Category: Administrative & Regulatory

Petitioner Succeeds in Wiping Out Challenged Claims at PTAB

Background

In Micron Technology Inc. v. Godo Kaisha IP Bridge 1, IPR2020-01007, Paper 36 (P.T.A.B. Dec. 1, 2021), the Patent Trial and Appeal Board found claims 1−17 of U.S. Patent No. 6,424,041, which described semiconductor devices designed to prevent copper from diffusing from wiring into memory storage regions, unpatentable. The Board’s decision, which determined that the claims were unpatentable as obvious in light of the prior art, undertook both a claim construction and obviousness determination.

Claim Construction

The Board’s decision construed two terms: “memory storage portion” and “copper-diffusion blocking means.” The primary dispute regarding “memory storage portion” was whether it must contain “access circuitry.” The Patent Owner argued that the “memory storage portion” must include access circuitry. After reviewing the specification, the Board construed “memory storage portion” to mean “the region where at least the components that are used for the storage of information are located” and determined that no access circuitry was required. Id. at *23. Then, the Board took to determining the meaning of the term “copper-diffusion blocking means,” which was a means-plus-function limitation under 35 U.S.C. § 112. To construe this term, the Board determined what the claimed function was and identified the structures or materials disclosed in the specification that corresponded to the means for performing that function. Considering the specification, the Board agreed with the Petitioner’s proposed construction that the claimed function of the term was “blocking copper diffusion from said wiring portion toward said memory storage portion,” and the corresponding structures were a ceiling film or a vertical wall, and equivalents of these. Id. at *28.

Obviousness

The Board determined that Petitioner made a sufficient showing that claims 1−17 would have been obvious in light of two prior art references, Kishii and Ryan.

The parties disputed whether Kishii taught “a memory storage portion on a main surface of said semiconductor substrate.” Id. at *32. The petitioner argued that Kishii’s stacked fin capacitor was a memory storage portion. The patent owner disputed this contention, arguing that the petitioner did not show that Kishii’s capacitor stored information and the stacked fin capacitor may be used for a different purpose in dynamic random-access memory (“DRAM”), such as a decoupling capacitor that does not store information. Petitioner offered expert testimony, which cited examples where a stacked-fin capacitor had been previously used in a DRAM memory cell, as opposed to decoupling circuitry. The Board was persuaded by Petitioner’s expert and found Kishii’s stacked-fin capacitor was a portion or component of a semiconductor device that stored information.

Next, the Board determined that a person of ordinary skill in the art would have been reasonably motivated to combine Kishii and Ryan to teach using a copper wire, as required by claim 1, given Ryan’s teaching that copper was a preferred material for such interconnect layers due to its low resistivity, low cost, and enhanced reliability. The Board found the final limitation of claim 1 was taught by Kishii, which was determined to teach a protective film that was “structurally indistinguishable” from the ’041 patent and performed the same claimed function as claim 1 required.

Additionally, the Board determined that petitioner made a sufficient showing that claims 13 and 14 would have also been obvious over Liang and El-Kareh. Claims 13 and 14 added the claim limitation – “wherein the memory storage portion is a memory storage portion for accumulating and releasing charges according to information.” Id. at *59. Combining the prediction from El-Kareh that protection against degradation would be necessary, and Liang’s ability to protect against said degradation, the Board determined that the two references taught a reasonable expectation of success for the limitation of claims 13 and 14.

© 2022 Finnegan, Henderson, Farabow, Garrett & Dunner, LLP

Article By Emma N. Ng, Shannon M. Patrick and Amanda K. Murphy, Ph.D. of Finnegan

For more articles on IP, visit the NLR Intellectual Property section.

Will A Starbucks Union Affect Your Morning Cup Of Coffee?

Many among us can’t face the day ahead until they get their morning fix of caffeine, and Starbucks is a popular choice for procuring a morning beverage. While the coffee chain giant has long been known for employee perks and strong employee culture, some baristas in Buffalo, New York, recently formed the first union at a corporate-owned Starbucks store. The employees cited problems associated with understaffing, among other things.

The union’s recent election victory means that Starbucks will have to sit down and negotiate in good faith a collective bargaining agreement to cover the terms and conditions of those workers’ employment. Depending on the terms negotiated, believe it or not, changes to how and what you can order at a unionized café may be on the horizon.

Labor agreements typically cover wages, insurance benefits, grievance and arbitration procedures, workplace policies, and a host of other issues affecting employment. The employer and union go through negotiations to come to an agreement on specific language on each of the terms and then those terms control. For example, if a company agrees in a collective bargaining agreement that it will have a minimum staffing level for a shift, then a union can file a grievance seeking damages if the employer fails to keep staffing levels at the minimum. In a non-union setting, this typically is not a concern due to the absence of a grievance and arbitration procedure.

