Category: Administrative & Regulatory

Sanctions and Export Control Developments in the First 50 Days of the Biden Administration

As the calendar flipped past the 50th day of President Joe Biden’s administration on March 11, 2021, a survey of economic sanctions and export control-related developments shows where the Administration felt a pressing need to impose new sanctions, alter existing policies or, in several areas, clarify existing programs. To date, we have not seen substantial changes to any ongoing sanctions programs by the Biden Administration, but we will be watching complex hot spots such as China and Iran as the Administration works through the nuances of its foreign policy and deepens its diplomatic efforts over the coming weeks and months. In this bulletin, we share our thinking on these early developments with our clients and friends to help you keep your sanctions programs current and monitor shifting risk levels posed by your international operations.

Sanctions Map

Download Map PDF

Africa

Democratic Republic of the Congo and Mozambique

The Biden Administration advanced the long-standing sanctions program against foreign terrorist organizations operating on the African continent with the designation by the Department of State of two affiliates of the Islamic State, one each in the Democratic Republic of Congo and Mozambique, as “foreign terrorist organizations,” adding them to the Office of Foreign Assets Control’s (“OFAC”) Specially Designated Nationals (“SDN”) List and subjecting them to broad sanctions. Allied Democratic Forces (also known as ISIS-DRC (“ADF”)) and Ansar al-Sunna (also known as ISIS-Mozambique) are believed to be responsible for multiple attacks on civilians and government security forces that have killed thousands of people in south and central Africa since 2017.1 The Department of State also designated ISIS-DRC, ISIS-Mozambique, and their leaders Seka Musa Baluku and Abu Yasir Hassan as Specially Designated Global Terrorists under Executive Order 13224. The leader of the ADF, Musa Baluku, as well as five of his ADF associates, previously were designated in December 2019 pursuant to Executive Order 13818 under the Global Magnitsky Human Rights sanctions program for their role leading an organization that has engaged in serious human rights abuses, and they joined a long list of individuals and organizations designated by President George W. Bush under Executive Order 13413 and President Barack Obama under Executive Order 13671 for engaging in armed conflict and widespread human rights abuses. As human rights remain a focus of the Biden Administration globally, additional designations under the Global Magnitsky sanctions program in areas of ongoing conflict in Africa—and wherever else ISIS expands its activities—are likely.

Asia

Myanmar (Burma)-Related Sanctions

President Biden established the first new sanctions program under his Administration on February 10, 2021, with Executive Order 14014, a blocking order targeting the defense sector of the Burmese economy, as well as Burmese military and security forces that were responsible for the February 1, 2021 coup and the brutal attacks against unarmed protesters that ensued.2 Six current and former military officials were designated for being directly involved in the coup.3 Four military officials and two other individuals appointed to the State Administration Council were also designated, together with three Burmese entities owned or controlled by the military or security forces .4 The most recent designations named the two adult children of the Commander-in-Chief of the Burmese military forces as SDNs, as well as six Burmese entities that they own or control.5

In addition to military and security leaders, the new sanctions also apply broadly to the Government of Burma, including the Central Bank of Myanmar, and the Government’s political subdivisions, agencies, instrumentalities, all persons “owned or controlled by, or acting on behalf of, the Government of Burma,” and other individuals who have undermined democratic processes or institutions or committed actions that threaten the peace, security or stability of Burma. 6  In the first 50 days of the Biden Administration, 23 individuals and entities have been designated under this program, and additional designations are likely if political prisoners are not released and the democratically elected government is not restored.7

In a related development, the Commerce Department’s Bureau of Industry and Security (“BIS”) removed Burma from Country Group B and placed it in Country Group D:1, resulting in a more restrictive review of license applications for exports and reexports, and also subjecting Burma to “military end use” and “military end user” restrictions under the Export Administration Regulations (“EAR”). 8  BIS also added four entities to the Entity List. As matters currently stand, transactions requiring a license for the export or re-export of items subject to the EAR when destined for Burma’s Ministry of Defense, Ministry of Home Affairs, armed forces, and security services will be reviewed by BIS under a presumption of denial. 9,10

Communist Chinese Military Companies Sanctions

Under the Administration of President Donald J. Trump, the United States imposed a new sanctions program designed to restrict the increasing militarization of the People’s Republic of China (“PRC”), which poses a threat to the national security of the United States. The Trump Administration initiated the sanctions program with Executive Order 13959 on November 12, 2020, by issuing sanctions designed to prevent U.S. persons from purchasing securities in—and thereby providing financing to—“Communist Chinese military companies”11  appearing on the Non-SDN Communist Chinese Military Companies List (NS-CCMC). Justifying the sanctions, President Trump stated,

“the People’s Republic of China (PRC) is increasingly exploiting United States capital to resource and to enable the development and modernization of its military, intelligence, and other security apparatuses, which continues to allow the PRC to directly threaten the United States homeland and United States forces overseas, including by developing and deploying weapons of mass destruction, advancing conventional weapons, and malicious cyber-enabled actions against the United States and its people.”12

The Biden Administration has not significantly altered the sanctions program, and has indicated a continued desire to “push back against the Chinese government’s economic abuses and coercion that undercut the foundation of the international economic system.” 13  However, the Administration reduced risks for market players by providing some additional certainty regarding which entities are subject to the sanctions. Specifically, the Biden Administration issued General License No. 1A clarifying, through May 27, 2021, which securities must be treated as issued by Communist Chinese military companies. General License No. 1A Authorizing Transactions Involving Securities of Certain Communist Chinese Military Companies covers transactions or activities that are derivative of, or are designed to provide investment exposure to the securities of entities whose names closely match—but do not exactly match—the name of a Communist Chinese military company, as defined by section 4(a) of Executive Order 13959.

PRC Military End-Users
The Biden Administration has not yet made significant changes to the new Military End-User (MEU) List — which contains many Chinese entities, as well as entities from Russia and Venezuela, that was issued in an amendment to the EAR by BIS in December 2020.14  As diplomatic engagement with the PRC takes the forefront of the foreign policy stage in the coming weeks, the direction of the PRC sanctions program, military end user restrictions, and military end use controls under the Biden Administration may come into sharper focus.

Europe

Ukraine-/Russia-Related Sanctions

The Biden Administration imposed a series of sanctions against individuals and entities involved in the poisoning and subsequent imprisonment of Aleksei A. Navalny, who has been the target of systematic harassment and repression by the Russian government due to his prominent role in the political opposition. Sanctions were issued simultaneously on March 2, 2021, by the Treasury Department, the State Department and the Commerce Department.

The OFAC designated seven Russian government officials on the SDN List.15  It also issued amended Cyber General License No. 1B Authorizing Certain Transactions with the Federal Security Service, and amended related FAQs: FAQ 501, FAQ 502 and FAQ 503.

The State Department imposed broad sanctions on Russia under the U.S. Chemical and Biological Weapons Control and Warfare Elimination Act of 1991. It also designated a series of entities and individuals under Executive Order 13382 and the Countering America’s Adversaries Through Sanctions Act for their association with Russia’s chemical weapons program, defense sector and intelligence sector.16  The State Department also amended Section 126.1 of the International Traffic in Arms Regulations (“ITAR”) to add Russia to the list of countries subject to enhanced export scrutiny and a policy of denial for exports of defense articles and defense services, with limited exceptions for certain exports in support of government space cooperation.

The Commerce Department also added 14 entities to the Entity List based on their activities supporting Russia’s weapons of mass destruction programs and chemical weapons activities.17 BIS added entities located in Germany, Russia and Switzerland to the list because they had undertaken proliferation activities in support of Russia. In taking these sweeping measures, the United States aligned its response to Russia’s use of a chemical weapon more closely with that of the European Union and other G7 partners.

