Checkpoint On the World’s Most Expensive Retail Street

Trump Tower

When Presidential Security Interferes with Revenue
and the Customer Service Experience

In the words of a troupe of Britons, first heard long ago, “And now for something completely different.” This post is a transatlantic collaboration, co-authored by members of the fashion and real estate law practices of Phillips Nizer LLP, of New York City, and Fox Williams LLP, of London. The firms address the same legal question from the perspective of New York law, in the segment authored by the Phillips Nizer, and English law, in the segment authored by Fox Williams.

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The secondary residence of U.S. President Donald Trump is located in the eponymous skyscraper that bears his name located in an area of Upper Fifth Avenue in New York City, at the apex of the most important and most expensive shopping district in the Western Hemisphere. Prized retail space can be found in the building and in surrounding properties. This is not the typical environment for establishing a security cordon for the protection of the President of the United States.

If President Trump continues to maintain Trump Tower as a secondary residence and working office (as he had done while President-elect), we can surmise that protective and preventative measures that have been in effect for weeks, will continue. Anyone brave enough to attempt to enter the still-cocooned retail spaces will receive a quick course in world-class security. You have to talk your way past federal and local law enforcement officers to get into Gucci, which is in Trump Tower but accessible by the street, to say nothing of what you need to do to get into the building’s atrium for the chance to score a latte at Starbucks. In short, the conversion of Trump Tower into “White House North” has not been good for business for any tenant who is not named Trump.

New York City and State Law

The retail tenants may seek ways to mitigate their losses. The law and most leases, however, are not particularly sympathetic to this type of economic collateral damage, which typically falls under the category of “consequential damages.”

As a general rule, a tenant’s choice of remedies when things go wrong in a lease is to seek an abatement of rent, or to seek to cancel the lease. Lost profits are considered speculative by the courts and are almost never awarded in cases involving commercial leases. Most commercial leases have specific prohibitions against the award of lost profits.

One possible alternate claim would be for what is known as “constructive eviction.” That happens whenever something within a landlord’s control substantially interferes with the use and enjoyment of the leased premises. The catch here is that it has to be something the landlord does or fails to do; in the case of the President, however, the security is not his own but that of the United States government, working closely with the New York City Police Department.

Many leases provide that, if access to the premises is thwarted or impeded by fire or other damage, rent will be abated. For those leases, there could be support for the claim that the extraordinary event of government restraint on access forms the basis for an abatement of rent.

New York courts have held that a party may be relieved from its duty to perform whenever an unforeseen event has occurred that destroys the underlying reasons for performing the contract. The argument that the United States Secret Service and the local police have turned your block into the Maginot Line is not a familiar one, but it could, at least in theory, gain traction if damage is shown to be acute enough.

Finally, there is always a claim against the government—but that is probably pushing it a bit. Whenever property is taken from a private individual by the government under “eminent domain,” there must be payment of just compensation. There is an exception to the rule that provides that there is no compensation when a taking is due to the exercise of “police power.” An example of police power is the right to damage or destroy private property (without compensation to the owner) when such an act is necessary to protect the public interest. If you want to know what that means, watch the next time someone parks an expensive car in front of a fire hydrant when a blaze has started and fire fighters arrive with their axes.

In short, there is no clear way, through the use of litigation, for retailers caught within the security cordon or even just outside it to seek redress. However, the President is nothing if not a deal maker, and as a sage old lawyer once suggested, “If you don’t ask, you don’t get.” It cannot hurt to contact the landlord and practice your take on “the art of the deal.”

English Law

The position under English law has differing aspects (and certainly uses a different legal language) but is similar. It is true that this could be an issue that is unique to the circumstances in which these retail tenants find themselves, but it raises issues pertinent to landlords and tenants in both jurisdictions. One can easily envisage similar circumstances in London, for example, affecting footfall to tenants’ retail stores and outlets, be that at the instigation of the state, or from other sources. What if a prominent politician or other VIP took offices in Regent Street or Bond Street? What if state security demanded establishing a similar cordon for some other reason, one that interfered with the tenants of prime retail space in the capital?

