Category: Civil Rights

Federal Court Stops Serial Americans with Disabilities Act (ADA) Plaintiff’s Latest Effort: Payne v. Chapel Hill North Properties

Poyner Spruill

The United States District Court for the Middle District of North Carolina recently dismissed an Americans with Disabilities Act (“ADA”) case filed by Denise Payne, a Florida resident, and National Alliance for Accessibility, Inc. (“NAA”), a nonprofit Florida corporation (Payne is the founder of and a member of NAA).   Payne and NAA sued Chapel Hill North Properties, LLC (“CHNP”) alleging the company’s shopping center in Chapel Hill, NC did not comply with ADA requirements for accessibility to disabled individuals.  Poyner Spruill attorneys Nick Ellis and Kevin Ceglowski filed a Motion to Dismiss the case and a supporting brief for CHNP arguing that the court did not have subject matter jurisdiction because Payne lacked standing to proceed.

Payne was seeking injunctive relief, requesting CHNP to remedy the alleged ADA violations.  In order to seek injunctive relief, a plaintiff must have constitutional standing to proceed with the lawsuit, which depends on showing a likelihood of future harm from the alleged violations.  Payne alleged she encountered architectural barriers when she visited the shopping center on June 10, 2010, April 1, 2012  and on September 27, 2012.  Payne alleged only vague future plans to visit the shopping center, saying she “intends to visit North Carolina again in June of 2013” and “intends to visit Defendant’s property once again.”  Payne’s Complaint alleged she intends to continue to meet with existing NAA members in Asheville, Wilmington, and Fayetteville, none of which are near CHNP’s property.  After CHMP filed its Motion to Dismiss, Payne filed an affidavit, hoping to avoid dismissal of her case, and in which she stated she specifically intended to return to the shopping center in June 2013.  In her Complaint, she alleged she stopped at the shopping center on her visits to North Carolina because it “has an attractive selection of goods and services” and “is convenient based on her travel patterns.”

CHNP argued the plaintiffs failed to sufficiently show that Payne would return to the property and, therefore, that they were unable to demonstrate she was likely to suffer any harm in the future.  Specifically, CHNP argued Payne lives over 700 miles from the property, lacks a reliable record of past patronage, and her alleged intent to return to the property in the future is not credible.  In order to evaluate this argument, the court used what is known as the proximity test – a set of factors for determining standing that takes into account (1) the plaintiff’s proximity to the defendant’s business; (2) the plaintiff’s past patronage of the business; (3) definiteness of plans to return to the business; and (4) the frequency of the plaintiff’s nearby travels.

The court first examined the proximity factor because as the court said, “the further away a plaintiff ordinarily finds herself from a business, the less likely she is to suffer future harm.”  In this case, Payne lives over 700 miles from the shopping center, which the court decided weighed against finding she was likely to return and suffer harm.  More importantly, the court reviewed Payne’s filings in other ADA cases in North Carolina courts and determined her representations to the courts were not consistent from case to case.  Specifically as it related to this case, the court pointed out that Payne’s allegation that she passes through Chapel Hill on the way to see her attorney when traveling to North Carolina contradicted a sworn statement made in another case that her “first stop is always Greensboro.”  The court said, “the fact that Payne has submitted such clearly conflicting statements clearly calculated to avoid dismissal in these cases is very troubling and casts significant doubt on her claims.”

The court also examined Payne’s past patronage of the shopping center.  Although the court noted Payne had made only three past visits and did not explain why she chose this particular shopping center instead of many others on her route, it allowed this factor to weigh in her favor, if only slightly.

The court next examined Payne’s intent to return to the shopping center.  The court found this factor weighed against Payne and NAA because the shopping center is located on a 100-mile stretch of highway between the airport at which Payne arrives and her lawyer’s office, which is her alleged destination when she comes to North Carolina.  Moreover, several of the cities Payne alleged she intended to visit in the future (Fayetteville and Wilmington) are in the opposite direction from the shopping center. In sum, the court determined Payne did not express any definite reason she would return to the shopping center other than to test its compliance with the ADA.

Finally, the court assessed Payne’s frequency of travel to areas near the shopping center.  The court said Payne’s sporadic trips to North Carolina provided weak evidence she would suffer actual or imminent harm.  Beyond that, Payne’s frequent lawsuits worked against her efforts to maintain standing in this case.  The court noted it was implausible that in her one or two visits a year to North Carolina, Payne could return to each of the 80 plus properties she has sued in the state for alleged noncompliance with the ADA.  The court found this final factor weighed against finding that Payne had standing to proceed with her lawsuit.  After considering all the factors together, the court determined Payne was unlikely to suffer future harm at the shopping center and rules that she did not have standing to proceed and the lawsuit should be dismissed.

CHNP also argued that Plaintiff NAA lacked standing to proceed with the lawsuit because, as an association, its standing depended on an allegation that one or more of its members was suffering immediate or threatened injury as a result of the allegations in the Complaint.  Because Payne was the only member of NAA identified in the Complaint and the court decided she was not suffering immediate or threatened injury, the lawsuit was also dismissed as it related to allegations made by NAA.

The court’s opinion is a victory for CHNP, but also an example of how serial plaintiffs in ADA cases have credibility issues because the volume of lawsuits they file can create inconsistent “facts” they allege to be true.  The result in this case was also a strong rebuke against Payne’s dishonesty to the courts in an effort to maintain standing in her multitude of lawsuits against North Carolina companies.  (Payne has filed over 80 cases in NC.)  Businesses that find themselves facing ADA suits from out-of-state plaintiffs may find the arguments and result in this case helpful in defending those claims.

