Author: National Law Forum

A group of in-house attorneys developed the National Law Review on-line edition to create an easy to use resource to capture legal trends and news as they first start to emerge. We were looking for a better way to organize, vet and easily retrieve all the updates that were being sent to us on a daily basis.In the process, we’ve become one of the highest volume business law websites in the U.S. Today, the National Law Review’s seasoned editors screen and classify breaking news and analysis authored by recognized legal professionals and our own journalists. There is no log in to access the database and new articles are added hourly. The National Law Review revolutionized legal publication in 1888 and this cutting-edge tradition continues today.

2012 Launching & Sustaining Accountable Care Organizations Conference

The National Law Review is pleased to bring you information on the Launching & Sustaining Accountable Care Organizations Conference will be a two-day, industry focused event specific to CEOs, COOs, CFOs, CMOs, Vice presidents and Directors with responsibilities in Accountable Care Organizations, Managed Care and Network Management from Hospitals, Physician Groups, Health Systems and Academic Medical Centers.

By attending this event, industry leaders will share best practices, strategies and tools on incorporating cost-sharing measures in a changing healthcare landscape to strengthen the business model and ensure long-term success.

Attending This Event Will Enable You to:
1. Understand the initial outcomes and lessons learned from launching ACOs, with a focus on how to sustain these partnerships in the future
2. Hear from the early adopters of ACOs or similar cost-reducing partnerships and understand their initial operational and implementation challenges.
3. Learn about the final regulations regarding ACOs and their impact on those who want to initiate the formation process
4. Gain a clear understanding of regulatory issues and accreditation processes
5. Conquering initial hurdles for establishing an ACO
6. Gain knowledge from newly-formed ACOs
7. Ensure longevity by establishing a robust long-term plan

Another Circuit Jumps on the Anti – “Departure Bar” Bandwagon

Published recently in The National Law Review an article regarding the “Departure Bar” by William J. Flynn, III of Fowler White Boggs P.A.:

Recently, the Tenth Circuit became the seventh circuit court to reject the“departure bar” to motions to reopen found at 8 C.F.R. § 1003.2(d). The departure bar essentially prohibits noncitizens from pursuing motions to reopen or reconsider in removal proceedings after having departed from the United States. The Tenth Circuit had been the only court to issue a precedent decision in favor of the bar, but overturned that decision in a recent rehearing en banc. Contreras-Bocanegra v. Holder, 629 F.3d 1170 (10th Cir. 2010).

The Third, Fourth, Sixth, and Ninth Circuits, among others, had all specifically found the bar unlawful. See e.g. Reyes-Torres v. Holder, 645 F.3d 1073 (9th Cir. 2011). These courts have held, and many immigrants’ rights groups have argued, that the regulation deprives immigration judges and the Board of Immigration Appeals the authority to adjudicate motions to remedy wrongfully executed deportations. Additionally, the regulation conflicts with a noncitizens’ statutory right to pursue reopening.

Although many courts have outright rejected the departure bar, the issue still remains open in many other circuits, the 11th included. The closest the Eleventh Circuit has come to making such a decision was in Ugokwe v. U.S. Attorney General, 453 F.3d 1325 (11th Cir. 2006), in which it held that the filing of a motion to reopen tolls the period of voluntary departure, so as to prevent a subsequent departure from invalidating the motion. Nevertheless, the Ugokwecourt did side with the prior, similar holdings of the Ninth and Third Circuits, and so there remains hope that the Eleventh Circuit could do the same with respect to the legality of the departure bar, should the issue arise.

The full text of the Contreras-Bocanegra decision can be found here.

©2002-2012 Fowler White Boggs P.A.

Inside Counsel presents the 12th Annual Super Conference in Chicago

National Law Review is pleased to bring you information about the upcoming 12th Annual Super Conference sponsored by Inside Counsel .

Reasons why you should Attend This Year’s Event:

  1. Meet with Decision Makers: You’ll meet face-to-face with senior-level in-house counsel
  2. Networking Opportunities: SuperConference offers several networking opportunities, including a cocktail reception, refreshment breaks, and a networking lunch.
  3. Gain Industry Knowledge: You will hear the latest issues facing the industry today with your complimentary full-conference passes.

Who Should Attend – General Counsel and Other Senior Legal Executives from Top Companies Attend SuperConference:

  • Chief Legal Officers
  • General Counsel
  • Corporate Counsel
  • Associate General Counsel
  • CEOs
  • Senior Counsel
  • Corporate Compliance Officers

The 12th Annual IC SuperConference will be held at the NEW Radisson Blu Chicago.
Radisson Blu Aqua Hotel

221 N. Columbus Drive

Chicago, IL 60601

Don’t forget – The early discount deadline using the NLR discount code is February 24th!

