Archive for the ‘Legal Analysis’ Category

Hobby Lobby and the Future of Corporations

Posted by | Employment, Legal Analysis | July 01, 2014

Hobby Lobby Decision May Have Large Impacts on Corporations

Much has been said about the Supreme Court’s decision in Burwell v. Hobby Lobby, especially as it relates to women’s rights. However, this is a business law blog, and there are some especially important impacts on businesses from the decision. Unfortunately, the case raises far more questions that it hopes to answer, and the majority provided almost no instructions for lower courts. The end result will be increased litigation by corporations seeking to avoid regulation.

First, an overview: In Hobby Lobby, the Supreme Court majority, written by Justice Alito, essentially held that corporations are persons that can claim religious exemptions to federal laws. It’s important to note that this was not decided on First Amendment grounds. Rather, it was based on the Religious Freedom Restoration Act (RFRA), which was a law passed by Congress in 1993. The RFRA gives “persons” the right to demand a religious exemption to certain federal laws, and requires the government to show that the law serves a government interest and is using the least restrictive means in order to overcome the religious exemption. The law has been on the books for quite some time and has been upheld on Constitutional grounds.

In coming to the decision, the Court held that the RFRA applies to closely held corporations, so publically traded corporations are not included. However, Justice Ginsberg pointed out in her dissent that the majority’s reasoning applies just the same to large corporations, so the decision would logically extend to them as well.

There are two potential effects of the case on corporations. First, it may open the door to claiming exemptions to regulations, especially regarding healthcare, that go counter to their shareholders’ religious beliefs. The second is that the concept of corporate personhood has been altered once again, raising the question of whether a corporate person is distinct from the shareholder behind it.

Religious Exemptions from Healthcare Requirements

For obvious reasons, healthcare is probably the most immediate question. Justice Ginsberg’s dissent raised a number of hypothetical, yet very real, situations that could be effected by the Court’s decision:

“Would the exemption the Court holds RFRA demands for employers with religiously grounded objections to the use of certain contraceptives extend to employers with religiously grounded objections to blood transfusions (Jehovah’s Witnesses); antidepressants (Scientologists); medications derived from pigs, including anesthesia, intravenous fluids, and pills coated with gelatin (certain Muslims, Jews, and Hindus); and vaccinations (Christian Scientists, among others)?”

Taken to an extreme, some Christian Scientists and Pentecostals believe only in faith healing and reject modern medicine completely. Could such a corporation deny all health insurance to its employees? Justice Alito suggests that would be bad for business, but doesn’t claim it would be impermissible.

Despite Justice Alito’s assurances that such questions will not come up, it seems very clear that some corporations will suddenly have strong religious convictions where saving money is at stake.

Possible Permitted Discrimination Under Hobby Lobby

Justice Alito tried to limit the decision so that corporations could not opt out of any law they felt was incompatible with their religion. He was especially clear that religious exemptions would not be available for any question of racial discrimination. However, that leaves the very real possibility of other types of illegal discrimination that are common religious exemptions.

LGBT discrimination was at the very heart of a recent debate in Arizona over their version of the RFRA. After supporting it, but receiving significant backlash, Gov. Brewer vetoed a proposed law that would allow companies to choose who they work with based on religion. It was made clear that the point of the law was to specifically permit businesses to discriminate in hiring and serving customers based on sexual orientation. While it failed in Arizona, it was quickly passed in Mississippi. The parallels between these bills and the Hobby Lobby decision are clear, and the possibility for a similar result exists.

Religious non-profits and churches, which already enjoy a number of religious exemptions, may be helpful in determining what could potentially qualify as an exemption under Hobby Lobby. Religious non-profits have used various religious exemptions to discriminate against LGBT employees, unwed pregnant mothers, and women who used in vitro fertilization. The question Hobby Lobby raises is whether corporations can now do the same.

Sometimes an extreme example helps clarify the issues. Churches are currently exempt from certain provisions the Civil Rights Act of 1964, which allow them to require all their employees to be part of their church. This makes sense for churches, but can it now be applied to corporations? Can the corporation demand employees join their church or face termination? Or a less extreme hypothetical – can this be used as a defense in a religious discrimination case?

Is It Even a Corporation Any More?

Under the law, a corporation is considered a new person. This is a “legal fiction” that was created to allow large groups of people to form companies that would then protect the shareholders from liability. In other words, shareholders cannot be forced to pay the corporation’s debts.

This is a very good system, and incredibly necessary in today’s economy. However, the legal fiction only exists so long as the corporation and the shareholders are distinct. The Hobby Lobby decision is part of a string of cases conferring individual rights on corporations, thus separating the distinction between the corporation and the shareholders.

