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Archive for August, 2016

How to Prevent Your Own Millennium Tower Slump

Posted on: August 18th, 2016

By: Daniel A. Nicholson

The affluent inhabitants of San Francisco’s Millennium Tower may be experiencing a sinking feeling as the first lawsuits concerning the tower’s reported sixteen inch drop and two inch tilt were filed last Tuesday. Residents claim that foundation problems may sink their property values as reports from geotechnical engineers indicate the tower could fall an additional eight to fifteen inches and develop a worse tilt.

Millennium Partners constructed the tower from 2005 to 2009, choosing a residential style concrete-frame instead of the usual steel-frame for its 58-stories. This decision created a heavier building than most of its neighbors, an interesting choice for a building built just off San Francisco Bay’s original coastline on unstable mud-fill.

Residents claim that Millennium Partners cut corners when they anchored the building only eighty feet into landfill, instead of driving it down into bedrock two-hundred feet below. Millennium counters that an accelerated rate of settlement coincides with the construction of the Transbay Transit Center which includes a half-mile tunnel sixty feet underground bordering the tower. The Transbay Joint Powers Authority, developer of that project, spent $58 million on an underground buttressing system to prevent damages before they began excavation, but Millennium contends that wasn’t enough. Residents have filed suit against both Millennium for negligent construction, and the Transbay Joint Powers Authority for contribution.

While experts have claimed that the current state of the building isn’t a cause for serious concern, the Millennium Tower is the tallest reinforced concrete structure situated in a Seismic Zone 4 Region. With San Francisco’s propensity for violent seismic activity and the towers location on top of landfill it could become a concern rather quickly. Liquefaction, a reaction where loose soil begins to behave like liquid during an earthquake, could cause significant sinking and damage. In fact, it may have been a factor in the tower’s current drop.

The Millennium Tower slump is a good reminder of two important lessons:

First, always measure twice, and cut once. Not thoroughly planning and preparing before you take action can cost you significant time and money in the long run. Although it is hard to say what actually caused the tower to sink these possibilities should have been considered in the planning and preparation stages beforehand. On the legal side, proper planning starts well before the first contracts are signed, appropriately allocating the responsibilities, duties, and liability of the parties involved just in case your project starts a Millennium Tower slump. The parties here face extensive costs, both in the actual repair and mitigation of the shifting of the tower, but also in the legal fallout that will result. Understanding all the variables, whether environmental or legal, that will affect your construction project is a critical step before breaking ground.

Second, never cut corners. If the allegations against Millennium Partners are true the amount of money they will have saved not properly anchoring the tower will pale in comparison to the amount they will end up paying in order to rectify it. The same applies to Transbay Joint Powers Authority if they cut corners protecting the integrity of the tower during their excavation. Both parties could face immeasurable damage to their own and their contractor’s reputations. In construction, as in legal work, it is critical that the job is done right the first time, on time.

FDA Continues to Fight the First Amendment But Facteau Deals Another Blow

Posted on: August 18th, 2016

By: Kristian Smith

Last month, a federal jury in Massachusetts acquitted two executives of medical device company Acclarent, Inc. of 14 felony counts of fraud related to off-label promotion of Acclarent’s “Stratus” device. United States v. Facteau, et al. stemmed from the distribution of Acclarent’s Relieva Stratus Microflow Spacer (“Stratus”) for off-label use. Although Stratus was cleared by the FDA as a medical device intended to maintain an opening to a patient’s sinus and provide moisture by using a saline solution, Acclarent’s CEO, William Facteau, and Vice President of Sales, Patrick Fabian, promoted the product off-label, as a steroid delivery device. The FDA claimed that Facteau and Fabian had misbranded the device and had committed fraud on the FDA by intending to use the device in a way other than its cleared use.

Although Facteau and Fabian were convicted on 10 misdemeanor counts relating to the same charges, the jury still accepted that it is not a crime for device manufacturers to make truthful, non-misleading statements about off-label use. The jury instead convicted Facteau and Fabian based on their conduct, mainly because of a violation of the Park Doctrine, which provides that responsible corporate officers can be liable for misdemeanor violations of the Federal Food, Drug and Cosmetic Act (“FDCA”) even if the corporate officer had no intent to commit, or even knowledge of, the offense.