Contractual Good Faith: Having Rights Doesn't Necessarily Mean You Can Use Them

Recently in The National Law Review an article by Anthony C. Valiulis and Melinda J. Morales of Much Shelist, P.C. regarding Contractual Rights:  

It can be a painful lesson to learn: just because you have discretion to do something under a contract does not mean you can exercise those rights anytime you want. Why is that? The covenant of good faith and fair dealing, implied in every contract, requires that a party vested with discretion exercise it reasonably and not arbitrarily, capriciously or in a manner inconsistent with the reasonable expectations of the parties. The purpose of this duty is to ensure that parties do not take advantage of each other in a way that could not have been contemplated at the time the contract was drafted or do anything that would destroy the other party’s right to receive the benefit of the contract.

The City of Woodstock learned this lesson the hard way in a recent Illinois Appellate Court decision. Reserve at Woodstock, LLC v. City of Woodstock, decided in September 2011, involved a 10-acre piece of property annexed to the City of Woodstock pursuant to a 1993 annexation agreement. In addition to zoning the property as residential (for 20 lots) and binding the parties for 20 years, the agreement contained a provision that no change could be made to any ordinance, code or regulation during the term of the agreement that would affect the zoning classification or uses permitted on the property. However, the agreement also gave Woodstock the right to re-zone the property for agricultural uses or de-annex the property if it was not developed within five years of annexation (i.e., the development window). Ultimately, the property was not developed within the specified period.

Reserve at Woodstock purchased the property from the original owner in 2005 and requested approval of a 20-lot plat in 2006. Woodstock’s Plan Commission issued a report stating that the plat complied with both the annexation agreement and relevant city ordinances, and recommended approval of the plat. However, the Woodstock City Council denied approval despite the fact that Reserve had invested hundreds of thousands of dollars in connection with its efforts to get the plan approved, met all of the municipality’s demands for impact studies and other assurances, and presented evidence that the plat was fully compliant.

Reserve sued the City of Woodstock, which responded by rezoning the property as agricultural and taking certain other steps that caused the property to be de-annexed. Although Woodstock had the right to take such action under the annexation agreement, the court nonetheless held that city’s actions violated the implied covenant of good faith and fair dealing.

What does this mean for you and your business? First, bear in mind that this implied covenant exists in every private contract, as well as those involving a municipality. And discretion is common in certain types of contracts, such as in contracts for the purchase and sale of goods. Thus, if you have an agreement that gives you the right to perform within certain parameters or limits, the covenant of good faith and fair dealing should guide how you exercise that right.

Ask yourself whether your decision will deprive the other party of their expectations under the contract, and think twice before acting. Relying on the contract language may not be enough, so it is wise to discuss the matter with legal counsel. When it comes to contracts, an ounce of prevention is always better than a pound of cure.

© 2012 Much Shelist, P.C.

8th Annual Asian ITechLaw Conference

The National Law Review is pleased to bring you information on the upcoming 8th Annual Asian ITechLaw Conference:

ITech --8th Annual Asian ITechLaw Conference on February 23 and 24, 2012

As National Law Review member you are entitled to a 10% discount to the

8th ITechLaw International Asian Conference

ITechLaw’s 8th annual run of the very popular International Asian Conference will take place in Bangalore – the high technology capital of India.

The theme for India VIII is Technology Law in an Era of Changing Business Paradigms. For a glimpse of what is lined up for a discerning attendee like you, please visit http://www.itechlaw-india.com. Be sure to be one of the first to sign up for this landmark India event.

  • 8th Consecutive event of the ITechLaw India series
  • A ringside view of Indian IT, Media and Telecom Law
  • Supported by several of the largest law firms and global associations
  • ITechLaw’s CyberSpaceCamp® to be held on February 22, 2012
  • Contemporary topics addressed by leading experts drawn from some of the best global law firms
  • Engaging debates with panelists from industry, regulatory authorities and in-house legal departments
  • Interactive sessions on issues affecting the largest IT bases in the world
  • Welcome Reception and Art Show, promoting emerging Indian artistes, allowing delegates to network with local corporates and invited guests
  • Gala Dinner and Networking Luncheons – ample networking opportunities to meet fellow professionals
  • I – Win Tea Meeting
  • In – House Counsel Breakfast Meeting
  • Exclusive golf outings on February 22 and 25, 2012
  • Make the trip a memorable experience by taking an excursion to exotic destinations across southern India, such as Mysore, Kerala and Tamil Nadu

Look forward to a considerable amount of debate and brainstorming. Social meets such as luncheons and gala dinners will enable attendees to indulge into fruitful networking with prospects, contacts and peers from around the world.

