Author: National Law Forum

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Discrimination Charges Against Employers Hit Record High in 2010

Posted yesterday at the National Law Review by Laura Broughton Russell and David L. Woodard of Poyner Spruill LLP – EEOC statistics recently released revealing a record-breaking number of charges of workplace discrimination filed against private sector employers in 2010.

The Equal Employment Opportunity Commission (EEOC) has recently released its charge statistics for fiscal year 2010 (which ended September 30, 2010). The EEOC enforces federal laws prohibiting employment discrimination, which includes Title VII of the Civil Rights Act of 1964, the Equal Pay Act, the Age Discrimination in Employment Act, the Americans with Disabilities Act, and the Genetic Information Nondiscrimination Act.

Not surprisingly, these statistics reveal a record-breaking number of charges of workplace discrimination filed against private sector employers in 2010. The number of charges filed hit 99,922, an unprecedented number which amounts to a more than 7% increase over the previous year’s filings. The somber economy and the accompanying layoffs in 2009 and 2010 may be behind this increase, as well as the EEOC’s expansion of educational training and other outreach efforts to approximately 250,000 persons.

What the Statistics Foreshadow for 2011

In its release, the EEOC noted its “concerted effort to build a strong national systemic enforcement program,” which resulted in 465 systemic investigations, involving more than 2,000 charges, being undertaken. This emphasis on systemic or class-wide discrimination means the EEOC is devoting more of its resources to bringing more multiple plaintiff cases against employers. This trend is expected to continue.

The new Genetic Information Nondiscrimination Act resulted in 201 charges being filed. Significantly more charges are expected in this area in 2011, due to the release of the accompanying regulations at the end of 2010 and the continuing publicity about and public awareness of this law.
Disability discrimination claims numbered 25,165 in 2010, which constituted slightly more than 25% of all claims filed with the EEOC. With the recent expansion of the Americans with Disabilities Act (ADA) by the ADA Amendments Act, and the anticipated 2011 release of the accompanying regulations, claims in this area are expected to continue to increase.

Some Final Observations

The EEOC has been energized by the December 2010 Senate confirmations of its new Chair, as well as its General Counsel and two new Commissioners. The EEOC now has a full complement of members, which it has been lacking for quite some time. In addition, the EEOC recently has added to its front-line staff. Notably, the EEOC recently has held two significant Commission meetings during which it explored the use of credit histories as employment screening devices, and the impact of the economic situation on older workers. By reviewing their employment decisions in advance with counsel, as well as generally reviewing their employment policies and practices to ensure compliance with the law, employers can lower the risk of expensive and onerous legal proceedings filed by individuals and by the EEOC.

The "Safer Products" Database: Reports of Harm Made Public on March 11, 2011

Posted last week at the National Law Review by Mary C. Turke of Michael Best & Friedrich LLP – updated information on the U.S. Consumer Product Safety Commission’s Publicly Available Consumer Product Safety Information Database which is set to officially launch March 11, 2011:

The U.S. Consumer Product Safety Commission’s Publicly Available Consumer Product Safety Information Database (the “Database”) (found atwww.saferproducts.gov) will be launched officially on March 11, 2011. Mandated by the Consumer Product Safety Improvement Act of 2008 (the “Act”), the Database includes a new mechanism for consumers to report harm, or merely a risk of harm, involving consumer products (excluding food and drugs). The Database makes qualified reports of harm available to the public, in an online, searchable format. Prior to publication of any report, the Commission will allow manufacturers to comment and/or challenge reports containing materially inaccurate or confidential information. In certain cases, manufacturers’ comments may be published as well. Previously, reports of harm and responsive comments were not available to the public unless published in a Commission report or obtained through a Freedom of Information Act request.

The Database is currently in “soft-launch” i.e., the Commission and stakeholders are testing the new reporting and response system with the knowledge that until March 11, 2011, nothing will be made publicly available in the Database. Indeed, consumer reports are being accepted through the website and any report meeting minimum requirements for publication are transmitted to registered manufacturers, importers and private labelers. These companies are able to provide comments online and challenge reports as containing inaccurate or confidential information.

This practice time is valuable, particularly because the faster a company is able to respond to a negative consumer report, the better. Companies should use the soft-launch to establish protocols for dealing with reports of harm involving their products, including designating persons within the company to be notified of reports via email and identifying the single account holder who is allowed to submit comments. The Act does not require that reports be based on first-hand knowledge or that they be made within a certain time following the alleged harm. Thus, companies should carefully review all reports in which they are named and consider monitoring reports in the Database by industry — where no manufacturer is named. Perhaps most importantly, companies should develop procedures for responding to reports that contain materially inaccurate or confidential information. The Act requires that any request to remove information from a report be “timely” and accompanied by a certification to defend the Commission if the removal is later challenged. Thus, companies must be prepared to act quickly and accurately in responding to reports of harm. Practice and preparation during soft-launch will help in that endeavor.

To succeed in an increasingly competitive business environment, manufacturing companies need to seize every available advantage. Whether negotiating a contract, moving an idea through the patent process or dealing with customers, getting your manufactured products to market requires expertly-coordinated efforts. Any delay can have a significant impact on your business.

