Lender Liability and the Exception to CERCLA

Recently posted at the National Law Review by Joanne M. Schreiner and Matthew A. Whitlow of Dinsmore & Shohl LLP – explain possible liability under CERCLA for lenders in certain situations: 

Lenders are making loans again. Lenders are much more cautious about the loans they are making and much more thorough with their due diligence on every piece of property. Perhaps the biggest concern for a lender (aside from whether its borrower will default) is the environmental condition of the property. Now more than ever, lenders are fearful (and rightfully so) of exposure to liability for violations of environmental laws following foreclosure and transfer of possession of a commercial property. Generally, Lenders are insulated from such liability; however, they must be careful not to overstep the boundaries of the protections afforded them.

What is CERCLA?

It is mentioned in many commercial real estate loan documents, typically in connection with a representation by a borrower that they are in material compliance with it. “CERCLA” is an acronym for the Comprehensive Environmental Response, Compensation and Liability Act of 1980. This is the primary piece of federal legislation governing events related to the exposure of real estate to hazardous materials in the United States. Most state environmental laws are based on this law. When it comes to commercial real estate (or any real estate for that matter), the last place anyone wants to be is on the wrong side of CERCLA because CERCLA imposes strict liability upon “owners and operators” of real property for penalties and costs related to hazardous waste contamination and clean up. A lender can become an “owner and operator” of real property under CERCLA in several ways, with potential exposure to CERCLA strict liability. There are three exceptions to CERCLA strict liability: (i) an Act of God; (ii) an Act of War; or (iii) Secured Creditor Safe Harbor.

Initially, the Secured Creditor Safe Harbor allowed that a lender who owned or possessed real property for the sole purpose of protecting its security interest in the real property, and who did not “participate in the management of the real property,” was excluded from strict liability under CERCLA. Unfortunately, courts disagreed on how to interpret the Secured Creditor Safe Harbor (specifically, when did a lender “own or possess” the real property and what constituted “participating in the management” of the real property?). The Secured Creditor Safe Harbor was later narrowed and more clearly defined.

The U.S. EPA adopted guidelines (which were later codified in CERCLA) to test whether a lender and a lender’s actions were protected by the Secured Creditor Safe Harbor. These guidelines attempted to clarify what “participating in the management” of a property means. A two-part test was established to determine whether lenders met this factor:

  1. Did the lender exercise control over the management of the borrower’s environmental compliance program? In other words, did the lender tell the borrower what to do to comply with applicable environmental laws?
  2. Did the lender participate in the Borrower’s day-to-day decision-making process with respect to environmental compliance and other business operations? Simply collecting rent from tenants or advising the borrower on financial matters related to the property is not considered “participation in management.” Other lender activities that do not satisfy this second part include: (i) pre-loan investigations; (ii) loan servicing; (iii) loan workouts; and (iv) foreclosures.


If a lender can prove that: (i) it holds a security interest in real property to secure repayment of money or some other obligation; and (ii) it did not actually participate in management of the property, then the lender is protected by the Secured Creditor Safe Harbor.

What happens after a lender forecloses and becomes the actual owner of the property?

Under CERCLA, a lender must establish it has made commercially reasonable efforts to divest itself of the real property in a commercially reasonable time and on commercially reasonable terms, taking into account market conditions and legal and regulatory requirements. CERCLA does not define “commercially reasonable;” however, lenders can look to the EPA for guidance. The EPA provides that a lender makes “commercially reasonable” efforts to divest the property when the lender lists the property with a broker or advertises the property for sale in an “appropriate publication” (publication of general circulation) within 12 months of foreclosure. It is important to note that lenders who were not protected by the Secured Creditor Safe Harbor pre-foreclosure cannot be protected by the Secured Creditor Safe Harbor after foreclosure. A lender’s own acts or omissions during ownership or control of the real property are not protected by the Secured Creditor Safe Harbor provision.

A lender considering making a commercial real estate loan should consider the following “best practices” to avoid CERCLA liability

  • document everything;
  • avoid active participation in the operational affairs of the Borrower and the property;
  • if practical, have a receiver appointed to manage the property during default and foreclosure;
  • conduct pre-foreclosure environmental due diligence;
  • ensure good environmental management post-repossession or post-foreclosure; and
  • carefully document efforts to market the property for sale

© 2011 Dinsmore & Shohl LLP. All rights reserved.

Negotiating Your Law Firm’s Malpractice Insurance: How to Avoid Purchasing the “Never Pay Policy”

Recently posted at the National Law Review from Scott F. Bertschi of Arnall Golden Gregory LLP and John C. Tanner of  McGriff, Seibels, & Williams, Inc.- some very concrete things to look for when puchasing legal malpractice coverage: 

Far too many attorneys treat the purchase of malpractice insurance like that of an off-the-rack commodity.  The purchasing decision is guided largely by cost, advertising, or the relative ease of the application process.  Ironically, few attorneys actually read their own malpractice insurance policy until after they receive a claim. 

Instead, many law firms rely on assumptions in purchasing coverage and then set the policies aside, at least until a claim is made.  Then, the terms and conditions become all important, and that is precisely the time when you, as the insured, can do little to affect the coverage that may or may not be afforded under the policy.

The malpractice policies available in today’s commercial market vary greatly and insurance companies are more willing than ever to negotiate specific terms and conditions that can address the unique risks faced by you and your firm.  While the best way to take advantage of this opportunity is to use an experienced broker who will solely represent your law firm’s interests, this article provides a general roadmap for law firm administrators, general counsels, and managing partners to use in negotiating professional liability coverage.

1.         Don’t start off on the wrong foot.

The terms of coverage begin with the application process and, if you are not careful, coverage can end there as well.  The answers you provide on the application are used by the insurance company to determine the premium charged and the specific terms under which the insurance company is willing to insure you.  Of particular importance are questions regarding the areas of law in which your firm practices and whether any of the attorneys in the firm are aware of any circumstances that could result in a claim.

