Winter 2004

Well, some of our partners have made quite a splash in the legal community . . . Howard Berman, a partner in ECJ’s Corporate Department, Jim Hicks, a partner in ECJ’s Litigation Department, Michael Kogan, head of ECJ’s Bankruptcy Department, Marvin Lewis, head of ECJ’s Estate Planning Department, Bert Massing, head of ECJ’s Corporate Department, Kelly Scott, head of ECJ’s Employment Law Department and Mel Spears, head of ECJ’s Taxation Department were all selected as “Super Lawyers” as part of the Southern California Super Lawyer Magazine for 2004.

Southern California Super Lawyers is a product of more than six months of polling, surveying and researching attorneys to identify “top legal talent” in more than 50 areas of law. In addition to being included in Los Angeles Magazine’s first annual listing of the top lawyers in the Los Angeles region, this list also appears in an extensive special advertising section in the February 2004 issue, and in a separate publication which is distributed to all active attorneys in Los Angeles and Orange Counties.

New Law On Using Gift Certificates

In a prior issue of Legal Update, we reported on a California law, Civil Code Section 1749.5, which was enacted in 1997, specifying that gift certificates cannot have an expiration date. There were exceptions in the California law for gift certificates that are given away as part of a promotional program, sold below face value or issued for a food product. However, the law does apply to the typical situation in which someone buys a retailer’s gift certificate (or these days, often an electronic gift card) so the recipient can use the certificate or card to pick out his or her own present at the retailer. In that situation, the merchant has free use of the money until the card is used, but California does not allow the merchant to impose an expiration date, since that would effectively give the merchant a windfall and cause an unfair forfeiture to the consumer involved.

Last summer, the Legislature amended this law by adding Civil Code Section 1749.45 to state explicitly that it applies to “gift cards” as well as gift certificates. However, Section 1749.45 newly provides that the prohibition on expiration dates doesn’t apply if the gift card is usable with multiple unaffiliated merchants (such as a card issued by a shopping center that can be used at any store in the mall), provided that the expiration date is printed on the card, nor does it apply to prepaid telephone calling cards.

The Legislature also amended Section 1749.5 for gift certificates or cards issued after January 1, 2004 to limit when service fees may be imposed on “dormant” gift cards. This became an issue because some retailers, such as WalMart, imposed a $1 per month service fee on any gift card that had not been used for 24 months. Although class action suits were brought against WalMart alleging that this dormancy service fee effectively wiped out the card’s value and constituted a forbidden “expiration date,” the California 4th Circuit Court of Appeals recently ruled in favor of WalMart on this point. Under the new statute, however, a dormancy service fee will be permitted only if certain conditions are met, most importantly that all of the terms of the service fee are fully disclosed on the gift card and that the outstanding balance on the card is $5 or less each time the servicing fee is imposed (WalMart’s policy had been to impose the $1 per month fee on all dormant cards, regardless of outstanding balance). Therefore, for new gift cards issued after January 1, 2004, dormancy fees will be permitted only when the balance on the card has already been reduced to a small amount.

Section 1749.5 was also amended to clarify that the retailer may (but is not required to) allow the purchaser of the gift certificate or gift card to get a refund of the purchase price if the gift recipient fails to use the certificate or gift card by a specified date. If you purchase a gift certificate or gift card from a retailer that has such a policy, you should keep track of the date by which the certificate or card is to be used by the gift recipient. If the recipient does not use the certificate or card by that date, you could ask the retailer to refund the purchase price to you.

Despite these changes to the law, the key fact remains that if you are cleaning out your sock drawer and run across an old gift certificate or gift card issued after January 1, 1997, it may still be good, notwithstanding any expiration date stated on the card. Such an expiration date would be invalid in California unless one of the exceptions to Civil Code Section 1749.5 applies.

Congress Passes Federal Anti-Spam Law: How Will It Affect Your Company?

On December 16, 2003, President Bush signed the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (CANSPAM Act), which came into effect on January 1, 2004. This new federal law was implemented to regulate the means and content of unsolicited commercial email advertisements and to prohibit false and misleading email communications. Do not be misled by the name; this Act is not limited to “spam” and applies to “all commercial electronic mail messages,” which means that any company using email for marketing purposes must understand and comply with these new regulations.

