Tag: New York

Cleaning Product Manufacturers Gear Up for Compliance with State Ingredient Disclosure Laws

Over the next year, California and New York will begin phasing in requirements for manufacturers of cleaning products – including household cleaners, as well as and clothes and dish detergents – to make extensive ingredient disclosures. This will eventually require disclosures on both product labels and manufacturer websites. Both laws involve complex questions regarding which ingredients must be disclosed, whether certain chemical identities may be withheld to protect confidential business information (CBI), and what else must be publicly disclosed (e.g., certain manufacturer studies). Manufacturers of in-scope products should gear up for compliance now.

Scope of Cleaning Products Covered

The California Cleaning Products Right to Know Act applies to general cleaning products (e.g., soaps and detergents for fabric, dishes, counters, and appliances); polish or floor maintenance products; certain air care products (e.g., indoor air fresheners); certain automotive products (e.g., cleaning, polishing, or waxing products for the exterior or interior of automobiles). The law does not apply to food; drugs; cosmetics (including personal care items such as shampoo, hand soap, and toothpaste); or industrial products specifically manufactured for, and exclusively used in, certain industries.

The New York law applies to products “containing a surfactant as a wetting or dirt emulsifying agent and used primarily for domestic or commercial cleaning purposes, including but not limited to the cleansing of fabrics, dishes, food utensils, and household and commercial premises.” The definition contains exclusions for food; drugs; cosmetics; and pesticides.

California Disclosure Requirements

The California law will impose separate disclosure requirements applicable to product labels (effective January 1, 2021) and manufacturer websites (effective January 1, 2020).

Label Requirements

The product labeling requirements go into effect on January 1, 2021. Determining whether the chemical identity of an ingredient needs to be disclosed on the label can be a complicated process necessitating answers to the following questions.

  • Is the ingredient on a designated list? The law requires disclosure of certain ingredients that appear on one or more lists maintained by environmental agencies worldwide, including California’s Proposition 65 list; the European Union list of Substances of Very High Concern (SVHCs); chemicals for which neurotoxicity is indicated by EPA’s Integrated Risk Information System; chemicals with certain EU classification (carcinogens, mutagens, or reproductive toxicants); chemicals identified as persistent, bioaccumulative, and toxic under the Canadian Environmental Protection Act; etc.
  • Has the ingredient been intentionally added to the product? The law defines “intentionally added ingredient” as: “a chemical that a manufacturer has intentionally added to a designated product and that has a functional or technical effect in the designated product, including, but not limited to, the components of intentionally added fragrance ingredients and colorants and intentional breakdown products of an added chemical that also have a functional or technical effect in the designated product.”
  • Is the ingredient a listed fragrance allergen? The law requires disclosure of certain fragrance allergens included on Annex III of the EU Cosmetics Regulation No. 1226/2009, as required by be labeled by the EU Detergents Regulation No. 648/2004.
  • Is the ingredient eligible for CBI protection? The law provides certain disclosure protections for ingredients that appear on the Toxic Substances Control Act Confidential Inventory or for which the manufacturer or its supplier claim protection under the Uniform Trade Secrets Act. CBI claims are not available for certain ingredients, including intentionally added ingredients that appear on a designated list.

The law also requires that a product label include the manufacturer’s phone number and website. If the list does not disclose all intentionally added ingredients in the product, the label must contain a statement similar to “For more ingredient information, visit [manufacturer’s website].”

Website Requirements

The website disclosure requirements go into effect on January 1, 2020. These are broader than the product label requirements, i.e., there may be some ingredients that must be disclosed on a website but need not be disclosed on the product label. Generally, all intentionally added ingredients must be disclosed on the manufacturer’s website (with certain exceptions, e.g., for CBI ingredients), as must any of 34 substances listed in the law if they are present at or above 100 parts per million, whether intentionally or not. Manufacturers’ websites also must contain additional information, for example Chemical Abstract Service numbers, the purpose of certain ingredients (e.g., fragrance, color, etc.), certain regulatory information, and links to safety data sheets.

New York Disclosure Requirements

New York law has long empowered the Department of Environmental Conservation (DEC) to require manufacturers of household cleaning products to disclose certain information. N.Y. Envtl. Conserv. Law § 35-0103. Until recently, DEC’s disclosure requirements were largely limited to phosphorous-containing ingredients and to other ingredients above 5% concentration. In 2017, DEC proposed expanded disclosure requirements and solicited stakeholder input on the proposal. Future reporting requirements, to be phased in starting this year, will significantly expand the scope of disclosures manufacturers must make.