The temptation is to give these questions short shrift.  A full and complete answer usually requires a great deal of factual investigation, such as a review of past financial information to determine a break-down of revenues by type of work, and a polling of each attorney as to the knowledge of the existence of potential claims. 

Most off-the-rack malpractice insurance policies are written such that the insurer can rescind the policy in the event any of the application answers are incorrect.  Importantly, the insurance company doesn’t necessarily need to prove the firm intended to provide an incorrect answer.  Instead, an insurance policy can usually be rescinded for innocent mistakes in the application so long as the insurance company would not have offered the policy at the same premium or would have changed the terms if the correct answers were given. 

If the policy is rescinded, no claims made under that policy period would be covered, even if the claim is wholly unrelated to the mistake on the application.  Innocent insureds, not directly involved in the application process, are also at risk.  Additionally, rescission can make it challenging for the firm to obtain insurance in the future.

Accordingly, treat the application process like your coverage depends on it.  Specifically, the firm should commit the time and attention to the process necessary to get the answers correct.  If a question is unclear, ask for clarification.  Many insurers today will offer contract wording in the policy specifically protecting innocent insureds against rescission risk.  Once again, this is a process in which an experienced broker can greatly assist.

2.         What you know (or should know) can hurt you.

Legal malpractice policies, like most professional liability policies, are written on a “claims-made” basis.  Coverage under a “claims-made” policy depends primarily on when the claim was made, rather than when the error or loss occurred.  This creates a potential moral hazard: a prospective insured, knowing he committed an error, could purchase a claims-made policy before the claim is made and obtain coverage for a known loss.  Clauses called “prior knowledge provisions” are intended to protect insurers against this hazard. 

A typical prior knowledge provision states that claims based on errors occurring prior to the policy period are not covered if any insured had a reasonable basis to believe that a claim could be made.  Courts in many states apply an objective standard to determine whether an insured had such “prior” knowledge.   Thus, the question is not whether you specifically thought a claim would be made, but whether a ”reasonable insured,” knowing what you know, would believe that a claim is possible.  Moreover, depending on the policy wording, the knowledge of one attorney can eliminate coverage for all insureds, even those who do not have any “prior” knowledge.

When purchasing a legal malpractice policy, determine whether the prior knowledge provision contains a “continuity clause.”  This savings clause states the claim will be covered unless the insured had knowledge of the potential claim prior to the first policy issued by the insurer to your firm, rather than prior to the current policy period.  If possible, you should also seek policy language limiting the prior knowledge provision to a subjective standard requiring proof of fraud and otherwise protecting innocent insureds. 

In addition, most policies include provisions allowing insureds to provide a “notice of circumstance” to the insurer of potential claims – even if no claim has been made yet – specifically providing that any future claim arising out of that circumstance will be treated as a claim made during the current policy year.  Such a provision gives you greater flexibility when changing insurers, but pay close attention to the policy specificity requirements for reporting potential claims.     

3.         Prior Acts

Sometimes insurance companies also address the moral hazard inherent in “claims-made” policies by only covering claims based on errors occurring after a certain date, sometimes called a “retroactive” date or a “prior acts” date.  For previously uninsured firms or lawyers, most insurers will insist on a retroactive date equivalent to the policy inception date. 

Moreover, firms changing insurers often have the option of reducing the premium by agreeing to a retroactive date.  While this certainly limits the amount of coverage, the limitation can be offset by purchasing “tail” coverage from your current insurer.  “Tail” coverage, sometimes called an extended reporting period, extends the time in which a claim can be made and reported under an expiring policy for errors occurring prior to the policy expiration.  

Determining when an alleged error occurred is not always an easy task, however, and alleged breaches of care can span multiple policy periods.  If your firm nevertheless intends to change insurers, a qualified broker can help you calculate the most effective mix of retroactive date and tail coverage to maximize savings and minimize exposure to gaps in coverage.

4.         If a claim is made in the forest, and the insurer isn’t there to hear it, does it make a sound?

As discussed above, almost all legal malpractice policies on the market today are “claims-made” policies and apply only to claims made during the policy period.  Some, however, add the requirement that the claim be reported to the insurer during the policy period as well.  Such policies are aptly called “claims-made-and-reported” policies. 

In contrast to standard notice conditions that require the insured to report a claim “as soon as practicable,” numerous courts have  held that the reporting requirement in a claims-made-and-reported policy defines the scope of coverage, rather than states a condition for coverage.  What this means in practical terms is that the insurance company can disclaim coverage based on a failure to timely report the claim regardless of whether the delay caused the insurance company any prejudice.  Some policies flatly require reporting prior to the end of the policy period, while others provide that the claim must be reported within a 30 or 60 day time period after the policy expired. 

Another important consideration is the interaction of the reporting requirement and renewals.  Some policies specifically permit the reporting of a claim during the policy or any renewal policy, while others are silent on the subject leading to the possibility of a disclaimer, even when the renewal is with the same insurer.   

It is imperative that you establish a claim reporting procedure to ensure that all “claims” as defined in the policy are promptly brought to the attention of the firm’s risk manager or managing partner and reported prior to the policy reporting deadline.  Some insurers will agree to soften the claim reporting wording by requiring notice as soon as practicable after the individual in the firm charged with managing insurance and claims first learns of the “claim,” but few will agree to a prejudice standard or an unlimited timeframe for reporting post policy period.     

5.         Professional Services

As the name implies, a lawyers’ professional liability insurance policy covers just that: a lawyer’s professional liability.  Accordingly, it should not be surprising that such policies do not cover all liability a lawyer may face, merely because she is a lawyer.  Instead, it is well established that such policies only cover those risks that are inherent in the practice of law.  But what exactly does that mean?

Lawyers engage in a variety of law-related tasks that are not necessarily limited to lawyers.  For example, lawyers frequently act as title agents, trustees, conservators, administrators, arbitrators, and mediators.  Some firms today now have document management divisions or affiliated e-discovery and information technology companies.  The practice of law has expanded and continues to evolve over time.