This is only one of many recent victories for medical device companies in the off-label promotion realm.

In February, a Texas jury acquitted medical-device manufacturer Vascular Solutions and its CEO of all counts in a criminal case that alleged the company illegally promoted Vari-Lase, a device to treat varicose veins, off-label. The Vascular Solutions case was particularly memorable for the trial judge’s jury instruction that it is not a crime for a device company to provide doctors with truthful, non-misleading information about off-label product uses. This was a significant blow to the FDA’s long-standing practice of discouraging (and prosecuting) off-label promotion.
In 2015, in Amarin Pharma, Inc. v. FDA, a federal judge in New York found that Amarin, a drug manufacturer, was entitled to engage in truthful and non-misleading speech promoting the off-label use of its medical device, and such speech could not form the basis of a prosecution for misbranding. This decision was based in large part on the Second Circuit’s 2012 watershed decision in U.S. v. Caronia, where the Court held that to avoid infringing on the First Amendment, misbranding provisions of the FDCA could not be construed to prohibit and criminalize truthful off-label promotion of FDA-approved drugs.

Even with more and more federal courts embracing Caronia, the FDA continues to prosecute drug and device manufacturers (and their corporate officers) for off-label promotion. With the decisions in Facteau and Vascular Solutions, though, it looks like the FDA will have a more difficult path to prosecution than ever before.

Ninth Circuit Issues Two Significant FDCPA Rulings To Debt Collector Law Firms

Posted on: August 18th, 2016

By: Bill Buechner

The Fair Debt Collection Practices Act requires that debt collectors send a notice to the consumer containing certain required disclosures, either in the “initial communication” with the consumer in connection with the collection of a debt or within 5 days thereafter. 15 U.S.C. § 1692g.  In this validation notice, the debt collector must provide several disclosures, including the amount of the debt owed, the name of the creditor to whom the debt is owed, and the debt collector’s obligation to provide a verification of the debt if the consumer disputes in writing all or part of the debt within 30 days of receiving the notice.    Federal courts throughout the country have been divided as to whether these disclosure requirements apply only to the initial debt collector, or whether subsequent debt collectors must also comply with these disclosure requirements.   For example, unpublished decisions issued by the Third Circuit and Tenth Circuit previously have held that the disclosure requirements set forth in § 1692g only apply to the initial debt collector.

The Ninth Circuit, however, recently issued a decision holding that subsequent debt collectors must comply with the notice provisions of § 1692g. Hernandez v. Williams, Zinman & Parham, — F.3d —, 2016 WL 3913445 (9th Cir. July 20, 2016).  The Ninth Circuit held that the language of § 1692g was ambiguous as to whether it applies to just the initial debt collector or whether it also applies to subsequent debt collectors.  However, the Ninth Circuit concluded that the overall structure and purpose of the FDCPA demonstrates that Congress intended § 1692g to apply akso to subsequent debt collectors. Id. at *3.   In particular, the Ninth Circuit expressed concern that a contrary ruling would create significant loopholes that could hinder consumers’ efforts to dispute their debts or obtain verification of their debts. Id. at *5-8.  The Ninth Circuit also concluded that requiring subsequent debt collectors to comply with § 1692g would further the remedial purpose of the FDCPA by giving consumers updated information concerning their debts and additional opportunities to verify their debts after they have changed hands. Id. at *8-9.  Significantly, the Federal Trade Commission and the Consumer Financial Protection Bureau, which have regulatory and enforcement authority under the FDCPA, submitted amicus briefs arguing that subsequent debt collectors must comply with the notice provisions of § 1692g.

The Ninth Circuit’s ruling abrogates several district court decisions within the Ninth Circuit that held that only the initial debt collector was required to comply with the notice provisions of § 1692g. Accordingly, debt collectors that contact consumers who reside within the Ninth Circuit should send notices that comply with § 1692g even if they are not the first debt collector attempting to collect on the debt at issue.

