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United Leasing Corp. v. Thrift Ins. Corp.
United Leasing Corp.v.Thrift Ins. Corp.
In a case involving forged documents used to obtain approval for a loan, the trial court's final order sustaining demurrers to two causes of action and granting summary judgment as to two additional causes of action is affirmed.
Plaintiff lenders agreed to finance a business venture planned by a small business and required, in addition to the personal guaranty of the business's principal, that his parents give their personal guaranty and that they give security for it by pledging stock they held in the defendant insurance company, of which the son was secretary/treasurer. The son provided the lenders with forged documents which appeared to fulfill the requirements. He also provided a form stamped "Signature Guaranteed — Dominion Bank of Richmond, VA." beneath a signature purporting to be that of an officer of the defendant bank. The lenders accepted these documents and proceeded to close the transaction. The business defaulted on the loan and the lenders were unable to satisfy the judgment obtained against it. The lenders then filed a motion for judgment against the insurance company and against the bank, alleging that the company was liable to them on theories of fraud, common law conversion, and breach of its duty of due care. Plaintiffs also alleged that the bank was liable to them for breach of warranty on its signature guarantee, pursuant to Code Sec. 8.8-312. The bank demurred to the allegations based on Code Sec. 8.8-312. The insurance company demurred to the allegation of negligence and also filed a motion for summary judgment on the conversion and fraud counts. The trial court sustained the demurrers, granted the insurance company's motion for summary judgment, and dismissed the action with prejudice. The lenders appeal.
1. A trial court may enter summary judgment only if no material fact is genuinely in dispute and the court, in considering summary judgment, must adopt those inferences from the facts that are most favorable to the nonmoving party, unless such inferences are strained, forced, or contrary to reason.
2. Pursuant to Code Sec. 8.8-312(1), a signature guarantor warrants that the signature of an indorser of a security is genuine and -312(8) provides that, under this warranty, the signature guarantor is liable for any loss resulting from its breach to any other person taking or dealing with the security in reliance on the guarantee and requires proximate cause for imposition of liability on a guarantor.
3. Under the facts alleged in the motion for judgment, the lenders cannot establish that the signature guarantee of the forged signature on the stock/bond power was a proximate cause of their lack of recourse to the collateral, since the pleadings allege that the stock certificate in the lenders' possession was a fraudulently produced stock certificate.
4. Assuming that the bank officer guaranteed the forged signature, this guarantee warranted only that the indorser's signature was genuine, not that the transaction itself was valid. A guarantee under Code Sec. 8.8-312(5) warrants the validity of the actual transaction.
5. The plaintiffs allege that their loss arose from the insurance company's refusal to honor the counterfeit stock certificate, not from their inability to utilize the stock/bond power that bore the bank's signature guarantee and the trial court did not err in sustaining the bank's demurrer to the breach of warranty claim.
6. The tort of conversion encompasses any wrongful exercise or assumption of authority over another's goods, depriving him of possession or any act of dominion in denial of the owner's rights.
7. The facts that the plaintiffs allege do not give rise to a cause of action for conversion based upon the insurance company's redemption of the valid shares held by the parents. Since the lenders had no rights in the shares, the transaction was not an action inconsistent with their rights and an action for conversion can be maintained only by one who has a property interest in the thing alleged to have been wrongfully converted.
8. While many courts have recognized the tort of conversion in cases where intangible property rights merge with a document such as a stock certificate, a cause of action for conversion does not encompass claims for interference with undocumented intangible property rights.
9. The purported right the lenders assert here is an undocumented intangible property right which does not amount to a thing in which they are entitled to immediate possession sufficient to support a claim for conversion and the trial court did not err in granting the insurance company's motion for summary judgment on the plaintiffs' conversion claim.
10. The plaintiffs failed to allege that they are purchasers for value without notice, essential elements of a cause of action based on Code Sec. 8.8-205. The additional facts and cause of action, stated solely in opposition to the motion for summary judgment, will not be treated as an amended motion for judgment raising any right to a trial on the conversion claim.
11. The trial court based its summary judgment on the argument that the fraud action is barred by the statute of limitations, as well as the argument that the defendant insurance company is not liable for the secretary/treasurer's representations since he was acting outside the scope of his employment, in addition to the other reasons.
12. While a more precise statement by the trial court of the reasons for granting summary judgment would have been desirable, the lenders had both the responsibility and the opportunity to seek clarification and, having failed to do so, they cannot seek to rely on comments made earlier during the hearing as to the grounds for its ruling.
13. The plaintiffs failed to raise an assignment of error challenging the independent grounds adopted by the trial court in its ruling on the fraud action, and the order entering judgment for the insurance company became final as to the fraud action and, thus, barred any appellate relief that might otherwise have been available to the lenders on the reliance issue.
14. The defendants asserted that the plaintiffs could not recover from the insurance company on a negligence theory because the motion for judgment alleged only economic losses and did not allege that the lenders were in contractual privity with the company and, as a matter of law, the plaintiffs could not prevail on a tort theory alleging the company's negligence and lack of due care in hiring and supervising the secretary/treasurer, which the response to the demurrer did not attempt to refute. Nor did the plaintiffs address their negligence theory in their argument before the trial court or specify that the final order was erroneous on this basis, and therefore their argument will not be considered on appeal.
Appeal from a judgment of the Circuit Court of Hanover County. Hon. Richard H.C. Taylor, judge presiding.
Thomas H. Roberts, for appellants.
John B. McCammon (Laura G. Fox; James H. Hudson, III; Wright, Robinson, McCammon, Osthimer Tatum; Hudson Bondurant, on brief), for appellee Thrift Insurance Corporation.
Kevin R. Huennekens (Yvonne S. Wellford; Patricia E. Mealer; Maloney Yeatts Barr, on brief), for appellee Dominion Bank, N.A.
In this case involving forged documents used to obtain approval for a loan, United Leasing Corporation and Consolidated Bank Trust (the lenders) appeal from the trial court's final order sustaining demurrers to two causes of action, and granting summary judgment as to two additional causes of action.
We review the trial court's decision to sustain the demurrers pursuant to the rule that a demurrer admits the truth of all material facts properly pleaded in the motion for judgment, as well as facts that are impliedly alleged and those that may be fairly and justly inferred from alleged facts. Palumbo v. Bennett, 242 Va. 248, 249, 409 S.E.2d 152, 152 (1991).
A trial court may enter summary judgment only if no material fact is genuinely in dispute. Rule 3:18. The court, in considering a motion for summary judgment, must adopt those inferences from the facts that are most favorable to the nonmoving party, unless such inferences are strained, forced, or contrary to reason. Renner v. Stafford, 245 Va. 351, 353, 429 S.E.2d 218, 220 (1993).
In 1988, the lenders agreed to finance a business venture planned by JP Vending Services, Inc. The lenders provided JP more than $115,000. To secure repayment of the obligation, the lenders obtained the personal guaranty of JP's principal, James E. Carlton. The lenders also requested that Carlton obtain the personal guaranty of his parents, Charles E. and Anna J. Carlton, and that the parents give security for their guaranty by pledging 86 shares of stock they held in defendant, Thrift Insurance Corporation (Thrift). James Carlton had told the lenders that these shares were jointly owned by his parents. The Carltons did in fact own a total of 86 shares, represented by two stock certificates.
James Carlton provided the lenders with documents that purportedly fulfilled their requests. The guaranty given to the lenders bore James Carlton's signature, as well as his forgery of his parents' signatures. He also presented the lenders with documents that appeared to effect his parents' pledge of their 86 shares of stock in Thrift.
James Carlton was the secretary-treasurer of Thrift, and Thrift's corporate by-laws authorized him to act as sole transfer agent. Thus, when Thrift issued its corporate stock in a valid transfer, Carlton was authorized to add his authenticating signature. Here, Carlton manufactured a document that appeared to be a stock certificate showing that Charles Carlton owned 86 shares in Thrift. Carlton forged the signature of Thrift's president on the certificate and added his own signature. He then provided this counterfeit stock certificate to the lenders.
Carlton also gave the lenders a blank "Stock/Bond Power" for the transfer of the shares. This preprinted form was not filled in, except that it bore a signature purporting to be that of Charles Carlton. In addition, the form had been stamped with the words, "Signature Guaranteed-Dominion Bank of Richmond, VA," beneath which was a signature purporting to be that of an officer of defendant, Dominion Bank. Dominion Bank disputed the authenticity of its officer's signature on this form.
The lenders accepted these documents and proceeded to close the loan transaction. In connection with the transaction, the lenders also requested that Carlton obtain Thrift's acknowledgement of their security interest in the shares. A few weeks after the closing, Carlton wrote to the lenders, in his capacity as secretary-treasurer of Thrift, and falsely informed them that the pledge of the shares had been noted in the corporation's records.
Carlton's business, JP Vending Services, later defaulted on the loan. The lenders obtained a judgment against JP Vending and others, but were unable to satisfy that judgment. The lenders then filed a motion for judgment against Thrift and Dominion Bank asserting several causes of action, four of which are the subject of this appeal. The lenders alleged that Thrift was liable to them on theories of fraud, common law conversion, and breach of its "duty of due care." They further alleged that Dominion Bank was liable to them for breach of warranty on its signature guarantee, pursuant to Code Sec. 8.8-312.
Dominion Bank demurred to the allegation based on Code Sec. 8.8-312. Thrift demurred to the allegation of negligence (breach of duty of due care). Thrift also filed a motion for summary judgment on the conversion and fraud counts.
