Cybersecurity
Michael Hellbusch
Partner
Rutan & Tucker
A key issue in cybersecurity? Uncertainty.
It’s apparent there’s no consensus for what California Consumer Privacy Act compliance looks like. The new law involves online consumer data collection. Our clients want to comply, but the state seems to move the goal post at every turn. They’re even more concerned about an uncertain regulatory landscape without a comprehensive federal privacy law, a regulatory regime that will remain unsettled for the foreseeable future.
Our approach has been to counsel from a place of tried-and-true privacy program fundamentals and common sense. We caution clients to err on the side of transparency, balanced by managing consumer expectations.
Overall, we’re building technological expertise to assist with privacy and cybersecurity. Lawyers have expertise in the law but operational compliance at a business level requires more, so we’re bulking up on technical and industry know-how, as it relates, for instance, to ad tech.
We focus on understanding the technology that drives data collection, processing and security, supplementing legal institutional knowledge. Clients don’t always understand the technology leveraged on their behalf and how it affects their legal risk. Laws like CCPA are enacted with those technologies in mind, so we make it a point to understand that part of it, and the impact it has on privacy compliance.
Ronald Raether Jr.
Partner
Troutman Sanders
With CCPA in effect, companies must address several important issues, down to the level of defining terms. But only one requirement creates an immediate litigation risk: data breaches.
We’re educating clients on the increased risk of data breach class action litigation—and how businesses should prepare.
Most such class actions filed so far involve negligence or breach of contract—both of which require plaintiffs to prove actual damages. CCPA tries to change this by allowing actions for statutory damages even if the consumer hasn’t suffered any damages as a result of the breach, incentivizing plaintiffs to file actions to test the law’s limits.
But before consumers bring an action for statutory damages under CCPA, they must notify the business and identify violations. If businesses can cure violations within 30 days, with required documentation and statements, statutory damages aren’t available.
Businesses trying to mitigate data breach litigation risk must prepare in advance. Carefully consider what’s in your data breach notice and any express written statements. It’s not a “check-the-box” exercise—as many companies still treat it. Indeed, proper incident response before, during and after is critical. Plan, and test the plan.
Accordingly, law firms need to reconsider their approach to incident response and have a thorough understanding of the risks presented by CCPA before guiding clients. Clients should, for instance, consistently communicate their full range of security procedures. If heightened data security procedures are needed after an incident, companies must be careful how they address the cause of the breach in notification letters and public statements.
Companies began to be required to provide data breach notices at least 15 years ago; experienced counsel have been able since then to shape how such laws have evolved and anticipate how changing requirements affect clients—then help them better prepare.
IP/Tech
Salil Bali
Shareholder
Stradling Yocca Carlson & Rauth
We’ve noticed increased interest in protecting technology. Our firm has historically helped early phase and startup firms in Orange County, including technology and medical device makers, and they were always conscious of how important their intellectual property was.
Now, this awareness has begun to permeate established companies, as well as lifestyle startups where IP previously seemed to be an afterthought. Established industries are waking up to its importance in keeping a competitive edge and market dominance. These formerly sleeping giants are seeking new strategies for expanding and securing their IP.
This has been a fun and interesting challenge, as it often takes handholding to help designers and product developers recognize the protectable aspects of their work. I can’t point to a single event that has caused this uptick, but over the last several years as the region has become more of a technology epicenter, clients are realizing how important these changes are to the longevity of their businesses.
Firms practicing in this area generally are grappling the most right now with emerging business sectors: green tech, cannabis, data protection, and disruptive technologies are vastly complicated and rapidly developing areas. Orange County clients need resources.
Stradling has launched new practice groups focused on helping clients get ready and compliant on consumer privacy, as well as blockchain technology, for instance. We’re also guiding clients entering enterprises involving cannabis. It seems law firms here are deciding whether to be involved in these new sectors and if so, which ones—and how do they want to get involved, as all have significant hurdles to building a practice group.
Kevin McBride
Partner
Akin Gump Strauss Hauer & Feld
Our largest OC clients are importers of electronics products made in China. Two of the most important issues facing them are trade tariffs and standard essential patent, or SEP licensing. Risks and costs are difficult to forecast for both areas, and both require specialized legal expertise to handle correctly.
