Bernstein Shur Business and Commercial Litigation Newsletter #47

By Paul McDonald and Dan Murphy

December 2014 | Issue 47

We are pleased to present the 47th edition of the Bernstein Shur Business and Commercial Litigation Newsletter. This month, we highlight a case that addresses claims against Facebook based on the U.S. Wiretap Act, a case involving claims by unpaid interns, and other news that will have an impact on business and litigation. We hope you enjoy the newsletter and wish you a Happy New Year.

In the News:

Facebook, Inc. fails to obtain dismissal of claims under the U.S. Wiretap Act based on its practice of scanning private messages for advertising purposes. Plaintiffs in this case alleged that Facebook scans its users’ private messages and then affixes “like” icons to the website pages obtained from such searches to use as part of its advertising campaigns. Under the U.S. Wiretap Act, it is illegal to intentionally intercept any wire, oral or electronic communication, subject to a safe-harbor exclusion for communications that are intercepted in the “ordinary course of business.” Courts have split on whether interception in the ordinary course of business must actually facilitate the communication or may be merely incidental to it. In the case involving Facebook, Judge Phyllis Hamilton of the U.S. District Court for the Northern District of California denied the company’s motion to dismiss, stating that Facebook’s unwillingness to disclose particular details regarding its business practices left her unable to determine whether its actions qualified under the safe harbor exception.

Read more about this development here.

Condé Nast settles a class action commenced by its former interns claiming they were underpaid for their work. The class, which is comprised of roughly 7,500 interns working at various magazines, asserted claims against the publisher based on the Fair Labor Standards Act. Condé Nast will pay $5.85 million to resolve the claims against it, resulting in payments ranging from $700 to $1,900 for each intern. The settlement comes in the wake of resolution of similar claims asserted by interns at other notable companies, including Comcast Corporation’s NBC Universal and Fox Searchlight Pictures. The Department of Labor has issued regulations that allow for exemption from minimum wage and overtime requirements if an intern qualifies as a bona fide “trainee” under a six-part test. That test includes scrutiny of whether: 1) the internship is similar to educational instruction; 2) the internship is for the benefit of the intern; 3) the intern does not displace regular employees; 4) the employer derives no immediate advantage from the intern’s activities; 5) the intern is not necessarily entitled to a job at the conclusion of the internship; and 6) the parties understand that the intern is not entitled to wages. Condé Nast has eliminated its internship program.

Read more about this case here and access the DOL’s regulations regarding internships here.

A former executive from Countrywide Financial, a subsidiary of Bank of America, may receive an award of $57 million based on his whistleblower claims under the False Claims Act. The executive’s award is based on the $1.27 billion penalty that Bank of America was ordered to pay in relation to charges that its Countrywide unit bundled non-performing and suspect mortgages and sold them as higher quality assets. Under the False Claims Act, a whistleblower can recover up to 25 percent of any successful recovery. Bank of America has appealed the $1.27 billion penalty. Since it acquired Countrywide in 2008, Bank of America has been embroiled in litigation that has cost it tens of billions of dollars. The same executive recently filed a second whistleblower case against Bank of America accusing it of defrauding government-backed Freddie Mac and Fannie Mae in relation to sales of bundled home loans.

Read more about this development here.

TD Bank reaches agreement with the Massachusetts Attorney General’s Office to pay $625,000 in relation to a data breach involving the personal information of its customers. The penalty was based on the bank’s loss of unencrypted back-up tapes that included sensitive personal information of its customers, including social security numbers. The tapes were lost in March 2012, but regulatory authorities and customers were not alerted until October of that year. Some 260,000 customers were affected by the breach. Under the accord, TD Bank has also agreed to enhance its data security practices.

Read more about this matter here.