Antitrust Law

Algorithmic Prices and Industry Data Reporting under the Antitrust Microscope

By Barbara Sicalides and Mimi Diallo, Troutman, Pepper, Hamilton, Sanders, LLP

Federal and state antitrust enforcement agencies, as well as private plaintiffs, are actively investigating and challenging companies within the same industry using common pricing algorithms, along with the software vendors or the data analytics firms that provide pricing recommendations or industry reports related to pricing. The challenges are industry-agnostic, thus far covering algorithms used in multifamily rental housing, health insurance, and hotels, as well as agricultural data reporting.

Recently, a Nevada federal court dismissed a private class action alleging that several Las Vegas hotel operators violated Section 1 of the Sherman Act by agreeing to set hotel room prices using pricing algorithms from the same vendor. The latest decision contrasts with a federal court’s decision late last year in the multifamily rental cases, where the private plaintiffs’ allegations were allowed to proceed. The Las Vegas hotel operators’ decision also adds to the ongoing debate over algorithmic price fixing and whether, without more, antitrust law prohibits competitors from using the same price-related data reporting company or price recommendation software vendor.

The court’s dismissal hinged on several key findings.

  • The hotel operators had signed up for the pricing software services at different times, undermining the plaintiffs’ allegations of a coordinated effort to fix prices.
  • There was no evidence that the defendants had exchanged confidential information, which was inconsistent with the plaintiffs’ need to prove a concerted arrangement.
  • The defendants had not agreed to be bound by the software’s pricing recommendations, suggesting that they maintained independent control over their pricing decisions.

The Nevada court also rejected the plaintiffs’ theory that they “need not allege the exchange of non-public information” so long as the algorithmic pricing software was trained using machine learning on defendants’ nonpublic information. The court found that the rate information “exchanged” was instead publicly available and that the defendants often rejected the vendor’s algorithmic price recommendations, further suggesting that the hotel operators maintained independent control over their pricing decisions.

The Nevada court’s decision is unlikely to deter the Antitrust Division of the Department of Justice (DOJ) and the Federal Trade Commission (FTC) from their recent efforts to persuade courts that the existing antitrust laws are flexible enough to reach the independent decisions of competing firms to use a common price-related data or algorithm vendor. For example, the agencies have submitted statements of interest in support of class action plaintiffs in three separate lawsuits challenging the use of software to assist in pricing decisions.

Please see Business Law Today’s upcoming article on this topic for further information and analysis.

Banking Law

New York Department of Financial Services Issues Guidance on Customer Service Requirements for Virtual Currency

By Nicholas Corwin, Rachael Aspery, and Amy Greenwood-Field, McGlinchey Stafford PLLC

On May 30, 2024, the New York Department of Financial Services (“DFS”) published a press release and issued guidance to Virtual Currency Entities (“VCEs”) concerning the DFS’s expectations for the resolution of customer service requests and complaints (“Guidance”), which expands upon the current requirements found in 23 NYCCR 200.20. The Guidance builds upon the VOLT initiative, which is a series of measures including Vision, Operations, Leadership, and Technology processes that are being implemented in part to enhance DFS’s role as a leading regulator of virtual currency.

In connection with the Guidance, at a minimum, a VCE’s policies and procedures are expected to be updated so that they provide for the maintenance and monitoring of a phone number and either an email or chat-based communication function that individual customers can use to make requests and complaints. Customer communication must be monitored by properly trained human customer service representatives (“HCSRs”) during normal business hours. The Guidance expands upon existing regulatory requirements by adding that the phone number, email address, and chat function, as applicable, must also be clearly and conspicuously stated on a VCE’s website and any mobile application (“app”) used for virtual currency activities. Additionally, email addresses should use the same domain name as the VCE’s website URL, and the chat function, if applicable, should be available in languages appropriate to the VCE’s user base.

