April 8, 2017 | Mary Gallagher
The New Jersey Assembly has overwhelmingly passed a bill that would protect people who speak out on public issues from baseless lawsuits meant to intimidate them into silence.
The legislation, A-603, targets SLAPP suits, the shorthand for what are known as Strategic Lawsuits Against Public Participation.
SLAPP suits, which often occur in the context of opposition to real estate development projects, pitting people from the community against a wealthy corporation, are meant to deter opposition because of the high cost of defending them, even if they are eventually thrown out for lack merit or withdrawn once the developer or other SLAPP plaintiff has succeeded in quelling critics.
In a leading New Jersey case on SLAPP suits, LoBiondo v. Schwartz, decided in 2009, the Court referred to scholarly articles that defined the problem as “a nationwide trend in which large commercial interests utilized litigation to intimidate citizens who otherwise would exercise their constitutionally protected right to speak in protest against those interests.” The “goal of such litigation was not to prevail, but to silence or intimidate the target, or to cause the target sufficient expense so that he or she would cease speaking out.”
A-603 would provide a quicker and clearer path to early dismissal of SLAPP suits, before the legal fees and costs had a chance to mount.
It defines a “SLAPP lawsuit” as “intended to deter or suppress the desire of any citizen to act in furtherance of the right of public advocacy on issues of public interest.” Such issues are those “related to: health or safety; environmental, economic, or community well-being; the government; a public figure; or a good, product or service in the marketplace” and exclude statements directed to the speaker’s commercial interest and other private interests.
SLAPP suits are often framed as claims for defamation, tortious interference with business or contract, civil conspiracy or abuse of process, nuisance or constitutional or civil rights violations, according to the A-603.
Under the bill, SLAPP suit defendants would file papers asking that the case be dismissed and those requests would be expedited to “the extent possible “in order to dispose of the case quickly in order “to prevent the unnecessary expense of protracted litigation.”
They would bear the initial burden of presenting prima facie evidence that the case is a SLAPP suit.
Once they make that showing, the burden would shift to the purported SLAPP plaintiff to show that they have evidence to support their claims, are likely to prevail, and that the SLAPP defendant caused them “actual compensable harm” and has no legal or factual basis to have the case thrown out.
The filing of a motion to dismiss a case on the basis that it is a SLAPP suit stays all discovery and proceedings in the case until the motion is decided but the judge, for “good cause,” can allow limited discovery that will assist in deciding the motion.
A defendant who succeeds in getting a case thrown out as a SLAPP suit would be entitled to the costs incurred in the litigation, including legal fees. To deter a repetition, an additional sum could be awarded as sanctions against the plaintiff. An earlier version of the bill prescribed a $10,000 sanction but the current version does not set a specific amount and leaves it up to the judge.
On the other hand, those who try and fail to get a case thrown out as a SLAPP suit would have to pay the other side’s costs and legal fees if the court finds that the request was frivolous or solely intended to cause unnecessary delay. But they do not risk sanctions and the fact that they failed could not be used against them later in the litigation or otherwise affect the standard of proof.
The bill also blocks those SLAPP suit filers from evading costs by pulling the suits after a request to dismiss has been submitted but before it has been decided. Judges must still award the fees and costs of filing the application to dismiss, “as appropriate.”
A-603 also specifically authorizes use of the common law tort for malicious abuse of process as the basis for “SLAPP-back” actions or claims against those who bring SLAPP suits and lays out the elements of such a claim: malice, absence of probable cause and a “special grievance” suffered by the claimant, such as interference with liberty or property or “severe and permanent economic damages.”
Not every non-meritorious suit aimed at public expression is covered by the bill. Civil actions by government entities to enforce laws protecting public, safety health and welfare would be exempted, as would SLAPP-back suits and claims against those engaged in selling or leasing of goods or services based on statements of fact made for marketing purposes or directed to potential buyers.
Though A-603 had strong support, with 69 of the Assembly’s 80 members voting in favor and only three “no” votes (there was one abstention and seven not voting), its prospects remain uncertain.
Twice before, the Assembly has approved similar legislation, which then died because no Senate bill passed.
The first time was in June 2005, when 79 Assembly members supported A-1077, and no one voted against it. A Senate counterpart was filed in December of that year but did not get a committee hearing.
The issue lay dormant in the legislature until July 2014, when Joseph Lagana, a Democratic Assemblyman from Bergen County, sponsored A-3505. It passed the Assembly 68-4 in February 2015.
But it had no Senate counterpart and died when the session ended.
Lagana reintroduced the identical measure as A-603 in January 2016, the start of the current session and it quickly cleared the Assembly Judiciary Committee in a March 2016 vote.
By the time it reached the Assembly floor a year later, however, it had been extensively reworked.
