Category: Real Estate

If You Can’t Stand the Heat, Don’t Build the Kitchen: Construction Company Settles Allegations of Small Business Subcontracting Fraud for $2.8 Million

For knowingly hiring a company that was not a service-disabled, veteran-owned small business to fulfill a set aside contract, a construction contractor settled allegations of small business subcontracting fraud for $2.8 million.  A corporate whistleblower, Fox Unlimited Enterprises, brought this misconduct to light.  We previously reported on the record-setting small business fraud settlement with TriMark USA LLC, to which this settlement is related.  For reporting government contracts fraud, the whistleblower will receive $630,925 of the settlement.

According to the allegations, the general contractor and construction company Hensel Phelps was awarded a General Services Administration (GSA) contract to build the Armed Forces Retirement Home’s New Commons/Health Care Building in Washington, D.C.  Part of the contract entailed sharing the work with small businesses, including service-disabled, veteran-owned small businesses (SDVOSB).  The construction contractor negotiated all aspects of the contract with an unidentified subcontractor and then hired an SDVOSB, which, according to the settlement agreement, Hensel Phelps knew was “merely a passthrough” for the larger subcontractor, thus creating the appearance of an SDVOSB performing the work on the contract to meet the set-aside requirements.  The supposedly SDVOSB subcontractor was hired to provide food service equipment for the Armed Forces Retirement Home building.

“Set aside” contracts are government contracts intended to provide opportunities to SDVOSB, women-owned small businesses, and other economically disadvantaged companies to do work they might not otherwise access.  Large businesses performing work on government contracts are often required to subcontract part of their work to these types of small businesses.  “Taking advantage of contracts intended for companies owned and operated by service-disabled veterans demonstrates a shocking disregard for fair competition and integrity in government contracting,” said the United States Attorney for the Eastern District of Washington, as well as a shocking disregard for proper stewardship of taxpayer funds.

Whistleblowers can help fight fraud and protect taxpayers by reporting government contracts fraud.  A whistleblower can report government contracts fraud under the False Claims Act and become a relator in a qui tam lawsuit, from which they may be entitled to a share of the funds the government recovers from fraudsters.

Article By Eva Gunasekera and Renée Brooker at Tycko & Zavareei LLP

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

© 2022 by Tycko & Zavareei LLP

When Your Business Partner Uses Company Money to Purchase Assets for Himself, You Have a Remedy – If You Don’t Wait Too Long

Minority owners of closely-held businesses are often shocked to learn what their business partner – usually the majority owner – has been doing with the company’s money.  In some cases, an investigation reveals that your worst suspicions are true, and your partner has actually started a competing company on the side.  But diverting assets and resources can often have results other than an active, competing business.  Sometimes embezzlement is as simple as company funds being used to purchase assets – such as real estate – in which you, of course, have no ownership interest.  This can be done by having the jointly-owned company purchase the land outright, or make the mortgage payments on property your business partner has cut you out of.  Either way, joint money is being used to subsidize your partner’s solo venture.

I have had clients come to me believing that because they do not have an ownership interest in an asset, they cannot possibly have any rights to it, or in it.  But that is not necessarily true.  For example, in New Jersey, if you are a 1/3 owner of a company, and the 2/3 majority owner uses company money to buy real property, you may have an excellent argument that you should be legally recognized as a 1/3 owner of the property, or at least be entitled to 1/3 of any profits or proceeds from it. Similarly, if company monies are used to start a competing company, you may be entitled to be awarded 1/3 ownership of that competing company, or at least damages equaling 1/3 of that company’s profits.

The logic is obvious – 1/3 of the money improperly used effectively belongs to you.  However, many business owners suspect something like this for years but fail to act, usually because they think it’s too late once the money is gone.  If you believe money is unaccounted for in your own company, you are entitled to answers.  If you can’t understand why your business partner is suddenly devoting time to other business ventures, but will not explain to you what he is doing, you are entitled to answers.  If you do a search and learn that your business partner owns real estate, and you can’t understand how he paid for it and want to know if any of your money was used, you are entitled to answers.  You can get those answers in court – but the fact that you are entitled to do so should help you get them without resorting to a disruptive and expensive judicial filing.

When, exactly, you learned of the embezzlement will impact how long you have to take action before it is legally too late.  So if you have suspicions, don’t wait to seek legal advice.  You just may have more rights than you realize.

©2022 Norris McLaughlin P.A., All Rights Reserved
For more content on business law, please visit the NLR White Collar Crime & Consumer Rights section.

Court Rejects Use of Eminent Domain for Recreational Trail

There has been a major development in the ongoing legal fight over the ability of the Mill Creek Metropolitan Park District in Mahoning County to condemn private property for its bikeway project.

While previous efforts to stop the bikeway focused on a newly passed state law providing that a park district cannot take property for a recreational trail in counties with populations of a certain size (i.e., the size of Mahoning County), the property owner in The Board of Commissioners of the Mill Creek Metropolitan Park District v. Hess tried a different tack, arguing that the statute authorizing park districts to take private property by eminent domain (Ohio Revised Code 1545.11) did not permit a taking for a recreational trail. Rather, it only permits such a taking for “conversion into forest reserves and for the conservation of the natural resources of the state.”

Although the trial court was not persuaded by this argument, the Seventh District Court of Appeals was. The Court of Appeals focused its analysis on whether the taking was to conserve natural resources, ultimately concluding it was not, despite the expansive definition of what constitutes a “natural resource,” i.e., any natural element of feature that supplies human needs; contributes to the health, welfare, and benefit of a community; and is essential for the well-being of such community and the proper enjoyment of its property.

