In a lengthy opinion, Judge Kane of the District of Colorado largely denied the defendant’s motion to dismiss the lawsuits, finding that the plaintiffs had adequately alleged violations of the Securities Act of 1933, which prohibits false or misleading information and omissions in securities offering documents.  Notably, the Court held that the statement in the prospectuses that the funds’ objective would be the “preservation of capital” was not simply puffery or a vague aspirational statement, but instead, when properly viewed in conjunction with other aspects of the offering materials, could support a claim for violation of the Securities Act.

The Court also found actionable the statements in the prospectuses concerning the funds’ use of “inverse floaters.”  “Inverse floaters” are derivative securities that pay interest income in the form of a coupon that moves inversely with changes in a referenced short-term interest rate.  The attraction — and concomitant risk — of investing in inverse floaters is that the inverse movement of payment rates is leveraged by application of a multiplier.  A multiplier of two, for example, moves an inverse floater’s coupon rate two times the referenced short-term market rate.  Thus, while an inverse floater with a 2:1 leverage ratio poses twice the coupon risk of an unleveraged floater, it poses less risk than an inverse floater with an even higher leverage ratio.  According to plaintiffs’ allegations, the inverse floaters in the funds had leverage ratios as high as 9:1– meaning the inverse floater’s coupon payment would rise, or decline, by a factor of nine for every basis point decrease or increase in the short-term interest rate.  As a result, even a small increase in interest rates would lead to such a precipitous, negative decline in a 9:1 inverse floater that the fund could end up underwater– i.e., owing more in floater coupons than it receives on the underlying bond itself.

The Court held the allegations concerning the disclosure of the use of floaters to be sufficient to support a claim for relief.  Each of the prospectuses, for example, stated inverse floaters “can be” more volatile than conventional fixed-rate securities when in fact (and by definition) they are always more volatile because they move at a multiple of whatever rate a fixed rate security moves.

The case is In re Oppenheimer Rochester Funds Group Secs. Litig., 2011 U.S. Dist. LEXIS 122866 (D. Colo. Oct. 24, 2011).

Certain cigarette manufacturers responded to the new warning regulations by filing suit in the District of Columbia seeking a hold on implementation of them, so that the manufacturers can pursue a constitutional challenge.  In November of this year, the Judge in the case granted that request.

The case is interesting because the manufacturers argue that the new warning requirement unconstitutionally violates their First Amendment right not to speak.  The Supreme Court has recognized this particular right in cases such as Wooley v. Maynard, 430 U.S. 705 (1977), a law school staple.  Wooly concerned the state prosecution of a man for defacing his car license plate.  The man, a Jehovah’s witness, obscured the New Hampshire state motto “Live Free or Die” on the plate due to his religious opposition to its meaning.  The Supreme Court ruled he could not permissibly be prosecuted for doing so, as “the right of freedom of thought protected by the First Amendment against state action includes both the right to speak freely and the right to refrain from speaking at all.”

The cigarette warning case presents other issues, though, as it is well-settled that the government can require manufacturers to present certain types of information in order to protect consumers.  In a spirited opinion, the Judge placed the FDA’s new warnings on hold, finding that the manufacturers would likely prevail in their constitutional challenge, and displayed little receptiveness to what he termed a “bold new tact by the Congress, and the FDA, in their obvious and continuing efforts to minimize, if not eradicate, tobacco use in the United States.”  The FDA recent filed a notice that it would appeal the ruling.

The EEOC’s private sector administrative enforcement activities secured more than $364.6 million in monetary benefits in FY 2011, the highest level of monetary relief ever obtained by the Commission through the administrative process, and $45 million more than was recovered in FY 2010.  Overall, the agency secured both monetary and non-monetary benefits for more than 19,570 people through administrative enforcement activities including mediation, settlements, conciliations and withdrawals with benefits.

Field legal units of the agency filed 261 merits lawsuits during FY 2011 – an increase of 11 lawsuits over FY 2010.

In the recent case of Haligowski v. Superior Court, 2011 Cal. App. LEXIS 1418 (2d Dist. 2011), the plaintiff alleged that his employer discriminated against him due to his membership in the military by not rehiring him when he returned from duty in Iraq.  The plaintiff sued his employer under Section 394 – but also sued his immediate supervisor and the regional manager personally.