After hearing argument on the demurrers and the motion for summary judgment, the trial court stated, "I am coming down in favor of [defendants' counsel]. . . . I am finding in their favor on their reasons." In its final order, the trial court sustained the demurrers, granted Thrift's motion for summary judgment, and dismissed the action with prejudice.
The lenders argue that the trial court erred in sustaining Dominion Bank's demurrer to their claim for breach of warranty. Pursuant to Code Sec. 8.8-312(1), a signature guarantor warrants, among other things, that the signature of an indorser of a security is genuine. Code Sec. 8.8-312(8) provides that, under this warranty, the signature guarantor is liable for any loss resulting from its breach to any other person taking or dealing with the security in reliance on the guarantee. Reliance and proximate cause are necessary prerequisites to the imposition of liability on a guarantor. Code Sec. 8.8-312(8); see also Flying Diamond Corp. v. Pennaluna Co., 586 F.2d 707, 711 (9th Cir. 1978).
Code Sec. 8.8-312(8) provides: "The foregoing warranties are made to any person taking or dealing with the security in reliance on the guarantee, and the guarantor is liable to the person for any loss resulting from breach of the warranties."
The lenders contend that the motion for judgment sufficiently alleges that they relied on Dominion Bank's guarantee of the signature purporting to be that of Charles Carlton, and that they were thereby induced to enter the transaction with James Carlton and suffered the losses complained of. They argue that, because they pleaded the elements of reliance and proximate cause against Dominion Bank, pursuant to Code Sec. 8.8-312(8), the trial court erred in sustaining Dominion Bank's demurrer. We disagree with the lenders.
As a matter of law, under the facts alleged in the motion for judgment, the lenders cannot establish that the signature guarantee of the forged signature on the stock/bond power was a proximate cause of their lack of recourse to the collateral. The motion for judgment alleges, in part, that "the Stock Certificate in [the lenders'] possession was in fact a fraudulently produced Stock Certificate."
Assuming, as alleged by the lenders, that Dominion Bank's officer guaranteed the forged signature, this guarantee warranted only that the indorser's signature was genuine, not that the transaction itself was valid. In contrast, a guarantee under Code Sec. 8.8-312(5), in which the guarantor warrants, among other things, "the rightfulness of the particular transfer in all respects," would have encompassed the validity of the actual transaction.
Code Sec. 8.8-312(5) provides: "Any person guaranteeing an indorsement of a certificated security makes not only the warranties of a signature guarantor under subsection (1) of this section but also warrants the rightfulness of the particular transfer in all respects."
Because Dominion Bank made only the more limited warranty given under Code Sec. 8.8-312(1), and the lenders did not receive or seek a guarantee of indorsement under Code Sec. 8.8-312(5), the only loss for which Dominion could be held liable is a loss proximately caused by the wrongful signature guarantee. However, the lenders allege that their loss arose from defects in the "rightfulness of the particular transfer." In particular, their loss arose from Thrift's refusal to honor the counterfeit stock certificate, not from their inability to utilize the stock/bond power that bore Dominion Bank's signature guarantee. Therefore, since the lenders allege facts that preclude a finding that Dominion Bank's actions were a proximate cause of their loss, we conclude that the trial court did not err in sustaining Dominion Bank's demurrer on the breach of warranty claim.
The lenders assert that the trial court erred in granting Thrift's motion for summary judgment on their action for common law conversion. They argue that Thrift's failure to recognize the interest they claim in 86 shares in Thrift constitutes conversion of the lenders' property. We disagree.
In Universal C.I.T. Credit Corp. v. Kaplan, 198 Va. 67, 92 S.E.2d 359 (1956), this Court reiterated the elements of conversion, explaining that the tort encompasses "any wrongful exercise or assumption of authority . . . over another's goods, depriving him of their possession; [and any] act of dominion wrongfully exerted over property in denial of the owner's right, or inconsistent with it." Id. at 75, 92 S.E.2d at 365.
Here, the motion for judgment alleges that the lenders "received a purported original Stock Certificate in the name of Charles Carlton"; that upon default of the principal obligor, the lenders demanded that the 86 shares of stock in Thrift "be turned over to them which has gone unsatisfied"; that 86 shares of stock in Thrift were in fact owned by Charles and Anna Carlton, which they held as joint owners; and that in November 1988, Thrift "redeemed and cancelled the 86 shares of stock in question." The lenders also allege in the motion for judgment that "Thrift's redemption of the stock assigned to the plaintiffs constitutes common law conversion."
The facts that the lenders allege do not give rise to a cause of action for conversion based upon Thrift's redemption of the valid shares held jointly by Charles and Anna Carlton. Specifically, the lenders allege no facts suggesting that, at any time, they acquired the rights of owners, including a security interest, in the 86 shares of stock actually owned by Charles and Anna Carlton. Thrift's redemption of these shares was a transaction between Thrift and the elder Carltons; it was not an action inconsistent with or in denial of any right possessed by the lenders.
Moreover, the lenders' allegations do not give rise to a cause of action for conversion based on Thrift's refusal to "turn over" to the lenders 86 shares of stock once the dishonest acts of James Carlton, Thrift's officer and transfer agent, had come to light. An action for conversion can be maintained only by one who has a property interest in and is entitled to the immediate possession of the thing alleged to have been wrongfully converted. Mullins v. Sutherland, 131 Va. 547, 554-55, 109 S.E. 420, 423 (1921).
In general, a cause of action for conversion applies only to tangible property. However, many courts have recognized the tort of conversion in cases where intangible property rights arise from or are merged with a document, such as a valid stock certificate, promissory note, or bond. See, e.g., Triple-A Baseball Club Assocs. v. Northeastern Baseball, Inc., 655 F. Supp. 513, 538-39 (D. Me.), aff'd in part, rev'd in part, 832 F.2d 214 (1st Cir. 1987), cert. denied, 485 U.S. 935 (1988); Simon v. Reilly, 151 N.E. 884, 885-86 (Ill. 1926); Lawson v. Commonwealth Land Title Ins. Co., 518 A.2d 174, 176 (Md. Ct. Spec. App. 1986); Pierpoint v. Hoyt, 182 N.E. 235, 235-36 (N Y 1932); Restatement (Second) of Torts Sec. 242 and cmt. e (1965). Nevertheless, a cause of action for conversion does not encompass claims for interference with undocumented intangible property rights. See Unlimited Screw Prods., Inc. v. Malm, 781 F. Supp. 1121, 1131 (E.D. Va. 1991); W. Page Keeton, et al., Prosser and Keeton on the Law of Torts Sec. 15, at 90-92 (5th ed. 1984).
The purported "right" the lenders assert here is an undocumented intangible property right. Specifically, they assert a right to obtain an adjudication that Thrift must honor the forged stock certificate. This "right" does not amount to a clear, definite, undisputed, and obvious property right in a thing to which they are entitled to immediate possession, sufficient to support a claim for conversion. For these reasons, we hold that the trial court did not err in granting Thrift's motion for summary judgment on the lenders' conversion claim.
In reaching this conclusion, we reject the lenders' assertion that they have a viable "conversion" action against Thrift under Code Sec. 8.8-205. The lenders failed to specify such a cause of action in their motion for judgment and did not invoke Code Sec. 8.8-205 as a possible basis for recovery until they were called upon to oppose Thrift's motion for summary judgment.
Sec. 8.8-205. Effect of unauthorized signature on certificated security or initial transaction statement. — An unauthorized signature placed on a certificated security prior to or in the course of issue or placed on an initial transaction statement is ineffective, except that the signature is effective in favor of a purchaser for value of the certificated security or a purchaser for value of an uncertificated security to whom such initial transaction statement has been sent, if the purchaser is without notice of the lack of authority and if the signing has been done by (a) an authenticating trustee, registrar, transfer agent or other person entrusted by the issuer with the signing of the security, of similar securities, or of initial transaction statements or the immediate preparation for signing of any of them; or (b) an employee of the issuer, or of any of the foregoing, entrusted with responsible handling of the security or initial transaction statement.
Moreover, the facts alleged in the motion for judgment are insufficient to state a cause of action under Code Sec. 8.8-205. Among the allegations lacking in the motion for judgment is any assertion that the lenders are "purchaser[s] for value" "without notice," which are essential elements of a cause of action based on Code Sec. 8.8-205. See New Jersey Bank, N.A. v. Bradford Sec. Operations, Inc., 690 F.2d 339, 344-45 (3d Cir. 1982); Victory Nat'l Bank v. Oklahoma State Bank, 520 P.2d 675, 677-79 (Okla. 1973); U.C.C. Sec. 8-205 cmt. 4.
Nevertheless, the lenders contend that, based on Code Sec. 8.8-205, they are entitled to a trial on the merits of their "conversion" action. We disagree, because, to reach this result, we would be required to treat the additional facts and cause of action, stated solely in opposition to the motion for summary judgment, as an amended motion for judgment. Therefore, we will not consider further the lenders' claim that they were entitled to rely on Code Sec. 8.8-205 in maintaining their "conversion" action.
The lenders assert in their motion for judgment that Thrift made representations, through its agent, James Carlton, that were false and made with the intent to deceive, so that Thrift should be held liable to the lenders for fraud. The lenders allege that the production of the manufactured stock certificate, the letter purporting to acknowledge the pledge of the 86 shares, and the representation that Charles Carlton held shares in his sole ownership, rather than jointly with Anna Carlton, were all misrepresentations made by Thrift to the lenders, upon which they relied to their detriment.
The lenders contend that the trial court erred in granting summary judgment for Thrift on the fraud claim. They assert that the issue whether they reasonably relied on Thrift's representations was a material fact in dispute, so that summary judgment was inappropriate.
