eNews November 5
In the News
November 5, 2020
The Latest on the U.S. Election
As of 11 a.m. Eastern Thursday, Joe Biden remains the favorite to take the White House, though outstanding votes in Nevada, Arizona, Georgia, North Carolina and Pennsylvania make it impossible to call those states.
Joe Biden holds a .5% lead (8,000 votes) in Nevada with only 75% of the vote counted. The membership of the state’s strong hotel/hospitality union has been decimated by pandemic-related closures, which has been a factor in the unexpectedly tight race. Both campaigns believe they will ultimately take the six Electoral College votes, and thus, we expect to see legal action in the near future.
Donald Trump holds a 2% lead in Pennsylvania as of Thursday morning, after returns late Wednesday significantly closed the gap between the candidates. Democrats are optimistic the former vice president will eventually take Pennsylvania, as the majority of the remaining uncounted votes are in the Democratic strongholds around Philadelphia.
President Trump holds a .4% lead (18,000 votes) in Georgia with 99% reporting. The outstanding ballots are primarily mail-in ballots from metropolitan Atlanta, which tilts heavily toward Joe Biden. The most recent tranche of votes counted late Wednesday night, for instance, helped former Vice President Biden close the gap by about 1%, meaning the remaining votes could potentially flip the state in his favor.
President Trump holds a 1.5% lead in North Carolina, with 94% of the votes counted. However, that “94%” is potentially misleading as it includes more than 100,000 voters who requested mail-in ballots but never returned them. There is a high likelihood that many of these voters chose to vote early or on election day—votes that have already been counted. Thus, it seems unlikely that Biden will be able to make up the gap in this state.
Although some outlets have called Arizona for Biden already, late returns suggest that this state is still very much in play. Overnight, Arizona reported a new tranche of ballots that broke heavily in favor of President Trump, cutting his deficit in half to only 2.5%. With 12% of the state’s ballots still uncounted, it is worth keeping a close eye on results here.
- Votes are still being counted, and likely will be counted for several days to come. These votes may very well change the state-by-state results and even the outcome of the election. This is not atypical, though the volume of votes yet-to-be-counted is atypical due to the pandemic-fueled surge in early and absentee voting.
- Voter turnout was at near record highs nationwide, despite the pandemic. In 2016 roughly 129 million Americans voted in the presidential election. In 2020 more than 136.5 million votes have already been counted.
- Voters changed how they voted, but not who they voted for. Democrats had hoped that the surge of early and absentee voters would increase their share of voter turnout, but the increased turnout appears to have equally benefited both parties.
- Democratic post-mortem reviews will focus on three questions:
- Has the party’s lurch to the left made it impossible for Democrats to win outside of cities and suburbs? And can the party win the White House/Senate without those votes?
- Was Vice President Biden too moderate to excite liberal voter turnout?
- Were Democratic votes depressed due to the pandemic?
- Republican after-action reports will ask:
- What accounts for the “shyness” of Trump/Republican voters in the polls and how can the party maintain these votes?
- Were Democratic votes depressed due to the pandemic?
- All politics are national, not local. In 2020, voters were less likely to split votes (say a Republican for President, Democrat for Senate) than ever before.
- What is the value of polling in America? It is estimated that $14 billion has been spent during this election cycle, with large financial investments being made based upon polling data that is not worth the paper it is printed on. Tribes need to be very attuned to this change in the political landscape moving forward.
United States Senate
Democrats failed to flip the Senate, with vulnerable Senate Republicans in Maine, South Carolina, North Carolina, Iowa and Montana all on track to hold onto their seats. In Georgia, it is looking more and more likely that both Senate seats will go to a runoff election in January, but it is unlikely that Democrats will be able to flip both seats.
Democrats succeeded in flipping Arizona and Colorado, and Republicans successfully flipped Alabama, resulting in a net +1 seat for Democrats. In a surprisingly close race, Sen. Gary Peters from Michigan successfully held his seat.
If results hold, Republicans are expected to maintain their majority by a 52-48 margin.
U.S. House of Representatives
Like in the Senate, the strong showing by President Trump buoyed results for House Republicans.
While an early “call” was made that the Democrats would keep the House of Representatives, that is somewhat of a hollow victory as Republicans are poised to gain seats, potentially creating some level of turmoil within the Democratic Caucus.
The results of 2020 are especially stark when compared to 2018. Without President Trump on the ballot, Republicans lost 40 seats; with him on the ballot they may gain as many as 15 seats back. This demonstrates the clear strength of the Trump brand in American politics.