Article By:

 of

Estate Planning Opportunities Arising from Recent Landmark Supreme Court Decisions Concerning Marriages of Same-Sex Couples

Katten Muchin

On June 26, 2013, the US Supreme Court (the “Supreme Court”) struck down Section 3 of the federal Defense of Marriage Act (DOMA) as unconstitutional in the case of United States v. Windsor (“Windsor”). In a related case, the Supreme Court also dismissed an appeal from the federal district court ruling that struck down California’s Proposition 8 (which overturned marriages of same-sex couples in California) as unconstitutional in the case of Hollingsworth v. Perry (“Perry”), leaving intact the district court’s ruling that Proposition 8 is unconstitutional and cannot be enforced. This advisory summarizes the estate and income tax planning opportunities and other topics for consideration arising from the Windsor and Perry decisions. Married same-sex couples should consult with their advisors in light of their particular facts and circumstances in order to take maximum advantage of the change in the law. Unmarried same-sex couples should now consider whether to marry.

In Windsor, Edith Windsor and Thea Spyer, a same-sex couple, were married in Canada in 2007 after having been together in New York for over forty years. New York law did not permit marriages between same-sex couples at the time but recognized marriages of same-sex couples performed in other jurisdictions. Spyer died in 2009, and Windsor inherited all of Spyer’s estate as Spyer’s surviving spouse. However, because of DOMA, which defines “marriage” as “a legal union between one man and one woman as husband and wife” and “spouse” as “a person of the opposite sex who is a husband or a wife”, the federal government refused to recognize the couple’s marriage for federal estate tax purposes. As a result, Windsor’s inheritance from Spyer was not entitled to the unlimited marital deduction from federal estate tax that would have been available had Windsor and Spyer’s marriage been recognized by the federal government. After paying the estate taxes owed on her inheritance as a result of DOMA, Windsor sued for a refund of the estate taxes on the grounds that DOMA unconstitutionally discriminated against same-sex married couples. Windsor prevailed in the US District Court for the Southern District of New York and also in the US Court of Appeals for the Second Circuit. The Supreme Court has now agreed with Windsor, holding that “DOMA seeks to injure the very class [of married same-sex couples] New York seeks to protect. By doing so it violates basic due process and equal protection principles applicable to the Federal Government.” The Supreme Court further explained that DOMA’s “demonstrated purpose is to ensure that if any State decides to recognize same-sex marriages, those unions will be treated as second-class marriages for purposes of federal law.”

In Perry, two same-sex couples wished to become married in California. Though the California Supreme Court held in 2008 that the California Constitution required the State of California to recognize marriages of same-sex couples, California voters passed Proposition 8 later the same year, amending the California Constitution to provide that only “marriage between a man and a woman is valid and recognized in California.” As a result of Proposition 8’s passage, the two couples were unable to marry. They sued the California governor, attorney general and various other state and local officials responsible for enforcing California’s marriage laws (the “California officials”), claiming that Proposition 8 violated their rights to due process and equal protection under the US Constitution. In the US District Court for the Northern District of California (the “district court”), the California officials refused to defend Proposition 8, but the private parties who were the proponents of Proposition 8 (the “Proposition 8 proponents”) successfully intervened to defend the measure. After the district court held that Proposition 8 was unconstitutional, the California officials declined to appeal the decision and the Proposition 8 proponents appealed. The US Court of Appeals for the Ninth Circuit upheld the district court’s ruling that Proposition 8 was unconstitutional. The Supreme Court dismissed the appeal from the district court on the grounds that the Proposition 8 proponents lacked standing to appeal because they were merely private parties and were not properly authorized under state law to defend the constitutionality of Proposition 8. As a result of the Supreme Court’s ruling, the district court’s ruling that Proposition 8 is unconstitutional remains in place and California soon will be required to permit same-sex couples to marry. As a result of the Windsor decision, such marriages also will be entitled to federal recognition.

Estate Planning Opportunities Arising from Windsor 

The Supreme Court’s ruling in Windsor requires the federal government to recognize marriages of same-sex couples. Note, however, that the Supreme Court limited the scope of its decision to “lawful marriages”. Therefore, the decision likely will not be interpreted to require the federal government to recognize so-called “marriage equivalent” status that is not actually “marriage” under state law, i.e., civil unions, domestic partnerships and registered domestic partnerships. The District of Columbia and thirteen states permit marriages of same-sex couples. Those states are California (effective once the stay issued by the Ninth Circuit is lifted pursuant to the Perry decision, which is likely to be imminent), Connecticut, Delaware (effective July 1, 2013), Iowa, Maine, Maryland, Massachusetts, Minnesota (effective August 1, 2013), New Hampshire, New York, Rhode Island (effective August 1, 2013), Vermont and Washington.

Another unresolved issue is whether the Supreme Court’s decision applies to married same-sex couples who lawfully married in a jurisdiction that permits marriages of same-sex couples (e.g., New York), but who are domiciled and/or resident in a state that does not permit or recognize such marriages (e.g., Texas). Accordingly, until these issues are resolved as a result of subsequent litigation, legislation and/or regulation, it is not clear whether Windsor will be interpreted also to apply to same-sex couples with a marriage-equivalent status (but not marriage) or married same-sex couples who are domiciled and/or resident in a state that does not permit and/or recognize marriages of same-sex couples.

Against that background, at a minimum, married same-sex couples domiciled and/or resident in states that permit and/or recognize marriages of same-sex couples likely will be entitled to the more than 1,000 benefits available to married opposite-sex couples under federal law. Some of those 1,000 benefits present immediate estate planning opportunities, including the following:

1. Review estate planning documents to ensure that the amount and structure of any spousal bequests remain appropriate. 

Federal recognition of marriages of same-sex couples leads to the availability of the unlimited marital deduction from federal estate tax and gift tax for transfers between same-sex spouses. Existing estate planning documents may have been drafted with the assumption that any gift or bequest to a spouse of the same sex over and above the individual’s applicable exclusion amount from federal estate tax and/or federal gift tax (the “Applicable Exclusion Amount” —currently $5,250,000, adjusted annually for inflation) would be subject to federal estate tax (currently at a maximum rate of 40%). However, that assumption is no longer true. Indeed, such gifts and bequests, if properly structured, are now entitled to the unlimited marital deduction. In addition, under the so-called “portability” provisions of federal gift and estate tax laws, under certain circumstances a surviving spouse of the same sex will also be entitled to use any portion of the deceased spouse’s unused Applicable Exclusion Amount (the “DSUE”), allowing the surviving spouse to make additional tax-free gifts and/or reduce the amount of estate taxes owed upon the surviving spouse’s death (note, however, that DSUE does not increase the surviving spouse’s applicable exemption from the federal generation-skipping transfer tax (“Federal GST Exemption”)). Accordingly, a married same-sex couple may wish to modify their estate planning documents to provide that any assets included in their estates in excess of the Applicable Exclusion Amounts will pass to the surviving spouse, either outright or in a properly structured marital trust for the spouse’s benefit, thus deferring all federal estate taxes until the death of the surviving spouse.