In response, Thrift contends that this Court should not consider these arguments, since the lenders have failed to assign error to two independent grounds on which summary judgment was granted on the fraud claim. Thrift asserts that the trial court upheld its argument that the fraud action is barred by the statute of limitations, as well as its argument that Thrift is not liable for Carlton's representations, because he was acting outside the scope of his employment. We agree with Thrift.
[11-12] The final order states that the motion for summary judgment is granted on the fraud action "for the reasons stated in the transcript of hearing." At the conclusion of the hearing, the trial court stated only that it was ruling in favor of Thrift "on [Thrift's] reasons." We conclude from those statements that the "reasons" referred to by the trial court included these two additional grounds advanced by Thrift. While a more precise statement by the trial court would have been desirable, the lenders had both the responsibility and the opportunity to seek such clarification. Having failed to do so, they cannot seek to rely on comments that the trial court made earlier during the course of the hearing.
As Thrift notes, the lenders have failed to raise an assignment of error challenging these independent grounds adopted by the trial court in its ruling on the fraud action. Since the lenders have not appealed the ruling on these grounds, the order entering judgment for Thrift became final as to the fraud action and, thus, barred any appellate relief that might otherwise have been available to the lenders on the reliance issue that they raise here. See Crist v. Metropolitan Mortgage Fund, Inc., 231 Va. 190, 193, 343 S.E.2d 308, 310 (1986); Stamie E. Lyttle Co. v. County of Hanover, 231 Va. 21, 27, 341 S.E.2d 174, 178 (1986); Haynes v. Bekins Van Storage Co., 211 Va. 231, 233, 176 S.E.2d 342, 344 (1970).
The lenders also argue an estoppel issue arising from their fraud claim against Thrift. However, since they did not raise this issue in the trial court, we do not consider it here. Rule 5:25.
The lenders contend that the trial court erred in sustaining Thrift's demurrer on the negligence claim. In its demurrer, Thrift asserted that the lenders could not recover on a negligence theory, because the motion for judgment alleged only economic losses and did not allege that the lenders were in contractual privity with Thrift. Thus, Thrift contended in the trial court that, as a matter of law, the lenders could not prevail on a tort theory alleging Thrift's negligence and lack of due care in its hiring and supervision of James Carlton. See Sensenbrenner v. Rust, Orling Neale, 236 Va. 419, 424-25, 374 S.E.2d 55, 57-58 (1988).
The lenders' written response to Thrift's demurrer did not attempt to refute Thrift's argument that the motion for judgment failed to state a cause of action for negligence. Similarly, in their argument before the trial court, the lenders did not address their negligence theory, and their general objection to the trial court's final order did not specify that the order was erroneous for this reason. Therefore, we will not consider this argument on appeal. Rule 5:25.
For these reasons, we will affirm the judgment of the trial court. Affirmed.
The lenders also contend that the trial court erred in dismissing the case with prejudice. However, since the lenders have advanced no arguments in support of their position, either here or in the trial court, we will not consider further this contention. Rule 5:25.

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Compliance assessments that analyze compliance with §191.15 of this chapter shall assume that an individual resides at the single geographic point on the surface of the accessible environment where that individual would be expected to receive the highest dose from radionuclide releases from the disposal system.
In compliance assessments that analyze compliance with §191.15 of this chapter, all potential exposure pathways from the disposal system to individuals shall be considered. Compliance assessments with part 191, subpart C and §191.15 of this chapter shall assume that individuals consume 2 liters per day of drinking water from any underground source of drinking water in the accessible environment.
40 CFR §§ 194.51 and 194.52 (U.S. EPA 1996) of the Waste Isolation Pilot Plant (WIPP) certification criteria implement the individual protection requirements of 40 CFR § 191.15 and the groundwater protection standards of 40 CFR Part 191 Subpart C (U.S. EPA 1993). Section 194.51 requires the U.S. Department of Energy (DOE) to assume in its compliance assessments that an individual resides at the point where the dose from radionuclide releases from the WIPP would be greatest. Section 194.52 requires the DOE to consider in its compliance assessments all the potential exposure pathways for radioactive contaminants from the WIPP. Compliance with sections 194.51 and 194.52 is addressed in this single section because the criteria are closely related.
Assessment of the likelihood that the WIPP will meet the individual dose limits and radionuclide concentration limits for groundwater is conducted through a process known as compliance assessment. Compliance assessment uses methods similar to those of the performance assessment (PA) for the containment requirements, but is required to address only undisturbed performance of the disposal system. That is, compliance assessment does not include human intrusion scenarios (i.e., drilling or mining for resources). Compliance assessment can be considered a "subset" of PA.
The U.S. Environmental Protection Agency (EPA) incorporated requirements in 40 CFR Part 191 for the protection of individuals and 40 CFR 141 for the protection of groundwater. The individual protection requirements of Part 191 limit annual committed effective doses of radiation to members of the public to no more than 15 millirem (mrem). This requirement is concerned with human exposure to radionuclides from disposal systems for 10,000 years. These criteria address the definition of a protected individual, the consideration of exposure pathways, the consideration of underground sources of drinking water (USDWs), the scope of compliance assessments, and the basis for determining compliance with the Individual Protection Standards (U.S. EPA 1996).
To obtain the EPA's 1998 certification decision, the DOE was required to demonstrate a reasonable expectation that the potential releases from the undisturbed repository will result in radiation doses lower than the dose limit of 15 mrem per year, as established by section 191.15. This demonstration incorporated the provisions of sections 194.51 and 194.52, which require the DOE to identify the location of maximum potential exposure for an individual on the surface, consider all potential exposure pathways, and assume that drinking water from any contaminated underground source is consumed at the rate of two liters per day.
To demonstrate a reasonable expectation that the undisturbed performance of the WIPP will not exceed 15 mrem per year, the DOE showed that even a highly improbable, conservative case will meet the regulatory requirements, thereby suggesting that any more probable case must also be in compliance. The DOE referred to this approach as a "bounding" dose calculation because it identified an upper bound to possible exposures. The DOE's analysis is presented in the Compliance Certification Application (CCA) (U.S. DOE 1996), Chapter 8.0, Section 8.1.2.2. Supplemental analyses were also performed and are described in U.S. DOE 1997.
In the DOE's analysis, an individual receives the highest dose if one assumes that the individual consumes drinking water directly from a well in the Salado Formation located at the WIPP Land Withdrawal Boundary. The DOE assumed that an individual would receive the maximum estimated dose regardless of location on the surface and calculated the resultant doses accordingly. The EPA found this approach to be conservative and found the DOE in compliance with section 194.51.
· An individual consumes drinking water directly from the Salado.
· An individual ingests plants irrigated with contaminated water.
· An individual ingests milk and beef from cattle that consumed water from a stock pond that contained contaminated water from the Salado.
· An individual inhales dust from soil irrigated with contaminated water from the Salado.
Intended to result in the maximum dose, the DOE's assumption that water is ingested directly from the Salado is conservative, because Salado water is highly saline and would have to be greatly diluted to function as drinking or irrigation water.
The EPA determined that the DOE complied with section 194.52 because the DOE considered all potential exposure pathways and assumed that an individual consumes two liters of Salado water per day, following dilution to make the water usable (U.S. EPA 1998a).
A complete description of the EPA's 1998 Certification Decision for sections 194.51 and 194.52 is provided in the EPA's final certification decision (U.S. EPA 1998a) and in U.S. EPA Compliance Application Review Document (CARD) 51/52 (U.S. EPA 1998b).
In its 2004 Compliance Recertification Application (CRA-2004) (U.S. DOE 2004), the DOE did not report any significant changes to the information on which the EPA based its 1998 certification decision of compliance with the requirements of sections 194.51 and 194.52.
The compliance assessment combines the results of the PA (for the undisturbed case) with the dose calculation. The DOE did not modify the CCA dose-bounding calculations for the compliance assessment in the CRA-2004. Releases predicted by the CRA-2004 PAs are less than or similar to those predicted by the CCA PA results; therefore, the EPA concurred that the CCA dose bounding calculations did not need to be reexecuted for the CRA-2004 compliance assessment.
Based on the EPA's review of the activities and conditions in and around the WIPP site, the EPA did not identify any significant changes in the consideration of the protected individual and exposure pathways (see the CRA-2004, Chapter 8.0). The EPA concluded that the CRA-2004 adequately describes the location of the protected individual and the potential exposure pathways (CARD 51/52, U.S. EPA 2006a).
During its review of the CRA-2004, the EPA received no public comments on the DOE's continued compliance with the certification criteria of sections 194.51 and 194.52.
Based on a review and evaluation of the CRA-2004 and supplemental information provided by the DOE, the EPA determined that the DOE continued to comply with the requirements of sections 194.51 and 194.52 (U.S. EPA 2006a and U.S. EPA 2006b).
In support of the CRA-2009 (U.S. DOE 2009), the DOE reviewed and updated information provided in the CCA and the CRA-2004, Chapter 8.0, Individual and Groundwater Protection Requirements. The updated material was provided as Appendix IGP-2009. Changes or new information pertaining to the update are listed below.
1. The CRA-2009 evaluation showed that with undisturbed performance, only 1 of the 300 modeling system realizations resulted in radionuclide concentrations greater than zero reaching the accessible environment through the anhydrite interbeds in the Salado. The remaining 299 realizations showed no radionuclides reaching the accessible environment during the 10,000-year period (Appendix PA-2009, Section PA-7.2 ). In the case of the single realization showing releases to the accessible environment, the resulting calculated dose was an order of magnitude less than the value reported in the CCA (Appendix IGP-2009, Section IGP-2.1 ). Accordingly, the CCA calculations bound the CRA-2009 results and demonstrated continued compliance with the 40 CFR § 191.15(a) individual protection standard (see Appendix IGP-2009, Section IGP-1.0 ).
