Second Circuit Decision Rejects Expansion of Geographic Reach of FCPA

This week we are pleased to have a guest post from Edward Heath and Kevin Daly.  Attorneys Heath and Daly are members of Robinson & Cole’s Manufacturing Industry Group and regularly counsel clients on anti-corruption compliance.

A Brief Overview of the FCPA

The Foreign Corrupt Practices Act (FCPA) is a federal statute that prohibits United States companies and individuals from bribing foreign government officials in order to gain or retain business.  It is a major civil and criminal enforcement priority for the federal government.  Each year, the aggregate amount of penalties paid under the FCPA totals hundreds of millions of dollars.

Although it is well known that the FCPA applies to U.S. companies and U.S. individuals (e.g., U.S. citizens and residents) there is a common misconception that its reach ends at our borders.  However, there are some circumstances where the FCPA can reach individuals outside of the U.S.  Foreign persons who act as the agents, employees, officers, directors or shareholders of U.S. companies can be held liable under the FCPA.  Foreign persons who commit an FCPA violation while in the U.S. are also covered.

Recent Court Decision Addresses Geographic Reach 

The United States Court of Appeals for the Second Circuit’s recently issued a decision affirming this point.  United States v. Hoskins arose out of an alleged bribery scheme involving Alstom, S.A. (“Alstom”), a global company based in France that operates in the power and transportation industries.  Specifically, the government claims that Alstom and several of its subsidiaries (including UK-based and U.S.-based subsidiaries) bribed Indonesian government officials in order to obtain a $118 million power contract from the Indonesian government.  The government contends that Mr. Hoskins, while working in France for Alstom’s U.K. subsidiary, was one of the people responsible for approving and authorizing the alleged bribes.  Although parts of the alleged scheme occurred within the U.S. (e.g., payments were made from U.S. bank accounts), and some co-conspirators were based in the U.S., Mr. Hoskins never traveled to the U.S., never was employed by Alstom’s U.S. subsidiary, and is not a U.S. citizen or resident.

The government charged Mr. Hoskins with violating the FCPA, alleging that he conspired and aided and abetted in FCPA violations committed by others.  The Second Circuit, however, rejected the government’s theories.  The court held that Congress set the limits on the geographic reach of the FCPA in the statute, and that the scope cannot be expanded  through accomplice or conspiracy liability theories to reach persons, like Mr. Hoskins, who are beyond the geographic reach of the statute.

Nonetheless, the court held that he can be tried on the theory that he acted as an agent for Alstom’s U.S. subsidiary.  Agents of U.S. companies are explicitly covered by the FCPA, regardless of whether they are U.S. citizens or residents.  To convict on such a theory, the government would be required to prove that that Hoskins was an agent of Alstom’s U.S. subsidiary.

While Hoskins is only binding within the Second Circuit (Connecticut, New York, and Vermont), and the government is evaluating further appellate options, it poses an obstacle to government efforts to expand FCPA liability beyond the specific categories of foreign persons enumerated in the statute.


Time to Catch the “Train” – The New York Gender-Based Harassment Train

Continuing its aggressive measures to combat workplace sexual harassment, on August 23, the New York State Department of Labor issued for public comment a draft sexual harassment training program, a checklist of minimum standards for compliant sexual-harassment policies, and a list of FAQs. The materials can be found here. In addition, the New York City Commission on Human Rights published the mandated sexual harassment poster, which must be posted conspicuously, both in English and Spanish, in covered workplaces on or before September 9.

Adopted in April and May by the New York General Assembly and New York City Council respectively, the sweeping sexual harassment laws represent a renewed and comprehensive program to end workplace sexual harassment. Among other things, the legislation adopted the following:

  • Mandatory Arbitration – Banned provisions requiring arbitration of sexual harassment claims or limiting an employee’s ability to bring a sexual harassment claim in any forum.
  • Protections for Non-Employees – Created liability on manufacturers for harassment of a contractor, subcontractor, consultant, or other person providing services pursuant to a contract if the manufacturer knew or should have known of the conduct and failed to take action.
  • Non-Disclosure Agreements – Banned any provision in an agreement preventing disclosure of underlying facts and circumstances of a claim of sexual harassment unless the provision is the plaintiff’s preference. The law requires that to be effective the non-disclosure provisions must be included in the agreement presented to “all parties,” with the plaintiff having 21 days to consider the agreement and seven days to revoke acceptance of the agreement.
  • State Contractors – Mandated that entities submitting bids on state contracts certify that they have adopted a sexual harassment policy that meets mandated minimum standards, and provide annual training for all employees, including those working outside the State of New York.
  • Sexual Harassment Training and Policy – Directed the New York Department of Labor and the New York State Division of Human Rights to develop a model sexual harassment policy and employee training program. Effective October 8, 2018, every employer must adopt the model sexual harassment policy (or a policy that exceeds the model policy) and annually train employees using the model training program (or a training program that exceeds the model program).

The Labor Department’s August 23 publications are in draft form and the Department will consider public comments submitted on or before September 12. It is significant that one of the FAQs expressly states that covered manufacturers must train covered employees prior to January 1, 2019, only 12 weeks after the law’s effective date.

While the mandatory training program should not come as a surprise to manufacturers, having to complete all employee training by January 1 was not anticipated.  The Department appears to have taken the position that since the law becomes effective on October 8, the “annual training” for 2018 must be completed before the end of the year.  Adding to the challenge, since the mandatory training program must include the state’s model complaint form as well as information on how an employee may file a complaint with the State Division of Human Rights and/or any local fair employment practices agency, it is likely that few, if any, manufacturers’ current sexual harassment programs will comply with these requirements.

Manufacturers with workers in New York State or City, and those seeking to bid on state contracts, should confer with their human resources partners and/or legal counsel to make sure they comply with these aggressive deadlines. If unchanged as a result of public comments, all workers in New York State will have to be trained within the next 90 days.

Monsanto Verdict Forewarns of Claims for Failure to Warn

By now, we have all heard about the $289 million verdict against Monsanto in the Roundup litigation. A California jury awarded the sum to Dewayne “Lee” Johnson, a school groundskeeper who claimed that exposure to Roundup contributed to his lymphoma. Johnson claimed that Monsanto’s product was defectively designed and that Monsanto failed to warn consumers of the potential risks associated with its product. The jury found for Johnson on all counts.

One of the more important takeaways from this verdict for all manufacturers is on Monsanto’s failure to warn of the potential risks associated with Roundup. Yes, I said potential. To support his claims, the plaintiff relied heavily on a 2015 study conducted by the World Health Organization’s International Agency for Research on Cancer (IARC). This study found glyphosate, the active ingredient in Roundup, was a “probable human carcinogen”. The IARC report stated that, while there is convincing evidence that glyphosate causes cancer in laboratory animals, there is limited evidence that it causes cancer in humans. Despite this caveat, as well as testimony from Monsanto experts about the lack of a causal connection between glyphosate and cancer, the jury found that Monsanto had a duty to warn, even of the potential harm. In fact, when asked whether a reasonable manufacturer, distributor, or seller under similar circumstances would have warned of the danger or instructed on the safe use of its products, the jury answered, in a word, “Yes.”

The requirement to warn when the harm is classified as potential, and sometimes disputed, is difficult to define. Oftentimes, scientific evidence is unclear, even contradictory. But the Monsanto verdict seems to require manufacturers to try to make that call, perhaps on a case-by-case basis, to ensure that consumers are aware of all identifiable potential risks. That undertaking is easier said than done, and such warnings may be more complicated than a few words on a product label. But, given this verdict and the potential uptick in failure to warn claims that may follow, manufacturers may want to reevaluate the “potential” harms associated with their products.

A Tale of Two Trends


James Madison groupies rejoice!  All others can share my confusion.

Called the “Father of the Constitution,” scholars credit Mr. Madison for his significant role in the fundamental design of the United States Constitution, where power was distributed between the states and the federal government, and power within the federal government was distributed among three co-equal branches.  The idea being that these bodies would each independently act as a check on the others, reducing the prospect for the centralization of power and the ultimate loss of fundamental freedoms.