VCEs are further required to implement policies and procedures that address the process by which the VCE will resolve customer service requests and complaints in a timely and fair manner. While the Guidance does not specify what constitutes a “timely and fair manner,” it does emphasize the importance of keeping customers apprised of the status of their request or complaint and the provision of estimated timeframes for resolution. To do so, the recommended policies and procedures outlined in the Guidance suggest that VCEs should have HCSRs available to monitor, answer, and respond to customer complaints during a VCE’s normal business hours, and a specified timeframe where the VECs respond to complaints outside of normal business hours, both of which are determined by each VCE as appropriate to the nature of its business. The Guidance briefly touches on the use of AI for customer service purposes, stating that it should be made apparent to customers whenever they are using an AI tool and that customers should be able to escalate any request or complaint from an AI to an HCSR. Additionally, VCEs should provide for more general communications in regard to common issues through an FAQ that is readily accessible to customers and prospective customers without requiring logging into an account.

Further, the Guidance discusses the response and resolution monitoring policies and procedures that, in the DFS’s supervisory experience, are required to provide timely and fair customer service. These include tracking requests or complaints, analyzing the data, and soliciting customer satisfaction feedback. Beginning with the third quarter of 2024, during examinations and otherwise at the DFS’s request, VCEs will be required to provide a quarterly tabulation of the number of requests and complaints received via each communication method, the topic of such, and the average time from receipt to resolution. VCEs will also have to provide copies of updated customer service complaint policies and procedures to DFS. Additionally, the VCE’s normal business hours and the specified timeframes for responses to customer inquiries must also be provided. These documents must be made available for review by DFS starting November 1, 2024, and the records must be kept up-to-date and maintained for a period of at least seven years from the date of their creation as specified in 23 NYCRR 200.12.

Colorado DIDMCA Opt-Out Litigation: District Court Enjoins Colorado Attorney General and Administrator of Colorado Uniform Consumer Credit Code

By Rachael L. Aspery and Robert W. Savoie, McGlinchey Stafford PLLC

On June 18, 2024, in NAIB v. Weiser, the U.S. District Court for the District of Colorado granted the motion for preliminary injunction filed by plaintiffs—the National Association of Industrial Bankers (NAIB), American Financial Services Association (AFSA), and American Fintech Council (AFC) (collectively, “Trade Associations”)—against the Colorado Attorney General and Administrator of the Colorado Uniform Consumer Credit Code (Colorado), which challenges Colorado’s opt-out of Section 521 of the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA) and its interpretation of Colo. Rev. Stat. § 5-13-106, which was set to take effect on July 1, 2024. In June 2023, Colorado signed into law legislation exercising its right under Section 525 to opt out of DIDMCA, which it believes will require state-chartered banks and credit unions to adhere to Colorado laws regarding interest rate and fee limitations.

In a unique turn of events, the Federal Deposit Insurance Corporation (FDIC) filed an amicus curiae brief in support of Colorado’s position and asserted that loan transactions between parties in different states are made in the state where the borrower enters into the transaction, contradicting its long-standing position on this topic that loans are made in the state where the contractual choice-of-law and the location where certain nonministerial lending functions are performed. The American Bankers Association and Consumer Bankers Association also filed an amicus curiae brief in support of the Trade Associations and noted that the position the FDIC took was the first time it had ever argued that the loan is made where the borrower is located.

The preliminary injunction issued by the court in NAIB v. Weiser provides that Colorado is enjoined preliminarily from enforcing the rate and fee limitations “with respect to any loan made by the [Trade Associations’] members, to the extent the loan is not ‘made in’ Colorado and the applicable interest rate in Section 1831d(a) exceeds the rate that would otherwise be permitted.” The court found strong support in the interpretation of where a loan is “made” in the plain language of Section 521 when viewing the statutory scheme holistically and when coupled with the Federal Deposit Insurance Act and Title 12 of the United States Code, containing the National Bank Act.

While the court found that the requirements for a preliminary injunction were satisfied, it is certainly worth noting that if the Trade Associations were not granted the injunction, the products their members offer could no longer be offered to Colorado customers. Even if the Trade Association members were able to recover monetary damages from Colorado, the “loss of customers, loss of goodwill, and erosion of a competitive position in the marketplace are the types of intangible damages that may be incalculable, and for which a monetary award cannot be adequate compensation.”