The issue in Hobby Lobby was framed as a religious freedoms problem. If the law requires a corporation to do something the owners believe to be incompatible with their religion, then the owners’ freedoms are infringed. Justice Alito explained:

“[I]t is important to keep in mind that the purpose of this fiction is to provide protection for human beings. A corporation is simply a form of organization used by human beings to achieve desired ends. An established body of law specifies the rights and obligations of the people (including shareholders, officers, and employees) who are associated with a corporation in one way or another. When rights, whether constitutional or statutory, are extended to corporations, the purpose is to protect the rights of these people.” (emphasis added)

This was similar to the argument in Citizens United, allowing corporations to spend money on political campaigns based on the shareholders’ rights of speech. The problem is that such a simplistic definition leaves the question of liability wide open. If Constitutional rights of the shareholders can pierce the corporate veil up to the corporation, then it stands to reason the liabilities of the corporation could pierce the corporate veil down to the shareholders.

In Hobby Lobby, it was the corporation, not the owners, who was supplying healthcare. The Court brushed away that distinction, and treated the owners as the suppliers. If we read the law like Justice Alito, then are the owners similarly liable for healthcare? If Hobby Lobby impermissibly denies other healthcare rights, will the owners be held personally responsible?

This is a slippery slope that could eventually hurt the concept of the corporate person. That would be harmful to the economy and society in many ways.

What’s Next?

Undoubtedly, there will be a string of cases across the country of corporations trying to claim religious exemptions to any number of federal regulations. Healthcare and discrimination will just be the start. Basically, any regulation that could conceivably be a religious impediment (and would save the company money), will be under attack.

It’s important to recognize that this was not a Constitutional decision. Since the RFRA is just a statute, Congress could simply change it or redefine “person.” Senate Democrats have already declared their intention to do just that, though it’s unlikely to ever pass the House.

Nonetheless, Hobby Lobby shows that the distinction between a corporation and its shareholder is growing blurrier every day. If rights can flow one way, then liabilities may be able to flow the other way. Such a result would be a disaster and destroy a bedrock of the American economy.

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SCOTUS Finds Expectation of Privacy in Cell Phones

Posted by | Legal Analysis, Privacy | June 27, 2014

Warrant Required to Search Cell Phone Data

The Supreme Court has determined that police need a warrant in order to search a cell phone under the Fourth Amendment. The question in Riley v. California was whether the data within a cell phone is subject to a search incident to arrest. Basically, when police arrest someone, they are allowed to do a complete search of that person. Now, with the new court ruling, the police can no longer access the cell phone’s data during that search without a warrant.

Search Incident to Arrest

The search incident to arrest rule came about in a 1973 case called United States v. Robinson which held that police can do a warrantless search of a person when they are arrested. In coming to this rule, the Court balanced the police interest with the individual’s right to privacy. For the police, the Court decided that police concerns about risks to officers and destruction of evidence were present in all arrests, and were very important interests. On the other hand, individuals have very little expectation of privacy when they are arrested. So lots of government interest, very little privacy interest.

A Modern Rebalancing

Fast forward 40 years and now we have smart phones. These things carry insane amounts of very personal data, from bank accounts to geotracking. The Court in 1973 never could have imagined such a world. In fact, the world’s supercomputer at that time held only 200mb of data ( Compare that to a 32gb cell phone. So the Court in 2014 looked at the same balancing of interests that they did in 1973, but applied it just to cell phone data. When it comes to cell phone data, the risks of harm to the police or destruction of evidence are very little (are you going to Tweet them to death?). However, the individual’s expectation of privacy is huge. So the balance shifts to little government interest verses large privacy interests.

riley v california

Of course, police can still seize your cell phone when you’re arrested; they just can’t start poking around to check your email or anything without getting a warrant first. The Supreme Court basically distinguished between physical objects, and digital data. The balance of interests is very different between the two, so they need a different result under the Fourth Amendment.

Decision Will Have a Wider Impact on Digital Data Privacy

This was the correct decision, and one that should have been made decades ago when computers became standard. In fact, while this case is limited to cell phone data, it may expand very soon. Chief Justice Roberts, who wrote the Court’s opinion, called cell phones “mini-computers.” If privacy interests exist in cell phones, why not exist in other computers and data storage devices? The lower courts have been struggling with this question, and the Court may have answered it for them.

From a practical perspective, police will probably get warrants for cell phone data very easily if it’s relevant to the case. It’s just a bit more paperwork.

NY Times – Major Ruling Shields Privacy of Cellphones

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No Mo’ Aereo – What Now?

Posted by | Legal Analysis, News | June 26, 2014

SCOTUS Holds Against Aereo TV

The Supreme Court yesterday held that Aereo TV, the online television service that streams broadcast TV to your phone, violated copyright laws by not paying broadcast fees to the broadcast television companies. We discussed the case on LaaW earlier ==> here.