Many of the changes were prompted by objections from the Administrative Office of the Courts, or AOC, whose opposition reportedly helped block prior bills.
Daniel Phillips, the AOC’s Legislative Liaison, articulated its concerns at the October 2014 hearing before the Assembly Judiciary Committee on last session’s A-3505.
Phillips agreed that the use of lawsuits to censor, silence and intimidate people who want to speak out on public issues is not an appropriate use of the justice system and supported “some measure to try to curtail that.”
He pointed out that it is not clear to the courts on filing which cases are SLAPP suits, though they are generally defamation matters.
He blamed the demise of the 2005 bill on the inability to compromise on staying discovery on the filing of a motion to dismiss a SLAPP suit. Because discovery is needed to determine the validity of the claim, the AOC favored a different approach, comparable to what was done with medical malpractice cases, where certificates of merit must be filed early on to avoid dismissal. He thought that model could also work for SLAPP suits, in conjunction with the statute and court rule regarding frivolous litigation.
He also raised concerns about a possible explosion of litigation, as occurred in California after it enacted an anti-SLAPP law and said the shifting of the burden of proof on filing a motion for a SLAPP dismissal was a policy measure rather than a procedural one that should be dealt with in the statute.
The current bill addresses the AOC concerns with its provisions for limited discovery, burden of proof and exemptions.
As of now, no companion bill to A-603 has been introduced in the Senate but a knowledgeable source says that is expected to happen soon.
New Jersey Appleseed, which supports A-603, has successfully defended people hit with SLAPP suits and has helped mold the law in New Jersey to afford greater protection against SLAPP litigation.
For example, it won sanctions against a lawyer and a developer who brought frivolous lawsuit against a citizen who spoke out against a development project at a local municipal board hearing and won a favorable settlement for community activists from the Fund for a Better Waterfront, who were sued in retaliation for speaking out about the environmental impact of blasting practices by Stevens Institute of Technology at a construction site in Hoboken.
The Hoboken case established that statements of public concern are constitutionally protected and not considered defamatory when they rely on information debated within the scientific community and confirmed that corporations cannot make claims based on the assertion that they are victims of “invasion of privacy,” or are being portrayed in a “false light.” Further, NJ Appleseed defeated “prima facie tort” as a catch-all cause of action that could be used against SLAPP activists and community groups trying to exercise their legitimate rights of expression.
NJ Appleseed has just agreed to take on the defense of a SLAPP suit brought by Jane Jannarone, a member of the state Pinelands Commission who voted on Feb. 24 to approve a highly controversial pipeline through the New Jersey Pinelands. Jannarone sued 14 individuals who allegedly defamed her by posting negative comments about her and her support for the pipeline on the Facebook page for her real estate business, based in Vineland.
She asserts that they damaged her reputation as a realtor which will lead to loss of income and have caused her “extreme mental anguish and distress.” There is also a count for tortious interference with prospective economic advantage.
Among the alleged comments cited in the complaint were that Jannarone was on her cell phone during the public hearing on the pipeline and thus, “I would not trust her to listen to your concerns,” and accusations that she is “rude and unprofessional, a “terrible person” running a “horrible company,” a “piece of ?!!!!!,” a “sellout” a “greedy cunt,” a “disgrace” who cares “about nothing more than the mighty dollar” and a “shill for the gas company and Chris Christie.” One defendant allegedly paraphrased The Rolling Stones song, “Sympathy for the Devil,” substituting the lyric about a man with “wealth and taste” with a reference to Jannarone as someone who “stole the pinelands soul and faith.”
Appleseed will be representing 12 of the defendants in the case, Jannarone v. Mendel, CUM-L-206-17, which was filed on March 20 in Cumberland County Superior Court.
April 4, 2017 | Mary Gallagher
A battle over whether a developer will be allowed to renege on a promise to provide open space on the Hoboken waterfront was argued before the Appellate Division on Feb. 28.
New Jersey Appleseed’s Renee Steinhagen represents Fund for a Better Waterfront in several related appeals involving the Monarch Towers development.
The dispute concerns whether two 11 -story condominium towers can be built on a nearly two-acre waterfront parcel where the developer promised in 1997 to provide open space, including tennis courts and the final segment of the developer’s Hudson River Waterfront Walkway.
The construction faces fierce public opposition and would violate Hoboken ordinances that prohibit residential development on piers and platforms over the Hudson River. Those ordinances were adopted in December of 2013 in response to Superstorm Sandy, and in conformance with newly adopted federal and state standards to protect communities from flood hazards.
Read more about the case at http://bit.ly/2o6eMZA
March 22, 2017 | Mary Gallagher
What is probably the most significant case in years affecting public access to government records and information was argued before the New Jersey Supreme Court on Feb. 28.
Unless the lower court decision Paff v. Galloway is reversed, members of the public will have diminished access under New Jersey’s Open Public Records Act (OPRA) to the vast quantities of information stored electronically in government computers.