Additionally, the court determined that the balance of the harms weighed in favor of the Trade Associations because national banks would be able to continue making consumer loans to Colorado residents irrespective of the interest rate and fee limitations under Colorado law and placing the Trade Associations’ members at a disadvantage. Further, the court determined that the public interest favors enjoining enforcement of “likely invalid provisions of state law.”

Colorado has thirty days to appeal the preliminary injunction, and an appeal is very likely. However, the outcome of such an appeal is uncertain.

For more information and analysis, please see Business Law Today’s forthcoming full-length article on this topic.

Consumer Finance Law

Fifth Circuit Keeps CFPB Late Fee Litigation in Texas

By Eric Mogilnicki and Tyler Smith, Covington & Burling LLP

On June 18, the Fifth Circuit Court of Appeals reversed the May 28 decision by District Court Judge Mark Pittman to transfer the Chamber of Commerce’s case challenging the Consumer Financial Protection Bureau (CFPB) late fee rule from Fort Worth, Texas, to the District Court for the District of Columbia.

This is the second time the Fifth Circuit has reversed the District Court’s effort to transfer the case, which is part of what the Fifth Circuit describes as a “byzantine procedural history.” As previously reported, Judge Pittman effectively denied industry groups’ bid for a preliminary injunction by granting a motion to transfer the case from the Northern District of Texas to the District of D.C. On appeal, the Fifth Circuit vacated the venue transfer order on the grounds that Plaintiffs’ appeal of the effective denial of the preliminary injunction had stripped the District Court of jurisdiction to issue the venue transfer order. The Fifth Circuit then remanded the case so that the District Court could rule on the merits of the motion for a preliminary injunction. In an order published on May 10, the District Court granted the preliminary injunction, basing its decision entirely on the Fifth Circuit’s 2022 opinion holding that the Bureau was unconstitutionally funded. On May 16, the Supreme Court overturned that Fifth Circuit opinion, holding that the Bureau’s funding mechanism was consistent with the Appropriations Clause. The District Court then issued its second transfer order.

While noting its “abiding respect for [their] district court colleague,” the Circuit Court’s three-judge panel found that Judge Pittman misapplied the controlling standard for deciding venue transfer questions. Applying those standards itself, the Fifth Circuit found that relevant private and public interests did not support transferring the case to D.C. For example, while the District Court considered the costs litigating the case in Texas would impose on lawyers based mostly in D.C., the Circuit Court held that its precedent foreclosed considering such costs. The Fifth Circuit also held that the District Court improperly determined that D.C. residents had a particularized interest in the litigation because the Late Fee Rule was promulgated there. As a result, the Circuit Court held that Judge Pittman abused his discretion and that there was not “good cause” to transfer the case to D.C. It then granted the Chamber of Commerce’s petition for a writ of mandamus and ordered Judge Pittman to vacate his May 28 order.

While this case may continue to have unexpected twists and turns, we’d note that the district court did call the remaining statutory claims “compelling” in its earlier order. 

CFPB Files Orders in Multiple Enforcement Actions

By Eric Mogilnicki and Tyler Smith, Covington & Burling LLP

The CFPB recently filed proposed or final orders against defendants in three separate enforcement actions:

  • On Monday, June 17, the Bureau filed a proposed order against James and Melissa Carnes “for hiding money” through a series of allegedly fraudulent transfers, and thereby preventing the Bureau from collecting on a 2015 judgement the Bureau obtained against James Carnes and his company, Integrity Advance. The 2015 judgement arose from the CFPB’s allegation that Integrity Advance, a short-term, online lender, misrepresented the cost of its loans and withdrew money from borrowers’ accounts without authorization. The order required Integrity Advance and CEO James Carnes to pay $38 million in restitution and imposed a $5 million penalty against Carnes. In April 2023, the Bureau filed a complaint against Carnes and his wife alleging that they fraudulently transferred $12.3 million through a series of revocable trusts to evade the order. The proposed order, if entered by the court, would require the Carneses to pay $7 million, with the remainder subject to suspension due to their demonstrated inability to pay more.
  • On June 18, the CFPB filed a complaint and proposed order against Freedom Mortgage Corporation, a nonbank mortgage originator, for allegedly filing inaccurate Home Mortgage Disclosure Act (“HMDA”) data to federal regulators in violation of HMDA and a 2019 Bureau consent order. According to the complaint, Freedom Mortgage’s HMDA data submissions contained widespread inaccuracies caused by weaknesses in the company’s compliance management system. If entered by the court, the proposed order would require Freedom Mortgage to prevent future HMDA violations by regularly auditing, testing, and correcting its HMDA data and pay a $3.95 million fine.
  • On June 18, the CFPB also entered into a consent order with Sutherland Global, two of its subsidiaries, and NOVAD Management Consulting (the “Companies”) for alleged systemic failures in the Companies’ reverse mortgage servicing operations. According to the order, the Companies were responsible for servicing reverse mortgages for upwards of 150,000 borrowers aged sixty-two or older on behalf of the Department of Housing and Urban Development. However, the Bureau found that the Companies’ customer service functions were inadequately staffed, which led to a series of consumer harms. For instance, the order alleges that the Companies did not answer borrowers’ calls and failed to respond to important borrower inquiries, which prevented borrowers from proving occupancy, obtaining loan payoff statements, and completing alternatives to foreclosure. The order also alleges that the Companies falsely sent “due and payable” letters informing borrowers that their reverse mortgages were due and must be paid within thirty days to avoid default, when no relevant trigger event had occurred. The order permanently bans Sutherland Global, one of its subsidiaries, and NOVAD from reverse mortgage servicing and imposes strict compliance requirements on Sutherland Global’s second subsidiary. It further bans NOVAD from advertising, marketing, promoting, offering, or selling reverse mortgages and requires Sutherland to pay a combined $16.5 million in consumer redress and civil penalties.

Chopra Offers Statements on Large Banks’ Living Wills, Proposed FDIC Rule to Amend Bank Resolution Plans

By Eric Mogilnicki and Tyler Smith, Covington & Burling LLP

On June 20 and 21, CFPB Director Rohit Chopra, in his capacity as a member of the FDIC’s Board of Directors, offered remarks on two FDIC matters regarding any wind-down of a large financial institution:

  • First, Chopra offered a statement in support of a final FDIC rule enhancing requirements for the resolution plans of financial institutions with $50 billion or more in assets. The final rule will require banks with $100 billion or more in assets to submit comprehensive resolution plans to support the FDIC’s ability to oversee a resolution in the event of the banks’ failure. The final rule will impose less stringent requirements on banks with total assets between $50 billion and $100 billion. In a statement on the rule, Chopra noted that facilitating a merger can be difficult when a very large bank fails, and that resolution plans submitted pursuant to the amended rule “will help the FDIC pursue other strategies, such as breaking up a failed bank into valuable components and selling it to multiple buyers or spinning the failed bank back out into private hands through an initial public offering or other transaction.”
  • Director Chopra also offered a statement criticizing the so-called “living wills” certain large financial institutions submitted for 2023. These plans detail the processes banks would implement to facilitate an orderly wind-down in the event of a bankruptcy. In his statement, Chopra, citing weaknesses in a number of very large banks’ living wills, said that “the largest financial institutions in the U.S. continue to pose serious threats to the global financial system in the event of their failure, absent government support.”

CFPB Proposes to Ban Medical Bills from Credit Reports

By Eric Mogilnicki and Brandon Howell, Covington & Burling LLP

On June 11, the CFPB issued a proposed rule that would prohibit creditors from using medical debts in making credit decisions. Comments are due by August 12, 2024.

This rulemaking effort, which began in September 2023, would eliminate the “regulatory loophole” that allowed consideration of medical debt, restrict credit reporting companies from including medical debt on credit reports, and ban repossession of medical devices. In its press release, the CFPB indicates the proposed rule “would remove as much as $49 billion of medical debts that unjustly lowers credit scores for 15 million Americans.” In his remarks, Director Chopra touted this initiative as a “rule [that] would stop debt collectors from using the credit report as a cudgel to coerce consumers into paying bills they may not even owe, and make sure the credit reporting system doesn’t unjustly punish people for getting sick.”