Why do I bring this up?  In the last ten days we have witnessed some key examples of these checks and balances at work.  While the Trump Administration has pressed forward with an agenda to make it easier for manufacturers to navigate in the employment arena, state governments have imposed ever increasing restrictions on them.  Consider the following examples:

On August 1, the National Labor Relations Board announced that it was soliciting briefs from interested parties to review the precedent permitting employees to use a manufacturer’s email systems on non-working time for union organizing or other protected activity.  The announcement has been viewed by many as a signal that the Trump Board will eventually reverse the Board’s 2014 Purple Communications decision.

On July 31, the Massachusetts legislature adopted a sweeping new non-compete statute, banning all non-competes for hourly workers and otherwise severally limiting their use.  You may find the text of the new law here, and I am happy to give full credit to the excellent work of Beck Reed Riden LLP on their Fair Competition Law website.

Most recently, on August 7, voters in Missouri overwhelmingly rejected an anti-labor  “Right to Work” ballot measure – a measure which would have outlawed compulsory union membership in the private sector.

These three events in a very short period of time demonstrate the rapid and sometimes conflicting trends taking place right now.  Manufacturers with multi-state operations would be wise to closely monitor legal developments which impact their work force.


WARNING: New California Prop 65 Regulations Coming Next Month

California Proposition 65 is often viewed as a significant thorn in the side of manufacturers.  As previewed in our 2018 Corporate Compliance & Litigation Outlook, significant changes to California Prop 65 will be effective as of August 30, 2018.  If your company has not developed a plan to address these changes, now is the time.

Here is a checklist of items to consider:

  • Does the law apply to me?
    • As set forth by the State of California, “Prop 65 Businesses are required to provide a ‘clear and reasonable’ warning before knowingly and intentionally exposing anyone to a listed chemical, unless the business can show that the anticipated exposure level will not pose a significant risk of cancer or is significantly below levels observed to cause birth defects or other reproductive harm.”  If you sell a product that might end up in the hands of a California resident, the law applies to you.
  • Do I need to make any changes now?
    • Generally, a manufacturer can follow the old rules and label regulations for products manufactured BEFORE August 30, 2018.  Given the realities of manufacturing products, manufacturers need to start implementing changes if they have not done so already.
  • Should I test my products?
    • Prop 65 does not tell you whether you need to test your products.  Rather, it provides guidance if you determine that your product contains one of the regulated chemicals and the levels exceed the “safe-harbor” (if a safe harbor even exists for a listed chemical).
  • What changes need to be made?
    • It is hard to summarize all of the changes in a blog post.  A good summary of the types of changes that have been made to the warnings required is contained here.
  • What are the risks of non-compliance?
    • The penalties can be severe with up to $2,500 per day for each violation.  There is a sophisticated group of lawyers who dedicate their practices to California Prop 65 so expect significant litigation against manufacturers who fail to comply.




State Officials Investigate Use of Non-Competes – Manufacturers Take Notice

Regular readers know that a good part of my practice deals with the use of “post-employment restrictions” to prevent former employees from using, selling or distributing a company’s most valuable assets – its intellectual property.  In one of my first blog posts on this site, I commented that the “explosion” of litigation in this area has been one of the biggest surprises to me (and I suggested a few steps manufacturers could take to appropriately protect their interests).  See I’m New – And It’s No [Trade] Secret” (Oct. 27, 2014).

Now, the head government lawyers in ten states and the District of Columbia have notified seven (7) national quick dining restaurant chains of an apparently coordinated investigation into the use of agreements to inappropriately restrict employees from seeking better paying jobs.  See Letter.   While heralded as an investigation into the use of so-called “No Poach” Agreements (agreements between competitors not-to-hire the employees of one another), the definition of “No Poach” agreements include any written agreement (including confidentiality agreements, no solicitation agreements, and non-compete clauses) used to limit employee mobility.

The language used in the letter (notably use of the phrase “our offices” and “we,” along with an assertion of their “common interest”) seems to indicate a coordinated, multi-state investigation.  Media reports identify the targets of the investigation are:  Arby’s, Burger King, Dunkin’ Donuts, Five Guys Burgers and Fries, Little Caesars, Panera Bread, Popeyes Louisiana Kitchen and Wendy’s.  See Article by Courthouse News.