Most legal malpractice policies specifically define the term “professional services.”  Be sure to check your particular policy definition against the activities your firm’s lawyers undertake.  Be especially careful when any of the lawyers in your firm have dual professional licenses, such as a lawyer who is also a CPA.  It is best to address such issues up front to avoid a surprise when the insurer disclaims coverage for a claim, contending that the alleged wrongdoing did not arise out of the lawyer’s rendering of “professional services.”

6.         Modern Day “Damages”

The typical legal malpractice policy limits coverage to claims for “damages.”  While that word seems innocuous, it frequently carries an express definition that serves to substantively limit what is covered. 

For example, many policies define the term “damages” to specifically exclude fines, penalties, sanctions, non-monetary relief, amounts demanded as the return of a payment of legal fees, or even the disgorgement of “funds wrongfully obtained.”  Most of these limitations are based upon the proposition that a liability insurance policy is designed to protect an insured from liability to another person, as opposed to a loss of the insured’s profit. 

One area usually open for negotiation is coverage for punitive or exemplary damages.  Of course, public policy places an outer limit on what types of punitive damages a policy can insure, but many states permit insurance for at least some types of punitive damages, such as those imposed vicariously. Many insurers today will provide coverage for punitive damages where insurable and subject to an insurability determination under the most favorable venue for such coverage. 

An emerging area of interest to law firms is coverage for Rule 11 or other discovery sanctions, as well as other “damages” arising out of claims of abusive or frivolous litigation.  While most insurers have historically excluded coverage for all fines, penalties, or sanctions, a few innovative insurers today have shown a willingness to offer a coverage sublimit to defend lawyers against such allegations.  Law firms can be jointly liable for an individual lawyer’s sanction-able conduct, and settlement exposure to claims of abusive or frivolous litigation is real.   Unfortunately, few firms today have adequate insurance protection in this area, and when available, it comes with an additional premium. 

7.         Intentional Acts Exclusion

Similar to the limitations on the insurability of punitive damages, public policy may limit an insurance company’s ability to cover liability based on an insured’s malicious, fraudulent, or dishonest acts.  Accordingly, every policy will invariably exclude such liability.  The problem is that legal malpractice claims frequently include intentional tort claims (such as breach of fiduciary duty) in addition to professional negligence.  The scope of coverage afforded such intentional allegations can vary greatly from one policy to the next. 

First, some policies exclude all coverage for such acts, including a defense to claims alleging fraudulent conduct even if the insured protests his innocence.  Under such policies, a common malpractice claim alleging both negligence and breach of fiduciary duty raises coverage issues at the outset because of the intentional breach of duty claim.

Other policies provide a so-called “courtesy defense,” under which a defense is provided until such time as the alleged fraudulent conduct is established by an adjudication or an admission.  Under such policies, the insurer may still insist on some allocation or insured contribution to a settlement of allegations of negligence when coupled with alleged intentional wrongdoing.  If possible, try to negotiate wording in your policy providing coverage for defense and settlement of alleged wrongdoing unless there is a final adjudication of such intentional wrongdoing in the underlying malpractice case, or in an action or proceeding other than a declaratory judgment proceeding brought by or against the insurer to determine the scope of insurance coverage.

Policies may also differ on the applicability of the exclusion to so-called “innocent insureds.”  Most exclusions apply to any claims “arising out of” the excluded conduct.  Courts generally hold that the “arising out of” language extends the scope of such exclusions even to negligence claims predicated on the intentional conduct, such as negligent hiring and supervision claims.  In other words, if your partner steals a client’s money, you are not covered even if you had no part in the theft.  Fortunately, many policies contain “innocent insured provisions” aimed at ameliorating this result.  These provisions waive the intentional acts exclusion for those insureds who did not actively participate in, and were not aware of, the excluded conduct.

8.         Business Enterprise Exclusion

Most lawyers familiar with the basic tenets of conflicts law know it is risky to represent a corporation in which an insured owns an interest.  Similarly, most seasoned lawyers know that such a situation can be rife with practical difficulty when the business enterprise fails. 

Insurers are aware of these problems as well and typically exclude claims made by any business enterprise in which any insured owns an interest or with respect to any enterprise operated, managed, or controlled by any insured.  The stated purpose of such an exclusion is to prevent an insured from transferring his own business loss to his legal malpractice insurer.  But the exclusions are not typically limited to claims against the particular lawyer who has the ownership interest and, instead, include claims by that enterprise against any lawyer in the firm.  Many insurers, however, are willing to negotiate this exclusion and give back coverage for some or all of such risks assuming the issue is raised and negotiated up front.   You should carefully evaluate the firm’s and its lawyers’ business interests each year in the underwriting process. 

9.         Coverage for Ethics Complaints & Disciplinary Proceedings

In addition to coverage for a lawyer’s monetary liability to a client or others, some legal malpractice insurance policies also pay for a defense to an ethics complaint or bar grievance.  Such coverage provides an obvious benefit over those policies lacking grievance coverage. 

Disciplinary proceedings and grievance coverage can differ between insurers as to whether the insured is permitted to choose his counsel, what control the insurance company retains over the defense, and whether there is a limit on the fees for such a defense. 

Many policies limit the coverage to a sublimit of $25,000-$50,000.  There is typically no retention or deductible applicable to such coverage, but the policy may only reimburse the insured after the successful conclusion of the proceeding.

10.       A defense by any other name does not necessarily smell as sweet.

Finally, but certainly not least important, all firms should carefully evaluate the defense provided by the insurance policy in the event of a claim.  The vast majority of legal malpractice claims are resolved with no payment to the claimant.  While this is good news for lawyers, it emphasizes the significance of the defense of such claims.  In short, the cost of the defense is often greater than the ultimate payment of the claim.  When you consider the fact that insurance policies vary greatly regarding the defense obligation, it becomes clear that this issue is rife with pitfalls.  Specifically, policies vary in two main respects. 

