Second Circuit Upholds Securities Fraud Indictment and Conviction Despite a Senior FBI Official’s Extensive Leaks to the Press During the Investigation

Case Name: United States v. Walters

Date of Opinion: December 4, 2018

Opinion By: Judge Chin

Summary:

In April 2017, defendant-appellant William T. Walters, a professional gambler, was convicted of securities fraud and related crimes following a jury trial in the United States District Court for the Southern District of New York.  Walters was sentenced to 60 months imprisonment and a fine of $10, and was ordered to forfeit $25,352,490 and pay restitution of $8,890,969.33.  On appeal to the Second Circuit, Walters argued that his indictment should be dismissed because a Federal Bureau of Investigation (FBI) Special Agent’s repeated leaks about the investigation to The Wall Street Journal (WSJ) and The New York Times (NYT) violated the grand jury secrecy provision of Federal Rule of Criminal Procedure 6(e) and the Fifth Amendment’s Due Process Clause. Walters also challenged the district court’s orders on forfeiture and restitution.

The FBI and United States Attorney’s Office (USAO) began investigating Walters for suspicious trading activities in 2011.  FBI Special Agent Chaves served as the supervising agent for the FBI’s investigation.  In 2013, following a referral by the Financial Industry Regulatory Authority (FINRA), the investigation expanded to Walters’s and others’ trading related to a Dallas Company, Dean Foods, and Walters’s close relationship with Thomas Davis, a member of the Dean Foods Board of Directors.  Beginning a year later, in mid-2014, the WSJ and NYT published a series articles revealing confidential and highly detailed information about the ongoing insider trading investigation of Walters, including that Walters may have received tips from an insider about Dean Foods. One WSJ article published in August 2015 named Davis as a target of the investigation.  In early 2016, Davis agreed to cooperate with the government.  That May, following the presentation of evidence including Davis’s testimony, the grand jury issued a multi-count indictment against Walters for securities fraud and related charges related to insider trading in Dean Foods and a second company.

Late in 2016, the district court granted Walters’s motion for an evidentiary hearing on whether the news leaks constituted a violation of FRCP 6(e), but shortly before the scheduled hearing, the government acknowledged a likely FRCP 6(e) violation, informing the court that it had learned that Agent Chaves was the source of the confidential leaks to reporters.  The government noted that Chaves had been referred to appropriate authorities within the FBI and USAO for investigation for his professional misconduct and the district court cancelled the hearing. Walters then moved to dismiss the indictment on the basis that he was prejudiced by the leaks and, in the alternative, that they constituted “’systematic and pervasive’ prosecutorial misconduct . . .  and a violation of the Due Process Clause.” The district court denied that motion.  Following a three-week jury trial, Walters was convicted on all counts in April 2017.  Walters’s motion for a new trial was denied and he appealed.  His appeal renewed the arguments raised in his prior motions to dismiss the indictment. Continue reading

Second Circuit Joins Third and Seventh Circuits in Ruling that Mere Registration of a Copyright Ownership Does Not Alone Trigger the Running of the Statute of Limitations for a Copyright Ownership Challenge

Case Name: Wilson, et. al. v. Dynatone, et. al.

Date of Opinion: November 14, 2018

Opinion By: Judge Leval

Summary:

This case concerns a dispute between John Wilson, Charles Still, and Terrance Stubbs (collectively “Plaintiffs”) and Dynatone Publishing Company, UMG Recordings, Inc., and Unichappell Music, Inc. (collectively “Defendants”) over ownership for copyright renewal terms for music compositions and sound recordings. The district court granted Defendants’ motion to dismiss under Fed. R. Civ. P. 12(b)(6) for untimeliness (on grounds that the statute of limitations had begun running as soon as the Defendants registered their claim of ownership), but the Second Circuit vacated.  The Defendants moved for reconsideration.

In this brief opinion, the Second Circuit re-affirmed its earlier conclusion that the statute of limitations does not begin accruing on a copyright ownership claim as soon as another party has registered its arguably infringing copyright.  As the Second Circuit explained, that interpretation of Section 205(c) of the Copyright Act would mean that “after authoring a work, an author would need to constantly monitor the Copyright Office registry to be sure that no one has registered a spurious claim of authorship, on pain of losing their ownership of the copyright three years after the spurious registration.”  That is an “intolerable and unrealistic burden.”

The Second Circuit noted that both the Seventh and Third Circuits had ruled similarly, but acknowledged that the First Circuit had instead implied otherwise, albeit in a case where the plaintiff also had actual notice of the infringement.

Summary Prepared by: Rachel Thanasoulis

 

Second Circuit Holds New York Plaintiffs Asserting § 1983 Federal Malicious Prosecution Claim Must Demonstrate Criminal Proceedings Terminated in Manner Affirmatively Indicating Their Innocence

Case Name: Lanning v. City of Glens Falls et al.