Estate planning documents may also be revised, if appropriate, to include a separate marital trust that is designed to permit a spouse to use any of the individual’s unused Federal GST Exemption that remains after the individual’s death.

2. Review retirement account beneficiary designations and joint and survivor annuity elections to ensure that they remain appropriate. 

A surviving spouse is entitled to roll over a decedent spouse’s retirement account into the surviving spouse’s retirement account without being required to take minimum distributions or lump sum distributions until such time as the surviving spouse ordinarily would be required to take minimum distributions (usually upon reaching age 70½). As a result of the Windsor decision, this benefit is now available to married same-sex couples. Accordingly, married same-sex spouses should consider naming each other as the beneficiary of his or her retirement accounts in order to defer income tax on the rolled over retirement account as long as possible.

With regard to any retirement plans that are covered by the Employee Retirement Income Security Act of 1974 (ERISA), the spouse of a participant in such a plan may automatically be a beneficiary of the retirement plan as a result of the Windsor decision. Accordingly, if a participant in an ERISA-covered plan (e.g., a 401(k) plan) wishes to designate someone other than his or her spouse as a beneficiary, such participant will need to obtain the consent of his or her spouse to make such a designation effective. Prior to Windsor, consent was not needed from a spouse of the same sex. However, afterWindsor, such consent is now required. Separately, if a participant previously made an election to waive joint and survivor annuity benefits after the date of the marriage, the participant may be able to make a new election at this time, and a new election may be required in order to be valid if the marriage is newly recognized under Windsor.

3. Consider replacing individual life insurance policies with survivor policies. 

Many same-sex spouses previously purchased individual life insurance policies of which the other spouse is the beneficiary (either directly via beneficiary designation or indirectly through a life insurance trust) in order to provide the surviving spouse with sufficient liquid assets that may be used to pay federal estate taxes due upon the death of the first to die. With the unlimited marital deduction and DSUE now available to married same-sex couples, as explained above, there may be little or no need for such liquidity upon the death of the first spouse to die. Thus, a married same-sex couple should consider replacing such individual policies with so-called “survivor” or “second-to-die” policies that pay benefits only upon the death of the surviving spouse. Such policies will still provide liquidity to children or other beneficiaries of the married same-sex couple and are generally less expensive than individual policies having the same death benefits.

4. Consider splitting gifts between spouses. 

Until now, each spouse could make gifts only up to the annual exclusion amount from federal gift tax and/or federal generation-skipping transfer tax (the “Annual Gift Tax Exclusion Amount” and the “Annual GST Exclusion Amount”, respectively—each currently $14,000) without using any portion of his or her Applicable Exclusion Amount. Going forward, however, each spouse may now make gifts from his or her own assets and, with the other spouse’s consent, have such gifts deemed to have been made one-half by the other spouse for purposes of federal gift tax and GST tax laws. Both spouses acting together in this way currently may give up to $28,000 to any individual without using any portion of either spouse’s Applicable Exclusion Amount (note that the Annual GST Exclusion Amount does not always apply to gifts made in trust).

5. Amend previously filed federal estate, gift and income tax returns and/or file protective claims as appropriate.

Gifts made to spouses. If one spouse previously made taxable gifts to the other spouse and reduced the donor’s Applicable Exclusion Amount by the amount that the gift exceeded the Annual Gift Tax Exclusion Amount and/or the donor’s Federal GST Exemption by the amount that the gift exceeded the Annual GST Tax Exclusion Amount, it may be possible to amend the donor’s prior gift tax returns (subject to the limitations period discussed below) and retroactively claim the marital deduction for the gifts made in those years, thus increasing the donor’s Applicable Exclusion Amount and/or reclaim the Federal GST Exemption used. By doing so, the donor may make additional tax-free gifts and/or reduce federal estate and/or GST taxes due upon his or her death. Similarly, any gift taxes or GST taxes actually paid may be refundable.

Gifts made to third parties. To the extent that either spouse previously used a portion of his or her Applicable Exclusion Amount and/or paid gift taxes or GST taxes by making gifts to third parties over and above his or her Annual Gift Tax Exclusion Amount and/or Annual GST Exclusion Amount, it may be possible to amend prior federal gift tax returns in order to retroactively split such gifts with the other spouse, thus increasing the donor’s Applicable Exclusion Amount and/or Federal GST Exemption. Again, doing so will allow the donor to make additional tax-free gifts and/or reduce federal estate taxes and GST taxes due upon the donor’s death. Similarly, any gift or GST taxes actually paid may be refundable.

Inheritances from decedent spouses. In cases where a decedent spouse’s estate paid federal estate taxes on assets that were inherited by a surviving spouse of the same sex, it may be possible to amend the decedent spouse’s federal estate tax return (subject to the limitations period discussed below) and retroactively claim a refund for the estate taxes paid. If the decedent spouse’s estate did not pay estate taxes and he or she died in 2010 or a subsequent year, under the portability provisions of federal estate tax laws, the surviving spouse may be able to claim the deceased spouse’s DSUE, thus allowing the surviving spouse to make additional tax-free gifts and/or reduce the amount of estate taxes owed upon the surviving spouse’s death (note, however, that DSUE does not increase the surviving spouse’s Federal GST Exemption).

