Sarbanes-Oxley Casts a Wide Net, Literally

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Congress passed Sarbanes-Oxley in 2002 to deal with the accounting scandals that resulted in the downfall of the likes of Enron, Tyco, Worldcom, Arthur Andersen, and others. In its October Term 2014, the Supreme Court will decide if the act’s anti-shredding provision applies to fish.

That’s right, fish. Those slippery, gill-bearing aquatic animals. How did this come to be?

Sarbanes-Oxley contains an anti-shredding provision, 18 U.S.C. § 1519, that criminalizes knowingly altering, destroying, mutilating, concealing, covering up, falsifying, or making a false entry in “any record, document, or tangible object with the intent to impede, obstruct, or influence the investigation or proper administration” of any federal matter. Fish, according to the federal government, fall within the ambit of the “tangible object” in § 1519.

A broad reading of that term could create a real burden to businesses, particularly in compliance and storage costs. If a “tangible object” in Sarbanes-Oxley includes a fish, imagine what else it might include.

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Back to School: 7th Circuit Issues Two Decisions on International Diversity Jurisdiction

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Putting together all the Seventh Circuit’s decisions from the last few decades on subject-matter jurisdiction would yield an impressive textbook on the subject. The court (and Judge Easterbook, in particular) has adhered assiduously to its role as a federal court with limited jurisdiction. Its latest two decisions on this subject (authored by none other than Judge Easterbrook) should be added to the chapter on international diversity jurisdiction.

28 U.S.C. § 1332(a)(2) creates diversity jurisdiction between “citizens of a State and citizens or subjects of a foreign state.” So far, so good. But many of these cases become tricky when one of the parties is a foreign entity. The general rule (found in § 1332(c)(1)) is that corporations are citizens in only two places: where they are incorporated and where they have their principal places of business. Other collective entities (e.g., LLCs) take on the citizenship of every member or equity investor. The existence of the foreign entity thus requires the court to decide, by analogy to American law, if that entity is akin to the American corporation or some other form of American business.

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Wisconsin Adopts Twombly, Though "No One Is Sure What Twombly Means"

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In Data Key Partners v. Permira Advisers LLC, 2014 WI 86, the Wisconsin Supreme Court adopted the “plausibility” pleading standard articulated by the United States Supreme Court in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), which overruled the Conley v. Gibson, 355 U.S. 41 (1957), “beyond doubt”/”no set of facts” standard. Now, in order to survive a motion to dismiss in Wisconsin courts, a pleading will need to “plausibly” state a claim.

This decision was not Wisconsin’s first departure from Conley‘s pleading standard. The Wisconsin Supreme Court recognized long ago that Wisconsin’s pleading standard was stricter than Conley‘s “all inclusive” test. In Wilson v. Continental Ins. Co., 87 Wis. 2d 310, 317, 326-27, 274 N.W.2d 679 (1979), the Court affirmed dismissal of a negligence complaint, without leave to amend, under Wisconsin’s pleading standard.

However, a full-fledged adoption of Twombly was unexpected in Data Key, not only because (as the Chief Justice recognized in dissent) Twombly was neither briefed nor argued before the Supreme Court, but also because just four months before Data Key, the Court unanimously quoted with approval Conley and pre-Wilson Court of Appeals precedent when the Court was describing principles of notice pleading in Wisconsin. CED Properties, LLC v. City of Oshkosh, 2014 WI 10.  Continue reading this entry

$30, Four Opinions, and No Decision: The Province and Duty to Say What the Law Probably Is

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Federal appellate courts ordinarily grant en banc hearings or rehearings only when “(1) en banc consideration is necessary to secure or maintain uniformity of the court’s decisions; or (2) the proceeding involves a question of exceptional importance.” Fed. R. App. P. 35(a).  So, what happens when an en banc hearing produces no uniformity, or fails to decide anything at all?

In 2012, we noted that an evenly divided Seventh Circuit (actually split 4-1-5) had left the circuit’s pleading standard for class-of-one equal-protection claims up in the air after a failed en banc attempt at resolution. Earlier this week—with a seat on the court still vacant—the Seventh Circuit’s 10 active judges again affirmed by a divided court, in Markadonatos v. Village of Woodridge, No. 12-2619. This time, the court fractured 3-2-1-4. Judge Diane Sykes summarized, explaining that “the en banc court cannot agree on what questions the case raises, whether the plaintiff is the right person to raise them, whether they have been properly preserved, or what doctrinal framework applies.”

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Rampant Sexual Misconduct in Indiana Prison Shows Pitfalls for Employers

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“Connie J. Orton-Bell was employed as a substance abuse counselor at a maximum security prison in Indiana. An investigator, who had been looking for security breaches, discovered that night-shift employees were having sex on Orton-Bell’s desk and informed her. That investigator told her that he was not concerned about night-shift staff having sex but suggested she should probably wash off her desk every morning.”

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Believe it or not, this is not a scene from the new season of Orange is the New Black. It’s actually the opening lines from Orton-Bell v. Indiana, No. 13-1235 (7th Cir. July 21, 2014), an opinion authored by Judge Manion, and one of the more entertaining Seventh Circuit opinions in recent memory.

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