2. To update the evaluation of the presence of any USDW at or near the WIPP, information pertaining to several new boreholes was presented in Appendix IGP-2009. Relevant data pertaining to total dissolved solids concentrations and water pumping rates were provided. An evaluation of the data from the new boreholes resulted in no new or changed conclusions regarding the presence of USDWs in the WIPP vicinity (see Appendix IGP-2009, Section IGP 3.2 ).
3. An updated evaluation of maximum potential radium-226 (226Ra) and 228Ra concentrations was provided in Appendix IGP-2009. The results of this evaluation indicated that the maximum concentration at the accessible environment boundary would be well below the 5-picocurie-per-liter (pCi/L) regulatory limit imposed by 40 CFR 141.66(b); therefore, continued compliance with the 40 CFR § 191 Subpart C groundwater protection standard was demonstrated (see Appendix IGP-2009, Section IGP-3.3.2 ).
4. For the CRA-2009 evaluation, the gross alpha particle activity, including 226Ra and excluding radon and uranium at the boundary of the accessible environment, was expected to be essentially 0.07 pCi/L (equivalent to the concentration calculated for the CRA-2004). This compared with the standard imposed by 40 CFR 141.66(c) of 15 pCi/L. Continued compliance with the 40 CFR 191 Subpart C groundwater protection standard was demonstrated (see Appendix IGP-2009, Section IGP-3.3.3 ).
5. For the CRA-2009 evaluation, the maximum radionuclide concentration in the accessible environment was one order of magnitude less than the maximum bounding CCA value (Appendix IGP-2009, Section IGP-2.1 ). As such, resulting doses for the CRA-2009 case would be correspondingly lower and continued compliance with the 40 CFR § 191.15(a) annual dose equivalent standard was demonstrated (see Appendix IGP-2009, Section IGP-3.3.4 ).
6. The CCA compliance assessments assumed that an individual resides at the single geographic point on the surface of the accessible environment where that individual would be expected to receive the highest dose of radionuclide releases from the disposal system. Potential releases calculated for the CRA-2009 compliance assessment are less than those calculated for the CCA. Therefore the CCA dose calculation is bounding, and a new dose calculation was unnecessary for the CRA-2009 (see Appendix IGP-2009, Section IGP 4.0 ).
7. The CCA and CRA-2009 compliance assessments evaluated all potential exposure pathways from the disposal system to individuals. The assessments also included an assumption that individuals consume two liters per day of drinking water from any USDW in the accessible environment (see Appendix IGP-2009, Section IGP-2.2.2 ).
The DOE continued to comply with the provisions of sections 194.51 and 194.52 (see Appendix IGP-2009, Section IGP-4.0 ).
Based on the EPA's review of the CRA-2009 and activities and conditions in and around the WIPP site, the EPA did not identify any significant changes in the consideration of the protected individual and exposure pathways. The EPA concluded that the CRA-2009 adequately describes the location of the protected individual and the potential exposure pathways (CARD 51/52, U.S. EPA 2010a).
During its review of the CRA-2009, the EPA received no public comments on the DOE's continued compliance with the certification criteria of sections 194.51 and 194.52.
Based on a review and evaluation of the CRA-2009 and supplemental information provided by the DOE, the EPA determined that the DOE continued to comply with the requirements of sections 194.51 and 195.52 (U.S. EPA 2010a and U.S. EPA 2010b).
In support of the CRA-2014, the DOE reviewed and updated information provided in the CCA and previous CRA's sections relating to Individual and Groundwater Protection Requirements. The updated material is provided in Appendix IGP-2014. Changes or new information pertaining to the update are listed below.
1. The CRA-2014 evaluation showed that for the undisturbed performance scenario, none of the 300 modeling system realizations resulted in radionuclide concentrations greater than zero reaching the accessible environment through the anhydrite interbeds in the Salado Formation over the 10,000-year compliance period (Appendix PA-2014, Section PA-7.2 ). As with all previous CRAs, the CCA calculations bound the CRA-2014 results and are used to demonstrate continued compliance with the 40 CFR § 191.15(a) individual protection standard (see Appendix IGP-2014, Section IGP-1.0 ).
2. Because there were no realizations with concentrations greater than zero reaching the accessible environment, an updated evaluation of maximum potential 226Ra and 228Ra concentrations was unnecessary and was not provided in Appendix IGP-2014. Therefore, the PA results demonstrate continued compliance with the 40 CFR § 141.66(b) groundwater protection standard because they are below the 5-pCi/L regulatory limit (see Appendix IGP-2014, Section IGP-3.3.2 ).
3. For the CRA-2014 evaluation, the gross alpha particle activity, including 226Ra and excluding radon and uranium at the boundary of the accessible environment, was zero. Continued compliance with the groundwater protection standard limit defined in 40 CFR § 141.66(c) of 15 pCi/L was demonstrated (see Appendix IGP-2014, Section IGP-3.3.3 ).
4. The bounding CCA compliance assessments assumed that an individual resides at the single geographic point on the surface of the accessible environment where that individual would be expected to receive the highest dose of radionuclide releases from the disposal system. Potential releases calculated for the CRA-2014 compliance assessment are zero and therefore less than those calculated for the CCA. As has been done for all previous CRAs, the CCA dose calculation is used as the bounding case and a new dose calculation is unnecessary for the CRA-2014 (see Appendix IGP-2014, Section IGP 4.0 ).
5. The bounding CCA compliance assessments evaluate all potential exposure pathways from the disposal system to individuals. The assessments also included an assumption that individuals consume two liters per day of drinking water from any USDW in the accessible environment (see Appendix IGP-2009, Section IGP-2.2.2 ).
The DOE believes the information provided in this section demonstrates continued compliance with the requirements of 40 CFR 194.51 and 194.52 (see Appendix IGP-2014, Section IGP-4.0 ).


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I. What are the alternatives after “Safe Harbor”?
…and will controllers that aid spy systems get away with them?
Many argued that large B2C businesses (the “household brands” of the net) will simply add a “disclaimer” to their privacy policies that will take care of international data transfers – a very American legal approach that will very likely fail under EU law.
While there are cases where this can be a proper tool for most the of the “average” data transfers, it seems that transfers to controllers that are involved in US mass surveillance (e.g. when data is stored in the Apple, Google, Yahoo or Microsoft Cloud) will not be legal under this approach.
When it comes to such massive interference with fundamental rights, most national data protection authorities will very likely scrutinize these “consents” very closely.
Consent has to be at least 1. freely given, 2. specific, 3. informed and 4. unambiguous under Directive 95/46/EC. Some national laws add additional requirements. Consumer rights laws in the EU, such as Directive 93/13/EEC limit the ability to “hide” consent clauses in terms.
Let’s take Facebook as an example: As the Irish High Court and the CJEU has held, Facebook aids US spy agencies for mass surveillance. This form of “mass surveillance” is a violation of Art 7 and 8 CFR as we now know. In theory users can arguable waive their fundamental right to privacy and data protection (mind that some scholars oppose this view). For this text, let us assume consent can be a possible option in some jurisdictions. But how would a valid (!) consent e.g. to Facebook’s transfer of data look like?
To get a valid consent Facebook in our example would have to be very upfront and explain that all data that is used on facebook.com is subject to mass and indiscriminate surveillance by the US government. Any wording that leaves ambiguity (like the typical phrases that leave the actual fact open “may be subject to” or are unclear on the actual form of surveillance “is subject to US law”) would very likely not survive a proper review by DPAs or Courts.
A legally binding consent under EU law can be done technically, but very likely Facebook would automatically violate the “gag order” that applies to them under US law. So basically they are trapped between US “gag orders” prohibiting proper information and EU law demanding exactly that.
The second big issue with consent for services that have effectively become a utility for many users is the requirement that consent must be “freely given”. If a user has the options to only safe his fundamental right to privacy if he loses all his contacts, pictures, personal messages, postings, emails and so on, he will not make a “free” decision to waive his fundamental rights, but make this decision under severe pressure. So a user does not “freely” ask to get his data shipped to the NSA, but only does so to not be “cut off” from the most common communication tools (not only) of the younger generation.
This is not even taking into account that some member states have even stricter laws and case law on what constitutes legally binding “consent” and the debate that consent can be revoked, in which case Facebook would have to instantly move data back to Europe.
In cases where data transfers previously relied on Safe Harbor and a US controller or processor is obviously not subject to US mass surveillance laws, this may however be a reasonable option.
A large number of businesses will very likely move towards contractual solutions for B2B data transfers. This is the logical consequence and many businesses that had good legal advice have backed up ‘safe harbor’ with these solutions before the CJEU ruling.
However, SSCs and BCRs cannot override the arguments made by the CJEU on mass surveillance under the Charter of Fundamental Rights (CFR). For persons not familiar with EU law, the CFR is the EU’s “bill of rights” that overrides, just like a constitution, any EU law. Directive 95/46 has to be interpreted in the light of the CFR, as the CJEU has held continuously. So the same issues that lead to the invalidation of the ‘safe harbor’ decision, can be brought before any national DPA in the 28 member states, when a data subject claims that these contractual solutions do not properly protect the fundamental rights of the data subject.
The relevant Decisions 2001/497/EC, 2004/915/EC and 2010/87/EU all have a clause that caters for exactly this situation, and allow DPAs to suspend data flows if “it is established that the law to which the data importer is subject imposes upon him requirements to derogate from the relevant data protection rules which go beyond the restrictions necessary in a democratic society as provided for in Article 13 of Directive 95/46/EC where those requirements are likely to have a substantial adverse effect on the guarantees provided by the standard contractual clauses”. This section is taken from Art 4(1)(a) of Decision 2001/497/EC, the other decisions have similar exceptions.