Date of Opinion: November 7, 2018

Opinion By: Judge Lohier

Summary:

In 2012, the plaintiff was engaged in a divorce and custody dispute with his estranged wife, who was dating Ryan Ashe, a Glens Falls police officer. Lanning was arrested twice that same year after his estranged wife and Ashe falsely reported that Lanning had threatened them in violation of a previously issued order of protection. The charges stemming from those arrests were subsequently dismissed in 2014 during a jury trial. Three traffic tickets issued to him while his criminal charges were pending in 2013 in a traffic stop performed by Ashe were also dismissed.

Thereafter, the plaintiff, David Lanning Jr., sued the City of Glens Falls and other law enforcement officials for malicious prosecution in violation of the Fourth Amendment under 42 USC § 1983. In his complaint, Lanning did not specify a reason for the dismissal of the criminal charges. Appellees moved to dismiss and, in his papers opposing the motion to dismiss, Lanning contended that the charges were dismissed for lack of sufficient evidence and lack of jurisdiction. The United States District Court for the Northern District of New York dismissed Lanning’s claim of malicious prosecution in connection with his first arrest for failure to rebut the presumption of probable cause established by the indictment and failure to plead Ashe’s personal involvement in the prosecution. The District Court likewise dismissed the plaintiff’s claim of malicious prosecution in connection with his second arrest, finding that criminal proceeding had not terminated in Lanning’s favor, a required element of a § 1983 claim. Lanning appealed.

The Second Circuit affirmed, agreeing that Lanning had failed to adequately allege in his § 1983 claims for malicious prosecution that the criminal proceedings brought against him were terminated in his favor. Lanning had argued that the court should apply the standard adopted by the New York Court of Appeals for favorable termination under the applicable state tort of malicious prosecution that termination of the underlying proceeding “is not inconsistent with” innocence. The Second Circuit disagreed, however, clarifying that federal law defines the elements of a § 1983 malicious prosecution claim and state tort law serves only as a source of persuasive, but not binding, authority in defining the elements. In so ruling, the Second Circuit relied on the Supreme Court’s ruling in Manuel v. City of Joliet that common law principles were meant “to guide rather than to control the definition of § 1983 claims[.]” The Second Circuit held that “prior decisions requiring affirmative indications of innocence to establish ‘favorable termination’” continue to govern § 1983 malicious prosecution claims irrespective of developments in state malicious prosecution law.

The Second Circuit also dismissed Lanning’s additional constitutional claim of selective enforcement in violation of the Fourteenth Amendment Equal Protection Clause, holding that he did not provide any evidence that the defendants treated him differently than other individuals against whom reports of criminal activity had been made.

Summary Prepared By: Matla Garcia Chavolla

Second Circuit Vacates Injunction That Had Enjoined Release of Lynyrd Skynyrd Movie

Case Name: Ronnie Van Zant, Inc. v. Artimus Pyle – Second Circuit

Date of Opinion: October 10, 2018

Opinion by: Per Curiam; Judge Newman & Judge Hall (concurring)

Summary:

Defendant-Appellants appeal a permanent injunction decree issued by the United States District Court for the Southern District of New York that prohibited the release and distribution of a film surrounding the plane crash of the Lynyrd Skynyrd Band.

The Lynyrd Skynyrd band was founded in the 1960s by Ronnie Van Zant (“Ronnie”), Gary R. Rossington, and Allen Collins. In 1975, Artimus Pyle joined the band as a drummer. On October 20, 1977, the band was in a plane crash that killed lead singer, Ronnie, and several other members. Pyle, Rossington, and Collins survived the crash. Following the tragic crash, Ronnie’s widow, Judith and the surviving members entered into an oath, in which they agreed to never use the Lynyrd Skynyrd name ever again. For a period of ten years, the promise was honored. However, in 1987, the surviving band members embarked on a Lynyrd Skynyrd tribute tour. Judith took issue with the use of the band’s name and sued the members in the United States District Court for the Southern District of New York. At the conclusion of that suit, the district court issued a Consent Order limiting the members’ ability to use the band’s name and the biographical material of Ronnie, while allowing the surviving members “to exploit their life stories and portray their experiences with the band in movies.” That Consent Order is the basis for this present appeal.