The case is viewed as so critical to the public right of access to electronic data that it has drawn the participation of an international data rights group, the Electronic Frontier Foundation (EFF), whose mission is defending civil liberties in the digital realm.
At issue is an OPRA request for all emails sent during a two week period in June 2013 by the Township Clerk and Chief of Police of Galloway Township in Atlantic County. The requestor, John Paff, a longtime advocate for government transparency, did not seek the emails in their entirety but only a log or list of the sender, recipient, date, and subject for each of them.
Galloway did not dispute that the emails themselves are government records subject to OPRA, which broadly defines them as including “any paper, written or printed book, document, drawing, map, plan, photograph, microfilm, data processed or image processed document, information stored or maintained electronically or by sound-recording or in a similar device, or any copy thereof.”
But the town denied Paff’s request on the ground that it did not maintain such a list or log and that OPRA did not require it to create one.
In the past, the town had provided information in that type of format.
With the hiring of a new township clerk –the position charged with responding to OPRA requests– the town decided to end what it characterized as an informal and voluntary practice of providing such lists or logs. To confirm its position, it filed an OPRA request with the Government Records Council (GRC) seeking a list of GRC emails and was denied on the ground that the GRC had no responsive records –i.e., no list or log of the emails– and impliedly did not have to make one.
Paff sued Galloway over the denial of his request and won in the trial court.
Judge Nelson Johnson of Atlantic County Superior Court ruled in June 2014 that the emails were government records within the OPRA definition, which includes “information stored or maintained electronically.” that is made, maintained and kept on file.
“By logical/reasonable extension, a log or list of emails that can be easily prepared is likewise within the ambits of that definition,” Johnson wrote.
Testimony from a Galloway computer technician that it would take him only two or three minutes to create the log sought by Paff convinced Johnson that doing so entailed no significant burden.
On appeal, however, a three-judge panel of the Appellate Division reversed, stating “We hold that OPRA does not require the creation of a new government record that does not exist at the time of a request, even if the information sought to be included in the new government record is stored or maintained electronically in other government records.”
In their precedential April 2016 opinion, the judges agreed with Galloway that complying with the request required creation of a new record and that Galloway was not obligated to do so.
They rejected the argument that the information requested was subject to disclosure as metadata about the emails, saying the log was not metadata even though extracted from it.
Nor were they swayed by OPRA’s requirement to provide copies of government records “in the medium requested” if kept that way, or to convert the records to the medium requested “or provide a copy in some other meaningful medium,” saying the provision did not change the definition of government record.
Even if creating the log would not be much effort, once it was generated, redacting any information excluded under OPRA “could require substantial effort,” as might preparing the same sort of log or list in response to similar requests in the future,” said the appellate court.
In agreeing to hear the case, the New Jersey Supreme Court defined the issue as whether OPRA requires production of “electronically stored information about emails (name of sender, recipient, date and subject) sent by certain public employees over a specified period of time.”
As in the Appellate Division, amici curie for both sides took part.
Joining EFF in siding with Paff was the New Jersey Press Association and the American Civil Liberties Union—New Jersey, while the New Jersey State League of Municipalities, the New Jersey Institute of Local Government Attorneys and the New Jersey State Association of Chiefs of Police weighed in on the side of Galloway.
The San Francisco-based EFF argued, in its joint brief with the ACLU-NJ, that OPRA was meant to update the prior law for the digital age by creating a new category of government record, electronically stored information, and that the legislative action was nullified by the appeals court’s holding that OPRA cover only request for such records, not for the information contained in them.
In EFF’s view, the Appellate Division holding, if not overturned, would cause significant damage to the public right to know in New Jersey at a time when almost all government information is stored electronically. Members of the public would only get access if they could identify a document or other type of record in which the information is stored. Alternatively, they would have to request the entire database, thereby imposing a greater burden on the government to review and redact any information exempted under OPRA, along with potential expense to the requestor in the form of special service charges that are authorized by the law where a request imposes a heavy burden.
And if the burden of complying is great enough—if it would “substantially disrupt agency operations”—that could provide justification to deny the request altogether, failing agreement on a “reasonable solution.” For want of a few keystrokes, access could be lost altogether.
The appellate ruling also sacrifices, at least where the public is concerned, a useful computer tool—the search and retrieve function—which facilitates the handling of the vast troves of electronic data that now exist.
At the oral argument before the Supreme Court, Paff’s lawyer, Walter Luers, cited a 1996 case, Board of Education of Newark v. New Jersey Department of the Treasury, which addressed the issue of whether agencies could be required to cull information from databases. There, the Court allowed a request that required the agency to run a computer program to retrieve the information sought, characterizing the request not as the creation of a new record but as the “selective copying” of a database. It was decided under the predecessor law but Luers argued that it governed the analysis.
