Banking Regulators Issue Joint Statement on Heightened Cybersecurity Risk

Posted on January 29, 2020 by Ludwig & Robinson PLLC

On January 16, 2020, the FDIC and OCC issued a joint statement (FDIC FIL-3-2020 , OCC Bulletin 2020-5) to remind banks of sound cybersecurity risk management principles.  The statement observes, “Cyber actors often use malware to exploit weaknesses in a [bank’s] computers or networks. They often obtain access to financial institution systems and networks by compromising user credentials and introducing malware through social engineering [bank] employees and contractors with phishing or spear phishing attacks.”

The Joint Statement focuses on six key aspects of cybersecurity risk management, which we summarize as follows:

Response, Resilience, and Recovery Capabilities.  Maintain comprehensive, documented, and current incident and business resilience plans that include responding to and recovering from a destructive cyber attack.  One consideration is the use of cyber insurance as part of a broader risk management strategy.

Identity and Access Management.  Use and validate the effectiveness of authentication controls, such as multifactor authentication, to segment and safeguard access to critical systems and data on the network.

Network Configuration and System Hardening.  Review the appropriateness of default system settings, change default user profiles, configure security settings, implement security monitoring tools, and apply security updates and system patches.

Employee Training.  Ongoing employee training on recognizing cyber threats, phishing, and suspicious links.

Security Tools and Monitoring.  Use qualified cybersecurity staff or provider to actively monitor systems for network threat and vulnerability information available from industry sources.

Data Protection.  Maintain a data classification program to identify sensitive and critical data.  Encrypt or tokenize sensitive and critical data in transit and at rest.

The Joint Statement is the latest in a growing line of cybersecurity regulations applicable to banks.  For a discussion of relevant guidelines, see L&R’s latest article, Robert W. Ludwig, Salvatore Scanio, and Joseph Szary, Technology and Salvage: Using Social Media in Recovery and Allocating Cybercrime Funds Transfers to Third Parties, Am. Bar Ass’n, Tort Trial & Insurance Practice Section, Fidelity and Surety Law 2020 Midwinter Conference, Jan. 31, 2020, at 25-30.

Like other banking agency guidelines, the Joint Statement also expands the guideposts for evaluating whether bank security procedures are commercially reasonable under UCC Article 4A. See, e.g., Patco Constr. Co., Inc. v. People’s United Bank, 684 F.3d 197, 201-04 (1st Cir. 2012).

For further information, contact Salvatore Scanio at sscanio@ludwigrobinson.com or 202-289-7605.

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Time To Heed Justice Stevens’ Criticism Of Gun Decision

Posted on July 30, 2019 by Ludwig & Robinson PLLC

In a tribute to Justice John Paul Stevens, who died July 16 at 99 years old, Time To Heed Justice Stevens’ Criticism Of Gun Decision (Law360 July 19, 2019), Robert Ludwig notes perhaps none “would have gratified him more than for the country to finally look to District of Columbia v. Heller to understand how it worsens gun violence, as he warned to the end. Better yet, to find a way to overturn it.”

In his memoir published in May, Justice Stevens called the 5-4 Heller decision, discovering for the first time in 200 years a blockbuster right to possess guns, “the worst self-inflicted wound in the Court’s history.” He revealed a memo circulated before Justice Antonin Scalia completed his majority opinion, hoping the “negative consequences” “all justices could foresee” would give “pause before announcing such a radical change in the law that would greatly tie the hands” of lawmakers seeking “solutions to the gun problem.”

Heller turned America’s “Gun Problem” into a “Gun Epidemic”

As Justice Stevens anticipated, America’s “gun problem” soon became a “Gun Epidemic,” declared in a page-one New York Times editorial in 2015. It keeps growing, year after year.

