Category: Administrative & Regulatory

Considerations For International Clients Who Intend to Buy A Home In the U.S.

Sheppard Mullin 2012

International buyers invested $82.5 billion in U.S. residential real estate (4.8% of total U.S. sales) according to the most recent survey conducted by the National Association of Realtors for the 12 month period ending with March 2012. According to that survey, the top states in the U.S. for international buyers were Florida, California, Arizona and Texas. That survey also finds that the top-five international buyers were from Canada, China, Mexico, India, and the United Kingdom and that Brazil also remains a major source of purchasers. Homes are bought in the U.S. for investment, vacation-use, temporary use for professional, educational (which could include providing a home to a child who is pursuing his or her education in the U.S.), and a myriad of other reasons.

U.S. home buying and ownership, without proper planning, can have unexpected and unintended consequences. Many international clients are not aware that ownership of a U.S. home triggers U.S. estate tax on death and a gift of the property during lifetime triggers U.S. gift tax. U.S. estate and gift tax is imposed at a rate of 40%. An individual who is neither a U.S. citizen nor domiciled in the U.S. can shelter only $60,000 of U.S. situs assets on death (i.e. assets located or deemed to be located within the U.S.). In terms of gifting, an individual who is neither a U.S. citizen nor domiciled in the U.S. can make annual exclusion gifts of $14,000 per year to anyone and can currently pass $143,000 per year to a spouse who is not a U.S. citizen free of gift tax. That is in contrast to the $5,250,000 that a U.S. citizen or domiciliary can pass free of estate tax on death or by gift during lifetime as well as unlimited transfers to a U.S. citizen spouse.

To avoid triggering U.S. estate tax on death, many international clients are counseled to take title to the home in a foreign “blocker” corporation which, if respected, is not subject to U.S. estate tax on death. This form of title has the added advantage of providing anonymity and liability protector to the shareholder . Owning a home in a foreign corporation triggers other more immediate tax concerns such as application of the corporate tax rate (up to 35%) in lieu of the preferential long-term capital gains rates on sale (up to 20%), possible imputed rental income for use of corporate property by the shareholder, loss of step-up in the income basis of the home on the death of the owner (the basis of the stock in the corporation would be adjusted but the inside basis—the home itself would not be entitled to a basis adjustment), and loss of the ability to avoid the home being reassessed for California real property tax purposes on transfer from parent to a child. In addition, a U.S. person who will inherit shares in a corporation that will either become a Controlled Foreign Corporation (CFC) or a passive foreign investment company (PFIC) faces numerous special compliance obligations and substantive tax issues as a result of the ownership of those shares. There are many other ways to take title, such as through a LLC or a trust and each option should be explored in depth to achieve the client’s objectives to the maximum extent possible. Consideration should also be given to planning aimed at avoiding a public court proceeding that would be necessary to convey title to the beneficiaries of an international client who dies holding title directly to a U.S. home.

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Federal Communications Commission (FCC) Considers Proposal To Lift 25% Cap On Indirect Foreign Investment In Broadcast Licensees

Sheppard Mullin 2012

In August 2012, the Coalition for Broadcast Investment (“CBI”), a group comprising national broadcast networks, radio and television station licensees, and community and consumer organizations, filed a letter with the FCC requesting clarification of the foreign ownership rules contained in Section 310(b)(4) of the Communications Act. Specifically, CBI requested clarification that “the FCC will conduct a substantive, facts, and circumstances evaluation of proposals for foreign investment in excess of 25 percent in the parent company of a broadcast licensee.…” If adopted, this approach would represent a marked change of course for the FCC, which has in the past “categorically refused” to consider transactions involving investment in broadcasters above the 25% benchmark, according to CBI.

Citing the numerous other contexts where foreign investment above 25% is permitted (including, among others, sectors such as cable, direct-to-home satellite, and wireless), CBI highlighted the “structural disadvantage” broadcasters face because of the FCC’s “effective presumption” against foreign investment above 25% in the broadcast sector. In addition, CBI pointed out that ending the presumption would place broadcasters “on the same footing” as other industry participants, facilitating crucial access to capital in a market where they face increasing competition for consumers.

In February 2013, the FCC responded with a Public Notice (MB Docket No. 13-50) soliciting comments on CBI’s request. The first round of comments were due April 15, and a review of those submissions reveals a uniform desire for the FCC to relax the de facto 25% indirect cap applied to foreign ownership in broadcasters. Although all commenters supported CBI’s request, different groups highlighted particular points of emphasis.

Adelante Media Group, the National Association of Broadcasters, and Nexstar Broadcasting all noted that the Over-the-Top providers competing with traditional broadcasters face no restriction on foreign ownership. The Minority Media and Telecommunications Council emphasized that encouraging foreign investment in broadcasters would help “reverse the decline in minority broadcast ownership.” The National Association of Media Brokers referenced the fact that many entities that provided working capital to prospective new broadcasters were no longer in the market.

The question remains whether the FCC will hear the pleas of the broadcasters for regulatory parity. On the one hand, broadcasters may have reason for optimism if the FCC’s recent Public Notice (IB Docket No. 11-133) stating that it has streamlined its policies and procedures for reviewing foreign ownership of common carrier wireless licenses and certain aeronautical radio licenses is any indication. On the other hand, the broadcast industry has a long history of special concern in Congress due to its potential to influence the outcome of elections, and the FCC has not yet heard from Congress on these issues.

Reply comments on the proposal to lift the 25% cap on indirect foreign ownership of broadcast licensees are due at the FCC on April 30.

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Petitioner Allowed to Submit Supplemental Information After Institution of Covered Business Method Patent Trial and Appeal Board Trial

Schwegman Lundberg Woessner

In Interthinx, Inc. v. Corelogic Solutions, LLC (CBM2012-000007), the Petitioner (Interthinx) was allowed to submit supplemental information under 37 C.F.R. § 42.223 after trial was instituted in this covered business method patent review (CBM).  Trial was instituted by the PTAB on January 31, 2013.  On February 27, 2013, Interthinx filed a Request for Authorization to File Motion to Submit Supplemental Information Pursuant to 37 C.F.R. § 42.223.  Corelogic sought to oppose the Petitioner’s request and motion.  Corelogic requested authorization to oppose Petitioner’s motion to supplement the record.  The PTAB denied Corelogic’s request and granted Petitioner’s request.