First, determine whether the limits of liability are “eroded” or “exhausted” by defense costs.  Under some policies, sometimes called “burning limits policies,” each dollar spent in the defense of the claim reduces by a dollar the amount available to pay a judgment or settlement.  Of course, purchasing a “burning limits” policy allows your firm to save on premiums, but it carries with it a risk that the limits will ultimately be insufficient should a claim involve a lengthy defense. 

Second, understand whether you or the insurance company chooses defense counsel and controls the defense.  Many legal malpractice policies are so-called “duty to defend” policies, which means that it is the insurance company’s right and obligation to defend the claim.  Typically, the right to defend carries with it the right to select defense counsel, and insurers often have negotiated volume discount rates with certain defense firms.  The “duty to defend” obligation is extremely broad, frequently said to require a defense of the entire claim if any part of the claim is potentially within the scope of coverage.  

On the other hand, so-called “indemnity for loss” policies simply reimburse your expenses incurred in the defense.  In such situations, the insured is generally afforded the right to select counsel and control the defense, but the insurer may require advance consent or agreement by your selected defense firm to negotiated lower rates or to predetermined litigation management guidelines.  The insurer may also take the position that it is not responsible for defending uncovered claims or allegations.

Many policies also include a “hammer clause” giving the insurer substantial leverage in the context of a potential claim settlement.  Such clauses in essence permit the insurer to withdraw its defense and cap its policy limit at any settlement amount recommended by the insurer and otherwise acceptable to the claimant.


Ultimately, there is no one “best” policy for all firms or any specific category of firms.  Instead, a firm’s legal malpractice policy should be carefully tailored to the specific activities undertaken by the firm and the firm’s individual financial situation.  Of course, insurance deals with the uncertainties of the future, and it is impossible to know now precisely what coverage you will need next year.  But you can maximize your odds by addressing your firm’s needs upfront and spending the time and effort to negotiate the scope of the policy before it is issued. 

© 2011 Arnall Golden Gregory, LLP and McGriff, Seibels, & Williams, Inc. All rights reserved.

Section 409A Again? Employers Need to Re-examine Executive Employment Contracts and Other Agreements Conditioning Severence Payments Upon a Release of Claims

Recently posted at the National Law Review by Nancy C. Brower and David L. Woodard of Poyner Spruill LLP – information for employers about the tax Consequences of employment agreements, retention agreements, severance agreements and change in control agreements: 

Agreements that provide for payments upon termination of employment, such as employment agreements, retention agreements, severance agreements and change in control agreements, often condition payment upon the return of an executed release of claims. Since Section 409A allows agreements to provide for a payment window of up to 90 days from separation from service, it was widely believed that an agreement could provide for payments to begin upon the return of a release, provided the release was required to be returned within the 90-day window period and the company determined the time of payment. In Notice 2010-6, the IRS stated that this type of provision is not Section 409A compliant. Fortunately, at the end of last year, the IRS came out with relief that will allow companies to correct this problem without employees incurring Section 409A taxation.

Action Step

Companies should immediately identify all employment agreements, retention agreements, severance agreements and change in control agreements that condition severance payments upon the return of a release. All of these agreements should be reviewed for Section 409A compliance based on the new guidance from the IRS. Companies should not rely on the fact that the agreements were previously reviewed for Section 409A compliance, since the 2010 guidance from the IRS was not anticipated by most practitioners. Companies should pay careful attention to the timing of payments made under impacted agreements during 2011, as payments made after March 31, 2011 must comply with the corrective guidance contained in Notice 2010-80. Further, any impacted agreements that are outstanding or have any payments still due after December 31, 2012, must be amended to correct the agreement provisions in accordance with Notice 2010-80 no later than December 31, 2012.

 © 2011 Poyner Spruill LLP. All rights reserved.

Verification Two-Step: One step forward, one step back—A review of the GAO report on the progress made to improve E-Verify

Recently posted at the National Law Review Kevin Lashus and Maggie Murphy of Greenberg Traurig provide some great insight(s) on the recently filed GAO Report on E-Verify and why employers should be concerned: 

Washington, D.C. (January 19, 2011) —  On January 18, 2011, the US Government Accountability Office (GAO) released its December 17, 2010 report entitled, “Employment Verification: Federal Agencies Have Taken Steps to Improve E-Verify, but Significant Challenges Remain.”  Provided is a summary of the GAO’s findings, and where we believe USCIS’ Verification Division may move to implement modifications to the existing system based upon the GAO’s recommendations.

The report is a summary of the review GAO conducted to assess how USCIS and SSA have been able to ensure accuracy of the verification process in E-Verify and whether either (or both) have taken measures to combat fraud.  Specifically, GAO examined efforts taken by both agencies to (1) reduce tentative nonconfirmations (TNCs), (2) safeguard private personal information submitted, and (3) prepare for the increased use of the program that may result from either increased state and local legislation (executive action) or a federal mandate.

Two of the conclusions of the report should be of great concern to employers:

(1) Because TNCs are more likely to affect foreign-born employees, the issuance of false TNCs (TNCs issued commonly because names are recorded differently on various ID and work authorization documents) will likely lead to increased allegations of discrimination; and

(2) E-Verify remains exceedingly vulnerable to identity theft and employer fraud.

Some of the other significant findings:

  • Employees are limited in their ability to identify the source of and how to correct information in the DHS and SSA databases (including the significant delay in the correction process—commonly taking an average of 104 days).
  • Long-term cost associated with the administration of the E-Verify program and complementary national systems and SSA databases do not reliably depict current budgetary allocations for the costs of administration.
  • Securing sufficient resources to effectively execute the program plans for the future has not been anticipated and may not be properly anticipated in budgetary projections.
  • Recommended fixes to the program will result in increased transactions costs, including the resolution of false TNCs, administrative leave for employees to allow them to resolve erroneous mismatches, and additional training costs to educate the employees about reducing the likelihood of name-related, erroneous TNCs.
  • USCIS should consider providing an employee-accessible portal that would allow employees to correct inaccuracies or inconsistencies within DHS databases.
  • USCIS and SSA should finalize the terms of the service-level agreement that defines the requirements of SSA to establish and maintain the capacity and availability of its system components.
  • USCIS should consider a budget for the life-cycle cost of the program that reflects the four characteristics of a reliable estimate consistent with best practices—essentially, that long-term there is enough resources to ensure the program is comprehensive, well-documented, accurate, and credible.