One item that could be of interest to coffee drinkers if it comes up in negotiations is limits on coffee orders. Baristas in Buffalo cited burnout from extensive mobile orders that allow customers to preorder and then pick up drinks and food at the café. The workers believed the volume was too much to keep up with. Custom orders – such as a latte with non-fat milk, two pumps of vanilla, one pump of mocha, and exactly two ice cubes – have been a point of frustration for baristas as well. The union may propose limits on the number of mobile orders a barista can be required to accept per hour and additional limits on the amount of specialty modifications that can be made to a drink. In other words, you may not be able to place a mobile order at the time you want or get all the customizations you desire if ordering from a location restricted by such an agreement. That doesn’t mean Starbucks needs to (or will) agree to those proposals, but based on the employee complaints we’ve seen, it’s likely to be an issue at the table – so it’s possible such a provision could make its way into a labor agreement.

We’re now seeing more union petitions being filed at Starbucks stores around the country, including in Chicago and Boston. To the extent we see a national wave of Starbucks cafés getting unionized, your morning cup of coffee may look different in 2022 and beyond.

© 2022 BARNES & THORNBURG LLP
For more articles on unions, visit the NLR Labor & Employment section.

The OSHA Mandate — Supreme Court Oral Argument Preview

Tomorrow morning (Friday, January 7), the Supreme Court hears oral argument in the OSHA (10 a.m. EST) and CMS (11 a.m. EST) mandate cases.  (You can listen to the arguments live here.)  For the OSHA mandate, one group of petitioners consists of a coalition of twenty-seven States, led by Ohio, and the other consists of a coalition of business associations.  We’ve read the briefs, and here are our issues to look out for tomorrow:

Whether OSHA may only regulate occupational dangers.  The petitioners argue that because the OSH Act and OSHA regulations are all concerned with occupational hazards, OSHA cannot regulate against a virus presenting a risk to all Americans.  Meanwhile, OSHA argues that the OSH Act is not limited to dangers that are workplace-specific, especially given Congress’ previous endorsement of OSHA’s measures to encourage vaccination against bloodborne pathogens.

Whether COVID-19 is a “grave danger” that represents a “new hazard.”  The States argue that the OSH ACT limits “grave danger” to those “from exposure to substances are agents determined to be toxic or physically harmful,” connoting toxicity and poisonousness.  Thus, it cannot refer to airborne viruses that are “both widely present in society” and “non-life-threatening to a vast majority of employees.”  OSHA argues that the statute’s disjunctive phrasing allows for an ETS targeting viruses that are physically harmful, or a “new hazard, even if not technically “toxic” in nature.

Whether there is an “emergency” to justify the ETS.  The petitioners continue to argue that nothing significant has changed over the past year the country had been living with the virus to justify finding an emergency.  OSHA responds by pointing to problems presented by the return to work, the Delta variant, and COVID fatigue.

Whether the ETS is “necessary.”  The States argue that the OSH Act imposes a higher standard:  while other regulations may be merely “reasonably necessary or appropriate,” the Act requires emergency regulations to be “necessary”—which the States read as essential or indispensable.  According to the States, the delay between the issuance of the ETS and the time it was supposed to go into effect dooms any argument that it is necessary.  The business associations, for their part, stress that OSHA could have gone through notice and comment proceedings months ago.  In OSHA’s view, the statute is not nearly so narrow and it is enough that workplaces contribute substantially to the spread of the virus and that vaccines are the best way to fight COVID-19.

The scope of relief.  The petitioners obviously want to stay the entire mandate—both the vaccine and masking/testing requirements.  OSHA argues that any stay should be limited to the vaccine requirement.

Major-questions doctrine and federalism canon.  The petitioners argue that these canons of construction require Congress to speak clearly when delegating major economic and political questions to agencies that alter the balance between federal and state governments.  OSHA argues that neither of these canons apply and, in any event, Congress did speak clearly, as evidenced by the fact that it recently allocated $100 million to OSHA to carry out COVID-19 related worker protection activities.

Facts outside the administrative record.   While the OSHA and CMS mandates are supposed to be judged according to the record — which makes much of the factual discussion seem a little dated in this fast-moving pandemic — we’ll be interested to see whether the Omicron variant, the recent spike in cases, and other relatively recent developments show up at oral argument.

And, maybe, a few Constitutional issues.  While constitutional issues like the Commerce Clause and Non-Delegation Doctrine might appear tomorrow, we expect the statutory arguments to dominate the discussion—exactly as they did in the parties’ Supreme Court and Sixth Circuit briefing and in most Sixth Circuit opinions.