The CFPB claims that for consumers with medical debt on their credit reports, this rule could raise their credit scores by an average of 20 points. The CFPB adds that lenders will also benefit “from improved underwriting and increased volume of safe loan approvals.”

Director Chopra Testifies before Senate and House on CFPB Semi-Annual Report to Congress

By Eric Mogilnicki and Brandon Howell, Covington & Burling LLP

The CFPB recently issued its Semi-Annual Report to Congress covering Bureau activities between April and September 2023. In the Report, the Bureau describes significant rules and orders, analyzes trends from its consumer complaint database, lists public supervisory and enforcement actions, assesses significant actions by state authorities relating to federal consumer financial law, describes the Bureau’s fair lending efforts, analyzes Bureau workforce and contracting diversity, and provides an overview of the Bureau’s budget.

On June 12 and 13, CFPB Director Chopra testified before the Senate Banking Committee and the House Financial Services Committee. In his written testimony, Director Chopra promoted the CFPB’s rulemaking efforts for an open banking framework, amending Regulation V to address medical debt in credit scores and credit reports, and narrowing of credit card late fees.

The Senate hearing included questioning about a new attack on the CFPB’s funding mechanism. This argument—that the CFPB may requisition funds from the Federal Reserve only when the Federal Reserve is profitable—surfaced in a Wall Street Journal op-ed after the Supreme Court’s decision upholding the CFPB’s funding, and it has already been called bizarre and incorrect by supporters of the Bureau.

CFPB Issues Final Rule Establishing Registry of Nonbank Repeat Offenders

By Eric Mogilnicki and Rye Salerno, Covington & Burling LLP

On June 3, the CFPB issued a final rule establishing a registry of nonbank entities subject to federal, state, and local consumer financial protection law enforcement orders. Under the rule, covered nonbank entities must register with the Bureau any written order or judgment issued by a law enforcement agency or court that imposes obligations based on alleged violations of a covered law. Covered laws are defined to include federal consumer financial laws, any other law as to which the Bureau may exercise enforcement authority, the prohibition on unfair or deceptive acts or practices (“UDAPs”) contained in the Federal Trade Commission Act, any rules or orders issued under that prohibition, state law prohibitions of UDAPs or UDAAPs (unfair, deceptive, or abusive acts or practices), and any rules or orders issued under those state statutes. In addition, an annual written statement describing compliance efforts under registered orders and including an executive attestation is required for covered nonbanks that are both subject to CFPB supervision and have $5 million or more in annual revenue attributable to consumer financial products or services.

CFPB Director Rohit Chopra released prepared remarks in conjunction with the final rule, in which he explained that the registry “will help the CFPB and other law enforcement agencies monitor and track repeat offenders in order to better hold them accountable if they break the law again.” In his remarks, Director Chopra argued that, had such a registry existed in the early 2000s, it would have aided state regulators in obtaining the assistance of federal regulators in state efforts to prevent abuses in the mortgage market that contributed to the housing crisis and Great Recession.

The rule is effective on September 16, 2024, with the order registration period beginning on October 16, 2024, for larger participants subject to CFPB supervision; on January 14, 2025, for other CFPB-supervised entities; and on April 14, 2025 for all other covered nonbank entities. Any covered order that remains in effect as of the September 16, 2024, effective date must be registered. The CFPB has indicated that it will publish filing instructions detailing the information that must be included.

CFPB Issues Final Rule Setting Qualifications for Industry Standard-Setters for Personal Financial Data Rights

By Eric Mogilnicki and Rye Salerno, Covington & Burling LLP

On June 5, the CFPB issued a final rule that establishes the minimum qualifications that a standard-setting body must meet in order receive CFPB recognition under the Bureau’s ongoing rulemaking to implement Section 1033 of the Consumer Financial Protection Act (“CFPA”), 12 U.S.C. § 5533. The Bureau’s Section 1033 rule will create “personal financial data rights” for consumers, including the ability to easily port data from one financial institution to another when switching between banks or other consumer financial service providers. The Bureau has previously indicated that it anticipates finalizing its Section 1033 proposal in the fall of 2024.

