Author: National Law Forum

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Unclaimed Property Audits: No Laughing Matter

Posted on August 8, 2011 in the  National Law Review an article about several  states’ increased focus on unclaimed property and companies needing to be proactive in monitoring and improving their unclaimed property compliance practices.   This article was written by Marc J. Musyl, Micah Schwalb and Sarah Niemiec Seedig of Greenberg Traurig, LLP

Failure to Comply with Unclaimed Property Laws Can Cost a Company Millions in Interest and Penalties Alone

Many states continue to turn to unclaimed property as a source of revenue in the face of budget shortfalls. During the last two years, some state regulators have pursued non-traditional types of unclaimed property and state legislatures have revised their unclaimed property statutes to reduce dormancy periods, effectively causing companies to remit more unclaimed property in a shorter time frame. In New York, for example, the legislature lowered dormancy periods from five to three years for a number of different asset classes typically held by financial institutions.

Acting upon provisions in the Dodd-Frank Act, the SEC recently proposed to expand rules that would require brokers and dealers to escheat sums payable to security holders. Failure to comply with these laws can mean millions of dollars in interest and penalties for a company, which can negatively impact a company’s bottom line. For example, a growing number of life insurers are being audited by multiple states to assess their compliance with unclaimed property laws. One state regulator estimated that these life insurer audits could transfer “north of $1 billion” from the audited life insurers into the pockets of consumers, in the form of benefit payments, and revenue to the states, in the form of unclaimed property, interest and fines.

Unclaimed Property and State Audits

Unclaimed property laws require the remittance of certain types of property to the state for safekeeping if a business is unable to contact the owner of that property after a specified period, known as the dormancy period. Each state has its own set of laws that set forth the types of property subject to escheat, the dormancy period for each category of property, and reporting rules. Examples of items that can constitute unclaimed property include unused gift cards, uncashed payroll checks, uncashed stock dividend checks, abandoned corporate stock, and abandoned trust funds.

States have the ability to audit companies to determine their compliance with the unclaimed property laws. If an audit reveals improperly held or abandoned assets, states can seize the property, hold it in trust for a rightful owner, and impose costs, fines, and interest against the offending entity. In severe cases, the interest and fines can exceed the amount of unclaimed property at issue. These audits are often conducted by third-party auditors paid on a contingency basis, thus creating an incentive for them to maximize the unclaimed property uncovered. What’s more, the lack of a statute of limitations on escheat in most jurisdictions can lead to decades of accumulated unclaimed property liabilities.

35 States: How Does an Audit Get So Large?

Typically, an audit begins when a state engages a third-party auditor and provides a company with notice that it is under audit. The third-party auditor, being paid on a contingency basis, can expand its compensation by adding additional states to the audit. If only one state has authorized an unclaimed property audit, the thirdparty auditor only receives a percentage of the unclaimed property that was required to be reported to that state. However, if 20 states have authorized the audit, the third-party auditor now receives a percentage of the unclaimed property that should have been reported to 20 states, significantly increasing the auditor’s overall compensation.

This snowball effect is exactly what happened to some life insurers, and what could happen to any company. For example, the State of California initiated anaudit of John Hancock in 2008. This audit was undertaken by Verus Financial L.L.C. Fast forward three years to 2011, and Verus has now been authorized by 35 states and the District of Columbia to investigate and audit numerous insurance companies. These audits center around life insurers’ claims handling processes. The Social Security Administration publishes a Death Master File, updated weekly, which can be used to verify deaths. Insurers have been using the Death Master File to find dead annuity holders in order to stop payments. On the flip side, the insurers have not been using the Death Master File to find deceased policy insureds in order to pay the policy beneficiaries. The states and Verus have seized upon this disparate use of the Death Master File in their investigation of whether the funds should have been paid out to beneficiaries, in the form of benefit payments, or the states, in the form of unclaimed property.

Why Should I Be Concerned?: John Hancock as an Example

As a result of the Verus audit discussed above, John Hancock reportedly negotiated a global resolution agreement with 29 states which took effect June 1. As part of John Hancock’s settlement with the State of Florida, John Hancock will pay over $2.4 million in investigative costs and legal fees to Florida, and will establish a $10 million fund to pay death benefits and interest owed to beneficiaries. The amounts owed to beneficiaries that cannot be located will be turned over to Florida’s unclaimed property division. In addition, John Hancock has agreed to change its claims-handling procedures. Throughout the process, John Hancock has maintained that it has not violated the law. Given the number of insurance companies currently under audit, news of further settlements should be expected in the future.

In light of success with life insurers, recent legislative changes and continued state budget crunches, it is reasonable to expect an expansion of audits to other industries. It is widely estimated that a significant percentage of companies are not in full compliance with unclaimed property laws. There is no statute of limitations in most jurisdictions, as mentioned above, so the look-back period can be fairly lengthy and cover periods for which the company no longer has adequate records. The auditor may estimate the unclaimed property liability for such periods, which can lead to a company paying more than it would have otherwise owed. Further, interest and penalties can be severe. For example, in California interest is calculated by state statute at 12% per annum from the date the property should have been reported.

Taking Control of Unclaimed Property Compliance

As a result of the states’ increased focus on unclaimed property, companies need to be proactive in monitoring and, if necessary, improving their unclaimed property compliance practices. As a preliminary step, companies should determine whether or not they are currently in compliance with the unclaimed property laws. Many states have voluntary compliance programs for companies that are out of compliance. Oftentimes, by entering into a voluntary disclosure agreement with the appropriate authorities, a company can retain control of the process, limit the look-back period (remember, there is often no statute of limitations!), and limit the penalties and/or interest that may be owed for non-compliance. Typically, these voluntary programs are not available to companies once they have been selected for audit. Analyzing a target’s unclaimed property liability exposure should also be part of the due diligence process in a potential acquisition. Attention to unclaimed property compliance now can save valuable company resources later.

 

Myriad Federal Circuit Decision Affirms Patentability of Claims to “Isolated” DNA but Methods Involving Only “Comparing” or “Analyzing” DNA Sequences Unpatentable and No Declaratory Judgment for Those Who Simply Disagree With Patent

Posted on Thursday, August 4, 2011 in the National Law Review an article by Thomas J. Kowalski and Deborah L. Lu of Vedder Price P.C.  about  long-awaited decision in the Association for Molecular Pathology v. Myriad Genetics, Inc. (“Myriad”).