The Biden Administration has taken no immediate steps with respect to the broad trade embargo against the Crimea region of Ukraine, which was first imposed by the Obama Administration following Russia’s invasion and annexation of the region in 2014. However, we expect no material deviation from the current programs based upon President Biden’s recent remarks and comments. At the virtual Munich Conference held in February, the President confirmed that “standing up for the sovereignty and territorial integrity of Ukraine remains a vital concern for Europe and the United States.”18  One week later, on the seventh anniversary of Russia’s invasion of Crimea, the President remarked: “The United States does not and will never recognize Russia’s purported annexation of the peninsula, and we will stand with Ukraine against Russia’s aggressive acts. We will continue to hold Russia accountable for its abuses and aggression in Ukraine.”19

Latin America

Cuba

Although President Biden has not yet taken any formal positions regarding Cuba policy, officials from his Administration have indicated that President Trump’s last-minute designation of Cuba as a state sponsor of terrorism and broader Cuba policy will be reviewed, with a focus on human rights and democracy.20  The state sponsor of terrorism designation brings with it restrictions on foreign assistance, a ban on defense exports and sales, and other export and financial controls.21 Aside from Cuba, such a severe designation currently only applies to Iran, North Korea and Syria.22 The Biden Administration also is expected to carefully examine the consequences of the Trump Administration’s decision in May 2019 to lift the suspension of Title III of the Helms-Burton Act, which opened the door for U.S. nationals to file suit in U.S. courts seeking compensation for property that had been seized by the regime of Fidel Castro. Although the Administration has said that Cuba policy is not its top priority, we expect to eventually see efforts to reassemble some of the pieces of the Obama Administration’s Cuba initiatives and policies, and we note that achieving closer cooperation may require shutting the door on Helms-Burton Act litigation.

Mexico-Related Sanctions under the Counter Narcotics Trafficking Sanctions Program

As human rights and immigration remain at the forefront of policy issues for the Biden Administration in Latin America, a new designation has been added in the Counter Narcotics Trafficking sanctions program. On March 3, 2021, the OFAC designated Mexican national Juan Manuel Abouzaid El Bayeh for his high-level role facilitating drug shipments and money laundering for the Cartel de Jalisco Nueva Generación (“CJNG”), a violent drug trafficking organization that traffics fentanyl and other illicit controlled substances into the United States. Abouzaid El Bayeh joins CJNG’s leader Ruben Oseguera Cervantes, his associates, and a series of Mexican businesses they own or control, including shopping centers, real estate companies, agricultural companies, a music promotion business, and a luxury boutique hotel in designations under the Foreign Narcotics Kingpin Designation Act, along with more than 2,200 other individuals and entities.23

Venezuela-Related Sanctions

The Biden Administration has indicated that it will not make significant changes to the Venezuela sanctions program for the time being, despite calls to reexamine the program due to the deteriorating economic and social conditions in the country and the inability of the sanctions program to bring about the desired regime change to date. The sanctions, first imposed by President Obama with Executive Order 13692 in 2015, are intended to put an end to “erosion of human rights guarantees, persecution of political opponents, curtailment of press freedoms, use of violence and human rights violations and abuses in response to antigovernment protests, and arbitrary arrest and detention of antigovernment protestors, as well as the exacerbating presence of significant public corruption” 24  perpetrated by the government of Venezuela under Maduro’s leadership. Through a series of seven executive orders, the program has imposed sweeping limitations on the government of Venezuela, as well as individuals and entities linked to the Maduro regime and its repressive acts.

On March 2, 2021, Secretary of State Antony Blinken spoke directly with Venezuelan Interim President Juan Guaidó to reaffirm U.S. support for a transition to the democratically elected government.25 The Biden Administration also issued an amended general license, adding to an already voluminous list of general licenses and FAQs to facilitate humanitarian and public health operations in Venezuela. The OFAC issued amended General License No. 30A, “Authorizing Certain Transactions Necessary to Port and Airport Operations,” adding interactions with the Instituto Nacional de los Espacios Acuáticos (the National Institute for Aquatic Spaces) to the license for transactions and activities that are incident and necessary to operations or the use of ports and airports in Venezuela. Previously, General License No. 30 applied only to port and airport operations with the Government of Venezuela.

Middle East

Iran Sanctions Program

There have been no new developments in the various sanctions programs involving Iran, although President Biden has made it clear that the United States would be “prepared to reengage in negotiations with the P5+1 on Iran’s nuclear program”26 to achieve a new deal on a “compliance for compliance basis.”27 Meanwhile, certain “mixed messages” sent by Ayatollah Ali Khamenei in recent weeks regarding Iran’s intentions with respect to its nuclear program28 have clouded the picture, as have pressures from Iranian hard-liners that further diplomatic engagement with the United States will not put an end to crippling sanctions that have devastated the Iranian economy.29

On February 2, 2021, the Biden Justice Department commenced a civil action in the U.S. District Court for the District of Columbia seeking the seizure and forfeiture of certain petroleum cargoes as assets of the Islamic Revolutionary Guard (“IRGC”) and the IRGC Quds Force (“IRGC-QF”).30 The complaint alleges that the petroleum product is aboard the motor tanker ACHILLEAS following a series of AIS spoofing incidents and clandestine ship-to-ship transfers designed to disguise the product’s origin and affiliations. The lawsuit suggests the continuation of an aggressive litigation policy started under the Trump Administration designed to intercept and disrupt the ocean transportation of petroleum product with alleged ties to the IRGC and the IRGC-QF.31

Saudi Arabia-Related Sanctions under the Global Magnitsky Sanctions Program

On the same day the declassified intelligence report was released regarding the murder of Washington Post columnist Jamal Khashoggi in 2018, OFAC announced sanctions against an additional individual and entity directly involved in the killing. OFAC designated the Saudi Rapid Intervention Force and Ahmad Hassan Mohammed al Asiri, the former Deputy Head of Saudi Arabia’s General Intelligence Presidency, under the Global Magnitsky Human Rights sanctions program pursuant to Executive Order 13818. Attempting to strike a delicate balance regarding a key ally in the region, the Administration stopped short of sanctioning Crown Prince Mohammed bin Salman, despite findings in the report that he was ultimately responsible for the murder. Asiri and RIF join 17 individuals who were designated on November 15, 2018, for having led or participated in the operations team allegedly responsible for Mr. Khashoggi’s murder.

Yemen-Related Sanctions

The Biden Administration has expressed a deep and urgent commitment to ending the ongoing conflict in Yemen to alleviate humanitarian suffering there. Responding to calls by humanitarian agencies that the sanctions designations were inhibiting their ability to operate in the region, the Biden Administration revamped the Yemen sanctions program by revoking the designation of Ansarallah, also known as the Houthi movement, as a foreign terrorist organization, which was issued on the last days of former President Trump’s presidency. Officials have clarified that the un-designation did not demonstrate support for the Houthis, a group the United States continues to condemn. Rather, the designation was revoked because it had the unintended consequence of impeding the delivery of humanitarian aid to the people of Yemen, and international aid groups resoundingly called for the United States to rescind the designation to avoid dramatic consequences to humanitarian efforts in the region.32 In place of the Ansarallah designations, OFAC designated key military leaders of the Ansarallah militia, Houthi Naval Forces Chief of Staff Mansur Al-Sa’adi and commander of Yemen’s Houthi-aligned Yemeni Air Force and Air Defense Forces Ahmad Al-Hamzi. Previous Ansarallah designations made in 2014 and 2015 under U.N. sanctions and U.S. Executive Order 13611 against Abdul Malik al-Houthi, al-Khaliq Badr al-Din al-Houthi, and Abdullah Yahya al Hakim remain in effect.