CAN-SPAM applies to any email the “primary purpose of which is the commercial advertisement or promotion of a commercial product or service.” The Act does not prohibit email advertising; rather, it imposes certain restrictions on email communications. Among other things, false or misleading headers, deceptive subject lines and attempts to conceal the origin of the email or the sender’s identity are prohibited by the Act and may subject the sender to monetary penalties and criminal sanctions:

In contrast, companies are not prohibited from sending “transactional or relationship messages” emails. “Transactional or relationship messages” are defined as any email sent to: (a) facilitate or confirm an agreed-upon commercial transaction; (b) provide a product warranty, recall, safety or information about a product purchase; (c) provide terms, status or account information relating to an “ongoing commercial relationship”; (d) provide information related to an employment relationship; or (e) provide information regarding goods or services to which the recipient is entitled under the terms of an agreed-upon transaction.

CAN-SPAM preempts all state laws that require labels on unsolicited commercial email or prohibit such messages entirely, including California’s recent and more restrictive anti-spam law that essentially banned unsolicited email sent without prior opt-in consent. However, the Act does not preempt state laws that merely prohibit false or deceptive advertising or other state legislation related to fraud or computer crimes.

Another important provision in the Act directs the Federal Trade Commission (FTC) to develop and recommend a plan for a nationwide “Do Not Email” Registry, similar in scope to the federal “Do Not Call” list, which is to be presented to Congress by July 1, 2004.

The Act imposes both civil remedies and criminal sanctions, enforcing felony offenses carrying up to five years imprisonment. CAN-SPAM also confers injunctive relief and damages up to $250 per violation, with awards up to $2 million. Courts are granted authority to increase damage awards by up to three times the amount for willful or aggravated violations. Enforcement of the Act has been allocated primarily to the FTC, but provides that state attorneys general and Internet service providers (ISPs) may also sue violators for injunctive relief and damages in federal court. However, the Act does not create a private right of action by individuals or companies against unsolicited commercial emails.

Although the Act was enacted primarily to curb the growing deluge of spam email, its provisions also impact legitimate businesses that use email communications between customers and other business affiliates. To comply with these new restrictions, a company must ensure that all commercial emails contain the following:

The opt-out mechanism is one of the key provisions of the Act. CAN-SPAM requires that all commercial emails contain a notice of a recipient’s opportunity to opt out of future emails. Moreover, the notice must include a return email address or other Internet-based mechanism by which the recipient may opt out. Opt-out requests must be processed within ten (10) business days. In addition, the Act prohibits any sale, transfer, or release of email addresses of parties that have chosen to opt out.

Since many of the worst spammers operate from outside the country in order to make it more difficult for U.S. authorities to regulate their activities, CAN-SPAM’s ability to stem the tide of spam email remains to be seen. The FTC has six months to report back to Congress with any recommendations and reports assessing the effectiveness of the new Act. In the meantime, given the potentially severe penalties for noncompliance, all businesses engaged in email marketing activities should evaluate their compliance obligations under the Act and ensure that all commercial emails are labeled accurately and include an appropriate opt-out mechanism.

Tamara L. Dewar has recently joined Ervin, Cohen & Jessup LLP as an associate in its Litigation Department. Ms. Dewar’s areas of practice include general business, securities and intellectual property litigation. Her practice also includes employment litigation and advising corporate officers, directors and shareholders in litigation matters. Ms. Dewar graduated, cum laude, from the University of San Diego School of Law with a Master’s Degree in Comparative Law in 2001. She earned her LL.B. from Robson Hall, University of Manitoba Faculty of Law in 2000 and her undergraduate degree from the University of British Columbia. Ms. Dewar is a contributing author for Advising and Defending Corporate Directors and Officers, California Continuing Education of the Bar (update 2002, 2003).

James Baker Seminar Recap

In 1826, the American statesman Daniel Webster reminded his students that “true eloquence does not consist in speech.. . .Words and phrases may be marshalled in every way, but they cannot compass it. . . It must consist in the man, in the subject, and in the occasion.”

The recent Seventeenth Annual ECJ Forum featuring guest speaker and former Secretary of State, the Honorable James A. Baker, III, serves as an excellent example of what Webster meant. In celebration of ECJ’s 50th Anniversary, Baker addressed a crowd of approximately 500 ECJ attorneys, clients and friends and delivered an eloquent speech that defined his term. He seized the moment with a succinct address that touched on the major issues pressing the international community, including Iraq, the Arab-Israeli conflict, North Korea and Iran.