Notwithstanding the findings, there is a clear message contained in the report:  Comprehensive reform is required to root-out the incidence of document fraud. The use of biometrics in identification/authorization documentation is the only likely cure of the ills currently inherent in the system. 

Until that time, USCIS must reallocate resources to address fraud issues—doubling the number of monitoring and compliance staff to oversee employers’ use of E-Verify AND allocating resources to recognize and correct mismatched information in the various DHS databases. 

In other words, instead of addressing the defects of the verification paradigm, the Government is allocating additional resources to address problems with the process that cannot be cured with the current system.  Notably,

  • Senior E-Verify program officials reported that the Monitoring and Compliance Branch is limited in its ability to fully identify patterns and trends in the data that could signal employers’ noncompliance, but E-Verify will be committing $6M in implementing advanced data systems to gain the capacity to conduct complex analyses of E-Verify data.
  • Senior E-Verify program officials will also be reaching out to employers who fail to master the training tutorial—either with a compliance letter (a compliance failure notification) or a phone call—to further assist employers with the E-Verify process. They  will then follow up with the “targeted” employers to assess whether the prior non-compliant behavior has been adjusted.
  • Senior E-Verify and ICE worksite enforcement agents reported that they are currently coordinating to help USCIS better target its monitoring efforts because (1) login profiles to the E-Verify program are not monitored, (2) USCIS cannot currently monitor the extent to which employers follow the MOU provisions, and (3) employers who do not respond and remedy noncompliant behavior are not adequately sanctioned under the current program.

Ultimately, a great deal of the burden to address the deficiencies of the current verification system will fall to employers.  The current patchwork system cannot address the underlying reality that as long as 11 or so million unauthorized employees require employment to survive, a robust market of sophisticated, fraudulent documents will flourish.  Until the problems are adequately addressed, increased oversight and monitoring of the program will result in increased scrutiny of the employer by both ICE and USCIS, with the risk that compliance policy modification may result in increased allegations of discrimination.

Sure seems like one step forward, one step back.

This Alert is issued for informational purposes only and is not intended to be construed or used as general legal advice. 

 Media Contact: Lourdes Brezo-Martinez, Greenberg Traurig, PA 212-801-2131.

©2011 Greenberg Traurig, LLP. All rights reserved.

Reprieve For Fully Insured, Non-Grandfathered Group Health Plans From Complying With PPACA Nondiscrimination Rules

From featured guest bloggers Amy M. Christen and Gabriel S. Marinaro of Dykema Gossett PLLC – updates on the implementation of the Public Health Service Act: 

Notice 2011-1 states that the Treasury Department and the IRS, as well as the Departments of Labor and Health and Human Services (collectively referred to as the “Departments”), have determined that compliance with new nondiscrimination rules under Section 2716 of the Public Health Service Act (“PHS Act”) will not be required until plan years beginning after regulations or other administrative guidance has been issued. The Departments issued Notice 2011-1 in response to concerns raised regarding a plan sponsor’s ability to implement the new nondiscrimination rules without such guidance, and specifically held that a plan sponsor of a non-grandfathered fully insured group health plan would not be subject to the excise taxes for failure to comply with such new nondiscrimination rules, nor be required to file IRS Form 8928 until plan years beginning after the guidance has been issued.

The Patient Protection and Affordable Care Act (the “Affordable Care Act”) added Section 2716 of the PHS Act, which prohibits a fully insured, non-grandfathered group health plan from discriminating in favor of highly compensated individuals as to eligibility to participate in such plan, as well as to benefits offered to participants under the plan in accordance with the rules similar to the ones set forth under Code Section 105(h). Under Code Section 105(h), highly compensated individuals generally include the five highest-paid officers, employees at any time during the plan year with more than a 10 percent ownership, and all other employees who are among the highest-paid 25 percent of all employees. If a fully insured, non-grandfathered group health plan discriminates in favor of highly compensated employees as to eligibility to participate or as to providing benefits to participants, the employer will be the party to suffer the consequences. Specifically, the Affordable Care Act imposes an excise tax on employers that do not satisfy the market reform and consumer protection provisions of the Affordable Care Act equal to $100 per day for each affected participant, up to a maximum fine for unintentional failures of $500,000 per taxable year. The IRS (or HHS) has discretion to waive the tax in whole or in part to the extent the failure was due to reasonable cause and not to willful neglect, and small employers with no more than 50 employees may be exempt from such tax with certain exceptions. An employer also may be subject to a civil lawsuit filed by non-highly compensated employees. Until guidance is issued stating otherwise, it does not appear that highly compensated individuals will be subject to any adverse income tax consequences on the value of health benefits provided under a discriminatory fully insured, non-grandfathered group health plan. 

If a fully insured group health plan maintains its grandfathered status (within the meaning of Section 1251 of the Affordable Care Act and the Departments’ grandfathered regulations), then it is exempt from these new nondiscrimination requirements. A group health plan has grandfathered status only if it existed as of March 23, 2010, and it does not make plan design changes above certain threshold amounts set forth in the grandfathered plan regulations. Additionally, certain HIPAA-excepted benefits are not subject to the new nondiscrimination requirements, including a limited-scope dental or vision plan that is offered through a different insurance carrier than the medical plan or is offered separately to employees for an additional premium cost. Unless future guidance provides otherwise, HIPAA-excepted benefits that are not subject to the new nondiscrimination rules also may include a stand-alone retiree-medical plan that covers only former employees of an employer (and does not cover active employees).