New Guidelines for Preservation of Electronically Stored Information "ESI" Released; Federal Court Rules that Metadata Subject to FOIA

Recently posted at the National Law Review by Bracewell & Giuliani – some news about Delaware’s Chancery court’s recent publication of Guidelines for Preservation of Electronically Stored Information and Judge Shira A. Scheindlin’s ruling that metadata is “an integral or intrinsic part of an electronic record, and, consequently, part of the public record that must be produced by the Government in response to Freedom of Information Act (FOIA) requests:

In an effort to advise parties to a litigation, the Delaware Court of Chancery released last month its Guidelines for Preservation of Electronically Stored Information. The publication of the Guidelines is timely in light of a decision released late last month in Victor Stanley, Inc. v. Creative Pipe, Inc., Civil No. MJG-06-2662 (D. Md. Jan. 24, 2011), where defendants were ordered to pay over $1 million in sanctions for the willful loss and destruction of electronically stored information (ESI).

As a preliminary matter, the Guidelines advise litigants to take all reasonable steps to preserve ESI that is potentially relevant to a litigation and within their possession, custody or control. This requires the parties and counsel to “develop and oversee a preservation process.” Key to the preservation process is identifying potentially relevant sources of ESI, i.e. custodians and devices, and enacting a litigation hold. Although there is no single definition among the State and Federal Courts for a litigation hold, the Guidelines advise that, at the least, it entails developing well-written instructions for the preservation of ESI that are then distributed to all custodians of potentially relevant ESI.

Just as important is the timing of the litigation hold. Various courts have found that the duty to preserve potentially relevant documents occurs once litigation is “reasonably anticipated,” not once litigation has commenced. As a result, theGuidelines recommend that, to the extent a litigation hold has not been disseminated before litigation has commenced, counsel should instruct their clients to do so quickly and “to take reasonable steps to act in good faith and with a sense of urgency to avoid the loss, corruption or deletion of potentially relevant ESI.” While the Guidelines note that this may not be sufficient to avoid the imposition of sanctions if potentially relevant ESI is lost or destroyed, the Chancery Court “will consider the good-faith preservation efforts of a party and its counsel.”

Counsel is well-advised to reference the Guidelines in light of the significant increase in the number of motions and awards for e-discovery sanctions. See Dan H. Willoughby, Jr. et al., Sanctions for E-Discovery Violations: By the Numbers, 60 Duke L.J. 789 (2010). In fact, in the past six years, there have been over five cases where sanctions exceeded $5 million, with one leading the pack at $8.8 million. See id. at 814-15.

As noted above, defendants in Victor Stanley were recently ordered to pay over $1 million in sanctions for the willful loss and destruction of ESI. See also Sanctionable Conduct Involving E-Discovery, Bracewell & Giuliani Legal Advisory, dated Sept. 28, 2010. Magistrate Judge Paul W. Grimm found defendants’ acts of spoliation to be so “extraordinary” as to treat them as contempt, pursuant to Federal Rules of Civil Procedure 37(b)(2)(A)(vii). As such, failure to pay the ordered amount within 30 days will subject the owner of the defendant corporation to up to two years of jail time. Not surprisingly, one of the many actions cited by the court that defendants failed to take: enforcing a litigation hold.

In other e-discovery developments, Judge Shira A. Scheindlin of the Southern District of New York, and author of the instructive Zubalake series of opinions, ruled this week that metadata is “an integral or intrinsic part of an electronic record,” and, consequently, part of the public record that must be produced by the Government in response to Freedom of Information Act (FOIA) requests. Nat’l Day Laborer Org. Network v. U.S. Immigration and Customs Enforcement Agency, 10 Civ. 3488 (S.D.N.Y. Feb. 7, 2011). Although the issue had been addressed by several state courts, this was a matter of first impression for a Federal Court.

Noting that different types of metadata are inherent to different types of electronic records, Judge Scheindlin determined that “metadata maintained by the agency as a part of an electronic record is presumptively producible under FOIA, unless the agency demonstrates that such metadata is not ‘readily producible.'” (Emphasis in original). She further determined that the onus is on the requesting part to specifically request the metadata. However, Judge Scheindlin found that it was “no longer acceptable” for a party to produce “a significant collection of static images of ESI without accompanying load files.” Citing to Federal Rule of Civil Procedure 34 as a source that should inform FOIA productions, Judge Scheindlin’s ruling will likely carry equal weight in the context of civil discovery.

Not Your Father's Insurance Coverage: Using Transactional Insurance to Drive Business Opportunities

Posted at the National Law Review last week by Daniel J. Struck and Neil B. Posner of Much Shelist – a review of different type of insurance products that can be helpful in facilitating certain types of financial transactions:

Insurance coverage as a commercial risk management tool has been around for centuries, but there are a number of newer transactional insurance products that can actually help drive business opportunities and close deals. Developed in the last decade or so and becoming more widely available, these products—including representations and warranties (R&W), tax liability, litigation liability and environmental stop-loss insurance—are decidedly not your father’s insurance coverage. Rather, these less traditional types of coverage can help facilitate the purchase or sale of a business or a significant business asset by reducing the uncertainties associated with potential indemnification obligations and liability exposures.

Traditional Insurance Coverage: Still an Important Corporate Asset

For many businesses, standard commercial insurance is treated as a routine expense in which premiums are the deciding factor in evaluating largely interchangeable form policies. In previous articles, we have discussed why this approach is often short-sighted.

The types of insurance coverage purchased by most businesses are predictable. General liability insurance protecting against liabilities owed to third parties resulting from bodily injury, personal injury and property damage is a given. Some kind of first-party property coverage for loss to owned or rented premises, damage to inventory and equipment, and resulting business interruptions also is generally necessary. Because most businesses have employees, insurance related to workers’ compensation and employee benefits programs is essential. Depending on the particular business, additional lines of insurance—such as management liability, employee dishonesty/fidelity, fiduciary liability, cyber-liability and professional liability—may be necessary as well.

For all their differences, these types of coverage all serve as a means to manage risk and reduce the exposure to potential “fortuitous” first-party losses or third-party liabilities, ranging from slip-and-fall accidents at a retail location to a devastating explosion at a factory or an alleged breach of duty by a company’s directors. Although traditional insurance coverage may help protect the financial health and solvency of a business and its individual partners, officers or directors, it does not often operate as an actual driver of business opportunities.

Transactional Insurance: A Tool for Facilitating Corporate Transactions

Transactional insurance policies, on the other hand, generally insure against risks that fall outside the scope of more traditional coverage and have the potential to drive, or at least facilitate, certain corporate transactions. Examples include:

R&W insurance, which provides coverage for the contractual indemnification obligations resulting from breaches of the representations and warranties of a specific agreement (often a contract for the purchase/sale of a business or a significant corporate asset);
Tax liability insurance, which provides coverage for an identified potential tax liability or penalty, or for the liability resulting from an adverse determination in a specified ongoing tax dispute;
Litigation liability insurance, which may provide coverage if an award of damages in an identified piece of litigation exceeds a threshold specified in the insurance policy; and
Environmental stop-loss insurance, which may provide coverage for the costs of an ongoing environmental remediation project that exceeds a specific cost threshold.

Although commercial insurance policies of every type should be tailored to the particular needs of the insured, the levels of detail and specific underwriting and negotiation involved in placing transactional insurance are generally even greater. For example, the process tends to be fact specific and often involves extensive manuscripting (i.e., the negotiation of customized coverage terms applicable to the specific risks insured against).

But how can transactional insurance facilitate the completion of corporate transactions? Even in the best of times, potential buyers and sellers may find it difficult to agree on price. In the current economic environment, however, distressed sellers may be reluctant to discount the value of their businesses in hopes of a return to better days, while value-conscious purchasers are determined to buy at a substantial discount. Assuming that agreement can be reached on price, the parties must still negotiate the representations and warranties provided by both the buyer and the seller, and then reach acceptable indemnity terms for breaches of those representations. But the challenges don’t end there. A buyer with concerns about the ability of the seller to satisfy its indemnification obligations naturally will want the indemnification provision to be backstopped by a substantial escrow. A seller, however, likely will not want a substantial portion of his or her personal wealth tied up in an escrow account to pay for liabilities related to a business with which he or she is no longer associated.

In this challenging context, R&W insurance might help bridge differences and facilitate the successful closing of the transaction. For example, a potential buyer can use R&W insurance as a means to avoid relying solely on the seller for indemnification. A potential buyer might be able to make an offer more appealing by incorporating R&W insurance into its bid to reduce the portion of the purchase price that will be held in escrow. Similarly, for a seller that is eager to divest a business and minimize the scope of its continuing obligations relating to that business, a carefully tailored R&W insurance policy may provide a greater level of comfort that the seller will not be forced to pay out of pocket to satisfy potential indemnification obligations.

The following scenarios illustrate some of the ways in which transactional insurance might be used effectively to facilitate a transaction or to make a particular proposal more financially appealing.

Scenario One: Show Me the Money

After spending 25 years building a successful manufacturing business, Jacob Marley has decided to retire and tour the world on a yacht purchased with the proceeds from the sale of his company. He retains an investment banker to put the business up for auction and receives interest from a number of private equity firms, including HavishamCo. Rather than grossly over-bidding its competitors, Havisham distinguishes its offer by including an escrow requirement that is dramatically lower than would normally be expected (subject only to Havisham’s ability to secure R&W coverage). While putting its bid together, Havisham negotiated terms of an R&W insurance policy to insure over the seller’s representations and warranties. The bid prices from the various private equity firms were roughly equivalent, but Havisham’s escrow holdback was several million dollars lower than in any of the competing bids. Thanks to this creative use of R&W insurance, Marley accepts Havisham’s bid and sails off into the sunset.

Scenario Two: Good Intentions and a Token Will Get You on the Subway

CogswellCorp is experiencing financial difficulty because its “visionary” CEO has begun expanding the company beyond its core cog-manufacturing business. In order to finance its ambitious growth strategy, Cogswell decides to sell its cog-manufacturing operations. SpacelyCo seizes the opportunity to purchase the operations of a longtime competitor, and the parties easily agree on price. In an effort to close the deal quickly, Spacely proposes a modest escrow of only $1 million. However, the cap on Cogswell’s indemnification obligations for breaches of its representations and warranties is significantly higher at $30 million. Although Spacely believes it is purchasing the fundamentally sound operations of one of its largest competitors at a bargain price, Spacely’s management team fears that Cogswell’s expansion efforts will fail, leaving the company unable to honor its indemnification obligations if called upon to do so. In order to address this concern, Spacely obtains an R&W policy that provides coverage above a retention amount equal to the escrow of $1 million, and the deal closes successfully.

Scenario Three: The Long Goodbye

Forty years ago, ApexCo was the world’s largest electronics manufacturer. The company also maintained one of the foremost R&D departments in the world and now holds patents for inventions that are widely used in data storage devices, computer chips and consumer electronics. Over time, Apex discovered that the licensing of its patents was far more lucrative than its manufacturing operations. After being acquired by a private equity firm, Apex shut down its manufacturing and marketing operations in order to focus on licensing its patents and vigorously protecting its intellectual property. Today, the company continues to own a number of shuttered manufacturing facilities and distribution centers in populous suburban locations. There is extensive environmental contamination at several of these sites, which makes them difficult to sell without providing broad, open-ended indemnifications to the buyers. In an effort to control the financial obligations associated with these facilities, Apex seeks the placement of stop-loss insurance that will apply to each of the properties. The underwriting process requires significant due diligence, testing and the preparation of estimates for the remediation cost at each property. Ultimately, Apex is able to secure a stop-loss policy that generally covers remediation costs above a threshold specified for each site. As a result, Apex is now able to market the properties knowing that its financial obligations will be fixed but that buyers will enjoy a level of assurance that additional remediation costs will be paid for under the stop-loss policy.

Scenario Four: Death and Taxes

Holding company Jarndyce & Sons consolidated a number of its subsidiaries into a new subsidiary, BleakCo. Based on the tax opinion of its law firm, Kenge & Carboy, Jarndyce believed that the roll-up had been accomplished through a series of tax-free transactions. Eventually, Jarndyce decided to sell Bleak and entered into negotiations with private equity firm PickwickPip. During due diligence, however, PickwickPip’s law firm, Dodson & Fogg, raised concerns about whether the roll-up transactions had indeed been tax free. Despite these concerns, PickwickPip felt strongly that Bleak would be a valuable addition to its portfolio. Because it disagreed with the tax position taken by PickwickPip’s counsel, Jarndyce was unwilling to place the full amount of the potential tax liability in escrow or to provide a full indemnity. Jarndyce, however, was willing to pay a portion of the premium for a tax insurance policy that would cover PickwickPip for any tax liability above an escrow amount agreed to by the parties in the purchase agreement.

A Strategic Solution

As these scenarios illustrate, transactional insurance can be used strategically by both buyers and sellers to overcome obstacles that might otherwise make it difficult to complete an acquisition or divesture. It is not, however, an off-the-shelf product. The underwriting often requires its own due diligence, and the terms under which coverage is provided frequently require intense negotiations. Accordingly, whether transactional insurance products might be useful in bridging obstacles to a transaction should be an early strategic consideration. Given the myriad issues and financial interests at stake, it is important that a potential purchaser of transactional insurance pay close attention to the risks for which coverage is sought, the extent to which the proposed coverage terms respond to those risks and the legal effects of the negotiated coverage terms.

15th Annual North American Shared Services & Outsourcing Week – March 1-3 Orlando, FL

The National Law Review is a proud media partner of the 15th Annual North American Shared Services & Outsourcing Week – March 1-3 Orlando, FL

The Shared Services & Outsourcing Network (SSON) is the largest and most established community of shared services and outsourcing professionals. SSON’s 15th Annual Shared Services Week is the largest annual gathering of Shared Services professionals in the world! This can’t-miss multi-tracked event is designed to provide executives from start-ups, intermediate and mature shared services with everything they need to know to bring shared services to the next level. Featuring outstanding keynotes, an impressive speaker faculty, workshops, master-classes, site-tours and the shared service excellence awards, there is little the Shared Services Executive could want outside of this conference.

The 15th Annual North American Shared Services & Outsourcing Week represents the next big wave of innovation in the shared services and outsourcing space. You will meet and network with the very best thought leaders, practitioners, providers and advisors in the shared services and outsourcing space, connecting with over 1,000 senior level attendees from various sectors all over the region.

If you want to seek fresh initiatives and reach new thresholds of productivity or revenue growth, are looking for game changing, innovative content and ideas to leverage technologies, and desperate to leave behind old legacies and shape the future of the sourcing world, then this event is for you.

Click Here -For More Information and to Register.