Debt collectors who contact consumers in other jurisdictions (even those where there is favorable case law) should re-assess whether they should send notices to consumers that comply with § 1692g even if they are not the first debt collector that has attempted to collect on the debt.    To the extent that the FTC and/or the CFPB decide to file amicus briefs in other cases, courts in other jurisdictions may be persuaded to follow Hernandez and hold that subsequent debt collectors must comply with the notice provisions of § 1692g.

Another Ninth Circuit panel very recently addressed the FDCPA’s requirement that debt collectors “disclose in subsequent communications that the communication is from a “debt collector.” 15 U.S.C. § 1692e(11).   In Davis v. Hollins Law, — F.3d —, 2016 WL 4174747 (9th Cir. August 8, 2016), the debt collector and the consumer had been negotiating a possible resolution of the debt in a series of phone calls and email exchanges over the course of approximately two weeks.   At that point, the debt collector left a voicemail message with the consumer that did not expressly state that the call was from a debt collector.   Instead, the voicemail message stated, “Hello, this is a call for Michael Davis from Gregory at Hollins Law.   Please call sir, it is important, my number is 866-513-5033.”

The consumer filed suit, asserting that this voicemail message violated § 1692e(11) because it did not reveal that the voicemail message was from a debt collector. The Ninth Circuit reversed the district court’s grant of summary judgment in favor of the consumer and held that the voicemail message did not violate § 1692e(11).  The Ninth Circuit held that, given the extent of prior communications between the consumer and the debt collector (and its employee in particular), the voicemail message was sufficient to disclose that the communication was from a debt collector. Id. at *4. Thus, the Ninth Circuit reiterated that § 1692e(11) does not require the debt collector to use any specific language as long as it is sufficient to disclose that the communication is from a debt collector. Id.

Davis reached a commonsense conclusion under the facts of the case.  However, the safest course of action for debt collectors is to include an explicit statement in any voicemail message left with the consumer that the communication is from a debt collector, even if the debt collector has had an ongoing dialogue with the consumer regarding the debt.

Baltimore Prosecutor Strikes Out on Criminal Charges for Arrest Without Probable Cause

Posted on: August 12th, 2016

By:  Wes Jackson

Recent high-profile deaths of unarmed black men at the hands of police officers have been met with a clarion call for police reform on multiple fronts. Proposals range from requiring officers to wear body cameras to mandates that individual officers carry professional liability insurance. In this spirit, Baltimore City State’s Attorney Marilyn Mosby responded to the death of Freddie Gray by charging the six officers involved in his arrest with criminal assault and false arrest, in addition to the murder and manslaughter charges she brought against three of the officers. Mosby’s theory for the assault and false arrest charges was that, without probable cause to arrest Gray, the officers not only violated Gray’s civil rights but engaged in criminal conduct as well.

Criminal prosecution of officers who intentionally engage in lawless conduct is nothing new. However, many observers noted that Mosby’s attempt to criminalize arrests without probable cause would significantly lower the bar for what constitutes criminal conduct while policing. As one former Baltimore prosecutor wrote when the charges were first filed, Mosby’s novel prosecution would create the expectation “that police officers who arrest without what she considers to be probable cause (a subjective standard) are subject not just to civil action (the current norm) but criminal action. Mere mistakes, or judgments exercised under duress, can land them in the pokey.”

Indeed, when an officer arrests someone without probable cause, the usual recourse for the arrestee is to seek civil damages from the officer for violating his constitutional rights. The officer, as defendant in this civil case, may be entitled to “qualified immunity” if he can show that he did in fact have probable cause to arrest the plaintiff or, absent actual probable cause, that he at least reasonably—albeit mistakenly—believed there was probable cause for arrest based on the circumstances. Under this framework, an officer’s “mere mistake” or “judgment exercised under duress” will not subject him to civil liability so long as that mistake was reasonable. At most, an unreasonable mistake would only subject the officer to civil liability.