Income taxes. Both spouses may also amend prior year income tax returns to change their filing status from single to married filing jointly and obtain a refund if the amount of tax owed based on their married filing status is less than that owed based on their prior single status.

Retroactivity. The extent to which married same-sex couples will be allowed to amend prior tax returns depends on the extent to which Windsor is applied retroactively and whether the applicable limitations period has passed with regard to each tax return (i.e., ordinarily three years from the date the tax return was originally due or filed (if on extension) or two years from the date the tax was paid, whichever is later). For example, it may no longer be possible to amend a 2009 individual income tax return due on April 15, 2010, that was not put on extension, but individual income tax returns for 2010, 2011 and 2012 likely may be amended. That said, it is conceivable that the Internal Revenue Service (IRS) will permit amendments as far back as the year of the marriage on the basis that neither spouse lawfully could have amended his or her tax returns prior to theWindsor decision. In either case, it will take some time for the IRS to develop policies and procedures to implement Windsor, and amended returns should be filed in accordance with applicable published guidance from the IRS, if available. In any situation where the limitations period is about to expire for a particular tax return, a married same-sex couple should consider filing a protective claim for a refund with the IRS in order to preserve the ability to obtain such a refund after the IRS has provided a means to amend the return.

6. Reside in a state that permits and/or recognizes marriages of same-sex couples. 

If a married same-sex couple was lawfully married in a jurisdiction that permitted the marriage but now reside in a state that does not permit and/or recognize the marriage, that couple should consider moving to a state that either permits marriages of same-sex couples or recognizes such marriages lawfully performed in other states if they wish to be certain to enjoy the federal benefits now potentially accorded to marriages of same-sex couples.

7. Non-citizen spouses should consider seeking permanent residency and/or becoming citizens. 

Until now, non-citizen spouses were not eligible for citizenship or permanent residency on the basis of their marriage to a spouse of the same sex who was a US citizen. As a result of the Windsor decision, however, non-citizens may be eligible for permanent residency and/or citizenship on that basis. Though there are many benefits to becoming a permanent resident or citizen, there are also numerous tax and non-tax consequences that should be carefully considered before making such an important decision.

Estate Planning Opportunities Arising from Perry 

California will now be required to permit marriages of same-sex couples, but other states that do not permit and/or recognize marriages of same-sex couples will not be required to do so. California married same-sex couples will enjoy all of the benefits available to married couples under federal law and thus should consider the above recommendations. In addition, married same-sex couples in California should consider the following recommendations:

1. Amend previously filed California income tax returns and/or file protective claims as appropriate. 

Married same-sex couples may be permitted to amend prior year California income tax returns to change their filing status and obtain a refund for any income taxes that were overpaid. Note that the normal limitations period for amending California returns expires four years after the original due date of the return (or the actual filing date if the return was put on extension) or one year from the date the tax was paid, whichever occurs later. If the limitations period for any particular tax return is about to expire, a married same-sex couple should consider filing a protective claim for a refund until such time as the State of California provides appropriate guidance for amending prior returns. Note that, as discussed above with regard to the limitations period for federal tax returns, it is conceivable that a married same-sex couple may be permitted to amend their returns through the first year of their marriage.

2. Amend previously filed tax returns and/or file protective claims with other states as appropriate. 

Married same-sex couples may also be entitled to amend prior gift tax and/or estate tax returns filed with other states that recognized marriage but not marriage equivalents (e.g., California registered domestic partnerships) at the time in question and receive a refund of taxes paid and/or reclaim any state gift tax and/or estate tax exemption. Again, the limitations period (if one applies) for amending such returns will vary by state. If the limitations period for any particular tax return is about to expire, a married same-sex couple should consider filing a protective claim for a refund until such time as the state provides appropriate guidance for amending prior returns.

 of

Defense of Marriage Act (DOMA) Goes Down – Copyright Goes Up – U.S. v. Windsor, Supreme Court, No. 12-307, Decided June 26, 2013

Sheppard Mullin 2012

The Supreme Court handed down a far reaching decision throwing out an attempt by Congress to deny the benefits conferred by federal law on same sex couples legally married under state law holding that the Defense of Marriage Act (“DOMA”), as so applied, constituted a deprivation of the equal liberty of persons protected by the Fifth Amendment. In so doing, and perhaps without realizing it, the Supreme Court was also writing an important copyright case.

Much of copyright law is devoted to legal protection for intellectual property under a social contract allowing authors to exclusively benefit for a limited time from the fruits of their creative endeavors in exchange for enhancing the marketplace of ideas. The presently effective Copyright Act of 1976, and its predecessors including the Copyright Act of 1909, further establish a mechanism for succession assuring that certain defined classes of individuals, the author’s “statutory heirs”, may continue to enjoy those benefits following the author’s death. These classes generally include the author’s surviving spouse and children and, in certain circumstances, the grandchildren next of kin and/or the author’s executor. Since copyrights are expressly solely a matter of federal law for the federal courts, any such federal benefits would have likely been denied by DOMA had it survived judicial scrutiny.

For example, the renewal copyright provisions allow the recapture of a deceased author’s original term copyright (copyrights secured prior to 1978) by an author’s surviving spouse and children as a class. Should there be no surviving spouse or child, the renewal right passes to the author’s executor, if there is a will, or to the author’s next-of-kin in the absence of a will. Clearly DOMA would have denied the benefits of renewal to a surviving, non-author, gay spouse even though such was legally married under state law. What would instead have happened is that an author’s children (possibly by a first marriage) would have enjoyed the entire renewal copyright to the exclusion of the legal, non-author spouse. It should, in this regard, be noted that, much to the surprise of many estate attorneys even today, the renewal and other copyright privileges flow directly from the statute to the statutory heirs without regard to the author’s plan of testamentary distribution or the state laws of intestacy.