We’ll be interested to see how the opinions of Judge Stranch, Judge Larsen, Judge Sutton, and Judge Bush influence the Justices’ approach to the legal and factual questions.

© Copyright 2022 Squire Patton Boggs (US) LLP
For more about OSHA litigation, visit the NLR Coronavirus News section.

A Hitchhiker’s Guide to What’s New in All Appropriate Inquiries

ASTM (American Society for Testing and Materials) due diligence standards have been updated to address environmental conditions not widely recognized in 2013 but EPA’s “all appropriate inquiry” regulations have yet to conform.

ASTM International (ASTM) issued its seventh version of Environmental Site Assessment (ESA) standards, E1527-21, on Nov. 1, 2021. These ASTM standards provide the leading source of guidance on minimum standards for Phase I ESAs for commercial and industrial property acquisitions. While ASTM E1527-21 improves upon the predecessor E1527-13, the US Environmental Protection Agency’s (EPA) “all appropriate inquiry” regulations (40 CFR § 312.11(b)) currently codify E1527-13 as setting the appropriate due diligence standard. As a matter of course, EPA is expected to amend its regulations to replace the reference to E1527-13 with a reference to E1527-21. However, until EPA amends its rules, buyers should recognize that the improved commercial standard for due diligence is based on E1527-21, but the regulatory safe harbor for complying with “all appropriate inquiry” standards for purposes of meeting EPA requirements remains E1527-13.

The changes in E1527-21 make it more stringent than E1527-13 and make E1527-13 insufficient for current transactions. Because rigorous ESAs provide important pre-acquisition business information, as well as statutory liability protection, we recommend, until EPA updates its Section 312 regulations, that purchasers immediately require that ESAs be performed to meet both E1527-13 and E1527-21 requirements. And following such EPA rulemaking, buyers should require ESAs meet E1527-21 requirements (presuming that is the outcome of the rulemaking).

E1527-21 identifies new requirements to be addressed in Phase I ESAs, including the following:

  • Enhanced research into the history of both the subject and adjoining properties.
  • Enhanced site recon investigation.
  • Definition changes to clarify what is or is not a recognized environmental condition (REC). For instance, a closure of an underground storage tank site may not have been remediated in the past to current regulatory standards. So there is now a requirement to look beyond, for example, a prior No Further Action letter. This is now a REC requiring further due diligence analysis.
  • Examples of RECs, such as poorly stacked drums and bulging tanks, are provided in new Appendix X.4.
  • Clarification of property use limitations and significant data gaps, which respectively may impair future site use or render an assessment’s findings of no RECs questionable.
  • Clarification on when the shelf life of a Phase I ESA commences, e.g., with an early record review component (or after a timely update) as opposed to using the final report date of the ESA.
  • Caveats about emerging issues like PFAS. See “Not So PFAS,” National Law Review (Nov. 2, 2021).
  • Clarification that the user is responsible for identifying environmental liens or land use or property use restrictions in a title search going back to 1980.

The environmental professional remains responsible for reporting to users on title search information and for finding institutional or engineering control records.

A systemic flaw in the E1527 standard is that it treats compliance issues like stepchildren, or not at all, by relying on users to add non-scope items such as wetland, air, water, and waste permit compliance. While this absence may be prudent for commercial properties and “green fields,” industrial properties require more. Compliance audits, including air, water, and waste compliance review, are needed for them. Unfortunately, the ASTM standard for those audits is only consultant process oriented (see ASTM E2107-20) and not sufficiently detailed, in our opinion.

However, the new E1527-21 standard will produce more conservative ESAs, perhaps increasing the cost of closing or raising additional cleanup concerns.

© 2022 Jones Walker LLP

Article By Robert Holden and Stanley A. Millan of Jones Walker LLP

For more articles on the ATSM, visit the NLR Environmental, Energy & Resources section.

In-House Counsel’s Role in Bridging the Generation ‘We’ Gap

A new generation of tech savvy, social justice-focused and environmentally aware employee stakeholders are creating recruitment, retention and other employment challenges. Unlike their predecessors, the “Generation We” cohort of employees (which loosely encompasses Gens Y and Z and even the new “Alphas”) tend to view employment as experimental rather than a long-term commitment. Managing employees with a transactional approach to work and who demand purpose-driven employment creates significant human capital risk. Corporate counsel can play a key role in managing and mitigating that risk, not only in response to the growing ESG disclosure and regulation trends, but as part of the need to design future-proof legal frameworks for the workplace.

The Framework for Generation-Conscious Policies

Good compliance practice begins with a forward-looking framework for employment policies. The pandemic has razed traditional office life and if the prediction that 37% of office desks will remain empty in 2022 comes true, the technology supporting remote work and the policies governing it are mission critical. Generation We embraces technology as a life tool, not just a work tool.  The primacy of technology requires a second look at policies that regulate it. Examples of leading-edge policies include those addressing AI infrastructure in the workplace (as applied to, for example, applicant tracking systems) and policies addressing anti-bias in technology. Social media and communication policies also demand a generationally-aware review.  These policies, which are needed for brand protection and communication consistency, may need modernization in light of the platforms Generation We inhabit. One of legal’s (many) jobs is to construct that compliance framework. This may mean more than an annual review of human resources policies which is tough enough in this frenetic environment. But that policy review should include second look at all employment policies to ensure they are generationally adept, consistent with technology changes, and meet what the new workforce demands.

Who Participates and How

The Zoom room may have been new at the pandemic’s inception, but is mundane now. In-person teams have been displaced by fully remote or hybrid collaboration and a host of legal issues the virtual world creates. Some employment policies may not account for virtual world inclusiveness or rules of engagement. Microaggressions could be amplified in the virtual environment as employees who feel left out may lack the typical platforms to make those feeling known – resulting in the public broadcast of employment disputes or job abandonment. It is hard to pick up on social cues from an inch square web-box. It may even be harder to identify when someone feels sidelined because of gender, race or other underrepresented status. Legal should play a role in championing people on the sidelines. This means empowering managers to shut down grandstanders who grab the virtual floor. It also means taking note of those who don’t virtually raise their hands, and ensuring that all employees are heard. Rules of engagement regarding the use of video (all on? all off?) and the discouragement of side-chats and other digital unpleasantness not only express inclusiveness but role models best practices. Generation We demands inclusiveness in their work and personal lives; they are unforgiving of employers who lack sensitivity to these issues and are quick to publicize their contrary views.

Learning, not Training

Mandatory training may not speak to socially aware employees who reject stereotypical gender roles and labels and embrace racial justice. Employers cannot legally abandon statutorily-mandated training, but they can modernize it. Structured meetings with a core educational focus is meaningful because it imparts information and drives behavior. Counsel should consider helping their human resource partners to update traditional training to reflect learning about unconscious bias. Similarly, new subjects like mindfulness, wellness, mental health issues and how the workplace impacts people might also be included in learning tools.  Are the corporation’s core messages embedded in the training or is it is an off-the-shelf program lacking relevance to the business? Training is an important part of counsel’s compliance obligations but incorporating the corporation’s core mission into that programming in a customized way is an effective learning tool. Corporate counsel plays a key role in driving change in these learning systems and these changes could positively mitigate human capital and business risk.

Performance with Purpose

Corporate counsel’s role is becoming less transactional (get the deal done) and more transformational (recruiting and retaining the workforce and implementing the ceaseless legal developments that have altered how we work). Performance in this context may be more than returning value to shareholders or a fulfilling a non-profit’s philanthropic aim. Performance may instead encompass achieving a group aim.  The Great Resignation anecdotally informs us that Generation We is in search of meaning and personal growth, and not always money (though they are keenly interested in equitable compensation). Purpose-driven organizations can lead to a sense of community.  Because community is important to this generation, the identification and amplification of the corporate mission becomes even more important. A recently released Goldman Sachs Asset management report concludes that a growing percentage of youngers workers are already planning to retire earlier than their predecessors. If that movement is real, retaining the next generation of workers becomes even more important.

Generation We is driving the primacy of the employee stakeholder and underlies the addition of the “E” to ESG. This generation fearlessly exercises their workplace voice and are quick to abandon work when a business cannot articulate or veers off a cohesive a mission. Counsel can play a key role in bridging the intergenerational divide. That role and its impact begins with the compliance framework being built in a manner that adapts to the ever-growing expectations of the next generation of the workforce.

©1994-2022 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.

Article By Jennifer B. Rubin of Mintz

For more articles on Generation We, visit the NLR labor section.

Life and Death of Technology: 2022

Everything has a life cycle.

Bacteria, insects, people, civilizations, galaxies – all are born, live and pass into eternity eventually. So it goes with technologies. Some, like wheels and levers, simply evolve in an impressive millennia-long cycle. Others, like jet packs, never seem to find the popularity we expect. And many, like 8-track tapes, shine brightly (or not so brightly) for a moment and fade into obscurity.

I like to dedicate a column to this topic each year to remind us how fleeting the spotlight can be. Obsolescence is built into all of our tech, just as limited existence is the essential nature of people.

For example, classic Blackberry devices will finally die this year. Remember the “Crackberry?” – a device so addictive and omnipresent that President Obama refused to part with his Blackberry despite the security risk. Blackberry had 80 Million users in 2012. Not so much anymore.

