Category: Uncategorized

Swap New Year’s Resolutions for Real Property with a 1031 Tax-Deferred Exchange

A 1031 Tax-Deferred Exchange (“§ 1031 Exchange”) is an extremely useful tax strategy for taxpayers that maintain real property for productive use in trade, business or for investment. It allows a taxpayer to defer payment of capital gains tax on investment properties that are sold.

A taxpayer continues to qualify for a § 1031 Exchange if the following rules are met: (1) the properties being exchanged must be “like-kind”; (2) the taxpayer must transfer property held for productive use in a trade, business or for investment (the “Relinquished Property”) and subsequently receives property to be held either for productive use in a trade, business or for investment (the “Replacement Property”)”; (3) the Replacement Property value must be greater than or equal to the Relinquished Property value; (4) the taxpayer must not receive “boot” in order for the exchange to remain tax-free; (5) the name on title of the Relinquished Property must mirror the name on the title of the Replacement Property; (6) the taxpayer must identify a replacement property within 45 days after the taxpayer transfers the Relinquished Property; and (7) the taxpayer must receive the Replacement Property within 180 days of the transfer of the Relinquished Property, or on the date the taxpayer’s tax return is due, whichever is earlier.

Section 1031 Exchanges, while an excellent tax deferral tool, are not without complications. Section 1031 Exchanges must be used exclusively for the exchange of real property held for investment or business purposes. Section 1031 Exchange rules also require the title of the Replacement Property to be under the same name as the title of the Relinquished Property. Any real property interests owned by a limited liability company or a partnership must be reinvested by the entity in real property of “like-kind” nature for investment or business purposes in order for it to qualify under § 1031. This is a problem if an individual member or partner of the entity wishes to “cash out” or reinvest in something other than “like-kind” real property. To remedy this problem, many transactions are structured as a “drop and swap” where the interests in the real property are transferred to the individuals as tenants in common and those tenants in common, as individuals, deed the Relinquished Property to the buyer. Because the taxpayers, as individuals, sold the Relinquished Property, it is the individuals that must reinvest in the Replacement Property to utilize the tax deferrals under § 1031. Because the individuals are tenants in common, each is able to choose independently whether to reinvest in a Replacement Property and defer tax under § 1031 or cash out and pay the tax on their individual earnings from the sale of the property.

However, this “drop and swap” technique is increasingly disfavored by the IRS and may create tax implications for the taxpayers if the real property is acquired by the individual taxpayers immediately prior to the sale. Since real property must be for investment or business purposes to be eligible under a § 1031 Exchange, it is best practice to distribute the interests in the property to the individuals well in advance of the date of the relinquishment so each individual holds the property long enough to constitute an investment. While the IRS has not provided guidelines on the length of the holding period, it is recommended that such transfer, or “drop” to the individuals occur at least a year in advance before the closing on the Relinquished Property and that records be kept of the transfer and the intent of the taxpayers to hold the real property for business or investment. Moreover, taxpayers need to take care when transferring (“dropping”) the interest in the real property from the entity to individual tenancy-in-common interests to ensure the taxpayers aren’t viewed as operating as a partnership and thus, subject to ownership constraints of a partnership (this would likely negate the drop and swap technique and require the individuals, as tenants-in-common but operating as a partnership, to all invest in the Replacement Property for some to benefit from tax deferral under a §1031 Exchange).

There does not appear to be any limitation on how an individual taxpayer uses their proceeds if they are cashing out, and have no intent to defer tax under a § 1031 Exchange. However, for a taxpayer to defer tax under a § 1031 Exchange the above requirements must be met, and there can be no actual or constructive receipt of money or other property before the taxpayer actually receives the Replacement Property. Even if the taxpayer may ultimately receive the like-kind Replacement Property, any receipt of cash or other property, including an interest in an additional entity or personal property, prior to that Replacement Property will make the transaction a sale rather than a deferred exchange and prevent the taxpayer from gaining the tax deferral under a § 1031 Exchange.

© 2020 Davis|Kuelthau, s.c. All Rights Reserved

See more on the topic via the National Law Review Tax Law page.

Venmo’ Money: Another Front Opens in the Data Wars

When I see stories about continuing data spats between banks, fintechs and other players in the payments ecosystem, I tend to muse about how the more things change the more they stay the same. And so it is with this story about a bank, PNC, shutting off the flow of customer financial data to a fintech, in this case, the Millennial’s best friend, Venmo. And JP Morgan Chase recently made an announcement dealing with similar issues.

Venmo has to use PNC’s customer’s data in order to allow (for example) Squi to use it to pay P.J. for his share of the brews.  Venmo needs that financial data in order for its system to work.  But Venmo isn’t the only one with a mobile payments solution; the banks have their own competing platform called Zelle.  If you bank with one of the major banks, chances are good that Zelle is already baked into your mobile banking app.  And unlike Venmo, Zelle doesn’t need anyone’s permission but that of its customers to use those data.