The Justices seemed puzzled by Galloway’s reluctance to provide the list of emails when there was no question that it would have had to turn over the emails themselves to the extent they did not fall within an OPRA exemption, such as criminal investigatory records.
Justice Walter Timpone called it “odd” that Galloway preferred to turn over hundreds of records on a flash drive rather than the limited information requested by Paff.
The Court agreed with Galloway, however, that providing only the limited data fields requested by Paff did not remove the need for review and possibly redaction. But that review and redaction process was separate from the threshold question of whether the list qualified as a government record.
“The only issue before us is whether it is a government record,” with any questions of privilege to be dealt with later, remarked Justice Barry Albin. Chief Justice Stuart Rabner agreed that questions about reviewing and redaction should be dealt with on remand.
Galloway’s lawyer, Michael Fitzgerald, called the list sought by Paff an attractive “research tool” and contended that providing it would “cross a line” under OPRA, opening the door to similar requests that might prove far more burdensome.
Fitzgerald and amici urged that a bright line rule was essential for records custodians. The line they wanted would deem Paff’s request the creation of a new record and deny it as such.
The justices seemed open to the idea of a differently drawn line, one that would allow electronic database searches under OPRA when simple search terms would suffice and there was no need for subjective analysis or a judgment call to determine what information was responsive.
When the Justice suggested that the emails within Paff’s request could be pulled up and then everything redacted but the sender, recipient, date and subject line fields that Paff wanted, Fitzgerald said that was not possible with Galloway’s email archiving system.
That led Justice Faustino Fernandez-Vina to ask Fitzgerald whether the application of OPRA should depend on what kind of computer system a government entity uses.
There was discussion of the role of the GRC, with Luers arguing that the Appellate Division gave improper deference to its position. OPRA expressly states that GRC decisions “have no value as precedent” for cases that are initiated in court.
There are several other OPRA cases also awaiting decision by the Court, two of which concern police conduct.
In North Jersey Media Group, Inc. v. Township of Lyndhurst, a judge ordered access to police records regarding a high-speed chase and fatal shooting of a black man suspected of stealing an SUV but was reversed on appeal in June 2015. It was argued before the Court in November.
The other is Paff v. Ocean County Prosecutor’s Office, where the Court will decide whether the video recording of an arrest from a police car falls within the “criminal investigatory records” exemption from disclosure and if it does not, whether it can be withheld anyway based on the arrestee’s privacy-based objection. The Court granted certification in December and has not yet heard oral argument.
Some of the more significant rulings by the Supreme Court regarding OPRA are: O’Boyle v. Longport (2014), holding that when lawyers representing private persons and entities share privileged materials and communications with government lawyers the materials do not lose their protection and become public records subject to disclosure under OPRA; Asbury Park Press v. Monmouth County (2010), prohibiting secret settlements of sexual harassment suits against government entities; Burnett v. Bergen County (2009), requiring a commercial entity seeking millions of pages of land title records for inclusion in paid, electronic databases to bear the $460,000 cost for the county clerk to first redact Social Security numbers to protect against identity theft; and Mason v. City of Hoboken (2008), setting a 45-day deadline for filing OPRA suits and applying the catalyst theory for fee awards to prevailing plaintiffs.
March 22, 2017 | Mary Gallagher
A bill moving through the New Jersey Legislature threatens to undermine the Open Public Records Act, known as OPRA.
OPRA’s defining characteristic and its great strength are its presumption of public access to all government records and the information they contain, except for 24 expressly exempted categories, and the ability to recover legal fees when access is wrongfully denied. The exemptions encompass such areas as personnel records; advisory, consultative or deliberative material; criminal investigation and victims’ records; trade secrets; security measures and procedures whose disclosure would jeopardize safety; and records subject to attorney -client privilege. A specific “Personal Identifying Information” exemption already exists for four kinds of crucial identifiers: Social Security numbers, credit card numbers, drivers’ license numbers and unlisted phone numbers.
A-4532 threatens to weaken and erode that carefully calibrated system by creating a new subcategory of “personal government records,” barring access to “any personal identifying information, including the name, address, telephone number, and e-mail address of any person” which might be contained in those records and denying legal fees when official wrongfully deny access to those records.
The bill chiefly affects two kinds of public records—permits for home alarm systems and pet licenses and registration.
Members of the public who are wrongfully denied such records won’t necessarily be able to recover their legal fees, as under the current law. The bill lets the government off the hook if the court or the Government Records Council determines that the denial was “reasonable and made in good faith after due diligence.”
Knowing you will be reimbursed for your legal fees when you prove that the government violated the law in refusing access to public records–aka mandatory fee-shifting–was meant to incentivize enforcement of OPRA. Otherwise, many, if not most, people would balk at the expense of hiring a lawyer, letting denials go unchallenged and ultimately, making compliance less likely in the absence of accountability.
