Jan. 28, 2021
Good morning. The crazy surge in GameStop's stock price is prompting calls for scrutiny by the SEC and other regulators. Nursing homes are trying to take advantage of an obscure law to duck liability over COVID-19 deaths, Schulte Roth is throwing its weight behind a novel lawsuit over the 1921 Tulsa race massacre, Coca-Cola is taking law firms to task for their lack of diversity and is using its legal spending power to change that, and Baker & Hostetler lawyers are taking on the Biden administration over a major climate change initiative. There's so much news, so let's get going!
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GameStop trading frenzy likely to spark regulatory scrutiny REUTERS/Carlo Allegri The nearly 700% surge in the price of struggling video game retailer GameStop over the past week driven by retail investors is prompting calls for regulatory scrutiny, which securities lawyers say is likely, Chris Prentice and Pete Schroeder report.
The stock surge in GameStop, along with other companies, has appeared to be urged on by bullish posts on Reddit. Regulators such as the SEC are likely to explore whether it was used to manipulate investors into buying or selling securities. "GME IS THE HOLY GRAIL," wrote one user on Wednesday.
After the markets closed, the SEC on Wednesday issued a statement saying it is "actively monitoring the on-going market volatility in the options and equities markets." It said it was working with other regulators to assess the situation and review the activities of market participants.
Jacob Frenkel, chair of Dickinson Wright's securities enforcement practice, said the SEC would likely look at whether the messaging by investors holding the stock long-term and activists betting against it was manipulative. He added it "is reasonable to believe that any SEC investigation could well have a parallel criminal investigation."
The New York Stock Exchange has halted trading in GameStop several times this week. Massachusetts' top securities regulator, William Galvin, called on the NYSE to suspend GameStop for 30 days to allow a cooling-off period. "This isn't investing; this is gambling," he said. "This is obviously contrived." Learn more.
Nursing homes cite obscure law to avoid liability over COVID-19 deaths Garnice Robertson/ via REUTERS More than 100,000 residents of nursing homes and senior living facilities have died from COVID-19 and some of the families that are seeking accountability are running into an unexpected legal hurdle.
Tom Hals reports that at least 36 nursing homes have argued they should be immune from wrongful death cases thanks to the PREP Act, a 2005 law designed to protect companies from liability for products used to counter a public health emergency.
The U.S. Department of Health and Human Services has broadened its interpretation of the law following outreach by groups representing senior care companies, and that expanded view of the law has been used by nursing homes in their court cases.
So far, no judge has ruled the law applies to nursing homes, but arguments over that and which court should hear the cases - federal or state - has led to months of delays, as seen in a lawsuit Garnice Robertson filed after her mother died in April.
She blames the nursing home, Riverbend Post-Acute Rehabilitation of Kansas City, Kansas, and sued it in Kansas state court. Its lawyers have cited the PREP Act to try to move it to federal court. "It's just not right," she said of its use of the law. Learn more.
Industry buzz
Video: What does the growth of SPACs mean for law firms? Special purpose acquisition companies had a record year in 2020. Reuters' Alex Cohen spoke with Ropes & Gray's Paul Tropp and King & Spalding's Keith Townsend about the surging popularity of SPACs and their impact on the legal industry. Watch the full video here.
Schulte Roth joins legal team suing over 1921 Tulsa race massacre Alvin C. Krupnick Co./NAACP Records/Library of Congress Schulte Roth & Zabel is throwing its weight behind a novel lawsuit by seeking to force the city of Tulsa, Oklahoma, to pay reparations to victims of the 1921 race massacre that led to the destruction of its Black business district.
The New York-based law firm is joining the legal team led by Tulsa-based attorney Damario Solomon-Simmons of SolomonSimmonsLaw that in September filed a lawsuit in Tulsa County District Court alleging the city through the massacre created a public nuisance that needs to be fixed.
Schulte's decision to join the case came amid broader efforts by major law firms to pursue pro bono cases addressing systemic racism following the death of George Floyd, a Black man, in May under a police officer's knee in Minneapolis.
It also puts the firm, more typically known for representing companies and hedge funds, in a unique position. Public nuisance law has come under attack by groups like the U.S. Chamber of Commerce following its use in lawsuits against companies over issues like climate change and the opioid epidemic.
"We're sticking our necks out a little bit as a commercial law firm, I suppose," Michael Swartz, co-chair Schulte's litigation group and chair of its pro bono committee. "But we felt it was very important to pursue this case and to fully support it." Learn more.