____________________________________________________

1See U.S. Dep’t of State, Media Note, “State Department Terrorist Designations of ISIS Affiliates and Leaders in the Democratic Republic of the Congo and Mozambique” (Mar. 10, 2021) (https://www.state.gov/state-department-terrorist-designations-of-isis-affiliates-and-leaders-in-the-democratic-republic-of-the-congo-and-mozambique/).
2See Exec. Order No. 14014, “Blocking Property with Respect to the Situation in Burma,” Fed. Reg., Vol. 86, No. 28 (Feb. 12, 2021).
3The designated individuals are: Commander-in-Chief of the Burmese military forces Min Aung Hlaing; Deputy Commander-in-Chief of the Burmese military forces Soe Win; First Vice President and retired Lieutenant General Myint Swe; Lieutenant General Sein Win; Lieutenant General Soe Htut; and Lieutenant General Ye Aung.
4The designated individuals and entities are: General Mya Tun Oo; Admiral Tin Aung San; Lieutenant General Ye Win Oo; ans Lieutenant General Aung Lin Dwe. Lieutenant General Moe Myint Tun, General Maung Maung Kyaw, Cancri Gems & Jewellery Co., LTD. Myanmar Imperial Jade Co., LTD., and Myanmar Ruby Enterprise. See U.S. Treasury Dep’t, Press Release, “United States Targets Leaders of Burma’s Military Coup Under New Executive Order” (Feb. 11, 2021) (https://home.treasury.gov/news/press-releases/jy0024); U.S. Treasury Dep’t, Press Release, “United States Targets Members of Burma’s State Administrative Council following Violence against Protestors” (https://home.treasury.gov/news/press-releases/jy0031).
5The designated individuals and entities are: Aung Pyae Sone; Khin Thiri Thet Mon; A & M Mahar Co. Ltd.; Everfit Co. Ltd; Seventh Sense Co. Ltd; Sky One Construction Co. Ltd; the Yangon Gallery; and the Yangon Restaurant.
6See Exec. Order No. 14014, “Blocking Property with Respect to the Situation in Burma,” Fed. Reg., Vol. 86, No. 28 (Feb. 12, 2021).
7The extension of martial law across more districts in Burma and the increased violence against protestors, resulting in the reported death of 50 protestors on March 14, 2021, is complicating an already deteriorating situation. See BBC News, “Myanmar military extends martial law after bloodiest day since coup” (Mar. 15, 2021)( https://www.bbc.com/news/world-asia-5639800)
8See U.S. Dep’t of Commerce, Bureau of Industry and Security, “Burma: Implementation of Sanctions,” Docket No. 210302-0033, Final Rule, 86 Fed. Reg. 13173-13178 (Mar. 8, 2021). By removing Burma from Country Group B and moving it to Country Group D:1, BIS has effectively narrowed the AVS license exception for the export and re-export of equipment and spare parts for aircraft and vessels registered in Burma, or owned or controlled by or under charter or lease to a Burmese national.
9See U.S. Dep’t of Commerce, Bureau of Industry and Security, “Burma: Implementation of Sanctions,” Docket No. 2102-0010, 86 Fed. Reg. 10011 (Feb. 18, 2021).
10The designated entities are: the Burmese Ministry of Defence; the Burmese Ministry of Home Affairs; the Myanmar Economic Corporation; and the Myanmar Economic Holding Limited. See U.S. Dep’t of Commerce, Bureau of Industry and Security, Press Release, “Commerce Implements New Export Controls on Burma and Makes Entity List Additions in Response to the Military Coup and Escalating Violence against Peaceful Protesters” (Mar. 4, 2021).
11See Exec. Order No. 13959, “Addressing the Threat from Securities Investments That Finance Communist Chinese Military Companies,” 85 Fed. Reg. 73185-73189 (Nov. 17, 2020). This Executive Order was subsequently amended by Executive Order No. 13974, “Amending Executive Order 13959 – Addressing the Threat from Securities Investments That Finance Communist Chinese Military Companies,” 86 Fed. Reg. 4875 (Jan. 13, 2021).
12See 85 Fed. Reg. at 73185.
13The White House, “Remarks by President Biden at the 2021 Virtual Munich Security Conference” (Feb. 19, 2021) (https://www.whitehouse.gov/briefing-room/speeches-remarks/2021/02/19/remarks-by-president-biden-at-the-2021-virtual-munich-security-conference/).
14See 15 C.F.R. 744, Supp. No. 7.
15The designated individuals are: Aleksandr Bortinkov, director of FSB; Alexander Kalashnikov, director of the Russian Penitentiary Service, or FSIN; Sergey Kiriyenko, deputy chief of staff to Russian President Vladimir Putin; Igor Krasnov, Russia’s prosecutor-general; Col. Gen. Aleksey Krivoruchko and Gen. of the Army Pavel Popov, deputy defense ministers; and Andrei Yarin, director of Russia’s Presidential Domestic Policy Directorate.
16The designated individuals and entities are: 27th Scientific Center; 48 Central Scientific Research Institute Sergiev Posad; 48 Central Scientific Research Institute Kirov; 48 Central Scientific Research Institute Yekaterinburg; State Scientific Research Institute of Organic Chemistry and Technology; 33rd Scientific Research and Testing Institute; the Federal Security Service (“FSB”); the Main Directorate of the General Staff of the Armed Forces of the Russian Federation (“GRU”); and GRU officers Alexander Yevgeniyevich Mishkin and Anatoliy Vladimirovich Chepiga.
17See U.S. Dep’t of Commerce, Bureau of Industry and Security, Addition of Entities to Entity List, Docket No. 201216-0348, Final Rule, 86 Fed. Reg. 12529–12534 (Mar. 4, 2021).
18The White House, “Remarks by President Biden at the 2021 Virtual Munich Security Conference” (Feb. 19, 2021) (https://www.whitehouse.gov/briefing-room/speeches-remarks/2021/02/19/remarks-by-president-biden-at-the-2021-virtual-munich-security-conference/).
19The White House, “Statement by President Biden on the Anniversary of Russia’s Illegal Invasion of Ukraine” (Feb. 26, 2021) (https://www.whitehouse.gov/briefing-room/statements-releases/2021/02/26/statement-by-president-biden-on-the-anniversary-of-russias-illegal-invasion-of-ukraine/).
20The White House, “Press Briefing by Press Secretary Jen Psaki and Deputy Director of the National Economic Council Bharat Ramamurti” (Mar. 9, 2021).
21See U.S. Dep’t of State, Bureau of Counterterrorism, “State Sponsors of Terrorism” (https://www.state.gov/state-sponsors-of-terrorism/).
22See U.S. Dep’t of State, Bureau of Counterterrorism, “State Sponsors of Terrorism” (https://www.state.gov/state-sponsors-of-terrorism/).
23See U.S. Treasury Dep’t, Office of Foreign Assets Control, Press Release, “Treasury Sanctions Fugitive Associate of CJNG” (Mar. 3, 2021).
24See Exec. Order No. 13692, “Blocking Property and Suspending Entry of Certain Persons Contributing to the Situation in Venezuela,” Fed. Reg. 12747-12751 (Mar. 8, 2015).
25See U.S. Dep’t of State, Office of the Spokesperson, Readout, “Secretary Blinken’s Call with Venezuelan Interim President Guaidó” (Mar. 2, 2021).
26The White House, “Remarks by President Biden at the 2021 Virtual Munich Security Conference” (Feb. 19, 2021) (https://www.whitehouse.gov/briefing-room/speeches-remarks/2021/02/19/remarks-by-president-biden-at-the-2021-virtual-munich-security-conference/).
27See Ned Price, U.S. Dep’t of State, Office of the Spokesperson, “Department Press Briefing – February 22, 2021,” (Feb. 11, 2021) (https://www.state.gov/briefings/department-press-briefing-february-22-2021/).
28Hadi Kahalzadeh, “’Maximum Pressure’ Hardened Iran Against Compromise,” Foreign Affairs (Mar. 11, 2021) (https://www.foreignaffairs.com/articles/iran/2021-03-11/maximum-pressure-hardened-iran-against-compromise).
29Id.
30United States of Am. v. All Petroleum Prod. Cargo Aboard the Achilleas, Civil A. No. 21-cv-305 (D.D.C. Feb. 2, 2021).
31See United States of Am. v. All Petroleum Prod. Aboard the Bella, Civil A. No. 20-cv-1791 (D.D.C. _____); United States of America v. Oil Tanker – “Grace 1” and All Petroleum Aboard Oil Tanker – “Grace 1,” Civil A. No. 19-cv-1989 (D.D.C. July 3, 2019).
32See Ned Price, U.S. Dep’t of State, Office of the Spokesperson, “Department Press Briefing – February 11, 2021” (Feb. 11, 2021)