“The numbers tell the story,” Mr. Ludwig points out. “After Heller declared a constitutional right to guns in 2008, extended to the states by McDonald v. Chicago in 2010, guns and annual gun deaths surged in tandem, from 310 to 400 million and 31,500 to 40,000, as seen in this graph:”

Guns and Deaths 07302019“Thanks to Heller and its negative consequences, the nation now has record gun violence, daily mass shootings, and weekly school shootings, triggering last year’s March for Our Lives.

“Not only was this ‘foreseeable’ to the Heller justices,” Mr. Ludwig writes, courts have long known that “unchecked gun proliferation and use tend to lead to impulsive, confrontational behavior, with deadly results. In 1832, a legal treatise cited in Heller condemned the practice of carrying loaded pistols, noting they ‘frequently turned a quarrel into a bloody affray, which otherwise would have terminated in angry words.’”

A Way to Overturn Heller Is “Desperately Needed”

Repeating his past warnings about Heller, Justice Stevens’ memoir was more emphatic: An amendment “to overrule Heller is desperately needed to prevent [more] tragedies.”

But “treating Heller and the Second Amendment as the rock and a hard place,” Justice Stevens “viewed revision or repeal of the amendment as the easier course.” Yet “it doesn’t need changing,” Mr. Ludwig explains, “serves too important a purpose in our complicated federal system, and means something other than what [all justices] believed.”

“There is a way to overrule Heller, hiding in plain sight,” as Mr. Ludwig pointed out in 2nd Amendment Still Undecided, Hiding in Plain View (Law360 Jan. 11, 2016), published the month after the ‘gun epidemic’ was declared and a month before Justice Scalia’s death. Quite simply, “Heller never decided the full Second Amendment. And having overlooked pivotal text, it cannot legally stand.”

A Historic Legal Blunder

As similarly explained in another article,  The Historic Legal Blunder That Enabled Our Gun Epidemic ((Law360 Apr. 25, 2018), Heller surprisingly did not address the full amendment before the court. “Overlooking the prohibition and verb on which the amendment rests, Justice Scalia transposed ‘shall not be infringed’ to ‘abridged,’ though not synonyms as is obvious from any thesaurus, but constitutional terms of art,” as should be. “Infringe,” Mr. Ludwig relates, was invoked in the Second Amendment and throughout founding history “to protect public rights, of states over their militia.” “‘Abridge’ has been used the last 230 years — for the ‘great rights’ in the First Amendment, where the first Congress rejected the substitution of ‘infringe,’ and in all such amendments since — to protect private rights.”

Overlooking text is “‘the strongest reason for not following a decision,’” the California Supreme Court said in correcting a 140-year oversight, a “remarkable failure of the adversary system.” Because “relevant language and history” was not addressed, it held its prior case “cannot stand.” Having not addressed the Second Amendment’s full text and history, nor can Heller.

A Better, Validated Approach

As Mr. Ludwig further observes, “Heller’s oversights of legal distinctions — infringe and abridge, public and private rights — are part of a larger failure to understand founding and Enlightenment principles that underlie American constitutionalism.”

He cites as validation a near-unanimous patent infringement decision last year that distinguished public and private rights. Justice Clarence Thomas wrote: “This Court has long recognized the grant of a patent is a ‘matter involving public rights,’” not “private rights,” correcting the common fallacy that “most everyone considered a patent a personal right,” as Justice Neil Gorsuch assumed in dissent.

That 7-2 opinion did not consider the obvious: “what ‘infringement’ means in relation to patents (i.e., why the doctrine is not ‘patent abridgement’).” Yet, Mr. Ludwig notes, “it shows how quickly misconceptions can be corrected, even by justices in the Heller majority like Thomas.” And “correcting Heller will be even more decisive, finally putting to rest any notion of a private right.”

Blind Spots Are Putting American Lives at Risk

For courts and lawyers, and “constitutional scholars who call the amendment’s text baffling and beyond comprehension, not to know infringe and abridge are constitutional terms of art — no more interchangeable than ‘patent infringement’ and “patent abridgement” — is a serious problem,” Mr. Ludwig writes.