Another example would have been the right of termination of transfers by which the author’s statutory heirs are allowed to serve Notices of Termination on prior transferees. In most cases, the author’s surviving spouse and children must jointly exercise the termination. Of course, if DOMA had survived instead of the non-author gay spouse, the children would have exclusively owned the termination rights with no legal obligation to a possibly disfavored second spouse who might be left with nothing from the estate of his or her devoted marital partner.

Neither of these scenarios will now happen…at least not from a direct application of DOMA to the provisions of the Copyright Act. Instead, the Copyright Act will continue to neutrally apply to all legally married spouses regardless of their sexual orientation.

The children, whatever their feelings may be about their father or mother’s choice of marital partner, should not feel deprived. The Supreme Court had already long ago shown favor to them. In an often forgotten decision, De Sylva v Ballentine, 351 US 570 (1956), the Supreme Court determined that even children born out of wedlock were entitled to the benefits conferred by the copyright laws on “children” as a class. However, the Supreme Court just as clearly stated that identifying who qualified as a “child” was a matter left to the states, hence, entirely consistent with the DOMA ruling. Following, De Sylva, the New York federal appellate court, the Second Circuit, applied the ruling of the Alabama Supreme Court to hold that Cathy Yvonne Stone, the out of wedlock daughter of the famous country singer, Hank Williams, was entitled to share the benefits of Williams’ renewal copyrights. Once Alabama state law identified Stone as a legal child, the Copyright Act then extended renewal copyright benefits to her as a member of the federally defined class of “children”. Stone v. Williams, 970 F2d 1043 (2d Cir. 1992).

Trusts and Estates attorneys, however, are not entirely out of business. The DOMA decision leaves substantial need for their services if only to determine the impact on pre-planned and future estates. The Supreme Court, both in De Sylva and Windsor, has made it clear that state law still governs who will be considered a legal spouse or child. In fact, Windsor expressly leaves intact the state law provisions of DOMA. If that were not enough, the Supreme Court’s companion decision, Hollingsworth v Perry, No. 12-144, decided June 26, 2013, leaves in place a determination, under California state law, that same-sex partners could not be denied the benefits of marriage. In short, DOMA is one piece in the same-sex marriage mosaic, but not the final piece…not close to it. Instead, the Windsor and Hollingsworth decisions will only increase the need to carefully examine the impact of state law on the effective and predictable management of literary and artistic estates.

U.S. Supreme Court Rules on Defense of Marriage Act (DOMA) and California’s Proposition 8

McDermottLogo_2c_rgb

Earlier this morning, in the case of U.S. v. Windsor, the Supreme Court of the United States found Section 3 of the Defense of Marriage Act (DOMA) to be unconstitutional. In a 5-4 decision authored by Justice Kennedy, the Court ruled that Section 3 of DOMA deprived same-sex couples of the equal protection guarantee of the Fifth Amendment of the U.S. Constitution. Note that the Windsor decision only applies to Section 3 of DOMA (which previously prohibited same-sex couples from enjoying any benefit under federal law). The decision does not apply to another key provision of DOMA that allows one state to refuse to recognize same-sex marriages performed in another state.

In the separate Hollingsworth v. Perry case challenging California’s Proposition 8 (which prohibited same-sex marriages), the Court ruled that it lacked jurisdiction to rule on the constitutionality of Proposition 8. This ruling has the effect of reinstating the original opinion of the United States District Court for the Northern District of California which found Proposition 8 unconstitutional under California law and prohibited the enforcement of Proposition 8 statewide. As a result, same-sex marriages will resume in California relatively shortly (perhaps in as soon as a month). As widely expected, the Court did not declare a constitutional right to marry in all states.

For more information on these cases and the immediate impact on employee benefit programs, please join our webinar on “DOMA and Proposition 8: Immediate Implications for Employee Benefit Plan Sponsors” scheduled for July 2, 2013.

Article By:

 

U.S. Supreme Court Directs 5th Circuit Court of Appeals to Re-Examine University of Texas’ Race-Conscious Admissions Policies

Barnes & Thornburg

On Monday, June 24, 2013, the U.S Supreme Court issued a much-anticipated ruling in the first affirmative-action case since the 2003 landmark decisions of Gratz v. Bollinger and Grutter v. Bollinger.  However,  Monday’s ruling in Fisher v. University of Texas at Austin did not reach the merits of the school’s policy, holding that the 5th Circuit Court of Appeals applied the incorrect standard of review.

For academic institutions that have race-conscious admissions policies, this case does not alter the current legal requirement that such polices be “narrowly tailored” to further the compelling governmental interest of having a diverse student body.  Because the appellate court did not properly apply this “strict scrutiny” standard, the Supreme Court sent the case back to the lower court for further consideration.

In Fisher, a Caucasian applicant, Abigail Fisher, applied to the University of Texas in 2008. After being rejected for admission, Fisher sued the University, claiming that the school’s race-conscious policy violated the Equal Protection Clause of the U.S. Constitution’s 14th Amendment which requires that racial classifications be subjected to strict scrutiny.

The District Court granted summary judgment to the University. On appeal, the Fifth Circuit Court of Appeals affirmed the dismissal, deferring to what it called “a constitutionally protected zone of discretion,” and holding that Fisher could challenge only whether the University’s decision was made in good faith.

In a 7-1 decision, the U.S. Supreme Court rejected the cursory analysis of both lower courts and held that the proper standard of review must be applied.  Specifically, the Court held that the District Court and appellate court each confined their strict scrutiny analysis too narrowly.  A “meaningful” judicial review, the Court wrote, would have assessed whether the University’s admissions policy was narrowly tailored to achieve student body diversity that “encompasses a broad array of qualifications and characteristics of which racial or ethnic origin is but a single though im­portant element.”