This multi-state investigation is just the latest probe into Jimmy John’s use of employment agreements to restrict the hiring of workers.  In January 2018, Jimmy John’s was hit with a purported class action challenging the broad use of post-employment restrictions.  Butler v. Jimmy John’s Franchise, LLC et al, No. 18-cv-133 (D. Ill) (January 2018).  Jimmy John’s has filed a motion to dismiss the complaint (a motion which remains pending) but the court denied its request to hold off on discovery until the motion was decided.

One thing seems clear, the use of post-employment restrictions by manufacturers and others likely will draw increasing scrutiny in the months and years ahead.  Readers may wish to confer with legal counsel to make sure they do not become the next target.

Climate Change Nuisance Lawsuit Dismissed

This week, a California federal court dismissed a lawsuit brought by two cities against a number of large oil companies seeking to force the companies to fund the cities’ climate change adaptation efforts. The Court held that, while the science behind global warming is real, the problem must be solved by the legislative and executive branches.

The plaintiffs’ claims were based only on the defendants’ sale of fossil fuels. By selling fossil fuels, the plaintiffs alleged that the defendants were setting off a chain of action that would lead to the combustion of those fossil fuels, which would increase carbon dioxide in the atmosphere, which would lead to global warming, which would lead to sea level rise. The defendants knew this would happen, and they should be required to pay for any infrastructure the cities would be required to implement to combat sea level rise.

The court characterized plaintiffs’ theory of liability as “breathtaking.”

Their theory rests on the sweeping proposition that otherwise lawful and everyday sales of fossil fuels, combined with an awareness that greenhouse gas emissions lead to increased global temperatures, constitute a public nuisance.

The court noted that these claims could reach far and wide, potentially imposing liability on every sale of fossil fuels anywhere in the world by anyone who knew that combustion of fossil fuels contributed to global warming.

But while the court acknowledged these issues, it did not directly address them. Instead, the court noted that the issue was far too broad in scope and technical in nature to be appropriately solved by the courts. The issue involves an analysis of worldwide fossil fuel consumption, the benefits of energy use, and the environmental impacts associated with it. That analysis, according to the court, requires the expertise of our environmental agencies, diplomats, our Executive, and the Legislature.

In sum, this order accepts the science behind global warming. So do both sides. The dangers raised in the complaints are very real. But those dangers are worldwide. Their causes are worldwide. The benefits of fossil fuels are worldwide. The problem deserves a solution on a more vast scale than can be supplied by a district judge or jury in a public nuisance case. While it remains true that our federal courts have authority to fashion common law remedies for claims based on global warming, courts must also respect and defer to the other co-equal branches of government when the problem at hand clearly deserves a solution best addressed by those branches. The Court will stay its hand in favor of solutions by the legislative and executive branches.

What the legislative and executive branches choose to do remains to be seen, but that is a topic for a different post…

NLRB General Counsel Rolls Back Aggressive Anti-Manufacturer Handbook Rules

National Labor Relations Board General Counsel Peter Robb issued a June 6 memorandum outlining his views on the legality or illegality of handbook rules in light of recent Trump NLRB decisions.  That guidance, which can be found here, gives an overview of Robb’s interpretation of the law.

Robb’s guidance represents a radical shift away from the Obama NLRB’s aggressive challenge to common workplace rules.  While one might say that memorandum represents “one lawyer’s opinion,” in truth the memorandum gives a roadmap for employers for drafting work rules and policies.  As head of the prosecuting arm of the NLRB, Robb decides which rules to challenge and which to leave uncontested.  The “Gate-Keeper” function will set the NLRB’s tone for the remainder of his term – Robb can serve until his term expires in 2021 and is subject to reappointment should President Trump or another Republican win the 2020 general election.

Robb’s predecessor, Obama-Appointed General Counsel Robert Griffin, had issued his own interpretive guidance in 2015.   The different approaches taken by the two very different agency prosecutors are striking.

