DOL’s New Overtime Rules Could Cause Big Changes in Employee Compensation

After months of speculation, on May 18, 2016, the United States Department of Labor (DOL) issued new overtime pay rules for administrative or professional employees as required by the Fair Labor Standards Act (FLSA). The new regulation takes effect on December 1, 2016. It has been estimated that the new regulation with affect at least 4.2 million American workers.

Under the new rule, an employer is exempt from having to pay an employee overtime if his or her salary exceeds $913.00 per week ($47,476.00) annually, which is more than double the prior exemption threshold of $455.00 per week ($23,660.00 annually). In addition, an employer is now permitted to use up to 10 percent of bonuses, commissions, and incentive payments to satisfy the exemption threshold. The new rule has also incorporated automatic mechanisms to increase the exemption threshold every three years. As with the prior rule, certain categories of employees are exempt from these new overtime pay requirements, including teachers, lawyers, and doctors.

Failure to comply with the new overtime requirements could subject an employer to potential legal liability for back overtime, liquidated damages, and attorney’s fees. Needless to say, employers will need to look long and hard at payroll records to determine if a salaried employee will need to be converted to an hourly wage. At a minimum, employers will need to begin tracking the hours of salaried employees who earn less than $47,476.00 annually and have a plan in place for each salaried employee who earns below the exemption threshold.

Jeremiah N. Johns
jjohns@mblb.com

Virtual Bitcoins Subject to Federal Seizure

On May 21, 2016, a Magistrate Judge of the United States District Court for the District of Maryland recommended that the court certify that there was reasonable cause for the seizure of 50.44 Bitcoins. The seizure of Bitcoins followed the dismantling of the “Silk Road”, which was an online criminal marketplace. After the dismantling, federal authorities conducted an investigation to determine the identities of users of the site. They discovered that a user operating under the username “JumboMonkeyBiscuit” served as an illegal vendor of narcotics and as a Bitcoin exchanger. JumboMonkeyBiscuit completed 1,521 transactions, mostly to convert fiat currency into Bitcoins and vice-versa between April 2013 and October 2013. In October of 2014, the U.S. Postal Inspectors intercepted a parcel containing $10,000 in U.S. Currency. The inspectors determined that the package had been sent by an online package mailing service account registered with Endicia.com. The registered customer of the Endicia.com account was Thomas Callahan whose account was connected to a physical address closely resembling the return address on the parcel.

Authorities executed a search warrant of a house in Maryland sharing an address connected to the Endicia.com account registered to Mr. Callahan. During the search Amanda Callahan agreed to speak to the investigators and admitted that she and Mr. Callahan were money exchangers on various internet sites, including some marketplaces like Silk Road. Mrs. Callahan showed the investigators a personal computer that contained Bitcoins stored at several Bitcoin addresses including a wallet with a name that matched the addressee of the intercepted parcel containing the $10,000. Mrs. Callahan voluntarily transferred the contents of the Bitcoin addresses to the agents and the agents executed a seizure of the 50.44 Bitcoins.

The federal court held that the Bitcoins were subject to forfeiture under 18 U.S.C. section 981, the federal statute governing civil seizures and also held that the United States authorities complied with federal procedural and notice regulations for seizing property. The courts have been faced with a new arena of issues with the inception of Bitcoins, which are a nebulous concept to the vast majority of the population. The internet currency is an unpredictable beast, raising unlimited questions surrounding its regulation.

In 2013, the United States District Court for the Eastern District of Texas held that Bitcoin is a currency or form of money and that investments involving Bitcoin meet the definition of contract, and are therefore securities under federal statute 15 U.S.C. section 77(b). As the judiciary increasingly characterizes and categorizes Bitcoin under state, federal, and international law, we will gain a better idea of the law’s, as well as the world population’s, acceptance and rejection of the e-currency.