You can probably guess the rest.  PNC recently invoked security concerns to largely shut off the data faucet and “poof”, Venmo promptly went dark for PNC customers.  To its aggrieved erstwhile Venmo-loving customers, PNC offered a solution: Zelle.  PNC subtly hinted that its security enhancements were too much for Venmo to handle, the subtext being that PNC customers might be safer using Zelle.

Access to customer data has been up until now a formidable barrier to entry for fintechs and others whose efforts to make the customer payment experience “frictionless” have depended in large measure on others being willing to do the heavy lifting for them.  The author of Venmo article suggests that pressure from customers may force banks to yield any strategic advantage that control of customer data may give them.  So far, however, consumer adoption of mobile payments is still miniscule in the grand scheme of things, so that pressure may not be felt for a very long time, if ever.

In the European Union, the regulators have implemented PSD2 which forces a more open playing field for banking customers. But realistically, it can’t be surprising that the major financial institutions don’t want to open up their customer bases to competitors and get nothing in return – except a potential stampede of customers moving their money. And some of these fintech apps haven’t jumped through the numerous hoops required to be a bank holding company or federally insured – meaning unwitting consumers may have less fraud protection when they move their precious money to a cool-looking fintech app.

A recent study by the Pew Trusts make it clear that consumers are still not fully embracing mobile for any number of reasons.  The prime reason is that current mobile payment options still rely on the same payments ecosystem as credit and debit cards yet mobile payments don’t offer as much consumer protection. As long as that is the case, banks and fintechs and merchants will continue to fight over data and the regulators are likely to weigh in at some point.

It is not unlike the early mobile phone issue when one couldn’t change mobile phone providers without getting a new phone number – that handcuff kept customers with a provider for years but has since gone by the wayside. It is likely we will see some sort of similar solution with banking details.

Copyright © 2020 Womble Bond Dickinson (US) LLP All Rights Reserved.

For more on fintech & banking data, see the National Law Review Financial Institutions & Banking law page.

New Joint Website on Agricultural Biotechnology Products Launched by EPA, USDA, and FDA

On January 9, 2020, the U.S. Environmental Protection Agency’s (EPA) Office of Pesticide Programs (OPP) announced the launch of a new website created in coordination with the U.S. Department of Agriculture (USDA) and the Food and Drug Administration (FDA) that provides information about actions the federal government is taking to oversee the development of agricultural biotechnology products.  This “one-stop-shop” website was created under the direction of Executive Order (EO) “Modernizing the Regulatory Framework for Agricultural Biotechnology Products.”

EPA regulates biotechnology-based pesticides under the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA), and residues from such pesticides under the Federal Food, Drug and Cosmetic Act (FFDCA).  EPA also regulates under the Toxic Substances Control Act (TSCA) certain new microorganisms that are not subject to regulation under other statutes.  USDA regulates certain new biotechnology products under the Plant Protection Act (PPA), including agricultural crops that have been modified to be resistant to conventional pesticides.  FDA regulates the safety of human and animal foods produced using biotechnology, including genetically modified agricultural crops and animals, and the safety of drugs and human biologics produced with biotechnology, under the FFDCA.

The website, The Unified Website for Biotechnology Regulation, describes the federal review process for biotechnology products, outline’s each agency’s role in regulating biotechnology products, and allows users to submit questions to the three agencies.  EPA Administrator Andrew Wheeler states that the new website “will help provide regulatory certainty and clarity to our nation’s farmers and producers by bringing together information on the full suite of actions the Trump Administration is taking to safely reduce unnecessary regulations and break down barriers for these biotechnology products in the marketplace.”

Commentary

In recent years, a number of Non-Governmental Organizations (NGO) have raised concerns regarding the risks from products that have been genetically modified using biotechnology, including agricultural crops that have been genetically modified to improve pesticide or disease resistance, and agricultural animals that have been genetically modified to enhance food production.  In some instances, farmers have also expressed concern that crops with novel traits may exchange genetic information with other plant strains or species.  Implicit in all of this criticism is a presumption that the agencies with regulatory jurisdiction over these novel organisms have not adequately prevented or mitigated the risks associated with biotechnology.

In contrast, proponents of biotechnology have complained that regulatory requirements imposed by the responsible agencies have stifled useful innovation and have requested relief from regulatory requirements that they contend have impeded or slowed introduction of new products of agricultural biotechnology.  The Executive Order that underlies the new website seeks to streamline the administrative process for introducing novel agricultural products without increasing potential risks of biotechnology.

Additional information on how EPA regulates biotechnology products is available here.

©2020 Bergeson & Campbell, P.C.

For more on biotech, see the National Law Review Biotech, Food & Drug lawpage.

Five Items to Add Into Your 2020 Solo and Small Law Firm Digital Marketing Strategy

The new year is here, and if you’re like most solo or small law firm owners, you have big goals for this coming year. As the field of law becomes increasingly competitive, it becomes more and more important to have a crystal-clear digital marketing plan that helps you reach new leads, reconnect with potential clients, and solidify your brand.

1. Develop Your Content Marketing Strategy

The phrase “content is king” is often heard in marketing circles, and the legal industry is proof that this adage is still true. Regularly producing high-quality content helps your brand grow in multiple ways. First, you can target keywords that potential clients are searching for when looking for a lawyer. Second, your trustworthy content helps you strengthen your brand and your reputation. Finally, shareable content can also play a big role in your social media marketing plans. Focus on topics that are interesting to laypeople and use conversational language in lieu of legal jargon.