For example, while Griffin’s 2015 memorandum declared unlawful rules requiring employees to be “respectful to the company, other employees, customers, partners and competitors,” Robb’s 2018 memorandum makes clear that employees can be punished for violating rules prohibiting ”rude,” “discourteous,” or “unbusinesslike” behavior.   Similarly, Griffin’s approach found unlawful rules prohibiting employees from making “fraudulent,” defamatory,” or “otherwise inappropriate” statements to co-workers, while Robb’s approach holds such requirements to be lawful and appropriate.

Robb properly cautions, however, that so-called neutral rules adopted or used to suppress the exercise of protected rights by employees would still be held to be unlawful.

For at least the next few years manufacturers will have the opportunity to adopt clear rules and policies to govern worker conduct.  Manufacturers may wish to review with their in house or outside counsel the implications of this important development.

EPA to Rethink Cost-Benefit Analyses During Rulemaking Process

This week, EPA announced that it is considering developing regulations to optimize the use of cost-benefit analyses when it is taking regulatory action. Many environmental statutes require the consideration of costs and benefits to evaluate the impacts of policy choices. EPA is seeking public comment on whether and how these analyses can be made more consistent, reliable, and transparent.

In announcing the Advance Notice of Public Rulemaking, EPA Administrator Scott Pruitt said:

Many have complained that the previous administration inflated the benefits and underestimated the costs of its regulations through questionable cost-benefit analysis. This action is the next step toward providing clarity and real-world accuracy with respect to the impact of the Agency’s decisions on the economy and the regulated community.

EPA is specifically seeking comment on a number of topics, a few of which are listed below:

  • Should certain cost-benefit terms be defined across statutes?
  • How should EPA address benefits from reductions in pollutants that are not directly regulated?
  • How should EPA address costs or benefits that are known, but that cannot be scientifically quantified or monetized?
  • Should EPA consider the cumulative regulatory costs and benefits of multiple regulations?
  • Would a requirement for systematic retrospective review of regulations help identify necessary revisions and guide future rulemaking efforts?
  • What are the potential concerns with issuing regulations governing EPA’s use of cost-benefit analyses when certain statutes may not specifically reference the need to consider costs along with benefits?
  • How can EPA document its cost-benefit analyses to make them more transparent?

Once the Advance Notice of Public Rulemaking is published, the public will have 30 days to offer comments to EPA.

Manufacturing Law Best Practices for Contracting With Machine Shops

Almost all industrial manufacturers deal with machine shops in some form or another.  A typical scenario is that a manufacturer will provide their print (or that of their customer) to a machine shop to fabricate a component or sub-component.  In the manufacturing law world, business to business disputes with machine shops outnumber those up the supply chain.

For that reason, I was particularly interested in a recent blog post by Peter Zelinski, who is Editor-in-Chief of Modern Machine ShopThe blog post, “10 Reasons Why Machine Shops Vary So Much in Quoted Pricing,” is an interesting read as it identifies factors as to why there is a variation in quotes from machine shops for identical machining work.  Two of the factors identified that I thought were interesting were entitled “interpretation” and “qualification.”  First, that one machine shop might quote a higher price because of their interpretation of the job (which another shop might interpret differently).  Second, one machine shop might quote a higher price in an effort to recoup costs associated with qualifying for a certain industry.

From a manufacturing law perspective, here are a few best practices for dealing with machine shops.

First, like everything else, you often get what you paid for.  A “low bidder” mentality – particularly if you are in a highly regulated space like aerospace – can lead to problems down the line particularly when the machined parts are out of specification.  Do your terms and conditions have audit / inspection rights?  How long do you have to complain about parts being out of specification and what is your relief?

Second, it is important to protect your intellectual property (read:  processes, know-how, etc.).  Manufacturers should ensure that their terms and conditions are clear on who owns the intellectual property being provided to a machine shop.  While that might seem simple when it comes to a print, it becomes less clear when you are talking about processes – particularly when the machine shop wishes to adopt those processes for other customers.

Finally, read the fine print if the machine shop has its own terms and conditions.  What happens if your customer cancels the order?  Can you then cancel the order placed with the machine shop?  Do you have to pay a termination fee?  This is where a manufacturer is faced with the dreaded “battle of the forms” (we have written several blog posts on this) where your T&Cs are in conflict with that of your supplier.