The supplemental information included testimony by the inventor (Dr. Jost) in an action styled Corelogic Information Solutions, Inc. v. Fiserv, Inc. et al. (1:10-CV-132-RSP)(E.D. Texas).  The PTAB reasoned that the Corelogic v. Fiserv trial occurred after the petition in the instant action was filed, and therefore the information from Dr. Jost was not available at the time the petition was filed.   The Petitioner also sought to submit testimony of another inventor (Krishna Gopinathan) taken in a depostion before the trial.  The inventors’ testimony relates to what the inventors invented, which the PTAB found to be directly related to an issue for which the trial was instituted.

The PTAB concluded the order by granting the Petitioner’s motion to submit supplemental information.  The order was entered April 16, 2013 as paper number 28.

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Border Security, Economic Opportunity, and Immigration Modernization Act of 2013

Morgan Lewis logo

The first major immigration proposal in several years contains sweeping changes, with the president potentially signing a version by mid-June.

On April 17, a bipartisan group of senators known as the “Gang of Eight” introduced the first major immigration proposal in several years, aimed at comprehensively overhauling the nation’s immigration laws. The group of lawmakers—Senators Charles Schumer (D-N.Y.), John McCain (R-Ariz), Richard Durbin (D-Ill.), Lindsey Graham (R-S.C.), Robert Menendez (D-N.J.), Marco Rubio (R-Fla.), Michael Bennet (D-Colo.), and Jeff Flake (R-Ariz.)—met in numerous closed-door sessions over the last several months to hammer out differences on a wide range of issues, from border security to H-1B program changes. The 844-page proposal, S. 744, can be viewed here.

Hearings on the bill will begin on April 19, and the legislation could be marked up as early as May. Assuming the Senate approves the bill by a sufficiently wide majority, and if there are no major obstacles in the House of Representatives, President Barack Obama could sign a version of comprehensive immigration reform by mid-June. Most of the provisions of the bill would take effect 180 days after the bill is signed by President Obama.

The Senate bill contains sweeping changes that are difficult to distill completely in a summary. Moreover, it is important to bear in mind that any final bill that Congress sends to President Obama for signature may contain major alterations from the Senate proposal. However, some of the major highlights of the Senate bill are provided below.

Border Security and Legalization

  • S. 744 provides for the creation of a registered provisional immigrant (RPI) program to legalize undocumented immigrants who have been physically present in the United States (except for certain absences) since December 31, 2011. Certain individuals who were present in the United States before that date but who were deported for noncriminal reasons may also apply, provided they have family members living in the United States. The spouse and minor children of an applicant for this program may apply, provided they meet the requirements. In order to be eligible, an applicant must not have been convicted of a serious crime, must pass a background check, must pay any assessed tax liability, and must pay application fees and a $500 fine. Initial registration will be valid for six years and subject to renewal. An RPI will receive unrestricted work authorization and travel permission. An employer who knows that an employee has applied for RPI status will not be in violation of the law if the employer continues to employ the applicant while the application is pending.
  • RPIs will be permitted to become lawful permanent residents (LPRs) (green card holders) after 10 years, provided that certain border security milestones are reached and current employment and family immigration backlogs are cleared. The proposal requires the secretary of the U.S. Department of Homeland Security to develop a “Comprehensive Southern Border Security Strategy” and a “Southern Border Fencing Strategy,” and both must be operational before RPIs may become LPRs. RPIs may become citizens after having been LPRs for three years.
  • Undocumented individuals who (i) entered the United States before the age of 16, (ii) completed high school or the equivalent, and (iii) completed at least two years toward a bachelor’s degree or served in the U.S. military for four years may obtain RPI status and apply for permanent residence after five years without penalties or border security triggers. These individuals may also apply for citizenship as soon as they obtain their green cards. This provision is commonly known as the DREAM Act.
  • Undocumented agricultural workers who can demonstrate that they worked a minimum of 100 work days or 575 hours in the two years prior to enactment may be eligible for a “Blue Card,” and undocumented agricultural workers who work for at least 100 days a year for five years or 150 days a year for three years may become LPRs.

Changes to Legal Immigration

  • S. 744 proposes to create two “merit-based” immigration systems. These systems will exist in parallel with the current employment and family-based systems, as amended by the bill. “Merit-based points track one” will set aside 120,000 immigrant or permanent resident visas annually (with a possible increase up to 250,000) for individuals who can demonstrate that they have sufficient points to qualify. Points will be awarded for factors such as education, achievement, employment, family in the United States, and length of residence. Half of the points-based visas will be for high-skilled workers and half will be for lesser-skilled workers. “Merit-based track two” will be a system for allocation of immigrant visas to clear out the backlog of long-pending employment-based and family-based cases filed prior to enactment.
  • S. 744 proposes to eliminate the per country quota limits on employment-based immigrant (green card) visas. This provision will benefit nationals of India and China who are disproportionately affected by these limits due to the large number of immigrants who come to the United States from these two countries. The bill will also increase from 7% to 15% the per country quota limits for family-based immigrants.
  • The diversity visa lottery will be eliminated.
  • Spouses and children of LPRs will be considered to be immediate relatives and will be eligible to immigrate immediately to the United States.
  • The sibling category of family immigration will be phased out in 18 months.
  • A new temporary visa, the V visa, will allow families with approved immigrant petitions to come to the United States temporarily while awaiting final permanent residence processing.
  • Certain categories will be exempt from the annual cap on permanent employment-based immigration. The exempted groups include spouses and children of employment-based visa applicants, foreign nationals with extraordinary ability, outstanding professors and researchers, foreign nationals with doctoral degrees, and certain foreign physicians.
  • Foreign nationals with master’s degrees in science, technology, engineering, or mathematics (STEM) will be exempt from labor certification. Note that the list of STEM degrees in the current proposal does not include the life sciences.
  • The EB-5 program, which grants green cards to certain investors, will be permanently reauthorized. Other special programs for doctors and religious workers will also be reauthorized.

Employment Verification

  • S. 744 provides for the replacement of Form I-9 with a new form, which includes a reduction in the number and types of acceptable identity and employment eligibility documents.
  • A new mandatory electronic Employment Verification System (EVS) based on the current E-Verify system will include an enhanced photo tool that incorporates U.S. Citizenship and Immigration Services, State Department, and enhanced driver’s license photos. Use of the system will be required for all employers, and the system will be phased in over a five-year period, based on the size of the employer:
    • Employers with more than 5,000 employees: two years after regulations are published
    • Employers with more than 500 employees: three years after regulations are published
    • All other employers: no later than four years after regulations are published
    • Critical infrastructure employers: no later than one year after regulations are published
  • S. 744 expands and clarifies employer good-faith defenses for paperwork and de minimis violations. At the same time, the proposal contains significant increases for the following: civil penalties for violations based on knowingly violating the unlawful employment provisions or the employment verification provisions of the act; criminal penalties for egregious violations of the act combined with federal wage and hour or Occupational Safety and Health Administration (OSHA) violations; civil and criminal sanctions for pattern or practice violations combined with federal wage and hour or OSHA violations; and employer sanctions for unlawful discrimination on the basis of national origin or citizenship or for unfair immigration-related employment practices.
  • Most state and local government laws that seek to sanction employers for the employment of unauthorized aliens will be preempted, but states will be permitted to tie licensing authority to the proper use of EVS.
  • The Social Security Administration will be required to develop a new fraud-, tamper-, and identity theft–resistant Social Security card within five years of enactment.