© 2020 Vedder Price

ARTICLE BY John E. Bradley,  and Aleksandra Rybicki of Vedder Price
For more articles on trade, visit the NLR Antitrust & Trade Regulation section.

NLRB Paves the Way for Graduate Student Unions

The March 15, 2021 Federal Register contained an unwelcome surprise for private colleges and universities. The National Labor Relations Board (NLRB) announced that it is withdrawing a proposed rule published last September that, if adopted, would have classified graduate students who are compensated in connection with their studies as non-employees.

The history behind the Board’s proposed “graduate student rule” is well-known. In a 2016 case captioned Columbia University, 346 NLRB No. 90, the Board ruled that graduate students are employees and therefore have the right to organize and bargain collectively. Obviously, this was a case of great significance in the higher education community.

By proposing the “graduate student rule” in September 2020, the Board sought to give blanket protection to private colleges and universities. Had the rule been adopted, these institutions could still have voluntarily recognized and bargained with graduate student unions. But, since the graduate students would have been non-employees, the colleges and universities would not have had a duty to recognize and bargain with graduate student unions.

With the rule withdrawal, the stage is set for graduate student unions

It is reasonable to expect that the withdrawal of the “graduate student rule” will reinvigorate the movement among graduate students to unionize. Indeed, graduate students at Northwestern University have already issued a statement that they expect this development to bolster their organizing efforts.

The consequences of this shift in the Board’s approach regarding higher education are potentially far-reaching. Where the duty to bargain exists, the right to strike also exists (unless the union bargains that right away at the table). The prospect of the “graduate student rule” being adopted acted like a brake on graduate students’ bargaining expectations.  Now they can be much more confident. For instance, graduate students at Columbia University who are planning to strike have lauded the decision to withdraw the “graduate student rule” and commented that it could not have come at a more opportune time.

Prepare now

Lastly, the withdrawal of the “graduate student rule” is expected to be just the first of many changes, both regulatory and legislative, aimed at strengthening unions’ ability to organize. Whether or not they are aware of this, many colleges and universities have an urgent need to assess management policies and practices, as well as campus culture, in order to prepare for possible organizing efforts.

© Steptoe & Johnson PLLC. All Rights Reserved.

ARTICLE BY John R. Merinar, Jr. of Steptoe & Johnson PLLC
For more articles on the NLRB, visit the NLR Labor & Employment section.

Larry King Will Contest — Key Takeaways

The press has made much of the handwritten will that Larry King executed in the months before he died and in which he purports to change his prior will executed in 2015 to leave his estate equally between his children. The facts pertaining to the King estate dispute are explained in more detail in this article from the Los Angeles Times.

The family dispute over the King estate highlights issues that sometimes arise when an elderly Testator/Testatrix makes changes late in life after becoming weakened physically and perhaps mentally as a result of age and disease. Here are four key takeaways:

  1. The handwritten will is likely to be probated. King’s handwritten will was witnessed by two witnesses and therefore, potentially satisfies the requirements of section 6110 of the California Probate Code. California was likely King’s state of domicile at the time of his death. However, even if King’s will does not satisfy the requirements of section 6110, it appears to satisfy the requirements of section 6111 of the California Probate Code for a holographic will. Although the requirements vary from state to state, a holographic will is generally a will in the testator’s handwriting that may or may not be witnessed. Holographic wills are permitted and can be admitted to probate in 26 states including California. Some states will allow a holographic will to be admitted to probate if the will was executed in another state and was valid in such other state. Even other states will only accept holographic wills when made by members of the armed forces under certain circumstances.
  2. The dispute over King’s will is just the tip of the iceberg. The bulk of King’s assets were titled in the name(s) of his revocable trust(s) and will be conveyed through those trust(s), which he apparently did not seek to revoke or amend in his own hand (or otherwise) before he passed away. In fact, according to news reports, the probate estate to be conveyed according to the terms of the will is only $2 million, as compared to his nonprobate estate (i.e., the revocable trust(s) and other assets passing outside of probate) estimated by TMZ to be worth $144 million (other reports indicate his net worth was $50 million). One of the advantages of passing assets by trust, rather than by will, is that the administration is not subject to the probate process. This helps to prevent the trust agreement from becoming a matter of public record and having to file an inventory of its assets with the court which is not the case with a will. This element of privacy offered by trusts can be a big deal for wealthy individuals, particularly celebrities like King. Also, note that keeping the makeup of the assets private only works if title to the assets are transferred from the testator to the trust during the testator’s lifetime. It appears in King’s case that $2m of his assets did not make into trust.
  3. Any pre- and/or post-nuptial agreements will be important in how King’s estate will be distributed ultimately. News reports indicate that King did not have a prenuptial agreement with Shawn Southwick King (“Southwick”), who was his 7th wife in 8 marriages. Although the couple was married for 22 years, they separated in 2019 and King had filed for divorce. They had not yet reached a financial settlement. Because California is a community property state, Southwick will likely have a claim to 50% of the assets the couple acquired during their lengthy marriage, regardless of any changes King made to his will. It is unclear whether the parties executed one or more post-nuptial agreements. King and Southwick reportedly were separated in 2010 after tabloids reported King had a relationship with Southwick’s sister. Reports indicate the couple then executed a post-nuptial agreement declaring all of King’s $144 million in assets (even those acquired before his marriage to Southwick) to be community property. Southwick reportedly filed for divorce in 2010, and King sought to have the post-nup nullified. The couple subsequently reconciled for a time and King reportedly updated his estate plan in 2015. It seems likely his 2015 estate plan would have addressed the status of the marital assets.
  4. Setting aside the will on the basis of undue influence will be challenging. Southwick is alleging that King was unduly influenced by his son, Larry King, Jr., who is 59 years old and a resident of Florida. Larry, Jr. is King’s oldest child, but apparently the two did not have a relationship for most of Larry, Jr.’s life. Nonetheless, King reportedly transferred over $250,000 to Larry, Jr. in the final years of his life, and Southwick is seeking to set aside those transfers, in part, on the basis of undue influence. Southwick claims that when King executed his will in October 2019, King was “highly susceptible” to outside influences and had “questionable mental capacity” due to various physical health issues. Under California law, undue influence is defined as “excessive persuasion that causes another person to act or refrain from acting by overcoming that person’s free will and results in inequity.” Typically, proving that a Testator’s “free will” was overcome is a difficult task. Southwick will be particularly challenged by the length of time that transpired between King’s execution of his will and his death.