Before the enactment of the Affordable Care Act, the nondiscrimination requirements under Code Section 105(h) only applied to self-insured group health plans. A self-insured plan is one in which the employer pays for the benefits out of its general assets as opposed to paying through a fully insured policy. IRC Section 105(h) prohibits a self-insured plan from discriminating in favor of highly compensated employees as to eligibility to participate or in favor of highly compensated participants as to benefits provided under such self-insured plan. A discriminatory self-insured plan produces adverse tax consequences to the highly compensated employees / participants (e.g., all benefit reimbursements made under a discriminatory plan will be taxable to such highly compensated individuals rather than any excise taxes on the employer).

The Departments have requested additional comments on PHS Act Section 2716 by March 11, 2011, and Notice 2011-1provides specific issues on which the Departments would like additional comments as a follow-up to the public comments received in response to IRS Notice 2010-63.

© 2011 Dykema Gossett PLLC.

EPA Defers GHG Permitting Requirements for Biomass Industries

An update from the National Law Review’s friends at Michael Best & Friedrich, LLPLinda Bochert, Michelle Wagner & Anna Wildeman:  

In a move designed to encourage clean energy and the use of biomass as a fuel, on January 12, 2011, the U.S. Environmental Protection Agency (“EPA”) announced a 3-year deferral of the newly enacted Greenhouse Gas (“GHG”) permitting requirements for biomass-burning industries and other biogenic sources.

Effective January 2, 2011, large GHG emitters – e.g., power plants, refineries – must obtain air permits and implement energy efficiency measures or cost-effective technologies to reduce GHG emissions when building new facilities or making major modifications to existing facilities.  EPA plans to complete the rulemaking to implement the deferral of the GHG permitting requirements for biomass-burning industries and other biogenic sources by July 2011. To cover the six-month gap until the deferral rule becomes effective, EPA is expected to issue guidance allowing state and local permitting authorities to conclude that the use of biomass is the best available control technology for GHG emissions.

EPA is implementing the deferral to enable it to seek and consider scientific research on carbon dioxide (“CO2”) emissions from biomass sources, including evidence that biomass based energy generation can be carbon-neutral. During the deferral period, EPA will seek input from other governmental agencies as well as from independent experts. EPA will also consider more than 7,000 comments it received from its July 2010 “Call for Information,” requesting public comment on approaches to account for GHG emissions from biomass-burning sources. Before the three year deferral ends, EPA expects to develop a second rulemaking that addresses how GHG emissions from biomass-burning and other biogenic sources should be treated under the Clean Air Act GHG permitting requirements.

In a separate, but related matter, EPA notified the National Alliance of Forest Owners (“NAFO”) that the agency will grant NAFO’s petition to reconsider the portion of EPA’s “Tailoring Rule,” finalized this past May 2010, which addresses the treatment of biomass carbon emissions. The biomass industry at large, including NAFO, was taken aback when EPA finalized its Tailoring Rule without any exemption for biomass-burning facilities.


Employment Law – What’s in Store for 2011?

Melvin J. Muskovitz of Dykema Gossett, PLLC is a featured guest blogger this week at the National Law Review. Three pending Supreme Court decisions are discussed along with their potential impact for employers:  

Many employers faced challenges in 2010 related to the economy.  These challenges often involved personnel issues, including workforce reductions.  With unemployment still a serious problem heading into 2011, terminated employees are less likely to  find new employment opportunities and may be more inclined to claim they were terminated for illegal reasons.  This  article looks at three decisions the Supreme Court will be addressing this year that involve wrongful discharge claims.  Regardless of the outcome, these cases underscore the importance of  carefully considering all adverse employment decisions.

Additionally, this article will briefly address the new regulations and a step employers can take to protect themselves against violations of the Genetic Information Nondiscrimination Act  (GINA).

Supreme Court Decisions on the Horizon

Oral complaints – are they protected under the FLSA’s anti-retaliation provision?

The Fair Labor Standards Act (FLSA), which provides minimum wage and overtime protections to employees, also provides protection from retaliation against employees who file a complaint  alleging FLSA violations.  In Kasten v. Saint-Gobain Performance Plastics Corp, the Supreme Court will decide if an oral complaint satisfies the FLSA provision that protects employees  against retaliation because the employee “has filed any complaint.”   Kevin Kasten worked for Saint-Goban Performance Plastics and was required to use a time card to swipe in and out of an on-site time clock.  Kasten was disciplined on four separate occasions for violations of the time card policy.  Discipline for the infractions was progressive and eventually resulted in  his termination.  Kasten alleges that before the third infraction and thereafter, he verbally complained to his supervisor and Human Resource personnel that the location of the time clock was illegal.  He claims that he was terminated in retaliation for his verbal complaints that the location of the time clock violated the FLSA.

The lower courts are split on the issue of whether an oral complaint satisfies the “has filed any complaint” threshold.  The Supreme Court will resolve this discrepancy between the various federal circuits.

Retaliation against a third party – is it protected?

Title VII, which prohibits discrimination based upon protectedcharacteristics (sex, race, etc.), also prohibits retaliation against an employee who “has made a charge,  testified, assisted, or participated in any manner in an investigation, proceeding, or hearing.”  In Thompson v North American Stainless, the Supreme Court will decide if a third party to the charge is also protected from retaliation. Eric Thompson worked for North American Stainless as a metallurgical engineer.  He was engaged to a co-worker.  The co-worker/fiancée filed a complaint with the EEOC alleging that she was discriminated against because of her  gender.  Three weeks after the EEOC notified North American of the complaint, Thompson was terminated.  He alleges that he was terminated in retaliation for his fiancée’s EEOC charge.

The 6th  Circuit Court of Appeals (which includes Michigan) ruled for the employer, stating that the anti-retaliation provision is  “limited to persons who have personally engaged in protected activity.”  The Supreme Court will decide whether to uphold that decision or whether to extend anti-retaliation protections to third parties who did not personally engage in protected activities.