Thereafter, in 2016, Pyle agreed with Cleopatra Records, Inc. to film a movie about Lynyrd Skynyrd and the events surrounding the 1977 plane crash. The contract provided that the story would be told “’through the recollections and experiences of Pyle.’” When plaintiffs, former band members and their trustees and representatives, learned of the film via press release, they sent a cease and desist letter to Cleopatra Records, Inc. Cleopatra Records, Inc. responded, asserting that it had no agreement with the plaintiffs and that it had a First Amendment right to produce and distribute the movie, and moved forward with the movie production. Plaintiffs sought judicial redress in the United States District Court for the Southern District of New York. After reviewing the final script, the district court ultimately concluded that the plaintiffs were entitled to a permanent injunction prohibiting the distribution of the film and other related activities. The defendants appealed this decision, Continue reading

Second Circuit Allows Derivative Shareholder Lawsuit to Go Forward Even After Plaintiff Loses her Financial Stake in the Entity, Distinguishing Between Standing and Mootness

Case Name: Klein v. Cadian Capital Mgmt., LP – Second Circuit 

Date of Opinion: October 2, 2018

Opinion By: Judge Pooler (majority); Judge  Lohier (dissent)

Summary:

Appellant Terry Klein brought a derivative lawsuit suit as a shareholder of Qlik Companies. She alleged that a group of funds (referred to collectively as the “Cadian Group”) owned more than ten percent of Qlik and engaged in short-swing transactions in Qlik stock in 2014, in violation of Section 16(b) of the Securities Exchange Act. Subsequently, the action was stayed pending resolution of a motion in a related case. While the action was stayed, a private equity company bought out Qlik in an all-cash merger. As a result of that merger, Klein lost any financial interest in the litigation.

After the stay was lifted, Cadian Group moved to dismiss the action for lack of standing. Klein moved to substitute Qlik itself as a plaintiff under Rule 17(a)(3) of the Federal Rules of Civil Procedure. The United States District Court for the Southern District of New York granted the Cadian Group’s motion to dismiss and denied Klein’s motion to substitute. The District Court reasoned that Klein’s lack of continuing financial interest in the litigation caused her to lose standing, which made the case moot. In the alternative, the District Court found that Qlik could not be substituted under Rule 17(a)(3) because Klein had not made an “honest mistake” in failing to include Qlik as a plaintiff.

The Second Circuit disagreed, and vacated the ruling.  The court explained that Klein had already established her standing by virtue of the fact that she had a personal stake at the outset of the litigation.  The only question, therefore, was whether the case was now moot.  As the court put it, the standing doctrine “evaluates a litigant’s personal stake as of the outset of litigation,” while the mootness doctrine “determines what to do if an intervening circumstance deprives the plaintiff of a personal stake in the outcome of the lawsuit, at any point during litigation after its initiation.”

Continue reading

Second Circuit Affirms the Constitutionality of New York’s Zero Emission Credit Program for Nuclear Power Plant Subsidies

Case Name: Coalition for Competitive Electricity, et al. v. Zibelman, et al. – Second Circuit

Date of Opinion: September 27, 2018

Opinion By: Judge Jacobs

In August 2016, the New York Public Service Commission (PSC) adopted a Zero Emissions Credit (“ZEC”) program as part of a plan to reduce greenhouse-gas emissions. The ZEC program subsidizes qualifying nuclear power plants, giving state-created and state-issued credits certifying zero-emission produced by participating nuclear plants. The ZEC program credit price for each MWh of electricity generated is calculated by PSC as the hypothetical environmental damage that would result from nuclear plan retirement, based upon federal task force estimates of damage from carbon emission. The price was $17.48 for the first two years of the ZEC program and, beginning in 2019, is to be calculated by PSC every two years with possible reduction based upon “renewable energy penetration” in the New York energy market and forecasts of wholesale electric energy prices.

In October 2016, plaintiffs, a group of electrical generators and trade groups, brought suit in the United States District Court for the Southern District of New York, challenging the constitutionality of the ZEC program, alleging that it is preempted by the Federal Power Act (“FPA”) and that it violates the dormant Commerce Clause.  Continue reading

Second Circuit Rules That Hartford Archdiocese is Entitled to Insurance Coverage for Prior Sexual Abuse by its Priests

Case Name: Hartford Roman Catholic Diocesan Corp. v. Interstate Fire & Cas. Co. – Second Circuit

Date of Opinion: September 19, 2018

Opinion by: Judge Jacobs

Summary:

The Roman Catholic Archdiocese of Hartford (“Archdiocese”) purchased excess indemnity insurance policies from Interstate Fire & Casualty Company (“Interstate”) for the period between September 1, 1978 and September 1, 1985. The Archdiocese later sought reimbursement from Interstate for damages that it had to pay in a settlement agreement with four claimants seeking compensation for sexual abuse inflicted by priests in the Diocese. Interstate refused to pay on grounds that the priests’ molestation was not covered by the policy, because the policy had an exclusion for “assault and battery committed by or at the direction of such assured.” Interstate argued that the priests were among the assured, and so the policy did not cover their molestation (a form of assault and battery).