Changes to Temporary Immigration

  • S. 744 will increase the annual cap on new H-1B petitions starting in the 2015 fiscal year from 65,000 to 110,000 and will allow this cap to be increased to a maximum of 180,000 new petitions annually, based on a “high skilled jobs demand index.” The 20,000 cap for holders of advanced degrees from U.S. universities will be replaced with a 25,000 cap for holders of advanced degrees in STEM fields from U.S. universities. The bill also will impose new recruiting and nondisplacement requirements on all H-1B employers.
  • Limits will be placed on the number of H-1B and L-1 workers an employer may employ. If the employer employs 50 or more employees, the percentage of its workforce comprising H-1B workers may not exceed 75% in 2015, 65% in 2016, and 50% after 2016 (“intending immigrants” will not be included in these calculations).
  • H-1B “dependent” employers of H-1B workers (generally, employers whose H-1B workers amount to 15% or more of the total workforce) will have new stringent wage obligations, increased filing fees, additional recruitment obligations, and a prohibition on “outplacement” of H-1B workers.
  • Certain H-4 spouses of H-1B nonimmigrants will be granted employment authorization.
  • “Deference” will be granted to prior approvals of H-1B and L-1 petitions. This means that extension petitions filed by the same petitioners for the same employees should not be denied absent a finding of material error, changed circumstances, or new material information.
  • Terminated H-1B employees will be granted a 60-day grace period from termination, during which they will be considered to be in legal status.
  • Visa revalidation (obtaining a visa renewal) while remaining in the United States will be made available to A, E, G, H, I, L, N, O, P, R, and W nonimmigrants.
  • A new $500 “STEM education and training” fee will be payable for labor certification applications.
  • A prohibition on the “outplacement” of L-1 workers will be introduced.
  • The requirements for approval of an L-1 petition for employment at a “new office” will be significantly heightened.
  • “Dual intent” will be permitted for F-1 students, removing the prohibition on immigrant intent for such students.
  • Portability, or the ability to accept employment with a new employer upon the filing of a nonimmigrant petition, will be made available to O-1 nonimmigrants as it is currently for H-1B nonimmigrants.
  • For most temporary work visa categories, employees in these categories may continue to work for the same employer during the pendency of any extension of stay.
  • S. 744 will extend visa eligibility based on Free Trade Agreements to nationals of Ireland (E-3 visa) and Korea (E-5 visa) and will allow the president to extend eligibility to nationals of other countries upon signing Free Trade Agreements in the future with such countries (E-4 visa). Unlike the E-3 visa classification currently available to nationals of Australia, which is reserved for persons with bachelor’s or higher degrees, the new E-3 visa for Irish nationals will be available to non-degreed individuals. The bill will also provide a special exemption for all E visa applicants who have previously violated U.S. immigration law, making it easier for such persons to obtain a waiver of inadmissibility.
  • A new visa category, W or new worker visa, will be created. This will be available to lesser-skilled foreign workers performing services or labor for a registered employer in a registered position (possibly excluding “computer occupations”) and will be valid for three years, with extensions available in three-year periods. 20,000 W visas will be available initially; this will be increased to 75,000 within four years, with an increase of up to 200,000 being available based on various indices. W workers working in “shortage occupations” will be exempt from the cap. Spouses and children of W nonimmigrants will be granted employment authorization. W-2 and W-3 visa categories will also be created for temporary agricultural workers to replace the H-2A program. These categories will not allow spouses and children to accompany the worker.
  • Special visa categories will be created for Canadian retirees and other retirees who purchase property, but who will not work, in the United States.
  • The INVEST nonimmigrant visa will be created. This will be available to overseas entrepreneurs who plan to start their own companies in the United States and who can demonstrate that at least $100,000 has been invested in the relevant business or that such a business has generated no fewer than three jobs and $250,000 in revenue. The INVEST visa will be valid for three years and may be extended if the entrepreneur can meet certain job creation and revenue benchmarks. An INVEST immigrant visa (green card) will be made available if the entrepreneur can meet certain job creation and revenue benchmarks.

As mentioned above, S. 744 will likely go through many changes as it moves through Congress in the legislative process. We will continue to monitor and inform our clients of new developments on this proposed legislation.

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Investment Regulation Update – April 2013

GT Law

The Investment Regulation Update is a periodic publication providing key regulatory and compliance information relevant to broker-dealers, investment advisers, private funds, registered investment companies and their independent boards, commodity trading advisers, commodity pool operators, futures commission merchants, major swap participants, structured product sponsors and financial institutions.

This Update includes the following topics:

  • SEC Adopts Rules to Help Protect Investors from Identity Theft
  • Increased Attention to Broker-Dealer Registration in the Private Fund World
  • SEC Issues Guidance Update on Social Media Filings By Investment Companies
  • AIFMD — Effect on U.S. Fund Managers
  • SEC Announces 2013 Examination Priorities
  • Reminder — Upcoming Form PF Filing Deadline
  • Reminder — Upcoming Dodd-Frank Protocol Adherence Deadline
  • Are you a Lobbyist?
  • Recent Events

SEC Adopts Rules to Help Protect Investors from Identity Theft

On April 10, 2013, SEC Chairman Mary Jo White’s official first day on the job, the SEC, jointly with the CFTC, adopted rules and guidelines requiring broker-dealers, mutual funds, investment advisers and certain other regulated entities that meet the definition of “financial institution” or “creditor” under the Fair Credit Reporting Act (FCRA) to adopt and implement written identity theft prevention programs designed to detect, prevent and mitigate identify theft in connection with certain accounts. Rather than prescribing specific policies and procedures, the rules require entities to determine which red flags are relevant to their business and the covered accounts that they manage to allow the entities to respond and adapt to new forms of identity theft and the attendant risks as they arise. The rules also include guidelines to assist entities subject to the rules in the formulation and maintenance of the required programs, including guidelines on identifying and detecting red flags and methods for administering the program. The rules also establish special requirements for any credit and debit card issuers subject to the SEC or CFTC’s enforcement authority to assess the validity of notifications of changes of address under certain circumstances. Chairman White stated, “These rules are a common-sense response to the growing threat of identity theft to all Americans who invest, save or borrow money.” The final rules will become effective 30 days after date of publication in the Federal Register and the compliance date will be six months thereafter.