DEC originally announced the deadline for initial disclosures to be July 1, 2019. DEC recently announced, however, that it would not begin enforcing any violations until October 2, 2019, making the new de facto compliance deadline October 1, 2019. By that date, manufacturers of in-scope products should complete and submit DEC’s Certification Form, as well as make the required disclosures on its website. The Certification Form must be re-submitted at a minimum every two years thereafter, and additionally when a triggering event occurs (e.g., change in formulation).

The first round of disclosure will require the identification of all intentionally added ingredients other than fragrance ingredients, as well as all nonfunctional ingredients present above trace quantities. The law allows manufacturers to assert CBI claims to protect the identity of certain chemicals. Disclosure requirements for additional ingredients will be phased in on July 1, 2020 and January 1, 2023.

Manufacturers must also disclose additional information, including:

  • Whether ingredients are present on one or more lists of concern (e.g., certain substances regarded by the EU as SVHCs, etc.), regardless of whether the identity of the chemical is withheld due to a CBI claim;
  • Whether ingredients are nanoscale materials;
  • The function of ingredients (e.g., fragrance, color, etc.); and
  • Information regarding investigations and research the manufacturer has conducted or directed regarding environmental or health effects of ingredients.

Due to the complexity of the questions surrounding these disclosures, manufacturers would be wise to begin gathering the relevant information now.

 

© 2019 Beveridge & Diamond PC

Privacy Legislation Proposed in New York

The prevailing wisdom after last year’s enactment of the California Consumer Privacy Act (CCPA) was that it would result in other states enacting consumer privacy legislation. The perceived inevitability of a “50-state solution to privacy” motivated businesses previously opposed to federal privacy legislation to push for its enactment. With state legislatures now convening, we have identified what could be the first such proposed legislation in New York Senate Bill 224.

The proposed legislation is not nearly as extensive as the CCPA and is perhaps more analogous to California’s Shine the Light Law. The proposed legislation would require a “business that retains a customer’s personal information [to] make available to the customer free of charge access to, or copies of, all of the customer’s personal information retained by the business.” It also would require businesses that disclose customer personal information to third parties to disclose certain information to customers about the third parties and the personal information that is shared. Businesses would have to provide this information within 30 days of a customer request and for a twelve-month lookback period. The rights also would have to be disclosed in online privacy notices. Notably, the bill would create a private right of action for violations of its provisions.

We will continue to monitor this legislation and any other proposed legislation.

Copyright © by Ballard Spahr LLP.

This post was written by David M. Stauss of Ballard Spahr LLP.

State Investments in Electric Vehicle Charging Infrastructure

Various studies indicate that an overall lack of charging infrastructure serves as an impediment to the widespread adoption of electric vehicles (EVs). However, the road to transportation electrification is officially under construction following several major state investments.

At the end of May, in the largest single state-level investment in EV charging infrastructure, the California Public Utilities Commission (CPUC) approved more than $760 million worth of transportation electrification projects by the State’s three investor-owned utilities. The CPUC’s Decision, See A.17-01-020, Proposed Decision of ALJs Goldberg and Cook (May 31, 2018),  authorized Pacific Gas and Electric Company (PG&E) and Southern California Edison (SCE) to install vehicle chargers at more than 1,500 sites supporting 15,000 medium or heavy-duty vehicles. The FD also approved rebates to San Diego Gas & Electric (SDG&E) residential customers for installing up to 60,000 240-volt charging stations at their homes. Moreover, PG&E was authorized to build 234 DC fast-charging stations.

Besides the total spend and resulting emissions reductions represented by the Commission’s action, the Proposed Decision is also notable for the policy priorities it advances.  For instance, it clearly prioritizes the creation of electrification-related benefits for California’s disadvantaged communities (DACs).  (The authorizing legislation, SB 350, found that “[w]idespread transportation electrification requires increased access for disadvantaged communities . . . and increased use of [EVs] in those communities . . . to enhance air quality, lower greenhouse gases emissions, and promote overall benefits to those communities” § 740.12(a)(1)(C) (De Leon)).  Accordingly, the CPUC focused on promoting construction of charging infrastructure in DACs.   For example, the PG&E fast charging program will target construction in DACs by providing up to $25,000 per DC fast charger in rebates to cover a portion of the charger cost for sites located in DACs.

The CPUC also prioritizes the survival of non-utility charging competition.  For example, the Proposed Decision eliminates utility ownership of the charging infrastructure on the customer side of the meter in the SDG&E residential charging program. Additionally, for the PG&E and SCE’s medium and heavy-duty programs, the utilities will own make-ready infrastructure, but not the Electric Vehicle Supply Equipment (EVSE). Instead, the utilities will allow customers to choose their own EVSE models, EVSE installation vendors, and any network services providers.

The CPUC noted several benefits of allowing the utility to own electrification infrastructure only up to the point of the EVSE stub.  First, the Commission found that “[u]tility ownership of the charging infrastructure dramatically drives up costs, in comparison to alternative ownership models.” Instead, restricting utility ownership of charging equipment will allow more charging infrastructure to be built at the same (or lower) cost to ratepayers. Second, it allows private parties to compete and innovate, which will improve charging technology and lower costs. Lastly, non-utility competition addresses “stranded cost” fears, since private parties will bear the risks of nascent charging technologies.

While California has made the largest commitment, other states have also joined the effort to pave a national road toward the widespread adoption of EVs.

In New Jersey, utility company PSE&G recently proposed spending $300 million to set up a network of up to 50,000 charging stations. This investment would constitute a massive upgrade to New Jersey’s charging infrastructure, which currently consists of less than 600 charging stations according to U.S. Department of Energy data. The proposed investment is part of a larger $5.4 billion expansion in PSE&G’s five-year infrastructure plan, and represents the first major proposal of New Jersey’s largest utility to invest in EV infrastructure.

In New York, Governor Andrew Cuomo announced a $40 million commitment (that could grow to $250 million by 2025) by the New York Power Authority for its EVolve NY initiative. The new funding will be used to build fast chargers and to support EV model communities. EVolve NY is a part of the broader Charge NY 2.0 initiative, which advances electric car adoption by increasing the number of charging stations statewide. The new funding will aid New York as it aims to meet its particularly ambitious goal of 800,000 electric vehicles on the road by 2025.

Late last year, the Massachusetts Department of Public Utilities approved a $45 million charging station program by local utility, Eversource. The program includes investments to support the deployment of almost 4,000 “Level 2 Stations” and 72 DC Fast Charging stations. Even more investment could be on its way to Massachusetts as utility company National Grid has also proposed investing in charging station infrastructure.

And in Maryland, utility companies have proposed spending $104 million to build a network of 24,000 residential, workplace and public charging stations. The program, currently before the state’s Public Service Commission, would be a major part of Maryland’s effort to reach 300,000 electric vehicles on the road by 2025.

On the federal level, energy-related projects could be eligible for the $20 billion “Transformative Projects Program” announced by the Trump administration in February.  However, President Trump recently remarked that his infrastructure plan will likely have to wait until after this year’s midterm elections.  In the meantime, states have shown that they are more than willing to take the lead in investing in transportation electrification infrastructure.  (In related news this week, Colorado’s decision to move toward adopting California’s greenhouse gas emissions standards for light-duty vehicles represents a parallel and noteworthy development, further indicating leadership and action from states focused on developing advanced vehicle technology.)  It’s also notable that in addition to utility commission activity, states are also expressing support for advanced vehicle technology While the states have certainly taken a lead, their investments also complement significant action in the private sector, including the recent effort to stand up the Transportation Electrification Accord.  See our recent post on that subject, and continue to follow Inside Energy and Environment for continued updates on this subject.

© 2018 Covington & Burling LLP

This post also includes contributions from Michael Rebuck, a summer associate.

This post was written by Jake Levine Covington & Burling LLP.

Elder Abuse: Are Granny Cams a Solution, a Compliance Burden, or Both?

In Minnesota, 97% of the 25,226 allegations of elder abuse (neglect, physical abuse, unexplained serious injuries and thefts) in state-licensed senior facilities in 2016 were never investigated. This prompted Minnesota Governor, Mark Dayton, to announce plans last week to form a task force to find out why. As one might expect, Minnesota is not alone. A studypublished in 2011 found that an estimated 260,000 (1 in 13) older adults in New York had been victims of one form of abuse or another during a 12-month period between 2008 and 2009, with “a dramatic gap” between elder abuse events reported and the number of cases referred to formal elder abuse services. Clearly, states are struggling to protect a vulnerable and growing group of residents from abuse. Technologies such as hidden cameras may help to address the problem, but their use raises privacy, security, compliance, and other concerns.

With governmental agencies apparently lacking the resources to identify, investigate, and respond to mounting cases of elder abuse in the long-term care services industry, and the number of persons in need of long-term care services on the rise, this problem is likely to get worse before it gets better. According to a 2016 CDC report concerning users of long-term care services, more than 9 million people in the United States receive regulated long-term care services. These numbers are only expected to increase. The Family Caregiver Alliance reports that

by 2050, the number of individuals using paid long-term care services in any setting (e.g., at home, residential care such as assisted living, or skilled nursing facilities) will likely double from the 13 million using services in 2000, to 27 million people.

However, technologies such as hidden cameras are making it easier for families and others to step in and help protect their loved ones. In fact, some states are implementing measures to leverage these technologies to help address the problem of elder abuse. For example, New Jersey’s Attorney General recently expanded the “Safe Care Cam” program which lends cameras and memory cards to Garden State residents who suspect their loved ones may be victims of abuse by an in-home caregiver.

Common known as “granny cams,” these easy-to-hide devices which can record video and sometimes audio are being strategically placed in nursing homes, long-term care, and residential care facilities. For example, the “Charge Cam” (pictured above) is designed to look like and actually function as a plug used to charge smartphone devices. Once plugged in, it is able to record eight hours of video and sound. For a nursing home resident’s family concerned about the treatment of the resident, use of a “Charge Cam” or similar device could be a very helpful way of getting answers to their suspicions of abuse. However, for the unsuspecting nursing home or other residential or long-term care facility, as well as for the well-meaning family members, the use of these devices can pose a number of issues and potential risks. Here are just some questions that should be considered:

  • Is there a state law that specifically addresses “granny cams”? Note that at least five states (Illinois, New Mexico, Oklahoma, Texas, and Washington) have laws specifically addressing the use of cameras in this context. In Illinois, for example, the resident and the resident’s roommate must consent to the camera, and notice must be posted outside the resident’s room to alert those entering the room about the recording.
  • Is consent required from all of the parties to conversations that are recorded by the device?
  • Do the HIPAA privacy and security regulations apply to the video and audio recordings that contain individually identifiable health information of the resident or other residents whose information is captured in the video or audio recorded?
  • How do the features of the device, such as camera placement and zoom capabilities, affect the analysis of the issues raised above?
  • How can the validity of a recording be confirmed?
  • What effects will there be on employee recruiting and employee retention?
  • If the organization permits the device to be installed, what rights and obligations does it have with respect to the scope, content, security, preservation, and other aspects of the recording?

Just as body cameras for police are viewed by some as a way to help address concerns over police brutality allegations, some believe granny cams can serve as a deterrent to abuse of residents at long-term care and similar facilities. However, families and facilities have to consider these technologies carefully.

This post was written by Joseph J. Lazzarotti  of Jackson Lewis P.C. © 2017
For more legal analysis, go to The National Law Review 

Update: DOL Regulation For Employers Who Use Direct Deposit and Payroll Debit Cards Invalidated

payroll card DOLOn February 16, 2017, the New York State Industrial Board of Appeals invalidated and revoked the NYS Department of Labor regulations we wrote about previously (and updated here) governing payment of wages by direct deposit or payroll debit card. The regulations were scheduled to take effect on March 7, 2017.

As we described in detail in our previous posts, the new regulations would have required employers to provide notice to employees and obtain consent from those who elected to receive wages via direct deposit or payroll debit card. In addition, the regulations would have imposed various restrictions on the terms of use and the fees associated with payroll debit cards.

In its decision, the Board determined that the regulations exceeded the scope of the DOL’s authority and imposed prohibitions that are beyond its purview. Specifically, the Board likened the fees associated with payroll debit cards to the fees associated with checking accounts and licensed check cashers, which are not subject to regulation by the DOL. The Board concluded that the regulations “go beyond regulation of the employment relationship and into the area of banking law, which is outside [the DOL’s] competence and expertise in the regulation of employment and occupational safety and health.” Further, the Board noted that the policy concern which the regulation sought to address – namely, that low wage workers without access to traditional bank accounts will be coerced into receiving wages by payroll debit card – is already covered by Section 192 of the Labor Law, which governs the payment of wages and which requires advance consent from an employee before an employer can pay wages via payroll debit card.

The DOL has not yet indicated whether it will appeal this decision, but we will be sure to keep you updated on any new developments. In the meantime, employers who have taken steps to comply with the regulations can press pause on those plans, but should ensure that their procedures for payment of wages are in compliance with all other applicable laws and regulations.

ARTICLE BY Michael S. Arnold & Brie Kluytenaar of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

©1994-2017 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.

NY State Prepared to Increase Salary Level for Certain Overtime Exceptions

New York OvertimeProposed amendments to the New York State Wage Orders significantly increase the salary levels needed for employers to qualify for the executive and administrative exceptions under the New York Labor Law.

Last month, a US district court in Texas enjoined the US Department of Labor’s proposed revisions to regulations regarding exemption status under the Fair Labor Standards Act, which were scheduled to go into effect on December 1, 2016. In light of this injunction, there is no federal legal requirement at this time to increase the weekly salary for individuals to be exempt from overtime to the $913 per week that the new Regulations would have required under federal law. This injunction is being appealed, and employers should be prepared to act quickly in case the district court’s decision is overturned and the injunction lifted.

However, for New York employers, that is only half of the issue.

Employers in New York must also simultaneously comply with the state’s salary basis floor for the executive and administrative exceptions under the New York Labor Law (NYLL). That minimum is presently $675 per week or $35,100 per year. If that amount is not paid, employers cannot claim executive and administrative exception status under the NYLL regardless of the duties the individual performs, and such individuals will be eligible for additional compensation for hours worked over 40 per workweek even if they are exempt under federal law. The New York salary minimum is a mandatory pre-condition to be completely excepted from the state overtime requirements.

Moreover, proposed amendments will very likely increase these salary basis minimums for the executive and administrative exceptions effective December 31, 2016, with scheduled increases in subsequent years. Specifically, the New York State Department of Labor (NYSDOL) has amended the state’s Wage Orders to increase the salary threshold for the executive and administrative exceptions to $825 per week for large employers in New York City. If adopted, these regulations would amend the salary basis threshold in the NYSDOL’s Wage Orders covering the building services industry (12 N.Y.C.R.R. 141), miscellaneous industries and occupations (12 N.Y.C.R.R. 142), nonprofitmaking institutions (12 N.Y.C.R.R. 143), and hospitality industry (12 N.Y.C.R.R. 146). The inclusion of the miscellaneous industries Wage Order will extend these amendments to nearly all employers.

The public comment period on these proposed changes closed on December 3, 2016. If the proposed amendments are finalized by the NYSDOL, they would become effective on December 31, 2016.

Proposed Amendments to Salary Threshold for Executive and Administrative Exceptions

The proposed salary basis amendments contain different salary requirements based on an employer’s size and geographic location within New York State. Specifically, there are different salary requirements for “large employers” in New York City (employers with 11 or more employees), for “small employers” in New York City (employers with 10 or fewer employees), “downstate” employers (employers in Nassau, Suffolk, and Westchester counties), and employers in the “remainder of state” (employers outside of New York City, Nassau, Suffolk, and Westchester counties).

The below chart provides an overview of the proposed changes:

NYC

Large Employers (11 or more employees)

 NYC

Small Employers (10 or fewer employees)

 Employers in Nassau, Suffolk, and Westchester Counties Remainder of NY State Employers
Current (as of December 31, 2015) $675.00 per week $675.00 per week $675.00 per week $675.00 per week
On and after December 31, 2016 $825.00 per week $787.50 per week $750.00 per week $727.50 per week
On and after December 31, 2017 $975.00 per week $900.00 per week $825.00 per week $780.00 per week
On and after December 31, 2018 $1,125.00 per week $1,012.50 per week $900.00 per week $832.00 per week
On and after December 31, 2019 – $1,125.00 per week $975.00 per week $885.00 per week
On and after December 31, 2020 – – $1,050.00 per week $937.50 per week
On and after December 31, 2021 – – $1,125.00 per week –

Effective Date

The effective date of the proposed amendments is December 31, 2016. While it is possible that the NYSDOL will withdraw or change the amendments before this date, it is more likely that they will be adopted without alterations and become effective on December 31, 2016.

Recommended Next Steps

In light of the increase in the salary threshold for the executive and administrative exceptions, employers should quickly identify and evaluate positions compensated below the new threshold and decide whether to reclassify employees as eligible for overtime under state and/or federal law, or raise their salaries. Employers should consider the hours worked for these employees to estimate the potential cost of paying overtime.

For those employees who will be reclassified as overtime eligible, employers should prepare talking points for managers and employees about the change, the reason for the change, and how the change will impact their compensation, benefits, and opportunities for advancement, if at all. Employers should also develop training and robust time reporting policies for reclassified workers who will not be accustomed to recording hours worked.

To the extent that reclassified employees previously were receiving bonuses, commissions, or other incentive compensation, employers will need to reevaluate those forms of compensation or carefully consider how to factor them into the regular rate of now-hourly workers. Employers should also be prepared to follow up and audit timekeeping practices for newly reclassified employees to ensure that they are following proper processes and procedures.

ARTICLE BY Samuel S. Shaulson & Christopher A. Parlo of Morgan, Lewis & Bockius LLP

Copyright © 2016 by Morgan, Lewis & Bockius LLP. All Rights Reserved.

Estate Planning and Client Engagement Letters: Deloitte’s $500 Million Sentence

New York, Estate PlanningAccounting firms very often question the need to include certain provisions intended to limit their liability to their clients and sometimes ask whether the provision is even enforceable. Whether the provision will be enforced is uncertain due to the very limited case law addressing liability-limiting provisions in accountants’ client engagement letters, and there could be variations in enforcement from state to state. Nevertheless, it is important to include the provisions, even if enforcement is uncertain, because the provision might just be accepted and never challenged, thereby serving its purpose, even if a court strikes it down after a legal challenge.

One of the more important liability-limiting provisions is limiting the client’s time to sue the accountant to a fixed period (usually one year) measured from when the services are provided. These provisions serve the dual purpose of shortening the lengthy statute of limitations in some states and defining exactly when that period starts to run. Our provision sets forth that the period starts to run at the time the services are provided rather than when the client knows or should know about a claim, which could be years and sometimes decades later.

A picture may be worth a thousand words, but a similar single-sentence provision in an engagement letter saved Deloitte Tax LLP from having to defend a $500 million malpractice suit filed in New York against the multinational professional services firm. A New York court dismissed the lawsuit and affirmed the validity of the one-year limitations period. However, unlike the provision we generally recommend, the Deloitte provision indicated the one-year period started to run from when “the cause of action accrued.” Since New York law holds that such claims accrue at the time the advice is given, the court held that Deloitte’s provision shortened the time period to sue the accountant to one year from the time the advice was given. In effect, our provision would reach this result even in states that do not have the same highly favorable point of accrual.

Facts of the Case

Deloitte was engaged in 2008 by billionaire William Davidson to modify his estate plan, and Deloitte provided advice until shortly before Davidson’s death in March 2009. Deloitte was then engaged to assist with the administration of the Estate, including providing advice on a variety of tax issues, some of which related to the modifications put in place prior to Davidson’s death.

Not surprisingly, the IRS scrutinized the Davidson Estate filings, but somewhat surprisingly concluded that the Estate owed billions more than was reported on the Estate’s returns. Those conclusions were contested by the Estate, which ultimately settled with the IRS for approximately $500 million in July 2015. Deloitte continued working with the Estate until September 2015, when the Estate brought an action against Deloitte in New York seeking to recover the $500 million paid to settle with the IRS.

The Estate alleged, among other things, that Deloitte was reckless and negligent in the estate planning advice provided to Davidson. Deloitte filed a motion to dismiss the complaint in its entirety, arguing that the claims were time-barred based on the limitations provision in their engagement letter with Davidson. The critical language in the engagement letter stated:

No action, regardless of form, relating to this engagement, may be brought by either party more than one year after the cause of action has accrued, except that an action for nonpayment may be brought by a party not later than one year following the date of the last payment due to the party bringing such action.

New York law provides that parties to a contract can shorten the statute of limitations, so the plaintiffs did not dispute the validity of the provision shortening the statute of limitations to one year. Instead, the plaintiffs argued that the doctrines of continuous representation and equitable estoppel deferred accrual of the causes of action until Deloitte stopped providing services to the Estate. The plaintiffs, focusing on the services Deloitte provided after Davidson’s death during the administration of the Estate and resolution with the IRS, argued that the claims did not accrue until services stopped in September 2015.

The Decision

On August 22, 2016, the Supreme Court of the State New York, New York County dismissed all claims against Deloitte, holding that they were time-barred under the one-year limitations provision in Deloitte’s engagement letter. After confirming that New York law permits parties to shorten the limitations period by contract, the Court focused on “accrual” of the claims, since that is the point from which the one-year period is measured under the engagement letter provision.

For the malpractice claim, the Court pointed to the longstanding New York law holding that a malpractice claim against an accountant based on allegedly faulty tax advice accrues at the time the advice is given, which in this case predated Davidson’s death in 2009 − more than six years prior to commencement of the action. The Court also ruled that the representation of the Estate after Davidson’s death did not save the claims through application of the continuous representation doctrine because the provision in the engagement letter expressly barred any tolling. Finally, the Court ruled that equitable estoppel did not apply because Deloitte did nothing to conceal the Estate’s tax problems.

Takeaways

  • Well-drafted engagement letter provisions that shorten or otherwise limit the
    time a client has to commence suit can be strong risk management tools that will be upheld by at least some courts. The strength and enforceability of the provision will vary from state to state, but New York is not unique in holding that these provisions are enforceable.

  • Shortening the time period to commence a suit to as little as one year is possible.

  • If your jurisdiction does not measure accrual from the time the services are provided, as it is in New York, adding language measuring the commencement of the contractual limitation period from the time the services are provided is a possible solution, depending on the law in your state.

  • If drafted properly, the provision can eliminate any tolling or extension of the limitations period based on additional or subsequent services that may be provided.

The purpose of the statute of limitations in the context of professional malpractice is to allow an accounting firm a degree of certainty that past services will not lead to stale complaints in the distant future. Accountants can increase that certainty, limit the future period and protect themselves from stale complaints in the distant future by incorporating a limitation provision into their engagement letters.

For Deloitte, a single sentence in its engagement letter limiting the time period for all claims to one year was worth $500 million.

ARTICLE BY Peter J Larkin & Rebecca R. Gelozin of Wilson Elser Moskowitz Edelman & Dicker LLP
© 2016 Wilson Elser

New York Proposes First-Ever Cybersecurity Regulation for Financial Institutions

cybersecurity regulationThe New York Department of Financial Services recently announced a new proposed rule, which would require financial institutions and insurers to implement strong policies for responding to cyberattacks and data breaches.  Specifically, the rule would require insurers, banks, and other financial institutions to develop detailed, specific plans for data breaches; to appoint a chief privacy security officer; and to increase monitoring of the handling of customer data by their vendors.

Until now, various regulators have been advancing similar rules on a voluntary basis.  This is reportedly the first time that a state regulatory agency is seeking to implement mandatory rules of this nature.

“New York, the financial capital of the world, is leading the nation in taking decisive action to protect consumers and our financial system from serious economic harm that is often perpetrated by state-sponsored organizations, global terrorist networks, and other criminal enterprises,” said New York Governor Cuomo. He added that the proposed regulation will ensure that the financial services industry upholds its commitment to protect customers and take more steps to prevent cyber-attacks.

The rule would go into effect in 45 days, subject to notice and public comment period.  Among other detailed requirements, it will mandate a detailed cybersecurity program and a written cybersecurity policy.  While larger financial institutions already likely have such policies in place, the rule puts more pressure on them to fully comply.  It also mandates the hiring of a Chief Privacy Officer at a time when privacy professionals are already in a very high demand.  To attract top talent, the financial institutions will need to allocate appropriate budgets for such hiring.

Additionally, the rules outline detailed requirements for the hiring and oversight of third-party vendors.  Regulated entities who allow their vendors to access nonpublic information will now have to engage in appropriate risk assessment, establish minimum cybersecurity practices for vendors, conduct due diligence processes and periodic assessment (at least once a year) of third-party vendors to verify that their cybersecurity practices are adequate.  More detailed specifications can be found here.  Other requirements include employment and training of cybersecurity personnel, timely destruction of nonpublic information, monitoring of unauthorized users, and encryption of all nonpublic information.  As DFS Superintendent Maria Vullo explained: “Regulated entities will be held accountable and must annually certify compliance with this regulation by assessing their specific risk profiles and designing programs that vigorously address those risks.”

Among other notable requirements, the regulations further mandate that banks notify New York’s Department of Financial Services of any material data breach within 72 hours of the breach.  The regulations come at the time when cybersecurity attacks are on the rise.  The proposed rules also follow on the heels of recent legislative initiatives in 4 other states to bolster their cybersecurity laws, as we previously discussed.

The regulations are sweeping in nature in that they potentially affect not only New-York-based companies but also insurers, banks, and financial institutions who conduct business in New York or have customers who are New York residents.  If you are unsure about your company’s obligations and the impact of the proposed rules on your industry, contact Mintz Levin privacy team for a detailed analysis.

ARTICLE BY Cynthia J. Larose & Natalie A. Prescott of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

©1994-2016 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.

Switching Consumer Device to Ad-Supported Environment Is Not Deceptive under New York Law

Slingbox AdvertisingIf your company sells a smart device to a consumer, can it later turn the device into a paid advertising platform? Can it do so without advanced disclosure?  A recent court ruling suggests the answer is “yes,” at least in New York.

In In re Sling Media Slingbox Advertising Litig., No. 15-05388 (S.D.N.Y. Aug. 12, 2016), consumers who purchased a “Slingbox” claimed they bought the device solely to “sling” their cable television service from one place (their home) to another device located anywhere (e.g., a vacation rental, office, etc.) over the Internet, but the manufacturer began adding its own advertising to the internet transmission.  The consumers claimed that, in addition to the ads already included in the feed pre-slinging, Sling Media inserted ads that played before (or alongside) the post-slinging feed in the form of banner advertisements that appeared on the edge of the screen (and which, purportedly, would disappear if the user viewed the streamed content in full screen mode or purchased a certain app for an ad-free experience).   Plaintiffs portrayed Sling Media’s imposition of ads as the beginning of a parade of horribles in which various “smart” devices—from cars to dishwashers—suddenly begin “forc[ing]” drivers, passengers, etc. to watch “unwanted” ads.  The consumers asserted the alleged unilateral insertion of ads violated the consumer protection laws of forty-eight states, including New York General Business Law (GBL) § 349.

The district court dismissed the claims, finding that New York law governed and that the allegations did not describe any misleading or deceptive conduct or actual injury.

The court first found that there were no viable claims of fraud or deceit. For example, there was no allegation that Sling Media actually stated the slinging functions would be “ad free.”  Likewise, the court observed that the lead plaintiffs failed to allege whether they bought their devices after Sling Media allegedly formed its intent to insert ads and before Sling Media launched the new feature (thereby disclosing the intent).

Critically, the court rejected the assertion that it is necessarily deceptive to sell a consumer a device meant to do one thing—transmit programming separately purchased by a consumer from his or her cable operator—and then use it for an additional function—transmitting advertising for which Sling Media was being paid. The court found that there was no allegation that the lead plaintiffs themselves subjectively expected an “ad-free experience” when they purchased a Slingbox, let alone plausible allegations that objectively reasonable consumers care about the insertion of ads by Sling Media such that the company’s alleged failure to disclose a future plan to disseminate advertisements was a “material” deception.

The court also found that the consumers failed to allege “injury.” The plaintiffs implied that Sling Media’s “use” of the plaintiffs’ property was itself an injury (like a private version of a “takings” claim).  But the court ruled that, to allege injury, the plaintiffs would have to plead facts showing that Sling Media’s ad insertions somehow prevented consumers from using the device to watch television or made it more expensive to do so.  Ultimately, the court ruled that the complaint was devoid of any allegations regarding how the insertion of ads, “which may be beneficial, detrimental or of no consequence based on consumers’ personal tastes, likes, or dislikes, constituted or caused Plaintiffs’ the type of harm that might qualify as an ‘actual injury’ within the meaning of GBL § 349.”  The court also underscored that, in New York, alleged “deception” itself is not “injury.” (See Op. at 11, n. 15 (citing Small v. Lorillard Tobacco Co., Inc., 94 N.Y.2d 43, 56 (1999) (consumers who buy a product that they would not have purchased absent deceptive conduct, without more, have not suffered injury)).

Lastly, and importantly for the “smart” device industry, the court noted that plaintiffs could not establish that ad insertion impaired any “legal right established by contract.”  The software needed to use the Slingbox was only licensed to consumers and the license did not reference advertising one way or the other.  Moreover, the license allowed Sling Media to modify the software (for example, to insert additional advertisements).

The impact of the Sling Media decision is tempered by the fact that it was a decision on a motion to dismiss (and allowed plaintiffs to move for leave to amend).  And it was decided under New York’s consumer fraud statute, not California’s potentially more liberal laws.  That said, the decision stakes out several key points to consider in switching a consumer device (or paid service) from an ad-free to an ad-supported environment:

  • Have affirmative representations been made about ads one way or the other?

  • Is there evidence about whether consumers view the addition of ads as a benefit? Or whether they care at all?

  • Does the addition of ads interfere with any core functions of the device or service?

  • Does the addition of ads actually make it more costly to use the device or service?

Finally, as always, consider whether you have an effective dispute resolution provision covering the device and/or any service or software, including class action waivers (to the extent permitted by law).

ARTICLE BY Jennifer R. Scullion of Proskauer Rose LLP

© 2016 Proskauer Rose LLP.

New York Court Has Sufficient Jurisdiction Over Foreign Bank Where Bank Purposefully Uses Correspondent Bank Account in New York

In a recent New York  District Court decision in Official Comm. Of Unsecured Creditors of Arcapita Bank B.S.C. v. Bahr, Islamic Bank, 2016 U.S. Dist Lexis 42635 (S.D.N.Y. 2016), the court considered whether the use of a correspondent bank account provides a sufficient basis to exercise personal jurisdiction over a foreign bank. There, the Bahraini banks set the terms of investment placements and designated New York correspondent bank accounts to receiver the funds. The banks then actively directed the funds at issue into the New York accounts.

The Committee’s cause of action for the avoidance of preferential transfers arose from the use of the correspondent bank accounts. Hence, the heart of the claim was the receipt of the transferred funds in the New York correspondent bank accounts. The Bahraini banks deliberately chose to receive funds in US dollars and designated the correspondent bank accounts in New York to receive the funds. This deliberate choice made the exercise of jurisdiction constitutional. “Where, as here, the defendant’s in-forum activity reflects its ‘purposeful availment’ of the privilege of carrying on its activities here, the defendant has established minimum contacts sufficient to confer a court with jurisdiction over it, even if the effects of the defendant’s conduct are felt entirely outside of the United States.”

Thus, if a foreign party deliberately choses to use the US banking system to effectuate a transaction and a cause of action arises from that transaction, the foreign party can be forced to defend itself in the US courts.

Article By Eric (Rick) S. Rein of Horwood Marcus & Berk Chartered
© Horwood Marcus & Berk Chartered 2016. All Rights Reserved.