As was introduced on January 30 and when it won approval from the Assembly State and Local Government Committee two weeks later, A-4532’s restriction on legal fees would have, in fact, extended to all kinds of government records requests, not just pet licenses and alarm permits.
Fortunately, the bill was amended by an Assembly floor vote on Feb. 15, narrowing the restriction to cover only “personal government records.” And the Senate counterpart, S-3049, introduced on Feb. 28, contains the narrower fee restriction.
From a slippery slope perspective, however, it still seems a bad idea to start carving up the OPRA universe of government records and removing the certainty of a fee award for some kinds of wrongfully denied records.
Once the “personal government records” category is created, the likelihood is that it will be expanded over time, eating away at the promise and purpose of OPRA.
At the committee hearing on Feb. 13, Wayne DeAngelo, a Democrat from Mercer County and Deputy Speaker of the Assembly, explained that he sponsored the bill because residents of Robbinsville were complaining about solicitations from companies that were trying to sell them alarm systems and wireless pet fences. Those companies seemed to know, presumably based on records obtained from the municipality, that certain homes did not already have an alarm installed or own a dog.
DeAngelo pointed out that homeowners sometimes put signs out front indicating they have a security system when in fact they don’t and that giving out the names and addresses on alarm permits eliminates the “illusion of maybe.”
Committee member Blonnie Watson, also a sponsor, said she did not think it was right that just because you have a dog, someone can obtain your address and telephone number.
DeAngelo acknowledged at the hearing that he intended to ease the burden on taxpayers by “some pushback against fees,” allowing them only when the government acts frivolously and not just mistakenly in denying access.
He was backed by testimony from Robbinsville Mayor David Fried who said towns are being “attacked” by OPRA requests, with some requestors misusing the law for personal gain or “profiteering.” Fried claimed some attorneys make repeated requests “trying to get us to make a mistake so that they can win legal fees.” Fried complained that, even apart from fee-shifting, responding to record request takes time and money, including the cost of the government’s own legal fees.
The New Jersey State League of Municipalities, Association of Counties and School Board Association all registered their support of the legislation while the ACLU-NJ and several environmental groups went on record against it.
Showing up to oppose it in person were Jeff Tittel, for the New Jersey Sierra Club, and Tom Cafferty, of the Gibbons law firm, who is general counsel for the New Jersey Press Association.
Tittel focused his fire on the fee provision. He pointed out that he must file OPRA requests “to get info out of this administration for almost anything I do” and that he is denied almost every time, necessitating legal action for which he cannot always get pro bono legal help. For example, he said he has had to fight the state for its contract with a company to privatize Liberty State Park and for another contract to log Sparta Mountain. Municipalities also sometimes refuse to provide records, such as Planning Board documents, he noted.
Restricting legal fees as the DeAngelo bill would do—the language at that time applying to all OPRA requests—“creates a major can of worms, chilling to citizens and non-profits who want to hold government accountable,” he said.
For Cafferty and the Press Association, the major issue was the restriction on fee-shifting, which was intended to “even the fight.” Without it, ordinary citizens must wage “quixotic battles against public entities with almost inexhaustible resources,” Cafferty said. With A-2543 then written to apply to all OPRA requests, it “empowers custodian to deny access with little consequence.”
On the subject of repeat OPRA filers and de minimis or technical violations, Cafferty thought judges already take those factors into account in setting “reasonable” attorney fees.
Cafferty also disapproved of treating alarm permits and pet records differently. As an example of non-commercial value, he mentioned a case in Fair Lawn where pet license information was sought for a mailing to support of pet-friendly legislation. The judge there ordered release of the records after he used a fact sensitive analysis to weigh the interest in privacy against the interest in public access. That approach is preferable to categorical denial, Cafferty told the committee. .
Cafferty asked the committee to hold A-4532 in favor of a more comprehensive bill sponsored by Senator Loretta Weinberg that, among other things, addresses commercial requests for public records by allowing imposition of a service charge in those circumstances.
Also testifying was Linda Baum for the New Jersey Foundation for Open Government, who warned that taking away the certainty that a successful OPRA plaintiff would recover fees could deter legitimate challenges.
Baum asked for and received assurances that the fee restriction would be amended to apply only to the new “personal government records” category, which was done on Feb. 15.
A Better Approach
To the extent that OPRA is flawed, outdated or being abused, the Weinberg bill mentioned by Cafferty, S-1046, takes a more comprehensive, thoughtful and less knee-jerk approach, while addressing some of the concerns of the DeAngelo bill.
It excludes from the definition of public records information pertaining to alarm systems and surveillance cameras, including their location and allows special charges on requests that are made for commercial purposes (excluding newspapers). The extra charges that must be reasonable and based on the actual, direct cost of providing the records which can include the costs of searching and duplicating but not overhead expenses such as electricity.