Increased Attention to Broker-Dealer Registration in the Private Fund World

The role of unregistered persons in the sale of interests in privately placed investment funds is an area of great interest for the SEC and the subject of recent enforcement actions. On March 8, 2013, the SEC filed and settled charges against a private fund manager, Ranieri Partners, LLC, one of the manager’s senior executives and an external marketing consultant regarding the consultant’s failure to register as a broker-dealer. The Ranieri Partners enforcement actions are especially interesting for two reasons: (i) there were no allegations of fraud and (ii) the private fund manager and former senior executive, in addition to the consultant, were charged.

On April 5, 2013, David Blass, the Chief Counsel to the SEC’s Division of Trading and Markets, addressed a subcommittee of the American Bar Association. His remarks have been posted on the SEC website. Mr. Blass referenced a speech by the former Director of the Division of Investment Management, who expressed concern that some participants in the private fund industry may be inappropriately claiming to rely on exemptions or interpretive guidance to avoid broker-dealer registration.

In addition, Mr. Blass noted Securities Exchange Act Rule 3a4-1’s safe harbor for certain associated persons of an issuer generally is not or cannot be used by private fund advisers. He suggested that private fund managers should consider how they raise capital and whether they are soliciting securities transactions, but he did acknowledge that a key factor in determining whether someone must register as a broker-dealer is the presence of transaction-based compensation. The Chief Counsel also raised the question of whether receiving transaction-based fees in connection with the sale of portfolio companies’ required broker-dealer registration. He suggested that private fund managers may receive fees additional to advisory fees that could require broker-dealer registration, e.g., fees for investment banking activity.

On a related note, in two recent “no-action” letters, the SEC has established fairly clear rules regarding how Internet funding network sponsors may operate without being required to register as broker-dealers. On March 26 and 28, 2013, the SEC’s Division of Trading and Markets addressed this narrow, fact-specific issue in response to requests from FundersClub Inc. and AngelList LLC seeking assurances that their online investment matchmaking activities would not result in enforcement action by the SEC. The April 10, 2013 GT Alert—SEC Clarifies Position on Unregistered Broker-Dealer Sponsors of Internet Funding Networks is availablehere.

SEC Issues Guidance Update on Social Media Filings by Investment Companies

On March 15, 2013, the SEC published guidance from the Division of Investment Management (IM Guidance) to clarify the obligations of mutual funds and other investment companies to seek review of materials posted on their social media sites. This report stems from the SEC’s awareness of many mutual funds and other investment companies unnecessarily including real-time electronic materials posted on their social media sites (interactive content) with their Financial Industry Regulatory Authority filings (FINRA). In determining whether a communication needs to be filed, the content, context, and presentation of the communication and the underlying substantive information transmitted to the social media user and consideration of any other facts and circumstances are all taken into account, such as whether the communication is merely a response to a request or inquiry from the social media user or is forwarding previously-filed content. The IM Guidance offers examples of interactive content that should or should not be filed with FINRA. The IM Guidance is the first in a series of updates to offer the SEC’s views on emerging legal issues and to provide transparency and enhance compliance with federal securities laws and regulations. You may find a link to the SEC Press Release and IM Guidance here.

On a related note, on April 2, 2013, the SEC released a report of an investigation regarding whether the use of social media to disclose nonpublic material information violates Regulation FD. The SEC has indicated that, in light of evolving communication technologies and habits, the use of social media to announce corporate developments may be acceptable; however, public companies must exercise caution and undertake careful preparation if they wish to disseminate information through non-traditional means. The April 5, 2013 GT Alert—Social Media May Satisfy Regulation FD But Not Without Risk and Preparation by Ira Rosner is available here.

AIFMD – Effect on U.S. Fund Managers

New European Union legislation that regulates alternative asset managers who manage or market funds within the EU comes into force on July 22, 2013. The Alternative Investment Fund Managers Directive (AIFMD) will have a significant impact on U.S. fund managers if they actively fundraise in Europe after July 21, 2013 (or if they manage EU-domiciled fund vehicles). Historically, U.S. private equity firms raising capital in Europe have relied on private placement regimes that essentially allowed marketing to institutions and high net worth investors. Beginning July 22, 2013, U.S. fund managers may continue to rely on private placement regimes in those EU jurisdictions that continue to operate them; however, they will now be under an obligation to meet certain reporting requirements and rules set out in the AIFMD relating to:

  • transparency and disclosure, and
  • rules in relation to the acquisition of EU portfolio companies.

The transparency and disclosure rules require, for the most part, the disclosure of information typically found in a PPM; however, additional items are likely to be required such as the disclosure of preferential terms to particular investors and level of professional indemnity cover. The rules also require reports to be made to the regulator in each jurisdiction in which the fund has been marketed. The reports will need to include audited financials, a description of the fund’s activities, details of remuneration and carried interest paid, and details of changes to material disclosures. Acquisitions of EU portfolio companies also lead to reporting obligations on purchase – an annual report – and a rule against “asset stripping” for 24 months after the acquisition of control. Firms with less than €500 million in assets under management are exempt from the reporting requirements and reverse solicitation is potentially an option, as the directive does not prevent an EU institution from contacting the U.S. fund manager, but in practice it may be difficult to apply systematically.  Fund managers may choose to register in the EU on a voluntary basis from late 2015. This will allow marketing across all EU member states on the basis of a single registration. However, registration will come with a significant compliance burden. If you plan to market in the EU after July 23, 2013, ensure that you review your marketing materials, evaluate your likely reporting obligations and consider how the portfolio company acquisition rules are likely to impact your transactions.

SEC Announces 2013 Examination Priorities

On February 21, 2013 the SEC’s National Examination Program (NEP) published its examination priorities for 2013. The examination priorities address issues market-wide, as well as issues relating to particular business models and organizations. Market-wide priorities include fraud detection and prevention, corporate governance and enterprise risk management, conflicts of interest, and technology controls.  Priorities in specific program areas include: (i) for investment advisers and investment companies, presence exams for newly registered private fund advisers, and payments by advisers and funds to entities that distribute mutual funds; (ii) for broker-dealers, sales practices and fraud, and compliance with the new market access rule; (iii)for market oversight, risk-based examinations of securities exchanges and FINRA, and order-type assessment; and (iv) for clearing and settlement, transfer agent exams, timely turnaround of items and transfers, accurate recordkeeping, and safeguarding of assets, and; (iv) for clearing agencies, designated as systemically important, conduct annual examinations as required by the Dodd-Frank Act. The priority list is not exhaustive. Importantly, priorities may be adjusted throughout the year and the NEP will conduct additional examinations focused on risks, issues, and policy matters that are not addressed by the release.