2. Expand Your Social Media Presence

Regardless of the age, gender, and socioeconomic status of your target market, it’s highly likely that they’re active on multiple social media platforms. Use your time wisely by researching the platforms your audience is using and focusing your efforts, rather than trying to be active on as many platforms as possible.

3. Make Sure You’re Considering Your Mobile Users

Per CNBC, nearly three-quarters of Internet users are expected to access the Internet solely via smartphone by 2025. Law firms with outdated websites that are not optimized for mobile devices are at risk of losing potential clients to firms with fast-loading, mobile-friendly websites. Your website should make it easy for clients to find the information they’re searching for, learn more about your firm, and contact you directly.

4. Bring in Gated Content

Gated content, also known as “freemium” content, is provided free to your visitors—in exchange for signing up to your e-mail list. This is an extremely effective technique for law firms in various specialties, so if you’re not using it already, make it a priority in 2020. Many law firms offer access to a free guide in exchange for a visitor’s email address. For example, a family law attorney might write a short guide on “7 Steps to Divorcing an Adversarial Spouse” or a bankruptcy lawyer might write “5 Ways to Repair Your Credit After Bankruptcy.” This ties directly into the fifth tip on this list.

5. Tap Into E-Mail Leads

An e-mail list is still one of the most valuable things you can have as a solo attorney or small law firm. It helps you stay in touch with potential clients who may not be ready to take the plunge when they first come across your website. By building a relationship with your e-mail list through regular updates and valuable information, you can be at the forefront of their thoughts when they are ready to take that leap.

Digital marketing is key to the growth of your law firm. A solid plan for 2020 can get you on the right track.

© 2020 Denver Legal Marketing LLC

Find more marketing advice for legal professionals on the National Law Review Law Office Management page.

Are Culpable Whistleblowers Eligible to Receive SEC Whistleblower Awards?

Yes. In many circumstances, culpable whistleblowers are eligible to receive SEC whistleblowers awards (see limitations below). The final rules of the SEC Whistleblower Program recognize that culpable whistleblowers enhance the SEC’s ability to detect violations of the federal securities laws, increase the effectiveness and efficiency of the SEC’s investigations, and provide critical evidence for the SEC’s enforcement actions. In fact, a speech by the former Director of the SEC’s Division of Enforcement highlighted the importance of culpable whistleblowers to the agency’s enforcement efforts:

Finally, I want to say a word about participants in wrongdoing and their ability to be whistleblowers. It is important for participants in misconduct to understand that, in many circumstances, they are eligible for awards and we would like to hear from them. Obviously, culpable insiders with first-hand knowledge of misconduct can provide valuable information and assistance in identifying participants in, transactions relating to, and proceeds of, fraudulent schemes. And, while there are safeguards built into the program to ensure that whistleblowers do not profit from their own misconduct…culpable whistleblowers can still get paid for eligible information they report that falls outside of these limitations.

SEC Whistleblower Awards to Culpable Whistleblowers

The SEC Whistleblower Program’s decision to work with, and award, culpable whistleblowers has proven to be effective in enabling the SEC to discover fraud and protect investors. To date, the SEC has issued several awards to whistleblowers who had some culpability in the violations, including:

  • On August 30, 2016, the SEC announced a $22 million award to a whistleblower who helped the agency “halt a well-hidden fraud” at the company where the whistleblower worked. The accompanying order states that the Commission considered several factors mitigating the whistleblower’s culpability in determining the appropriate percentage, but the whistleblower did not financially benefit from the misconduct.
  • On July 27, 2017, the SEC announced a $1.7 million award to a whistleblower who helped the Commission stop a “serious, multi-year fraud that would have otherwise been difficult to detect.” There were a few mitigating factors in the Commission’s determination of the whistleblower’s final award, including the fact that the whistleblower did not comply with one of the SEC’s rules, an omission which normally requires an award denial. The order stated that “certain unusual circumstances” governed this case, thus the Commission decided to waive that requirement. In determining the award amount, the Commission considered, too, the fact that the whistleblower unreasonably delayed in reporting and ultimately bore “some, albeit limited, culpability” in the fraud.
  • On September 14, 2018, the SEC announced it had reduced a whistleblower’s award to $1.5 million because the Commission found that the whistleblower unreasonably delayed in reporting the fraud, the whistleblower “received a significant and direct financial benefit,” and was culpable in the scheme. The order further details these determining factors, and explains that the whistleblower waited more than a year after learning of the facts to report the fraud and reported to the Commission only after learning of the ongoing investigation.

See additional SEC whistleblower cases that have resulted in multi-million dollar awards.