The question if US surveillance laws go beyond the level allowed under Art 13 of Directive 95/46/EC was clearly established by the CJEU. National DPAs may still have certain latitude when deciding whether these laws (in the concrete situation) are “likely to have a substantial adverse effect”. Here DPAs may look at each case individually. This is also supported by Art 25(2) of Directive 95/46/EC, that requires that the “level of protection” shall be “assessed in the light of all the circumstances surrounding a data transfer operation”.
However for US companies that are very likely to actively aid US spy programs (e.g. Yahoo, Google, Apple, Microsoft or Facebook that are engaged in the PRISM program) there will be no reasonable DPA or court that would come to the conclusion that there is no “likeliness of a substantial adverse effect” in the light of the CJEU judgment.
If a case involves data transfers to US controllers or processors that are not typically a target for US mass surveillance, a EU controller may be able to argue that the CJEU judgement does not apply to the individual data transfer, if there is no factual likeliness that US spy programs are accessing certain data.
If data is however outsourced to businesses that factually aid US mass surveillance, or in cases where there are reasons to belief that this could be the case, DPAs will have to suspend data flows under the CJEU ruling, as the fundamental rights of the data subject would not be effectively protected under any contractual arrangement. US law would override these arrangements just like it overrides a ‘safe harbor’ certification, which is why the relevant clauses in Decisions 2001/497/EC, 2004/915/EC and 2010/87/EU will kick in – especially if interpreted in the light of Art 7 and 8 CFR and the CJEU judgment.
This situation is also foreseen in the standard contractual clauses of the European Commission. On a contractual level a EU business can simply quit the contract. See e.g. Clause 5(b) of the Annex to Decision 2010/87/EU (the data importer “has no reason to believe that the legislation applicable to it prevents it from fulfilling the instructions received from the data exporter and its obligations under the contract and that in the event of a change in this legislation which is likely to have a substantial adverse effect on the warranties and obligations provided by the Clauses, it will promptly notify the change to the data exporter as soon as it is aware, in which case the data exporter is entitled to suspend the transfer of data and/or terminate the contract”). Equivalent clauses can also be found in Decision 2001/497/EC and 2004/915/EC. This clause is very wide and basically allows termination of any data transfer deal to the US when any US surveillance law applies to a processor or controller. From a commercial perspective this may be an option to terminate contracts after the CJEU ruling without any additional costs.
So while BCRs and SCCs are very likely the only (somewhat legally stable) alternative after ‘safe harbor’ is history, they will hardly stand a challenge before national DPAs if the US recipient of personal data is subject to mass surveillance (e.g. when data is stored in the Apple, Google, Yahoo or Microsoft Cloud).
Even in other cases it would be wise to analyze e.g. 50 USC § 1881a or EO 12333 and ensure that a US controller or processor is not subject to these laws (let alone factually participating in mass surveillance programs like PRISM) as some DPAs may be inclined to look at the protection under the law in the abstract – not the factual situation. Such an abstract approach seems reasonable given that Art 25 and 26 of Directive 95/46/EC are based on the need to assume the general level of protection in a third country, as a European DPA cannot undertake factual investigations in such a third country and e.g. ensure that there is factually no “back door” in systems. In other words: The law protects data not to be sent to a country that does not provide adequate protection, as it is not to be expected that another Edward Snowden will come around the corner every week and e.g. give regular updates on the controllers and processors that the NSA is currently using for mass surveillance. This would basically mean that e.g. 50 USC § 1881a, applying to all US “electronic communication service providers” (see definition at 50 USC § 1881), would allow (or more likely force) DPAs to suspend data flows to these US providers because of the abstract application of a law to them, that does not comply with Art 7, 8 and 47 CFR.
Bottom line here: While (1) controllers and processors in the US that are not subject to relevant surveillance laws can safely rely on SCCs and BCRs, this gets (2) more tricky when they are (at least from a legal perspective) subject to these laws and (3) basically impossible if there is good evidence or a very high likeliness that they are also factually aiding in these systems (e.g. in the case of the “PRISM” companies).
There are number of other derogations in Art 26 of Directive 95/46/EC that will apply typically to individual data transfers in individual cases and remedy the most common data transfers in daily business. This short text is not intended to dive into these situations as well, but I quickly want to mention that the CJEU ruling under the CFR will apply to these transfers just as well.
However in many cases “mass surveillance” will not be a factual consequence of such transfers. When e.g. a normal order is sent to the US for the “performance of a contract” or data is sent for the “vital interests of the data subject”, as these individual bits of information will hardly end up in a mass surveillance system that is aided by the recipient. Surveillance on the networks are another story of course – but a matter of data security, not international transfers. Most of the daily business transactions will therefore be able to use one of the derogations in Art 26 of Directive 95/46/EC, just like they are used when transferring data to most other countries in the world.
II. Will we soon see a „Safe Harbor 2.0“? …what are the requirements for a new deal?
The CJEU judgment in case C-362/14 sent shock waves through the privacy community. Many hope for a swift adoption of a “new” Safe Harbor decision. However, if the judgment is analyzed in this respect, it seems the European Commission and the US government would have to start from scratch in many respects. In this short comment I would like to just name a few requirements that can be derived from the CJEU judgment, while there are clearly many other issues to be addressed.
At the core of the current Directive 95/46 is the word “adequate”. In the original draft of Directive 95/46 used wording intended to require basically the same level of protection, but was changed in towards “adequate”. Years later the Charter of Fundamental Rights (CFR) came into force which has a strong influence when interpreting Directive 95/46. Especially ambiguous wording is routinely interpreted by the CJEU not only under Art 7 and 8 CFR, but also in light of the aim of the Directive to provide a high level of protection.
The CJEU has now clarified that a third country has to provide “essentially equivalent” (see p. 73 and 74 of the judgment) protection as under Directive 95/46 and the CFR.
So far many argued that “adequate” (maybe the most ambiguous word that could have been used) should mean something that amounts to some “basic protection” that are somewhat “inspired” by EU law – to put it simple. This is not the relevant definition of “adequate” anymore.
This definition will be a major problem for commercial data usage, as the ‘safe harbor principles’ (SHPs) and the ‘safe harbor’ FAQs provided a weak shadow of the principles in Directive 95/46. We have submitted a short review of the differences between the SHPs and Directive 95/46 by Prof. Boehm to the CJEU to illustrate just some of the shortcomings.
The CJEU has (as expected) not addressed cases of private data processing, as the ‘safe harbor’ was already found to be invalid under the ‘core issues’ of the case. The SHPs where therefore not discussed. For any ‘safe harbor 2.0’ the “essentially equivalent” standard will however still be the relevant case law. A ‘safe harbor 2.0’ will therefore need to come with new SHPs that would have to be more or less a 1:1 copy of the principles in Directive 95/46. Otherwise any challenge to a new ‘safe harbor’ will very likely be successful, which means that controllers will find no legal certainty in a quick fix based on the old SHPs and FAQs.
Some may think about a possible change of the requirements to transfer data to third countries in the proposed EU data protection regulation, but as the CJEU’s interpretation is based on Art 8 CFR, I doubt that this would be an option. Instead a regulation that sets a much lower bar may itself violate Art 8 CFR. The regulation will also only come into force in 2018, so this will hardly be a reasonable option for an instant fix.
Bottom line: The COM and the US would need to agree on new ‘safe harbor principles’ that must be basically a copy of Directive 95/46. The old SHPs will not be sufficient to withstand a challenge at the CJEU.
Next the CJEU requires that “adequate protection” includes “effective detection and supervision mechanisms” (p. 81 of the judgment). This goes clearly beyond what the ‘safe harbor’ has so far provided.
While there is private arbitration under ‘safe harbor’, the private arbitrators have no power to factually investigate complaints, so private arbitration bodies will not be able to fulfill the requirements under the current system to basically replace a DPA. There may be options to strengthen these bodies, but this will not be easy as they simply lack the powers of a public authority.
At the same time the FTC has not really done solid enforcement of the ‘safe harbor’, despite many claims to the contrary. The often named cases brought only under ‘safe harbor’ by the FTC were formal violations of the ‘safe harbor’ (lapsed certifications or false claims of certification).
All three (!) cases of material violation of consumers’ privacy enforced by the FTC since 2000 were in reality based a violation of US law. The material violation of ‘safe harbor’ was basically a side note in all three cases. There was no case where a company was found to violate the ‘safe harbor’ only. So in the end there is effectively no case where ‘safe harbor’ certified companies were held to a higher standard in material privacy protection. If a US company was certified, they mainly statically only ran the risk to have the FTC knocking on their doors if their (most basic) paperwork was not in order.
While it is a reasonable PR strategy by the US government to name the overall number of enforcement actions, the factual enforcement by the FTC did not lead to a really higher standard among ‘safe harbor’ companies – and everyone in the privacy community knew. Some also acknowledge this when they say that a switch to BCRs or SCCs will mean a real difference for US businesses. It is still very frustrating to see how the myth of serious enforcement of the ‘safe harbor’ is repeated over and over, also on the European side.
This is not to say that the FTC has a long list of enforcing other privacy violations, but statistics are clear that ‘safe harbor’ is not the tool that leads to serious enforcement in practice.
Finally the CJEU requires that violations are “identified and punished in practice”, which seems to at least conflict with the FTC’s approach of mainly working with settlements.