Patent Reform Is Again Before Congress – The Patent Reform Act of 2011

Recently posted at the National Law Review by Ashley Merlo of Sheppard Mullin – details on recent bill introduced by Senator Leahy.

Patent reform has been a topic of congressional debate since the introduction of the Patent Reform Act of 2005. Having failed to enact the 2005 legislation or any subsequently proposed reform, patent reform has again been introduced into the Senate, this time entitled The Patent Reform Act of 2011. (S. 23, 112th Cong. (2011).)

In introducing the new bill, Senator Leahy noted the following: “China has been modernizing its patent laws and promoting innovation while the United States has failed to keep pace. It has now been nearly 60 years since Congress last acted to reform American patent law. We can no longer wait.” (157 Cong. Rec. S131 (2011).)

As Leahy further explained, the proposed reforms aim to accomplish three goals: (1) “improve the application process by transitioning to a first-inventor-to-file system”; (2) “improve the quality of patents issued by the USPTO by introducing several quality-enhancement measures”; and (3) “provide more certainty in litigation.” The most significant changes to implement these goals are described below.

The Application Process: Shift To First-To-File System

In an effort to harmonize the U.S. patent system with the systems of other countries, The Patent Reform Act of 2011 proposes to change the U.S. Patent System from a first-to-invent to a first-to-file system. This change means that patents will be awarded to the earliest-filed application for a claimed invention, regardless of the date of actual invention. In other words, under the proposed reform, if A invents a new, novel and non-obvious widget in April but fails to file its patent application (or disclose it) until August, and B invents the same widget in June and files its patent application at that time, B gets the patent under the new system, not A.

The change to the first-to-file system also impacts the prior art analysis. Under current law, for prior art that is publicly — available less than one year before an application for a patent is filed, an inventor can still obtain a patent if she can prove that she invented the claimed invention prior to the date of the prior art. The new bill, however, appears to limit a patent applicant’s ability to negate prior art. Namely, only disclosures by the inventor or someone who obtained the disclosure from the inventor are excluded as prior art.

However, inventors that get beat to the patent office are not entirely out of luck; the reforms provide for “derivation” proceedings to determine if the inventor of an earlier-filed patent “derived” the invention from the inventor of a later-filed application. In other words, returning to the example above, if A could show that B’s widget invention was derived from his widget invention, A may nonetheless obtain a patent despite B’s earlier filing date.

Patent Quality: Submission of Prior Art / Post-Grant Review Procedures

In an effort to improve patent quality, the proposed act establishes the opportunity for third parties to submit information (i.e., prior art) related to a pending application. This, in turn, should assist the examiner in determining whether an applied-for patent is indeed patentable.

In addition, the proposed act incorporates a post-grant 9-month window in which a person who is not the patent owner can institute a post-grant review proceeding to cancel as unpatentable one or more claims of the patent. However, post-grant review can only commence if, following petition, it is determined that it is more likely than not that at least one of the claims challenged is unpatentable.

To protect against abuse of the post-grant review procedure, the act also specifies that an accused infringer may not seek review (1) after it has already filed a lawsuit in district court challenging the patent, or (2) more than three months after the date the accused infringer must answer, or otherwise respond to, a complaint for patent infringement filed by the patentee. The post-grant review proceeding also has estoppel effect, i.e., the petitioner in a post-grant review proceeding cannot raise in a subsequent action any ground of invalidity that was raised or reasonably could have been raised in the post-grant proceeding.

Improve Certainty Surrounding Litigation: Damages

The proposed legislation aims to provide more certainty to litigants as to damage calculations and enhanced damages.

Specifically, the act empowers judges to serve as a gatekeeper on damages. The proposed legislation specifies that the court “shall identify the methodologies and factors that are relevant to the determination of damages, and the court or jury shall consider only those methodologies and factors relevant to making such determination.” As Senator Leahy explained: “the gatekeeper compromise on damages . . . is what is needed to ensure an award of a reasonable royalty is not artificially inflated or based on irrelevant factors.”

In addition, on a showing of good cause, litigants are entitled to have the trial sequenced such that the trier of fact decides the questions of validity and infringement prior to damages.

Finally, the proposed legislation would codify case law regarding willfulness, requiring a plaintiff to demonstrate by “clear and convincing evidence that the accused infringer’s conduct with respect to the patent was objectively reckless.” Objectively reckless conduct will be found where the infringer acted “despite an objectively high likelihood that his actions constituted infringement of a valid patent, and this objectively-defined risk was either known or so obvious that it should have been known.” Mere knowledge of a patent is insufficient to show willfulness for an enhanced damage award.

Conclusion

As Senator Leahy explained in his remarks presenting the bill to the Senate, reform of the American patent law system is long overdue. Overall, the proposed legislation is similar to previously proposed legislation; indeed it was structured around the legislative proposal from 2005. The 2011 Patent Reform Act proposes significant changes to American patent law, surely to receive comment from those in favor and those against. Whether patent reform will actually make its way onto the books is a question yet to be determined.