Similarly, it is “troubling enough” that Heller’s majority and dissents all “found variants of an individual right the other called ‘absurd,’” the decade after former Chief Justice Warren Burger denounced that notion as “the greatest piece of fraud.” But “for the majority to transpose the people’s right to bear arms to a facetious right to ‘to carry [handguns] in the home,’ Heller’s precise holding, forgets what the Court ‘must never forget, that it is a constitution we are expounding.’” Likewise, “for the dissents to find a right that was also a duty (to bear arms in a militia, subject to state fines and imprisonment if not exercised) — unlike any other individual right — makes no sense,” a contradiction that “should have been a telltale sign the interpretation is wrong.”

As Mr. Ludwig further raises, “for Heller’s majority and dissents, and thousands of lawyers and courts applying its related right — to use weapons ‘typically possessed by law-abiding citizens for lawful purposes’ — not to check its support, is another dereliction.” Closely read, “That ‘common use’ fiction rests on a single case, involving billy clubs, which miscites, and misreads, a picture-book encyclopedia on swords and bayonets.” Yet “that flimsy test has been enforced across the country to undo long-standing gun control.”

“These are but some of the many blind-spots and systemic oversights of conventional wisdom today,” he observes. “Others include the real meaning and sources of the Second Amendment: who determined its ‘baffling’ (actually clear) wording, when and why.”

And it is “with these blind spots, or worse, that national gun policy is now determined.” Meanwhile, Heller “is poised for extension to public carry, with government litigants still not challenging its flimsy test” in the lower courts or even a pending Supreme Court case, New York State Rifle & Pistol Ass’n v. City of New York, its first in a decade. In response, New York City announced it has changed its regulation, fearing another major loss like D.C. suffered in Heller and Chicago in McDonald, and urged that the case be deemed moot.

“Without a better approach,” he cautions, “that raises and allows the Court to correct historic error, such cases greatly increase the odds it will “soon expand Heller from the home to the streets, creating a new blockbuster right and level of gun violence.”

Enough is Enough: Decide the Actual Amendment

Concluding Mr. Ludwig writes: “Chief Justice John Roberts has from time to time called out ‘when this Court needs to say enough is enough.’”

It’s “past time for the courts, bar and academy to address the full Second Amendment. To stop assuming away text and longtime meaning. To stop turning a ‘gun problem’ into a ‘gun epidemic,’ and one blockbuster right into another, once sensibly called a ‘fraud.’

“Enough is enough. And pay Justice Stevens an ultimate tribute: Overrule Heller.”

This blog is excerpted from Robert Ludwig’s article, © 2019 All rights reserved. For further information, contact Mr. Ludwig at rludwig@ludwigrobinson.com or 202-289-7603.

Robert W. Ludwig is an attorney at Ludwig & Robinson PLLC. He is counsel for the American Enlightenment Project, a 501(c)(3) nonprofit formed to end gun violence through education of the courts and public, and legal challenges to the Supreme Court decision in D.C. v. Heller.

 

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American Law Institute/Uniform Law Commission Joint Study Committee Seeks Input on Need to Amend to the UCC for Emerging Technologies

Posted on June 13, 2019 by Ludwig & Robinson PLLC

The American Law Institute and the Uniform Law Commission recently formed a joint study committee to examine whether there is a need to further amend the current Revised Uniform Commercial Code (UCC) in light of emerging technologies, such as artificial intelligence, distributed-ledger technology (e.g., blockchain) and virtual currency (e.g., Bitcoin). The UCC is a comprehensive set of laws governing commercial transactions in the United States, including sales, leases, negotiable instruments, bank deposits and collections, funds transfers, letters of credit, documents of title, investment securities, and secured transactions.