To be fair: This standard for enforcement is high and some EU member states (e.g. Ireland) would not fulfill this requirement. But from a legal perspective the lacks of enforcement within the EU is an issue for an infringement procedure by the COM or legal challenges in Europe, not US adequacy. Just because some of the 28 member states do wrong does not mean that a third country can refer to these weakest links in Europe. This argument is therefore valuable form a political standpoint, but will very likely not hold the CJEU back from requiring solid enforcement in the US.
We have argued that the SHPs do not constitute “domestic law or international commitments” (see Article 25(6) of Directive 95/46). The CJEU has (without any further debate) not followed this formalistic argument. Instead the CJEU confirmed that “adequate protection” can in theory be provided by a self-certification mechanism – not only by laws or international commitments (see p. 81 of the judgment).
But the arguments further employed by the CJEU show that the practical implementation of a “self-certification” mechanism quickly get messy.
The CJEU e.g. criticizes that US authorities are not covered by the ‘safe harbor’ (p. 82 of the judgment). This is the natural result of a private self-certification mechanism, which is by its very nature only open to private controllers. But this still creates a legal vacuum when data is forwarded to US state actors in general. Here the CJEU is not even addressing ‘mass surveillance’ but just normal transfers. There may be a number of laws and practices in the US that governing data handling by authorities, but they have to be assessed and considered for a new ‘safe harbor’. It would take a lot of research to identify the laws and regulations in all federal, state and local authorities to ensure they all comply with EU standards.
The CJEU notes a number of times that the limitations of the SHPs are basically a blanket exception (see e.g. p 85 and 88 of the judgment). Under EU law, such a blanket exception must fail any proportionality test under Art 52(1) CFR.
Simply put, from a EU legal perspective there is a big “black hole” in the protection under the ‘safe harbor’ system, with no proper limitation. Basically any law that exists in the US, which does not fulfill the proportionality test of the CFR will creep out of this hole in the SHPs and lead to a processing operation that invalidates the Commission decision.
So while the CJEU does not generally say that self-certification does not fulfill the formal requirements of Article 25(6), an approach where any national law automatically overrides a self-certification would effectively need a review of all relevant laws and practices of a country.
So a “mixed system” where self-certification and domestic laws go hand in hand is possible according to the CJEU, even if the adequate protection is not enshrined in a “domestic law”, but at the same time all potentially conflicting national laws need to be considered and found to be “essentially equivalent” to EU law.
If this thought is continued, a self-certification approach would only be a reasonable system in third countries where all potentially conflicting laws provide “essentially equivalent” protection as Directive 95/46, but there is simply no data protection law for the private sector.
Given current US surveillance laws and orders, the lack of any constitutional guarantee for non-US persons and the almost endless options of legal duties under federal, state and local laws and orders (for instance FISA, EO 12333) that could override the SHPs, it is hard to imagine that the COM could make “sufficient findings” (p. 83) to make a new ‘safe harbor’ decision that is based on self-certification mechanism unless there are severe changes in US law.
Finally the CJEU found that the COM has denied the national DPAs in 28 member states their authorities under Art 28 of Directive 95/46. A new ‘safe harbor’ would therefore need some kind of general allowance for national DPAs to take action, despite a finding of adequacy.
All existing adequacy decisions already have a “back door” built in (see e.g. Art 3 of the ‘Safe Harbor’ Decision) but following the CJEU ruling they will need to be much more open to the concerns of individual DPAs. This basically means that even if the European Commission and the US can agree on a new ‘safe harbor’ system, national DPAs may still restrict data transfers in cases where they feel that the privacy rights of data subjects are violated.
Any new adequacy decision will therefore be much more of a “general rule” than a “blanket allowance”. In cases of mass surveillance national DPAs will be able to prohibit data transfers, just like under alternative transfer methods under Art 26 of Directive 95/46.
Finally the CJEU addresses the core issue of the complaint: mass surveillance.
After the data retention ruling, the result on mass surveillance did not come as a surprise to persons familiar with EU law. The CJEU consequently notes that there is no finding by the European Commission that the US government’s interference with the right to privacy is limited to what is strictly necessary and proportionate for the protection of the national security of the US.
Interestingly the CJEU has even found that the “access on a generalized basis” to the “content of electronic communication” is a violation of the “essence” of Art 7 CFR – which is a biggie for EU lawyers (see p. 94), because if a measure violates the essence of fundamental rights, there is no chance to justify this measure in a proportionality test. In simple terms “drag net surveillance” of content data is “off the scale” of any proportionality test. This is also very important case law for surveillance systems of EU member states.
I am aware that this factual claim is very much disputed by the US, but the facts were undisputed within the EU. The recent counter arguments from the US government are also mainly based on a wrong understanding of EU data protection law. It is important to understand that the mere “making available” of data (so e.g. providing an API that allows direct access) constitutes an interference with Art 8 CFR. At the same time this is not even remotely touching on a person’s rights under US law. In summary, measures that are not even relevant under US law can easily be “mass surveillance” under EU fundamental rights. EU law has a much broader scope of protection that goes far beyond the actual misuse of data, but is also focused on the possibility of misuse and loss of control. This was also highlighted in the data retention ruling, where the mere storage of “meta data” at telecom providers for potential use in individual cases was seen as a violation of the CFR – a system that the US proposes as a “privacy friendly” alternative to government collection.
The fact that these programs are secret makes fact-finding very complicated. When the US mission to the EU has criticized that the advocate general should have investigated the facts further, it seemed rather absurd, given the secret nature of all details. From a legal perspective the CJEU is also not engaged in fact-finding, but relies on the facts established by the referring court (in this case the Irish High Court).
In relation to the US government’s interference with the right to privacy (e.g. in national security cases), the CJEU also notes that there is no effective legal protection for non-US persons (p 89). The question of judicial oversight and individual redress is actually also debated within the US. It will be very hard to see how this requirement by the CJEU can be implemented in US law, as not even US persons have reasonable options to take action against US mass surveillance programs – let alone non-US persons that cannot rely on the Bill of Rights.
At this point I would also like to quickly address the “hypocrisy” argument from the US side, basically arguing that some (!) EU member states are running similar systems. This is very true, but ignores the fact that the CJEU has no jurisdiction in this respect, as “national security” is a national matter under EU law. The CJEU has struck down the data retention directive (a system that is seen as rather privacy friendly in the US), where it had jurisdiction. It will be upon the national constitutional courts of EU member states and the ECtHR in Strasbourg to use the case law in C-362/14 and apply it to national surveillance as well. In contrast to the US constitutional system, fundamental rights, including forms of redress are also open to everyone – not just to EU citizens. So while the laws of many EU member states are far from perfect, there is at least the possibility that courts could strike down this situation.
This ruling will be very useful for the fight against mass surveillance in Europe. While Art 7 CFR does only apply to EU laws and acts, the exact equivalent in Art 8 ECHR will also apply to mass surveillance under domestic EU law. We will surely see cases that will end up at the relevant ECtHR in Strasbourg, where the decision by the CJEU that is limited to EU law will hopefully be very helpful case law in cases of national surveillance laws. To be clear: There is no doubt that a lot of work on this side of the Atlantic has to be done as well. Given the application of the ECHR there is also a reasonable chance that these issues could be solved sooner or later.
Summary: Will we see a ‘Safe Harbor 2.0’ soon?
At first I expected the European Commission to patch the current ‘safe harbor’ within weeks or months. This is also the approach the European Commission is currently working on.
After a second review of the judgment of the CJEU it will be very hard to come up with a solution that addresses all problems identified by the Court, given the US position. It also seems questionable if a ‘safe harbor 2.0’ will have real benefits for US controllers in practice compared to transfer methods under Art 26 of Directive 95/46.
While all issues brought up by the CJEU could be solved in theory, the US government will very likely not be able and/or willing to limit surveillance laws to an extent that they comply with all requirements of the CFR in respect to the right to privacy. To come up with effective judicial protection for non-US persons seems politically impossible, as this was not even possible for US citizens. Even the attempt to enact a Judicial Redress Act and the proposed “Umbrella Agreement” show that that the two sides can only reach agreement for very limited safeguards, that are far from what the CJEU now requires.
In addition a ‘safe harbor 2.0’ would have to include much stricter limitations for businesses. The times where US companies could get away with SHPs (that could be easily circumvented) are over. Any new SHPs must stand the “essentially equivalent” test, if they should survive another challenge at the CJEU. Once this is realized, the interest of businesses in a new ‘safe harbor’ may be rather limited, especially after everyone will have to move to SCCs and BCRs to bridge the gap period anyway.
Washington will very likely end up to choose between a major reform of US surveillance laws and a redraft of the ‘safe harbor’ program (that will basically need to be a copy/paste from Directive 95/46 in order to have a system that withstands a new CJEU challenge) or a simply live with a more burdensome data transfer under Article 26 of Directive 95/46. It would not be unreasonable to pick the second option.
Controllers that can reasonable claim that they are not factually aiding mass surveillance should be able to get away if the national DPAs are reviewing data transfers under Art 26. But US controllers which factually comply with the relevant surveillance laws in the US (right now according to the Snowden documents e.g. Apple, Google, Facebook, Yahoo, AOL or Microsoft) the CJEU ruling may require serious reorganization. As the core findings of the CJEU ruling are based on the CFR, they will equally apply to all transfer methods under Art 26 and any new ‘safe harbor’.
Depending on the situation measures for the relevant US businesses could reach from contractual changes to let data flow differently (e.g. directly from data subjects to the US), separation of US and EU products, sacrificing tax avoidance schemes that involve EU headquarters to avoid EU jurisdiction, all the way to data localization.