United States v. 50.44 Bitcoins and Securities and Exchange Commission v. Shavers

Philip D. Lorio, IV
plorio@mblb.com

New Limitations on Arbitration Agreements Could Have Big Impact on Financial Industry

Big changes may be on the way for dispute resolution agreements in the financial industry. Recently, the Consumer Financial Protection Bureau (CFPB) proposed two sets of limitations on the use of pre-dispute arbitration agreements by providers of consumer financial products and services. One proposed rule would prohibit the use of consumer arbitration agreements that bar a consumer from filing or participating in a class action involving a financial product or service. The second proposal would require a provider of financial products and services to submit certain records of arbitrations to the CFPB.

The proposed regulations could have a significant impact on dispute resolution in the financial industry and also expose certain businesses to increased risk of class action litigation. Additionally, the CFPB’s proposal to maintain records of arbitrations suggests that it intends to take more active role in monitoring dispute resolution. The public has until August 22, 2016 to comment on the proposed regulations. In the event the regulations are adopted, affected businesses should quickly develop a plan for compliance.

Jeremiah Johns
jjohns@mblb.com

Red Light, Green Light…Ticket

Most Louisiana residents are familiar with the red light camera program, which has come under scrutiny here in New Orleans. The National Motorists Association (“NMA”) alleges what many local citizens suspect – that the city’s motivation behind the red light camera program is revenue, not safety. In fact, the NMA cites studies which indicate that the introduction of red light cameras actually results in an increase in accidents.

In the hopes of exposing the city’s motivation behind the red light cameras, and the corruption allegedly associated with the program, the NMA is filing suit. Defendants in the suit are the City of New Orleans, Mayor Mitch Landrieu, the city council, and the camera installation company. The plaintiffs allege that the cameras violate the United States Constitution and the New Orleans’ Home Rule Charter, linked below. In support of its contention, the NMA highlights that the cameras are unable to identify the driver when issuing the automatic tickets. Essentially, the ticket imposes a “guilty until proven innocent” charge, rather than “innocent until proven guilty” assumption upon which our justice system is supposed to be founded.

A similar suit was filed in Jefferson Parish, Louisiana, the outcome of which resulted in partial refunds to more than 180,000 drivers who had been fined. While the citizens filing suit against the New Orleans based program hope to receive monetary compensation, they ultimately want the program to be eliminated. Whether or not they get that outcome is yet to be determined.

For more information, please see:

New Orleans’ Home Rule Charter

Red light Camera Refund Checks Arriving in the Mail

Lawsuit Claims New Orleans Traffic Cameras Illegal, Suing to Stop Program and Reclaim Money

Caitlin R. Byars
cbyars@mblb.com

Who’s Driving that Car?

As technology evolves, so does the law by which it is governed. One of the latest trends to arise from the tech community is autonomous vehicles, otherwise known as self-driving cars. This new area of law has been coined as incorporating “very traditional legal issues, but with a very new context.” (As described by Jennifer Dukarski from the Butzel Long firm.)

Many of the companies venturing into the realm of self-driving cars – Ford, Google, Lyft, Uber, and Volvo – are combining forces to form a lobbying group aimed at educating lawmakers on the nuances of self-driving cars. Manufacturers of the vehicles are aiming to have a singular set of federal guidelines in place to help streamline a national adoption of these vehicles, rather than have varying state regulations which would hamper compliance when traveling intrastate. For instance, California is proposing restrictions on the autonomous nature of the vehicle such as driver-centric steering wheels, brake and accelerator pedals, whereas Florida allows autonomous cars to travel unoccupied.

As can be expected, law firms are having to adapt and innovate, much like their clients. Legal teams are facing challenges from contract negotiation to regulatory compliance. As the product evolves, so will the law.

For additional information, please see:

Autonomous Cars Require a Self-Driven Legal Hybrid Teams

Self-Driving Tech’s Lobbying Supergroup to Play Many Dates in DC

Caitlin R. Byars
cbyars@mblb.com

Materials Used to Reconstruct a Vessel Destroyed by Fire are Tax Exempt

Plaintiff’s drilling barge caught fire in St. Mary Parish causing extensive damage. Repairs were made at a cost of $11 million. Under Louisiana law, taxes imposed by taxing authorities shall not apply to sales of materials, machinery, and equipment which become component parts of a vessel of fifty tons and over, if the vessel is built in Louisiana. Further, a tax exemption applies to construction or reconstruction, but not to the replacement of worn components. Louisiana law also provides that the exemption applies if the reconstruction restores the vessel to seaworthiness following its destruction by sinking, collision, or fire. Plaintiff relied on this tax exemption and did not pay any sales or use taxes on the materials purchased to repair the barge. Nevertheless, the tax collector for St. Mary Parish assessed taxes on the repair equipment.