On July 29, 2011, the Federal Circuit issued its long-awaited decision in the Association for Molecular Pathology v. Myriad Genetics, Inc. (“Myriad”).  The plaintiffs in Myriad are an assortment of medical organizations, researchers, genetic counselors, and patients who challenged Myriad’s patents under the Declaratory Judgment Act. The Federal Circuit Decision held that those parties who simply disagree with the existence of a patent or who suffer an attenuated, non proximate effect from the existence of a patent, do not meet the requirement for a legal controversy of sufficient immediacy and reality to warrant the issuance of a declaratory judgment and, thus, do not have standing to be a plaintiff. The Court could not see how “the inability to afford a patented invention could establish an invasion of a legally protected interest for purposes of standing.” However, with at least one plaintiff having standing, the Federal Circuit turned to the merits; namely, whether claims to “isolated” DNA and methods using that “isolated” DNA are eligible to be patented under Section 101 of the Patent Statute (35 U.S.C. § 101).

The Federal Circuit held that method claims directed to only “comparing” or “analyzing” DNA sequences are patent ineligible under Section 101 because they have no transformative steps and cover only patent-ineligible abstract, mental steps. However, the claim that recites a method that comprises the steps of (1) “growing” host cells transformed with an altered gene in the presence or absence of a potential therapeutic, (2) “determining” the growth rate of the host cells with or without the potential therapeutic and (3) “comparing” the growth rate of the host cells includes more than the abstract mental step of looking at two numbers and “comparing” two host cells’ growth rates and is eligible for patent protection. The steps of “growing” transformed cells in the presence or absence of a potential therapeutic, and “determining” the cells’ growth rates, are transformative and necessarily involve physical manipulation of the cells.

The Federal Circuit also held that isolated cDNA—DNA that has had introns removed, contains only coding nucleotides, and can be used to express a protein in a cell that does not normally produce it—while inspired by nature, does not occur in nature, and is likewise eligible to be patented under Section 101.

Most significantly, the Myriad Majority and Concurring Opinions concluded that isolated DNA molecules are patent-eligible under 35 U.S.C. § 101, and the Court reversed the previous holding by Judge Sweet of the Southern District of New York. Both the Myriad Majority and Concurring Opinions rely on U.S. Supreme Court precedent, and the Myriad Concurring Opinion states that claims to isolated DNA had previously been held to be valid and infringed by the Federal Circuit.

The distinction between a product of nature and a human made invention for purposes of Section 101 turns on a change in the claimed composition’s identity compared with what exists in nature. According to the Federal Circuit in Myriad, the US Supreme Court has drawn a line between compositions that, even if combined or altered in a manner not found in nature, have similar characteristics as in nature and compositions that human intervention has given “markedly different,” or “distinctive,” characteristics.

In reaching the conclusion that isolated DNA molecules are eligible to be patented under Section 101, the Myriad Majority Opinion focused on the fact that isolated DNA was cleaved or synthesized to consist of a fraction of a naturally occurring DNA molecule and therefore does not exist in nature. The Court stressed that isolated DNA is not the same as purified DNA. Isolated DNA is not only removed from nature, but it is chemically manipulated from what is in nature—in the human body in this case. Accordingly, isolated DNA is a distinct chemical entity from that which is in nature. The Myriad Concurring Opinion views isolated DNA as truncations that are not naturally produced without the intervention of man and can serve as primers or probes in diagnostics; a utility that cannot be served by naturally occurring DNA.

The Myriad Majority and Concurring Opinions reject the Solicitor General’s “child-like simpl[e]” suggestion that for determining patent-eligible subject matter the Court use a “magic microscope” test, under which, if one can observe the claimed substance in nature, for example, by zooming in the optical field of view to see just a sequence of fifteen nucleotides within the chromosome, then the claimed subject matter falls into the “laws of nature” exception and is unpatentable subject matter—including because an isolated DNA molecule has different chemical bonds as compared to the “unisolated” sequence in the chromosome (because the ends are different). Simply, according to the Myriad Majority and Concurring Opinions, isolated DNA is a different molecule from DNA in the chromosome.

The Myriad Majority and Concurring Opinions also give great deference to the grant by the United States Patent & Trademark Office (“USPTO”) of numerous patents to isolated DNA over approximately the past thirty years, as well as that in 2001 the USPTO issued Utility Examination Guidelines, which reaffirmed the agency’s position that isolated DNA molecules are patent-eligible, and that Congress has not indicated that the USPTO’s position is inconsistent with Section 101. The Federal Circuit thus held that if the law is to be changed, and DNA inventions are to be excluded from the broad scope of Section 101, contrary to the settled expectation of the inventing community, the decision must come not from the courts, but from Congress.

In contrast, the Myriad Dissenting Opinion sought to hold isolated DNA as unpatentable and compared isolated DNA with a leaf snapped from a tree. TheMyriad Majority Opinion addresses the Dissent’s analogy by making clear that a leaf snapped from a tree is a physical separation that does not create a new chemical entity, whereas isolated DNA is a new chemical entity as compared with DNA in nature.

Myriad provides the biotechnology community with an immediate sigh of relief. However, it is expected that parties to Myriad will likely ask the Federal Circuit to review its divided Decision en banc and that whatever the result from that request, appeal to the US Supreme Court will also be inevitable. We expect there is more to come and that the July 29, 2011 Myriad Federal Circuit Decision may be only one step toward an ultimate Court decision finally concluding that isolated DNA is indeed patent-eligible subject matter.

© 2011 Vedder Price P.C.

 

The Illinois Civil Union Law and Its Impact on Estate Planning

Recently posted in the National Law Review an article by Gregg M. Simon of Much Shelist Denenberg Ament & Rubenstein P.C. on Civil Unions and Estate Planning:

On June 1, 2011, the Illinois Religious Freedom Protection and Civil Union Act went into effect. The new law provides a legal procedure for the certification and recognition of civil unions between same-sex and opposite-sex individuals. This new Illinois law has numerous real and potential effects on many areas of the law, including estate planning—effects that may not be limited to the parties in a civil union. Much Shelist spoke to Gregg M. Simon, Chair of the firm’s Wealth Transfer & Succession Planning practice, about some of the estate planning issues being raised by the new law.