Influence over decision maker – when does it become illegal?

The Uniformed Services Employment and Reemployment Rights Act (USERRA) protects employees from discrimination based upon their military service.  In Staub v Proctor Hospital,  the Supreme Court will decide under what circumstances an employer may be held liable based upon the discriminatory bias of someone who influenced the ultimate decision maker, but who did not make the employment decision at issue.

Vincent Staub worked for Proctor Hospital as an angiopraphy technologist.  He was also an army reservist and therefore was unavailable for work one weekend a month and for two weeks during the summer.  One of his supervisors, the second in command in Staub’s department and the person responsible for preparing the work schedules, frequently expressed anti-military bias and  was openly displeased about having to accommodate Staub’s schedule.  Staub was disciplined by  the supervisor for reasons unrelated to his military service and he was ultimately terminated  based upon that discipline.  While the decision to terminate Staub was made by Human  Resources, Staub alleged that the decision was actually the result of the supervisor’s anti-military  bias.

A jury found in favor of Staub, a decision that was overturned by the 7th  Circuit Court of  Appeals.  The Supreme Court has agreed to decide under what conditions an employer can be held liable for the bias of a person who influenced or caused an adverse employment action – but  who did not actually make the decision.  A ruling in favor of the employee could have far  reaching implications for employers as the rationale would likely apply to other statutes that  prohibit discrimination.

Genetic Information Nondiscrimination Act (GINA) Regulations

On November 9, 2010, the Department of Labor issued the final regulations that interpret and  implement GINA.  The regulations take effect on January 10, 2011.  GINA, which went into  effect on November 21, 2009 and applies to employers with 15 or more employees,  prohibits the  use of genetic information in making employment decisions, restricts acquisition of genetic information by employers, and strictly limits the disclosure of genetic information.  Genetic nformation includes (1) an individual’s genetic tests,  (2) genetic tests of family members, (3)  family medical history, (4) genetic services and/or (5) genetic information of a fetus carried by  an individual or a family member.  While the use and disclosure of genetic information is under  the control of the employer, situations may  arise where an employer inadvertently acquires genetic information about an employee.  For example, an FMLA health certification from a  healthcare provider may inadvertently provide the employer with genetic information about the  employee.  The final regulations acknowledge this dilemma and provide a “safe harbor” for employers who inadvertently acquire such information.    In order for the acquisition of genetic information to be considered inadvertent, the employer must direct the individual or healthcare provider from whom it is requesting medical information not to provide genetic information.  The final  regulations provide a sample notice that an employer can use to satisfy the requirement. The final regulations can be found at  http://www.gpo.gov/fdsys/pkg/FR-2010-11-09/pdf/2010-28011.pdf and the sample notice can be found at section 1635.8(b)(1)(i)(B).

Bottom Line

Employees suffering adverse employment consequences are finding creative ways of expanding  their protections.  Employers should exercise due diligence in all employment decisions

© 2011 Dykema Gossett PLLC.

Want your website to get noticed? Break the rules!

From Moiré Marketing Partners, the National Law Review’s Business of Law Guest Bloggers this week, Sean Leenaerts provides some interesting insights on different things to consider for legal websites:

Every time I hear someone in marketing or advertising talk about “best practices” for website design, I roll my eyes.

Now granted, many of the do’s and don’t’s of web design have merit. They’ve been tried, tested and proven to work. And I believe that certain best practices such as ease of navigation, making good use of white space, ensuring that site text is easy to read and building for fast loading times are sarcosanct. But I also believe that best practices are helping to hold marketers back.

The problem I have with best practices is that while they are there to guide everyone in website design, they also cause everyone to look pretty much the same. Adherence to best practices tends to create a formulaic, templated approach to website design. The logos, colors and images on various sites may differ, but they mirror one another in their composition–i.e. logos in the upper left, navigation at the top, copy centered or aligned to the right, vertical scrolling, etc. They’re design conventions that definitely work, but make for few standout websites.

“Okay,” I can hear you saying, “that’s all well and good. But I’m a law/accounting/financial services firm. My site has to be functional, and it should stand out because of my message, not because it looks cool and creative.” All true. But in order to read your message, your site has to be noticed first. While I’m not advocating that professional services firms push the boundaries of convention just for the sake of being different, there are a few rules you can break (or at least bend) in order to make your site stand out from the competition.

Go Horizontal

While usability studies show that most website users prefer to scroll and read text vertically, most of those studies were conducted years ago prior to the ubiquitousness of touch screens, widescreen monitors and many other developments we now take for granted. For touch screens like those on the iPhone/iPad, horizontal navigation is the preferred form of navigation because it’s more ergonomic to move your hand from side to side than up and down. In the case of monitors, screen resolutions have gotten better. We used to design for 1024 x 768 screen resolutions. Now, many screens have resolutions that are 1440 x 900 and they’re much wider, which means that viewers get more real-estate horizontally than they do vertically.

I also think–and this is strictly my opinion–that our brains are better wired to consume information horizontally. Maybe it’s because we’ve been doing it that way offine for so many years. Books are read with a horizontal flip, galleries place paintings and photographs alongside each other, and most of our world is organized horizontally rather than vertically–i.e. our houses are next to each other and we move through the world in a mostly linear fashion.

Chart a New Course

Navigation buttons and links should always be easy to find, but do they always need to be at the top or along the sides of the page? And do they always have to be “buttons”? Unconventional navigation–as long as its easy to find and figure out–has the ability to engage the audience and keep them on your site. A good example of navigation that breaks with traditional design and works well is from the web design firm Hello Goodlooking in Helsinki, Finland:

Here, the navigation buttons are centered on the page and move to the sides when you click on them and open a window. They’re easy to see, easy to understand and make the site simply downright fun to navigate.

Shift Your Perspective

Right-aligned page content is often not seen in a world of centered or left-aligned web pages.  Whenever I come across a page that is aligned uniquely, I have to pause and take a second look. It’s a simple (and safer) way to look unique without having to deviate from other conventions of website design.