Plaintiff paid the taxes and filed suit against the tax collector for a refund. In defense, the tax collector argued that the exemption applied to materials used for the original construction only; that the vessel was damaged but not destroyed by the fire; and alternatively that the relevant tax exemption regulation was unconstitutional. Both the district court and court of appeal agreed that the regulation was unconstitutional as it exceeded the scope of the statute under which it was promulgated.

On supervisory writ, the Louisiana Supreme Court reversed. By way of background, the statute was first enacted in 1959 to make the Louisiana shipbuilding industry competitive. The Court noted that there was a broad legislative intent to include, within the scope of the tax exemption, reconstruction that is the commercial equivalent to original construction. The Court found that nothing in the plain language of the statute restricted the reading to a more narrow definition. Further, the Court found that the barge was rendered incapable of performing its intended purpose and that the reconstruction qualified for the tax exemption. Plaintiff was not required to pay sales or use taxes on the purchased repair equipment.

Coastal Drilling Company, LLC v. Dufrene

Maro Petkovich, Jr.
mpetkovich@mblb.com

Failure to Maintain Sterilization Equipment Falls Under Purview of MMA

Plaintiff filed suit against a hospital when he developed an infection following spine surgery. Defendant filed an exception of prematurity, arguing that it was a qualified healthcare provider under the Medical Malpractice Act (MMA) and that plaintiff’s claims had not yet been presented to a medical review panel. The district court granted the exception as to all of plaintiff’s allegations with the exception of the allegation that defendant failed to properly maintain and service all equipment utilized in the sterilization process.

On a supervisory writ, the Louisiana Supreme Court found that plaintiff’s improper sterilization allegation also fell under the MMA. Under the MMA, a medical malpractice claim against a qualified healthcare provider is subject to dismissal if the claim has not yet been reviewed by a medical review panel. The MMA applies strictly to medical malpractice, and all other tort liability on the part of a qualified healthcare provider that falls under general tort law. The Court ultimately concluded that that the conduct at issue constitute malpractice under the MMA. First, the alleged conduct was treatment related. Next, the allegation would require expert medical evidence to determine whether the standard of care was breached. Further, the allegation fell within the scope of activities that defendant was licensed to perform. Finally, the injury would not have occurred had plaintiff not sought medical treatment. Therefore, the Court ruled that the district court should have granted defendant’s exception in its entirety.

Dupuy v. NMC Operating Co., LLC d/b/a The Spine Surgery Hospital of Louisiana

Maro Petkovich, Jr.
mpetkovich@mblb.com

Liebeck, Move Over – There’s a New Plaintiff in the Coffee Game

Remember the “hot coffee case” (Liebeck v. McDonald’s Restaurants)? Well, now Starbucks is in the litigation crosshairs for its allegedly insufficient and falsely advertised iced drinks. Stacy Pincus, from Illinois, filed a lawsuit against Starbucks on April 27, 2016, accusing the company of cheating its customers out of delicious cold iced coffee; too much ice is the problem. The complaint reads in part:

A Starbucks customer who orders and pays for a Cold Drink receives much less than advertised . . . often nearly half as many fluid ounces. This is a class action lawsuit against Starbucks for misrepresenting its Cold Drinks as having more fluid ounces of the ordered Cold Drink than it actually delivers . . . and charges . . . the customer for.

The complaint continues:

Plaintiff would not have paid as much, if anything for the Cold Drinks had she known that it contained less, and in many cases, nearly half as many, fluid ounces than claimed by Starbucks. As a result, Plaintiff suffered injury in fact and lost money or property.

The plaintiff goes as far as to allege elements of conspiracy, in that “Starbucks instructs its employees to provide its customers with fewer fluid.”