Limitations on SEC Whistleblower Awards to Culpable Whistleblowers

While the SEC has been clear that it welcomes information from culpable whistleblowers, the SEC Whistleblower Program has specific rules that could disqualify certain whistleblowers from receiving SEC whistleblower awards. In addition, the program has rules that could limit the size of a culpable whistleblower’s future SEC whistleblower award. Importantly, whistleblowers who are concerned about potential liability should consult with experienced SEC whistleblower attorneys before reporting information to the SEC Office of the Whistleblower. Once information is submitted to the SEC, it cannot be withdrawn.

Whistleblowers Cannot Be Convicted of a Criminal Violation

The SEC Office of the Whistleblower will not issue awards to whistleblowers who are convicted of a criminal violation in relation to an action for which they would otherwise be eligible for an award. Moreover, the SEC Whistleblower Program does not provide amnesty to whistleblowers who provide information to the SEC. The fact that a whistleblower reports information to the SEC and assists in an SEC investigation and enforcement action does not preclude the SEC from bringing an action against the whistleblower based upon their own conduct in connection with violations of the federal securities laws. If such an action is determined to be appropriate, however, the SEC will take the whistleblower’s cooperation into consideration. As noted in the speech of the former Director of the SEC’s Division of Enforcement: “There are also other potential benefits for culpable whistleblowers — in appropriate circumstances, we will take their cooperation under the whistleblower program and in our investigation into consideration in deciding what remedies, if any, are appropriate in any action we determine should be brought against the whistleblowers for their role in the scheme.”

Culpable Whistleblowers Cannot Benefit from Their Own Misconduct

Under the SEC Whistleblower Program, the SEC will issue awards to whistleblowers who provide original information that leads to enforcement actions with total monetary sanctions in excess of $1 million. A whistleblower may receive an award of between 10-30 percent of the monetary sanctions collected. Since 2011, the SEC Whistleblower Office has issued nearly $400 million in awards to whistleblowers. The largest SEC whistleblower awards to date are a $50 million award, a $39 million award, and a $37 million award.

While the SEC is permitted to issue awards to culpable whistleblowers, the rules of the SEC Whistleblower Program do not allow whistleblowers to benefit from their own misconduct. Specifically, for purposes of determining whether the $1 million threshold has been satisfied or calculating the amount of an award, the SEC will not count any monetary sanctions that the whistleblower is ordered to pay or that are ordered to be paid against any entity whose liability is based substantially on conduct that the whistleblower directed, planned, or initiated.

Culpability May Decrease the Size of an Award

In determining the percentage of monetary sanctions to award a whistleblower, the SEC considers various factors that may increase or decrease the size of a whistleblower’s award. One of the factors that may decrease the size of an award is the whistleblower’s culpability in the securities law violation. When making this determination, the SEC may consider the following factors:

  • the whistleblower’s position or responsibility at the time the violations occurred;
  • if the whistleblower acted with scienter, both generally and in relation to others who participated in the violations;
  • if the whistleblower is a recidivist;
  • the egregiousness of the fraud committed by the whistleblower;
  • whether the whistleblower financially benefitted from the scheme; and
  • whether the whistleblower knowingly interfered with the SEC’s investigation.

Notably, while culpability may reduce a whistleblower’s award percentage, any whistleblower who qualifies for an award under the SEC Whistleblower Program – including culpable whistleblowers – will receive at least 10% of the monetary sanctions collected in the enforcement action.

© 2020 Zuckerman Law

For more on whistleblower rules, see the National Law Review Securities & SEC laws section.

House Committee Releases Framework for Comprehensive Climate Legislation

In early 2019, House of Representatives leadership directed each House committee to examine policies within its legislative jurisdiction to address the complex challenges of global climate change. In addition, House leadership created a Select Committee on the Climate Crisis, which would work with standing committees who have jurisdiction, such as the Energy and Commerce Committee, to deliver climate policy recommendations. Standing committees with jurisdiction, as well as the Select Committee, have been holding hearings, moving legislation, and asking the public for ideas and input since the 116th Congress convened in January of 2019.

As a result of these efforts, last week Democratic leadership of the House Energy & Commerce Committee announced their intention to release comprehensive climate change legislation—the Climate Leadership and Environmental Action for our Nation’s (CLEAN) Future Act. The Committee Democrats released a 15-page memorandum outlining the parameters, goals, and timeline for the Committee’s work on the forthcoming bill (the “Legislative Framework”). Comprehensive draft legislative text is expected to be released by the end of January. The Committee also announced its intentions to proceed with legislative action on some bills already introduced. The Committee’s Energy Subcommittee marked up nine such bills on January 9 and reported them for consideration by the full Committee.

Committee Democrats intend the forthcoming bill to create a process to vet and deliberate policies that would address the climate challenge.  It will provide an opportunity to analyze, debate, and refine policies proposed in the Legislative Framework.  At the press announcement, Committee Chair Frank Pallone (D-NJ) stated he intends to engage in the process on a bipartisan basis and hopes that Republicans will participate in the Committee’s forthcoming legislative efforts.

This alert examines the potential implications of the proposed legislation and provides a comprehensive breakdown by industry sector of the first major set of climate-related policy recommendations from the House Energy & Commerce Committee that could result in formal legislative action in over a decade.