The King will contest is likely to continue for some time, with the next hearing scheduled to take place later this month. Whether the probate court dispute will be expanded to other litigation between Southwick and Larry, Jr. remains to be seen.

See Robert Brunson’s three-part interview with psychiatrist Linda Austin for more insights into mental health and undue influence

Copyright ©2021 Nelson Mullins Riley & Scarborough LLP

ARTICLE BY Robert H. Brunson and Maurice D. Holloway of Nelson Mullins

For more articles on estate law, visit the NLR Estates & Trusts section.

Lawsuit Seeks to Overturn Trump’s SUNSET Rule

On March 9, 2021, the Center for Science in the Public Interest, Democracy Forward Foundation, American Lung Association, and other groups filed a lawsuit in the U.S. District Court for the Northern District of California against the U.S. Department of Health and Human Services (HHS) challenging the Agency’s “Securing Updated and Necessary Statutory Evaluations Timely” Rule (“SUNSET Rule”).

The SUNSET Rule mandates HHS to assess its regulations every ten years to determine whether they are subject to review under the Regulatory Flexibility Act (RFA).  If a given regulation is subject to the RFA, HHS must review the regulation to determine whether the regulation is still needed and whether it is having appropriate impacts.  Regulations will expire if the Agency does not assess and (if required) review them in a timely manner.  The complaint alleges that the rule exceeds the Agency’s authority and is arbitrary and capricious, as it obligates HHS to review regulations at a pace that the Agency will not be able to achieve, which will result in the elimination of regulations that structure the plaintiffs’ operations and businesses, delineate their obligations and rights, or protect their members and the populations they serve.

By way of background, the Trump Administration released notice of the proposed SUNSET rule the day after the 2020 election and scheduled it to take effect on March 22, 2021.  The lawsuit alleges that the Trump administration rushed the rule and did not provide the public with enough time to comment.

The Biden White House has called for a regulatory freeze on any last-minute regulations approved by the Trump Administration.  As a result, HHS has delayed several Agency rules so far.  Plaintiffs filed the lawsuit against HHS, as the Agency has not yet issued a stay in response to the White House’s announcement.  It is unclear whether the SUNSET Rule will be impacted by the Biden Administration’s regulatory freeze before it takes effect on March 22, 2021.

© 2020 Keller and Heckman LLP
For more articles on SUNSET rule lawsuits, visit the NLR Health Law & Managed Care section.

Biden Administration Takes Aim at Advancing Gender Equity and Equality – Complementing Several Renewable Energy Private Sector Initiatives

On International Women’s Day, US President Joe Biden signed an Executive Order establishing the White House Gender Policy Council. The council, which was formerly called the White House Council on Women and Girls under the Obama administration, seeks to advance the equality of opportunity while simultaneously combating systematic biases and discrimination against women. The council plans to do this by coordinating federal government efforts to increase economic support, promote gender equity in leadership, prevent all forms of gender-based violence and bolster initiatives to empower women, both domestically and internationally. Although the election of Kamala Harris as the first female vice president in American history disrupted gender norms, the revival of this council serves as a salient reminder that there is still much to do to combat systemic biases and advance gender equality.

The federal government is not alone in its endeavor to combating gender inequity. Renewable energy has proven to be an industry where there is significant potential to break institutional biases. The renewable energy workforce, for example, comprises 32% women, whereas the larger energy sector workforce only employs 22% women. Although this is a notable start, these numbers illustrate that there is still progress to be made in achieving gender equality across industries and that these goals should be prioritized moving forward.

The renewable energy industry has several initiatives prioritizing gender equality that should continue to be lauded and supported. One such program is the Women of Renewable Industries and Sustainable Energy (WRISE) program, which supports the educational, professional development and advancement of women in the renewable energy sector with the aspiration of combating systemic inequities. The Women in Renewable Energy (WIRE) Network is a network of women working in renewable energy and combating existing structural gender inequities that could be exacerbated by the consequences of climate change. The Clean Energy Council’s Women in Renewables initiative serves as a platform to champion women working in renewable energy as they advance to become leaders of industry. Other notable programs and initiatives include:

  • Powered by Women, which consults with renewable energy companies on how they can sustainably build growth and close gender gaps at their respective organizations.
  • The Clean Energy Trust, a nonprofit supporting female or minority-owned startups aspiring to innovate in the realm of clean energy and sustainability.
  • The American Solar Energy Society, which is recognizing women who have contributed extraordinary developments to the technological developments or wide-spread advancement of solar energy.
  • The Department of Energy, which has sought to recruit more women into the clean energy field and recognize accomplished women for their contributions and leadership through the US Clean Energy Education & Empowerment (C3E) Initiative.
  • The Solar Energy Industries Association, which has developed the Diversity Best Practices Guide for the Solar Industry, aims to build a diverse workforce by providing guidance to companies as they navigate diversity and inclusion efforts.

The establishment of the Gender Policy Council displays a commitment by the United States to ensure that gender equality efforts are at the forefront of decision-making domestically and abroad, across multiple industries. In addition to naming two co-chairs, the council will comprise leaders from several agencies, including the secretary of energy, secretary of transportation, administrator of the Environmental Protection Agency and the chair of the Equal Employment Opportunity Commission. The array of individuals selected for the council will directly impact the renewable energy industry, as many of these offices are working in tandem to promote clean energy initiatives.

These efforts across industries and governments illustrate the promise and impact that the renewable energy sector has on empowering women. Only by advocating for the empowerment of all women, can we secure a safer, more renewable-energy-powered planet.

© 2020 McDermott Will & Emery

ARTICLE BY Carl J. Fleming and Elle Hayes of
McDermott Will & Emery
For more articles on the Biden administration, visit the NLR Environmental, Energy & Resources section.

Marijuana Legalization Update: Early 2021 Legislative Developments

In November 2020, voters in five states (Arizona, Mississippi, Montana, New Jersey, and South Dakota) voted in favor of legalizing medical and/or recreational marijuana. Since then, there have been several developments within the marijuana legalization world that employers may want to keep an eye on as they move forward in 2021.

While the COVID-19 pandemic brought a halt to many state legislative efforts to legalize marijuana in 2020, many of those efforts have been renewed in 2021, and some states have begun to consider marijuana legalization for the first time. Also, while Mississippi and South Dakota voters approved marijuana legalization measures in November 2020, subsequent developments have emerged that may impact those approvals.

Employers new to marijuana legalization laws may want to be aware of the two broad categories of medical marijuana laws: (1) laws with express protections within the language of the statutes for medical marijuana cardholders (i.e., “antidiscrimination” provisions) and (2) laws without express protections for medical marijuana cardholders. Employers should also be aware that irrespective of whether a medical marijuana law contains an antidiscrimination provision, they should be mindful of the potential disability and accommodation issues inherently at play when dealing with medical marijuana cardholders.

Importantly, while recreational marijuana laws are becoming more common, they typically do not contain employment protections for recreational marijuana users—although New Jersey recently deviated from this approach.

Employers may also want to keep in mind that legislation tends to evolve as bills work their way through the legislative process, and many of the bills discussed in this article are still in committee or other preliminary stages.

Medical Marijuana Legislation

Alabama

Senate Bill 46 would legalize marijuana for medicinal purposes in Alabama. The bill, which is the same as prior legislation introduced in 2020, does not contain any employment protections for medical marijuana cardholders.