See you at the 8th ITechLaw International Asian Conference.

The Inside Job: Can Employees Walk Out The Door With Your Company's IP?

Recently in The National Law Review was an article by Katie L. Clark, Rohan Massey, and Hiroshi Sheraton of McDermott Will & Emery regarding IP Security:

With the economic downturn forcing redundancies, most employers are aware that the Q1 period brings an increase in employee movement. But have employers considered how much value could be walking out the door when an employee leaves? In today’s “knowledge economy”, businesses increasingly understand the value of intangible assets in the form of information.  Yet few businesses give thought to how and where those assets reside, or consider how much can be lost or passed to a competitor when employees move on.

The ease with which knowledge can be taken by employees has increased exponentially in recent times.  USB drives are now large enough to store literally millions of documents and cloud computing can provide limitless secure storage.  The increase in remote working also allows employees to download your documents and information in the privacy of their own homes.

There is also a growing international market for transferable knowledge, making the temptation even greater for employees to maximise their value to their new employer.  Emerging economies, with different laws, regulations, and cultural values, provide a ready market into which intellectual capital can be dispersed.

This issue affects every industry.  A number of high profile cases in the United States and China have seen former employees jailed for theft of trade secrets relating to consumer electronics and financial trading software, but every business has a wealth of internal knowledge that is used to give it a competitive advantage over its rivals.  Business plans, presentations, strategies, customer lists, market positioning, and protocols and procedures are all valuable assets that can find their way to new employers.

Most worryingly, this movement of information is not confined to “rogue” employees.  Many salespeople will claim that their address books of contacts belong to them, not to their employer.  Each type and level of employee and each type of business is likely to have a different understanding of what belongs to the company.  In addition, international cultural differences play an enormous role in determining where employees perceive the boundary to be between legitimate and illicit use of information.

So, how do you distinguish between what an employee is free to take away and what should remain with the business before it’s too late?  What procedures should be in place to maximise the intangible value retained by the business when employees move?  To what extent do data protection and privacy laws permit monitoring of employees’ activities?  What procedures are available when employees are suspected of taking valuable information and/or passing it to competitors?

In 2012, McDermott will be running a number of IP- and employment-focused seminars to provide an overview of how intellectual property and employment laws can help your company to protect it, and the policies and procedures that can be used to mitigate value walking out the door.

© 2012 McDermott Will & Emery

White Collar Crime

The National Law Review would like to advise you of the upcoming White Collar Crime conference sponsored by the ABA Center for CLE and Criminal Justice Section, General Practice,  &   Solo and Small Firm Division:

Event Information

When

February 29 – March 02, 2012

Where

  • Eden Roc Renaissance Miami Beach
  • 4525 Collins Ave
  • Miami Beach, FL, 33140-3226
  • United States of America
Primary Sponsors

  • Highlight

The faculty includes some of the leading white collar lawyers in the United States.  The keynote panels for the 2012 program will continue to focus on the role of ethics and corporate compliance in today’s business environment.

  • Program Description

Each year the National Institute brings together judges, federal, state, and local prosecutors, law enforcement officials, defense attorneys, corporate in-house counsel, and members of the academic community.  The attendees include experienced litigators, as well as attorneys new to the white collar area.  Attendees have consistently given the Institute high ratings for the exceptional quality of the Institute’s publication, its valuable updates on new developments and strategies, as well as the rare opportunity it provides to meet colleagues in this field, renew acquaintances and exchange ideas.

The faculty includes some of the leading white collar lawyers in the United States.  The keynote panels for the 2012 program will continue to focus on the role of ethics and corporate compliance in today’s business environment.  Once again, we expect excellent representation from the corporate sector.

  • CLE Information

ABA programs ordinarily receive Continuing Legal Education (CLE) credit in AK, AL, AR, AZ, CA, CO, DE, FL, GA, GU, HI, IA, ID, IL, IN, KS, KY, LA, ME, MN, MS, MO, MT, NH, NM, NV, NY, NC, ND, OH, OK, OR, PA, RI, SC, TN, TX, UT, VT, VA, VI, WA, WI, WV, and WY. These states sometimes do not approve a program for credit before the program occurs. This course is expected to qualify for 11.0 CLE credit hours (including TBD ethics hours) in 60-minute-hour states, and 13.2 credit hours (including TBD ethics hours) in 50-minute-hour states. This transitional program is approved for both newly admitted and experienced attorneys in NY. Click here for more details on CLE credit for this program.

The Employee Benefits Landscape in 2012: PART I

Kristy N. Britsch of Dinsmore & Shohl LLP recently had an article about Employee Benefits published in The National Law Review:

As we start a new year, plan sponsors and plan administrators should be aware of important upcoming changes affecting employee benefits in 2012. This Part I discusses changes impacting qualified plans, including recently released final 408(b)(2) regulations regarding fee disclosure requirements. Part II will discuss changes impacting health and welfare plans.


REMEMBER: The following amendments were due by December 31, 2011. If you are not sure as to whether these amendments have been adopted, please contact one of our benefits attorneys.mployee benefits in 2012. This Part I discusses changes impacting qualified plans, including recently released final 408(b)(2) regulations regarding fee disclosure requirements. Part II will discuss changes impacting health and welfare plans.

A. Required Minimum Distribution Suspension Amendment

The Worker, Retiree, and Employer Recovery Act (“WRERA”), enacted in 2008, and among its other provisions, waived required minimum distributions (“RMDs”) from defined contribution plans (i.e., 401(k) plans, ESOPs, profit sharing plans, etc.) for the 2009 calendar year. Employers/plan sponsors must have adopted this amendment by the last day of the 2011 plan year (i.e., December 31, 2011 for calendar year plans)

B. Code Section 436 Funding Based Restrictions on Defined Benefit Plans

Section 436 of the Internal Revenue Code (the “Code”) (added to the Code by the Pension Protection Act of 2006) imposes restrictions on benefit distributions and accruals for underfunded single-employer defined benefit plans. The restrictions that apply are determined by the plan’s Adjusted Funding Target Attainment Percentage (“AFTAP”). If a plan’s AFTAP is less than 80%, the plan cannot be amended to increase benefits. If a plan’s AFTAP is less than 80%, but at least 60%, the portion of benefit that may be paid in a single lump sum or other prohibited payment is limited. If the AFTAP is less than 60%, the plan may not pay any lump sum distribution or other accelerated payments. Employers/plan sponsors must have adopted this amendment by the last day of the 2011 plan year (i.e., December 31, 2011 for calendar year plans).

QUALIFIED PLAN COMPLIANCE ITEMS IN 2012

Plan Restatements for Cycle B Plans (IRS Determination Letter Program)

For employers with an employer identification number (“EIN”) ending in a two (2) or a seven (7) and who sponsor individually designed plans, the period to restate a qualified plan and submit the plan with the IRS for a favorable determination letter began on February 1, 2012 and ends on January 31, 2013.

Cost of Living Adjustments

Plan sponsors should review the cost of living adjustments (“COLA”) to determine what, if any, changes must be considered.

2010

2011

2012
Annual compensation for plan purposes 
(for plan years beginning in calendar year) 401(a)(17)		 $245,000 $245,000 $250,000
Defined benefit plan, basic limit 
(for limitation years ending in calendar year) 415(b)		 $195,000 $195,000 $200,000
Defined contribution plan, basic limit
(for limitation years ending in calendar year) 415(c)		 $49,000 $49,000 $50,000
401(k) / 403(b) plan, elective deferrals
(for taxable years beginning in calendar year) 402(g)		 $16,500 $16,500 $17,000
457 plan, elective deferrals
(for taxable years beginning in calendar year)		 $16,500 $16,500 $17,000
401(k) / 403(b) /457, catch-up deferrals 
(for taxable years beginning in calendar year) (Age 50+) 414(v)		 $5,500 $5,500 $5,500
SIMPLE plan, elective deferrals
(for calendar years) 408(p)		 $11,500 $11,500 $11,500
SIMPLE plan, catch-up deferrals
(for taxable years beginning in calendar year) (Age 50+) 408(p)		 $2,500 $2,500 $2,500
IRA contribution limit
408(a)		 $5,000 $5,000 $5,000
IRA catch-up contribution 
(Age 50+)		 $1,000 $1,000 $1,000
Highly Compensated Employee 414(q) $110,000 $110,000 $115,000
SEP Coverage 408(p)
(Compensation limit)		 $550 $550 $550
FICA Covered Compensation $106,800 $106,800 $110,100
Key Employee $160,000 $160,000 $165,000
ESOP 5- Year
Distribution period
409(o)(1)(c)(ii)		 $985,000 $985,000 $1,015,000

Fee Disclosures Requirements: Plan Level Disclosures and Participant Level Disclosures

Plan administrators will be subjected to two new disclosure rules this year. One rule affects disclosures made at the plan level and the second rule affects disclosures made at the participant level. Under the final ERISA Section 408(b)(2) regulations, issued by the Department of Labor on February 2, 2012, the plan level disclosures take effect on July 1, 2012 (extended from its April 1, 2012 effective date). The participant level disclosures take effect August 30, 2012 (extended from its May 31, 2012 effective date).

A. Plan Level Disclosures

Effective July 1, 2012, “covered service providers” must disclose to an ERISA plan fiduciary any compensation that they or their affiliates receive for services related to an ERISA covered plan. This rule applies to both defined benefit plans and defined contribution plans. If a covered service provider fails to provide the required disclosures, the plan’s service contract or arrangement with that covered service provider will not be considered “reasonable” under ERISA and thus, will be a prohibited transaction subject to penalties and which could expose plan fiduciaries to liability.

To provide background, ERISA Section 408(b)(2) requires plan fiduciaries to ensure that contracts or arrangements with their service providers, and the compensation paid under such arrangement, is “reasonable” in order for the arrangement to be exempt from ERISA’s prohibited transaction rules. To ensure that compensation paid by a plan is “reasonable,” the new fee disclosure regulations impose a new disclosure obligation on service providers.

ERISA Section 406(a)(1)(C) prohibits the “furnishing of goods, services or facilities between a plan and a party in interest.” Because a “party in interest” includes any party that provides services to a plan, service arrangements generally are prohibited unless they qualify for an exemption. ERISA Section 408(b)(2) provides such an exemption by permitting a party in interest to provide “services” to a plan if:

  1. the contract or arrangement is reasonable; and
  2. the services are necessary for the establishment or operation of the plan; and
  3. no more than reasonable compensation is paid for the services.

A covered service provider includes any service provider that enters into a contract or arrangement with an ERISA covered plan and expects to receive at least $1,000 in direct or indirect compensation. The types of covered service providers subject to these new rules include the following:

  1. Fiduciaries and investment advisors.
  2. Recordkeeping or brokerage services that allow participants to self-direct the investment of his or her accounts.
  3. Certain other service providers who receive indirect compensation. Indirect compensation means compensation received from a source other than the plan, the plan sponsor, the covered service provider, or an affiliate or subcontractor. This category includes accounting, auditing, actuarial, appraisal, custodial, banking, insurance, investment advisory, legal, valuation, or third-party administration services.

Covered service providers must provide plans with a description of the services provided to the plan, a description of direct and indirect compensation that the covered service provider expects to receive (includes commissions, finders fees and Rule 12b-1 fees) from the plan, a statement of the covered service provider’s status (such as registered investment advisor or fiduciary), and a description of the fees that will be charged against the investments under the plan.

One significant change made by the final 408(b)(2) regulations is that the definition of covered plan now excludes frozen 403(b) annuity contracts and custodial accounts that were issued to employees prior to January 1, 2009 (i.e., 403(b) plans where no additional employer contributions have been made and the contract is fully vested and enforceable by the employee). For more information on the final 408(b)(2) regulations, please contact one of our benefits attorneys.

B. Participant Level Disclosures

As stated above, the extended effective date of the plan level disclosures affects compliance with the participant level disclosures. Calendar year plans will now be required to make their initial annual disclosure to participants no later than August 30, 2012 and provide their initial quarterly statements no later than November 14, 2012.

Under the participant level disclosure requirements, plan administrators of retirement plans with participant directed accounts (such as 401(k) plans) will be required to disclose to participants (including employees who are eligible to participate) the fees and expenses associated with the funds in that retirement plan. This increased disclosure obligation includes “plan related disclosures” and “investment related disclosures.”

Investment Related Disclosures

Plan administrators must provide participants and beneficiaries with performance and investment fee information for each investment option available under the plan, on or before the date that a participant could first direct his or her investments, and annually thereafter. The investment related information that must be disclosed includes the following:

  1. Identifying information for each investment option under the plan, including the name of each investment option and the type or category of the investment option (i.e., large or small cap, money market fund, etc.).
  2. Performance data and benchmark information for each investment option available under the plan.
  3. Fee and expense information for each investment option.
  4. Website address and a glossary of investment related terms so that participants can access additional information about each investment option available under the plan.
  5. 1-year, 5-year and 10-year investment performance returns and applicable benchmark returns for each investment option that does not have a fixed rate of return. For investment options with a fixed return, the annual rate of return and the term of the investment must be disclosed. The disclosure must also include a statement that an investment’s past performance is not necessarily indicative of future performance and that the rate may be adjusted.

Investment related information must be provided to participants and beneficiaries in a chart (or similar scheme) that allows participants or beneficiaries to compare information about each of the investment options offered under the plan. The chart must include the date, the name, address and telephone number of the plan sponsor (or its designee), and an explanation that additional investment related information about the plan’s investment options can be accessed via the web, and a description of how participants and beneficiaries can obtain (free of charge) paper copies of the information contained on the website.

In addition to the information that must be automatically provided to participants, plans must also provide the following information to participants upon request:

  1. Prospectuses for any SEC registered investment options.
  2. Financial statements and reports, such as shareholder reports.
  3. Share value of each investment option and valuation date.
  4. A list of assets that constitute the investment alternatives under the plan.

Plan Related Disclosures

Plan administrators must provide to each participant and beneficiary, on or before the date in which a participant can first direct his or her investments and annually thereafter, certain plan information, which may be categorized into three areas: (1) general plan information, (2) administrative expense information, and (3) individual expense information. If there is a change to this information, the updated information must be provided at least 30 days, but no more than 90 days, in advance of the effective date of the change.

  1. General Plan Information: General plan information must be provided to participants and beneficiaries explaining the structure and mechanics of the plan, such as an explanation of the circumstances under which a participant or beneficiary may give investment instructions; an explanation of any limitations on such instructions, including transfer restrictions to or from a designated investment option; a list of investment options available under the plan; the identification of any investment managers, and a description of any “brokerage windows” or brokerage accounts that enable participants and beneficiaries to select investment options beyond those offered by the plan.
  2. Administrative Expense Information: Plan administrators must provide participants and beneficiaries with an explanation of fees and expenses for general plan administrative services (e.g., legal, accounting or recordkeeping costs that may be charged against participants’ accounts on a plan-wide basis) and an explanation of the basis on which such charges will be allocated (e.g., pro rata) to each individual account under the plan. Administrative expenses must be reported to participants in a quarterly statement.
  3. Individual Expense Information: Plan administrators must provide to participants and beneficiaries an explanation of any fees and expenses that may be charged to an individual’s account based on an individual basis (not plan-wide basis). This includes costs associated with fees and expenses for processing plan loans or qualified domestic relations orders (“QDROs”), fees associated with investment advice that may be rendered, or transfer fees. Similar to the administrative expenses, individual expenses must be disclosed to participants in a quarterly statement.

In light of the new fee disclosure requirements, at both the plan level and participant level, we urge plan sponsors to begin thinking about the compensation paid to covered service providers as part of its fiduciary review. We also urge plan sponsors and to begin thinking about participant communication strategies with respect to the new participant disclosures. If you have any questions about your “fiduciary review” or about this alert, please contact one our benefits attorneys.

© 2012 Dinsmore & Shohl LLP.

The ICC Rules of Arbitration training

ICC (International Chamber of Commerce) will run two-day practical trainings on the 2012 ICC Rules of Arbitration in Paris, for the first time since their publication

Through this training, you will:

  • acquire practical knowledge of the main changes in the 2012 ICC Rules of Arbitration on topics such as Emergency Arbitrator; Case Management and Joinder, Multi-party/Multi-contract Arbitration and Consolidation
  • apply the 2012 ICC Rules of Arbitration to mock cases, studying them in small working group sessions
  • be provided with valuable insights from some of the world’s leading experts in arbitration including persons involved in the drafting of the New ICC Rules.

The revised version of the ICC Rules of arbitration reflects the growing demand for a more holistic approach to dispute resolution techniques and serves the existing and future needs of businesses and governments engaged in international commerce and investment: The 2012 ICC Rules of Arbitration are the result of a two year revision process undertaken by 620 dispute resolution specialists from 90 countries.

Who should attend?

Arbitrators, legal practitioners and in-house counsel who wish to know more about the 2012 Rules of Arbitration.


Part I: Update on CFTC Rules 4.5 and 4.13 for Registered Investment Companies and Hedge Funds

The National Law Review recently published an article regarding CFTC rules for Registered Investment Companies and Hedge Funds written by Michael A. Piracci, F. Mindy Lo, and Laura E. Flores of Morgan, Lewis & Bockius LLP:

Investment advisers operating registered investment companies and private funds that conduct more than a de minimis amount of speculative trading in futures, commodity options, and other commodity interests will no longer be exempt from registering with the CFTC as CPOs.

The Commodity Futures Trading Commission (CFTC) announced on February 9the adoption of final rules that significantly curtail the ability of registered investment companies to claim relief under CFTC Rule 4.5 as well as the rescission of the exemption from commodity pool operator (CPO) registrationcontained in Rule 4.13(a)(4), which is relied on by a substantial portion of the hedge fund industry. The CFTC did not, as it had proposed, rescind the exemption from CPO registration under Rule 4.13(a)(3) for hedge funds that conduct a de minimis amount of trading in futures, commodity options, swaps, and other commodity interests.[1]

The Final Rules will require full CPO registration by investment advisers operating registered investment companies and private funds that conduct more than a de minimis amount of speculative trading in futures, commodity options, and other commodity interests. Those investment advisers required to register as CPOs as a result of changes in Rule 4.5 must become registered by the later of December 31, 2012 or 60 days after the effective date of the final rulemaking by the CFTC defining the term “swap.” Once an investment adviser is registered as a CPO for a registered investment company, it will not be required to comply with the CFTC’s recordkeeping, reporting, and disclosure requirements until 60 days after the adoption of final rules implementing certain proposed exemptions from these requirements for registered investment companies.[2] Investment advisers operating private funds that are currently relying on the Rule 4.13(a)(4) exemption will be required to register as CPOs by December 31, 2012, unless they are able to avail themselves of another exemption.

CFTC Rule 4.5 Exemption

CFTC Rule 4.5 currently provides an exclusion from the definition of CPO for advisers operating entities regulated as registered investment companies, banks, benefit plans, and insurance companies. Prior to August 2003, any of the regulated persons claiming eligibility for the exclusion under Rule 4.5 were required to represent that commodity futures or options contracts entered into by the qualified entity were for bona fide hedging purposes[3] and that the aggregate initial margin and/or premiums for positions that did not meet the bona fide hedging criteria did not exceed 5% of the liquidating value of the qualifying entity’s portfolio, after taking into account unrealized profits and losses. The rule further required that participation in the qualifying entity not be marketed as participation in a commodity pool or otherwise as a vehicle for trading commodity futures or options. In August 2003, as part of a larger overhaul of its regulation of CPOs and commodity trading advisors (CTAs), the CFTC eliminated the Rule 4.5 eligibility conditions requiring that the qualified entity limit speculative trading to 5% of the liquidating value of its portfolio and not market itself as a vehicle for exposure to commodity futures or options.[4]

The Final Rules return Rule 4.5 to its pre-2003 requirements for registered investment companies (but not for the other types of regulated entities), with the addition of an alternative definition of de minimis. Banks, benefit plans, and insurance companies currently relying on the exemption are unaffected by the changes and may continue to conduct their commodity pool businesses without registration. In a comment letter, however, National Futures Association (NFA) suggested broadening the scope of the coverage to apply the same types of limits on banks and trust companies as the revised rule does on registered investment companies.[5]

In the case of registered investment companies, the CFTC noted in the Final Rules release, as it had in the proposed rules, that it was concerned that funds were “offering de facto commodity pools” and should be subject to CFTC oversight to “ensure consistent treatment of CPOs regardless of their status with respect to other regulators.”[6] As a result of the adopted changes, a registered investment company will no longer be able to rely on Rule 4.5 to avoid registering the investment adviser as a CPO if the registered investment company invests more than an immaterial amount of its assets in commodity futures, commodity options, and swaps, other than for hedging, or markets itself as providing commodity exposure. In response to requests from commenters, the CFTC confirmed “that the investment adviser for the registered investment company is the entity required to register as the CPO,” if registration is required. Prior to the adoption of the Final Rules, there was a lack of clarity around which entity or persons might be considered to be the CPO of a registered investment company that was deemed to be a commodity pool. Many in the industry were concerned that a registered investment company’s board of trustees or directors would be required to register. The CFTC recognized that requiring trustees or directors to register as CPOs “would raise operational concerns for the registered investment company as it would result in piercing the limitation on liability for actions undertaken in the capacity as director.”[7]

In order to rely on amended Rule 4.5, a registered investment company will have to limit the aggregate initial margin it posts for its speculative commodities-related trading to 5% of the liquidating value of its portfolio, after taking into account unrealized profits and losses. Alternatively, a registered investment company may limit the aggregate net notional value[8] of its speculative commodities-related trading positions to 100% of the liquidation value of its portfolio, after taking into account unrealized profits and losses (excluding the in-the-money amount of an option at the time of purchase). The new exclusion added by the rule allows a registered investment company to enter into derivatives having a net notional value equal to up to 100% of the fund’s net asset value (NAV). Although this exclusion does provide additional flexibility over the 5% limitation, it may not be useful to funds investing in commodities through a controlled foreign corporation (CFC)[9]because the rule treats the CFC itself as a fund and would measure notional value based on the NAV of the CFC.[10] In addition, the rule limits the ability of a fund to market itself as a vehicle to provide commodities exposure even if the de minimisthresholds are met.

CFTC Rule 4.13(a)(4) and Rule 4.13(a)(3) Exemptions

The CFTC had proposed to rescind the exemptions available to persons that operate pools exempt from registration under the Securities Act of 1933 (Private Funds) under both CFTC Rules 4.13(a)(3) and (4). The Final Rules, however, only rescinded Rule 4.13(a)(4) and retained the exemption under Rule 4.13(a)(3). Accordingly, advisers operating Private Funds (i) that are offered only to sophisticated investors referred to in CFTC Rule 4.7 as qualified eligible persons (QEPs), accredited investors, or knowledgeable employees; and (ii) where either the aggregate initial margin and/or premium attributable to commodity interests (both hedging and speculative) do not exceed 5% of the liquidation value of the pool’s portfolio or the net notional amount of the commodity interests held by the pool do not exceed the fund’s NAV will continue to be able to claim an exemption from registering an operator as a CPO. The rescission of Rule 4.13(a)(4) means that advisers operating Private Funds will no longer be able to claim exemption from CPO registration for funds that that are offered only to institutional QEPs and natural persons who meet both definitional and portfolio QEP requirements that hold more than a de minimis amount of commodity interests. As of December 31, 2012, a Private Fund that currently relies on this exemption will be required to register an operator as a CPO unless it is able to claim another exemption from CPO registration, such as that in CFTC Rule 4.13(a)(3).

Full registration as a CPO is a relatively involved process and typically takes from six to eight weeks to complete. Registration involves submission of Form 7-R for the CPO and Form 8-Rs for all natural person Principals and for all Associated Persons (APs), along with fingerprints for such Principals and APs, as well as proof that each AP passed the required proficiency exams (generally the Series 3 or 31). At least one Principal will be required to be registered as an AP. Fully registered CPOs will also be subject to CFTC and NFA regulation. Such regulation includes providing disclosure documents to pool participants that are subject to review by NFA and recordkeeping and periodic and annual reporting requirements, including delivery of audited annual financial statements.

Registered CPOs may rely on CFTC Rule 4.7 for relief from certain requirements. Rule 4.7 provides relief from the disclosure, recordkeeping, and reporting requirements for CPOs that offer interests in private pools investing in commodities solely to QEPs. Currently, Rule 4.7 provides that a CPO claiming relief under the rule is not required to provide its pool participants with audited annual financial statements. The Final Rules rescind this relief and require CPOs operating pools pursuant to relief under Rule 4.7 to have the annual financial statements for the pool certified by a public accountant.[11] The rules do not, however, rescind the other types of relief offered under Rule 4.7. Accordingly, a Private Fund that will now be required to register an operator as a CPO due to the rescission of Rule 4.13(a)(4) will be able to claim at least some relief from the disclosure, recordkeeping, and reporting requirements under the CFTC rules.

The rescinding of 4.13(a)(4) also means that a number of investment advisers will be required to register with the CFTC as CTAs. Investment advisers who currently operate under an exemption from CTA registration under CFTC Rule 4.14(a)(8), based on the fact that they provide advice only to pools that are exempt under Rule 4.13(a)(4), will be required to register as CTAs with the CFTC and become NFA members. These advisers will also be subject to the full scope of CFTC and NFA requirements applicable to CTAs.

The changes will impact a wide variety of private funds and other investment managers, such as family offices. Given that the CFTC invoked the Dodd-Frank Wall Street Reform and Consumer Protection Act as part of the basis for its decision to roll back Rules 4.13 and 4.14, it is surprising that the CFTC declined to adopt a carve out for family offices as Congress did in the case of SEC registration.

Annual Notice

Currently, Rules 4.5, 4.13, and 4.14 require persons claiming relief from registration with the CFTC to electronically file with NFA a notice claiming such exemption at inception. The Final Rules require that on an annual basis, in order to retain eligibility for the exemption, persons who are still eligible for relief under Rules 4.5, 4.13, and 4.14 must affirm the accuracy of their original notice of exemption, withdraw the exemption if they cease to conduct activities requiring registration or exemption from registration, or withdraw the exemption and apply for registration.

Copyright © 2012 by Morgan, Lewis & Bockius LLP.