Be Bold

Using reversed type, multiple typefaces and unique fonts is generally frowned upon in website design. Yet sites that do all or some of these things tend to grab a lot of attention–and not necessarily for all the wrong reasons. And you don’t have to be a kooky design firm to do it. Morrison Foerster is a law firm whose website is truly unique within the industry. No images, just type–and mostly reversed type, at that. Big, bold headlines. A conversational tone. And don’t even get me started on their careers site, which has to be one of the best in any industry. Most law firms make claims to be different and innovative. MoFo’s website backs it up.

Sometimes breaking with best practices is worthwhile. In fact, I’ll go so far as to say that it’s the only way to truly stand out. Striving for innovative design and a better way of web browsing has brought about some great changes in the last decade. Being different to be better is a perfect example of when the rules of best practices should be broken.

Copyright © 2011 Moiré Marketing Partners, Inc. All rights reserved.

Sunshine (State) Surprise – Florida's New E-Verify Requirement

From recent featured guest blogger at the National Law Review, Dawn M. Lurie and Kevin Lashus of Greenberg Traurig provide some needed details on Florida’s new E-Verify Requirement: 

Governor Rick Scott wasted no time in making the state of Florida the 14th the nation to have a mandatory E-Verify requirement. Only minutes after being sworn in, the governor signed his second executive order of the day—the first created the Office of Fiscal Accountability and Regulatory Reform to review regulations in the Sunshine State. Scott had touted ideas about mandating E-Verify during his heated primary fight with former Attorney General Bill McCollum but the magnitude of the actual order caught many by surprise.

Executive Order No. 11-02 requires:

1) All agencies under the direction of the governor to verify the employment eligibility of ALL current and prospective agency employees through the U.S. Department of Homeland Security’s E-Verify system;

2) All agencies under the direction of the governor to include, as a condition of all state contracts, an express requirement that contractors utilize the U.S. Department of Homeland Security’s E-Verify system to verify the employment eligibility of:

a) all persons employed during the contract term by the contractor to perform employment duties within Florida; and b) all persons (including subcontractors) assigned by the contractor to perform work pursuant to the contract with the state agency.

b) all persons (including subcontractors) assigned by the contractor to perform work pursuant to the contract with the state agency.

3) Agencies not under the direction of the governor are encouraged to verify the employment eligibility of their current and prospective employees utilizing the E-Verify system, and to require contractors to utilize the E-Verify system to verify the employment eligibility of their employees and subcontractors.

E-Verify is web-based, voluntary program that compares an employee’s Form I-9 information with the Social Security Administration and Department of Homeland Security databases. E-Verify is considered a best practice by the government in terms of immigration compliance, has recently been upgraded to include a photo-matching component for U.S. passports, and will soon debut a driver’s license pilot program. In September of 2009, Congress required that all federal contractors and their subs use E-Verify for new employees (new hires) and all existing employees assigned to a federal contract. This was the only instance where E-Verify was authorized to use to verify a current workforce—until now. Scott’s Executive Order requiring re-verification of current and prospective employees transcends what is legally allowed under current federal law, and is therefore likely to face an immediate court challenge. Prospective employees? Lawyers over at the Office of Special Counsel for Immigration-Related Unfair Employment Practices (the part of the Department of Justice that enforces the antidiscrimination provisions of the Immigration and Nationality Act) are likely reeling from the breadth of the Order. And, the Verification Division at USCIS—the agency responsible for running the E-Verify program—may also be scramblingto determine whether to help Floridian employers implement compliance practices under these terms. As proposed, this represents a third typeof E-Verify for them to administer: normal, FAR-impacted and Florida. It is unclear who will be responsible to pay for development of the application on these terms. How might it work? Does this harken back to the Arizona question again—can the state trump the federal government on immigration requirements?

Ironically, Rhode Island Governor Lincoln Chafee rescinded Rhode Island Executive Order 08-01 that required the state, as well as contractors and vendors doing business with Rhode Island, to register and use E-Verify for all new hires. Chafee called the use of E-Verify a “divisive issue.”

Regardless of the future, Florida’s state agencies now need to be aware of the E-Verify process and should—like all other employers participating in E-Verify—undergo a comprehensive I-9 training, conducted by competent counsel, so that each of the designated E-Verify specialists may become experienced in the intricacies of employment eligibility verification. The verification process has become increasingly complex. Florida’s governor just complicated E-Verify even more. Any missteps by employees charged with verification compliance could be deadly. Employers must recognize that even the most well-intentioned individuals could attract both civil and criminal liability, not only upon themselves, but also upon their employers for failing to follow the verification process accurately and completely.

©2011 Greenberg Traurig, LLP. All rights reserved.

Is Your Law Firm Capitalizing on Legal Market Opportunities in China? US Firms & China: Managing Your Overseas Presence Mar 21-22 Chicago, IL

China’s rapid economic growth has created numerous opportunities for U.S. law firms to better serve existing and prospective clients. Is your firm well-informed on the challenges and risks associated with establishing an overseas presence?  

Attend This Conference and You Will:

  • Hear from leading U.S. and international experts who have practical experience working in China
  • Learn about the underlying economic, cultural and legal foundations that lead U.S. law firms to conduct business in China
  • Gain knowledge about issues related to revenue, collections, operations, strategic planning and more
  • Understand the business culture in China
  • Discover how to establish strategic alliances with Chinese firms
  • Network with managing partners and firm administrators, and meet with organizations that represent companies and individuals doing business in China
  • Click Here for a detailed agenda

Who Should Attend:

Managing Partners, Lawyers Specializing in International or Intellectual Property Law, and Firm Managers representing law firms of any size who:

  • Represent clients whose legal needs stretch between the U.S. and China, and vice versa
  • Need information and facts regarding doing business in China
  • Thinking about establishing a branch office in China

When & Where: