Legal Report August 2010

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U.S. JUDICIAL DECISIONS

Supreme Court Update

The Court has ended its 2009-2010 session. The following opinions are relevant to security; they address privacy, fraud, terrorism, gun control, and the constitutionality of Sarbanes-Oxley.

PRIVACY. The Court has ruled that a police department did not violate the constitutional rights of police officers when it read through their text messages. The review of the text messages did not violate the Fourth Amendment, according to the ruling, because it was undertaken for work-related purposes and was not excessive in scope. The Court declined to rule on whether the officers had an expectation of privacy.

The City of Ontario, California, provided a wireless text-messaging service for its officers. The city did not write a specific text-messaging policy but instead referred to its existing policy, which stated that all city-owned computers and electronic devices were to be used for city business only. The use of such equipment for personal reasons was explicitly prohibited. City officials noted that text messages were considered e-mail and were, therefore, public information and would be subject to auditing by the city.

Each text-messaging account was limited to 25,000 characters a month. After an account reached this limit, the city was required to pay additional charges. Officers were told that they had to pay the overages and that, if deemed necessary, the city would audit the accounts to ensure that all the correspondence was work related.

One of the officers, Jeff Quon, regularly exceeded the character limit for his account. Quon paid for the overages each time. Because of the frequency and amount of the overages, the department decided to audit the transcripts of the accounts to determine whether the messages were work related. If all of the texts were used for city business, the police reasoned, the department needed to consider increasing the amount of characters allowed per person.

The city found that Quon had exceeded his monthly allotment by an average of 15,000 characters. The chief turned the transcripts of Quon’s texts over to internal affairs, which launched its own investigation. Internal affairs found that Quon frequently sent personal messages to his wife and to his girlfriend. These messages were often sexually explicit.

Quon, his wife, and his girlfriend sued the city claiming that it had violated their Fourth Amendment right to be free from unreasonable search and seizure. Quon argued that he had an expectation of privacy in sending and receiving the text messages. The city argued that its policy regarding employee use of city equipment made it clear that employees had no expectation of privacy when using city

computer systems.

The Court found that the police department  did not violate Quon’s Fourth Amendment rights because the department read the text messages for noninvestigatory, work-related purposes. The Court noted that the department sought to ensure that officers were not being forced to pay for work-related texts and the department was not footing the bill for personal communications. In the written opinion of the case, the Court ruled that “reviewing the transcripts was an efficient and expedient way to determine whether either of these factors caused Quon’s overages.”

The Court did not rule on whether Quon had an expectation of privacy. Instead, the Court noted that even assuming that a right to privacy existed in the case, the search was still reasonable under the law. The Court cautioned about reading too much into its privacy discussion. (City of Ontario v. Quon, U.S. Supreme Court, No. 08-1332, 2010)

FRAUD. The Court ruled that a lower court must reexamine the fraud conviction of former Enron executive Jeffrey Skilling.

Prosecutors had convicted Skilling under a portion of the mail-fraud statute that makes it illegal to deprive someone of “honest services.” The honest services law was meant to tackle fraud cases in which no party suffered a loss. The idea behind the law was that certain actions—a government official colluding to give a contract to a favored constituent, for example—are still illegal even if the government receives fair terms on that service. However, the law does not set out exactly what sort of actions are illegal under the honest services theory.

In appealing his conviction under the honest services theory, Skilling argued that he could not be convicted under the statute because it did not clearly state that his actions were illegal. The Court agreed with Skilling. It ruled that because most cases under the honest services doctrine involved bribes and kickbacks, the law should be construed as applying only to bribes and kickbacks. Thus Skilling’s conviction on that count must be thrown out, ruled the Court. This did not invalidate the government’s entire case against Skilling, however. The Court ruled that the conviction, including counts of fraud and conspiracy, can be reexamined by a lower court. (Skilling v. United States, U.S. Supreme Court, 08-1394, 2010)

TERRORISM. The Court has ruled that a law prohibiting “material support” to terrorist organizations is constitutional and that it is permissible to ban any support to such groups—including humanitarian support—because all support is tantamount to promoting terrorism.

The case was brought by groups providing aid to organizations that do humanitarian work but are also designated as “foreign terrorist organizations” by the United States for their numerous terrorist attacks.

The plaintiffs claim that they want to support the peaceful activities of the terrorist organizations. Specifically, they want to train members of these groups to use international law to resolve disputes peacefully and petition the United Nations. However, under federal law, it is a crime to knowingly provide material support or resources to a foreign terrorist organization. The types of support prohibited by the law include “training,” “expert advice,” “service,” and providing “personnel.” The U.S. government contends that the plaintiffs’ activities fall under the prohibited areas and are illegal. The plaintiffs argue that the law violates the U.S. Constitution, in part because it impinges on First Amendment rights to freedom of speech and association.

