Posts belonging to Category Government & Regulation

Amid calls for new legislation and regulation to address misconduct in the financial industry, a new study produced jointly by two business schools points to a solution that is already up and running: class actions.  Accounting professors from the Rutgers Business School and Emory University’s Goizueta Business School have completed a study which concludes that class actions are strong deterrents to the misrepresentation of corporate financial projections and quarterly results, and even stronger deterrents to securities fraud.  The study’s preliminary findings are at odds with the prevalent caricature of class actions as targeting trivial, technical violations and benefitting only plaintiffs’ lawyers.  Moreover, the Rutgers/Emory study’s findings stand in contrast to apparent misgivings on the part the United States Supreme Court’s conservative bloc about the social utility of class actions, exemplified in recent decisions such as Concepcion v. AT&T and Dukes v. Wal-Mart.

Among the Rutgers/Emory study’s specific findings is the conclusion that companies that have been sued in a class action alleging financial misconduct are significantly less likely to engage in the practice of “discretionary accrual,” i.e., the practice of reporting revenue for unconsummated sales transactions.  While the study concluded that the optimal enforcement scenario entails both public and private efforts, it also found that private enforcement and public enforcement (by the Securities and Exchange Commission) are roughly equal in their deterrent effects.  Thus, given recent reductions in tax revenue and government budgets, the Rutgers/Emory study underscores the importance of private class actions.

The Rutgers/Emory study is currently being circulated for peer review and is expected to be published in early 2012.

Governor Jerry Brown’s appointment of Julie Su as California’s Labor Commissioner (the titular head of the Division of Labor Standards Enforcement, or DLSE) has been met with near-unanimous approval and enthusiasm by the plaintiffs’ bar and a marked lack of express opposition on the part of either defense firms or other natural opponents of the unabashedly “pro-worker” attorney. (Ms. Su has devoted the entirety of her legal career to causes on behalf of those unable to afford legal services at prevailing market rates, with an emphasis on low-wage and immigrant workers’ rights.) Julie Su brings the sort of exemplary credentials to the post that typically mute ideology-based criticism. A graduate of Stanford University and Harvard Law School and a past recipient of a MacArthur Foundation “genius grant,” Ms. Su most recently served as Litigation Director for the Asian-Pacific American Legal Center, where she began her career directly out of law school in 1994.

Though Ms. Su’s appointment requires Senate confirmation, expected sources of opposition have been restrained, if not entirely silent. While the prominent wage-and-hour defense firm Jackson Lewis speculates on its California Workplace Law Blog that it “would not be surprised if the DLSE’s meal-period enforcement position changed,” it neither supports nor opposes the appointment, cautioning only that “[i]t will be important to closely monitor the DLSE web site and any upcoming speeches Ms. Su may deliver for any developments.” The full article is available here. And in its post announcing the Su appointment, the California Chamber of Commerce is assiduously factual, relating only the progression of Ms. Su’s extraordinary career, without venturing even the sort of cautionary aside in the Jackson Lewis article. That post is available here.

At the other end of the spectrum, Ms. Su’s reception is typified by the optimism expressed by the State Building & Trades Counsel of California: “In Julie Su, workers now have a strong, proven advocate for upholding their rights.” Their post is available here. Ms. Su’s confirmation appears to be a certainty, and her tenure as Labor Commissioner is expected to mark a pro-worker era in California.

Seeking to ensure that California’s Labor Code protections be interpreted and enforced by California courts, the California Legislature is considering Assembly Bill 267, which would amend the Labor Code with the creation of Section 924. If passed and signed into law by newly-inaugurated California Governor Jerry Brown, Section 924 will invalidate any clause in an employment contract requiring that an employee, as a condition of obtaining or continuing employment, agree to a forum or choice of law other than California to resolve a dispute with his or her employer regarding employment issues that arise in California. Former Governor Arnold Schwarzenegger twice vetoed similar legislation. However, considering Governor Brown’s distinctly pro-labor record, it appears more likely than not that Section 924 will become law, possibly by January 1, 2012.

The California Supreme Court’s contingent fee decision last year, County of Santa Clara v. Superior Court, 235 P.3d 21 (Cal. 2010), is a little remarked upon, but important, victory for government entities as well as a significant development for the plaintiffs’ bar. Though complex and somewhat technical in its particulars, the essential holding in County of Santa Clara is clear: private lawyers may represent the government on a contingent-fee basis in public nuisance actions. Id. at 36. And because the decision was not limited to its facts and set a flexible standard applicable beyond nuisance cases, it is likely that County of Santa Clara will be the basis for rulings in trial courts and the Court of Appeal approving contingent-fee arrangements between private lawyers and local government entities—a win for plaintiffs’ lawyers, of course, but also a benefit generally, because public enforcement resources are already stretched to their limit.

The County of Santa Clara outcome had been in some doubt because an earlier precedent, People ex. rel. Clancy v. Superior Court, 705 P.2d 347 (Cal. 1985), was thought to generally prohibit private lawyers from entering into contingent-fee arrangements with government entities. However, Chief Justice George’s unanimous opinion distinguished the “constitutional and institutional interests present in a criminal case” (County of Santa Clara at 31), as in Clancy, and set forth an objective and broadly applicable standard for assessing the permissibility of private-public contingent-fee arrangements. So long as “neutral, conflict-free government attorneys retain the power to control and supervise the litigation,” such an arrangement is permissible. County of Santa Clara at 36.

As one of the George Court’s capstone decisions, County of Santa Clara exemplifies a moderate-to-progressive legacy that few anticipated when the former Chief Justice was elevated to that position by Governor Pete Wilson in 1996.