The committee is interested in receiving input from business and consumer groups, governmental agencies, academics, and others concerning all articles of the UCC (except Article 6).  For example, should Article 4 be amended to account for remote deposit capture and other advances due to use of check images? Should the UCC provide rules for electronic payments that do not involve “items” or “banks?”  Similarly, should Article 4A address funds transfers other than through banks? Do the loss-allocation rules of Article 4A adequately address the risks of fund transfers under “smart contracts?”

The committee has published a questionnaire, available here, with responses sought by June 28, 2019.

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Federal Reserve’s Secure Payments Task Force Concludes After Issuing “Payment Lifecycles and Security Profiles” and “Information Sharing Data Sources”

Posted on September 12, 2018 by Ludwig & Robinson PLLC

The Secure Payments Task Force, a coalition of over 200 payment industry stakeholders convened by the Federal Reserve, recently concluded.  For the last three years, the Task Force has worked to advise the Federal Reserve on payment security matters and address payment security challenges.  Its work covered identifying the key challenges and opportunities related to improving payment security, including identity management, data protection and information sharing to mitigate fraud.  The Task Force’s website, SecurePaymentsTaskForce.org, features its deliverables, including Payment Lifecycles and Security Profiles and a list of Information Sharing Data Sources.

The Secure Payments Task Force developed the feature Payment Lifecycles and Security Profiles to help payment participants understand eight payment types.  This educational resource provides perspectives related to:

  • The lifecycles of the most common payment types, covering enrollment, transaction flow and reconciliation
  • Security methods, identity management controls and sensitive data occurring at each step in payment lifecycles
  • Relevant laws and regulations, and other references, as well as challenges and improvement opportunities related to each payment type

The Payment Lifecyles and Security Profiles cover the following payment types: ACH; Card Present; Card Not Present; Card Present PIN; Check; Contactless; Wallet; and Wire.

The Secure Payments Task Force also published an expansive set of cybersecurity and fraud information resources, styled Information Sharing Data Sources. The data sources highlight intelligence reports, payments fraud trends, best practices and benchmarks, and additional resources that can help organizations address payments fraud risk. The Information Sharing Data Sources is also available on the Task Force’s website as a searchable tool.

 

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A Right To Carry Everywhere, On A Road To Nowhere

Posted on August 22, 2018 by Ludwig & Robinson PLLC

Right now, the gun epidemic debate targets its symptoms, whether mass shootings or domestic violence, not its disease: the gun proliferation enabled by a 2008 Supreme Court decision that reinterpreted the 2nd Amendment. The path to ending the epidemic begins with recognizing two fundamental truths: that the decision blocks real legislative solutions, and is a historic blunder that legally cannot stand.

In a timely article, “A Right To Carry Everywhere, On A Road To Nowhere” (Law360 Aug. 10, 2018), Robert W. Ludwig, counsel to the American Enlightenment Project, points out that “to end the senseless Gun Epidemic, it’s past time to turn a spotlight on its root cause: legal carelessness and oversights of text even nonlawyers can’t miss.”

After a 5-4 Supreme Court in D.C. v. Heller (2008) found for the first time in 200 years a Second Amendment right to possess a gun, extended to the states in McDonald v. Chicago (2010), proliferation and deaths skyrocketed, creating by 2015 a declared Gun Epidemic. “Thanks to two court decisions,” Mr. Ludwig writes, “the nation has become an abattoir of worsening handgun violence, daily mass shootings and weekly school shootings, triggering a March for Our Lives.”

“Celebrated as a ‘vindication’ of ‘textual originalism’ by the late Justice Antonin Scalia, Heller is more a testament to the folly of legal word-play, and how that superficial dictionary-based doctrine is no substitute for understanding essential to judging.”

“Most glaringly,” Mr. Ludwig points out, “Heller never addressed the meaning of the last clause and verb on which the amendment rests.” Instead, Justice Scalia transposed “shall not be infringed” to “abridged,” though not synonyms, like changing “shall not kill” to “maim.” “Abridge, a forgotten term of art, was used in the First Amendment and every amendment since that protects individual rights. Infringe, another term of art, was used in its classic sense to protect state sovereignty.”

