s operational capabilities after a wave of departures and, according to multiple industry sources, the apparent unorganized and disengaged nature of the rest of the organization,” Wells Fargo analysts wrote.
But, they noted, the company would have as much as $5 billion on its balance sheet and a lot more freedom to cut costs and improve margins than it has had in the past year. Baker Hughes shares shot up almost 9% to $42.83 Wednesday. Halliburton shares rose almost 6% to $36.44.
In addition to the breakup fee it would owe Baker Hughes, Halliburton would be on the hook to redeem $2.5 billion worth of bonds if the merger isn’t consummated by November. Still, analysts said the company could likely handle the cash outflow.
“With Halliburton, the balance sheet becomes a little less flexible, but it doesn’t fundamentally redefine the company,” said Bill Herbert, an analyst at Simmons & Co., a division of Piper Jaffray Cos.
While most mergers continue to receive government approval, the legal challenge is the latest evidence that U.S. antitrust enforcers in the Obama administration are pushing back against transactions they believe raise significant threats to competition.
Last year, the Justice Department challenged several major deals, includingGeneral Electric Co.’s planned sale of its appliance business to Electrolux AB and Comcast Corp.’s planned acquisition of Time Warner Cable Inc.
Both of those deals were eventually abandoned.
The Federal Trade Commission, meanwhile, is in the midst of court proceedings against a proposed merger of Staples Inc. and Office Depot Inc.
http://www.wsj.com/articles/justice-department-files-lawsuit-challenging-halliburton-baker-hughes-deal-1459952507
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Uber Settles With California Regulators for Up to $25 Million
Apr 7, 2016 | Wall Street Journal
By Douglas Macmillan
Uber Technologies Inc. agreed to pay up to $25 million to settle a lawsuit brought by the district attorneys of San Francisco and Los Angeles in 2014.
The cities had sued Uber for allegedly misleading consumers in advertisements on the background checks of its drivers. The regulators also claimed San Francisco-based Uber was out of compliance with the inspection of taxi meters and for not obtaining proper licenses to drop off and pick up passengers at the airport.
The San Francisco Superior Court approved the settlement Thursday. According to the terms, Uber will pay $5 million apiece to each city and up to $15 million in additional penalties if it fails to comply with regulations, including obtaining proper permits for airport pickups and accurately representing its safety measures in marketing materials.
Uber said Thursday it is already in compliance with all of the changes to its business practices that the district attorneys had requested in the settlement. The company has in recent months stopped using terms such as “the safest ride” in its promotions and only allows drivers to pick up passengers at California airports for which it has explicit permission. If Uber is considered compliant with those regulations, it would owe the cities a total of $10 million.
In the original suit, George Gascón, the district attorney of San Francisco, and Jackie Lacey, his counterpart in Los Angeles, alleged Uber and rival Lyft Inc. misled customers into believing they screened out drivers who have ever committed criminal offenses. Lyft agreed to settle with the regulators and pay $500,000 in civic penalties shortly after the suit was brought in 2014.
Last year, as part of the civil suit, the California regulators said they found evidence that Uber failed to screen out 25 drivers with criminal records, including convictions for kidnapping and murder. At the time, Uber disagreed with the regulators’ claim that its background-check process was inferior to others, including a fingerprint-scanning method used by taxi companies called Livescan.
Also on Thursday, a federal judge in California rejected a settlement between Lyft and some drivers that would have required the car-hailing service to pay $12.25 million.
In that case, several drivers sued Lyft saying they are misclassified as independent contractors and hence are owed back wages and reimbursement of certain expenses. A judge said the settlement amount is too low, while Lyft said it believes the agreement is fair and will consider next steps.
Uber faces similar lawsuits brought by drivers in California over the contractor status.
http://www.wsj.com/articles/uber-settles-with-california-regulators-for-up-to-25-million-1460073335
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U.S. Presses Bid to Force Apple to Unlock iPhone in New York
Apr 8, 2016 | New York Times
By Eric Lichtblau
In the next battleground in the Justice Department’s fight to unlock some of Apple’s well-encrypted iPhones, the agency on Friday pressed ahead with its efforts to get access to a locked phone linked to a methamphetamine ring in Brooklyn.
Although the F.B.I. unlocked a phone last month, ending its prominent legal battle with Apple in the case involving the mass shooting in San Bernardino, Calif., the Justice Department on Friday told a federal judge in the Eastern District of New York that it still needs the technology giant’s help to unlock the phone in the Brooklyn case.
It is seeking to overturn an earlier order from another judge in Brooklyn who sided with Apple and said the Justice Department had overreached in trying to force the company to give it access to an encrypted iPhone used by a convicted drug dealer.