At issue in the case was whether these individuals could be sued personally for their alleged discrimination.  This issue turned on the significance of the word “person” in the phrase “No person shall discriminate….”  One take on this is that the presence of this word means that individuals are themselves liable for acts of discrimination.  Another interpretation is that this word serves only to ensure that employers are held liable for the conduct of their supervisors.

The Haligowski court ruled that individual supervisors are not liable under Section 394. It reasoned that California’s main anti-discrimination statute, the Fair Employment and Housing Act (“FEHA”), features similar language suggested that individuals are liable, but that the California Supreme Court has ruled otherwise.  It noted also that FEHA has specific language rendering individuals personally liable for harassment, but the Legislature chose not to do the same for discrimination under Section 394.  It reasoned also that making individuals liable for discrimination would add little to a plaintiff’s chance of recovering damages for discrimination, while at the same time would impair exercise of supervisory judgment and place supervisors in direct conflict of interest with their employers.

Indemnity situations can often arise in the employment relationship.  Most commonly, this involves where an employee is sued for her conduct on the job – e.g., where a delivery driver is sued personally for causing an auto accident.  These situations are covered under California Labor Code §2802, which provides in pertinent part that “An employer shall indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties, or of his or her obedience to the directions of the employer, even though unlawful, unless the employee, at the time of obeying the directions, believed them to be unlawful.”

Section 2802 codifies California’s strong public policy favoring the indemnification (and defense) of employees by their employers for claims and liabilities resulting from the employees’ acts within the course and scope of their employment.  It clearly requires an employer to indemnify an employee who is sued by third persons – e.g., the employer’s customers and unrelated parties, such as with a traffic accident – for conduct in the course and scope of his or her employment, including paying any judgment entered and attorney’s fees and costs incurred in defending the action.

The recent case of Nicholas Laboratories, LLC v. Chen, 199 Cal. App. 4th 1240 (4th Dist. 2011), presented a novel issue under §2802.  In that case, the employee was sued in connection with his work activities; yet the suit was brought not by a third party, but by his employer itself.  The employer accused the employee of wrongfully competing with his employer, stealing from the employer and other acts.  After being sued, the employee sued his employer back, asking for, among other things, that his employer be required to pay for his defense of its suit pursuant to §2802!

In deciding the issue, the Court recognized that the term “indemnity” generally refers to situations where the suit or claim is made by a third party, but that this understanding is not universal.  Ultimately, however, the Court concluded that the attorney fees incurred by the employee do not fall within the domain of §2802.  It was not persuaded that the Legislature, in drafting §2802, intended to depart from the usual meaning of the word “indemnify” to address “first party” disputes between employers and employees.  It could have specifically provided in §2802 that attorney fees incurred defending an action by the employer were recoverable by a prevailing employee, and the fact that the Legislature did not suggests disputes between employers and employees are subject to the ordinary rules applying to the recovery of attorney fees in California litigation.

The case is a victory for employers, and also illustrates the everyday business of lawyers and judges, who often must draw upon a variety of considerations in applying statutes to new and novel situations.

On October 2, 2011, however, Governor Brown signed into law SB 621, which provides that if a policy for life or disability insurance coverage for any California resident contains a provision that reserves discretionary authority to the insurer to determine eligibility for benefits or coverage or to interpret the terms of the policy, that provision would be void and unenforceable.  This new law represents a favorable development for policyholders in California.

Governor Brown, however, signed into law AB 22, which prohibits an employer or prospective employer, with the exception of certain financial institutions, from obtaining a consumer credit report for employment purposes unless the position of the person for whom the report is sought falls into certain categories, such as a managerial position, a position that involves regular access to specified personal information for certain purposes, or a position that involves regular access to $10,000 or more of cash.

The FDCPA prohibits debt collectors from using certain abusive practices to collect consumer debts.  Under the FDCPA, debt collectors may not harass consumers to try to collect on a debt, or misrepresent the character, amount, or legal status of a debt.  The FDCPA also prohibits collectors from making threats as to what might happen if the consumer fails to pay the debt unless the collector has the legal authority and the intent to take the threatened action.  It further prohibits debt collectors from collecting any amount unless it is expressly authorized by the agreement creating the debt or permitted by law.