New Alternatives to Condominium Structure for Florida Real Estate Developers

From featured bloggers at the National Law Review Jeffrey R. Margolis and Barry D. Lapides of Duane Morris LLP – helpful information about what to look for in alternative non-condominium structure for certain real estate projects in Florida.

Florida’s real estate market is showing signs of a turnaround. However, residential developers have appeared hesitant to construct new condominium projects. As an alternative to projects using a condominium form of ownership, new low-rise or “garden style” projects that would typically need to be structured as a residential condominium have recently been approved by several Florida local authorities, potentially paving the way for an alternative non-condominium structure for projects that otherwise would need to be structured as a condominium.

With the current perceived stigma of falling values for condominiums as well as the increased costs associated with forming condominiums and operating condominium associations, developers of proposed low-rise or “garden style” projects in Florida may want to consider a hybrid structure that allows the development of these projects as non-condominiums that permits the individual units to be conveyed as non-condominium homes operated through homeowners’ associations under Chapter 720 of the Florida Statutes.

With the proper documentation, including a declaration of covenants and restrictions, appropriate disclosures in homeowners’ association and sales documents, and necessary approvals from the applicable governmental authorities and lenders, homebuilders can now construct low-rise or “garden style” residential townhomes, with each unit having exclusive use of a garage, that can be structured to allow ownership as non-condominium units as opposed to condominiums.

With this structure—a sample floor plan is depicted below—all units have exclusive use and access to a garage, though certain units actually have no garages (“Non-Garage Homes”), and other units contain two garages (“Garage Homes”). To accommodate the Non-Garage Homes with use and access to a garage, an easement is provided in favor of a Non-Garage Home for the exclusive use of one of the garages. This structure may also be available for living areas other than a garage through the use of easements or other rights.

Floorplan

With this structure, the following may warrant consideration:

Easement. A recorded declaration of covenants and restrictions should include the necessary easements in favor of the Non-Garage Home, including a perpetual, exclusive easement for the use and enjoyment of the garage and the driveway appurtenant to the garage.
Taxes. Fairness would dictate only that the owner of the Non-Garage Home pay the real estate taxes associated with the garage space over which it has exclusive use and enjoyment, although the garage is not part of the Non-Garage Home. Unless the local property appraiser agrees to assess each unit as if it has one garage, regardless of the legal description of the unit, a recorded declaration would have to provide a mechanism for the apportionment of real estate taxes.
Homeowners’ Assessments. Depending on whether assessments are allocated to each unit based upon square footage or on an equal basis, a recorded declaration of covenants and restrictions should be drafted to account for any assessments allocated to the garage component.
Utilities. Depending on how the utilities will be metered and billed, a recorded declaration would have to provide a mechanism so that utility costs related to the garage used by the Non-Garage Home are paid by the owner of the Non-Garage Home. In addition, issues relating to utility lines serving the garage component would have to be addressed.
Insurance. Depending on whether the homeowners’ association obtains and maintains insurance coverage over all of the units in the community, the developer may want to consult with local insurance companies to determine whether coverage can be obtained so that the owner of the Non-Garage Home can obtain insurance, both casualty and general liability, covering the garage component.
Casualty. Provisions should be set forth in a recorded declaration of restrictions and covenants to ensure that the garage used by the Non-Garage Home is reconstructed or repaired in the event of its damage or destruction.
Maintenance. A recorded declaration should contain provisions to ensure that the owner of a Non-Garage Home maintains and safely uses the garage component used by the owner of the Non-Garage Home.
Parking. The applicable governmental entity should confirm that applicable parking requirements are satisfied, notwithstanding the structure of this type of development.
Disclosures. Appropriate and sufficient disclosures should be included in a recorded declaration of covenants and restrictions as well as sales documents advising purchasers and owners of the details of the structure, including the easements and issues relating to maintenance, taxes, insurance and property taxes.
Other. A recorded declaration of covenants and restrictions should account for other issues, including provisions relating to liability and indemnification issues.

Federal Scrutiny of Social Media Policies – Facebook posting subject of NLRB settlement with employer

The much publicized case in front of the National Labor Relations Board (NLRB) concerning the employer charged by the NLRB with terminating an employee for posting disparaging comments about her supervisor on Facebook has been settled. Bracewell & Giuliani posted the following on the National Law Review yesterday:

On Monday, February 7, 2011, the National Labor Relations Board (NLRB) reached a settlement with American Medical Response of Connecticut, Inc., the employer recently charged by the NLRB with terminating an employee in violation of federal labor law for posting disparaging comments about her supervisor on Facebook. The NLRB complaint alleged that the employer’s policy regarding “Blogging and Internet Posting” was overly-broad and unlawfully interfered with employees’ rights under Section 7 of the National Labor Relations Act (NLRA) to engage in “concerted, protected activity.” As written, the challenged policy stated that “Employees are prohibited from making disparaging, discriminatory or defamatory comments when discussing the Company or the employee’s superiors, co-workers and/or competitors.”

Under the terms of the settlement agreement, the employer agreed to revise this policy to allow employees to discuss wages, hours, and working conditions with co-workers outside of the workplace, and agreed to refrain from disciplining or firing employees for engaging in such discussions. The matter of the employee’s discharge was resolved through a separate, private agreement between the employee and the employer.