Much Shelist: Can you give us a brief overview of the Illinois civil union law?

Gregg Simon: For a number of years, advocates of the legal recognition of same-sex couples in Illinois had been working with the state legislature to pass some form of civil union or marriage law. On the other side, certain religious and other groups had expressed concerns about the scope of such legislation and how it might be applied or enforced. Eventually, compromise language was worked out that, while not fully addressing all concerns of all parties, contained provisions that enabled passage of the legislation in the Illinois House and Senate on December 1, 2010. In February 2011, Governor Pat Quinn signed the law, which went into effect on June 1, 2011.

As written, the law is fairly short and direct. It provides procedures for the certification, registration and dissolution of a civil union and entitles parties entering into a civil union the same legal obligations, responsibilities, protections and benefits that are afforded to married spouses. In essence, where “spouse” appears in existing and future Illinois statutes, administrative rules, common law, or other sources of civil or criminal law, the word now also refers to a party in a civil union. These “default” rights and obligations can include the right to make health care decisions (unless, as with married couples, a guardian for the disabled partner has been appointed or an agent under a health care power of attorney has been named), the right to dispose of the remains of a deceased partner, various inheritance and property rights, creditor protections, and so on.

Civil unions in Illinois are not just for same-sex couples. Opposite-sex couples can also enter into a civil union, although they should carefully weigh the known and potential advantages and disadvantages of a civil union versus marriage. Likewise, the rules prohibiting certain civil unions are generally similar to those that prohibit marriage between specific individuals. For example, an individual is not allowed to enter into a civil union if he or she is in an existing civil union or marriage, and closely related individuals cannot enter into a civil union.

MS: From an estate planning perspective, what should couples be aware of?

GS: With respect to the Illinois civil union law, there are three broad concepts relating to estate planning that people should keep in mind. First, it should be understood that the law could affect almost anyone, not just the parties in a civil union. For example, let’s assume that a parent has drawn up a will prior to the effective date of the Illinois civil union law that designates his or her child and that child’s “spouse” as beneficiaries. Now let’s imagine that at some point in time the child enters into a civil union with his or her same-sex partner. Under a strict reading of the law, that same-sex partner would be treated as a spouse and would therefore qualify for the beneficial interest designated in the will. That might be the intent of the parent whose assets are to be distributed—or it might not.

Second, the civil union law raises almost as many issues as it resolves, many of which will be the subject of legal disputes until a clear body of case law and precedent has been established. Using the same example, let’s imagine that the parent was perfectly happy with his or her child’s same-sex partner receiving a beneficial interest, but failed to clarify in the will that its terms applied equally to a spouse and a party to a civil union (particularly if the parent died before the civil union legislation was enacted). Let’s now imagine that the child’s siblings do not want the same-sex partner to receive a portion of the assets. Since the will only used the word “spouse,” the siblings could take legal action to try to deny the same-sex partner his or her portion of the beneficial interest, claiming that the use of the word “spouse” (and failure to change the language of the will after June 1, 2011) meant that the parent intended only for an opposite-sex, married partner of the child to be eligible to receive any assets.

These examples are not so farfetched. After Illinois law was changed in the early 20th century so that adopted children were treated the same as natural-born children, almost 100 years of related litigation ensued. These cases focused on whether an adopted child was included when a testator used the terms “children” or “issue,” particularly when the document was executed before the law was changed (i.e., at a time when an adopted child would not have been included within those terms).

The takeaway is that clarity is paramount when it comes to estate planning. In order to ensure that your wishes are carried out as you intend, you should review all applicable documents with experienced legal counsel and ensure that any potentially ambiguous language or terms are clarified and reflect current legal realities.

A third important concept is that the federal Defense of Marriage Act (DOMA) and federal tax laws do not recognize same-sex civil unions or marriages, even those that are recognized by the various states. This raises a whole host of issues regarding estate and gift taxation, Social Security benefits and other federal-level treatment of individuals in civil unions. Many of these issues are being litigated right now.

MS: What are some of the key conflicts between state and federal marriage and tax laws?

GS: DOMA defines “marriage” as a legal union between one man and one woman, and defines “spouse” as a person of the opposite sex who is a husband or wife in a marriage. DOMA further says that no state can be required to honor the law of another state regarding legal relationships that are treated as a marriage between persons of the same sex. In essence, DOMA denies same-sex couples all of the federal benefits of marriage, even if the couple was married or entered into a civil union in a state that recognizes such relationships.

From the perspective of estate and tax planning, this means that same-sex couples are denied the following, among other benefits: the estate tax marital deduction for assets passing outright to a spouse, or to certain qualifying marital deduction trusts and qualified domestic trusts; portability of exemption amounts; the gift tax marital deduction; gift splitting, or the right to treat gifts made by either spouse as made equally by both spouses; and, for the generation-skipping transfer tax, treatment of the same-sex parties as being in the same generation. Opposite-sex couples in a civil union may also face some, if not all, of these issues, particularly in states that do not recognize common-law marriage.

On the other hand, there are some transfer rules that apply to married, opposite-sex couples that, by not applying to same-sex couples, might produce favorable results. These include (1) the option of setting up a grantor retained income trust, which typically does not work for married couples, and (2) adding certain provisions to a qualified personal residence trust that are not permissible for married same-sex couples. Sales of remainder interests can similarly work for domestic partners.

Additional issues arise when a same-sex couple moves to another state. How will that jurisdiction interpret the civil union law of Illinois, particularly in those states with laws that specifically recognize legal relationships only between one man and one woman?

MS: Will legal challenges to DOMA and other laws help clarify this picture?

GS: In the long run, the answer is yes. There are a number of court cases, perhaps the best known of which is Edith Schlain Windsor v. United States, that are challenging the legality of DOMA and its application on a variety of issues. The Obama administration and the Office of the U.S. Attorney General, which are charged with enforcing the law, have stated that they do not believe DOMA is constitutional as applied to the cases that have challenged its constitutionality and have declined to defend it in these cases. Whether or not DOMA or any of its component parts are upheld as constitutional, the decisions in these cases are bound to add clarity to the situation.

However, “clear” does not always mean less complex. Whether or not DOMA is overturned, the decisions made by the courts will add new twists in the area of estate planning. For example, an older, opposite-sex couple in Illinois may choose to enter into a civil union rather than a marriage, in order to continue receiving Social Security benefits that derive from prior marriages. If DOMA falls, and their civil union is then treated as a federally recognized marriage, they could stand to lose a significant portion of their Social Security benefits.

Given all of the uncertainties, individuals who are considering a civil union should work closely with their attorneys to review their current estate planning documentation. Ambiguous language should be revised and clarified, and new or different tools (trusts, etc.) may be advisable in light of the new legal and tax landscape. Estate plans are “living” things, if you will; as the environment changes, they should be reviewed regularly and adjusted accordingly.

© 2011 Much Shelist Denenberg Ament & Rubenstein, P.C.

Healthcare Alert: U.S. Announces Process for $3.8B in CO-OP Funds

Recently posted in the National Law Review an article by Mark E. Rust of Barnes & Thornburg LLP about the announcement that Medicare and Medicaid Services (CMS) will begin accepting applications for Consumer Oriented and Operated Plan (CO-OP) Start-Up Loans and Solvency Loans on Oct. 17, 2011 :

According to a recently released Federal Opportunity Announcement (FOA), TheCenter for Medicare and Medicaid Services (CMS) will begin accepting applications for Consumer Oriented and Operated Plan (CO-OP) Start-Up Loans and Solvency Loans on Oct. 17, 2011. Section 1322 of the Patient Protection and Affordable Care Act (PPACA) establishes the CO-OP program to foster the creation of nonprofit health insurance issuers. The CO-OP program will dispense $3.8 billion in Start-Up Loans and Solvency Loans to providers and buyers who sponsor new insurers regionally.

The FOA is subject to change pending the CO-OP final rule. Comments on the proposed CO-OP rule are due on Sept. 16, 2011.

The CO-OP program is designed to foster the creation of new consumer-governed, private, nonprofit health insurance issuers, known as CO-OPs. CO-OPs will offer plans under the Affordable Insurance Exchanges (Exchanges) by Jan. 1, 2014. Generally, CMS will provide Start-Up Loans for all costs associated with developing the CO-OP, and Solvency Loans for all state registered reserves (Loans) to CO-OP applicants in each state. The loans are awarded for the purpose of CO OP development and meeting state solvency requirements. The FOA provides general detail regarding the basis upon which loans are awarded.

FOA Application Timeline

Under the FOA, CO-OP applicants must immediately submit a Letter of Intent indicating intent to apply for joint Start-Up Loans and/or Solvency Loans. The CMS underscores the time urgency of application because the agency expects to provide notice of loan awards by Jan. 12, 2012 so that CO OP applicants can be prepared to accept contracts in late 2013. Because of this deadline, the first round of applications are due by Oct. 17, 2011.

Successful CO-OP applications receive a Notice of Award and a Loan Agreement. CO-OP applicants may request reconsideration of loan application to CMS within 30 days of receiving determination notice. CMS notes that redetermination results in a final decision that is not subject to further administrative review or appeal.

FOA CO-OP Loan Application Criteria

Generally, CMS will look for efficiencies and evaluate whether the business plan and budget is sufficient, reasonable, and cost effective to support activities proposed in the CO-OP application. CMS will review applications on a base total of 100 points weighted from five general criteria including: (1) statutory preferences (16 points); (2) project narrative (4 points); (3) business plan (62 points); (4) government and licensure (10 points); and (5) feasibility study (8 points). The feasibility study must be supported by an actuarial analysis.

FOA Loan Details

Both Loans are non-recourse and provided at a low interest rates. Start-Up Loans will be prepaid five years from startup and charged an interest rate equal to the average interest rate on marketable Treasury securities of similar maturity minus one (1%) percentage point (provided that interest shall not be less than 0 percent) on the amount of the drawdown. Solvency Loans will be repaid in 15 years and charged an interest rate equal to the average interest rate on marketable Treasury securities of similar maturity minus two (2%) percentage points (provided that the interest shall not be less than 0 percent) on the amount of the drawdown.

© 2011 BARNES & THORNBURG LLP

 

 

 

 

 

 

 

Facebook & Extramarital Affairs: Beware!

Posted on Wednesday, August 3, 2011 in the National Law Review an  article by Rebecca L. Palmer  Timothy C. Haughee of Lowndes, Drosdick, Doster, Kantor & Reed, P.A. regarding a growing number of married people are using Facebook to reunite with old flames or to connect with those with whom they seek a romantic relationship.

With the advent of social networking sites such as Facebook, people are now able to reconnect with long-lost friends with just the click of a mouse. While many take advantage of Facebook’s added convenience to make innocent connections with others, a growing number of people are using Facebook to reunite with old flames or to connect with those with whom they seek a romantic relationship. For a married person, this can be a real marriage disaster.

According to a 2008 report by the Pew Internet and American Life Project, one in five adults, many of whom are married, use Facebook for flirting. A British divorce website, Divorce-Online, recently reported that the term “Facebook” appeared in nearly 20% of the petitions it was handling last year, out of a case load of 7,000. Indeed, in one recent survey conducted by the American Academy of Matrimonial Lawyers, two-thirds of lawyers said Facebook was the “primary source” of evidence in divorce proceedings.

So, does Facebook cause extramarital affairs? While the statistics referenced above may lead one to conclude that Facebook can cause extramarital affairs, there has yet to be evidence of such a causal link. In fact, the divorce rate has generally been stable during the last decade, and infidelity’s role as the primary cause of around 25% of divorces has also remained stable, despite advances in the digital age. However, while there may not be a direct causal link between Facebook and extramarital affairs, it is abundantly clear that Facebook enables married individuals to cheat on their spouses in a manner that is easier than previous methods. No longer do you have to write a letter to your old flame, or obtain their phone number and place a call, hoping that an irritated spouse does not answer. Instead, an online Facebook account allows easy connectivity, fast replies, mail accounts that can be easily deleted, advanced privacy settings, and the seamless sharing of pictures and other information, at any hour of the day or night. Simply stated, Facebook can tempt a married individual to pursue an extramarital relationship that they otherwise would not have pursued. If that temptation is acted upon, the married individual can maintain the extramarital relationship online and delete the evidence at their convenience, all without the knowledge of their spouse.

Facebook’s prevalence in extramarital affairs has, in turn, also led it to become a favorite evidence tool for divorce attorneys. The American Academy of Matrimonial Lawyers recently reported that 81% of its members have used or faced evidence taken from Facebook or other social networking sites over the last five years. Such evidence can have dramatic consequences for a party in a divorce case. For instance, a mother’s alienation of affliction claim may be bolstered by evidence of the father forcing the couple’s son to “de-friend” his mother on Facebook. A parent going through a divorce may have their request for additional timesharing with their child denied if the court is presented with pictures from Facebook depicting the parent drinking or doing drugs when the child is in their care. A divorcing spouse seeking alimony based on a lack of earning capacity may have their request denied by the court if the requesting spouse’s Facebook account is littered with pictures of the spouse spending their free time and money at restaurants and bars.

The law is currently unsettled regarding the use of information obtained from Facebook during a family law proceeding. However, recent case law should leave Facebook users, and their family law attorneys, wary. For instance, a judge in Pennsylvania recently found that the husband in a divorce case had to provide his wife’s attorneys with his Facebook username and password, despite the husband’s objection that his Facebook information was private and thus deserving of an evidentiary privilege. The judge rejected the husband’s arguments, noting that the husband had no expectation of privacy because Facebook’s End User License Agreement (“EULA”) notes that all user accounts are subject to, and are at any time accessible by, third party administrators. Since the husband accepted Facebook’s EULA when he signed up for Facebook, the court found an implicit waiver of confidentiality regarding the information contained on his Facebook page. While the Pennsylvania decision is not binding on Florida courts, it is most assuredly instructive.

Accordingly, a person should be extremely cautious with their Facebook account when going through a divorce. Among other things, a divorcing individual should refrain from denigrating their spouse on Facebook, and should generally avoid posting comments on their Facebook accounts that they would not want a judge to read in open court. Additionally, a divorcing spouse should abstain from posting pictures or videos that may be damaging to their divorce case, including pictures or videos that are sexually explicit or show the divorcing spouse binge drinking or doing drugs and exposing their children to the same. Similarly, a divorcing spouse should take note of the information posted by their Facebook “friends,” such as pictures or videos that “tag” the divorcing spouse, and should ask such “friends” to remove the damaging information from their Facebook page. Finally, a divorcing spouse should consider changing their Facebook privacy settings so that they can limit the information that they share, and if that is not enough, a divorcing spouse should consider deleting their Facebook account during their family law case.

We continue to find technology changing human relationships. From readily accessible pornography to explicit social networking websites (including at least one aimed at assisting married individuals to enter into extramarital affairs) to Facebook, family life is no longer made up of the innocence of Ward and June Cleaver. Consequently, using good judgment and carefully monitoring your Facebook account during a family law proceeding can have a significant impact on your case.

© Lowndes, Drosdick, Doster, Kantor & Reed, PA, 2011. All rights reserved.

The 2011 Global Congress on Legal, Safety, and Security Solutions in Travel Conference

The National Law Review is pleased to announce The 2011 Global Congress on Legal, Safety, and Security Solutions in Travel will take place on August 25 – 28, 2011 at the George R. Brown Convention Center, Houston, Texas.

HospitalityLawyer.com, in coordination with the Greater Houston Convention & Visitors Bureau, is hosting the Global Congress on Legal, Safety, and Security Solutions in Travel to facilitate the delivery of safe, secure and uninterrupted travel via an all-encompassing public-private dialogue dedicated to the sharing of best practices for issues faced by the global travel, tourism, and hospitality industries.

What is the Global Congress?

The Global Congress is a unique opportunity for all aspects of the travel equation to share their legal, safety, and security experiences and best practices. It is all-encompassing public-private dialogue to enhance the global travel industry’s ability to avoid interruptions and to provide a safe secure and seamless travel experience.

What Topics Will the Global Congress Address?

General Sessions will address topics, issues and solutions that impact all components of travel, such as:

  • Common Issues and Solutions for Travel Safety and Security: The Industry Perspective
  • The Debate: Screening vs. Personal Privacy
  • Contagious Outbreaks: Appropriate Responses in all Sectors of Public Accommodation
  • The US Travel Association’s Blue Ribbon Panel on Aviation Security: Findings and Recommendations
  • What Have We Learned from Recent Travel Disruptions?
  • Profiling: Is it Effective and What are the Privacy Implications?
  • Human Trafficking: Is the Travel Industry Enabling It?
  • Best Practices in Global Data Privacy Issues
  • The Media’s Role in Creating and Sustaining a Travel Crisis

The second day features a full day of sessions in each travel component:

  • Transportation, including Airlines, Cruise, Ground, and Terminal
  • Lodging
  • Venues & Events
  • Public Support of Travel, including Embassies, Health, Entry/Exit, Airports, Terminals, and Seaports
  • Leisure Travel & Tourism
  • Corporate & Government Travel
  • Global Legal Issues.

Who Should Attend?

Travel Buyers Travel Suppliers Public Travel Supporters
  • Risk, Safety, Security, Health and Environmental Officers
  • In-house Counsel
  • Travel Managers
  • Human Resource Executives
  • Procurement/CFO
  • Meeting Planners
  • Risk, Safety, Security, Health and Environmental Officers
  • In-house Counsel
  • C-level Executives
  • Wholesalers, Distributors, and Manufacturers of Safety and Security Solutions
  • Procurement
  • Attorneys & Consultants focusing on Travel & Hospitality
  • Risk, Safety, Security, Health and Environmental Officers for Air, Sea and Public Transportation Systems & Terminals
  • Domestic Security and Other Law Enforcement Officials
  • Government Attorneys
  • Immigration and Customs Officials
  • Health Policy Directors
  • Travel and Tourism Ministers and Administrators
  • Consulate and Foreign Trade Officials
  • Researchers and Thought Leaders in the Hospitality, Travel, and Tourism Arenas
  • Embassy Personnel

Justifying Your Attendance

The Global Congress on Legal, Safety, and Security Solutions in Travel is the only conference in the world dedicated to legal, safety, and security best practices in the global travel, tourism, and hospitality industries. We have identified the value proposition for attending the Global Congress in custom pieces below. Please select the link that corresponds to your area of interest:

For your convenience, we have also put together a helpful customizable letter (.doc) to help justify your investment to attend the conference.