Two such clients last year faced significant sanction issues and possible tariffs of 10% to 25% on all China-made products within very short timeframes. We supplemented our local capabilities with partners from the Washington, D.C. office who have significant experience with international trade and policy issues. One was chief counsel on China enforcement for the U.S. Trade Representative; another worked on finance issues with the Republican National Committee. We were able to educate OC clients on tariff issues, prepare petitions seeking to eliminate tariffs on key product categories, while helping clients create plans to deal with potential future levies. The work required dealing with specific importation and trade questions and effectively dealt with them.
With SEPs, many of the products our clients import rely on widely accepted standards for operation. Patent owners holding IP essential to such standards often require firms to pay for licensing or face litigation. The SEP owners are typically—but not always—required to license their patents on fair, reasonable and non-discriminatory (FRAND) terms.
FRAND licenses can vary widely in royalty rates and other terms and it can even be hard to predict the number of licenses a client may ultimately have to take for any given standard(s) that apply. Thus, they often face significant challenges in negotiation, uncertain costs, and so on.
A burgeoning area for this is the adoption and development of products and services based on 5G communications technology, where companies’ involvement in SEP licensing is only going to grow. Once again, a specialized area requiring particular IP expertise from attorneys to represent clients well, as those companies deal with complicated patent licensing issues.
Employment
Marie DiSante
Managing Partner
Carothers DiSante & Freudenberger
By far the most significant issue OC employers face today is classification of workers as independent contractors. Nearly every employer needs the services of workers classified as independent contractors; some have based their entire business model on this structure.
Since the passage of AB5, it’s implemented three questions—the “ABC test”—for worker classification; nearly every California employer has had to reassess the classification of some, sometimes many of their workers: employees vs. independent contractors. Misclassification claims are up significantly. Private lawsuits are up. Governmental audits are up too, originating from taxing authorities and labor-related agencies including Division of Labor Standards Enforcement, Workers’ Compensation Appeals Board, and Employment Development Department.
Potential financial downsides to employers for misclassification have never been higher; the same goes for the odds of facing such a claim. Nearly every employer is grappling with how to assess potential liability—and balance that liability with impact on business operations. Without question, this issue is keeping business owners and business leaders in every industry awake at night.
More generally, we’ve seen law firms with prominent employment law practices face public criticism for using employment arbitration agreements, just as employers do in nearly every other industry, especially when those agreements cover harassment. Such agreements long have been used as a potentially more efficient and cost-effective method of resolving disputes. They provide employers an added benefit of an enforceable class action waiver provision, which can significantly reduce employers’ exposure to employment-based class actions.
Following the “Me Too/Times Up” movement, arbitration agreements have been portrayed in the media as a tool allowing the perpetuation of discriminatory and harassing workplace conduct. In response, some employers have abandoned the use of arbitration agreements, or have accepted harassment claims from their scope.
Some law firms have followed suit after significant backlash when recruiting on law school campuses. Our firm has never used arbitration agreements for employees, so we have not had to grapple with these issues but for law firms that do, it’s significant, especially in today’s tight job market.
James McDonald Jr.
Office Managing Partner
Fisher & Phillips
The most significant trend in employment law in Southern California remains wage and hour class actions and PAGA (Private Attorneys General Act) lawsuits alleging wage and hour violations. Even small and medium-sized businesses are being hit, often for technical violations of which they were not aware.
Recent cases involve “off-the-clock” work—the few minutes employees spend between when they arrive at work and they clock in, and between the time they clock out and physically leave the premises. The California Supreme Court held Starbucks managers’ final store-closing duties must be compensated, and Apple Inc. employees must be paid for time spent having their personal bags, packages and cellphones checked when they leave work.
These rulings will likely trigger a new wave of lawsuits over uncompensated time. Unfortunately for employers, most court rulings in this area are deemed retroactive, even when the courts make new law or reverse prior case law. Employers are sued for violating law they did not know existed.
In response, most employment law firms are working with clients to prevent future exposure. A thorough audit of a business’ payroll, timekeeping, meal and rest break practices, use of outside contractors, and HR policies conducted by counsel under the attorney-client privilege can find areas of non-compliance and get them fixed before a plaintiff’s lawyer discovers them. We’re also encouraging our clients to require employees to sign arbitration agreements containing class action waivers. These agreements are still lawful and enforceable and can stop a class action lawsuit dead in its tracks. It is one of the most important protective steps an employer can take.