Policy Recommendations

According to the Legislative Framework, the CLEAN Future Act would establish programs and policies aimed at achieving net-zero, economy-wide greenhouse gas (GHG) emissions by 2050. The legislation will be the product of a months-long fact-finding effort by the Committee, which has held fifteen climate-related hearings since the beginning of the 116th Congress and has solicited stakeholder input from the environmental community, environmental justice advocates, labor advocates, industry representatives, and the public. In addition, the legislation will incorporate numerous bills previously introduced by Democrats during this Congress.

The CLEAN Future Act is also notable for what it is not expected to include – a carbon tax or a cap-and-trade program. Committee Chairman Frank Pallone has stated that the CLEAN Future Act can achieve its goals without a carbon tax and that such a policy is outside the Committee’s jurisdiction in any event (the House Ways and Means Committee maintains jurisdiction over all tax-related matters). Jurisdictional boundaries also mean that the CLEAN Future Act does not include some additional provisions under the jurisdiction of other committees, such as energy technology research and development, agriculture, or potential tax-related policies.

Finally, the CLEAN Future Act would not remove any of the Environmental Protection Agency’s (EPA) existing authorities under the Clean Air Act to regulate GHG emissions, but rather would augment those authorities as discussed in the summary of the Legislative Framework, below.

Next Steps

The House Energy & Commerce Committee Leadership said they expect to release draft legislative text for the CLEAN Future Act by the end of January. In the interim, the Committee will continue to hold hearings and markups on smaller, sector-specific legislation that may be included in the broader CLEAN Future Act.

Other House committees are also working on climate policy. The House Select Committee on the Climate Crisis is set to release a suite of legislative recommendations in March to inform the development of climate change legislation considered by other Committees that have authority to legislate as well as conduct oversight. Last year, the House Science, Space, and Technology Committee, which has jurisdiction over the Department of Energy (DOE) research programs, approved a series of bills aimed at increasing and improving energy technology innovation. The House Natural Resources Committee introduced legislation in December 2019 that aims to achieve net-zero GHG emissions from public lands and waters by 2040. In addition, the House Ways and Means Committee released a discussion draft in November 2019 for the Growing Renewable Energy and Efficiency Now (GREEN) Act. The GREEN Act would extend and expand existing tax incentives that promote renewable energy and increase energy efficiency. If a carbon tax proposal emerges for Congressional consideration, it would come from that Committee as well.

Congressional Republicans and the White House have thus far opposed the kind of legislative and regulatory mandates contemplated for the CLEAN Future Act, instead offering support for policies that promote energy innovation through funding of research and development programs at DOE. In the Senate, the Energy and Natural Resources Committee, led by Chairman Lisa Murkowski (R-AK), is currently developing a comprehensive legislative package focused on energy innovation that could be voted on and readied for full Senate consideration in the first half of 2020.

It is possible that a set of climate-related bills that have been approved by other Committees could receive a House vote as a smaller legislative package this year, particularly as Speaker of the House Nancy Pelosi (D-CA) has committed to bringing climate change legislation for a vote on the House floor in 2020. Some candidates for inclusion in such a package are bills that were reported out of the House Science, Space, and Technology Committee that would reauthorize DOE research programs for wind, solar, geothermal, battery storage, and carbon capture and storage.

Even if the entirety of the CLEAN Future Act does not receive a vote in this Congress, entities in affected industries, states, and localities should consider participating in the public process to shape the bill because it is intended to lay down a marker for policies that Democrats are likely to pursue if they prevail in the Presidential election and gain additional seats in Congress.

Specific Elements of the CLEAN Future Act Described in the Legislative Framework

     Title I: National Climate Target for Federal Agencies

The CLEAN Future Act would direct all federal agencies to use existing authorities to achieve economy-wide net-zero GHG emissions by 2050. The bill would take a technology-neutral approach and direct the EPA to evaluate each agency’s plans, make recommendations, and report on progress each year.

     Title II: Power Sector

The CLEAN Future Act would establish a Clean Electricity Standard (CES) requiring all retail electricity suppliers to supply 100 percent clean energy by 2050. The Legislative Framework states that the CLEAN Future Act would incorporate elements of two separate CES bills, one introduced by Senator Tina Smith (D-MN) (S. 1359) and Congressman Ben Ray Lujan (D-NM) (H.R. 2597) and another currently being developed by Energy & Commerce Committee member Diana DeGette (D-CO). The CES under the CLEAN Future Act would allow suppliers to buy and trade clean energy credits, purchase them via auction, or pay an “alternative compliance payment.” As outlined, the CES would provide a limited pathway for continued use of coal and natural gas-fired power by authorizing fossil fuel generators with carbon intensities lower than 0.82 metric tons of CO2 (after any carbon capture) to receive partial credit. An outstanding issue is whether and how existing hydropower would be credited in the CES.

The bill would also direct the Federal Energy Regulatory Commission (FERC) to: (1) reform energy markets to reduce barriers to integration of clean resources—including energy storage systems and distributed energy resources—and (2) consider climate impacts in reviewing proposed new natural gas pipelines. It also mandates RTO and ISO membership for all electric providers and proposes reforms to the Public Utility Regulatory Policy Act of 1978 (PURPA) to promote energy storage deployment and “non-wires solutions,” as well as protecting qualifying facilities’ right-to-contract. Transmission, demand response, transformer reserves, and many other policies affecting the power sector are also addressed in the summary of the legislation.