The first Global Congress, presented in coordination with the Greater Houston Convention & Visitors Bureau, will be held August 25-28, 2011, in Houston, Texas. Houston, situated centrally in the United States, is an international gateway city with 92 consulates and the headquarters for major travel-related businesses and associations. It is also the home of the renowned Conrad N. Hilton College of Hotel and Restaurant Management at the University of Houston, whose namesake strongly championed the philosophy that global travel could bring about world peace.

Arthur J. Gallagher and iJet are Foundation Sponsors of the Global Congress.

It's Not Easy Being Green: Understanding and Avoiding the Pitfalls of Green Marketing

Recently posted in the National Law Review an article by Anne E. Viner of Much Shelist Denenberg Ament & Rubenstein P.C. regarding the idenfication of “green” products and services:

A current trend among businesses is to identify their products and services as “green,” “environmentally safe,” “ozone friendly” or otherwise good for the environment. Companies do this to show that they are good stewards of the Earth and to attract customers who are interested in purchasing products that are “environmentally friendly.” But what does that phrase—or similar terminology—really mean? What sort of information must a business have in order to support these kinds of claims? Not surprisingly, there are a number of federal and state regulations, rules and guidelines that govern green marketing.

The Federal Trade Commission (FTC) Act prohibits deceptive representations in advertising, labeling, product inserts, catalogs and sales presentations. If statements concerning the environmental benefits of a product or service cannot be substantiated, they may be found to be deceptive by the FTC. Customers, competitors and environmental citizen groups often monitor green marketing and can file administrative complaints with the FTC if a company’s claims are misleading. Such complaints not only hurt businesses monetarily (legal expenses, administrative penalties, etc.), but can also damage the goodwill that the environmental claim was attempting to establish.

Federal Guidance

To help businesses determine when green marketing claims are acceptable and when they have gone too far, the FTC and the United States Environmental Protection Agency (EPA) have developed guidelines to ensure that environmental marketing claims do not mislead consumers. Advertising, labeling, promotional materials, presentations and other forms of marketing that run afoul of the guidelines created by the FTC and EPA can result in such conduct being declared unlawful under the FTC Act.

The following guidelines apply broadly to all environmental marketing efforts—whether they are consumer-focused claims or business-to-business claims directed at suppliers, affiliated companies, distributors or other customers:

  • Clearly identify whether the advertised environmental benefit is with the product itself, the packaging, a service, or some other portion or component of the product, service or packaging. For example, if a box of aluminum foil is labeled “recyclable” without further elaboration, this claim would be considered deceptive if any part of either the box or the foil cannot be recycled.
  • Avoid overstatements of environmental benefits. For example, a package might be labeled “50% more recycled content than before” after the manufacturer upped the amount of recycled material from 2% to 3%. Although the claim is technically true, it gives a false impression that the amount of recycled material was significantly increased.
  • Be ready to substantiate any comparisons between products. For example, if an ad claims that a package creates “less waste than the leading national brand,” the advertiser must be able to substantiate the comparison with calculations comparing the relative solid waste contributions of the two packages. If it cannot, the ad runs afoul of the FTC Act and may create liability.

The guidelines created by the FTC and EPA also address the following specific environmental claims:

  • Avoid general, unqualified terms (such as “environmentally friendly” and “green”) that cannot be quantified and may convey a wide range of meanings to customers. The broader the term (a brand name like Eco-Safe, for example), the more likely it will be found deceptive by the FTC.
  • Reliable, scientific evidence must support claims that a product or package is degradable, biodegradable or photodegradable, as well as compostable or made with recycled, pre-consumer or post-consumer products. For example, if a shampoo is advertised as “biodegradable” with no qualifications, the manufacturer must have reliable scientific evidence that the product, which is customarily disposed of in sewer systems, will break down and decompose into elements found in nature in a short period of time. These specific terms have precise environmental meanings, and the guidelines give numerous examples of acceptable and deceptive uses of them.

The Guidelines in Action

Assume that a manufacturer wants to identify its entire product line of plastic buckets as being “made of recyclable material.” However, only one type of bucket in the line is made of post-consumer plastic and the post-consumer content averages just 20% annually. How can the manufacturer properly advertise the recycled content of its bucket line? According to the FTC and EPA guidelines, it is deceptive to identify the entire line as “green” or as being “made of recycled materials.” These broad, unquantifiable terms should also be avoided when advertising the one type of bucket that actually is made from post-consumer plastic. However, it is acceptable to use the 20% annual average of recycled material in marketing that particular bucket type. Such averaging is permissible, provided the company’s claims can be substantiated with scientific evidence.

The FTC Act and related guidance is just one example of regulations that are potentially applicable to green marketing claims. The EPA has established additional regulations and guidance under its Consumer Labeling Initiative and EPA Environmentally Preferable Procurement Program. The International Organization for Standardization also has developed environmental labeling criteria for products sold worldwide. Many states have their own environmental disclosure and marketing requirements as well.

Given the numerous requirements associated with environmental marketing, along with the potential risks of being found deceptive, it really isn’t easy being green. So, before your business makes any environmental claims about its products or services, carefully consider how you will state the environmental benefits, whether they can be supported with scientific evidence and what regulations may govern your claims.

© 2011 Much Shelist Denenberg Ament & Rubenstein, P.C.  

This (Retractable) Needle Is Going to Sting a Bit: Next Chapter in the Adventures of Post-Phillips Claim Construction

Posted on July 31, 2011 in the National Law Review an article by David M. Beckwith and Paul Devinsky of McDermott Will & Emery regarding how the U.S. Court of Appeals for the Federal Circuit addressed the claim construction tension between broadly drafted claims and the written description contained in the patent specification:

The U.S. Court of Appeals for the Federal Circuit addressed the claim construction tension between broadly drafted claims, and the written description contained in the patent specification, revealing a deep split among the panel members. Retractable Technologies, Inc. v. Becton, Dickinson Co., Case No. 07-CV-0250 (Fed. Cir,. July 8, 2011) (Lourie, J.) (Plager, J., concurring) (Rader, J. dissenting-in-part).