Criminal liability for questionable arrests is perhaps the most severe proposal for heightened police scrutiny on the table. As counsel for one of the officer’s charged for Gray’s arrest stated, “[c]ommon sense dictates that officers would simply not make arrests if they were subject to criminal prosecution if it was later determined that probable cause did not exist.” The theory that increased scrutiny has led or will lead to less active policing, known as the “Ferguson Effect,” is hotly debated. Suffice it to say, the prospect of criminal charges for arrests without probable cause will almost certainly give officers pause before arresting suspects—for better or worse.

Mosby’s novel prosecution of the officers involved in Gray’s arrest, however, was a bust: after one mistrial before a jury and two acquittals before a judge, Ms. Mosby dropped all charges against the remaining officers on July 27, 2016. Criminal prosecutions for arrests without probable cause, then, did not gain much traction in the Freddie Gray cases. That being said, the possibility of criminal prosecutions for arrests without probable cause has been broached, and it remains to be seen how the specter of criminal charges will affect police practices.

Insider Trading Alert – It is Not Just a Wall Street Issue

Posted on: August 9th, 2016

By:  John Goselin and Ze’eva Kushner Banks

Be forewarned!  The Securities and Exchange Commission continues to hunt down individuals for improper insider trading.  Last week, the S.E.C. announced charges against Doctor Edward Kosinski for violations of the antifraud provisions of the federal securities laws by buying and selling shares of Regado Biosciences, Inc. (“Regado”) based on inside information.  And the regulator is not simply seeking disgorgement of ill-gotten gains.  The S.E.C. wants Doctor Kosinski to go to jail!!

Regado was a biotech company working on developing a drug called REG-1 to help regulate clotting in patients undergoing heart surgery.  Doctor Kosinski, a cardiologist, was also the president of Connecticut Clinical Research, LLC, and through this venture, Doctor Kosinski served as principal investigator of the drug trial of REG-1.  Doctor Kosinski had various contractual duties to keep any information he learned in connection with participating in the drug trial strictly confidential.  Doctor Kosinski, however, couldn’t resist the temptation to make multiple purchases of shares of Regado stock. Moreover, Doctor Kosinski failed to disclose his ownership in the company as required.  The value of Doctor Kosinski’s investment in Regado increased from approximately $34,090 in October 2013 to $250,800 by the end of May 2014.

June 29, 2014 was the beginning of the end for Doctor Kosinski.  Doctor Kosinski received important, undisclosed confidential information about Regado’s decision to put the REG-1 drug trial on hold due to serious allergic reactions suffered by some participants.  The very next day, Doctor Kosinski sold all of his shares in Regado for a profit.  When Regado ultimately made that same information public, the share price of Regado stock fell by 58%.  Consequently, Kosinski avoided a loss of approximately $160,000 by using his undisclosed, inside information to sell prior to the public announcement.

Nonetheless, Doctor Kosinski was not finished.  When he received additional undisclosed, confidential information a month later about the death of a participant in the drug trial, he bet that the price of Regado shares would drop further.  Just as before, after the company publicly released the information, its share price dropped drastically.  Doctor Kosinski’s bet against the stock price made him a profit of around $3,291.

The Securities and Exchange Commission has charged Doctor Kosinski with violating provisions of both the Securities Act of 1933 and the Securities Exchange Act of 1934.  Doctor Kosinski violated these antifraud provisions by trading in Regado’s stock based on confidential information that had not been made public.  The Securities and Exchange Commission is demanding that Doctor Kosinski return all the profits he made and/or the losses he avoided in addition to pay a penalty.  Doctor Kosinski could also find himself in jail.  Of course, Doctor Kosinski is also likely spending any profits he made to pay for his legal costs.

It is important to remember that professionals whether they are doctors, lawyers, accountants or just managers in a corporation can find themselves in possession of undisclosed confidential information about a publicly traded company.  You can receive this information through your business relationships, your personal friendships or even just chatting with the neighbors about how their summer may be going.  If you happen to learn important information, you need to be very cautious about buying or selling stock based in this confidential information.  In fact, you should not even consider buying or selling stock under these circumstances.  If you have any doubts, but feel compelled to make a purchase or a sale, you should really seek a second opinion.