Why is this important?

The NLRB’s involvement in this case indicates an increased focus on the enforcement of employee rights under Section 7 of the NLRA and on employers’ social media policies. Section 7 protects employees regardless of whether their workplace is unionized; therefore all employers must be cognizant of policies and practices that might be interpreted to limit employees’ right to engage in concerted action.

Actions needed?

The NLRB’s stated position on this issue is that employees are allowed to discuss the conditions of their employment with co-workers on Facebook, or other social media websites, to the same extent they are permitted to do so at the water cooler or a restaurant. To this end, policies or practices which could be interpreted as limiting such right should be modified to include a statement that the policy will not be construed or applied in any manner that interferes with employees’ rights under the NLRA.

Can a 401(k) Plan Member Recover Damages to His Individual Account Caused By a Plan Administrator’s Breach of Fiduciary Duty?

Recently posted at the National Law Review by guest blogger David B. Cosgrove – a question many unhappy 401(k) plans members may have pondered:

An ERISA Plaintiff cannot seek individual monetary damages for a Plan Administrator’s breach of fiduciary duty to the plan. Importantly, however, seeking damages on behalf of the 401(k) Plan as a result of a Plaintiff’s losses in his individual account is explicitly permitted under LaRue v. DeWolff, Boberg & Associates, Inc., 552 U.S. 248 (2008), which held that ERISA Section 502(a)(2) authorizes recovery by a plan participant for fiduciary breaches “that impair the value of plan assets in a participant’s individual account.” 522 U.S. at 256. The Supreme Court in LaRue made clear its reasoning for this holding:

Whether a fiduciary breach diminishes plan assets payable to all participants and beneficiaries, or only to persons tied to particular individual accounts, it creates the kind of harms that concerned the draftsmen of § 409. Id. at 256.

For instance, a Plaintiff may rely upon ERISA Section 502(a)(1)(B) for a Defendant’s failure to provide the Plaintiff with the full 401(k) benefits owed to him under the 401(k) Plan at issue. And the Plaintiff may also rely upon ERISA Section 502(a)(2) for a Defendant’s breaches of fiduciary duties. A plain reading of Sections 502(a)(1)(B) and 502(a)(2) establishes that the two sections provide for different relief. Indeed, as the 9th Circuit explicitly noted in Harris v. Amgen, Inc.:

Section 502(a)(1)(B) allows a plan participant “to recover benefits due to him under the terms of his plan.” By contrast, Section 502(a)(2) encompasses claims based on breach of fiduciary duty and allows for the more expansive recovery of “appropriate relief,” including disgorgement of profits and equitable remedies. 573 F.3d 728, 734, n. 4 (9th Cir. 2009) (citations omitted).

Regardless, some defendants incorrectly assert that “the Eighth Circuit and other courts alike have repeatedly held that participants cannot state claims for breach of fiduciary duty under ERISA Section 502(a) when they are also seeking to recover the same benefits under ERISA Section 502(a)(1)(B).” The falsity of this assertion is clear upon a review of the federal caselaw. Indeed, the cases usually cited are inapplicable in that each is either irrelevant or is limited in scope to claims brought under ERISA Sections 502(a)(1)(B) and 502(a)(3), not Sections 502(a)(1)(B) and 502(a)(2). See Geissal ex rel. Estate of Geissal v. Moore Medical Corp., 338 F.3d 926, 933 (8th Cir. 2003) (narrowly holding that a beneficiary cannot bring a claim for benefits under Section 502(a)(1)(B) and Section 502(a)(3)(B));Conley v. Pitney Bowes, 176 F.3d 1044, 1047 (8th Cir. 1999) (citing Wald v. Southwestern Bell Corporation Customcare Medical Plan, 83 F.3d 1002, 1006 (8th Cir. 1996) in holding that “where a plaintiff is ‘provided adequate relief by [the] right to bring a claim for benefits under [Section 502(a)(1)(B)],’ the plaintiff does not have a cause of action to seek the same remedy under [Section 502(a)(3)(B)]”). Some defendants also cite Coyne & Delaney Co. v. BCBS of Va., Inc., 102 F.3d 712 (4th Cir. 1996). However, Coyne is not relevant in that it analyses whether aplan fiduciary can bring a claim for benefits under ERISA Section 502(a)(3). 102 F.3d at 713.

Some plan defendants also rely upon the U.S. Supreme Court’s holding in LaRue v. DeWolff, Boberg & Assoc., Inc., 552 U.S. 248 (2008) for the proposition that duplicative claims under ERISA Section 502(a)(1)(B) and 502(a)(2) are inappropriate. Specifically, defendants may rely upon commentary by Chief Justice Roberts in that case, without revealing that Justice Roberts wrote the concurring opinion rather than the opinion of the Court. Accordingly, his analysis is not binding. Id. at 249. In fact, at the conclusion of his concurring opinion, Justice Roberts acknowledged that his analysis is not binding on the issue: “In any event, other courts in other cases remain free to consider what we have not—what effect the availability of relief under § 502(a)(1)(B) may have on a plan participant’s ability to proceed under § 502(a)(2).” Id. at 260.