Also, it authorizes protective orders that limit the number and scope of requests in “exceptional circumstances” where the sole purpose is to harass the agency and, in some cases, the agency can be excused from any future duty to respond to a particular requestor. .
Some other highlights of the bill are
*requiring same day access for some records, rather than the usual seven days
*allowing requests by fax as well as by hand, email and snail mail and not mandating the official form so long as the requestor supplies the necessary information
*adding another public member to the Government Records Council (GRC), requiring two news media members and allowing removal of members only for cause with notice and opportunity to be heard
*imposing a 150-day deadline for GRC decisions and requiring a searchable database of GRC opinions.
*authorizing penalties where a wrongful denial was based on gross negligence, not just where it was knowing and willful
*including law suit settlements in the definition of public records, while allowing deletion of specific factual details of sexual harassment, sexual assault, domestic violence or rape by or against a public employee, and the identity of the victim if disclosure would violate anyone’s reasonable expectation of privacy and the agency indicates the deletion
*excluding from the definition of a public record cell phone numbers, unless listed as a home number; email addresses and portions of records that contain personal information about minors
*making the Public Defenders office available to mediate records disputes on mutual consent
*giving requestors the option of access via email and without charge for records kept in electronic format
*specifying redaction rather than outright denial of records that contain confidential data and mandating accompanying affidavits that explain what was redacted and the legal basis for it;
*requiring redaction of personal debit card numbers and personal bank account information;
*making public employees acting in their official capacity and quasi-government agencies such as the League of Municipalities, expressly subject to OPRA, along with joint insurance funds, charter schools and other school-related entities;
*requiring creation of a searchable public website containing data on annual state revenues, expenditures, indebtedness and pension liabilities from 2013 and going forward, to be updated within 45 days of the close of each fiscal year.
Unfortunately, it is the DeAngelo bill that has moved forward, while Weinberg’s legislation, introduced in both houses more than a year ago, has not been given a hearing.
The delay is for a good reason, however, according to Weinberg’s office, because the bill is still being fine-tuned and strengthened, with input from the municipal clerks who are on the front lines of responding to OPRA requests. It is hoped that S-1046 will be re-introduced in the next few months.
February 15, 2017 | Mary Gallagher
Just days after Donald Trump took steps to derail a rule meant to protect retirement investments, a federal court decision has bolstered hopes for its survival.
The regulation, known as the fiduciary rule, was adopted by the Department of Labor (DOL) last April and took effect in June 2016. Compliance was to start on April 10 of this year, with some aspects of the rule not set to kick in until 2018.
The rule requires financial advisers to act in the best interest of the clients who pay them for their professional advice and prohibits them from recommending or selling inferior or more costly investments that will garner them higher commissions.
If you are like me, you were probably surprised to learn that financial advisers were allowed to put their own interests above those of their clients so long as they did not recommend “unsuitable” investments or strategies. So long as it was suitable, it was okay, even if there was an alternative that was cheaper or a better fit for the client. The client did not even have to be informed of the better option.
As an attorney—albeit a retired one—I am very uncomfortable with the idea of such a conflict of interest, one that would not be allowed in the legal profession, where .lawyers have a clearly recognized fiduciary duty to their clients. There seems no good reason to apply a lower standard where people are trying to arrange a secure financial future for their old age, a situation in which there is at least as much at stake as in many types of legal services.
Previously, the fiduciary standard was triggered only when retirement investment advice was provided to a consumer on a regular basis and it prohibited advisers from receiving commissions from insurance companies that sold annuities to their clients. They could, however, qualify for an exemption from that prohibition if the sale was as favorable to the consumer as an arm’s-length transaction and the adviser received no more than “reasonable” compensation.
The new rule, however, applies to even one-time advice.
As the DOL explained, the way people plan for retirement has changed since the creation of the fiduciary standard decades ago, when pensions dominated. Today, people have self-directed 401k plans and IRA accounts. Most significantly, it has become common to roll over retirement assets from fiduciary-protected plans into IRAs, a one-time event that did not qualify for fiduciary protection under the old rule even though, as the DOL put it, rollover investments are often “the most important financial decisions that many consumers make in their lifetime.”
Retirement rollovers are expected to affect more than $2 trillion in assets over the next 5 years.
The new rule also replaces the old exemption with a more stringent one, known as BICE—the best interest contract exemption—which allows investment advice fiduciaries, including broker-dealers and insurance agents, to receive commissions and other compensation from third parties that would otherwise be prohibited.
BICE requires a written contract with the retirement investor, agreeing to comply with standards of impartial conduct, act in the customer’s “best interest,” receive no more than “reasonable compensation,” and disclose basic information about conflicts of interest and the cost of advice
Even before Trump’s action, the fate of the fiduciary rule was in doubt, with his chief economic adviser, former Goldman Sachs executive Gary Cohn, saying he wanted to get rid of it.