In its letter on Friday, the Justice Department said that “the government’s application is not moot and the government continues to require Apple’s assistance in accessing the data that it is authorized to search by warrant.”
The F.B.I.’s fight with Apple over the iPhone used by one of the attackers in San Bernardino in December ended abruptly after the bureau paid an outside firm — which company and how much is still unknown — to demonstrate a way around two defense mechanisms in the phone.
With tensions high, the F.B.I. said this week that it had not yet shared that solution with Apple and had not decided whether to do so. Investigators have not said what data was retrieved or even whether it considers it useful.
http://www.nytimes.com/2016/04/09/technology/us-presses-bid-to-force-apple-to-unlock-iphone-in-new-york.html
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Judge rejects $12M Lyft class-action settlement
Apr 8, 2016 | Ars Technica
By Joe Mullin
A deal between Lyft and lawyers representing some drivers, in which the ride-hailing app would pay $12.25 million to end a lawsuit, has been thrown out by the federal judge overseeing the case.
In a 21-page order (PDF), US District Judge Vince Chhabria says that the $12.25 million payment seriously shortchanges the proposed class of drivers—and the state of California. Plaintiffs' lawyers said the $12.25 million was a reasonable cut for the $64 million that drivers deserved for mileage reimbursements they would have received as employees. But Chhabria's calculation of that reimbursement, using the drivers' own methodology, was that it's worth more than $126 million.
"The drivers were therefore shortchanged by half on their reimbursement claim alone," he concludes.
In addition, the drivers had a claim for penalties under the Private Attorneys General Act (PAGA), a law that allows for private enforcement of state labor laws with the state receiving 75 percent of the proceeds. Under the proposed deal, the the PAGA portion of the claim was discounted to $122,250, less than 1 percent of the total settlement.
Chhabria says the PAGA penalty "makes no sense" and was created with an "arbitrary" calculation. "Nor did either side have a rational explanation for the value assigned to the PAGA claim, or for why they attributed such a minuscule portion of the settlement to that claim."
If all drivers in the class had made a claim, the $12.25 million settlement would have resulted in an average payout of $53.02 to part-time drivers and $676.19 to full-time drivers. That figure gives a 50 percent "premium" to the full-time drivers' claims, since in the judge's view they likely had a stronger case for being misclassified as contractors.
The relatively low sum of money could be explained away if the non-monetary terms of the settlement were significant, Chhabria notes. But they aren't. The lawsuit claimed that Lyft drivers were really employees who had been misclassified as independent contractors and said they weren't properly paid for their expenses, among other things. Those things won't change under the proposed agreement, which instead focused on when and how Lyft can terminate drivers.
The Teamsters union, which is seeking to represent Lyft drivers, also objected to the settlement, saying that it should have changed the drivers' classification to employees. Chhabria mostly discounts the Teamsters' claims, saying they are policy concerns better directed to the legislature. He says the union's assertion that the changes are "largely illusory" is likely an overstatement. "The changes aren't revolutionary, but they are not nothing, either," Chhabria writes.More money, fewer problems
Overall, Chhabria sees serious problems with this deal. But they're largely, if not entirely, concerns that can be solved with money. The mileage reimbursement and PAGA valuations are the "fundamental defects" that need to be corrected.
Former Lyft drivers Patrick Cotter and Alejandra Maciel sued Lyft in 2013, saying they shouldn't have been classified as contractors. The suit said they were denied breaks, overtime pay, and other benefits of being an employee.
One of the problems assessing proper compensation for the drivers is that the proposed class is so disparate. Only 755 members of the 150,000-person class are full-time drivers, defined as driving at least 30 hours per week for at least half of the weeks they worked for Lyft. More than two-thirds of the class drove less than 60 hours for Lyft in total.
The settlement discussion is an odd one, because both the judge and lawyers are effectively trying to guess what a jury would do if the case went to trial. "A jury might be reluctant to conclude that Lyft 'employs' people who only give occasional rides when their schedules permit," Chhabria wrote. "But the outcome either way is far from assured."
In a separate action, Lyft's bigger competitor Uber reached a deal with the Los Angeles and San Francisco district attorneys yesterday, in which the company will pay $25 million to settle a lawsuit claiming that its background checks on drivers were insufficient. The lawsuit also said that a $4 fee for trips to airports should have been paid to the airports but wasn't.
Under the deal, Uber will pay $10 million within 60 days, and $15 million will be waived if Uber follows the settlement terms for two years.
http://arstechnica.com/tech-policy/2016/04/judge-rejects-12m-lyft-class-action-settlement/
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