It is too early to estimate exactly how many seats Republicans will gain, but it is expected to be between eight and 15, which would give the Democrats a much narrower majority in the House.
NACM’s October Credit Managers’ Index Hits 15-Year High
—Michael Miller, managing editor
NACM’s Credit Managers’ Index (CMI) has left pre-pandemic numbers in the dust. October’s CMI rose 2.4 points to 58.4, its highest combined score in more than a decade and a half. Primarily due to large improvements in the favorable factors, October’s CMI surged after hovering around pre-pandemic data in July, August and September.
“This spring’s economic disaster will be with us for some time to come,” said NACM Economist Chris Kuehl, Ph.D. “This month’s rebound will have to be balanced against the unprecedented collapse this spring and it may be well into 2021 before the data starts to settle down and provide a more accurate picture.”
Sales led the way, soaring to 74.2 from 65.5. New credit applications and dollar collections also improved to 65.2 and 64.6, respectively. Amount of credit extended climbed roughly seven points in October to 68, the same score as the overall combined favorables. “Companies that have managed to emerge from the lockdown appear to be trending toward seeing significant demand and new opportunities which is driving requests for more credit,” Kuehl said. While not as impressive as the favorables, the unfavorables improved slightly by 0.8 points to 51.9
The manufacturing sector saw a 3.5-point increase to 58.8 in October—again led by the favorables. Sales skyrocketed more than 10 points to 75.3, while amount of credit extended is slightly below 70 after a nine-plus-point climb. Every unfavorable factor was within the expansion zone to bring the unfavorable index to 52.6, more than two points better than the previous month. Filings for bankruptcies declined slightly to 51.2. “If there is to be an increase in bankruptcy activity, it is more likely to hit after the first of the year and the end of the holiday spending season,” Kuehl noted.
The service sector showed much of the same with sales leading the way with a huge leap to 73.1 from the mid-60s. “The worst of the sector collapse is over, and there has been movement in a positive direction,” said Kuehl. Four of the six unfavorable factors declined in October to land the unfavorable index at 51.3, half a point lower than the month prior. The overall service sector improved 1.3 points from September to 58 in October.
“The gain of nearly twenty points [since April] is a bounce back to be sure but not really as impressive as it would appear at first glance,” said Kuehl. “This is dramatic to be sure but needs to be put into some perspective. While third quarter GDP is projected to climb by more than 20%, it’s important to remember that GDP fell by more than 35% in the second quarter. The bottom line is that month-to-month comparisons will be very unreliable for a few more months.”
The Case of the Fake Invoices
—Andrew Michaels, editorial associate
Credit managers and invoices go together like peanut butter and jelly, but just like a piece of stale bread can ruin the latter’s tasty pairing, fraud can tarnish the invoicing process in the credit department. The Government of India fell victim in one of the latest invoice swindles involving 115 firms and the wrongful passing on ₹50 crore ($6.7 million) of tax credits.
On Oct. 23, Mint, a financial daily newspaper in India, reported what it deemed “a fake invoice racket” after 115 fake firms created sham invoices throughout Gujarat, Maharashtra and Rajasthan, all while under the watchful eye of the Directorate General of GST Intelligence (DGGI). It was noted that the fake invoices involved supplying manpower and consultancy services and were detected using data analytics.
Officials are continually working to strengthen GST (Goods and Services Tax) laws in India, particularly over the past few months with the implementation of e-invoicing for large businesses and Aadhaar authentication. According to the Unique Identification Authority of India, Aadhaar authentication requires an a Aadhaar number holder—someone with a 12-digit verification number—to submit their number as well as demographic and biometric information for verification by the Central Identities Data Repository (CIDR). The government is seeking further actions to “check wrongful use of tax credits,” the report states, such as “classifying firms with questionable compliance track record in the risky category, the same way it rates exporters based on their compliance history.”
“These firms might be issuing fake invoices to the recipients without actual supply of any goods or services who in turn are availing input tax credit on the basis of these fake invoices,” an official said in the article.
Invoicing processes vary across companies, yet financial services technology providers such as Fiserv are constantly working to enhance the invoicing experience. Fiserv allows suppliers to submit invoices electronically through the Coupa Supplier Network (CSN), ensuring a timely and accurate invoice processing. In order to classify as a successful invoice, Fiserv states users must meet the following data requirements:
- Supplier name, remittance address, phone number and email address
- Invoice number and date
- PO number—limit one PO per invoice
- Ship to address
- Description of goods/services (consistent with PO)
- Subtotal (matching the PO)
- Freight charges and tax for total amount of invoice
- Fiserv associate's name (only for non-PO invoices)
Fiserv’s goal toward a protected invoicing process is enhanced with its centralized fraud detection and integrated case management system, FraudNet. The system is designed to score online bill payments and pause the processing of transactions that are deemed suspicious pending fraud specialists’ review. In addition to viewing customer transaction history and account information, users of FraudNet can also inform customers of fraud with issued alerts, cancel or freeze account activities, manually add externally reported fraud cases and more.
“With FraudNet, you're able to proactively identify potential fraudulent threats, mitigate risks and assure regulatory compliance,” Fiserv states. “FraudNet analyzes high-volume data streams, detecting complex suspicious scenarios and examining behavioral patterns, and provides the real-time intelligence necessary to identify fraudulent transactions.”
In RGC Gaslamp v. Ehmcke Sheet Metal Co., the Fourth Appellate District held that a trial court properly granted an anti-SLAPP motion because the recording of a mechanic’s lien is protected by the litigation privilege.
In RGC Gaslamp, subcontractor Ehmcke Sheet Metal Company (“Ehmcke”) recorded a mechanic’s lien to recoup payment due for sheet metal fabrication and installation done at a luxury hotel project in downtown San Diego. Project owner RGC Gaslamp, LLC (“RGC”) recorded a release bond for the lien. Thereafter, Ehmcke recorded three successive mechanic’s liens identical to the first, prompting RGC to sue it for quiet title, slander of title, and declaratory and injunctive relief. After retaining California counsel, Ehmcke then released its liens and advised it did not intend to record any more. Ehmcke then filed a special motion to strike under the anti-SLAPP statute (Code Civ. Proc. § 425.16.) which was granted.
In considering Ehmcke’s motion to strike, the trial court found Ehmcke met its moving burden because the recording of even an invalid lien is protected petitioning activity. Thereafter, RGC failed to make a prima facie showing that its sole remaining cause of action for slander of title could withstand application of the litigation privilege. RGC’s appeal followed, arguing the duplicative filing of mechanic’s lien after recording of a release bond is not a protected activity.
After extensively reviewing the mechanic’s lien statutory scheme and the anti-SLAPP motions two-prong process, the Court of Appeal affirmed.
First, the Court of Appeal examined and determined that RGC’s claims arose from a protected activity. In doing so, the Court of Appeal determined recording a mechanic’s lien, including an invalid or unlawful mechanic’s lien, is protected by the litigation privilege (Civil Code §47(b)) because the act of recording a mechanic’s lien is a prerequisite to a foreclosure action and the anti-SLAPP.
The Court of Appeal argued that A.F. Brown Electrical Contractor, Inc. v. Rhino Electric Supply, Inc. (2006) 137 Cal.App.4th 1118, which held serving a stop notice was only protected under the anti-SLAPP statute if done when a lawsuit related to that act was contemplated in good faith and given serious consideration, was wrongly decided because the A.F. Brown court improperly applied the anti-SLAPP analysis by requiring good faith and serious consideration when the California Supreme Court had made clear that a plaintiff is only required to make a prima facie showing of protected activity in the first prong.
Second, the Court of Appeal determined RGC could not establish slander of title because there was no reasonable expectation any further liens would be recorded. The Court of Appeal held the recording of an invalid mechanic’s lien was absolutely privileged because recording a mechanic’s lien is a communication made as part of a judicial proceeding. Ehmcke filed and recorded its liens while improperly advised regarding California’s mechanic’s liens statutes and then withdrew the liens after retaining California counsel.
RGC Gaslamp is important for two reasons. First, there is now case law holding that recording a mechanic’s lien, even if invalid or unlawful, is protected by the litigation privilege. Second, A.F. Brown, supra, has been questioned and service of a stop payment notice may be protected by the litigation privilege because service of a stop payment notice is a required prerequisite to a stop payment notice action.
Lawrence S. Zucker II is the Managing Partner of Haight Brown & Bonesteel LLP’s San Diego office. He is the chair of the Firm’s General Liability and Food Safety Practice Groups, is co-chair of the Construction Law Practice Group, and a member of the Product Liability, Real Estate, Transactional and Transportation Law Practice Groups.
Stephen M. Tye is a member of the Construction Law, General Liability, and Product Liability practice groups. He has experience in all phases of litigation, including pre-litigation investigations, initial evaluations, discovery, law and motion, trial preparation, second-chairing trials, and writing appeal briefs.
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