Then, in a Feb. 3 memo, Trump directed the DOL to review the fiduciary rule because it “may significantly alter the manner in which Americans can receive financial advice, and may not be consistent with the policies of my Administration.” Specifically, he directed it to look at whether the rule could hurt those trying to plan for their retirement by reducing the scope of information or options available to them, by disrupting the industry or spurring an increase in litigation that would drive up the price of retirement services.
If any of those or other problems are found, the DOL is supposed to scrap or at least revise the rule.
The memo did not specifically ask for a delay in implementation but on Feb. 9, the DOL filed a notice to do so with the Office of Management and Budget (OMB).
Just one day earlier, however, the U.S. District Court for the Northern District of Texas rejected a challenge to the rule brought by a group of plaintiffs including the U.S. Chamber of Commerce, the Indexed Annuity Leadership Council, the American Council of Life Insurers and other entities acting on behalf of the financial industry.
Their chosen venue, in Dallas, is part of the Fifth Circuit, which is viewed as less friendly to Obama administration rulemaking. For instance, last November, a judge in that district issued a nationwide injunction blocking a DOL rule expanding eligibility for overtime pay. A year before that, a Fifth Circuit panel blocked a series Obama executive orders on immigration.
Three separate suits challenging the fiduciary rule that were filed there were consolidated and decided by Chief Judge Barbara Lynn in her Feb. 8 opinion. Lynn was appointed to the bench in 1999 by President Bill Clinton and is the first female judge to lead the district.
Lynn too denied a preliminary injunction and summary judgment for the plaintiffs, while granting the DOL’s cross motion for summary judgment.
Her 81-page opinion addresses questions raised in the Trump memo, which will make it harder for the DOL to base rescission or weakening of the rule on findings that contravene hers.
She held, among other things, that the DOL did not overstep its authority in adopting the rule nor did it violate federal rulemaking procedures by failing to conduct an adequate cost-benefit analysis to help justify the regulation.
“The court finds the DOL adequately weighed the monetary and non-monetary costs on the industry of complying with the rules, against the benefits to consumers,” wrote Lynn.
The DOL decided, based on the relevant evidence, that fewer conflicts of interest, more transparency, and a more efficient market would “increase the availability of quality, affordable advisory services for small plans and IRA investors,” and that it would not have “unintended negative effects on the availability or affordability of advice,” wrote Lynn. The agency relied in part on data from the United Kingdom, whose more aggressive regulatory approach of banning outright all commissions on retail investment products did not cause advisers to leave the market or negatively impact access to investment advice. Thus, it was reasonable for the DOL to conclude that the less burdensome fiduciary rule would not have that effect.
Lynn also found that the duties of loyalty and prudence imposed by the rule are reasonable given the DOL’s findings on the harm to retirement investors from receiving conflicted advice and its estimate that the new standards could save those investors up to $36 billion over the next ten years, and $76 billion over the next twenty years. That compares with the estimated $10 billion to $31.5 billion cost of compliance over the next ten years.
She rejected the contention that the rule will expose advisers to excessive litigation and liability. To the contrary, the DOL considered those issues and determined that potential litigation would incentive compliance. On top of that, BICE allows mandatory arbitration of individual claims, as well as waivers of the right to seek punitive damages or to rescind for violation of the contract. BICE, however, does not allow waiver or limitation of the investor’s right to take part in a class action.
The Chamber of Commerce and other plaintiffs in the Texas suit released a statement reacting to Lynn’s decision, saying they ccontinue to believe that the DOL exceeded its authority, and they will pursue all of their available options to see that the rule is rescinded. The statement referred to Trump’s Feb. 3 memo as a “welcome development” that reflected“well-founded, ongoing and significant concerns about the rule.”
Better Markets, a group that advocates for Wall Street reform, on the other hand, hailed Lynn’s decision as “a huge win for the American people,” and the best interest fiduciary rule as “a carefully considered and well-crafted rule that helps and protects Americans saving for a safe and secure retirement.”
Lynn is the third federal district judge to turn aside a challenge to the rule.
Judges Randolph Moss of the District of Columbia and Daniel Crabtree in Kansas denied preliminary injunctions that would have blocked the rule in The National Association for Fixed Annuities v. Perez, on Nov. 4, and Market Synergy Group v. U.S. Dept. of Labor, on Nov. 28, respectively.
The plaintiffs in the D.C. case have appealed. Their emergency motion for an injunction pending appeal was denied on Dec. 15.