In English law, the concept of a tenant (as opposed to a landlord) seeking to “cancel” or “determine” a lease is almost unheard of without the agreement of the landlord (for example, a surrender or a break clause). Whilst English contract law has well-established principles of breach of a contract leading to its termination, this does not translate well to the realm of landlord and tenant law, where a tenant is seeking to terminate the lease (this is not the case with the landlord, who can usually seek to forfeit the lease in the event of a tenant’s breach).

So, with this avenue all but closed to tenants, they would usually need to focus on the terms of the lease itself to seek damages or a court order that the interference must stop.

Like our U.S. colleagues, English lawyers would express doubt as to whether the concept of rent abatement can apply to these facts. For the reasons given above, where an English lease contains a rent abatement – or “rent cesser” – clause, that clause normally relates to circumstances in which the property in question is damaged or destroyed (usually due to circumstances for which the landlord is insured) only to the extent that it is uninhabitable. If that is the case, the rent will not be payable whilst the property cannot be occupied. It might be stretching matters too far (without specific wording in the lease) to extend this well-established concept to fit these facts. Trump Tower (or the hypothetical English equivalent) is not a property that is damaged; it is the access to it that has been compromised.

If this offers little comfort to tenants, there are two further (and largely overlapping) English law concepts that might assist. English law has long recognized that landlords must not “derogate from their grant” and the obligation to allow the tenant “quiet enjoyment” of the property. If proved, they entitle a tenant to sue the landlord for damages.

The former principle states that, in granting the lease, the landlord has agreed to confer certain benefits on a tenant, and should not do anything that substantially deprives the tenant of those benefits. The latter requires the landlord to ensure that there is no interference with the tenant’s possession and enjoyment of the property itself.

English cases on the above where tenants have succeeded, have included erecting advertising billboards obscuring the tenant’s premises, alterations by a landlord that discourage passers-by, and causing noise and disruption by way of building works adjacent to the tenant’s property.

So, it would appear that English tenants might be better placed in these circumstances than their U.S. counterparts. However, as in America, tenants are likely to run into the same problem they would encounter had they set up shop on Fifth Avenue instead of Regent Street: is the presence of such high security something instigated (or even sanctioned) by the landlord, or is it a matter of national security, out of the hands of whatever corporate vehicle happens to own the freehold of a given retail unit? The unfortunate truth is likely to be that the security presence is not the ‘fault’ of the landlord, and thus, the landlord cannot be said to have violated either legal principle.

Tenants may therefore find themselves, as in America, caught between a rock and a hard place: a landlord who is ‘not at fault’ and a rent abatement clause that does not do enough to protect their interests. Perhaps one for English tenants’ lawyers to think about too when drafting leases of high-end retail and fashion outlets in the busiest and most desirable of the U.K.’s shopping districts.

Credits: Steven J. Rabinowitz

Steve is counsel in Phillips Nizer’s Real Estate Law practice.

Elizabeth “Liz” Ruff, partner, and Tom Morton, associate at Fox Williams LLP, Solicitors (U.K.)

At Fox Williams, Liz advises on a broad range of commercial property transactions, both freehold and leasehold, including property management, investment acquisitions and disposals, secured lending, property finance, general landlord and tenant issues. Tom is a property litigator, and heads up the firm’s Real Estate dispute resolution practice.

Visit the Fox Williams Fashion Law Group website at www.fashionlaw.co.uk.

Phillips Nizer would like to thank Liz and Tom for providing a non-U.S. perspective on this very interesting, and in this instance, extremely unique and unusual circumstance in real estate law affecting the landlord-tenant relationship.


Good Luck For The New Year

What´s your plan?

The new year had arrived and ski season was approaching, so on a rainy morning, I brought my graphically red Bogner ski pants to Jeeves (the dry cleaner, not the P. G. Wodehouse character) for cleaning and repair. Carrying, as I nearly always do, a Leica film camera under my suit jacket, I stopped on Madison Avenue to take a photo when my Noctilux lens slipped free from its bayonet mount (a first for me), and tumbled toward the sidewalk of East 65th Street. It gained momentum, plunging downward until it landed safely atop a damp Hefty bag full fluffy, uncollected New York trash. That was a good omen for the start of the year.

Back to Jeeves: those ski pants, too Euro for Vermont but spot on for Courchevel 1850, where I had last been, and St. Moritz, where I was next heading, had been soiled due to the consequences of poor form (crash!) and, for good measure, had been sliced just above the ankles like red apples for my son’s school lunch box (due to over-zealous ski edge sharpening). The solution of Jeeves, following the cleaning, was to armor plate the inside bottom part of the legs with leather overlays that coordinated with the pants. The next time a sharp edge hit them, little or no damage should be done, all without loss to Euro styling.

The moral of the story, and not just for photographers and skiers, is that you need to be ready for when things go wrong. Sometimes, good luck will deliver a solution (a beneficent pile of garbage) and sometimes, you will just have to absorb what happens and make the best of it later (with a little bit of leatherwork). In law, luck can happen as well. The adversary who has a winnable case against you decides, just the same, that it is not worth the trouble to sue you back to the stone age. The respectable couple who own the classic six coop within the best school district falls behind on payments and is obliged to sell under market to a family sure to pass muster with the socially and financially conservative board. (Just trust me on that one.)

Good luck is lovely. It cannot, however, take the place of sound legal and business planning. Transactional lawyers, the ones who draft contracts, are the bringers of good luck. If they do what they should, you might well not need litigators, who, as was Jeeves for a pair of ski pants, are there to try to make things right when contracts go wrong. The problem is that, all too often in the fashion business, people think that luck will come without the help of lawyers and so they simply sign a long, attorney-drafted agreement handed to them by the other party, hoping everything in it really says what it is expected to say. Sometimes it does, just as it is theoretically possible that, the next time you drop something quite valuable, it will fall safely onto a stuffed Hefty bag. For small matters, going without an attorney often carries a low enough risk to be worthwhile, but when the stakes increase, so does the risk and so does the likelihood that bad luck will have bad consequences. So here is a refreshed old tip for a nice new year: feel lucky, but when the stakes in a deal are high, lawyer up. Good luck comes most often to those who plan ahead.

Credit: Alan Behr


In the Fitting Room with the Thieves

Shopping with Big Sunglasses Woman Keeping a Secret

Whether you call it shoplifting or shrinkage and the people tasked with stopping it the house detectives or the asset protection department, and regardless of what new technology you put into place, if you are a retailer, stealing is a problem that will never go away. When I was in high school, back in New Orleans, I worked weekends and summers at the department store my family owned and operated (and long since shuttered). I got to see firsthand the extent of the problem—which was harder to track in those days before electronic inventory controls. The manager of my department was arrested for stealing a pair of Mickey Mouse suspenders from the warehouse. He had been collared by the four-man security team brought in to replace the aging and quite ineffective store detective. During a big three-day sale taking place over a long summer weekend, as the junior and surely least valuable member of our sales team, I was relegated to sitting in the men’s fitting room, watching for thieves. All I got for my trouble was the chance to alert security to the customer who thought that the fitting room stall belonged in the men’s bathroom and had used it accordingly. That incentivized me to petition for repatriation to the sales floor and, just to be sure my position did not revert, I became the top sales person of my department during the next three-day sale.

Jump some years ahead, and now I find myself working with clients in retail on the law of asset protection. There was the time I had to work with the manager and assistant manager of one department store branch that was being sued for assault and false imprisonment by an alleged shoplifter who claimed he had been injured in his apprehension. The plaintiff appeared at the first hearing on crutches, and justice being as slow as it is, by the time the second hearing came around, he was practically pole vaulting with the things, which his lawyer, who could now hardly catch up with him, obviously told him to keep using in an effort to garner sympathy and a favorable settlement.

It was frustrating to our client, but none of that has changed much. You still need to be sure that you work with counsel to know what you can and cannot do in pursuing, approaching and ultimately challenging a suspected shoplifter. There are rules about that, and they vary from state to state. Just as an example, in New York you need to show that the suspect took possession of the item with an intention to make off with it. If you are found purposefully trying to sneak out a T-shirt by wearing it, give your lawyer a call; but if you tuck the T-shirt under your arm while paying for something else and mistakenly head out with it, you are guilty only of absentmindedness.

As long as retailers work very hard to create demand for what they sell, and as long as objects of desire hang and lie in public view, shoplifting will be a problem. As with all other problems that are certain to occur, it is always best to have policies and procedures in place and to make sure that the individuals charged with being the first line of defense—the sales staff—are thoroughly briefed on what to do. It is prudent to have counsel and the security team conduct periodic joint seminars with sales and security personnel. As with everything else in the law, the proverbial ounce of prevention will alleviate the need for the more than typically expensive, when it comes to litigation, pound of cure.

Credit: Alan Behr


The Curious Case of the Cheerleader Uniforms

Cheerleader-with single focus

One of the hot topics du jour in the fashion press is the copyright battle in the Supreme Court involving cheerleader uniforms. It poses the question of when a two-dimensional design that is part of a useful article is copyrightable—in this case, designs consisting of color blocks, chevrons, and lines in uniforms for cheerleaders. The Copyright Act provides that a “useful article” is not copyrightable, but it allows for copyright in the “pictorial, graphic and sculptural” features of useful objects as long as those features are “separable” from and can exist independently of the object itself.

Under the statutory definition, you can secure a copyright for a fabric or lace design, but you cannot secure a copyright in a dress made with the fabric or lace. An artist who draws a dress can secure a copyright in the drawing and can prevent someone from using it on greeting cards or wastebaskets, but the artist cannot use the copyright to prevent anyone from actually making the dress depicted in the drawing.

Although the concept of separability is easy to state in the abstract, at times it has been hard to apply in practice. Cheerleader uniforms present a particularly difficult problem. The designs here are not printed on the fabrics used in the uniforms. They are part of the garment’s construction. The placement of the design features—color piping around the neckline and arm holes, lines down the sides in color blocks, chevrons in the center, lines marking the boundaries between blocks of color—results from the contours of the garments. The placement also serves the functional purposes of hiding seams that are sewn on the outside (instead of the inside) of the garments to prevent chafing, strengthening parts of the garments so that they hold their shape, and creating optical illusions that lengthen the torso and slim the waist. The designs also help make the garments recognizable as uniforms and not street clothing.

The challenger, Star Athletica, focuses on those functional considerations and argues that the designs are inherent in the useful objects and do not exist independently. It argues that, if the designs have any function, they are not separable from the uniforms.

The United States and Varsity Brands, the copyright owner, argue that, because the graphic designs can be applied to products other than dresses, they are separable, can exist independently and are therefore copyrightable. The government further argues that the Copyright Office cannot be in the business of determining how any particular two-dimensional design functions in any given context when called upon to determine whether it can indeed exist independently. Under that argument, any two-dimensional design could potentially be deemed independent and separable from the three-dimensional objects to which it is applied.

In a great irony, the case was argued before the Supreme Court on Halloween. Halloween costumes frequently have been the subject of litigation under the particular provisions of the Copyright Act at issue in the case. (In case you are wondering, under current precedent, costumes are generally not copyrightable, but masks generally are.)

Reading the oral argument before the Supreme Court and the briefs, I was struck by the fact that the case is not unlike the famous figure ground optical illusion in which you can simultaneously see either a goblet or the profile of two faces. Star Athletica sees the goblet. If the lines define the goblet, it is the design of a useful object, and Varsity Brands cannot prevent Star from making the goblet. But Varsity Brands and the government see the profile pictures, which are separable, and it would be irrelevant whether they also define a goblet from the perspective of another viewer.

Stanford Law School Professor Mark Lemley, as the lead author of a brief submitted by a number of law professors in support of Star Athletica, attempts to separate the figure from the ground. He argues that copyright could protect the designs, but not the coordination and arrangement (i.e. placement) of the elements of the designs that result from the shape or construction of the garments. In effect, this proposed test would exclude from the protection of copyright those elements of the designs dictated by the needs of making the useful article truly useful.

There are other relevant questions that none of the lower courts in the case considered and which none of the briefs submitted to the Supreme Court addressed: What are the two-dimensional designs that are protected and are those designs copyrightable under more general principles of copyright law? Are they original or are they in the public domain? Is there a merger of the general idea with its expression so that there is nothing that is copyrightable? Are the decorative aspects what copyright law refers to as “scènes à faire” (stock representations implicit in the subject matter, in this case cheerleader uniforms)? Both the trial court and the appellate court expressly said they were not addressing whether the two-dimensional designs were copyrightable and were reserving that question. And the Supreme Court, in accepting the case, refused to consider this question, because it was not ruled on below.

Justice Elena Kagan inquired at argument: What is your design; can someone just add another stripe to avoid infringement? Varsity Brands’ counsel did not address the first part of the question and, in response to the second part, said that merely adding something to a copyrightable design “usually” does not avoid infringement. The response did little to address the Court’s expressed concern for the anti-competitive effect on the market for cheerleader uniforms and markets for other products for which the design has a functional purpose, such as camouflage fabric for military use. Indeed, it is worth noting that Star Athletica made a point of informing the Court that Varsity Brands controls 80% of the U.S. market for cheerleader uniforms.

That may help explain why all of the Supreme Court Justices who asked questions were troubled by the idea of handing Varsity Brands a monopoly over cheerleader uniform designs through the use of its copyright registrations. How they might avoid that result is an open question. Star Athletica offered one alternative that might have a major impact on the fashion industry, particularly on the accessories market, where protection of three-dimensional designs is an on-going concern: Any aspect of the design that is functional in part is not conceptually separable. (Say goodbye to the Kieselstein-Cord belt buckle decision, a ground-breaking case won by this firm and which a number of briefs argued was wrongly decided.) Another alternative, endorsed by the American Intellectual Property Association, is to vacate the decision and instruct the court below to determine first the validity of the copyright in the designs under more general copyright law concepts that would factor into the analysis the use of routine design features in uniforms. Either way, one suspects that Star Athletica’s use of its copyrights to prevent competition in the cheerleader uniform market may be short lived.

Credit: Helene M. Freeman

Here’s a previous post that may be of interest…

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Copyright Registration, Redux

Textile Pattern Quilting Machine

Registering copyrightable designs as “unpublished” collections can be an efficient and cost effective way to register multiple two dimensional print patterns in a single registration. But to derive the benefits of registration, you need to be able to identify the designs included. Standard Fabrics International, Inc. (“Standard Fabrics”) learned that lesson the hard way, when it sued Louise Paris, Ltd. and its retail customer for copyright infringement of one of the fabric designs it claimed was part of its “Spring Summer, Collection 1”.

To succeed in a suit for copyright infringement, you must prove that the design in issue was registered with the Copyright Office. To register, you must submit a copy of the design with an application for registration.

Standard Fabrics’ registration identified its work only as “Spring Summer, Collection 1”.  Nothing in the title referred specifically to the particular design number that was the subject of the suit. Therefore, Standard Fabrics was required to prove that the design was actually included in the collection registered. Because Standard Fabrics could not prove the design infringed was part of the collection registered, it was denied judgment on its infringement claim.

The problem Standard Fabrics faced can be avoided. In an application to register a collection of designs, be sure to set forth the design number for each design covered by the application. Each individual design in the collection can be uploaded separately on the Copyright Office’s electronic website and appropriate records of the upload can be printed and maintained.

The Copyright Office generally maintains deposit copies of unpublished works. It will provide copies of these for use by the lawyers for parties to litigation, but it requires a written application in its proscribed form and time to search for, reproduce and certify its records. The fee charged for this service can be hundreds of dollars, as the Copyright Office will charge for its time as well as imposing copying and certification fees.

But beware, the Copyright Office does not undertake to retain deposit copies of published works. Full term retention must be arranged for a fee.

Credit: Helene M. Freeman

Here’s a previous post that may be of interest…


Copyright Registration Still Matters

Procrastination contestIt is an oft repeated truth that copyright exists automatically from the moment a work is fixed in tangible form and that no formalities are required to preserve the copyright. In the United States, registration with the Copyright Office is only necessary to sue for infringement, but it is not uncommon for owners to defer registration until litigation is contemplated. The recent decision in Solid Oak Sketches v. 2K Games, Inc. is a healthy reminder that the timing of the registration can significantly affect the remedies available to the copyright owner in a suit for infringement and that a delay in registration can be costly.

The remedies for copyright infringement include recovery of actual damages and the profits of the infringer, as well as an injunction of continued infringement in appropriate cases. But the law also permits recovery of “statutory damages”, in lieu of proving actual damages or profits. Attorney’s fees, expert witness fees, deposition costs and similar litigation expenses can be recovered by the prevailing party. Given the potential cost of prosecuting a copyright infringement action and proving damages, the plaintiff’s ability to recover its attorney’s fees and litigation expenses, as well as statutory damages, can be important factors in the calculus of the value of the litigation for both the plaintiff and the defendant.

However, the law permits recovery of attorney’s fees and statutory damages from a defendant only if the copyright was registered with the copyright office before the infringement “commenced”.

The plaintiff in Solid Oak was the copyright owner of the artwork for eight designs, tattooed on five different National Basketball Association (NBA) players. (If you did not realize tattoo art is copyrightable, you didn’t read my colleague, Alan Behr’s, recent post.) The defendants created and sold realistic basketball simulation video games, using animated versions of the NBA players as they appeared in real life, complete with their tattoos. The first video game in the series was introduced in 2013 and new versions appeared in 2014 and 2015. The plaintiff registered its tattoo designs in 2015, after the initial versions of the game appeared, but prior to the release of the 2016 game in the series. Unable to convince the defendant to take a license for the tattoo artwork appearing on the players depicted in the game, Solid Oak brought suit for copyright infringement.

The court held that Solid Oak was not entitled to recover attorney’s fees and statutory damages, even with respect to the 2016 version of the game which was released after registration of the copyright, because the infringement had commenced before the registration of the tattoo art in 2015. According to the court, when the first act of infringement in a series of on-going infringements precedes registration, these special remedies are not available, even if the versions released after registration differed from the prior versions.

In the fashion industry, where knock-offs can appear in the market within months of the introduction of an original design, it can be advisable to register print, lace and jewelry designs as “unpublished works” before they reach the market. The fee for registration is only $35 and it can be done on-line without a large investment of time. The benefits, which also include a presumption that the two or three dimension design is an original, copyrightable work, owned by the registrant, are well worth the money and effort.

Credit: Helene M. Freeman


Tattoo You?

I vaguely recall, from long repressed memory, the time when only sailors and thugs had themselves tattooed. But anyone caught in a crowd, especially on a summer’s day, when long-cloaked skin comes into the fore, can clearly see that having oneself inked has become quite the fashion. Apparently, late in the last century, the movement was begun by, or was at least energized by, Los Angeles celebrities who risked going to less than savory places to have butterflies, arrow-pierced hearts and other traditional artifacts poked into them with commanding permanence. The fad grew quickly to become an international trend. I remember sitting down for dinner at a restaurant in a small Bavarian town in the year 2000 and wondering, as the waitress arrived in a fetching spread-eagle bodice, how far down the tattoo on her left breast extended. The answer, we now know, is that it went as far below the line as nature gave room for its descent. When something becomes as obviously popular as tattooing, it tells us that it is time, of course, to consider the legal implications.

Covering an entire arm with words, phrases and graphic-novel style illustrations (known in the trade as “doing a sleeve”) is now not uncommon. There remain limits. The military has the right to refuse potential enlistees who arrive with what is deemed excessive or “grossly offensive” tattooing. There appears to be no legal impediment to the military in making those distinctions, but we can anticipate that someone may, at some point, raise a First Amendment objection. There has already been a federal appeals court decision striking down a municipality’s ban on tattoo parlors as a violation of the First Amendment.¹

Copyright law presents a more interesting problem: In the absence of a contract stating otherwise, the owner of the copyright in the artwork worn by the tattooed person is the artist. That is, if you go to a tattoo parlor and have it do a sleeve filled with flying dragons, flying skulls and terrestrial motifs, the owner of the copyright in the art you are wearing is not you but the person with the tattoo gun who pummeled it into you—unless (a) the artist is an employee of the salon or (b) the artist and the salon have entered into an assignment of rights contract, in which case the salon is the owner of the art on your arm. The lawful owner can register the art with the Copyright Office and sue to protect its rights against infringers, most notably including copycat rival tattoo artists.

If your artist has tattooed onto your arm something to which the copyright is owned by another—say Mickey Mouse or the Batmobile—you, as the bearer of the arm, could theoretically be caught in the middle of a legal fight with the copyright owner. In copyright cases, impoundment and destruction are possible remedies, but we likely will not see the day when the wearer of a tattoo would be required to visit a local tattoo-removal center to resolve copyright litigation. What could happen in theory in copyright matters is, fortunately, often removed from what typically does occur.

What is the takeaway from all this? Your arm is lovely the way it arrived along with you. Strictly as a question of taste, perhaps it is better just to let that be enough for you.

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¹ Anderson v. City of Hermosa Beach, 621, F.3d 1051 (9th Cir. 2010)

Credit:  Alan Behr