Finally, should a client be hit with a one of these suits, our approach is to do an early assessment of liability and try to get the case resolved in mediation before both sides run up big legal bills. The old approach to class actions was immediately to conduct “declaration drives”—taking sworn statements from as many workers as possible and then litigating over class certification. There are still cases where this approach is necessary, but a growing number of cases can be resolved more efficiently and economically.
Healthcare
Brock Laney
Associate
O’Melveny & Myers
The healthcare industry is governed by a variety of statutes and regulations. In addition to these formal legal requirements, government agencies have also issued numerous informal guidance documents that address many details of the daily operations of healthcare programs. For example, these guidance documents may provide general information about government programs, instructions for submitting data to the government, or suggestions for effective compliance programs.
In January 2018, then-Associate Attorney General Rachel Brand of the Department of Justice (DOJ) issued a memorandum stating that under the Administrative Procedure Act, the informal guidance documents published by most agencies, “cannot create binding requirements that do not already exist by statute or regulation” and that the DOJ “may not use its enforcement authority to effectively convert agency guidance documents into binding rules.”
The U.S. Supreme Court recently reinforced this principle in June 2019, when it invalidated an informal policy posted by a government agency to its website because the policy altered a “substantive legal standard” affecting Medicare payments without going through the Medicare Act’s required notice-and-comment process, which is a process that permits commentary on proposed rules before they are implemented. See Azar v. Allina Health Services.
In October 2019, the Centers for Medicare and Medicaid Services (CMS) circulated a memorandum discussing the impact of Allina. Kelly Cleary and Brenna Jenny, counsel for CMS, acknowledged in a memorandum—commonly called the Cleary-Jenny memo—that while CMS’ informal guidance may inform an existing statutory or regulatory requirement, that guidance “may not be used as the sole basis for an enforcement action,” because to do so would violate the ruling in Allina.
DOJ has recently identified healthcare enforcement as a key priority. Last month, for instance, Assistant Attorney General Jody Hunt spoke at an annual conference focused on whistleblower lawsuits and identified three enforcement priorities related to healthcare: elder treatment in nursing homes, electronic health records usage, and Medicare Advantage data submissions. But the DOJ’s aggressive enforcement posture is in tension with the paucity of formal rules published by the relevant regulating agencies. CMS, for instance, primarily publishes informal guidance about the Medicare Advantage program online instead of issuing formal rules through the notice-and-comment process.
As the government seeks to follow through on its healthcare enforcement priorities, an important development will be how all parties, including courts, find a place for informal guidance against the backdrop of Allina and the DOJ and CMS memoranda.
Erika Mayshar
Partner
McDermott Will & Emery
We’re currently involved in several areas.
Emergency preparedness: coronavirus headlines have provided a constant and important reminder of the need for businesses to plan for emergencies. Since 2017, the Centers for Medicare and Medicaid Services (CMS) has required Medicare- and Medicaid-enrolled providers and suppliers to develop, update and drill on emergency preparedness measures. Recent CMS guidance regarding emerging infectious diseases combined with pressure on Orange County healthcare providers responding to COVID-19 means our attorneys are regularly counseling clients to update and strengthen their preparedness plans.
Evolving innovation centers: hospitals and health systems are a hub for research and development and lately have been transforming and centralizing innovation efforts to capitalize on opportunities and accelerate new products and services. Orange County in particular, given its breadth and depth of local talent in technology and life sciences, is poised for growth in this. Such innovation centers can further an organization’s mission and generate opportunities outside core business lines. We’ve developed a cross-disciplinary team to counsel clients on these ventures from governance, financial, strategic and cultural perspectives, in addition to vetting complex legal and regulatory issues.
Privacy: consumer privacy regulation coupled with medical confidentiality laws enhance the rights of California residents, and create significant operational requirements for a long list of regulated entities. Healthcare providers, insurers, contractors, medical records businesses and other recipients of medical information must evaluate how these sweeping new laws affect their operations.