Another lawsuit challenging the rule, Thrivent Financial for Lutherans v. Perez, was filed in September in federal district court in Minnesota. ‘It targets the requirement that best interest contracts include a provision permitting judicial class actions on the ground that this would interfere with Thrivent’s one-on-one alternative dispute resolution program, described as a “core component” of the governance and member-relations model of the tax-exempt membership-owned and member-governed fraternal benefit society.
UPDATE: Since this article was posted, District Judge Crabtree in the Kansas case followed the lead of Judge Lynn on Feb. 17, granting summary judgment for the Department of Labor and denying a cross motion by plaintiff Market Synergy Group, which sought to block the rule.
February 1, 2017 | Mary Gallagher
An attempt to pass a law that would require equal pay for women in New Jersey was thwarted on Jan. 23 when it became apparent that sponsors did not have the votes to override Gov. Chris Christie’s veto of the same bill last May.
The effort came three days after the Trump inauguration, two days after millions of women marched against him and the same day that Trump re-instated the Reagan-era global gag rule – the prohibition on U.S. funding for international organizations that provide information about abortion, even if none of the American dollars go to pay for abortions.
The New Jersey legislation, S-992, would be a state version of the federal Lilly Ledbetter Fair Pay Act, the first legislation signed into law by President Barack Obama, on Jan. 29, 2009, about a week after he took office.
Lilly Ledbetter was a supervisor at a Goodyear tire plant in Alabama, who complained to the Equal Employment Opportunity Commission in 1998 that she was being paid significantly less than her male counterparts. Her pay had started out as roughly equal but over her nearly 20 years with the company diverged more and more into a stark discrepancy by the time she took action.
She claimed she did not know of the pay discrimination until she received an anonymous note revealing the salaries of three male managers and it was then that she went to the EEOC.
A jury awarded her about $3.3 million in back pay and other compensatory and punitive damages but the verdict was thrown out on appeal on the ground that she was too late because the discriminatory decision to pay her less had occurred years earlier. A divided U.S. Supreme Court upheld that ruling in a majority opinion written by Justice Samuel Alito, who is from New Jersey. Justice Ruth Bader Ginsberg and three other justices dissented.
Lilly Ledbetter was left with no remedy for years of gender-based pay discrimination. And the precedent meant that other women would also be blocked from suing no matter how long the discrimination went on and how large the discrepancy, so long as their employers managed to conceal the unequal pay until the statute of limitations expired.
The legislation signed by Obama overturned the Supreme Court decision with regard to the timing of equal pay claims brought under federal law. It resets the time to sue with each discriminatory pay check.
The New Jersey proposal, whose 33 sponsors include Senate President Stephen Sweeney and Loretta Weinberg, D-Bergen, applies the same time reset under state law but goes further in allowing recovery of back pay for the entire period of the discrimination, not just two years, as under the federal law.
It also allows treble damages, bars reprisal against employees for disclosing compensation, job titles and other pertinent information to a lawyer or government agency; prohibits conditioning employment on waiver of employee rights, and requires companies doing work for the state to supply demographic and compensation information on every employee involved in the work.
The measure was introduced in February 2016, passed the Senate a week later and cleared both houses about a month after that. Of the 120 members of the Legislature, only 18 votes were cast against the bill, 4 in the Senate and 14 in the Assembly, with 14 total abstentions. Ten of the “yea” votes were cast by Republicans.
Despite that overwhelming and bipartisan support, Gov. Chris Christie conditionally vetoed the bill in May 2016. He opposed allowing plaintiffs to recover all the pay they were denied on account of discrimination, insisting on the same two-year limit as the federal law, and disapproved of the treble damages proviso.
In addition, Christie thought that employers should be allowed to require job applicants to waive the two-year statute to limitations saying that would align with current law. He was probably referring to the 2014 decision in Rodriguez v Raymours Furniture, where an appeals court found such a waiver enforceable. In that case, it reduced the time to sue from two years to a mere six months.
The Rodriguez ruling, however, was overturned by New Jersey’s Supreme Court one month after Christie’s conditional veto, in June 2016. The court held, 6 to 0, that allowing such a truncation of the time to sue would frustrate the purpose of the New Jersey Law Against Discrimination. The court further indicated that the waiver was probably unconscionable and thus unenforceable for that reason as well.
The Star Ledger reported that Weinberg said there was an attempt to compromise with Christie on the legislation but the negotiations were unsuccessful.
So instead of watering down S-992, the Democrats tried for an override in the Senate on Jan. 23. It required two-thirds of the 40-member chamber–27 votes, which was one fewer than the 28 the bill garnered on original passage.
But after a heated debate, the override had only 23 backers, prompting chief sponsor Weinberg to pull the bill before an official tally and try again for an override at some later date.
According to the Star Ledger, three Democrats were absent, three of the five Republicans who supported the bill the first time voted against the override and there were multiple abstentions.
Sweeney has indicated he will bring the bill up for a vote again when all Democrats are present.