Reminder—Upcoming Form PF Filing Deadline

SEC registered investment advisers who manage at least $150 million in private fund assets with a December 31st fiscal year end should be well underway in preparing their submissions for the approaching April 30, 2013 deadline. Filings must be made through the Private Fund Reporting Depository (PFRD) filing system managed by the Financial Industry Regulatory Authority (FINRA). As a reminder, advisers to three types of funds must file on Form PF: hedge funds, liquidity funds and private equity funds. Hedge funds are generally defined as a private fund that has the ability to pay a performance fee to its adviser, borrow in excess of a certain amount or sell assets short. Liquidity funds are defined as a private fund seeking to generate income by investing in short-term securities while maintaining a stable net asset value for investors. Private equity funds are defined in the negative as not a hedge fund, liquidity fund, real estate fund, securitized asset fund or venture capital fund and does not generally provide investors with redemption rights. When classifying its funds, advisers should carefully read the fund’s offering documents and definitions on Form PF and should seek assistance of counsel. Particularly, we have seen the broad definition of hedge fund cause a fund considered a private equity fund by industry-standards to be a hedge fund for purposes of Form PF, thus subjecting the fund to more expansive reporting requirements. As is the case with filing Form ADV through IARD, the $150 Form PF filing fee is paid through the same IARD Daily Account and must be funded in advance of the filing. FINRA recently updated their PFRD System FAQs. The SEC has also posted new Form PF FAQs, which should be referred to for upcoming filings.

Reminder — Upcoming Dodd-Frank Protocol Adherence Deadline

All entities, including private funds, engaged in swap transactions must adhere to the ISDA Dodd-Frank Protocol no later than May 1, 2013 in order to engage in new swap transactions on or after May 1. Adherence to the Dodd-Frank Protocol will result in an entity’s ISDA swap documentation being amended to incorporate the business conduct rules that are applicable to swap dealers under Dodd-Frank.  Adherence to the Protocol involves filling out a questionnaire to ascertain an entity’s status under Dodd-Frank (e.g., pension plan, hedge fund and corporate end-user).  Further information on adherence to the Protocol can be obtained at ISDA’s website by clicking here.

Are you a lobbyist?

Over the last decade, many state and municipal governments have enacted new laws regarding how businesses may interact with government officials. These laws often establish new rules expanding the activities that are deemed to be “lobbying,” who is required to be registered as a lobbyist and what information must be publicly disclosed. Approximately half of the states, and countless municipalities, now define lobbying to include attempts to influence government decisions regarding procurement contracts – including contracts for investment advisors and placement agents – and impose steep penalties for companies that fail to register and disclose their “lobbying” activities and expenditures. Although some lobbying laws include exceptions for communications that occur as part of a competitive bidding process, the rules are inconsistent and not always clear. For example, although New York City’s lobbying law long included procurement lobbying, in 2010 the City’s Corporation Counsel and the City Clerk issued letters warning businesses that “activities by placement agents and other persons who attempt to influence determinations of the boards of trustees by the City’s . . . pension funds” are likely to be considered lobbying activity that requires registration and disclosure. Similarly, California’s lobbying law was expanded in 2011 to expressly include persons acting as “placement agents” in connection with investments made by California retirement systems, or otherwise seek to influence investment by local public retirement plans. Greenberg Traurig’s Investment Regulation Group, in conjunction with our Political Law Compliance team, is available to assist clients with questions regarding how to navigate increasingly complex lobby compliance laws and rules across the country and beyond. GT has a broad range of experience in advising to some of the world’s leading corporations, lobbying firms, public officials and others who seek to navigate lobbying and campaign finance laws.

Recent Events

On April 18, 2013, GT hosted the seminar, “The Far Reaching Impact of FATCA Across Borders and Across Industries” as both a webinar and live program in NY and Miami. The seminar explored the latest FATCA regulations and key intergovernmental agreements as well as their applications to a variety of industries. Click here to view the presentation.

On April 10, 2013, GT sponsored Artisan Business Group’s EB-5 Finance seminar at our NYC office. The program exposed participants to a unique alternative financing opportunity for projects that lend themselves to the EB-5 immigrant investor program and featured several GT speakers, including Steve Anapoell and Genna Garver, Co-Chair of the Investment Regulation Group, who provided a securities law update and considerations in the EB-5 area. Guest speakers included Jeff Carr from EPR, Phil Cohen from the EB-5 Resource Center, and Reid Thomas from NES Financial.

On April 2, 2013, GT co-hosted a Global Compliance seminar with Dun & Bradstreet on Foreign Corrupt Practices Act (FCPA) issues. The program included an overview of the FCPA, with a specific emphasis on the Department of Justice’s recently released Resource Guide to the FCPAand recent enforcement activities. A link to the Resource Guide can be found here.

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Protections to Be Extended for Electronic Health Record Donations

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CMS and OIG issue similar proposed rules to modify the electronic health record exception and safe harbor.

On April 10, the Centers for Medicare & Medicaid Services (CMS) and the Office of Inspector General (OIG) of the Department of Health and Human Services published nearly identical proposed rules in the Federal Register to revise and extend protections for certain arrangements involving the donation of electronic health record (EHR) items and services (Proposed EHR Donation Rules).[1] The Proposed EHR Donation Rules will be open for comments until June 7. Both CMS and OIG note that their proposed rules mirror one another in an effort to “ensure as much consistency as possible between [the] proposed . . . changes, despite the differences in the respective underlying statutes.” CMS and OIG also note that they will consider comments submitted to the other agency in creating their respective final rules.

EHR Exception and EHR Safe Harbor

In August 2006, CMS and OIG simultaneously published final rules establishing an exception to the federal Physician Self-Referral (Stark) Law (EHR Exception)[2] and a safe harbor to the federal Anti-Kickback Statute (AKS) (EHR Safe Harbor).[3] The EHR Exception and the EHR Safe Harbor protect certain arrangements related to the donation of interoperable EHR software technology and training services, and both are supposed to sunset on December 31, 2013. The EHR Exception and the EHR Safe Harbor established requirements addressing who could donate EHR software and training services, what items and services could be included in the donation, and other conditions necessary to comply with the EHR Exception and the EHR Safe Harbor.

Proposed Revisions to the EHR Exception and the EHR Safe Harbor

If finalized, under the Proposed EHR Donation Rules, CMS and OIG would amend certain requirements of the EHR Exception and the EHR Safe Harbor, as summarized below.