Fisher presents the most recent challenge to academic affirmative action in the Fifth Circuit, which, in 1996, effectively banned such practices in Texas. See: Hopwood v. State of Texas, 84 F. 3d 720 (5th Cir. 1996). In 2003, the Grutter case overruled that ban and the University of Texas re-implemented a race-conscious admissions policy.

Now that the Fisher case has been remanded to the appellate level, the constitutionality of race-conscious admissions policies in state-funded academic institutions remains unchanged.  Advocates and opponents of affirmative action in public education will have to continue to wait until the Fifth Circuit completes its review and undertakes the level of strict scrutiny review required by the Equal Protection Clause.

Article By:

 of

Social Media & Emerging Employer Issues: Are You Protected?

McBrayer NEW logo 1-10-13

On June 13, 2013, Business First of Louisville and McBrayer hosted the second annual Social Media Seminar. The seminar’s precedent, Social Media: Strategy and Implementation, was offered in 2012 and was hugely successful. This year’s proved to be no different. Presented by Amy D. Cubbage and Cynthia L. Effinger, the seminar focused on emerging social media issues for employers. If you missed it, you missed out! But don’t worry, a seminar recap is below and for a copy of the PowerPoint slides click here.

McBrayer: If a business has been designated an entity that must comply with HIPAA, what is the risk of employees using social media?

Cubbage: Employers are generally liable for the acts of their employees which are inconsistent with HIPAA data privacy and security rules. As employees’ use of social networking sites increase, so does the possibility of a privacy or security breach. An employee may be violating HIPAA laws simply by posting something about their workday that is seemingly innocent. For instance, a nurse’s Facebook status that says, “Long day, been dealing with a cranky old man just admitted into the ER” could be considered a HIPAA violation and expose an employer to sanctions and fines.

 

McBrayer: Should businesses avoid using social media so that they will not become the target of social media defamation?

Effinger: In this day and age it is hard, if not impossible, for a business to be successful without some use of social media. There is always the risk that someone will make negative comments about an individual or a business online, especially when anonymity is an option. Employers need to know the difference between negativity and true defamation. Negative comments or reviews are allowed, perhaps even encouraged, on some websites. If a statement is truly defamatory, however, then a business should make efforts to have the commentary reported and removed. The first step should always be to ask the internet service provider for a retraction of the comment, but legal action may sometimes be required.

 

McBrayer: When does a negative statement cross the line and become defamation?

Effinger: It is not always easy to tell. First, a statement must be false. If it is true, no matter how damaging, it is not defamation. The same goes for personal opinions. Second, the statement must cause some kind of injury to an individual or business, such as by negatively impacting a business’s sales, to be defamation.

 

McBrayer: Can employers ever prevent employees from “speaking” on social media?

Effinger: Employers should always have social media policies in place that employees read, sign, and abide by. While it is never really possible to prevent employees from saying what they wish on social media sites, some of their speech may not be protected by the First Amendment’s freedom of speech clause.

 

McBrayer: What constitutes “speech” on the internet? Is “liking” a group on Facebook speech? How about posting a YouTube video?

Effinger: This is a problem that courts and governmental employment agencies, like the National Labor Relations Board, are just starting to encounter. There is no bright-line rule for what constitutes “speech,” but it is safe to say that anything an employee does online that is somehow communicated to others (even “liking” a group or posting a video) qualifies.

 

McBrayer: Since a private employer is not bound by the First Amendment, can they terminate employees for social media actions with no repercussions?

Effinger: No! In fact, it could be argued that private employees are afforded more protection for what they say online than public employees. While a private employer has no constitutional duty to allow free speech, the employer is subject to state and federal laws that may prevent them from disciplining an employee’s conduct. As a general rule, private employees have the right to communicate in a “concerted manner” with respect to “terms and conditions” of their employment. Such communication is protected regardless of whether it occurs around the water cooler or, let’s say, on Twitter.

 

McBrayer: It seems like the best policy would be for employers to prohibit employees from discussing the company in any negative manner. Is this acceptable?

Effinger: It is crucial for companies to have social media policies and procedures, but crafting them appropriately can be tricky. There have been several instances where the National Labor Relations Board has reviewed a company’s policy and found its overly broad restrictions or blanket prohibitions illegal. Even giant corporations like General Motors and Target have come under scrutiny for their social media policies and been urged to rewrite them so employees are given more leeway.

 

McBrayer: Is social media a company asset?

Cubbage: Yes! Take a moment to consider all of the “followers”, “fans”, or “connections” that your business may have through its social media accounts. These accounts provide a way to constantly interact with and engage clients and customers. Courts have recently dealt with cases where a company has filed suit after a rogue employee stole a business account in some manner, for instance by refusing to turn over an account password. Accounts are “assets,” even if not tangible property.

 

McBrayer: What is the best way for an employer to protect their social media accounts?

Cubbage: Social media accounts should first be addressed in a company’s operating agreement. Who gets the accounts in the event the company splits? There are additional steps every employer should take, such as including a provision in social media policies that all accounts are property of the business. Also, there should always be more than one person with account information, but never more than a few. Treat social media passwords like any other confidential business information – they should only be distributed on a “need to know” basis.

Article By:

 of

 

Supreme Court Ruling on Defense of Marriage Act (DOMA) Could Lead to Refunds of Federal Taxes

McDermottLogo_2c_rgb

Employers providing benefits for employees’ same-sex spouses may want to consider the availability of federal payroll tax refunds if the Supreme Court of the United States finds Section 3 of the Defense of Marriage Act (DOMA) unconstitutional.  Employers currently must impute income to an employee for the fair market value of benefit coverage for a non-dependent same-sex spouse.  Such imputed income is subject to federal income and payroll taxes, as well as state income taxes in the majority of states.

The Supreme Court of the United States is expected to rule in late June on the constitutionality of Section 3 of the Defense of Marriage Act (DOMA).  A ruling that DOMA is unconstitutional will favorably reverse the federal tax treatment of employer-provided benefits for non-dependent same-sex spouses.  Such a reversal may lead to refunds of federal payroll taxes paid by employers and federal income taxes paid by employees on income imputed to employees for same-sex spouse benefit coverage.