Overlooking pivotal text is “probably the strongest reason for not following a decision,” the California Supreme Court said in 2015 when correcting a 140-year oversight “‘announced in ignorance’” of an 1872 statute, “a remarkable failure of the adversary system,” like Heller. Noting “It is better that wisdom, or at least controlling authority, come to our attention late, rather than not at all,” the court held that because “the relevant language and history” was not applied, its prior case “cannot stand.” Likewise, notes Mr. Ludwig, “having not construed the full text, among many things in plain sight, there is no legal way Heller can stand.”

Yet three weeks ago, Heller’s right to “handgun possession” and “to carry it in the home,” its odd precise holding, was extended to public carry by a 2-1 Ninth Circuit panel in Young v. Hawaii, applying mostly textualism to reason that “keep” arms “necessarily implies a right to carry those arms to some extent,” and “bear” arms “should protect something more than carrying incidental to keeping arms,” ergo “some level of carrying” for “conflict outside the home.”

Meanwhile, the Senate considers the nomination of Judge Brett Kavanaugh, the dissent on a 2-1 D.C. Circuit panel that upheld a ban on assault weapons like the AR-15s used in school massacres. Judge Kavanaugh read Heller’s “text” to mean, since “the vast majority of handguns are semi-automatic” and there’s “no meaningful constitutional distinction between semi-automatic handguns and semi-automatic rifles,” it “follows” AR-15s are protected as “the most popular semi-automatic rifle.”

“Expanding Heller and its epidemic to public carry as textualist courts insist,” Mr. Ludwig observes, “can only make more commonplace a mom pulling a gun over that last back-to-school item as went viral last August, or the customer shot dead over a parking space two weeks ago in Florida: practical results of mixing everyday grievances with ready guns. More dystopian still would be a textualist Kavanaugh court that allows everyone who wants one an AR-15.”

“Much of the problem,” Mr. Ludwig writes, is “lawyers and judges do not understand rudimentary founding history and concepts, even those still applied today.” For example: “They blithely assume ‘infringe’ protects a private right, as in ‘patent infringement.’ That, like all easy assumptions about the amendment, would be wrong.” The authority? Heller’s staunchest defender, Justice Clarence Thomas, who wrote in April for a near-unanimous Supreme Court: “This Court has long recognized the grant of a patent is a ‘matter involving public rights’” or “public franchises,” not “private rights.”

Mr. Ludwig concludes: “Heller’s blunders are not only a serious legal and public safety problem, but an institutional one. The Court’s authority depends on public confidence, which is lost when it misses something as simple as constitutional text and leaves it uncorrected.” And “should the Ninth Circuit reconsider Young en banc,” one question should be “whether Heller prevents deciding the full Second Amendment, which plainly has nothing to do with an individual right.”

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The Foreign Sovereign Immunities Act: ‘Bedlam’ Redux

Posted on September 27, 2017 by Ludwig & Robinson PLLC

In a new article, The Foreign Sovereign Immunities Act: ‘Bedlam’ Redux (Law360 Sept. 22, 2017), Robert Ludwig addresses a legal riddle that has long confounded courts, commentators, and the international law bar, and how the firm solved it.

From “Confusion” to “Bedlam,” to “Abuse of Trust” and Dithering by the Courts

“After four decades attempting to apply the commercial-activity exception of the Foreign Sovereign Immunities Act of 1976 (“FSIA”), the ‘most significant’ exception to sovereign immunity, indeed the ratio legis of the act, no court has ever decided the meaning of the heart of the exception, and with it the FSIA.” Its leading “clause one” withdraws immunity in any “action based upon a commercial activity carried on in the United States by a foreign state,” which as statutorily defined “means commercial activity carried on by such state and having substantial contact with the United States.” As Mr. Ludwig notes, “Remarkably, no court or commentator has ever been able to say what ‘substantial contact’ means, the primary nexus Congress prescribed for U.S. jurisdiction over foreign states.”

The transition from absolute immunity, by which foreign states could disown commercial obligations with impunity, to a new “restrictive theory” that developed in the 20th century, had by 1945 “engender[ed] much confusion and conflict” in the courts. Under the restrictive theory, a foreign state’s immunity is restricted to sovereign acts and does not extend to when it engages in commercial activity like any player in the marketplace. In 1952, the State Department stepped in, issuing “suggestions of immunity” to the courts which, as Justice Scalia summarized in 2014, “‘thr[ew] immunity determinations into [further] disarray.’”

Congress “abated the bedlam in 1976,” codifying the restrictive theory in the FSIA, replacing it with a “‘comprehensive set of legal standards governing claims of immunity’” in U.S. courts. In hearings on the FSIA bill, with remarkable prescience a subcommittee member remarked: “I hope that trust would not be abused by the courts” (June 2, 1976 Hearing, Rep. B. Jordan). That is just what they promptly did, leading to resurgent bedlam.

A “Statutory Labyrinth” and “Gordian Knot”

The FSIA was major remedial legislation enacted to bring U.S. practice in line with international law. 28 U.S.C. § 1602. Its purpose, stated in its history, “is simple: To assure that American citizens are not deprived of normal legal redress against foreign states who engage in ordinary commercial transactions or who otherwise act as a private party would.”  A “constant bane of the federal judiciary,” it has been variously characterized as “remarkably obtuse,” a “statutory labyrinth” and a “Gordian knot.” Better described as a “marvel of compression,” it combines in interlocking provisions traditionally separate questions: the availability of immunity, subject matter jurisdiction over the action, and personal jurisdiction over the defendant—an “economy of decision” that came “at the price of considerable confusion” in the courts.

Superficial Textualism: “Substantial Contact” Must Be More than “Minimum Contacts”

As the article illustrates, the confusion stems largely from an early D.C. Circuit decision, Maritime Int’l Nominees Estab. v. Republic of Guinea, 693 F.2d 1094 (D.C. Cir. 1982) that “read ‘substantial contact’ as demanding more than ‘minimum contacts,’” and based on that superficial textual comparison declared: “in choosing those words, Congress made clear that the immunity determination under the first clause diverges from the ‘minimum contacts’ due process inquiry.” Not deciding what “substantial contact” meant, it reversed a district court finding that U.S. contacts were “more than sufficient” to satisfy clause one, and held it lacked jurisdiction to confirm a $25 million arbitral award. In a 1988 case the D.C. Circuit reaffirmed that substantial contact “is stricter than that suggested by the minimum contacts due process inquiry,” still not deciding what it meant.

Following Maritime, the Second Circuit declared “it is clear that Congress intended a tighter nexus,” and “the ‘substantial contact’ standard … requires a closer nexus than the ‘minimum contacts’ necessary for due process,” Shapiro v. Republic of Bolivia, 930 F.2d 1013 (2d Cir. 1991). Noting “caselaw giving content to the term ‘substantial contact’” was “scant” on this “critical question,” it supplied none itself.

Two decades after enactment, the D.C. Circuit acknowledged in 1998 it had “never decided precisely what ‘substantial contact’” means, but reasserted “it requires more than the minimum contacts sufficient to satisfy due process,” still not deciding it.

Today, four decades on, the two leading FSIA circuits have yet to decide the meaning of clause one. Yet the D.C. Circuit instructs district courts the FSIA is “not a particularly generous” basis for jurisdiction over a foreign state.