Florida

Senate Bill 692 and House Bill 335 would amend the existing Florida Compassionate Medical Cannabis Act to include a provision prohibiting public employers from taking adverse employment action against medical marijuana cardholders. The proposed legislation would permit a public employer to discipline an employee if the employer is able to show that the “lawful use of medical marijuana use is impairing the employee’s ability to perform his or her job responsibilities.” Importantly, this prohibition would not extend to private employers. This development follows failed efforts in 2020 to amend the Florida Compassionate Medical Cannabis Act to prohibit private employers from discriminating against medical marijuana cardholders.

Hawaii

Senate Bill 64 would amend the existing Hawaii Medical Marijuana Act to include protections for medical marijuana cardholders.

Idaho

The Idaho Senate recently voted in favor of an anti-drug constitutional amendment, Senate Joint Resolution 101. The proposed amendment to the Idaho Constitution would make the use of all psychoactive drugs, including marijuana, illegal. In response, the Idaho House Health & Welfare Committee voted to introduce the Sergeant Kitzhaber Medical Cannabis Act, a medical marijuana legalization bill. The proposed act does not contain any employment protections for medical marijuana cardholders.

Kansas

Kansas Governor Laura Kelly recently announced a proposal to legalize marijuana for medicinal purposes. Relatedly, both the Kansas Senate Commerce Committee and House Federal and State Affairs Committee have introduced medical marijuana legalization bills. The proposed bills, Senate Bill 92 and House Bill 2184, do not contain any employment protections for medical marijuana cardholders.

Kentucky

House Bill 136 and Senate Bill 92 would legalize marijuana for medicinal purposes in Kentucky. House Bill 136 is a renewed bill that is the same as prior legislation introduced in 2020. Neither bill contains any employment protections for medical marijuana cardholders. Recent news reports, however, have indicated that there is a strong likelihood that these bills will not pass this legislative session.

Maryland

Senate Bill 504 would amend the existing Maryland medical marijuana law to include protections for medical marijuana cardholders. House Bill 683 would add medical marijuana to the list of medical treatments that can be provided to injured employees under the state’s workers’ compensation laws.

Mississippi

Since voters approved Initiative Measure 65 during the November 2020 election legal challenges have arisen related to the constitutionality of the initiative. The Supreme Court of Mississippi will hear oral arguments on this issue in April 2021. Perhaps in response to these challenges, Senate Bill 2765 would serve as an alternative or parallel to the medical marijuana program authorized by Initiative Measure 65. Senate Bill 2765, which passed the Mississippi State Senate on February 12, 2021, does not contain any employment protections for medical marijuana cardholders.

Nebraska

Legislative Bill 474 would legalize marijuana for medicinal purposes in Nebraska. The bill does not contain any employment protections for medical marijuana cardholders.

South Carolina

House Bill 3361 and Senate Bill 150 represent alternative bills that would each serve to legalize marijuana for medicinal purposes in South Carolina. Neither bill contains any employment protections for medical marijuana cardholders.

South Dakota

In November 2020, South Dakota voters approved Initiated Measure 26, which would establish a medical marijuana program in South Dakota. Governor Kristi Noem recently announced a plan to delay the implementation of Initiative Measure 26, which was originally scheduled to take effect in July 2021, until July 1, 2022. The South Dakota legislature subsequently introduced House Bill 1100, which reflected Governor Noem’s efforts to delay implementation of South Dakota’s medical marijuana program.

Virginia

House Bill 1862 would prohibit an employer from taking adverse employment action against a medical marijuana cardholder based on the individual’s lawful use of medical cannabis. Notably, Virginia does not have a typical medical marijuana law or program in place but instead has a limited medical marijuana program allowing individuals to use cannabis oils and products with less than 10 mg of tetrahydrocannabinol (THC).

Recreational Marijuana Legislation

Connecticut

Senate Bill 5853 and Senate Bill 888 would legalize marijuana for recreational use in Connecticut. Governor Ned Lamont has also been a vocal proponent for legalization of marijuana for recreational use.

Florida

House Bill 343 and Senate Bill 710 would legalize marijuana for recreational use in Florida.

Hawaii

Hawaii lawmakers are currently considering several alternative bills (such as Senate Bill 767) to legalize marijuana for recreational use in Hawaii.

Maryland

House Bill 32 would legalize marijuana for recreational use in Maryland.

Minnesota

House Bill 600 and Senate Bill 757 would legalize marijuana for recreational use in Minnesota.

Nebraska

Legislative Bill 546 would legalize marijuana for recreational use in Nebraska.

New Jersey

On February 22, 2021, New Jersey Governor Phil Murphy signed into law the New Jersey Cannabis Regulatory, Enforcement Assistance, and Marketplace Modernization Act (CREAMMA), legalizing marijuana for adult recreational use in New Jersey and prohibiting employers from taking adverse action against employees solely because they use marijuana.

New Mexico

New Mexico lawmakers are currently considering several alternative bills (such as House Bill 12) to legalize marijuana for recreational use in New Mexico.

New York

Senate Bill 854 would legalize marijuana for recreational use in New York. Governor Andrew Cuomo has also been a vocal proponent of the legalization of marijuana for recreational use.

North Dakota

House Bill 1420 would legalize marijuana for recreational use in North Dakota.

Oklahoma

House Bill 1961 would place the issue of marijuana legalization for recreational use on the 2022 Oklahoma election ballot.

Virginia

On February 27, 2021, the Virginia General Assembly approved legislation that would legalize the sale and possession of recreational marijuana for adult recreational use beginning on January 1, 2024. Governor Ralph Northam has not yet signed the legislation and may propose amendments that would speed up the effective date of the proposed law.

Other States

Legislation to decriminalize the possession of small amounts of marijuana is also pending in several states. These laws should be viewed differently than typical recreational marijuana legalization laws.

Key Takeaways

Employers across the country may want to closely monitor state marijuana legalization efforts. Marijuana legalization continues to be a quickly moving area of the law, and employers following these developments should expect marijuana legalization efforts to continue in the years to come.

© 2020, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.
ARTICLE BY M. Tae Phillips of Ogletree, Deakins, Nash, Smoak & Stewart, P.C.
For more articles on marijuana legalization, visit the NLR Biotech, Food, Drug section.

American Rescue Plan Act of 2021: COBRA Subsidy, Pension Funding, and Other Employee Benefit Changes

The American Rescue Plan Act of 2021 (ARPA) is the latest federal COVID-19 relief bill, which the President signed into law March 11, 2021. ARPA includes new COBRA continuation coverage election, notice, and subsidy requirements; pension plan funding relief; and some cost-saving benefit opportunities employees may be able to leverage.  Some of these changes are required and could take effect as early as April 1, 2021, requiring immediate action by employers (or their insurers or administrators).  Other provisions are optional, enabling employers to weigh the costs and benefits in considering their implementation.   This is the first of a series of articles addressing the important employee benefit changes under ARPA, including employer tax credits, executive compensation changes, and multiemployer funding relief.

COBRA Premium Subsidies:  Fulfilling a commitment of the Biden Administration, ARPA includes COBRA subsidy provisions aimed at making health insurance coverage accessible and affordable.  Bearing a striking resemblance to the American Recovery and Reinvestment Act of 2009, ARPA creates a 6-month subsidy period (April 1 to September 30, 2021) during which certain “assistance eligible individuals” (AEI) may qualify for a 100% subsidy for COBRA coverage.  Qualifying AEI would pay no cost for monthly COBRA premiums for medical, dental, or vision coverage if the individual is eligible for COBRA coverage during the subsidy period.  The subsidy period does not extend the maximum COBRA coverage period.  ARPA simply suspends the AEI’s obligation to make COBRA premium payments for up to 6 months.

These rules are not optional for employer sponsored group health plans.  All group health plans subject to COBRA, except health flexible spending accounts (FSA), must provide this subsidized coverage.