If you still have a Blackberry phone and it is not using Android software, the company will stop supporting your product today. CNN reports that “BlackBerry (BB) has been mostly out of the phone business since 2016, but over the years it continued to license its brand to phone manufacturers.” A 5G Blackberry Android-driven device from OnwardMotion is listed as “arriving in 2021,” so we shall see if it ever arrives. The original has passed away.

When Google/Alphabet hyped its “Moonshot” factory, one of the most publicized efforts was called Loon. The Loon project involved floating giant balloons above the earth to beam internet to areas where connectivity was most difficult to achieve. Loon was started in 2012, launched its first public tests in 2013, and in 2020 began commercial deployment in Africa through Telkom Kenya. Last year Alphabet shut the doors on Loon, unable to find a sustainable and cost-effective business model. Alphabet also closed its business called Makani, which provided wind power from giant kites. This is a bad year for business models dependent on floating objects in the air.

In 2012, Indian executives launched Hike as an Indian answer to Facebook’s WhatsApp, and Hike was valued at $1.4 billion by 2016 with nearly 70 million users. Unfortunately, where Chinese technologists successfully operate WeChat as a local WhatsApp alternative, Hike disappeared from circulation with no formal explanation. WhatsApp has now solidified its near monopoly in India.

Apple killed its original Homepod this year, unable to compete with Amazon Echo and Google nest, although you can still buy a Homepod mini. LG stopped making mobile phones this year. Microsoft killed Windows 10X and Minecraft Earth. Microsoft also killed Skype for business last year. I remember a Microsoft partner saying that when Microsoft wants to enter a new market, it chooses an ally, eliminates all the other blips on their radar screen until only the ally is left, and then kills that blip too. Skype may be a good example of this strategy as it has been pushed aside to make space for Microsoft Teams, soon to be dominating the world of corporate remote video calls (if not dominant there already).

All-in-all this is not a significant list considering the upheavals in the world over the past two years. Aside from Blackberry, which keeps limping on as a brand despite the death of its original proprietary operating system, no epoch-defining technology slid from this mortal coil in 2021. So where do we go from here?

The Metaverse was famously introduced into our lives last year. Will we see the first commercial glimpses of it in 2022? Mark Zuckerberg telegraphed his intended business direction when Facebook bought Oculus Rift, producer of immersive three-dimensional world-building technology. Zuckerberg clearly hoped to drive his herd into a more addictive, all-encompassing space as soon as possible. But now, with Facebook’s flagship products serving an aging and decreasing population, with regulators/Congress prepared to slap down any attempt to buy sexy social media rivals that appeal to younger audiences, and with a dismal company track record of developing its own social media successor products, opening the Metaverse becomes a dire urgency for Facebook. I expect we will see some access portals to this new world in the coming year.

The Washington Post suggests that both Apple and Google may offer their own metaverse access portals this year. It will be interesting if these companies try to isolate their own technology in to separate sandboxes, or if they make a play for interoperability that will allow small companies to create content that can be played on every device. The Post speculates that a workplace metaverse may emerge soon: “As for the rest of us, our first steps into the metaverse will probably be for our jobs. The pandemic is pushing companies toward virtual reality for onboarding, training and meetings. As consumer tech catches up, though, the metaverse will seep out of the workplace and into our everyday lives — but don’t get too excited.” There is likely much road to be laid between here and there.

Apple’s AirTags have been around for a while, but their applications are increasing.  Some of these applications are problematic. For example, car theft and stalking have been made much simpler with a tiny effective tracking device. The New York Times reports “In recent months, people have posted on TikTok, Reddit and Twitter about finding AirTags on their cars and in their belongings. There is growing concern that the devices may be abetting a new form of stalking, which privacy groups predicted could happen when Apple introduced the devices in April.” The tags are dropped in purses and bags, stuck on cars, and placed in clothing pockets of third parties. Apple has tried to address these issues by notifying iPhone holders of an unknown tracking device nearby. So, for better or worse, 2022 could be the year of Tile and AirTags.

Better drones, household robots, and a new generation of virtual reality glasses could all make an impact on our technology lives in the upcoming year. Robot technology keeps improving, but until they develop a light touch with opposable thumbs, I don’t expect household usage to explode. This also may be the year of the Smart Mirror that can raise your beauty and fashion game while you check out the results. The Capstone Smart Mirror will also look up directions while you get dressed for your date, tell you how late you are, and psych you up with your favorite music.

Apparently every year is the year of crypto and blockchain if you listen to the hype masters – and those who have financial interest in bringing more money to the technology. They have started running very expensive sports ads to drive more gullible investors into this essentially unregulated market. NFTs may turn out to become more than just speculative investments (like nearly every crypto trend), but I won’t hold my breath for it to happen.