A Tale of Two TV’s

The case came down to two analogies of Aereo’s business model. On the one hand, the broadcast companies compared Aereo to a cable company, which must pay retransmission fees to the broadcast companies for rebroadcasting their shows. On the other hand, Aereo argued that it was no different that somebody sticking “rabbit ears” on their TV and sending the show through DVR, but with Aereo doing that hard work for them. You can pick up broadcast signals with an antenna without having to pay retransmission fees.

Ultimately, the majority went with the broadcasters’ analogy, and the dissent went with the rabbit ear analogy. This is a major blow for Aereo and its users. Aereo has stated that its business model cannot work if it has to pay retransmission fees, and has also stated it has no “Plan B” if it loses in Court. Aereo’s CEO Chet Kanojia stated that they “will continue to fight for our consumers and fight to create innovative technologies that have a meaningful and positive impact on our world.” Note that he doesn’t mention TV as part of that impact.

Wider Impact Lessened

The case was closely watched because of heavy emphasis during oral arguments on the potential effects on cloud computing. Under either analogy, the Court had to make decisions on settled copyright law and the worry was how far they would go. The question was how much would be tossed around to come to a decision. However, it seems Justice Breyer took note of the worries in his opinion by strictly limiting the holding to broadcast TV – not cloud computing, streaming, or anything else.

So probably no more Aereo TV. Another innovative company caught up in the law, but that’s the nature of the game sometimes.

CNN – What will Aereo’s TV watchers do now?

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Oculus Rift – Legal Issues in the Virtual World

Posted by | Legal Analysis | March 26, 2014
The Oculus Rift brings new questions about product liability.

The Oculus Rift brings new questions about product liability.

Yesterday Facebook announced that it had purchased Oculus Rift for about $2 billion. The Oculus Rift is a virtual reality headset designed to play games. And in fact, this looks like a much better product that the old virtual reality from the 90’s. But, if you go out and grab an Oculus Rift, keep in mind that you will also probably receive a bunch of warnings.

The problem with interactions between the virtual world, and the real world, are that your reactions to one may lead to consequences in the other. The more we make virtual reality real, the more the virtual world affects our real world experiences. And in the real world, when we hurt ourselves we can’t rely on finding a 1-up.

Nintendo Wii experienced this, as their remotes had real world consequences when they crashed through TV’s and knocked over property. There were even cases of remotes hitting others. The defective straps actually did end up in some lawsuits, but Nintendo tended to win them because of their very clear warnings, including a safety card on how to use the remote, and the fact that the straps may not have necessarily been intended for safety (a stretch, but the courts bought it).

Oculus Rift takes it a step further and puts you in the game so that your movements control the game. However, the more real the game, the more real its effects. One example is what’s called “simulator sickness” which is like a reverse motion sickness. This occurs because while the visuals change, your vestibular system (which sense tactile and positional movement) does not. The disconnect can make people sick. Oculus Rift says it’s working to overcome this.

Additionally, in virtual reality there is a tendency to forget it’s virtual, and treat it as reality. In one Oculus Rift game, the developer actually had to warn people not to physically interact with objects in the game. Players were leaning on posts, or using them to get out of crouching positions, only to find nothing there and crash.

It’s too soon to tell what kind of product liability will come from such immersion, but a lot of warnings will need to be included in order for Oculus Rift (and Facebook) to avoid personal injury and property damage lawsuits. Perhaps a virtual courtroom would be a proper setting to resolve these cases.

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The Liability of Robots

Posted by | Legal Analysis | March 20, 2014

Robots on trial.

With the emergence of technology that can mimic humans more, the law is struggling to find ways to keep up. Already, some states have put special legislation on the books to deal with self-driving cars (DC, California, Nevada, and Florida are just some examples), but technology law is a new field. Now, Ryan Calo, a contributor to Forbes, brings up an interesting conundrum. Who is liable for defamation when the writing was generated by an algorithm? Computers can now write actual blog posts and newspaper articles. If the robot writes something defamatory, who is liable?

While the question is academic right now, consider Stephen Colbert’s satirical Twitter account, @RealHumanPraise. It’s an algorithm that combines Fox News references with Rotten Tomatoes movie reviews. It’s worth a look. For Calo’s arguments, you can read his draft article on the cyberlaw of robotics here.

Forbes – Can You Sue A Robot For Defamation?



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New Article on Citizenship in American Samoa Published

Posted by | Legal Analysis, News | October 30, 2013

Volume 41, Issue 1 of the Hastings Constitutional Law Quarterly includes an article by Sean Morrison on the question of constitutional citizenship for American Samoans. The article, Foreign in a Domestic Sense: American Samoa and the Last U.S. Nationals, examines the history of the territories and the application of the Fourteenth Amendment’s citizenship clause.