Under the Section 1033 proposed rule, financial service providers would be allowed to provide consumer data pursuant to technical standards that will be developed by industry standard-setting bodies that are recognized by the CFPB. The final rule issued last week outlines the attributes that the CFPB will look for when determining whether to recognize a standard-setter. In particular, the final rule requires that a standard-setting body demonstrate openness to participation by all interested parties, a balance of decision-making power across all interested parties, a documented and publicly available process for resolving conflicting views and allowing appeals, the use of consensus, and transparency. Under the final rule, CFPB recognition will last for five years (unless revoked).

CFPB Issues Circular Warning against Deception in Fine Print of Consumer Contracts

By Eric Mogilnicki and Rye Salerno, Covington & Burling LLP

On June 4, the CFPB issued a circular warning that the use of unlawful or unenforceable terms and conditions in contracts for consumer financial products and services can constitute a deceptive act or practice under the CFPA. In a press release accompanying the circular, Director Chopra stated that “[f]ederal and state laws ban a host of coercive contract clauses that censor and restrict individual freedoms and rights,” and that “[t]he CFPB will take action against companies and individuals that deceptively slip these terms into their fine print.”

The circular explains that, under the CFPA, a representation or omission is deceptive if it is likely to mislead a reasonable consumer and is material, meaning that it “involves information that is important to consumers and, hence, likely to affect their choice of, or conduct regarding, a product.” The Bureau’s view is that an unlawful or unenforceable contractual term that states that a consumer has agreed not to exercise a legal right can be material and therefore deceptive because it “is likely to affect a consumer’s willingness to attempt to exercise that right in the event of a dispute.” The circular also notes that certain categories of information, including express representations, are expressly material. In addition, the circular cites to a March 2022 CFPB bulletin that concluded that “disclaimers in a contract such as ‘subject to applicable law’ do not cure the misrepresentation caused by the inclusion of an unenforceable contract term.”

Texas Mortgage Loan Rule Changes Proposed

By Paul Kellogg, McGlinchey Stafford, PLLC

The Texas Department of Savings and Mortgage Lending has proposed a wide-ranging overhaul of its rules concerning residential mortgage loan originators (RMLOs), loan companies, mortgage bankers, and servicers. The changes are meant to reorganize existing rules to increase clarity, modernize and update them, and formalize existing department policies. The changes are motivated by consumer complaints and close loopholes in the rules.

There would be a new chapter of rules for RMLOs (chapter 55), and a renumbering of the existing chapters as 56–59 (corresponding to chapters 156–159 of the Finance Code). Overall, the proposal establishes general definitions and consistent formatting requirements for notices.

Chapter 55 addresses originator licensing, sponsorship disclosures, duties and conduct, compensation, pre-licensing education and exams, and false reporting of education credits, and it limits temporary authorization to a total of 120 days. This chapter would also clarify and formalize RMLOs’ duties and responsibilities, and the department’s compliance and enforcement tools.

The bulk of the proposal focuses on mortgage loan companies and mortgage bankers. The topics include:

  • Licensing/registration requirements, application requirements, fees, renewal, conditional licenses, and surrender of license/registration.
  • Departmental email notices would be sent to the “primary company contact” to better hold the licensee/registrant accountable.
  • Sponsorship of originators and responsibility for their actions.
  • Disclosures:
    • reduces the consumer complaint notice from two paragraphs to one
    • creates a prescribed form for the consumer complaint notice required for websites
    • removes the requirement to post the consumer complaint notice on social media
  • Fraudulent, misleading, or deceptive practices would now include calling someone on a Do Not Call list and “improper use of trigger leads.”
  • Establishes requirements for ads on social media.
  • Adds requirements concerning the mortgage transaction log. The rules also require loan companies and mortgage bankers to retain the following:
    • proof that Truth in Lending disclosures were given
    • any discount point acknowledgment form used
    • for third-party loan processing and underwriting services, a loan processing and underwriting log
    • FTC’s Standards for Safeguarding Customer Information
    • proof of corrective action
    • policies for handling unclaimed funds
  • Creates requirements for “reportable incidents” (including a root cause analysis for data breaches). A reportable incident is one that presents “a material, financial, or other significant risk to the entity’s operation, such as a data breach, security event, termination of a line of credit or funding source, or termination or curtailment of a relevant service provider.” The filing of reports required by other law satisfies the reporting requirements (except root cause analysis). Information relating to reportable incidents would be confidential.
  • Examinations would include the use and “leveraging” of exams from other states.