     Title III: Buildings and Efficiency

According to the Legislative Framework, the CLEAN Future Act would establish targets for model building energy codes for use by states and localities, leading to a requirement of zero-energy-ready buildings by 2030.

     Title IV: Transportation

The CLEAN Future Act would direct EPA to set increasingly stringent GHG emission standards for light-, medium-, and heavy-duty vehicles. The bill would also provide support for the development of electric vehicles (EVs) and EV-charging infrastructure, a top priority for House Democrats. The Legislative Framework anticipates provisions for shifting to lower carbon transportation fuels, including for aviation and shipping.

     Title V: Industry

The CLEAN Future Act would establish a “Buy Clean Program” that sets carbon intensity performance targets for construction materials and other products used in federally-funded projects. The legislation would also extend eligibility of DOE’s Section 1703 Loan Guarantee Program to industrial decarbonization projects. Finally, the bill would establish a technology commercialization program for carbon capture and utilization and a prize for direct air capture technologies.

     Title VI: Environmental Justice

The CLEAN Future Act would codify Executive Order 12898 established by President Clinton, which requires federal agencies to integrate environmental justice into their missions. The bill would also introduce environmental justice considerations into the approval of state plans for air pollution regulation and disposal of hazardous waste.

     Title VII: Super Pollutants (Short-Lived Pollutants)

The Legislative Framework also describes provisions that would address short-lived climate pollutants, which account for 20 percent of U.S. GHG emissions on a carbon dioxide-equivalent basis. For example, the legislation would direct the oil and gas sector to reduce methane emissions 65 percent below 2012 levels by 2025, and 90 percent below 2012 levels by 2030. The bill would also prohibit routine flaring for new sources and limit routine flaring for existing sources to 80 percent below 2017 levels by 2025—with a complete phase-out of the practice by 2028. The bill would further direct EPA to regulate emissions from liquefied natural gas facilities and offshore oil and gas operations.

     Title VIII: Economy-wide Policies

Other provisions planned for the bill include energy efficiency programs, State Climate Plans, a National Climate Bank, and workforce training programs.

Regarding State Climate Plans, the bill would set a national climate standard of net-zero GHG emissions in each state by 2050 and grant states flexibility in developing policy plans to meet the standard. Each state plan would be subject to EPA approval. Funding for existing climate-related grant programs and funding for state initiatives are expected to be a significant part of this section of the legislation.

Regarding the National Climate Bank, the bill would incorporate previously introduced legislation, the National Climate Bank Act (H.R. 5416), aimed at mobilizing public and private capital to provide financing for low- and zero-emissions energy technologies, climate resiliency, building efficiency and electrification, industrial decarbonization, grid modernization, agriculture projects, and clean transportation. The bill would require the Bank to prioritize investments in communities that are disproportionately affected by the impacts of climate change.

© 2020 Van Ness Feldman LLP

For updates on the CLEAN Future Act, follow the National Law Review Environmental, Energy & Resources law page.

On-Demand Creativity: Five Ways to Foster It in Your Law Firm

Lawyers aren’t necessarily thought of as those who practice in a “creative” profession. At least not in the same way that artists, writers, musicians or marketing professionals are deemed “creatives.” However, lawyers and those who support them know that nothing could be further from the truth. In fact, the practice of law demands creativity in virtually all aspects – creating ingenious defense strategies, crafting brilliant opening statements, structuring unique partnerships or mergers or acquisitions, etc. Law firms also routinely launch creative marketing campaigns or inventive business development strategies. Plenty of law firms even get creative in terms of alternative billing structures. Indeed, the practice of law and the business of running a law firm require virtually nonstop creative thinking and strategy.

However, as most attorneys and firms know, generating creative inspiration can prove challenging. After all, some of the best ideas seem to materialize out of thin air, with an out-of-the-box design for working up a case coming to light during the course of other work. Since trial-winning ideas or successful marketing strategies that generate a particularly impressive ROI often seem to come to life out of the blue, it’s worth asking the question: Is there a way to generate creativity on demand? The short answer is: yes.

Drew McLellan of Agency Management Institute addressed the notion of sparking creativity on demand in a recent article, which we’ve expanded on below, including one of our own strategies. Here are five suggestions for drawing out creative ideas at your law firm when you need them.

Ban the Notion of Bad Ideas & Champion Creative Chaos

Obviously, not every idea is going to prove to be a winning strategy for your firm or your client, but by making it clear that all ideas are worth exploring, you may lay a foundation for creative chaos. Sometimes the worst ideas serve as the catalyst to make your team members think, which then spawns a great idea that otherwise wouldn’t have emerged. Too, if you set a culture where people can’t speak up, or their ideas are snuffed out, you may be silencing that one person who will come up with the dead-on idea for the brainstorming session.