Indeed, in Crider v. Life Ins. Co. of N. Am., 2008 WL 2782871 (W.D. Ky. 2008), the Western District of Kentucky acknowledged that Justice Roberts’ analysis inLaRue is not binding, and therefore noted that in deciding whether to allow a claim under both ERISA Section 502(a)(1)(B) and Section 502(a)(2), the question for the court is whether the facts the plaintiff alleges “state a claim for breach of fiduciary duty under Section 502(a)(2) which is separate from her claim for benefits under Section 502(a)(1)(B).” Id. at *2. The court further noted that in deciding this question, the Sixth Circuit has on at least three occasions “allowed plaintiffs to pursue both a claim for benefits under Section 502(a)(1) and also to attempt to hold a plan responsible for breaches of fiduciary duty under a separate Section 502(a) action.” Id. Finally, In Hill v. Blue Cross & Blue Shield of Mich., the Sixth Circuit observed that plan-wide claims are distinct from claims seeking to correct the denial of individual benefits. 409 F.3d 710, 718 (6th Cir. 2005).

Finally, it is well-established that “[i]n ruling on a motion to dismiss, a court must view the allegations of the complaint in the light most favorable to the plaintiff.”Guarantee Co. of North America, USA v. Middleton Bros., Inc., 2010 WL 2553693, at *2 (E.D. Mo. June 23, 2010). To survive a motion to dismiss, a claim need only be facially plausible, “meaning that the factual content…allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”Id. (quoting Cole v. Homier Dist. Co., Inc., 599 F.3d 856, 861 (8th Cir. 2010)).

Conduct Outside Business Hours: Guidelines for Minimizing Risk

Posted yesterday at the National Law Review by Wendy C. Hyland of Dinsmore & Shohl LLP – one of my personal favorite topics – after hour business social activities – who knew that one Harvey Wallbanger could make a person so wacky:

Disciplining employees for conduct outside of work can be tricky territory and highly dependent on the specific nature of the incident. Consider both of the following scenarios. At an after hours dinner following a company annual meeting, several off color jokes are told about the shape of food on employees’ entrees after a few rounds of margaritas. Everyone is laughing at the jokes and no one reports being uncomfortable with the conversation. Since attendance is required, almost all employees are there, including human resources employees.

What should they do?

In the second scenario, employees playing on the company softball team go for happy hour after the game. An employee starts coming on to a co-worker and, after she rebuffs his advances, the co-worker follows her home and repeatedly knocks on her door asking to come in. At work the following Monday, she tells another co-worker about the incident but says it didn’t happen on work time and she doesn’t want to report it. The co-worker reports it to human resources, but doesn’t want anything to be done because she promised her co-worker she wouldn’t tell anyone. One event is a company-sponsored dinner following a company event, and the other is not. Is there a difference? What are the best practices to limit liability and, if necessary, discipline employees as the result of conduct outside of work hours?

Employers are in a tough position since, on one hand, parties and sports teams can be a great way to encourage employee morale and relationship building. On the other hand, they are fraught with potential legal issues, risks, and concerns. The first issue to consider is whether the event if company sponsored, because there is a difference between company-sponsored events and voluntary social opportunities. If an employee gets hurt while traveling to, or during the course of an event, the injury is likely to be considered work-related for workers’ compensation purposes. A company could be held responsible for any accidents or injuries resulting from employer-sponsored events. Ways to minimize this risk include:

eliminating alcohol at company-sponsored events and informing employees that attendance is completely voluntary;

require employees to pay for drinks, or provide drink tickets for a limited number of drinks;

stop serving alcohol one hour before the event ends; and

provide a taxi or other designated driver service or encourage employees to car pool and choose a designated driver.

What about employee behavior, whether at a company sponsored event or otherwise, and its impact on the workplace? In both of the above scenarios, there are potential issues implicating harassment/hostile work environment policies. What else can companies do to minimize risk in these situations? In the first scenario, potential measures prior to the event could include sending a company-wide e-mail explaining the parameters on alcohol, along with specific language about dress code and a reminder of the harassment/hostile work environment policy as a guide for appropriate behavior. After the event, the human resources employees could recirculate the company policy on harassment and have everyone sign an acknowledgement of receipt. In the second scenario, similar precautions regarding the parameters and rules of voluntary participation, alcohol use, and appropriate behavior could be circulated among employees before the softball season begins—handed out along with the team t-shirts. The company should immediately investigate the report on the potential harassment issue with the co-worker, even though neither party was at work when the event took place and there were requests not to do anything. Company response to issues is critical to defenses in the event of a harassment lawsuit. The co-worker’s report places the company on notice that potential issues exist, whether an employee wants its addressed or not. If warranted under company policy, disciplinary action could be appropriate, even for off duty conduct.

While legal issues and concerns are a reality, there are creative ways to minimize risk while pursuing the goal of workplace cohesion and relationship building.