In its ruling, the Court determined that the law does not violate the First Amendment because it does not impede protected political speech. The Court also noted that it would be impossible to separate funds or activities designated for humanitarian purposes from those furthering terrorist action. (Holder v. Humanitarian Law Project, U.S. Supreme Court, No. 08-1498, 2010)

GUN CONTROL. In an opinion on the constitutionality of a Chicago handgun ban, the Court noted that owning firearms is a “fundamental” right. The Court ordered a lower court to reexamine the ban in that context. However, the Court did not make a decision on the constitutionality of the law, nor did it give the lower jurisdiction guidance on how to interpret similar laws. (McDonald v. City of Chicago, U.S. Supreme Court, No. 08-1521, 2010)

SARBANES-OXLEY. The Court has upheld most of the Sarbanes-Oxley Act of 2002, enacted in response to the accounting scandals at Enron and other companies. However, the Court did overturn part of the law that required that members of the Public Company Accounting Oversight Board, established to monitor accounting firms, be fired only for “cause.” The Court said that the board members may be fired at will. (Free Enterprise Fund v. Public Company Accounting Oversight Board, U.S. Supreme Court, 08- 061, 2010)

U.S. CONGRESSIONAL LEGISLATION

BACKGROUND SCREENING. The House Financial Services Committee’s Subcommittee on Financial Institutions and Consumer Credit held a hearing to consider H.R. 3149, which would amend the Fair Credit Reporting Act (FCRA) to prohibit a current or prospective employer from using credit reports to make employment decisions such as hiring, firing, or promotion. Witnesses who spoke in support of the rights of employers to use such reports argued that the information is not used in a vacuum but is among the many tools companies use to make good hiring decisions. Opponents contended that credit scores are often inaccurate and have not been conclusively linked to inappropriate workplace behaviors, such as theft.

One witness, Stuart Pratt of the Consumer Data Industry Association in Washington, D.C., argued that credit checks are helpful in thwarting employee theft. He quoted a study from the Association of Certified Fraud Examiners, which analyzed 959 cases of occupational fraud perpetrated between 2006 and 2008. The study found that the top two predictors of employee theft were living beyond one’s means (found in 39 percent of cases with a median loss of $250,000) and experiencing financial difficulties (found in 34 percent of cases with a median loss of $111,000).

Chi Chi Wu, staff attorney with the National Consumer Law Center in Boston, Massachusetts, disagreed with the idea that credit checks can predict employee theft. She noted that the only study to directly measure the connection between weak credit and employee misconduct was Further Investigation of Credit History as a Predictor of Employee Turnover, which was released in a presentation to the American Psychological Society in 2003. The study found no correlation between credit history and job performance, according to Wu.

Wu also told the committee that the underlying hypothesis behind the use of credit checks is flawed. “Credit reports were designed to predict the likelihood that a consumer will make payments on a loan, not whether he would steal or behave irresponsibly in the workplace,” she said.

Another witness, Anne Fortney of Hudson Cook, LLP, told the subcommittee that the original purpose of credit checks was irrelevant. Even if credit checks were not designed for preemployment screening purposes, she said, employers should be able to include credit checks as one of many tools available to help employers select the right candidate for a job.

Fortney also noted that safeguards are already in place under existing law. The FCRA requires that employers notify the employee or applicant of any negative credit information and provide the opportunity to correct such information before an employment decision is made.

Witnesses who oppose the use of credit reports say that one problem is their inaccuracy. Even in light of the FCRA notification requirement, errors are too widespread and often difficult to correct, alleged Wu. She cited an ongoing series of reports by the Federal Trade Commission that has found errors on 12 to 37 percent of credit reports.

Lawmakers were especially concerned with how people who have a poor credit history only because of delinquent medical payments can be adversely affected when a company uses credit reports to select job candidates. Though some witnesses disputed the idea that medical debt was different from other types of debt, others contended that medical debt does not represent bad decision making in the way that credit card debt, for example, does, and it should not, therefore, be considered in employment decisions.

Mark Rukavina of The Access Project, a nonprofit institute researching access to healthcare, noted that lenders often disregard medical debt when determining whether a borrower is a good credit risk. “If other accounts are current, a medical debt or outstanding medical bill is not a good predictor of creditworthiness,” he said.