Current Law

The Supreme Court is considering the constitutionality of Section 3 of DOMA in United States v. Windsor.  Windsor is a surviving spouse who was required to pay $350,000 in federal estate taxes after her same-sex spouse died—taxes she would not have had to pay if her same-sex marriage that was legally recognized in her home state of New York was also recognized under federal law.  Section 3 of DOMA provides that for all purposes of federal law, the word “marriage” means “only a legal union between one man and one woman as husband and wife,” and the word “spouse” refers “only to a person of the opposite-sex who is a husband or wife.”

Employees who enroll a non-dependent same-sex spouse or partner under an employer-sponsored benefit plan currently must pay federal income taxes on the fair market value of such coverage.  While federal law excludes amounts that an employer pays toward medical, dental or vision benefits for an employee and the employee’s opposite-sex spouse and dependents from the employee’s taxable income, employers that provide these same benefits to employees’ same-sex spouses or partners are required to impute the fair market value of the benefits as income to the employee that is subject to federal income tax, unless the same-sex spouse or partner otherwise qualifies as the employee’s “dependent” as defined for federal income tax purposes.  Employers are required to withhold federal payroll taxes from the imputed amount, including income, Social Security and Medicare taxes.  In addition, employers must pay their share of Social Security and Medicare taxes on the imputed amount, as well as Federal Unemployment Tax Act taxes.  The majority of states follow the federal income tax rules approach and also require employers to impute income on the value of such benefits for state income tax purposes.

Consider Filing a Protective Claim Now

Employers that have imputed income on the fair market value of benefits for employees’ same-sex spouses should consider filing protective FICA tax refund claims and should be poised to change their systems to allow for the future exclusion of benefits provided to same-sex spouses.  Although filing a complete refund claim can be burdensome from an administrative perspective, it is relatively easy for an employer to file a protective claim to preserve the statute of limitations on employment tax refund claims for open years and later file a supplementary claim with necessary employee consents and exact calculations. 

In general, the statute of limitations for tax refund claims is three years.  The due date for the protective claim is three years from April 15 of the calendar year following the year in which the income was imputed to the employee.  For example, for employment taxes paid on income imputed in 2010, a protective claim should be filed by April 15, 2014.  If not filed already, a refund claim cannot be filed with respect to employment taxes paid on income imputed before 2010 as the statute has run for that year.

If an employment tax refund had already been filed and the Internal Revenue Service (IRS) issued a notice of claim disallowance, the taxpayer must either bring suit to contest the disallowance within two years after the issuance of the notice or obtain an extension of the time to file such a suit with the IRS—this process can be initiated by filing IRS Form 907, Agreement to Extend the Time to Bring Suit.

Next Steps

Until the Supreme Court rules on Windsor, employers are advised to continue imputing income on the value of benefit coverage for employees’ non-dependent same-sex spouses and partners and to continue withholding and paying federal payroll taxes on the imputed amount.

View “Supreme Court Oral Arguments on DOMA, Proposition 8: Potential Employee Benefit Plan Implications” for more information on the employee benefit plan implications of the Supreme Court’s possible rulings on the constitutionality of DOMA in Windsor and California’s Proposition 8 in Hollingsworth v. Perry.

Big Box Retailers and Major Fast Food Chains Targeted by Unions and National Labor Relations Board (NLRB)

Michael Best Logo

The NLRB Rules Against Target

There are more than 1,750 Target stores nationwide, and none have been organized by a union. This fact was not lost on the National Labor Relations Board (the Board) when, on April 26, 2013, it affirmed the decision of an Administrative Law Judge that Target Corporation (Target)’s no-solicitation/no-distribution policy violated the National Labor Relations Act (the Act) and ordered Target to amend its policies nationwide. The consolidated cases, known as Target Corporation and United Food & Commercial Workers (UFCW) Local 1500, 359 NLRB No. 103 (2013), originated when the UFCW filed charges with the Board following an unsuccessful organizing campaign at a Target store in Valley Stream, New York.

The key issue addressed by the Board was whether Target maintained a no-solicitation/no-distribution policy that violated employees’ Section 7 rights under the Act. Target’s policy prohibited solicitation on the store’s premises at all times if it was for “personal profit,” “commercial purposes,” or “a charitable organization that isn’t part of the Target Community Relations program and isn’t designed to enhance the company’s goodwill and business.” The Board focused on the ban on solicitation “for commercial purposes,” finding that Target failed to define the phrase or provide illustrative examples to clarify what it meant. Because the phrase was undefined, the Board found that Target employees could have interpreted the phrase to ban solicitation and distribution on behalf of unions, which would violate the Act.[1]  

Ultimately, the Board ordered Target to rescind nationwide its no-solicitation/no-distribution rule and to:

[f]urnish all current employees nationwide with inserts for their current employee handbooks that (1) advise that the unlawful rules listed above have been rescinded, or (2) provide lawfully-worded rules on adhesive backing that will cover the unlawful rules; or publish and distribute to all current employees nationwide revised employee handbooks that (1) do not contain the unlawful rules, or (2) provide lawfully-worded rules.

The Board also set aside the union’s unsuccessful election attempt and ordered a new election to take place under the direction and supervision of the Regional Director.

Is Walmart The Next Target?

Walmart has more than 4,500 retail locations in the United States, and like Target, none are unionized. In recent months, the UFCW-backed group OUR Walmart has been advocating for strikes in several locations. On May 28, 2013, several media outlets reported a new round of strikes coordinated by OUR Walmart in advance of Walmart’s June 7, 2013 annual shareholder meeting.

In addition to the strike efforts, the UFCW, OUR Walmart, and Walmart have filed dozens of NLRB charges against each other in 2013. In May, the labor-backed group filed a new round of charges with the NLRB. Meanwhile, Walmart has filed lawsuits against the UFCW and OUR Walmart in Florida and California state courts in recent months alleging trespass and unlawful organizing activity on Walmart property.