The employer, plan (in the case of a multiemployer plan), or insurer (for fully insured coverage), has an obligation to provide subsidized COBRA coverage and pay or incur the AEI’s COBRA premium cost.  But that entity may recover the cost of the coverage from the federal government by claiming a credit against its quarterly Medicare payroll tax liability.  The credit can be advanced and is refundable, meaning the entity could claim a refund if the subsidy paid exceeds the taxes due.

Only those qualified beneficiaries who trigger COBRA continuation coverage because of an involuntary termination of employment or a reduction in hours and whose current COBRA continuation coverage period would cover some or all of the subsidy period are considered AEI, but only if they elect COBRA coverage.  Individuals who qualify for COBRA because of voluntary termination, retirement, or death would not be considered AEI.

ARPA also creates an extended COBRA election period for AEI so even AEI who previously declined COBRA coverage, or whose coverage was terminated because of nonpayment of premiums, may enroll and receive the subsidized coverage for the length of the subsidy period.  This provision in particular will require careful administration to ensure compliance, given the previous COBRA deadline extensions and the recent re-starting of the clock, which we discuss here and here. ARPA does not change the fact that COBRA continuation coverage still can end because of other group health coverage, Medicare eligibility, and other circumstances.

ARPA imposes new notice requirements on group health plans, which provide AEI with the information they need to enroll in subsidized coverage.  There is a required notice of the availability of the subsidy, a notice of the extended election period for COBRA coverage, and a notice of the expiration of the subsidy.  The U.S. Department of Labor will issue model notices that plan administrators may use.

Group health plans may, but are not required to, allow AEI to enroll in different coverage options available from the employer, subject to certain conditions.  If offered, the notices would need to describe this option.

Affordable Care Act Premium Tax Credit Expansion:  Following the coverage theme noted above, ARPA also expands eligibility for Premium Tax Credits (PTCs) under Internal Revenue Code Section 36B.  These PTCs, which are part of the Affordable Care Act (ACA), make securing coverage through the Healthcare Marketplace or other state exchange more affordable.  Generally, the changes temporarily eliminate the phaseout of eligibility for households over 400% of the federal poverty level, reduce the contributions eligible households must make toward the premium cost, suspend the recapture of excess credits previously provided, and consider anyone who receives unemployment compensation during any week in 2021 as eligible.

For employers, this may mean more “full-time” employees claim the PTCs, which correspondingly may lead to greater scrutiny of employers’ ACA compliance by the IRS and a shift in employer group health plan enrollment.  This may increase the pool of individuals who qualify for subsidized coverage, a key trigger for employer shared responsibility penalties under the ACA. We recommend employers review and confirm their ACA compliance and reporting regularly to understand penalty risk and exposure, especially because of this change.

Increase in Dependent Care Assistance:  For the 2021 calendar year only, ARPA increases from $5,000 to $10,500 (from $2,500 to $5,250 in the case of a separate return filed by a married individual) the maximum amount that can be excluded from income under Section 129 of the tax code for qualifying dependent care expenses.  Employers who sponsor dependent care flexible spending arrangements may amend their plans on or before the last day of the plan year to allow their eligible employees to benefit from this increased limit.  Fiscal plan year sponsors will need to consider how to implement the relief given their plan year limits, noting that the increased contribution limit ends on December 31, 2021.  The Consolidated Appropriations Act, 2021, discussed here, permits employers to amend their Section 125 plans to permit mid-year election changes when the same normally would not be permitted.  That relief will need to be implemented in tandem with any increased limits allowed under ARPA.  For employers who decide not to increase the dependent care flexible spending account limit for 2021, employees still may qualify for the child and dependent care tax credit that was substantially enhanced and made refundable for 2021.

Pension Plan Funding Stabilization:  For employers who sponsor single employer defined benefit plans, ARPA provides several avenues to stabilize funding, including implementing 15-year (up from 7) amortization periods, fresh start rules, and an increase in interest rates used for minimum funding determinations.  These changes should reduce the minimum required contribution amounts, but would need to be weighed against the cost of obtaining an updated valuation, among other considerations.  Employers with these plans should consult with their plan actuaries.  As previously discussed, ARPA also includes long-awaited multiemployer funding relief.

If 2020 taught us anything, it is to be flexible and prepared for change.  Just three months into the 2021 calendar year, we now have the second substantial piece of legislation affecting the employee benefits area under our belts, and imminent implementation guidance.  This underscores how substantially the COVID-19 pandemic continues to change the value-proposition for employer provided benefits.

Jackson Lewis P.C. © 2020

ARTICLE BY  Suzanne G. Odom,  Kellie M. Thomas, Joy Napier-Joyce and  Brian M. Johnston of Jackson Lewis P.C.
For more articles on the American Rescue Plan, visit the NLR Labor & Employment section.

Three Critical Questions That Will (Hopefully) be Answered by the SEC’s Lawsuit against Ripple

Late last year, the SEC filed a litigated action in the U.S. District Court for the Southern District of New York against Ripple Labs Inc. and two of its executive officers (collectively, “Ripple”), alleging that Ripple raised over $1.3 billion in unregistered offerings of the digital asset known as XRP. Ripple opted not to file a motion to dismiss the complaint, and based on recent filings it appears that the parties do not believe a pre-trial settlement is likely. The SEC’s complaint alleges that, beginning in 2013, Ripple raised funds through the sales of XRP in unregistered securities offerings to investors in the U.S. and abroad. Ripple also allegedly exchanged billions of XRP units for non-cash consideration, including labor and market-making services. The SEC’s complaint also named as defendants two executives of Ripple who allegedly effected personal, unregistered sales of XRP totaling approximately $600 million. According to the SEC, during all of this, Ripple failed to register its offers and sales of XRP, or satisfy any exemption from registration, in violation of Section 5 of the Securities Act of 1933.

The SEC’s case rests on the proposition that XRP is a security – if it is not, the SEC lacks jurisdiction. In SEC v. Howey, the Supreme Court provided a framework for determining whether certain assets are “investment contracts,” and therefore, are securities (Section 3(a)(10) of the Securities Act defines the term “security” to include an “investment contract”). In what is now known as the “Howey Test,” the Court explained that an asset is a security if it represents an investment in a common enterprise with the expectation of profits derived solely from the efforts of others. In its complaint, the SEC argues that XRP is a security because investors who purchased XRP anticipated that profits would be dependent upon Ripple’s efforts to manage and develop the market for XRP. Ripple has disputed the SEC’s allegations, arguing that XRP is a “fully functioning currency that offers a better alternative to Bitcoin.”

The Ripple case raises three very important questions regarding digital assets, and may provide a vehicle for the SEC or the court to offer answers to those questions:

  1. When does a digital asset transition from a security to a currency (or something else)? At one end of the spectrum, the SEC has made it clear that it views almost any initial coin offering (ICO) to involve the offer of securities. At the other end, there is Ether, which today relies on a distributed ledger without a centralized administrator. In 2018, then Director of the SEC’s Division of Corporation Finance, William Hinman, stated publicly that “putting aside the fundraising that accompanied the creation of Ether, based on my understanding of the present state of Ether, the Ethereum network and its decentralized structure, current offers and sales of Ether are not securities transactions.” XRP probably falls somewhere in between those two extremes. Because of that, this case may present a unique opportunity for the SEC or the court to shed further light on how and where to draw the line between a security and a currency.
  2. How will President Biden’s administration approach digital assets? Under Chairman Clayton’s leadership, the SEC took a deliberate approach towards digital assets and, as reflected by the Ripple case, was not hesitant to bring enforcement actions in this space. President Biden has nominated Gary Gensler to the be the next SEC Chair. For the past few years, Mr. Gensler has been a Professor at MIT, teaching courses on blockchain and crypto assets. He will almost certainly have strong views on how the SEC should approach digital assets. As this litigation progresses, we may gain some insight into those views.
  3. How should disgorgement be calculated for a violation of Section 5 (and only Section 5) after the Supreme Court’s decision last year in Liu? In the Ripple case, the SEC has alleged that the company raised over $1.3 billion from sales of XRP, and the two individual defendants sold approximately $600 million of XRP. In the past, the SEC has often argued that all proceeds of an offering made in violation of Section 5 were subject to disgorgement as ill-gotten gains. In Liu, however, the Supreme Court explained that courts should deduct “legitimate expenses” when calculating disgorgement. The Ripple case could provide the SEC or the court the opportunity to explain how to calculate legitimate expenses, particularly in this case, where there are no allegations that the company or executives engaged in fraud, and it looks like the company will be able show substantial expenses from operating its business and the executives will be able to show that they provided legitimate employment services to Ripple.

