Judicial Decisions

Fraud. Daimler AG and multiple U.S. agencies agreed to a $1.5 billion settlement over the car manufacturer’s alleged diesel emissions fraud. Daimler, the parent company of automaker Mercedes-Benz USA LLC, also settled a separate consumer class action lawsuit for $700 million.

The settlements will affect 250,000 diesel vehicles throughout the United States, and the settlement for the class action lawsuit includes attorney fees and costs.

German motor vehicle regulator (KBA) found in 2019 that roughly 280,000 of Daimler’s vehicles—specifically the Mercedes-Benz C-class and E-class machines—had software that allowed them to manipulate and cheat emissions tests. Daimler recalled almost 800,000 diesel vehicles and in 2019 was ordered to pay an €870 million ($1 billion) fine in a settlement with German prosecutors.

For the settlement of the customer class action lawsuit, Daimler also estimates that a three-digit million-euro amount will fulfill the agreement’s requirements. Individual current owners and lessees could receive up to €2,792 ($3,290), while former owners and lessees are eligible for payments of up to €698 ($822).

According to the settlement, the vehicles with the fraudulent emission control system software will be modified “to ensure that the vehicles meet the emissions standards to which they were originally certified.”

If the company does not meet certain criteria agreed to in the settlement, it could be forced to make additional payments. (U.S. v. Daimler AG, People of the State of California v. Daimler AG, U.S. District Court for the District of Columbia, Nos. 1:20-cv-2564 and 1:20-cv-2565, 2020)

Sick leave. A U.S. district court invalidated parts of a U.S. Department of Labor (DOL) rule on coronavirus-related emergency paid leave and emergency paid family and medical leave. The ruling from the federal court in New York expands eligibility for up to 12 weeks of emergency leave to more employees affected by the pandemic.

In April, New York state filed a lawsuit against the DOL, challenging parts of the department’s implementation of the Families First Coronavirus Response Act (FFCRA). A significant part of the challenge was that the department required that employees must have “work availability” to receive benefits.

The court noted that several businesses were at least slowed down or shut down because of state or local mandates ordering many people to stay home. The court ruled that although employees must still have a legitimate reason under the FFCRA for leave benefits, they remain eligible even if their employer has no work for them.

The court also invalidated the department’s definition of “health care provider,” its requirement of employer consent to intermittent leave, and the requirement that employees provide notice of leave prior to taking leave. (State of New York v. U.S. Department of Labor, et al., U.S. District Court for Southern District of New York, No. 1:20-cv-03020, 2020)

Legislation

Pakistan

Terrorism. To keep Pakistan off a global money laundering and terrorist financing watchdog blacklist, the country’s senate approved the United Nations Security Council Amendment Bill, 2020, and the Anti-Terrorism Act Amendment Bill, 2020.

The Paris-based Financial Action Task Force (FATF) placed Pakistan on its grey list in June 2018, dependent upon incorporating changes to the country’s legal stance against money laundering and providing financial assistance to terrorists. The FATF provided the country with a 27-point plan, which, if implemented by mid-October 2020, would keep Pakistan off a blacklist that includes North Korea and Iran.

Pakistan’s inclusion on the FATF’s grey list makes receiving financial assistance from the International Monetary Fund, World Bank, Asian Development Bank, and the European Union difficult. It also impacts Pakistan’s imports, exports, remittances, and ability to attract foreign investors.

Between 2018 and 2020, Pakistan met 14 of the FATF’s guidelines by working with the task force and the Asia/Pacific Group. The country’s commitment resulted in risk-based supervision and pursuit of domestic and international cooperation to identify cash couriers, according to the FATF.

The two bills would allow the government to freeze and seize assets, levy travel bans, and enforce arms embargoes on persons and groups on the United Nations sanctions list. Anyone facilitating militancy would face heavy fines and long prison sentences. Along with another five bills that were introduced in August, this collective legislation would address the remaining 13 criteria listed by the FATF.

Regulations

Ireland

Cyber fraud. The Central Bank of Ireland fined the Bank of Ireland for five data breaches, which resulted in a client and the bank losing more than €100,000 ($117,000).

The Central Bank—Ireland’s financial services regulator for most financial firms—issued an enforcement action notice against the Bank of Ireland and its governor for regulatory breaches. The regulator also levied a fine of more than €1.6 million ($1.9 million) for the breaches that allowed the loss and for misleading the Central Bank.

Regulators began investigating the Bank of Ireland in response to a cyber-fraud incident in 2014. An individual impersonated a client and convinced the bank’s former subsidiary, Bank of Ireland Private Banking (BOIPB), to pay a third-party account a total of €106,430 ($125,000).