Retractable Technologies (RT) sued Becton Dickenson (BD) for infringing three patents related to syringes with retractable needle technology. Following an adverse jury verdict, BD appealed on multiple grounds, including a challenge to the claim construction of the term “body,” which the district court had determined could include a multi-part structure.

The Federal Circuit affirmed in part and reversed in part, specifically rejecting the district court’s broad claim construction the term “body.”  BD argued that the district court erred in ruling the syringe “body” is not limited to a one-piece structure, noting the specifications describes “the invention” as including a one-piece body.  In addition, the background section of the patent criticized prior art syringes that contain a two-piece body.  Finally, BD argued that claim differentiation does not apply in light of the written description’s limiting statements concerning the nature of the invention and the structure of the syringe body.

RT responded that the ordinary meaning of the term “body” should apply and is not limited to a one-piece body.  RT also argued application of the claim differentiation canon based on a dependent claim that included the limitation of a one-piece body.

Judge Lourie wrote for the majority of the panel, agreeing with BD that the claim term “body” is limited to a one-piece structure as described in the specifications. The majority noted that the specification indicates what was invented, holding that the claim language should not be interpreted to extend the invention beyond that set forth in the written description.  The majority also rejected RT’s claim differentiation argument as “weak” in the face of the language of the specification.  The majority noted that no dependent claim recited a non-one piece structure and concluded that the language of the specification that criticized two-piece structures was of greater significance than the dependent claim to a one-piece body.

Judge Plager, concurring, warned courts to turn a deaf ear to the siren song of giving claims wide scope.  In Judge Plager’s opinion, the written description requirement imposes an obligation to make full disclosure of what is actually invented and to claim that and nothing more.  As Judge Plager noted, “I have written elsewhere about the curse of indefinite and ambiguous claims, divorced from the written description, that we are regularly are asked to construe, and the need for more stringent rules to control the curse.”

In dissent, Judge Rader focused on the ordinary meaning of the term “body” and explained that since there was no special meaning provided by the patent specification to supplant the ordinary meaning of the term “body,” it was error to limit the construction to only a one-piece structure.  Rader wrote,  “In this case, neither party contends that ‘body’ has a special, technical meaning in the field of art, and thus claim construction requires ‘little more than the application of the widely accepted meaning of commonly used words.’”

Practice Note:  This decision reflects a fundamental division within the Federal Circuit on the importance of the written description as a limitation on claim scope, as compared to the view that the claim language itself should be of paramount importance in construction. Until there is either some post-Phillips en bancclarification or Supreme Court consideration of the issue, the outcome of contested constructions in such a circumstance may demand on the panel hearing the appeal.

© 2011 McDermott Will & Emery

Public Education Teacher Selection Process Not So Simple…

A very interesting article recently posted in the National Law Review  by Denise M. Spatafore of Dinsmore & Shohl LLP regarding WV’s legislature rules for determining who receives both teaching and administrative positions in West Virginia public schools.

If you do a Google search for the “qualities of effective teachers,” 4,920,000 results come up within 15 seconds. Obviously, the placement of the best possible educators in our public schools is important to virtually everyone, but determining how that can be accomplished has been, and continues to be, the subject of much debate and, in West Virginia, the subject of some fairly complex legislation.

Prior to the 1990s, the selection of classroom teachers in West Virginia was required by statute to be based on qualifications. In turn, “qualifications” was not defined, allowing for fairly broad and varied interpretations of what made a teacher qualified. Some believed that the lack of specific criteria allowed for selection decisions based on politics or nepotism, rather than actual teaching skills. Therefore, in 1990, the legislature enacted W. Va. Code § 18A-4-7a, which to this day contains very specific rules for determining who receives both teaching and administrative positions in West Virginia public schools.

There are two sets of seven criteria which are applied to applicants for teaching positions, and the factors used depend upon who the applicants are. If all of the applicants are “new” to the particular county (meaning that they are not currently employed in the county or are substitutes, rather than full-time teachers), the seven criteria applied include:

  1. certification for the position
  2. teaching experience in the subject area
  3. degree level
  4. academic achievement
  5. specialized training
  6. performance evaluations
  7. “other measures or indicators upon which the relative qualifications of the applicant may fairly be judged”

When using this so-called “first set of factors,” county administrators are not required to give any particular factor more weight than others, which allows a lot of discretion in determining which applicant is most qualified for the position. It may be the person who had the best interview, or it might be the teacher with the most relevant experience. As long as each applicant’s qualifications are assessed under each criterion, the board of education may hire whomever they want, absent a totally arbitrary decision that simply can’t be justified.

On the other hand, the “second set of factors,” which is used when any teacher employed in the county applies for a position, must be weighted equally. The second set of criteria contains some of the same categories as the first, including certification, degree level, training and evaluations. However, experience is considered in two separate categories:

  1. total teaching experience (regardless of what subject or grade level)
  2. “existence” of experience in the particular area of the posted position

Therefore, under the second set of factors, a teacher will be given credit for the entirety of his or her teaching experience, regardless of whether it was in the subject area of the position for which they are applying.

Another difference between the two sets of factors is that, when currently employed teachers apply, seniority is considered. There appears to be a common misconception among West Virginians and even among teachers that seniority is the only basis for awarding teaching positions, but this is simply not true. Seniority is only one of seven factors considered, and it must be equally weighted, just like the others. However, a possible source of some of the misconception could be that, in many counties, seniority is used as a tie-breaker when two or more applicants have equal qualifications.

Although school principals do have a statutory right to interview teacher applicants, if the second set of factors is in play, there is simply no legal basis to consider the results of interviews. Whether the legislature intended this or not is unknown, but it is a frustrating provision both for the administrators doing the hiring and for the applicants who may or may not be given the opportunity to demonstrate their attributes during an interview.