Copyright © 2022 Womble Bond Dickinson (US) LLP All Rights Reserved.

 

Article By Theodore F. Claypoole  of Womble Bond Dickinson (US) LLP

For more articles on cybersecurity, visit the NLRCommunications, Media & Internet section.

Michigan SALT Workaround Update: Accrual Taxpayers

As a follow up to our tax advisory issued December 23, 2021, pertaining to Michigan’s new SALT workaround (Michigan Tops the Growing List of States with a SALT Cap Workaround for Pass-Through Entities), we are providing this update to alert accrual-basis taxpayers regarding the Michigan SALT workaround and the deductibility of taxes under section 164.

Section 164(a) of the Internal Revenue Code provides a deduction for state and local income taxes “paid or accrued”. Under normal accrual method accounting rules, taxes may be deducted if both of the following apply:

  1. The all events test has been met (i.e. all events have occurred that fix the fact of liability, and the liability can be determined with reasonable accuracy); and
  2. Economic performance has occurred.

With respect to taxes, economic performance generally occurs when taxes are paid. However, there is an exception to this for recurring items that meet four requirements:

  1. The all-events test is met.
  2. Economic performance occurs by the earlier of:
    • 8½ months after the close of the year, or
    • The date you file a timely tax return (including extensions) for the year.
  3. The item is recurring in nature and the taxpayer consistently treats similar items as incurred in the tax year in which the all-events test is met, and
  4. Either:
    • The item is not material, or
    • Accruing the item in the year in which the all-events test is met results in a better match against income from accruing the item in the year of economic performance.

Thus, under normal instances, if payment of tax is made by an accrual-basis taxpayer with a timely filed tax return in the following year and the rest of the elements above are met, state income taxes can be deducted on an entity’s federal return. Applying the normal accrual rules to the Michigan SALT cap workaround without additional authority, a partnership/S corporation that makes an election to be taxed at the passthrough entity level but does not pay such taxes until it files a timely return may still deduct Michigan income taxes if the elements above are met.

There is substantial concern, however, that the IRS may challenge this deduction based on authority issued. In Notice 2020-75, the IRS provided a limited blessing of certain SALT workarounds but focuses on where “specified income tax payments” are made. The notice does not specifically address accrual taxpayers, or whether accrual accounting rules would still apply to such taxes allowing payment in the following year. There are also concerns that the IRS may view passthrough entity taxes paid by accrual taxpayers as not satisfying the accrual accounting rules because of the elective nature of the tax.

Given the lack of certainty in this area, the conservative position for accrual-basis taxpayers should be to pay the passthrough entity tax by December 31, 2021. Payments can be made today on the Michigan Treasury Online system, which also triggers the election for the passthrough entity tax. From communications with the State of Michigan, we expect additional guidance to be issued in January of 2022 for the Michigan SALT workaround, including the release of the election form.

© 2022 Varnum LLP

Article By Steven G. Cappellino and Eric M. Nemeth of Varnum LLP

For more articles on SALT, visit the NLR Tax section.

Not So Fast! How Poor Planning Can Doom Your Chapter 11 Filing

A Texas bankruptcy court’s decision earlier this year to dismiss the National Rifle Association’s (“NRA”) chapter 11 bankruptcy case as a bad faith filing illustrates the perils of a poorly planned chapter 11 filing, and highlights the need, even in crisis situations, to establish solid objectives and develop a sound strategy prior to seeking relief under the Bankruptcy Code. In re Nat’l Rifle Ass’n of Am., 628 B.R. 262 (Bankr. N.D. Tex. 2021). Unique facts and circumstances notwithstanding, In re Nat’l Rifle Ass’n of Am. provides textbook examples of things you should not do when filing a corporate chapter 11 case.

In its opinion, the Northern District of Texas Bankruptcy Court highlighted recent events in the history of the NRA prior to the bankruptcy filing, including: (1) the New York Attorney General (“NYAG”) opening investigations into the NRA in 2017; (2) the New York Department of Financial Services urging insurers and financial institutions in April 2018, to evaluate whether their relationships with the NRA were harmful to their corporate reputations and jeopardized public safety; (3) multiple whistleblowers notifying the NRA Audit Committee in July 2018 about alleged misconduct by NRA management, including conflicts of interest of senior management and board members and improper reimbursement of living expenses for certain employees; and (4) the NYAG filing a complaint against the NRA in New York state court on August 6, 2020 seeking dissolution of the NRA (the “NYAG Action”).