Allot Time for Creative Idea Sharing at Meetings

During regular meetings, be sure to include time for idea sharing before heading back to your respective offices. Often, due to time constraints, meetings are held to strict time limits. Unfortunately, because of the volume of information shared during a meeting, there may not be time for an associate or team member to share an idea they have, which likely took shape during the meeting. By scheduling an extra 15 minutes at the end of regular meetings, you may just generate some of your best ideas yet.

If this isn’t possible, try scheduling an agenda-less meeting once a week, just to pick the brains of your colleagues.  Simply open up the meeting by asking something like: “Are there any ideas that you have that would make this firm run smoother or would make this case progress?” Then, open the floor up to input from your attorneys and team.

Champion Your Team’s Growth

Supporting the individual passions of your attorneys and staff is another great way to generate creativity. If you have an attorney who is an avid rock-climber, for example, encourage them to keep it up, and share their experiences about it. Likewise, if you have team members who are curious about pursuing a particular hobby, ask for updates on their progress and learn more about what they find fulfilling about it. The more you get to know your colleagues and who they are outside of the office, the greater the likelihood they may share ideas that come to them during off-hours.

Suggest Both Reasonable and Risky Solutions to Challenges

Creativity often emerges while pursuing solutions. When you’re brainstorming a solution to a problem, try to come up with one solution that is safe and practical, but also one that is risky, or otherwise unusual. By offering these ideas up to your peers, you’re likely to spark creative thinking on their part as well.

Embrace Creative Activity Team Building

Much like supporting the individual growth of attorneys and staff, it’s valuable to invest in team building. Consider a creative endeavor for your next team building exercise, such as a group night out at an art museum. Any activity wherein the focus isn’t just on chatting—such as attending a sports game or a happy hour— may just help to solidify friendships amongst firm members, who are then more open to idea sharing with the group.

Generating on-demand creativity in and of itself requires a bit of creativity. Consider these five suggestions or other ideas that these spark, in order to keep your firm investing in ingenuity.

© 2020 Berbay Marketing & Public Relations

For more legal team development ideas, see the National Law Review Law Office Management section.

Florida’s Legislature to Consider Consumer Data Privacy Bill Akin to California’s CCPA

Florida lawmakers have proposed data privacy legislation that, if adopted, would impose significant new obligations on companies offering a website or online service to Florida residents, including allowing consumers to “opt out” of the sale of their personal information. While the bill (SB 1670 and HB 963) does not go as far as did the recent California Consumer Privacy Act, its adoption would mark a significant increase in Florida residents’ privacy rights. Companies that have an online presence in Florida should study the proposed legislation carefully. Our initial take on the proposed legislation appears below.

The proposed legislation requires an “operator” of a website or online service to provide consumers with (i) a “notice” regarding the personal information collected from consumers on the operator’s website or through the service and (ii) an opportunity to “opt out” of the sale of certain of a consumer’s personal information, known as “covered information” in the draft statute.

The “notice” would need to include several items. Most importantly, the operator would have to disclose “the categories of covered information that the operator collects through its website or online service about consumers who use [them] … and the categories of third parties with whom the operator may share such covered information.” The notice would also have to disclose “a description of the process, if applicable, for a consumer who uses or visits the website or online service to review and request changes to any of his or her covered information. . . .” The bill does not otherwise list when this “process” would be “applicable,” and it nowhere else appears to create for consumers any right to review and request changes.

While the draft legislation obligates operators to stop selling data of a consumer who submits a verified request to do so, it does not appear to require a description of those rights in the “notice.” That may just be an oversight in drafting. In any event, the bill is notable as it would be the first Florida law to require an online privacy notice. Further, a “sale” is defined as an exchange of covered information “for monetary consideration,” which is narrower than its CCPA counterpart, and contains exceptions for disclosures to an entity that merely processes information for the operator.

There are also significant questions about which entities would be subject to the proposed law. An “operator” is defined as a person who owns or operates a website or online service for commercial purposes, collects and maintains covered information from Florida residents, and purposefully directs activities toward the state. That “and” is assumed, as the proposed bill does not state whether those three requirements are conjunctive or disjunctive.

Excluded from the definition of “operator” is a financial institution (such as a bank or insurance company) already subject to the Gramm-Leach-Bliley Act, and an entity subject to the Health Insurance Portability and Accountability Act of 1996 (HIPAA). Outside of the definition of “operator,” the proposed legislation appears to further restrict the companies to which it would apply, to eliminate its application to smaller companies based in Florida, described as entities “located in this state,” whose “revenue is derived primarily from a source other than the sale or lease of goods, services, or credit on websites or online services,” and “whose website or online service has fewer than 20,000 unique visitors per year.” Again, that “and” is assumed as the bill does not specify “and” or “or.”

Lastly, the Department of Legal Affairs appears to be vested with authority to enforce the law. The proposed legislation states explicitly that it does not create a private right of action, although it also says that it is in addition to any other remedies provided by law.

The proposed legislation is part of an anticipated wave of privacy legislation under consideration across the country. California’s CCPA took effect in January and imposes significant obligations on covered businesses. Last year, Nevada passed privacy legislation that bears a striking resemblance to the proposed Florida legislation. Other privacy legislation has been proposed in Massachusetts and other jurisdictions.