Lawmakers also noted the circular reasoning of relying on credit history in determining employability. “The current system facilitates the denial of employment to those who have bad debt, even though bad debt oftentimes results from the denial of employment,” say Congressman Luis V. Gutierrez, chairman of the subcommittee. Wu agreed. “Using credit history, especially in an economy with such massive numbers of job losses as the current one, creates a grotesque conundrum,” she said. “Simply put, a worker who loses her job is likely to fall behind paying her bills due to a lack of income… this worker now finds herself shut out of the job market because she’s behind on her bills.”

H.R. 3149 has 53 cosponsors and remains in the House Financial Services Committee’s Subcommittee on Financial Institutions and Consumer Credit. Action on the issue has also been seen on the state level. Eighteen states and the District of Columbia have introduced legislation to outlaw or limit the use of credit checks for employment purposes.

CRIME. A bill (S. 1684) that would require that local law enforcement collect information on convicted arsonists and bombers similar to that currently collected on sex offenders has been approved by the Senate Judiciary Committee.

Under the bill, a convicted arsonist or bomber would have to register in each jurisdiction in which he or she lives, is employed, or is a student. The registry would be available on the Internet. Grants would be established to localities to mitigate the costs of setting up the registry.

A companion bill, H.R. 1727, is currently pending in the House Judiciary Committee.

CRUISE SHIP SECURITY. A bill (H.R. 3360) that would enhance security aboard cruise ships has been approved by the Senate. Because of discrepancies between the House and Senate versions of the bill, the differences must be reconciled in conference committee.

Both versions of the bill would require that each stateroom on cruise ships be equipped with security latches and electronic keys that would be able to provide times and dates of entries. Ships would also be required to install and maintain a video surveillance system and provide information from that surveillance to law enforcement upon request. Cruise ship owners would be required to establish and enforce policies on crew-member access to passenger rooms.

In both the House and Senate versions of H.R. 3360, ships would be required to maintain rape kits and ensure that medical staff members be trained to administer such kits and treat assault victims. Security personnel and the crew would be trained to detect and preserve evidence from any crime that occurs on board the ship.

Ship owners would be required to track incidents of rape and other crimes reported on board and keep a log of those crimes. The log would be available to the FBI, the U.S. Coast Guard, and any law enforcement officer investigating a reported crime. If a serious crime—homicide, suspicious death, missing persons, kidnapping, or assault—occurred on board, ship operators would be required to report the incident to the nearest FBI field office immediately. The government would be required to keep statistics on crime aboard cruise ships. This information would be available via a dedicated Web site that would be updated quarterly. Crimes would be listed by cruise line, including information regarding whether the crime in question was committed by a passenger or a crew member. Cruise lines would be required to include a link to the Web site from their home pages.

The House version of the bill would require that the U.S. Coast Guard conduct a study and recommend appropriate levels of security on passenger vessels. The study would take into consideration the number of passengers aboard the ships, the number of crew members, the working conditions, and the length of the voyages. The Senate version does not include this measure.

The Senate version of the bill would require that the owner of a cruise ship provide a “security guide” to each passenger. This guide would provide information on how to contact medical and security personnel in case of criminal or medical situations. The guide would also set out how passengers can pursue criminal matters through local law enforcement. In the Senate version, cruise lines would have to post, in each passenger room and in public areas, a list of the locations of U.S. embassies and consulates for each country the vessel will visit during the voyage.

COMMUNICATIONS. A bill (H.R. 1258) would make it illegal to cause any caller ID service to transmit misleading or inaccurate caller identification, known as “spoofing,” with intent to defraud or deceive. The bill has been approved by the House of Representatives. The Senate has announced that it will consider the bill.

DISASTER MANAGEMENT. A bill (S. 3249) that would renew a grant program designed to help state and local governments prepare for disasters has been approved by the Senate Homeland Security and Governmental Affairs Committee. To proceed, the measure must now be taken up by the full Senate.

The competitive grant program would provide grants to state and local governments for projects that mitigate damage from natural disasters such as hurricanes and floods. A 2007 study of the program by the Congressional Budget Office found that the program is successful. For every $1 spent on the program, the federal government saved $3.

STATE LEGISLATION

Alabama

EMPLOYMENT. A new Alabama law (formerly H.B. 37) will allow the state superintendent of education to revoke the teaching certificate of any teacher convicted of felony sex offenses or sexual abuse of a child. Under the law, if such a conviction is overturned, the certificate will be reinstated and the local board of education may choose to return the teacher to his or her previous position. Even if the teacher is not rehired, he or she will receive back pay and benefits.

Oklahoma

RFID. Oklahoma’s governor has vetoed a bill (H.B. 2569) that would have prohibited the use of RFID technology in state drivers’ licenses or state identification cards. The bill would have outlawed RFID tags as well as “any type of RFID ink in any format or configuration.”

This column should not be construed as legal or legislative advice.