During the investigation, the Central Bank found that BOIPB’s practices for third-party payments had “serious deficiencies…including inadequate systems and controls to minimize the risk of loss from fraud; inadequate governance, oversight, and ongoing review of the systems and control environment; lack of staff training and a culture in which fulfilling clients’ instructions was given primacy over security and regulatory requirements; and lack of compliance monitoring,” according to a press release from the Central Bank.

BOIPB did not report the incident to Ireland’s national police service, An Garda Síochána, until more than a year later—and then only after the Central Bank requested information on the incident and insisted that law enforcement be alerted. Along with keeping this information from the regulator, BOIPB also denied the existence of any problems during the regulatory investigation.

The Central Bank also found it took BOIPB an excessive amount of time to remediate its deficiencies. Financial remediation to the client occurred 17 months after the incident and after the regulator intervened.

United States

Discrimination. After a two-year investigation, the U.S. Department of Justice (DOJ) determined that Yale University violated civil rights law by discriminating against Asian American and white undergraduate applicants during the admissions stage.

“The Department of Justice found Yale discriminates based on race and national origin in its undergraduate admissions process, and that race is the determinative factor in hundreds of admissions decisions each year,” the DOJ said in a press release.

“Yale uses race at multiple steps of its admissions process resulting in a multiplied effect of race on an applicant’s likelihood of admission, and Yale racially balances its classes,” the department added.

The DOJ’s investigation included a review of files related to the university’s undergraduate admissions process, admissions data, and interviews with admissions personnel.

“Yale’s use of race appears to be standardless, and Yale does virtually nothing to cabin, limit, or define its use of race during the Yale College admissions process,” the department’s notice letter said.

The DOJ said that unless the university corrected its practices in time for the 2020–2021 undergraduate admissions process, it would file a lawsuit against the school. Yale is accountable to the department’s Title VI enforcement of the Civil Rights Act, an antidiscrimination mandate, because it receives federal financial assistance from the DOJ.

Yale President Peter Salovey denied the allegations, explaining in a letter that the DOJ concluded its investigation prior to reviewing and receiving all the information it requested from the university.

“Yale College will not change its admissions process in response to today’s letter because the DOJ is seeking to impose a standard that is inconsistent with existing law,” Salovey added. “We will continue to create a student body that is rich in a diverse range of ideas, expertise, and experiences. Such a student body greatly enhances students’ academic experiences and maximizes their future success.” (Re: Notice of Violation of Title VI of the Civil Rights Act of 1964, U.S. Department of Justice, No. 169-14-30, 2020)

Elsewhere in the courts

Fraud. Global fast food chain McDonald’s filed a lawsuit against its former CEO, Steve Easterbrook, accusing him of behavior ranging from misleading the company to fraud. In 2019, Easterbrook was fired for engaging in an inappropriate relationship with an employee. He received a severance package of roughly $42 million in cash and stock awards. After receiving an anonymous tip in July 2020, McDonald’s opened a new investigation that found Easterbrook concealed evidence of multiple relationships and his approval of “an extraordinary stock grant, worth hundreds of thousands of dollars,” for an employee during their sexual relationship, according to the lawsuit. The company has asked the court to order Easterbrook to fully repay his severance package. Easterbrook’s attorneys claim the company was already aware of the other relationships when the severance agreement was negotiated. (McDonald’s Corporation v. Stephen J. Easterbrook, Court of Chancery of the State of Delaware, No. 2020-0658, 2020)

Negligence. A California appellate court upheld a ruling in favor of the parents of a man who died from methamphetamine intoxication while in custody of the California Highway Patrol. John Cornejo’s family was awarded $645,000 in damages after the court decided that the arresting officers should have taken Cornejo to a hospital instead of jail because they saw evidence and suspected him of swallowing drugs. “Once in custody, an arrestee is vulnerable, dependent, subject to the control of the officer and unable to attend to his or her own medical needs,” the judge wrote. “Due to this special relationship, the officer owes a duty of reasonable care to the arrestee.” (Yolanda Frausto et al. v. Department of the California Highway Patrol et al., California First Appellate District Court, No. A156552, 2020)

Corruption. A U.S. district judge sentenced Margaret Hunter, wife of former California Representative Duncan Hunter, to home confinement for eight months, plus three years of probation, for her involvement in a corruption case. Margaret Hunter pled guilty to misappropriation of more than $150,000 in campaign funds while working for her husband. She testified against him, and both Hunters admitted in plea agreements to making more than $200,000 in illegal transactions. Duncan Hunter was sentenced in March to an 11-month prison sentence. (United States v. Margaret Hunter, U.S. District Court for Southern District of California, No. 18-cr-03677-W, 2020)