More recently, the Ninth Circuit en banc in Sachs v. Republic of Austria, 737 F.3d 584 (9th Cir. 2013), citing Maritime and Shapiro, concluded it’s “generally agreed” substantial contact “sets a higher standard for contact than the minimum contacts standard.” Far from “generally agreed,” as Mr. Ludwig writes, “the meaning of ‘substantial contact’ was and remains hopelessly divided and undecided.“

The lower courts anticipated 25 years ago that the Supreme Court would resolve the “thicket of statutory interpretation and gloss.” But it held in Saudi Arabia v. Nelson, 507 U.S. 349 (1993) that suit over police detention was “not based upon any commercial activity,” and thus it “need not reach the issue of substantial contact,” leaving for future resolution a four-way conflict, widened since. The Court had occasion again to address clause one in OBB Personenverkehr AG v. Sachs, 136 S. Ct. 390 (2015), but held suit was “based upon” the injury in Austria, not U.S. ticket sale, and rejected Sachs’ revised theory on the “requisite ‘substantial contact’” as “forfeited,” still not deciding what it means.

Reflecting the continuing bedlam and futility, the Sixth Circuit in Triple A Int’l Inc. v. Republic of the Congo, 721 F.3d 415 (6th Cir. 2013) insisted that “substantial contact” is “far from clear” and “only confuses [clause one]’s meaning,” indeed “make[s] nonsense of it.”

Obvious Meaning Hidden in Double Plain Sight

Mr. Ludwig points out: “Clearing up the decades of confusion, conflict and indecision could not be easier. It can be shown two ways: either through a simple overlooked pincite in the FSIA legislative history, or by the ‘settled meaning’ found throughout in personam jurisprudence that “substantial contact” means ‘minimum contacts.’”

“The legislative history, disdained by textualists and dismissed by the D.C. Circuit in Maritime, explained that the FSIA ‘provides, in effect, a Federal long-arm statute over foreign states,’ citing two seminal cases, International Shoe Co. v. Washington, 326 U.S. 310 (1945), and McGee v. International Life Ins. Co., 355 U.S. 220, 223 (1957). Most lawyers know International Shoe and its constitutional due process test, requiring ‘certain minimum contacts’ such that ‘suit does not offend traditional notions of fair play and substantial justice.’ Less known but as significant, McGee is the seminal case that first defined ‘minimum contacts’ a decade later. The House Report gave a pincite only to McGee, where it defined ‘minimum contacts’ as a “substantial connection” with the forum.”

“What Maritime did to this legislative history, as the saying goes, shouldn’t happen to a dog. Asserting the ‘history does not contradict the clear import of the words Congress chose,’ referring to substantial contact and its own textual assumption, the D.C. Circuit cited only International Shoe, ignoring McGee and its pincite which the D.C. Circuit entirely overlooked. The courts, practitioners and academy, mystified for decades over the meaning of ‘substantial contact’ and misled by Maritime, have all missed the obvious: that Congress lifted that term and the language of clause one almost verbatim from McGee, just as Congress made clear in the legislative history.”

“Alternatively,” the article explains, “two decades of controlling jurisprudence made the term plain and unambiguous in 1976, as have four more decades since. ‘Where Congress uses terms that have accumulated settled meaning,’ as it did in clause one, ‘a court must infer, unless the statute otherwise dictates, that Congress means to incorporate the established meaning[.]’ McGee, a unanimous decision, defined ‘minimum contacts’ for the first time as a ‘substantial connection’ with the forum. The next year in Hanson v. Denckla, 357 U.S. 235, 252-53 (1958), another seminal decision, the Court reaffirmed McGee, using ‘substantial connection’ and ‘contact’ interchangeably. As should have been obvious, what Congress invoked 20 years later in requiring a ‘substantial contact’ with the forum was its settled meaning: ‘minimum contacts.’”

Recognition in Sachs Colloquy that “Substantial” Means “Minimum”

After the Ninth Circuit en banc cited the confusion over “substantial contact” without defining it, the petitioner in Sachs did not raise the question in the Supreme Court. Another pending petition Ludwig & Robinson filed did, in a case arising in the D.C. Circuit, Odhiambo v. Republic of Kenya, 764 F.3d 31 (D.C. Cir. 2014), that 30 years earlier in Maritime had created much of it.