Hopefully, the Ripple case will provide answers to one or more of these questions. Stay tuned.

© 2020 Proskauer Rose LLP.
For more, visit the NLR Securities & SEC section.

Transgender Students and Title IX: Biden Administration Signals Shift

President Biden issued Executive Order (EO) on Preventing and Combating Discrimination Based on Gender Identity or Sexual Orientation on Jan. 20, 2021.[1] While the EO itself is a high level policy statement and does not, in and of itself, immediately change any practices for public school districts, it likely signals a significant shift in how the Biden administration will interpret and enforce the rights of transgender and other LGBTQ students.

What policy is asserted in the EO?

The Executive Order asserts that “[a]ll persons should receive equal treatment under the law without regard to their gender identity or sexual orientation”, including that “[c]hildren should be able to learn without worrying about whether they will be denied access to the restroom, locker room, or school sports.” Additionally the EO provides: “[e]very person should be treated with respect and dignity without regard to who they are or whom they love; “[a]dults should be able to earn a living without worrying about being fired or demoted because of who they go home to or whether their dress conforms to sex-based stereotypes”; and “[p]eople should have access to healthcare and be able to put a roof over their heads without being subjected to sex discrimination.”

The EO bases its reasoning on Title VII of the Civil Rights Act of 1964 and the Supreme Court’s recent case of Bostock v. Clayton County, which held that Title VII’s prohibition against “sex discrimination” includes a prohibition against discrimination based on sexual orientation and gender identity. The EO asserts that Bostock’s reasoning also applies to other laws, including Title IX, that prohibit sex discrimination.

What does the EO require federal entities to do?

It requires the head of every federal agency (including the U.S. Department of Education) to:

  • Consult with the United States Attorney General as soon as practicable;
  • Review all existing orders, regulations, guidance documents, policies, programs, or other agency actions under any statute or regulation that prohibits sex discrimination and determine whether those items are consistent with the EO; and
  • Within 100 days of the Order, work with the Attorney General to implement an action plan to carry out the actions identified in its review of its policies, programs, guidance, rules, or regulations and that may be inconsistent with the Order’s stated policy.

How are the stated policy and required action different from the past?

The EO’s language stands in direct contrast with the prior administration’s stance on legal protections for students based on sexual orientation and gender identity. For example, under the prior administration, the U.S. Department of Education took the position that Bostock’s reasoning did not apply to Title IX and specifically reaffirmed its position that public school districts may exclude students from athletic teams based on gender identity and could require students to use bathrooms based on biological sex, rather than gender identity.

In fact, the prior administration issued correspondence explicitly disagreeing with how two federal circuit courts interpreted Title IX. In Grimm v. Gloucester County School Board and in Adams v. School Board of St. Johns County, the Fourth Circuit (covering Maryland, North Carolina, South Carolina, Virginia and West Virginia) and Eleventh Circuit (covering Alabama, Florida, and Georgia) held that public school students have the right, under both Title IX and the Equal Protection Clause of the Fourteenth Amendment, to use bathrooms consistent with their gender identity. The Eleventh Circuit, in particular, relied on Bostock to interpret Title IX’s prohibition against sex discrimination.[2] The new EO rejects the previous administration’s assertion that the Bostock decision does not apply to agency interpretation of Title IX.

While the EO does not specifically rescind any specific order or action, its broad mandate that agencies review existing programs and policies likely will lead to updated guidance, enforcement priorities, and rules implementing Title IX and other laws prohibiting sex discrimination.

What should schools do now?

The current administration will likely implement major changes related to discrimination on the basis of sexual orientation or transgender status. This may include requiring schools to allow students to use bathrooms and locker rooms that are consistent with their gender identity, and to play on athletic teams that are consistent with their gender identity. Additionally, schools can expect more robust federal agency investigation of complaints of discrimination based on gender identity and sexual orientation.

In light of Bostock, all schools subject to Title VII of the Civil Rights Act should ensure that their employment policies prohibit discrimination on the basis of sexual orientation and gender identity, in conformity with Bostock. In addition, all colleges and universities, as well as all public K-12 school districts, in the Fourth and Eleventh circuits should ensure that their bathroom policies allow students to use bathrooms consistent with their gender identity.

Finally, colleges and universities, as well as public K-12 school districts, should review their practices and procedures to determine how to best support the rights of transgender students in their programs and activities. They should prepare for greater scrutiny at the federal level and be prepared to defend their practices.

[1] https://www.whitehouse.gov/briefing-room/presidential-actions/2021/01/20/executive-order-preventing-and-combating-discrimination-on-basis-of-gender-identity-or-sexual-orientation/

[2] Note, though, that the School Board of St. Johns County has petitioned for an en banc hearing. That petition has not yet been ruled upon.

Copyright ©2021 Nelson Mullins Riley & Scarborough LLP

ARTICLE BY Neeru “Nina” Gupta and Suzann M. Wilcox of Nelson Mullins
For more, visit the NLR Public Education & Services section.

New Policy to Remove Barriers to COVID-19 Testing

On February 26, 2021, the Centers for Medicare & Medicaid Services, Department of Labor and Department of Treasury issued guidance removing barriers to COVID-19 diagnostic testing and vaccinations and strengthening requirements that plans and issuers cover diagnostic testing without cost sharing. This guidance makes clear that private group health plans and issuers generally cannot use medical screening criteria to deny coverage for COVID-19 diagnostic tests for individuals with health coverage who are asymptomatic, and who have no known or suspected exposure to COVID-19. Such testing must be covered without cost sharing, prior authorization, or other medical management requirements imposed by the plan or issuer. For example, covered individuals wanting to ensure they are COVID-19 negative prior to visiting a family member would be able to be tested without paying cost sharing.  The guidance also includes information for providers on how to get reimbursed for COVID-19 diagnostic testing or for administering the COVID-19 vaccine to those who are uninsured.  Click here for the newly issued guidance.  See press release here.

The new guidance should encourage providers to offer COVID-19 testing at their offices and outpatient locations since private group health plans and issuers must cover and reimburse for COVID-19 testing of asymptomatic individuals and defers to the provider’s individual clinical assessment of the patient to determine whether the patient should be tested for COVID-19.  This new guidance should also increase patient access to testing and remove barriers to encourage patients to be tested prior to travel without fears of large out of pocket payment for testing.  The provider should check with health plans to confirm that they have implemented this policy prior to starting to administer the test to the newly covered group.  Likewise, patients should check their coverage under their health plans.

© 2020 Giordano, Halleran & Ciesla, P.C. All Rights Reserved

ARTICLE BY Anjali N. Baxi of Giordano, Halleran & Ciesla, P.C.
For more, visit the NLR Health Law & Managed Care section