Citizenship is part of the foundation of being American. Yet the United States treats some of its own as second class citizens. Deep in the South Pacific, forgotten amidst the vast ocean and coconuts, is a small series of islands that represent the only U.S. jurisdiction below the Equator. American Samoa remains the last American territory that does not recognize its inhabitants as citizens. For more than a century, American Samoans have fought American wars, pledged allegiance to the American flag, and played a significant amount of American football, yet are categorized as U.S. nationals rather than citizens.

Recently, some Samoans lost a suit against the Department of State to declare all those born in American Samoa as U.S citizens under the Fourteenth Amendment’s citizenship clause in the case of Tuaua v. United States. The case resurrected a series of early twentieth century Supreme Court decisions concerning American expansion and the territories known as the Insular Cases. These cases developed a framework for applying parts of the Constitution to territories without fully accepting them as American. As one justice described it, the territories are “foreign to the United States in a domestic sense.”

However, the concept of citizenship is not necessarily welcomed by Samoans, even while they remain adamantly pro-American. Despite significant Western influence, they have managed to maintain their cultural institutions dating back thousands of years. They fear that citizenship, and the Constitutional responsibilities that come with it, may erode what is left of their culture. The Insular Cases, once devised to subvert a people, are now seen as the last salvation of a culture.

The article attempts to navigate the Insular Cases and subsequent case law to determine whether citizenship for American Samoans is a fundamental right. In Tuaua, the plaintiffs sought to overturn the Insular Cases, while the court viewed the Insular Cases as a ban on citizenship. However, the article finds a path to provide citizenship for American Samoans within the Insular Cases’ doctrine that would protect their rights as well as their culture and institutions.

The Hastings Constitutional Law Quarterly is the country’s oldest law journal devoted exclusively to constitutional law. The Quarterly is published four times yearly by the University of California Hastings College of the Law.


Hastings Constitutional Law Quarterly

Foreign in a Domestic Sense (pdf)

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Stopping Revenge Porn

Posted by | Legal Analysis | October 08, 2013

Revenge porn. It sounds strange, but has become an online tool of harassment. Typically, an angry ex-lover will take naked photos or videos of their prior partner, and post them on the internet. There are even entire websites dedicated to revenge porn. Of course, once a video goes up, it is very difficult to actually take it down, and practically impossible to retrieve all the copies.

The entire purpose of revenge porn is to harass and humiliate the victim, and to cause emotional distress. However, posting the videos is not necessarily against the law and may have some First Amendment issues to deal with.

California is now the first state to attempt to weigh in on the problem. SB 255 took effect immediately on October 1 to criminalize some revenge porn. The bill’s sponsor, Sen. Anthony Cannella, explained, “Until now, there was no tool for law enforcement to protect victims. Too many have had their lives upended because of an action of another that they trusted.”

The bill prohibits:

Any person who photographs or records by any means the image of the intimate body part or parts of another identifiable person, under circumstances where the parties agree or understand that the image shall remain private, and the person subsequently distributes the image taken, with the intent to cause serious emotional distress, and the depicted person suffers serious emotional distress.

A copy of the bill can be found at Cyber Report, as well as a link to some posts of actual victims telling their stories. Now that the first step has been taken, it is important for other states to follow suit.

LA Time – Gov. Brown Signs Revenge Porn Law

ILC Cyber Report – Revenge Porn Law

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The Curious Case of the Silk Road

Posted by | Legal Analysis | October 04, 2013

One of the more interesting cases concerning internet business (though not the kind we normally work with) concerns the arrest this week of Ross Ulbricht, who operated the Silk Road site. Silk Road was an online marketplace for many items, but was most famous for trading illegal drugs. Ulbricht was charged with trying to pay a member of the site to kill another member who threatened to expose some of the users.

The case brings in other interesting web phenomena as well. Silk Road users paid with Bitcoin, an online currency which has been criticized for being highly speculative. In fact, the currency took a dive with the news of Ulbricht’s arrest, as the U.S. Government was able to actually confiscate his Bitcoins.

Finally, most members of Silk Road communicated through Tor, a “darknet” service that allows full anonymity to its users. Tor and other darknet services have been a thorn in the side of all digital rights management issues, since they open a path for fully anonymous and thus unaccountable sharing of copyrighted material. It is also a very useful tool for journalists, activists, and people in countries with strict internet controls. In fact, Tor was originally created by the U.S. Navy.

The myriad legal issues involved in this one case are fascinating, and we will continue to follow this case with interest.

Los Angeles Times – Ulbricht Arrested

Ottawa Citizen – Bitcoin Crashes

New Yorker Blog – The Full Silk Road Story



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