Coming up today
Reporter's notebook: Courts and Biden face hangover from last-minute Trump rules Reuters reporter Brendan Pierson on the healthcare litigation the Trump administration left behind for the new president:
In the final weeks of his term, former President Donald Trump sought to make good on his promise to lower drug prices with a series of last-minute regulations, prompting legal challenges from industry groups. While the regulations are largely frozen for review under President Joe Biden, the lawsuits are continuing, and the future of these rules remains uncertain.
That's because Biden has also pledged to lower drug prices, so while his administration likely will not take the same approach as Trump's, it might not scrap the rules wholesale. The most controversial ones include a "most favored nation" rule tying Medicare reimbursements for certain drugs to prices paid by some foreign countries and a rule that would effectively ban the common practice of drug companies paying rebates to pharmacy benefit managers who negotiate prices with health plans.
Biden and other Democrats have suggested they may try to regulate prices charged by drug companies more directly, but government reimbursement rates could still play a role – for example, by having Medicare negotiate drug prices.
Many of the current legal disputes center on the rushed and at times haphazard rulemaking process the Trump administration pursued. But while the new administration may take a more conventional approach to rulemaking, substantive legal battles over drug pricing undoubtedly lie ahead.
"The hard truth is that our profession is not treating the issue of diversity and inclusion as a business imperative. We are too quick to celebrate stagnant progress and reward intention. We have a crisis on our hands and we need to commit ourselves to specific actions that will accelerate the diversity of the legal profession."
Bradley Gayton, general counsel for The Coca-Cola Company, in a letter to its outside counsel saying it will require law firms to staff its matters with diverse lawyers or risk losing pay and business. The letter marked the latest effort by corporate clients to use their spending power to push law firms to diversity. Firms on new Coca-Cola matters will now be required to commit to having at least 30% of billed associate and partner time come from attorneys who are people of color, women or people with disabilities, and 15% of that time must come from Black lawyers specifically. (Reuters)
In the courts
Industry moves
Columnist spotlight Police unions cast aspersions in lawsuit over disciplinary records. A coalition of police unions is suing the New York City government seeking to reinstate a decades-old policy that shielded cops' disciplinary records from public scrutiny and went before the 2nd Circuit last week arguing (via DLA Piper's Anthony Coles) the city government's position in favor of publicly releasing police disciplinary records is, essentially, hypocritical, because it took the opposite position in 2018. Hassan Kanu was struck by that argument, given that police departments often release detailed information about suspects and people alleging police misconduct as a way of quelling public concern about a police encounter and defending officers' actions. "It's more than a bit ironic for police to argue that the city is the disingenuous party here for having changed its position in the wake of local and national outcry over police accountability," Kanu writes. Read his full column here.
Boeing is trying to limit fallout from its $2.5B DPA in securities class action. In every true corporate crisis, a defense strategy has to account for how a resolution in one dimension of the case will affect the other. Alison Frankel says we're seeing that dynamic at work in Boeing's attempt to manage its 737 MAX scandal. Earlier this month, Boeing entered a $2.5 billion deferred prosecution agreement with the DOJ. A week later, plaintiffs lawyers in two private class actions arising from the 737 MAX crisis filed motions asking the judges overseeing their cases to take note of the DPA. Boeing's lawyers at Kirkland & Ellis have already disposed of the DPA in a case from about 7,000 pilots who claim they were duped into learning to fly the planes. But a second motion from shareholders suing for securities fraud remains, and Frankel is eager to see if Boeing pulled off the trick of resolving the government's case without suffering collateral damage in the shareholder class action. Read her full column here. Check out other recent pieces from all our columnists: Alison Frankel, Jenna Greene and Hassan Kanu.
Lawyer speak: Federal Circuit confirms contractor's expanded restrictions on non-government parties' data rights Last month, in The Boeing Co. v. Secretary of the Air Force, the Federal Circuit shed additional light on the technical data rights of contractors under defense contracts. The decision hinges on the fact that technical data provided by a contractor to the government remains the property of the contractor. Additionally, contractors retain certain rights, such as right pertaining to third parties, in connection with technical data even when the government has so-called "unlimited rights" to it. Todd Overman of Bass, Berry & Sims discusses how contractors can protect their proprietary technical data from nongovernmental third parties and the importance of addressing data rights early on.
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