We are pleased to present the 33rd edition of the Bernstein Shur Business and Commercial Litigation Newsletter. This month, we highlight news that will have an impact on business and litigation, including extra-territorial application of the Dodd-Frank Act, enforcement efforts aimed at misclassification of independent contractors, the intersection of free speech and commerce with respect to credit card transactions and the noticeable drop in bankruptcy filings. We hope you enjoy the newsletter.

In the News:

Federal district court holds that the anti-retaliation provisions of the Dodd-Frank Act do not apply to protect whistleblower conduct outside the United States. The Dodd-Frank Act contains provisions that create a private right of action for whistleblowers alleging retaliatory discharge for reporting securities law violations. In the case, Liu v. Siemens, AG, the Plaintiff, a Taiwan-based division compliance officer of Siemens China Ltd., alleged that his employer engaged in a kickback scheme in violation of U.S. law. Plaintiff alleged that Siemens China made inflated bids for contracts with public hospitals in North Korea and China and then remitted a portion of contract price to officials that approved the bids. The plaintiff asserted that he reported irregularities to his superiors, which resulted in demotion and ultimately dismissal. The employee then proceeded to report possible Foreign Corrupt Practices Act violations to the SEC and brought an action under the anti-retaliation provisions of Dodd-Frank. Judge William Pauley of the U.S. District Court for the Southern District of New York rejected the anti-retaliation claim, holding that Dodd-Frank’s whistleblower provisions did not extend to conduct outside of the United States. In particular, the court noted that, absent express statutory language to the contrary, a presumption exists that U.S. laws govern domestically, but do not govern the rest of the world. Read more about the case here and court’s opinion here.

States are stepping up efforts aimed at improper designation of workers as independent contractors. Classification of workers as employees or independent contractors is important for purposes of state and federal taxation, including the employer’s obligations in relation to Social Security, Medicare and other payroll tax obligations. Courts look to a number of factors when analyzing the propriety of worker classifications. These factors can include behavioral control, financial control and other aspects of the relationship of the parties. In 2012, Massachusetts identified 5,491 misclassified workers, with $46 million in unreported wages. During the same time period, New York identified 20,200 misclassified workers, with $282 million in unreported wages. States are increasing their enforcement efforts in order to recover lost payroll taxes based on misclassification of workers. Read more about this development here.

Federal district court invalidates New York state law banning merchants from imposing additional charges on customers using credit cards rather than cash. New York enacted a law that penalized merchants for charging higher prices to credit card users than those for customers using cash, while also prohibiting merchants from informing customers about surcharges they must pay to accept credit card payments. Opponents argued that the statute masked merchants’ true cost of accepting credit card payments, while also burdening their right to free speech. Judge Jed Rakoff of the U.S. District Court for the Southern District of New York held that the statute was unconstitutional, concluding that the statute’s prohibition on speech violated the First Amendment rights of merchants. Issuing an injunction prohibiting enforcement of the law, the court found that the statute regulated speech by banning disfavored expression and concluded that the manner in which price information was conveyed to customers was expressive content entitled to protection. Read more about the case here and the court’s opinion here.

Bankruptcy filings are down more than 12% in 2013. As of the effects of the Great Recession finally work their way through the system, statistics show both personal and business bankruptcy filings in 2013 are down 12% from the prior year. According to statistics compiled by the administrative office of U.S. Courts, filings for each chapter of the bankruptcy code have fallen. Specifically:

  • Chapter 7 filings totaled 753,995, down from 874,337 in 2012 
  • Chapter 11 filings totaled 9,564, down from 10,597 in 2012
  • Chapter 12 filings totaled 405, down from 541 in 2012
  • Chapter 13 filings totaled 343,651, down from 375,521 in 2012

Read more about the statistics here.