By his own admission, James Baker was neither born into politics nor had any intention to go into what has often been termed as “the second oldest profession.” But circumstances, both tragic and fortuitous, helped thrust the then 40-year-old Houston attorney into the political forefront. Since that time, James Baker has run several presidential campaigns, including President Ford’s, has served as Chief of Staff and Secretary of the Treasury for President Reagan in the 1980s and most notably, as the U.S. Secretary of State from 1989 to 1992. As Secretary of State, Baker witnessed the collapse of the Berlin Wall, the end of the Cold War and the first Gulf War, and played an instrumental role in organizing the Madrid Middle East Peace Conference. For a man with no prior experience in politics or public service, Baker’s career has certainly demonstrated that politics can be “the art of the possible.”

At the forefront of international challenges was the war with Iraq. Firm in his belief that the war was justified, Baker was heartened by the rapid and precise military victory in the area. While he is not oblivious to the mounting concerns of the American public about our continued presence in the area, Baker also sees the overwhelming progress that our presence has brought about, including a dramatic increase in the number of schools, hospitals, banks and small businesses which now operate, and an increase in Iraqi oil production. The one “failure” he perceived in the aftermath was here at home where, according to Baker, the public had not been adequately prepared for the costs associated with the war and with the reconstruction of Iraq. Though Baker estimates the cost of reconstructing Iraq to be a staggering $56 billion, he nevertheless steadfastly notes that the United States’ victory in Iraq marks an astounding victory in its global war on terrorism.

Baker identified the Arab-Israeli conflict as yet another ongoing challenge which merits international attention. Over the last few years, this struggle has been met with progress, resistance and now, a seemingly overdrawn stand-still. Baker attributes the current state of stagnancy to domestic politics, as dreams of peace have given way to a difficult reality of suicide bombings, hard-line politicians on both sides, increased Israeli settlements and an unstable Palestinian Authority. Baker perceives little progress will be made in this regard in the near future but maintains that the United States’ role in this conflict is “indispensable.” Baker insists that there is no military solution to the conflict, and that political dialogue and negotiation must take place instead. “Land for Peace” is the only basis to settle the dispute, according to Baker.

Much like the Arab-Israeli struggle, Baker explained that there is no military solution to the mounting tensions with North Korea. He proclaimed that we must act with “resolve and strength,” because North Korea poses a threat to the regional stability in East Asia. However, Baker cautions that negotiations and diplomatic rewards should serve as the primary vehicle for dealing with the North Koreans. If these diplomatic efforts fail, Baker suggests that imposition of sanctions and the United States articulating to the North Koreans its defense obligations to neighboring countries may serve as effective deterrents.

Finally, Baker addressed the concern over Iran and its active nuclear development program. Baker noted that progress was being made in this regard, in large part because of the changes that have taken place in Iraq. However, Baker stressed that any promises made by Iran regarding its nuclear weapons development must be verified and checked frequently. In the end, he feels time, patience, imagination and effective leadership can bring about unforeseen changes, in Iran and elsewhere.

Baker’s address, and his general approach to world affairs for that matter, were described by many as practical, solution oriented and engaging. His participation in the Annual Forum could not have been more fitting, as ECJ celebrated 50 years of refining and upholding these very same qualities. Indeed, ECJ’s continued success is due to its practical approach to the practice of law, its commitment to help clients avoid problems before they arise and its personalized service in the handling of its clients’ legal affairs. These qualities, coupled with its expertise, integrity and dedication to building lasting relationships with clients, have earned ECJ the reputation it enjoys.

Legal Update is published by the law firm of Ervin, Cohen & Jessup LLP as a service to clients and friends of the Firm. Articles are intended as summaries of the law and should not be relied upon as substitutes for legal consultation. Authors will, on request, be pleased to discuss in greater detail the information contained in their articles.

Correspondence regarding information contained in this issue or address corrections should be addressed to Cynthia Kaiser, c/o Ervin, Cohen & Jessup LLP, 9401 Wilshire Boulevard, Ninth Floor, Beverly Hills, California 90212-2974 or ckaiser@ecjlaw.com.

If you would like to receive a complimentary copy of ECJ's Legal Update, please e-mail Cynthia Kaiser at ckaiser@ecjlaw.com.

Legal Update

Super Lawyers 2004

New Law On Using Gift Certificates

Congress Passes Federal Anti-Spam Law: How Will It Affect Your Company?

James Baker Seminar Recap