Approximately 3 months after the NYAG Action, on November 23, 2020, the NRA retained counsel to advise them on bankruptcy and restructuring options. The very next day, the entity “Sea Girt, LLC” was formed, as “a transition vehicle to facilitate the NRA’s relocation to Texas.” Id at 267. At a board meeting on January 7, 2021, the NRA board approved the employment agreement of the NRA’s Executive Vice President Wayne LaPierre, which included language allowing Mr. LaPierre to “exercise corporate authority in furtherance of the mission and interests of the NRA, including without limitation to reorganize or restructure the affairs of the Association for the purposes of cost-minimization, regulatory compliance or otherwise.” Id. at 267-68. There was no discussion of bankruptcy or reorganization at the board meeting, and the board was never informed that the employment agreement authorized Mr. LaPierre to unilaterally file a bankruptcy petition for the NRA. A few days after the board meeting, on Jan. 15, 2021, the NRA and Sea Girt, LLC filed voluntary petitions for relief under Chapter 11.

Approximately one month into the bankruptcy case, multiple parties, including the NYAG, filed dispositive motions seeking various relief that the bankruptcy court categorized as generally falling into three buckets: (1) dismissal; (2) appointment of a chapter 11 trustee; or (3) appointment of an examiner. Id. at 270. In adjudicating the motions, the bankruptcy court adopted the Fifth Circuit’s flexible view that the term “cause” in Section 1112(b)(4) could include “a finding that the debtor’s filing for relief is not in good faith.” Id at 270.

The Court’s good faith analysis largely focused on the NRA’s reasons for filing bankruptcy. After evaluating the relevant arguments and evidence, the Court concluded that the real purpose for the bankruptcy filing was to avoid dissolution in the NYAG Action. The Court noted that although there was “some evidence that the NRA want[ed] to streamline litigation and control litigation costs,…” that did not appear to be “the real purpose” behind the bankruptcy filing. Id. at 278. On the contrary, there was testimony that the NRA could afford to pay its legal fees and there had not been any analysis done of the comparative cost of litigation outside of bankruptcy versus the cost of litigation within the bankruptcy case. While the question of “[w]hether the NRA’s desire to leave New York and reincorporate in Texas was a true reason for filing bankruptcy [was] a closer call,” the Court was not persuaded that the conditions faced by the NRA predating the NYAG Action were an existential threat and reason to file bankruptcy in order to move to Texas. Id. at 278. Testimony of the CFO, that “he was not aware of any reasons to file for bankruptcy” was also not supportive of the argument that the bankruptcy was filed for financial reasons. Id. at 279. In the Court’s view, the other reasons that the NRA gave for filing bankruptcy, such as “preserving the NRA as a going concern” could all be grouped under the general reason of avoiding the dissolution in the NYAG Action. Id. at 279.

For its subsequent analysis of whether avoiding the dissolution in the NYAG Action was a valid purpose, the Court conducted the 2-pronged inquiry used by the Third Circuit, namely: “(1) whether the petition serves a valid bankruptcy purpose and (2) whether the petition is filed merely to obtain a tactical litigation advantage.” Id. at 280. The Court reasoned that a lawsuit seeking a monetary judgment, which could be financially ruinous for a debtor, was different from a state enforcement action specifically seeking dissolution under that state’s laws that must satisfy certain requirements. The Court found the NRA case to be a bad faith filing because its purpose was (1) “to deprive the New York AG of the remedy of dissolution, which is a distinct litigation advantage” and “[to deprive] the state of New York of the ability to regulate not-for-profit corporations in accordance with its laws.” Id. at 281.

In considering whether appointment of a trustee or examiner was in the best interest of creditors, the Court noted “cringeworthy” facts such as the evidence of the NRA’s past misconduct, including deficiencies in financial disclosures by senior management. Id. at 283. Even more concerning to the Court was the “surreptitious manner in which Mr. LaPierre obtained and exercised authority to file bankruptcy for the NRA,” where he had excluded key people such as the CFO and the general counsel from the decision-making process. Id. at 284. The determination of whether or not to appoint a trustee or examiner was further complicated because the NRA’s mission was, “at times, political and polarizing” and because “[t]he NRA does not sell goods or services” it would be difficult to find the appropriate fiduciary to serve as trustee or examiner. Id. at 284. Touting progress the NRA had made in recent years resulting in more disclosure and self-reporting, the Court concluded that, “[o]utside of bankruptcy, the NRA can pay its creditors, continue to fulfill its mission, continue to improve its governance and internal controls, contest dissolution in the NYAG Enforcement Action, and pursue the legal steps necessary to leave New York.” Id. at 284-85.