  • Extension of the Sunset Date: The sunset date would be extended to December 31, 2016. Neither CMS nor OIG favors eliminating the sunset provisions altogether, stating that the need for an exception for donations of technology should continue to diminish over time. CMS and OIG note that the December 31, 2016, date corresponds to the last year that Medicare EHR incentive payments will be available and the last year to initiate participation in the Medicaid EHR program.
  • Modification of the Interoperability Requirement: Under the current EHR Exception and EHR Safe Harbor, the donated EHR must be interoperable. EHR is “deemed” to be interoperable if it attained certification within one year prior to the date of donation. CMS and OIG propose to update this provision to reflect that the Office of the National Coordinator for Health Information Technology (ONC) is responsible for “recognizing” certifying bodies. To integrate the ONC’s process for adopting certification criteria and standards, which is anticipated to occur on a two-year interval, the current 12-month time line for certification would be removed. A new provision that “more closely tracks the current ONC certification [provision]” would be substituted. Specifically, software would be eligible for deeming if, on the date of donation, “it has been certified to any edition of the electronic health record certification criteria that is identified in the then applicable definition of Certified EHR Technology.”
  • Removal of E-Prescribing Capability Requirement: CMS and OIG also propose to remove the electronic prescribing capability requirement from the EHR Exception and the EHR Safe Harbor as a requirement for software and training services being eligible for donation. In light of the “meaningful use” standard promulgated under the Health Information Technology for Economic and Clinical Health Act and the progress related to electronic prescribing (e-prescribing) made by the industry, CMS and OIG note that the e-prescribing requirement is no longer necessary to achieve the goal of adopting e-prescribing capabilities for EHR records.
  • Additional Proposals and Considerations: The Proposed EHR Donation Rules include the following alternatives to amend EHR Exception and EHR Safe Harbor provisions for which CMS and OIG are seeking public comments:
    • Protected Donors: CMS and OIG propose to limit the scope of protected donors. One proposal would include only the original Medicare Modernization Act–mandated donors, i.e., hospitals, group practices, prescription drug plan sponsors, and Medicare Advantage organizations. Alternatively, CMS and OIG are considering excluding only specific types of donors but retaining the current definition of “protected donors.” Potential targets for exclusion would include (i) laboratory companies, (ii) durable medical equipment suppliers, and (iii) independent home health agencies. This proposed revision was prompted, in part, by concerns that abusive donations are being made—i.e., donors are using the EHR Exception and the EHR Safe Harbor to provide referral sources with items and services that appear to support the interoperable exchange of information but which instead lead to referrals and data lock-in.
    • Data Lock-In and Exchange: CMS and OIG also note that they are considering new or modified conditions to add to the existing EHR Exception and EHR Safe Harbor that would achieve the dual goals of (i) preventing the misuse of the EHR Exception and the EHR Safe Harbor in a way that results in data and referral lock-in and (ii) encouraging the free exchange of data. For example, CMS states in its proposed rule that “it has been suggested that even when donated software meets the interoperability requirements of the rule, policies and practices sometimes affect the true ability of electronic health record technology items and services to be used to exchange information across organizational and vendor boundaries.”
    • Covered Technology: CMS and OIG are seeking comments regarding the modification of the regulatory text of the EHR Exception and the EHR Safe Harbor to enumerate those items or services that fall within the scope of covered technology for purposes of the EHR Exception and the EHR Safe Harbor.

Given that there is no requirement for parties to an arrangement to comply with the requirements of an AKS safe harbor, the proposed revisions to the EHR Exception may be more relevant for those designated health entities that have or may plan to donate EHR items and services to physicians who refer Medicare beneficiaries to their institutions. This is particularly the case if the agencies finalize the proposed revision to the definition of an “eligible donor” when an entity removed from the list of protected donors has or is in the process of donating EHR items and services.

[1]. Physicians’ Referrals to Health Care Entities With Which They Have Financial Relationships: Exception for Certain Electronic Health Records Arrangements, 78 Fed. Reg. 21,308 (Apr. 10, 2013) (to be codified at 42 C.F.R. pt. 411), available here; Electronic Health Records Safe Harbor Under the Anti-Kickback Statute, 78 Fed. Reg. 21,314 (Apr. 10, 2013) (to be codified at 42 C.F.R. pt. 1001), available here.

[2]. 42 C.F.R. § 411.357(w).

[3]. 42 C.F.R. § 1001.952(y).

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“Gang of Eight” Senators Introduce Comprehensive Immigration Reform Legislation

GT Law

On April 17th, the group of Senators known as the “Gang of Eight” introduced the Border Security, Economic Opportunity, and Immigration Modernization Act of 2013, a comprehensive immigration reform bill, in the U.S. Senate. This bipartisan measure includes significant and wide-ranging changes to the nation’s current immigration system, including a path to citizenship for undocumented immigrants and key structural changes to temporary visas and employment verification requirements, as well as a new visa for low-skilled labor. Below is a summary of the key changes proposed in the new legislation, was also presented by the “Gang of Eight” in a press conference today. Greenberg Traurig will continue to monitor developments surrounding comprehensive immigration reform and provide additional updates about issue-specific proposals as we continue to assess the proposed changes contemplated by this bill.

Legalization for Undocumented Immigrants

The proposed legislation would permit unlawfully present individuals who entered the U.S. on or prior to December 31, 2011 to obtain Registered Provisional Immigrant (RPI) status. Such individuals would need to pay a penalty and back taxes. However, they would be permitted to apply for Legal Permanent Resident (LPR) status after ten years as well as eventual naturalization. Agricultural workers and DREAM Act-eligible applicants would receive the benefit of expedited eligibility for the benefits above.

Family-Based Immigration

The proposed legislation would transfer the FB-2A visa category applicable to the spouses and children of U.S. Legal Permanent Residents to the FB-2A category currently in effect for the immediate relatives of U.S. citizens, eliminate the FB-4 category for the siblings of U.S. citizens, and limit the age of eligibility for the married children of U.S. citizens to 31 years old. The bill would also reinstate the V visa for the spouses and children of Lawful Permanent Residents.

Employment-Based Immigration

The proposed legislation would exempt EB-1 immigrants, individuals with doctoral degrees, physicians who have completed the foreign residency requirements and derivatives from the annual quota. A new EB-6 category for certain classes of entrepreneurs would also be introduced.