The reportable incident requirement also applies to servicers. The rules also would require a master servicer to be registered under Chapter 158 even if that entity does not receive any payments from borrowers. Other changes include:

  • No paper surety bonds, only electronic bonds.
  • Periodic statements must comply with Regulation Z.

The proposed Rules should be posted for public comment in the August 30 edition of the Texas Register.

Gaming Law

Newest Gambling Locale: Arcades

By Megan Carrasco, Snell & Wilmer LLP

It was 2017, and I was on the boardwalk in Myrtle Beach, South Carolina, when I realized that arcades were essentially casinos for children. Instead of winning money, parents trade their hard-earned cash for oversized stuffed animals and fifty-cent pieces of candy.

Dave & Buster’s is bringing these arcade-style games to its business.

In late April, Dave & Buster’s announced a strategic partnership with Lucra Sports, which is, among other things, a sports and gaming company. Dave & Buster’s has proposed an enhancement to Lucra’s arcade-style games that will allow rewards members to wager among themselves on skill-based games like Skee-Ball or pool. Dave & Buster’s has tried to quell any pushback against its platform, emphasizing that the wagering options will only be available to those players aged eighteen and up.

In response, Illinois State Representative Daniel Didech, a member of the Illinois House Gaming Committee, has proposed a new bill, HB5832, titled the “Family Amusement Wagering Prohibition Act.” If enacted, this bill would prohibit a “family amusement establishment” from “facilitat[ing] wagering on amusement games.” It also includes provisions that will allow tickets (a “coupon or point”) to be redeemed on-site. The ticket cannot have any “value other than for redemption onsite for merchandise.” The legislation does not touch claw-type games where a player may “receive merchandise directly from the amusement game.”

This bill would also criminalize facilitating wagering on amusement games or engaging in advertising that promotes wagering on amusement games.

While legislative sessions are nearing the end in most states, including Illinois, this likely will not be the last say on the issue. It is likely that Illinois and other states will continue with this type of legislation in the fall. And, with more than 220 retail locations across forty-two states, Dave & Buster’s will likely have something to say on this topic as well.

Intellectual Property Law

Hayley Paige Gutman Turns the Final Page

By Emily Poler, Poler Legal, LLC

The long-running dispute between wedding dress designer Hayley Paige Gutman and her former employer JLM Couture over ownership of the social media accounts she created and that bear her name is, at last, over.

On May 8, the U.S. District Court for the Southern District of New York revised an earlier preliminary injunction and restored control of the @misshayleypaige Instagram, Pinterest, and TikTok accounts to Gutman, holding JLM couldn’t establish that the social media accounts belonged to JLM at their inception or that Gutman had transferred ownership to JLM.

How did the District Court reach its conclusion—which was the opposite of its earlier decisions? It followed the Second Circuit’s direction to look at the accounts as normal property rather than through novel tests.

In its analysis, the Court found:

  • Gutman opened the Instagram account at the recommendation of a friend;
  • she was at least partially motivated to create the accounts for personal use, even if she saw them as potentially useful in promoting products manufactured by JLM;
  • the Instagram was initially linked to her personal Facebook account;
  • the Instagram account wasn’t linked to the JLM Facebook account until four years later; and
  • the first five Instagram posts were clearly personal, as were early pins on Pinterest.

According to the Court, this showed Gutman created the accounts for personal use and not solely as a JLM employee, even if she did later use them to promote JLM products, allowed JLM employees access to them, and included links to JLM accounts.

The Court also found that JLM couldn’t show that Gutman transferred the accounts to it. There were a number of reasons for this, including that Instagram’s terms of service prevent a user from transferring an account.