Real Estate
Paul Tetzloff
Managing Partner
Newmeyer Dillion
OC real estate law firms have been busy on not one, but two rounds of revisions to Opportunity Zone regulations created in 2017. Firms are becoming subject area experts on this complex program:
There are 8,700 Opportunity Zones in the U.S. and its territories—Puerto Rico, for instance, is an OZ. Through the program, investors create a “qualified opportunity fund.” Any funds invested in the QOF must be subject to capital gains but there is no “like kind” requirement as in 1031 exchanges. This means investors selling publicly traded stock, real estate, art, cars, or even their own business can deposit proceeds into a QOF and receive tax benefits.
Tax benefits include deferring federal capital gains taxes owed on the liquidated assets until 2026; a 10% stepped-up basis on those capital gains if held until 2026; and capital gain tax-free growth on the investment.
Business in opportunity zones and satisfying the minimum requirements don’t have to be real estate developments. Many startups, for instance, can take advantage of this program by setting up their headquarters and generating more than half of their revenue from sites in the OZ.
A third round of guidance emerged in December and expanded the ways an OZ project can qualify for the benefits through brownfield restoration. If the site includes one and it’s remediated to the minimum standards of its intended use, it will satisfy “original use” designations, possibly even absent other improvements.
There are 24 OZs in OC and thousands nationally available to local businesses—an abundance of ways for creative deal-making to unlock the program’s benefits.
Corporate
Michael Flynn
OC Partner in Charge
Gibson, Dunn & Crutcher
The Southern California corporate deal climate has enjoyed several strong years and we expect that to continue. We serve public and private companies, from Fortune 100 and multinational corporations to middle-market local firms.
Regardless of size, location and industry, our clients have taken advantage of the strong economy to move on a variety of transactions. Over the last several years, M&A activity has been high, private equity funds extremely active and capital raises popular among our clients in Orange County and across the country.
While we expect continued robust deal activity through the rest of the year, we’re entering a period of uncertainty typical of an election year. Volatility comes when there’s uncertainty how election results can affect the economy. We’ve also heard concerns about how the coronavirus will affect the economy, depending on how governmental leaders manage the outbreak.
Internal to the firm, Gibson Dunn has focused on fostering wellness and work-life balance, cultivating a supportive environment for all personnel. Employees are encouraged to envision what wellness means for them and take steps to realize that, supported by the firm and their colleagues. The legal industry in particular focuses on alleviating the stress and pressure that comes with practicing law. We want to improve the lives of our attorneys and staff through new and current resources that we hope helps them in their day-to-day lives and with long-term professional and personal goals.
Litigation
Edward Susolik
Shareholder, VP
Callahan & Blaine
The biggest issue our clients deal with is the rising costs of business litigation, especially given the current legal landscape in California. To that end, we find many Orange County companies are hiring smaller boutique litigation law firms to handle litigation needs, as opposed to using the standard multinational law firm with satellite Orange County offices.
There are many reasons for this, including the fact that boutique firms are more efficient and cost effective, with only highly experienced lawyers and no junior associates working on cases. Boutique litigation firms are also more experienced in “real world” trial and litigation skills and obtain better results in court and litigation, in general.
For example, one can be hard-pressed to find even partners at large law firms who have conducted real jury trials. Most of the attorneys at our firm have trial and arbitration experience and we can translate that into litigation success for our business clients.
In fact, for 35 years our approach of using seasoned trial lawyers and experienced senior litigators has produced hundreds of judicial victories for our clients. At the same time, we bring these victories home in a much more focused and economical manner, so our clients truly have accomplished their economic goals in winning litigation.
Two growing areas of law in Orange County in recent years have been and continue to be litigation in employment and in real estate. As the local economy continues to prosper and grow, both of those areas will continue to expand in 2020. For example, there has been an epidemic of class action lawsuits against businesses all over California that focus on violations of wage and hour laws, overtime and break claims and Private Attorneys General Act or PAGA claims.
There are certain to be even more with the recent passage of AB5, which severally limits the independent contractor model in California. Law firms that represent companies and have expertise in these areas, especially if they have trial and litigation experience, will continue to be extremely busy. Moreover, many successful law firms that have been focusing their marketing, recruiting and development in these areas will continue to expand in 2020.