Though the Board is currently under scrutiny based on recent court decisions invalidating the President’s recess appointments, the charges against Walmart provide it with another opportunity to make a nationwide statement against a non-union employer. Given the Board’s recent penchant for union activism, do not be surprised if it takes a close look at Walmart’s policies and practices in the coming months.

The Fast Food Industry

On May 15, 2013 hundreds of Milwaukee fast food workers walked off their jobs and launched a one-day strike demanding a raise to $15 per hour and the right to unionize without intimidation or retaliation. This was the fifth such strike in six weeks, following strikes in St. Louis and Detroit the week before, and in New York and Chicago in April. In each of those strikes, local groups organized fast food workers with support from the Service Employees International Union (SEIU), one of the nation’s largest unions. All of these strikes were preceded or followed by the filing of a slew of NLRB charges against the employers, alleging myriad unfair labor practices.

These strikes share several common characteristics. Each was a one-day strike by fast food workers, backed by ad hoc coalitions of unions and community groups. In the case of the Milwaukee strike, the organizing group was called “Wisconsin Citizen Action,” and the campaign was called “Raise Up, MKE.” The St. Louis campaign was called “STL Can’t Survive on $7.35,” and Detroit’s was called “D15.” These strikes have all been part of “minority unionism” campaigns, where the focus is on staging actions by a minority of the workforce designed to inspire their co-workers, rather than waiting until they have gained support from a majority of the workers. The short duration of the strike is calculated to minimize the risk that striking workers will be replaced by their employers after walking off.

The spread of these fast food strikes, as well as strikes by non-union workers in retailers like Walmart, comes amid a long-term decline in strikes in the U.S. Both the fast food and retail industries are overwhelmingly not unionized. The strategy pursued by the groups organizing these strikes is thus one of spectacle or demonstration, calling attention to the wages and working conditions of the employees in these industries.

[1] Oddly, the Board overruled a second finding by the Administrative Law Judge that a policy instructing employees to report unknown persons seen loitering the parking lot also violated Section 7 of the Act. The Board noted it would not conclude that a reasonable employee would read a rule to violate Section 7 simply because the rule could be interpreted that way.

Article By:

Don’t Overlook The Gems In Equal Employment Opportunity Commission (EEOC) Files

Barnes & Thornburg

A recent decision out of a Louisiana federal court demonstrates that all employers who are sued in cases where the Equal Employment Opportunity Commission (EEOC) handled an administrative charge should promptly send out a FOIA request to obtain the EEOC’s file.

In Williams v. Cardinal Health Systems 200, LLC, a female employee reported to her employer that her husband had gotten into a fistfight with one of her co-workers, allegedly because the co-worker was sending her inappropriate text messages. The employee was fired shortly thereafter on Sept. 26, 2011.

Nine months later in June of 2012, a lawyer wrote to the employer on behalf of the former employee, suggesting that his client had suffered sexual harassment. The lawyer also suggested that the employer had retaliated against the employee for complaining of the sexual harassment when it fired her. A few weeks later, the lawyer helped the employee fill out and submit an EEOC intake questionnaire form.

After receiving the questionnaire, the EEOC advised the former employee that her questionnaire was incomplete, and that, among other things, she needed to sign and verify her allegations. Her lawyer eventually provided the necessary information, and the EEOC sent out a notice of charge of discrimination to the employer in October 2012, followed by a notice of right to sue. The employee then filed a lawsuit against the company in December 2012.

The employer filed a motion to dismiss the lawsuit, arguing that the employee had waited too long to bring her claim. The court noted that the employee had 300 days from the date of the alleged retaliation—or until July 22, 2012, to raise her claims with the EEOC. She had contacted the EEOC before then, but her questionnaire was incomplete. The charging party and her lawyer did not complete it before July 22. Thus, her claims were time-barred and her case dismissed.

The case provides a good example of an important litigation tool. The dismissal hinged on the EEOC’s file, which proved when the employee submitted her questionnaire, what the questionnaire contained, how the EEOC responded, and when and how her lawyer supplied the additional information. Employers typically are not privy to these communications and would not even know about them unless they obtain a copy of the agency’s file. And there is the lesson: all employers who are sued should make sure to request the EEOC or charging agency file as soon as possible. You never know what gems might be hiding in there just waiting for you to find them.

Article By:

 of

EEOC Files Two Genetic Information Nondiscrimination Act Lawsuits in Two Weeks

barnes

The EEOC recently filed its first-ever lawsuit alleging a violation of the Genetic Information Nondiscrimination Act (GINA) – and subsequently filed its second GINA lawsuit one week later.

The first lawsuit settled, with a fabrics distributor paying $50,000 and agreeing to take other specified actions (i.e. posting an anti-discrimination notice, among other things) after the EEOC alleged a violation of GINA and the Americans with Disabilities Act (ADA). Specifically, with respect to GINA, the EEOC charged that the distributor violated the Act when it asked the woman for her family medical history in a post-offer medical examination, including questions relating to the existence of heart disease, hypertension, cancer, tuberculosis, diabetes, arthritis, and “mental disorders” in her family.

The second lawsuit remains pending and was filed against a nursing and rehabilitation center. The EEOC similarly charged that the center violated GINA when it requested family medical history in a post-offer, pre-employment medical examination. The second lawsuit also alleges violations of the ADA and Title VII of the Civil Rights Act.

dna (1)

According to the EEOC, GINA “makes it illegal to discriminate against employees or applicants because of genetic information, which includes family medical history; and also restricts employers from requesting, requiring or purchasing such information.”

As noted in both press releases, one of the six national priorities identified by the EEOC’s Strategic Enforcement Plan is for the agency to address emerging and developing issues in equal employment law, which includes genetic discrimination. As this recent EEOC action signals a focus on GINA issues, employers are encouraged to ensure their policies related to employee medical information and examination comply with the Act.