Also resulting from the requirements of the second set of factors, when both current employees and outsiders apply for teaching jobs, young or new teachers often have difficulty getting positions. Particularly within the field of elementary education, a very popular certification area for teaching students, young teachers often have to do substitute work for years before being able to “break into” the county system and obtain full-time employment.

While proposed changes to the teacher hiring process have been discussed by the legislature for the past several years, none have been successful to date.

© 2011 Dinsmore & Shohl LLP. All rights reserved.

 

 

Unsecured Creditors Beware! The Western District of Texas Bankruptcy Court Declares an Unsecured Creditor Cannot Have Its Cake (Unsecured Claim) and Eat It Too (Post-Petition Legal Fees)

Recently posted in the National Law Review an article by Evan D. Flaschen, Renée M. Dailey, Mark E. Dendinger of Bracewell & Giuliani LLP about the issue of whether an unsecured creditor can recover post-petition legal fees under the Bankruptcy Code:

Bankruptcy courts have long debated the issue of whether an unsecured creditor can recover post-petition legal fees under the Bankruptcy Code. In the recent decision of In re Seda France, Inc. (located here(opens in a new window)), Justice Craig A. Gargotta of the United States Bankruptcy Court for the Western District of Texas denied an unsecured creditor’s claim for post-petition fees. In doing so, the Court has once again left the unsecured creditor with a bad taste in its mouth by declaring that an unsecured creditor seeking post-petition fees is asking permission to have its cake (a claim for principal, interest and pre-petition legal fees under applicable loan documents) and eat it too (a claim for post-petition legal fees).

Proponents of the view that an unsecured creditor cannot recover post-petition legal fees point to section 506(b) of the Bankruptcy Code, which allows as part of a creditor’s secured claim the reasonable attorneys’ fees and costs incurred during the post-petition period, and note the Bankruptcy Code is silent on anunsecured creditor’s right to post-petition legal fees. Essentially, the argument is since Congress provided for post-petition fees for secured creditors, it could have explicitly provided for post-petition fees for unsecured creditors but chose not to. Proponents of the alternative view cite the Second Circuit decision United Merchants and its progeny, where those courts refused to read the plain language of section 506(b) as a limitation on an unsecured creditor’s claim for recovery of post-petition legal expenses. The theory is that while the Bankruptcy Code does not expressly permit the recovery of an unsecured creditor’s claim for post-petition attorneys’ fees, it does not expressly exclude them either. The basic tenant is that if Congress intended to disallow an unsecured creditor’s claim for post-petition legal fees it could have done so explicitly.

In Seda, Aegis Texas Venture Fund II, LP (“Aegis”) timely filed a proof of claim in Seda’s Chapter 11 bankruptcy case claiming its entitlement to principal, interest and pre-petition attorneys’ fees under its loan documents with Seda as well as post-petition attorneys’ fees for the duration of the case. Aegis made various arguments in support of the allowance of its post-petition legal expenses including: (1) the explicit award of post-petition fees to secured creditors under section 506(b) does not mean that such a provision should not be implicitly read into section 502(b) (i.e., unim est exclusion alterius (“the express mention of one thing excludes all others”) does not apply), (2) the United States Supreme Court decision in Timbers does not control as Timbers denied claims of anundersecured creditor for unmatured interest caused by a delay in foreclosing on its collateral, (3) the right to payment of attorneys’ fees and costs exists pre-petition and it should be irrelevant to the analysis that such fees are technically incurred post-petition, (4) because the Bankruptcy Code is silent on the disallowance of an unsecured creditor’s post-petition attorneys’ fees, these claims should remain intact, and (5) recovery of post-petition attorneys’ fees and costs is particularly appropriate where, as in Seda, the debtor’s estate is solvent and all unsecured creditors are to be paid in full as part of a confirmed Chapter 11 plan.

The Seda Court rejected Aegis’ arguments and held that an unsecured creditor is not entitled to post-petition attorneys’ fees even where there is an underlying contractual right to such fees and unsecured creditors are being paid in full. With respect to Aegis’ argument on the proper interpretation of sections 506(b) and 502(b), the Court cited the many instances in the Bankruptcy Code where Congress expressed its desire to award post-petition attorneys’ fees (e.g., section 506(b)), and found that Congress could have easily provided for the recovery of attorneys’ fees for unsecured creditors had that been its intent. Regarding Aegis’ argument that Timbers does not control, the Court held that in reaching its decision on the disallowance of a claim for unmatured interest the Timbers Court found support in the notion that section 506(b) of the Bankruptcy Code does not expressly permit post-petition interest to be paid to unsecured creditors. The SedaCourt held this ruling should apply equally to attorneys’ fees to prohibit recovery of post-petition fees and expenses by unsecured creditors. The Court further held that section 502(b) of the Bankruptcy Code provides that a court should determine claim amounts “as of the date of the filing of the petition,” and therefore attorneys’ fees incurred after the petition date would not be recoverable by an unsecured creditor. In response to Aegis’ argument that non-bankruptcy rights, including the right to recover post-petition attorneys’ fees should be protected, the Seda Court noted that the central purpose of the bankruptcy system is “to secure equality among creditors of a bankrupt” and that an unsecured creditor’s recovery of post-petition legal fees, even based on a contractual right, would prejudice other unsecured creditors. The Court held this is true even in the case where the debtor was solvent and paying all unsecured creditors in full. The Court noted that a debtor’s right to seek protection under the Bankruptcy Code is not premised on the solvency or insolvency of the debtor and, therefore, the solvency of the debtor has no bearing on the allowance of unsecured creditors’ post-petition legal fees.

Seda is the latest installment in the continued debate among the courts whether to allow an unsecured creditor’s post-petition attorneys’ fees. The Seda Court is of the view that an unsecured creditor cannot recover post-petition legal fees for the foregoing reasons, most notably that the Bankruptcy Code is silent on their provision and public policy disfavors the recovery of one unsecured creditor’s legal expenses incurred during the post-petition period to the prejudice of other unsecured creditors. Depending on the venue of the case, there will undoubtedly be many more instances of unsecured creditors seeking recovery of their post-petition attorneys’ fees in a bankruptcy case until the Supreme Court definitively rules on the issue. Until then, keep asking for that cake . . . .

© 2011 Bracewell & Giuliani LLP