Despite contrary initial claims, it seems like major players that are factually involved in programs like PRISM will have to take very complicated and costly measures. At the same time businesses whose core business is not in data processing, may just need to switch to another legal basis for data transfers.
It will be very interesting to watch the dynamics in the coming months. After thinking through the options under the CJEU ruling, it seems that the intended “quick fix” will hardly lead to a new ‘safe harbor’ that provides the necessary legal certainty for controllers. Minding that the two parties have debated for two years to not even get the (very weak) “13 recommendations” program by the European Commission done, it seems a switch to “alternative” transfer methods under Art 26 will be more reasonable than hoping for a ‘safe harbor 2.0’.

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I urge every informed reader who lives in the United States to write to his or her Congressman to urge rejection of the RIAA-backed Pro-IP Act, which does the exact opposite of what Judge Davis has urged Congress to do.
The matter is of extreme urgency because the Senate has passed the bill unanimously.
Thanks to Slashot for the information.
Although the brief states that it is submitted on behalf of "neither party", it takes issue with arguments made by plaintiffs in connection with the parties' summary judgment motions.
RIAA's $222,000 verdict in Capitol v. Thomas set aside. Judge rejects 'making available'; attacks excessive damages.
In Capitol v. Thomas, District Judge Michael J. Davis has set aside the jury's $222,000 verdict and ordered a new trial, ruling that his jury instruction -- which accepted the RIAA's "making available" theory -- was erroneous. He also rejected the 'offer to distribute' theory.
The Court would be remiss if it did not take this opportunity to implore Congress to amend the Copyright Act to address liability and damages in peer to peer network cases such as the one currently before this Court. The Court begins its analysis by recognizing the unique nature of this case. The defendant is an individual, a consumer. She is not a business. She sought no profit from her acts. The myriad of copyright cases cited by Plaintiffs and the Government, in which courts upheld large statutory damages awards far above the minimum, have limited relevance in this case. All of the cited cases involve corporate or business defendants and seek to deter future illegal commercial conduct. The parties point to no case in which large statutory damages were applied to a party who did not infringe in search of commercial gain.
The statutory damages awarded against Thomas are not a deterrent against those who pirate music in order to profit. Thomas’s conduct was motivated by her desire to obtain the copyrighted music for her own use. The Court does not condone Thomas’s actions, but it would be a farce to say that a single mother’s acts of using Kazaa are the equivalent, for example, to the acts of global financial firms illegally infringing on copyrights in order to profit in the securities market. Cf. Lowry’s Reports, Inc. v. Legg Mason, Inc., 271 F. Supp. 2d 42 737, 741, 42 (D. Md. 2003) (describing defendants as a “global financial services firm” and a corporation that brokers securities).
While the Court does not discount Plaintiffs’ claim that, cumulatively, illegal downloading has far‐reaching effects on their businesses, the damages awarded in this case are wholly disproportionate to the damages suffered by Plaintiffs. Thomas allegedly infringed on the copyrights of 24 songs the equivalent of approximately three CDs, costing less than $54, and yet the total damages awarded is $222,000 – more than five hundred times the cost of buying 24 separate CDs and more than four thousand times the cost of three CDs. While the Copyright Act was intended to permit statutory damages that are larger than the simple cost of the infringed works in order to make infringing a far less attractive alternative than legitimately purchasing the songs, surely damages that are more than one hundred times the cost of the works would serve as a sufficient deterrent.
Thomas not only gained no profits from her alleged illegal activities, she sought no profits. Part of the justification for large statutory damages awards in copyright cases is to deter actors by ensuring that the possible penalty for infringing substantially outweighs the potential gain from infringing. In the case of commercial actors, the potential gain in revenues is enormous and enticing to potential infringers. In the case of individuals who infringe by using peer-to-peer networks, the potential gain from infringement is access to free music, not the possibility of hundreds of thousands – or even millions – of dollars in profits. This fact means that statutory damages awards of hundreds of thousands of dollars is certainly far greater than necessary to accomplish Congress’s goal of deterrence.
Motion to dismiss or for more definite statement denied in PA case, SONY v. Cloud. Defendant moves for reconsideration.
We have just learned of a case in Philadelphia, SONY BMG Music v. Cloud, where the defendant moved to dismiss the complaint or for a more definite statement, the Court denied the motion, and the defendant has moved for reconsideration, or for the certification of an interlocutory appeal.
We have recently learned that the class action which had been commenced in Chicago, in 2006, against Kazaa, Lewan v. Sharman, was quietly settled, last Fall, in an off-the-record settlement.
A thoughtful article has appeared in the Minnesota Journal of Law, Science & Technology, a publication of the University of Minnesota School of Law, authored by law student Daniel Reynolds.
The Recording Industry Association of America (RIAA)’s lawsuit campaign against copyright-infringing file sharing is controversial. Many critics allege that this campaign is unfair and paint the RIAA as mean and a bully. Some critics even claim that the RIAA is subversive toward the rights of the public. At the same time, any file sharers continue to violate the distribution and reproduction rights of copyright holders, record labels, and artists, all who have justified expectations of payment for heir products.
This Note examines the RIAA’s approach and alternative approaches to the file sharing problem, and proposes an integrated, comprehensive strategy for dealing with the problem of illegal file sharing. Part I provides a background on the RIAA and its opinions, the development of the RIAA lawsuits, the public backlash against these lawsuits, and the relevant law. Part II describes the challenges to be met by any solution to the file sharing problem, reviews a series of proposals for their strengths and weaknesses, and sets forth a strategy that balances the strengths of a number of previous proposals against each other’s weaknesses. This Note concludes with the assertion that the file sharing problem is solvable without wasteful, unpopular lawsuits or major changes to the law, provided that the music industry is willing to adapt to and take cues from the consuming public.
Reynolds, Daniel. Note. The RIAA litigation war on file sharing and alternatives more compatible with public morality. 9 Minn. J. L. Sci. & Tech. 977-1006 (2008).
The San Antonio, Texas, case of Maverick Recording Co. v. Harper, in which the RIAA is pursuing a young lady who was 16 years of age at the time of the alleged infringement, will proceed to a jury trial on November 17th over the issue of whether she is entitled to the innocent infringement defense, which might reduce the statutory damages from $750 to $200.
The judge has previously ruled that the RIAA must proceed to trial on this issue unless it were willing to accept $200 per infringement, since there are many material factual issues that must be decided by the jury.
This will be only the second known jury trial in the RIAA litigation campaign, and the first to focus on the innocent infringement defense.
When: Monday, November 17, 2008, 9:30 A.M.
The trial is open to the public.
In UMG Recordings v. Lindor, the RIAA has made a motion to voluntarily dismiss its case without prejudice, and for "discovery sanctions" against defendant and her counsel.
Keywords: lawyer digital copyright law online internet law legal download upload peer to peer p2p file sharing filesharing music movies indie independent label freeculture creative commons pop/rock artists riaa independent mp3 cd favorite songs intellectual property portable music playerTo contribute to Marie Lindor's legal defense, see below.
In Elektra Entertainment v. Licata, Magistrate grants RIAA motion to withdraw case, denies attorneys fees for defendant. Mr. Licata appeals.
In another "throwing in the towel" case, this one in Cincinnati, Ohio, Elektra v. Licata, the Magistrate Judge has (a) granted the RIAA's motion for voluntary dismissal without prejudice, (b) denied defendant's motion for attorneys fees, and (c) denied Mr. Licata's motion to dismiss the complaint as "moot".
The Magistrate Judge reasoned that Mr. Licata had the duty to inform plaintiffs sooner that his children were planning to "take the Fifth Amendment".
Mr. Licata has filed objections to the Magistrate Judge's decision, which will be determined by the District Court Judge.
Last week, the Senate Judiciary Committee gave the green light to S. 3325, the Enforcement of Intellectual Property Act of 2008. We need you to show them the red light, NOW! This intellectual property enforcement bill lets the DOJ enforce civil copyright claims and lets the government do the MPAA and RIAA’s copyright enforcement work for them—at the taxpayers’ expense.
Does the content industry need this help from the Department of Justice? Absolutely not! In the last five years, the RIAA filed or threatened more than 30,000 suits against alleged infringers. If the Enforcement bill passes, not only will the number of such suits increase—they’ll also be paid for with your tax dollars.
Now, the bill’s backers are pushing to have it pass the Senate as early as today via a streamlined procedure, without the full Senate voting on the measure. Tell members of the Senate Judiciary Committee that you don’t want your tax dollars spent on DOJ’s civil enforcement of copyright, and to put a hold on the bill.
Interesting article on URLWire: "Singer Songwriter Tom Fox Offers Legal Free MP3 Downloads"
Tom Fox is an award-winning international guitarist, singer and songwriter who has come up with a simple solution to the problem of digital distribution of his music: Give it away.
Guitarist, singer and songwriter Tom Fox is one of a small but growing group of artists giving away music for free rather than charging or having fans fined for stealing it. On his Web site at foxtunes.com, Tom has made CDs of free music downloads available, including songs from "Midnight Rain" (which was nominated for two independent music awards) and "Slowly" (which garnered radio spins on both sides of the Atlantic).
“Offering free MP3s can accelerate the growth of your online listener base, which ultimately can generate exposure in the form of gig offers, Internet and satellite/terrestrial radio play (generating royalties) and traffic to your site," he said.
In a new case, targeting students at the State University of New York's Albany, New York, campus, two "John Doe" students -- one of them named twice as different John Does -- have joined together, hired an attorney, and made a motion to quash the RIAA's subpoena seeking their, and other students', identities, in Arista Records v. Does 1-16.