As Mr. Ludwig recounts, “Hours after oral argument in Sachs, which focused on points raised by Odhiambo and not Sachs, the court invited the solicitor general to file a brief in response to Odhiambo’s petition.” Odhiambo’s petition evidently resonated with justices at the outset of the Sachs argument. Justice Kagan remarked: it “doesn’t seem … that wording is very different from … that we’ve used in specific jurisdiction cases. … There’s the insistence on … a minimum contact, and … on a … relationship between that contact … and the claim. … I’m having trouble of thinking why… there would be a different test.” Justice Scalia generally agreed: “The definition is, “…having substantial contact with the United States.” That sounds to me like … the due process test.” Justice Sotomayor recognized: “Isn’t the work in substantial contact with the United States? Isn’t that what we should be looking at instead?”

“Indeed,” Mr. Ludwig makes clear, “the courts should be looking at ‘substantial contact.’ As several justices recognized, it is the due-process test of ‘minimum contacts.’” Though the Court later followed the solicitor general’s recommendation (focused on international comity) to deny Odhiambo’s petition, long on the SCOTUSblog “watch list,” its resolution of “substantial contact” evidently was viewed by justices as being correct. And the test the D.C. Circuit imposed on Odhiambo, insisting it was “correct,” was overruled by the Sachs Court as “flatly incompatible” with Nelson, as Odhiambo argued.

Staggering Costs of Judging without Deciding

The article then shows, “The costs of leaving “substantial contact” unexamined and undecided for 40 years are staggering, and three-fold.”

“First, circuit courts routinely uphold dismissals and reverse findings of jurisdiction without deciding what clause one means. … With each passing decade, yet more U.S. companies and citizens are left at the courthouse door, in cases Congress plainly intended the courts to hear.”

“Second, using a placeholder without deciding ‘substantial contact,’ the courts have turned the entire commercial-activity exception on its head. For decades its primary prong, providing ordinary transacting business (clause one) jurisdiction, has been seldom applied; single act (clause two) jurisdiction … has been rarely invoked; and effects (clause three) jurisdiction, ordinarily a residual basis, has become the default into which most cases are shoehorned by the courts. This skewed application, contrary to the language, purpose, structure and history of the act, is the exact reverse of how long-arm jurisdiction customarily is applied.”

“Third, the federal courts … ‘possess no warrant to create jurisdictional law of their own.’ Yet that is what they’ve done for 40 years, creating a parallel universe of jurisdictional case law, … one governing the vast majority of cases against domestic and foreign defendants including those half-owned by foreign states, and another for cases against foreign states and their majority-owned enterprises.”

Time to Abate the Resurgent Bedlam and Finally Decide the Heart of the FSIA

Mr. Ludwig concludes, “Nothing in the FSIA permits such dismissals, skewed application, and parallel universe.” “That the courts have done just what Congress feared, abusing the trust placed in them … for decades, is astounding. But that the courts (with practitioners and commentators) have missed for so long two basic exegeses in plain sight — a simple pincite and classic meaning, abdicated for 40 years their obligation to decide and exercise jurisdiction given, and imposed through mere textual assumption such staggering costs on parties and federal case law, is a veritable legal disgrace.”

“It’s past time to cut the FSIA’s most basic ‘Gordian knot,’ to ‘vindicate the Congressional purposes behind the Act,’ and actually decide it. After Congress abated the ‘bedlam’ over sovereign immunity in 1976 and placed its trust in the courts, bedlam redux has raged ever since. Proper construction and application of the long-arm statute Congress enacted could not be more straightforward, and ‘critical.’ It still awaits decision, 40 years later.”

 

This blog is excerpted from Robert Ludwig’s article, © 2017 All rights reserved. For further information, contact Mr. Ludwig at rludwig@ludwigrobinson.com or 202-289-7603.

 

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