In re Nat’l Rifle Ass’n of Am. vividly demonstrates the danger of hastily filing a chapter 11 case, and then formulating a narrative post-petition as to the reasons for the filing that are not supported by evidence. Profoundly damaging to the NRA’s position was the inconsistency between the NRA’s arguments in bankruptcy court and the NRA’s own publicly announced reasons for filing bankruptcy, including a posting on its NRA website which stated, “This action is necessitated primarily by one thing: the unhinged and political attack against the NRA by the New York Attorney General.” The Court also expressed frustration at the lack of clarity caused by conflicting testimony of witnesses about the purpose of the bankruptcy filing. When the CFO testifies there is no financial reason to file bankruptcy, how do you argue that the bankruptcy was filed to reorganize the debtor? Also detrimental to the NRA’s position were corporate governance failings where there was no vote or even any discussion by the Board about bankruptcy and restructuring options, and it was clear that the decision to file chapter 11 was made by one person. This case shows that, given the significant costs attendant to an imprudent bankruptcy filing that is later dismissed, it is essential to establish clear objectives, articulate a coherent strategy, and practice good corporate governance prior to filing a chapter 11 case.

Copyright ©2022 Nelson Mullins Riley & Scarborough LLP

Article By Zana Scarlett of Nelson Mullins

For more articles on Chapter 11, visit the NLR Bankruptcy & Restructuring section.

COVID-19 Update: The CDC Issues New Isolation Guidance

On December 27, 2021, the CDC shortened its recommended isolation and quarantine periods for those infected with, or exposed to, COVID-19. Because the CDC’s Isolation Guidance is incorporated by reference into OSHA’s vaccination or test rule, larger employers should revise their policies to reflect these new guidelines in advance of the January 10th deadline for compliance. Here is a summary of the new isolation/quarantine periods:

Employees Who Have Tested Positive and are Asymptomatic

  • Isolate at home for five days.
  • Mask for five days after isolation period.

Employees Who Have Tested Positive and Have Symptoms

  • Isolate at home for five days and, if symptoms resolve during that time, the employee can leave isolation.
  • If the employee has a fever, the employee must remain isolated until the fever resolves.
  • Mask for five days after isolation period.

Employees Who Are Exposed to COVID-19 and Have Received Booster

  • No required isolation or quarantine.
  • Wear mask for 10 days.
  • Best practice: Test, if possible, five days after exposure.

Employees Who Are Exposed to COVID-19 and Completed Vaccination (Pfizer or Moderna) Within the Last Six Months or Received J&J Vaccine Within the Last Two Months 

  • No required isolation or quarantine.
  • Wear mask for 10 days.
  • Best practice: Test, if possible, five days after exposure.

Employees Who Are Exposed To COVID-19 and Are Unvaccinated or Completed Vaccination (Pfizer or Moderna) More Than Six Months Ago or Received J&J Vaccine More Than Two Months Ago

  • Stay home for five days.
  • Mask for five days after quarantine
  • If employee cannot quarantine, mask for 10 days
  • Best practice: Test, if possible, five days after exposure.
©2021 Roetzel & Andress

Article By Morris L. Hawk of Roetzel & Andress LPA

For more articles on COVID-19, visit the NLR Coronavirus News section.

EPA’s Stormwater General Permit is Safe. Does it Matter?

A Colorado-based NGO has dropped its 9th Circuit lawsuit challenging EPA’s Multi-Sector General Permit for stormwater discharges associated with industrial facilities.

On one hand, this is a victory for EPA which apparently offered nothing to settle the case before the NGO threw up its hands.

On the other hand, the General Permit is only applicable in Massachusetts, New Hampshire and New Mexico, the three states that have not been delegated the authority to issue such a permit (as well as tribal lands and other lands not subject to state jurisdiction).

Why did the NGO bring this suit to begin with?  Did it hope that the Biden Administration EPA would, when push came to shove, do something dramatically different than the Trump Administration EPA?

Whatever the reason, the NGO has apparently concluded that the current law and permit give it plenty of grounds to bring suits over stormwater discharges in the 9th Circuit and elsewhere.  There are already several such imaginative suits pending on the west coast.

Are the regulators in Massachusetts less able to issue and enforce stormwater permits than than their colleagues in 47 other states?  The answer is of course not.  They are completely able and more able than most.  And they already have authority under state laws and regulations that are broader in their reach than the federal law.

But the Massachusetts legislature has stood in the way, apparently because it doesn’t want to bear the costs of regulating in this area borne by 47 other states.  Uncertainty and the threat, if not the actuality, of litigation has been the unfortunate result of this dereliction for the regulated community, including the municipalities in which we live.

We deserve better.

“The Center for Biological Diversity (CBD) is dropping its legal challenge to EPA’s industrial stormwater general permit that sought stricter regulation of plastics pollution after settlement discussions were unfruitful, according to an attorney familiar with the litigation.“

Article By Jeffrey R. Porter of Mintz

For more environmental legal news, click here to visit the National Law Review.

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