-the Court should award attorneys fees to defendants.
This litigation campaign has been seriously detrimental to the administration of justice and the public policy need to establish clear boundaries to copyright law. Repeatedly, the RIAA has used questionable and illegal investigations, unsupported and erroneous legal theories, and hardball and abusive litigation tactics against individuals who, it may safely be assumed, do not normally find themselves forced to defend their personal use of computers in federal courts. These individuals have the choices of paying the RIAA’s non-negotiable pre-litigation settlement demand (usually between $3000 and $5000), or defaulting, or defending themselves, either pro se or with counsel, if they can afford it. Few can. The RIAA has sued mostly working-class individuals, students, children, the disabled, the homeless and even the dead. They have frequently sued entirely innocent persons and are quite cavalier about the burden they impose on the legal process and the federal judiciary, and the effects of such frivolous suits on their defendants. Moreover, they are apparently in contempt of a district court’s order forbidding them from bringing actions against unrelated individuals, contrary to the joinder provisions of F.R.Civ.P. 20 and 21. See In re Cases Filed by Recording Companies” ILRWeb (P&F) 3053 (W.D.Tex. Nov. 17, 2004)(“Plaintiffs are ordered to file any future cases of this nature against one defendant at a time, and may not join defendants for their convenience.”). Yet they have done precisely that, hundreds if not thousands of times.
In one of the Portland, Maine, cases targeting students at the University of Maine, Arista v. Does 1-27, where a group of 8 students are represented by the MittelAsen law firm, and 2 other students are represented by student attorneys from the University's Legal Aid Clinic, oral argument was held on Friday, according to a report from the Bangor Daily News.
Student attorney Jason Rayne, a law student at the University of Maine, working with the Cumberland Legal Aid Clinic, argued the motions on behalf of the students represented by his clinic.
Prominent Portland attorney Bob Mittel argued on behalf of the students represented by his firm.
Defendants filed a supplemental memorandum, reminding the judge that only admissible evidence is permitted to be considered.

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BEATRICE TINDALL vs. DENHOLM AND MCKAY COMPANY.
The arrangements between the proprietor of a large city department store, an insured under the Workmen's Compensation Act, G. L. c. 152, and an insured independent contractor operating a millinery department at several locations in the store showed as a matter of law that the millinery department was part of the business or "work" of the proprietor within Section 18 of the act, so that the doctrine of "common employment" barred an action of tort against the proprietor under Section 15 for personal injuries sustained in the store by an employee of the independent contractor through negligence of an employee of the proprietor.
TORT. Writ in the Superior Court dated March 16, 1959.
Stanley B. Milton (Robert C. Milton with him) for the defendant.
James C. Donnelly, Jr., for the plaintiff.
a verdict for the plaintiff. The defendant, having waived all other exceptions, now relies solely upon its exception to the denial of its motion for a directed verdict. The motion was based on the ground that the work done by the plaintiff's employer was part of and process in the business carried on by the defendant. G. L. c. 152, Section 18.
We examine the evidence in the light most favorable to the plaintiff (Mazzaferro v. Dupuis, 321 Mass. 718, 719; Dubois v. Soule Mill, 323 Mass. 472, 476; Howes v. Kelman, 326 Mass. 696-697) to determine whether, as matter of law, the work done by the plaintiff's employer was "part of or process in, the trade or business carried on by the [defendant] insured." G. L. c. 152, Section 18. [Note 3] In deciding this question, the test is whether Allied's work was "plainly" a part of the defendant's business. Roby v. Boston & Maine R.R. 337 Mass. 369, 375. McPadden v. W. J. Halloran Co. 338 Mass. 189, 192. Gauss v. H. N. Hartwell Co. Inc. 338 Mass. 353, 354-355. Amorosso v. Farina Bros. Co. Inc. 339 Mass. 595, 596.
for example, women's and men's clothing, and household goods. Although some of the departments are run directly by the defendant, others are operated by independent contractors under a lease arrangement. Allied is one of the independent contractors. It runs the millinery department, and is the owner of the millinery and accessories which are sold at three locations on different floors in the defendant's building. Each location has its own price range and styling. The plaintiff, as the manager of the millinery department, supervised the three locations. She did the buying for the department within the broad limits set by the comptroller in Allied's New York office. She had been in Allied's employ at Worcester for five months before the accident and, in all, had had fifteen years' experience in the millinery business. Allied operated many millinery departments in stores throughout the United States and Canada.
concerning customer complaints, and, at the close of each month, pay over to Allied the net proceeds from the millinery department. One provision required Allied to carry various kinds of insurance, including workmen's compensation insurance.
There was, apart from the lease, oral testimony which disclosed the following additional undisputed facts. Prior to 1930, the defendant itself ran the millinery department, but thereafter Allied operated it under a lease arrangement. Under that arrangement, all of the sales slips from the millinery department were turned over to the defendant's auditor, and all the proceeds from that department were given to the defendant and deposited by the defendant to its own account. Allied, with respect to its employees in the millinery department, made employers' payments for social security and contributions to Blue Cross-Blue Shield. It also paid employment security taxes and distributed W-2 forms (withholding tax statements). The plaintiff decided what prices would be placed on millinery and millinery accessories. Like other department heads in the store, she cordinated the advertising of millinery with the defendant's advertising department. All public advertising used the defendant's name alone. Bags, boxes, and tags for millinery, when they bore a name, as they usually did, bore only the defendant's name. In fact, Allied's name appeared nowhere in the store or in its advertising.
customary for a department store to have within it a millinery department. It is beyond dispute that the work done by Allied in the millinery department was a "branch or department" of the defendant's business, for the defendant was in the business of selling a large variety of wearing apparel. It is only natural that it should carry hats to complement its full line of other types of clothing, such as dresses, shoes, hosiery, and lingerie. The work Allied performed in the store, therefore, was plainly part of the business of the defendant.
This result is not affected by the fact that Allied was leasing space in the defendant's store to sell Allied's hats. For that "lease" was "primarily an agreement establishing a commercial relationship of some intricacy and importance to both parties" (emphasis supplied). Marcelle, Inc. v. Sol. & S. Marcus Co. 274 Mass. 469, 471. The evidence establishes that no ordinary lessor-lessee relationship was created by the lease, but rather that Allied's operations in the store were made an integral part of the business of the defendant. Amorosso v. Farina Bros. Co. Inc. 339 Mass. 595, 596.
business. This is made clear by the oft-declared purpose of Section 18 which is "to prevent . . . [an insured person] from escaping the obligation of the compensation act by letting out a part of his work to irresponsible subcontractors or independent contractors." Cannon v. Crowley, 318 Mass. 373, 375. Dubois v. Soule Mill, 323 Mass. 472, 474.
The plaintiff relies mainly upon Stratis v. McLellan Stores Co. 311 Mass. 525, involving a situation closely resembling the one at bar. In the Stratis case an employee of an independent contractor, which operated a luncheonette concession in the defendant's department store, was injured through the negligence of the defendant. The question was whether Section 18 was applicable. There, as here, the independent contractor leased space in the department store to sell its own goods; it hired and paid its own employees. There, as here, the independent contractor carried its own workmen's compensation insurance. In both cases also the store got a percentage of the proceeds of all sales made by the independent contractor. Finally, in both cases, customer complaints were referred by the independent contractor to the store, which reserved the right to make final decisions.
contractor is conducting its own business within the business of the "insured person" but rather whether the work which the "insured person" has engaged the independent contractor to do is "part of the business" of the insured. If the test were whether the independent contractor was conducting a "business within a business," as the Stratis case says, then a department store could easily escape the provisions of the act by leasing out all its departments to independent contractors. It could thereby obtain a percentage of all sales made, give the public the appearance of being a unified department store, and avoid making provision for workmen's compensation for the employees of the independent contractors. We decline to be bound by a decision which construes the workmen's compensation act so as to defeat one of its clear purposes as stated above.
The judge acted obviously, and quite understandably, in reliance upon Stratis v. McLellan Stores Co. 311 Mass. 525. In so far as the Stratis case is at variance with what we say here, it may be considered overruled. The defendant's exceptions are sustained, and judgment is to be entered for the defendant. G. L. (Ter. Ed.) c. 231, Section 125.
[Note 1] "Where the injury for which compensation is payable was caused under circumstances creating a legal liability in some person other than the insured to pay damages in respect thereof . . . [and i]f compensation be paid under this chapter, the insurer may enforce, in the name of the employee . . . the liability of such other person . . .."
[Note 2] This case was tried with the case against Emidas Berard, the elevator operator, but that action was discontinued at the close of the evidence.
[Note 3] Section 18 requires the insurer of "an insured person," who enters into a contract with an independent contractor to do the work of the insured person, to pay compensation to that contractor's employees if it would have had to do so had the work been performed by the immediate employees of the insured. An insured person to whom this section applies is accordingly granted immunity from tort liability under the judicially evolved doctrine of "common employment," stated and explained in Clark v. M. W. Leahy Co. Inc. 300 Mass. 565, 568-569. But, by express provision, Section 18 is not applicable to "any contract" between the insured person and an independent contractor "which is merely ancillary and incidental to, and is no part of or process in, the trade or business carried on by the insured . . .." If the insurer of an insured person, under the terms of this limitation, is not required to pay compensation to the employees of the independent contractor, it follows that the insured is not protected by the "common employment" doctrine, and, under the provisions of Section 15, is subject to tort liability to the insurer of the independent contractor whose employee is injured through the negligence of the insured person. Alberts v. Brockelman Bros. Inc. 312 Mass. 486, 488-489. Dubois v. Soule Mill, 323 Mass. 472, 474-475.

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