H-1B Non-Immigrant Visas

The proposed legislation would increase the current annual quota of 65,000 H-1B visas to 110,000, with a yearly ceiling of 180,000 visas. The bill would increase the number of visas available to holders of advanced degrees from the current 20,000 visas to 25,000, with the caveat that this allotment be allocated toward STEM graduates only. The H-1B application process would also undergo major structural changes, including the introduction of a recruitment requirement for all Labor Condition Applications on a website managed by the U.S. Department of Labor, a non-displacement attestation, and a change to formula for calculating the prevailing wage. Significantly, H-4 dependents would also have access to employment authorization and H-1B holders would enjoy a 60-day grace period to find new sponsorship after termination.

Low and Lesser Skilled Labor

The new legislation aims to create a W visa for lesser-skilled non-agricultural workers (W-1), temporary agricultural workers who perform work under a written contract (W-2), and “at-will” workers who receive a full-time employment offer in an agricultural field (W-3). The new W visa program would supplant the current H-2A agricultural worker program.

Immigration Compliance

The new legislation would make E-Verify, the federal government’s Web-based employment eligibility verification system, mandatory for all employers across the nation. The phase-in period, ranging from 90 days to 4 years, would vary according to the company’s number of employees. In addition, the bill includes language indicating that employers will be presumed to have knowingly hired an unauthorized worker if they do not verify the individual’s work authorization via E-Verify after their mandatory enrollment date. The new bill would also permit employers to utilize a three-day grace period for re-verifying the work authorization of employees with expired work authorization. It also calls for the Social Security Administration (SSA) to create tamper-resistant Social Security Cards to combat document fraud.

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Senate Immigration Bill To Impact Business, Technology and Defense Sectors

Barnes & Thornburg

On April 17, 2013, a bipartisan group of U.S. Senators known as the “Gang of Eight” introduced an immigration bill entitled the “Border Security, Economic Opportunity, and Immigration Modernization Act of 2013.”

The bill includes provisions that substantially increase the number of visas for highly-skilled workers, creates a new visa category for lower-skilled workers, eliminates the backlog for employment-based immigration, and authorizes significant resources to achieve border security.

The bill aims to increase the annual cap of certain employment-based nonimmigrant visas (H-1B) from 65,000 to 110,000 and the number may increase up to 180,000 depending on labor demands and the unemployment rate. In order to ensure that American workers are not displaced by H-1B workers, employers will continue to be required to pay the prevailing wage to H-1B workers and it has been proposed that the prevailing wage system be strengthened. Also in fiscal year 2014, companies will be banned from bringing in additional workers if more than 75 percent of their workers are H-1B or L-1 employees. The bill also provides for dual intent visas for all students who come to the U.S. on a bachelor or advanced degree program.

To ensure the U.S. has sufficient lower-skilled workers, the bill creates a new nonimmigrant category known as the W-Visa. Eligible recipients would be immigrants who come to the U.S. to perform services or labor for a registered employer and for a registered position. Beginning April 1, 2015, unless the Secretary of Homeland Security extends the start date, the maximum cap for four years would be 75,000 visas.

The bill proposes to exempt from the annual numerical limits multinational executives and managers; immigrants of extraordinary ability in the sciences, arts, education, business, or athletics; and doctoral degree holders in the science, technology, engineering and mathematics (STEM) fields.

The bill allocates a significant number of all employment-based visas to individuals holding advanced degrees in STEM fields, in particular. The bill also creates startup visas for foreign entrepreneurs seeking to establish a company in the U.S.

The bill provides $3 billion to implement the Comprehensive Southern Border Security Strategy for achieving and maintaining effective control in all high risk border sectors along the southern border. The funds will be used for acquiring, among other things surveillance and detection capabilities developed or used by the U.S. Department of Defense; fixed, mobile, and agent portable surveillance systems; and unmanned aerial systems and fixed-wing aircraft and necessary and qualified staff equipment to fully utilize such systems.

The bill permits undocumented immigrants, who entered the U.S. before December 31, 2011 and who do not have a serious criminal record, to apply for a Registered Provisional Immigrant (RPI) status. This would permit an individual to work legally in the U.S. for any employer. RPI status would last for a 6-year term that is renewable if the worker has not committed any acts that would render the worker deportable.

The Senate bill is likely to undergo changes as other U.S. Senators and constituents weigh in on this important bill. A House bill is also expected to be unveiled soon. If the bills can pass their respective chambers, then bicameral negotiations would begin in an attempt to pass a final comprehensive immigration reform bill for the President to sign into law.

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Will Nonprofit Hospitals Disappear Under Obamacare?

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It seems everyone has an opinion on Obamacare, officially the Patient Protection Affordable Care Act. The good, the bad and the ugly have been exposed at the individual patient level. But as the January 1, 2014 implementation date approaches, how will the law affect hospitals, and what ramifications will it have on their patients and communities?

Some Wall Street analysts are now bullish on investing in hospital systems, betting that more people covered by insurance equates to more paying patients and thus more revenue, speaking, of course about for profit institutions.

According to the U.S. Census Bureau, nearly 85 percent of people in the U.S. –over 260 million—were covered by insurance in 2011, with about 32 percent of that number on government health insurance such as Medicare or Medicaid. If, as planned, “everyone” will be covered under PPACA, another 46.5 million patients will obviously make a significant financial impact on the healthcare system.

How will this dynamic affect the nation’s roughly 2,900 nonprofit hospitals? These hospitals have long enjoyed tax exempt status with the Internal Revenue Service under 501(c)(3) relying on the common law definition of charity, where the promotion of health is considered a charitable endeavor. These nonprofit institutions provide charitable, or uncompensated care as well as a host of other services that qualify them as nonprofit, and hence, federal tax exempt entities.

Requirements and guidelines

Nonprofit hospitals have always been required to meet certain parameters to maintain their tax exempt status. Providing a certain level of charity care and using surplus funds to offer continuing education for healthcare professionals, conduct medical research and run preventive health outreach programs in their communities are a few examples.

Under the new law, a rigorous new provision in section 501 of the Internal Revenue Code called subsection (r) goes into effect regarding treatment of uninsured patients. Although not spelled out with specific IRS guidance as of yet, failure to comply can result in a new $50,000 annual excise tax.

Four new requirements must now be met in order for hospitals to maintain their tax exempt status with the IRS. Here is a brief synopsis of each:

1. Community health needs assessment
Hospitals must produce a community health needs assessment based on an assessment done every three years. Specific terms spell out everything that must be included in this document, such as the sources used to conduct the assessment and methods employed, input from community representatives, a prioritized description of the community’s health needs and of existing local healthcare facilities and other resources. This written community healthcare assessment must be widely available. A written implementation strategy to meet the needs identified in the community health needs assessment is also required.