What’s really interesting here is that, in the end, the final decision in the District Court is opposite to the results reached by just about every other court that has looked at usage to determine ownership of a social media account. Will the JLM Couture, Inc. v. Gutman decision reverberate throughout the growing number of legal disputes in this area, and give pause to companies that rely heavily on consumer relationships through the Instagram posts of highly visible employees and brand ambassadors?

What’s next? Well, not much. Shortly after the most recent decision from the District Court, Gutman and JLM resolved all matters in a settlement agreement that included Gutman paying JLM (well, its bankruptcy estate) $263,000. In exchange, Gutman was released from her noncompete agreement, which would have continued for another eighteen months or so.

Labor & Employment Law

Religious Accommodation in Employment: Groff v. DeJoy

By Tori Bell, Boulette Golden & Marin L.L.P.

In 2023, a unanimous Supreme Court overruled forty-six years of case law regarding an employee’s right to practice and an employer’s obligation to accommodate religion under Title VII of the Civil Rights Act of 1964 (“Title VII”). Groff v. DeJoy, 600 U.S. 447 (2023).

Title VII makes it unlawful for covered employers “to fail or refuse to hire or to discharge any individual, or otherwise to discriminate against any individual with respect to his compensation, terms, conditions, or privileges [of] employment, because of such individual’s . . . religion.” 42 U.S.C. § 2000e–2(a)(1). Title VII defines religion broadly to include “all aspects of religious observance and practice, as well as belief” and requires employers to make reasonable accommodations to the religious needs of employees and prospective employees unless the employer cannot do so “without undue hardship on the conduct of the employer’s business.” 42 U.S.C. § 2000e(j).

Thirteen years after the passage of Title VII, in 1977, the Supreme Court appeared to indicate in Trans World Airlines, Inc. v. Hardison that a religious accommodation creates an undue hardship when it imposes “more than a de minimis cost.” 432 U.S. 63, 84 (1977). In the wake of Hardison, courts adopted “more than a de minimis cost” as the standard for undue hardship under Title VII, as well as the arguable assertion that a burden on another employee is an “undue hardship on the conduct of the employer’s business.” See, e.g., EEOC v. Walmart Stores, 992 F.3d 656, 659–60 (7th Cir. 2021) (“[T]he Supreme Court held [in Hardison] that Title VII does not require an employer to offer an ‘accommodation’ that comes at the expense of other workers.”). In 2014, the Equal Employment Opportunity Commission (“EEOC”) likewise adopted the “more than de minimis cost” reading of Hardison in its regulatory language. See 29 C.F.R. § 1605.2(e)(1).

In Groff, the Supreme Court “clarified” its decision in Hardison and rejected the “more than de minimis cost” standard that had been used by the lower courts, noting the standard was inconsistent with Title VII’s plain “undue hardship” statutory text. Groff v. DeJoy, 600 U.S. 447, 470–71. The Court held Title VII requires an employer to show “the burden of granting an accommodation would result in substantial increased costs in relation to the conduct of its particular business,” and instructed courts to consider “all relevant factors in the case at hand, including the particular accommodations at issue and their practical impact in light of the nature, size, and operating cost of an employer.” Id. (internal citations omitted). The Court made clear that “a coworker’s dislike of ‘religious practice and expression in the workplace’ or ‘the mere fact [of] an accommodation’ is not ‘cognizable to factor into the undue hardship inquiry.’” Id. at 472. Instead, only impacts on coworkers that go on to affect the conduct of the business are relevant. Id.

Although the Groff Court made clear that religious animosity by coworkers is not sufficient to establish an undue hardship under Title VII, the Court did not address whether or not a religious accommodation that conflicts with an employer’s other affirmative duties under Title VII, such as an employer’s obligation to protect its employees from a hostile work environment, creates an undue hardship. Future litigation concerning employees’ competing rights at work is likely.

This article is not legal advice.


Washington, DC

Margaret M. Cassidy

Executive Editor for Business Crimes & Corporate Compliance, Gaming Law, Government Affairs Practice, and Sports Law, Business Regulation & Regulated Industries

Dredeir Roberts

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