The Archdiocese ultimately sued in the United States District Court for the District of Connecticut, alleging that Interstate had breached its contract, breached the covenant of good faith and fair dealing, and violated the Connecticut Unfair Insurance Practices Act and the Connecticut Unfair Trade Practices Act. The District Court ruled for the Archdiocese on the breach of contract claim, but for Interstate on the other claims. Both sides appealed.

The Second Circuit affirmed in full. As to the breach of contract claim, the court found that the “assault and battery” exclusion was inapplicable here, because it only applied to an assured “acting within the scope of his duties,” and the assailant priests (even if they could be considered assureds) were not acting within the scope of their duties. Similarly, the wording excluded coverage only to those assured who actually committed or directed the assault, and did not exclude coverage to the other assureds (such as the Archdiocese). Continue reading

Second Circuit Rules that the Temporary Physical Separation of a Minor Child Held in Pretrial Juvenile Detention Does Not Strip Parent of “Physical Custody” for Purposes of Determining Child’s Derivative Citizenship

Case Name: Khalid v. Sessions – Second Circuit

Date of Opinion: September 13, 2018

Opinion By: Judge Droney

Concurrence By: Judge Jacobs (joined by Judge Hall)

Summary:

Mohammed Hassan Aizan Khalid was a 17-year-old legal permanent resident living with his parents in the United States when he was arrested and then detained on terrorism-related charges. Khalid had been using the internet for several years to attempt to assist extremists in the United States and abroad, including by translating jihadist videos from Urdu into English and then posting the videos online.

During Khalid’s juvenile pretrial detention but prior to his conviction (and prior to his eighteenth birthday), his father became a U.S. citizen. Khalid later pleaded guilty to the charges and then extensively cooperated with the federal government. Because of his cooperation, he was sentenced to a reduced term of five years’ imprisonment. After Khalid served his sentence, the Department of Homeland Security (DHS) initiated removal proceedings against him based upon his conviction. Khalid moved to dismiss the proceedings on the ground that he had acquired citizenship through his father.

The Immigration Judge and the Board of Immigration Appeals concluded that Khalid was not in the actual custody of his father between the time the father obtained U.S. citizenship and Khalid’s eighteenth birthday, and that Khalid was therefore not a citizen. The Second Circuit, however, vacated the BIA’s decision. Continue reading

Second Circuit Holds Independent Photographers’ Copyright Infringement Suit Can Proceed Against the NFL and Associated Press

Case Name:  Spinelli v. National Football League – Second Circuit

Date of Opinion:  September 11, 2018

Opinion By: Judge Lynch

Summary:

Beginning in 2009, the Associated Press (AP) has been the exclusive licensing agent for National Football League (NFL) league and team intellectual property, including photographs containing NFL logos and other intellectual property. Under the original 2009 licensing agreement, AP had broad authority to distribute commercial licenses for photographs containing NFL intellectual property. Plaintiffs, seven independent photographers, entered into “contributor agreements” with the AP to obtain access to NFL events and licenses for the intellectual property contained in photographs taken at NFL events. In essence, under the contributor agreements, the photographers retained ownership of the photographs and the right to sue for infringement, but granted the AP broad license to use and license the use of the photographs. In return, plaintiffs were to be paid royalties for certain uses.

The 2009 licensing agreement between the AP and the NFL included a broad complimentary license to the NFL for “AP-Owned Photos,” but did not grant to the NFL the same broad license for photographs owned by non-AP contributing photographers. A renewed licensing agreement executed in 2012, however, purported to amend the complimentary license granted to the NFL to include the right “to make Editorial use and/or marketing and charitable uses of . . . ‘AP-Contributor’ Photos’” in addition to AP-Owned Photos.

Thereafter, in October 2013, the seven non-AP contributing sports photographers brought suit in the United States District Court for the Southern District of New York against the AP, the NFL and NFL-affiliated teams, and Replay Photos, which sells NFL-related photographs online. Plaintiffs alleged that the NFL and Replay Photos had been extensively using their photographs in promotional and commercial materials without compensating them, and that the AP unlawfully granted the NFL a complimentary license with respect to photographs owned by them in the 2012 renewed licensing agreement without their knowledge or consent. After the defendants successfully moved to dismiss, plaintiffs amended their complaint asserting claims for copyright infringement, breach of implied covenant of faith and fair dealing, unconscionability, fraud, and Sherman Act violations. Defendants again moved to dismiss and the District Court ultimately dismissed all of the claims.

On plaintiffs’ appeal, the United States Court of Appeals for the Second Circuit vacated the dismissal of several of the claims. Continue reading