As for Starbucks’ position, they were quoted as follows: “Our customers understand and expect that ice is an essential component of any ‘iced’ beverage. If a customer is not satisfied with their beverage preparation, we will gladly remake it.”

Stacy Pincus v. Starbucks Corporation

Michael P. Shlansky
mshlansky@mblb.com

Government Adaptation to the Increase in Ride-Hailing Apps

Over the last year, ride-hailing companies like Uber and Lyft have faced increased scrutiny from local governments and the taxi cab industry as they attempt to expand their growth into new markets. On Saturday, May 7, 2016, voters in Austin, Texas voted against a proposition that would allow ride-hailing companies to continue to use their own background check systems in certifying their drivers. Instead, Austin has proposed requiring these companies to fingerprint their drivers. Advocates for this requirement argue that fingerprinting is a more thorough way to identify potential drivers with criminal histories.

The ride-hailing companies have countered that fingerprinting relies on outdated databases and makes it increasingly difficult to hire drivers in a timely fashion. This is especially true when considering that the business models of these companies rely heavily on part-time drivers. In response to the recent vote, Uber and Lyft have indicated that they will cease operations in Austin. The impact of the Austin vote on this burgeoning industry raises questions of the viability of this business model when faced with government regulation and the public rebuke of the industry push in a city viewed to be open to technological innovation.

Pierce C. Azuma
pazuma@mblb.com

Do Not Wait – Timely Evidence is Necessary in Discovery Disputes

In the course of the discovery phase of federal court litigation, parties oftentimes find themselves in a heated discovery dispute. One party seeks production of information or entry upon land for inspection of property, while the responding party objects to the requested discovery, either partially or in its entirety. In these circumstances, the requesting party may move the court to compel the requested discovery, pursuant to Rule 37 of the Federal Rules of Civil Procedure. Depending on the local rules for the district court where the action is pending, motions to compel are typically referred to the magistrate judge allotted to the case.

What happens if a party is displeased with the magistrate judge’s discovery order? In such event, a party may appeal the magistrate’s order to the district judge assigned to the case, pursuant to Rule 72 of the Federal Rules of Civil Procedure. Inasmuch as a motion to compel is a non-dispositive pretrial motion, subsection (a) of Rule 72 applies. Rule 72(a) states:

When a pretrial matter not dispositive of a party’s claim or defense is referred to a magistrate judge to hear and decide, the magistrate judge must promptly conduct the required proceedings and, when appropriate, issue a written order stating the decision. A party may serve and file objections to the order within 14 days after being served with a copy. A party may not assign as error a defect in the order not timely objected to. The district judge in the case must consider timely objections and modify or set aside any part of the order that is clearly erroneous or is contrary to law.

“A finding is ‘clearly erroneous’ when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.” United States v. U.S. Gypsum Co., 333 U.S. 364, 395 (1948). A legal conclusion is contrary to law “when the magistrate fails to apply or misapplies relevant statutes, case law, or rules of procedure.” Ambrose-Frazier v. Herzing Inc., No. 15-1324, 2016 WL 890406, at *2 (E.D. La. 3/9/2016). For issues that are committed to a magistrate judge’s discretion, such as the resolution of discovery disputes, the decision will be reversed only for an abuse of discretion.

On appeal, the losing party to a discovery motion may attempt to offer new evidence, or new arguments based on new evidence, for the district court judge to consider on the appeal. However, the district court is typically not permitted to consider any such new evidence on appeals of non-dispositive matters, such as discovery motions. Under Rule 72(a), “the district court is not permitted to receive further evidence; it is bound by the clearly erroneous rule in reviewing questions of fact.” Haines v. Liggett Grp. Inc., 975 F.2d 81, 91 (3rd Cir. 1992).

Accordingly, attorneys must exercise due diligence and gather all necessary evidence when presenting and/or opposing discovery motions. If a magistrate does not rule in your favor, you will lose your opportunity to bolster any argument with additional evidence, should an appeal be made.

Michael H. Rodrigue
mrodrigue@mblb.com