2) Financial assistance policy
Hospitals must create a written financial assistance policy. It must be widely publicized and include eligibility criteria and whether assistance includes free or discounted care, how amounts charged are calculated, how to apply and what documentation will be used to determine qualification. It’s worth noting that there is no correlation between the community health needs assessment and the financial assistance plan requirements. In other words, a hospital does not have to tailor its financial assistance plan to the findings of the community health needs assessment.

3) Limitations on charges
In the past, it was common practice for hospitals to charge uninsured patients substantially more for care than their insured counterparts. They must now limit charges for emergency or medically necessary care to the rates generally billed to insured individuals. They cannot charge more than the gross charges for non-emergency care. One of two prescribed methods for determining amounts billed must be used: one based on past payments by Medicare fee-for-service or Medicare FFS plus private health insurers’ payments; or an estimate of the amount the hospital would be paid by Medicare and a Medicare beneficiary for the care if the patient was a Medicare FFS beneficiary.

Patients not eligible for financial assistance, or those who have not submitted an application for assistance, may still be charged gross charges for all (not just emergency) hospital care.

4) Billing and collections practices
The PPACA prohibits hospitals from engaging in extraordinary collections actions in certain instances. “Extraordinary collections actions” relate to obtaining payment of a bill for care covered under the hospital’s financial assistance plan that requires legal or judicial process. Hospitals cannot report adverse information to consumer credit reporting agencies if an individual qualifies for the financial assistance plan. And, selling debt of individuals on the financial assistance plan is prohibited.

Hospitals have to make reasonable efforts to determine whether an individual qualifies under the financial assistance plan before engaging in extraordinary collections efforts, including notifying individuals about the financial assistance plan, providing assistance to an individual who submits an incomplete application and determining and documenting whether an individual qualifies for the plan. The hospital may use extraordinary collections actions if all of these requirements are met.

Nonprofit hospitals on the line

Some nonprofit hospitals are being consolidated and acquired by larger for profit systems. Although not tax exempt, it’s been shown that for profit systems typically provide a comparable amount of charity care as nonprofit hospitals do.

Nonprofit hospitals should be advised that the new PPACA requirements will play a significant role in how they operate and report, specifically when it comes to billing and collections for services provided to the uninsured. The new law leaves many gray areas and hospitals themselves will have to establish eligibility criteria for financial assistance. Following the new procedures as best they can will ensure the best chance of maintaining their tax exempt status.

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Supreme Court Finds Fair Labor Standards Act (FLSA) Collective Action Mooted By Offer Of Judgment

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In a traditional lawsuit, when a defendant offers a plaintiff the full amount the plaintiff seeks, that generally ends the litigation because the plaintiff no longer has a justiciable interest in the matter.  On April 16, 2013, the Supreme Court held in Genesis Healthcare Corp. v. Symczyk that a collective action under the Fair Labor Standards Act (FLSA) affords no exception to that rule.

Symczyk, a registered nurse, sued her former employer, Genesis Healthcare Corporation, a nursing home operator, for allegedly automatically deducting a half hour’s pay for lunch breaks irrespective of whether an employee took one.  Symczyk brought her claim as a collective action under the FLSA, which requires that similarly situated employees must opt in to the action in order to be represented by the plaintiff.

Two months after Symczyk filed her complaint, Genesis offered her full recovery on her claim, plus attorneys’ fees and costs, pursuant to Federal Rule of Civil Procedure 68.  The offer gave Symczyk 10 days in which to respond.  Symczyk failed to respond within 10 days, after which Genesis moved to dismiss on the ground of mootness.  The District Court granted the motion, reasoning that no other plaintiffs had joined the action and that Symczyk’s individual claim was moot because she could not recover more than Genesis had offered her.  The Third Circuit reversed.  Although it found that the settlement offer mooted Symczyk’s individual claim, it ruled that the defendant’s strategy nonetheless frustrated the FLSA’s goals by “short circuit[ing]” the collective action process.

On April 16, 2013, the Supreme Court reversed.

In doing so, the majority declined to reach the question of whether Symczyk’s individual claim had been mooted by virtue of an unaccepted offer, finding that the question had been waived:

[W]e do not reach this question, or resolve the split, because the issue is not properly before us.  The Third Circuit clearly held in this case that respondent’s individual claim was moot….  Moreover, … [i]n the District Court, respondent conceded that “[a]n offer of complete relief will generally moot the [plaintiff ’s] claim, as at that point the plaintiff retains no personal interest in the outcome of the litigation.”  Respondent made a similar concession in her brief to the Court of Appeals, and failed to raise the argument in her brief in opposition to the petition for certiorari.  We, therefore, assume, without deciding, that petitioners’ Rule 68 offer mooted respondent’s individual claim.

Relying on Article III’s case-or-controversy requirement, the majority concluded that the District Court properly dismissed the case because “respondent has no personal interest in representing putative unnamed claimants or any other continuing interest” and thus “respondent’s interest became moot when her individual claim became moot.”  Justice Thomas concluded by noting that the claims of employees other than Symczyk had not been extinguished:  “While settlement may have the collateral effect of foreclosing un-joined claimants from having their rights vindicated in respondent’s suit, such putative plaintiffs remain free to vindicate their rights in their own suits.  They are no less able to have their claims settled or adjudicated following respondent’s suit than if her suit had never been filed at all.”

Justice Kagan’s dissent took the majority to task for relying on legal errors that she believes the lower courts had committed and the plaintiff had not challenged below:

The Court today resolves an imaginary question, based on a mistake the courts below made about this case and others like it.  The issue here, the majority tells us, is whether a ‘collective action’ brought under the [FLSA] ‘is justiciable when the lone plaintiff’s individual claim becomes moot.’  Embedded within that question is a crucial premise: that the individual claim has become moot, as the lower courts held and the majority assumes without deciding.  But what if that premise is bogus?  What if the plaintiff’s individual claim here never became moot? …. Feel free to relegate the majority’s decision to the furthest reaches of your mind: The situation it addresses should never again arise.

She then proceeded to offer her answer to the question the majority had declined to reach:

[A]n unaccepted offer of judgment cannot moot a case. When a plaintiff rejects such an offer—however good the terms—her interest in the lawsuit remains just what it was before.  And so too does the court’s ability to grant her relief.  An unaccepted settlement offer—like any unaccepted contract offer—is a legal nullity, with no operative effect….  Nothing in Rule 68 alters that basic principle….  So assuming the case was live before—because the plaintiff had a stake and the court could grant relief—the litigation carries on, unmooted.

She concluded by complaining that allowing a defendant to “eliminate the entire suit by acceding to a defendant’s proposal to make only the named plaintiff whole … would short-circuit a collective action before it could begin, and thereby frustrate Congress’s decision to give FLSA plaintiffs the opportunity to proceed collectively.”

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