©2011-2020 Carlton Fields, P.A.

For more on new and developing legislation in Florida and elsewhere, see the National Law Review Election Law & Legislative News section.

Pharmaceutical Company Agrees To $54 Million To Settle False Claims Kickback Allegations

Teva Pharmaceuticals has agreed to pay $54 Million to settle false claims kickback allegations brought by two whistleblowers, Charles Arnstein and Hossam Senousy. In their 2013 complaint, the whistleblowers asserted that Teva Pharmaceuticals (“Teva”) violated the False Claims Act when the company knowingly induced physicians to prescribe two of the company’s drugs in exchange for “speaker fees.”

Physicians hosted Teva’s speaker events, which were attended by the speakers, their families, Teva employees, and various repeat attendees. In her memorandum decision and order denying Teva’s motion for summary judgment, Chief Judge Colleen McMahon pointed to the suspect audience in attendance as well as the event locations, and the amount of alcohol served as further evidence of the questionable nature of the events.

Physician speakers earned speaker fees for their event appearances. These same physicians subsequently prescribed the drugs Copaxone and Azilect, both manufactured by Teva. The physicians in question also encouraged other doctors to prescribe the medications that treated multiple sclerosis and Parkinson’s disease, respectively. Pharmacies across the United States filled the prescriptions and submitted reimbursement claims to government-funded healthcare programs. Reimbursement funds to the pharmacies are taxpayers’ dollars.

The whistleblowers allege that the reimbursement payments from the various Federal health care programs were a result of fraud, namely the questionable “speaker fees” paid to the physicians in exchange for their prescribing Copaxone and Azilect. Furthermore, the Anti-Kickback Statute of the False Claims Act makes it illegal to knowingly pay or offer to pay kickbacks, bribes, or rebates to encourage someone to recommend the purchase of a pharmaceutical covered by a Federal health care program.

The False Claims Act has been a vital tool in the fight against government programs fraud since its inception; however, the success of the act depends on private citizens like Charles Arnstein and Hossam Senousy who are willing and able to speak out against the wrong that they encounter and work closely with the help of an experienced False Claims Act attorney to get results for everyone. The settlement of this case is not only beneficial to the government from a monetary perspective, but it is also a win for the taxpayers – those who ultimately pay when companies like Teva Pharmaceuticals choose to defraud the government.

© 2020 by Tycko & Zavareei LLP

For more false claims act settlements, see the National Law Review Litigation & Trial Practice section.

Million-Dollar Settlement of Billion-Dollar Claim Found Reasonable in Light of Due Process Problems Posed By Disproportionate Damages

Another court has observed that a billion-dollar aggregate liability under the TCPA likely would violate due process, adopting the Eighth Circuit’s reasoning that such a “shockingly large amount” of statutory damages would be “so severe and oppressive as to be wholly disproportionate[] to the offense and obviously unreasonable.”

In Larson v. Harman-Mgmt. Corp., No. 1:16-cv-00219-DAD-SKO, 2019 WL 7038399 (E.D. Cal. Dec. 20, 2019),  the Eastern District of California preliminarily approved a settlement proposal that represents less than 0.1% of potential statutory damages. Like the Eighth Circuit decision that we discussed previously, both courts observed that several uncertainties exist as to whether the plaintiffs can succeed in proving certain legal issues, such as whether consent was provided and whether an ATDS was used.

The Larson case exposed the defendants to TCPA liability for allegedly sending 13.5 million text messages without prior express consent as part of a marketing program called the “A&W Text Club.” After extensive discovery and motion practice, the parties proposed a settlement that would have the defendants deposit $4 million into a settlement fund that in turn distributes $2.4 million to class members who submit a timely, valid claim.

The court preliminarily approved the proposed settlement, observing that its terms demonstrated “substantive fairness and adequacy.” As a preliminary matter, it found, “[i]t is well-settled law that a cash settlement amounting to only a fraction of the potential recovery does not per se render the settlement inadequate or unfair.” Concerned that calculating damages based on $500 per message under 47 U.S.C. § 227(b)(3)(B) would violate the Due Process Clause, it agreed that the conduct of the defendant (sending over 13.5 million messages) was not persistent or severely harmful to the 232,602 recipients to warrant the billion-dollar judgment.

While $4 million represents less than 0.1% of the theoretical aggregate damages, “the value of the settlement is intertwined with the risks of litigation.” Here, in addition to the uncertainty about whether the “A&T Text Club” program uses an ATDS, “several risks are present, including . . . whether the plaintiff can maintain the action as a class action, . . . and whether the plaintiff’s theories of individual and vicarious liability can succeed.” The proposed settlement amount was found to strike the appropriate balance as it would likely result in each class member receiving $52 to $210 for each message if 5% to 20% of the class submit timely claims.

Although the case was only at the preliminary approval stage, this decision again illustrates that at least some courts recognize the due process problem posed by disproportionate aggregate damages and do not reject settlements simply because they provide some fraction of the theoretical aggregate damages available under a given statute.

©2020 Drinker Biddle & Reath LLP. All Rights Reserved