In reaching its decision, the Court found it significant that another section of the Ohio Revised Code expressly empowers the Department of Natural Resources to condemn property for recreational trails. Based on this explicit statutory authorization, the Court was unwilling to read an implied authorization to exercise eminent domain for the same purpose into R.C. 1545.11.

The Court’s ruling was also influenced by the fact that the land at issue was in “a rural area where it appears the public need is speculative at best and the harm to the private property owners is great.”

Finally, the Court pointed out that the purpose of public recreation was not sufficient to authorize the Park District to take private property, reasoning that simply because something provides recreation does not mean it constitutes the conservation of natural resources. In this regard, the Court analogized the recreational trail at issue to movie theaters, shopping malls, and bowling alleys.

Based on these considerations, the Court held that the resolutions to appropriate passed by the Park District were insufficient because they did not include any language tying the demand for the recreational trail to the conservation of natural resources. The Court further held that the Park District abused its discretion by filing an eminent domain lawsuit. Accordingly, the Court remanded the case to the trial court with instructions to enter judgment in favor of the property owner.

The Hess case demonstrates the well-established principle that statutory delegations of the power of eminent domain must be strictly construed in favor of property owners, and is a reminder to all eminent domain practitioners that the legal authority for a proposed taking must be closely scrutinized.

©2022 Roetzel & Andress
For more content about city planning, visit the NLR Public Services, Infrastructure & Transportation section.

EPA Will Propose to Ban Ongoing Uses of Asbestos

The U.S. Environmental Protection (EPA) announced on April 5, 2022, that it will propose to prohibit ongoing uses of chrysotile asbestos, the only known form of asbestos currently imported into the United States. EPA notes that the proposed rule will be “the first-ever risk management rule issued under the new process for evaluating and addressing the safety of existing chemicals under the Toxic Substances Control Act (TSCA) that was enacted in 2016.” EPA will propose to prohibit manufacture (including import), processing, distribution in commerce, and commercial use of chrysotile asbestos for all ongoing uses of chrysotile asbestos. EPA will also propose targeted disposal and recordkeeping requirements in line with industry standards, Occupational Safety and Health Administration (OSHA) requirements, and the Asbestos National Emission Standards for Hazardous Air Pollutants (NESHAP). EPA has posted a pre-publication version of the proposed rule. Publication of the proposed rule in the Federal Register will begin a 60-day comment period.

Background

As reported in our January 4, 2021, memorandum, EPA released on December 30, 2020, the final risk evaluation for asbestos, part 1: chrysotile asbestos (Asbestos RE Part 1). Of the six use categories evaluated (chlor-alkali diaphragms, sheet gaskets, other gaskets, oilfield brake blocks, aftermarket automotive brakes/linings, and other vehicle friction products), EPA found that there is unreasonable risk to workers, occupational non-users (ONU), consumers, and/or bystanders within each of the six chrysotile asbestos use categories. EPA found no unreasonable risk to the environment. According to the final risk evaluation, chrysotile is the prevailing form of asbestos currently mined worldwide, and “so it is assumed that a majority of commercially available products fabricated overseas that contain asbestos are made with chrysotile. Any asbestos being imported into the U.S. in articles is believed to be chrysotile.” The other five forms of asbestos are now subject to a significant new use rule (SNUR), as reported in our April 18, 2019, memorandum, “EPA Announces Final SNUR for Asbestos Will ‘Close Loophole and Protect Consumers.’”

Proposed Rule

EPA will propose a rule under TSCA Section 6(a) to prohibit manufacture (including import), processing, distribution in commerce, and commercial use of chrysotile asbestos in bulk or as part of chrysotile asbestos diaphragms used in the chlor-alkali industry and chrysotile asbestos-containing sheet gaskets used in chemical production. EPA will propose that these prohibitions take effect two years after the effective date of the final rule.

EPA will also propose pursuant to TSCA Section 6(a) to prohibit manufacture (including import), processing, distribution in commerce, and commercial use of chrysotile asbestos-containing brake blocks used in the oil industry, aftermarket automotive chrysotile asbestos-containing brakes/linings, other chrysotile asbestos-containing vehicle friction products (not including the National Aeronautics and Space Administration (NASA) Super Guppy Turbine aircraft use), and other chrysotile asbestos-containing gaskets. EPA will propose that these prohibitions take effect 180 days after the effective date of the final rule.

EPA will further propose pursuant to TSCA Section 6(a) to prohibit manufacture (including import), processing, and distribution in commerce of: aftermarket automotive chrysotile asbestos-containing brakes/linings for consumer use, and commercial use of other chrysotile asbestos-containing gaskets for consumer use. EPA will propose that these prohibitions take effect 180 days after the effective date of the final rule.

EPA will also propose disposal and recordkeeping requirements under which regulated parties would document compliance with certain proposed prohibitions. EPA states that it does not intend the proposed prohibitions on processing or distribution in commerce to prohibit any processing or distribution in commerce incidental to disposal of the chrysotile asbestos waste in accordance with the proposed requirements.

According to EPA, because a determination has been made that chrysotile asbestos presents an unreasonable risk to health within the United States or to the environment of the United States, pursuant to TSCA Section 12(a)(2), the proposed rule would apply to chrysotile asbestos even if being manufactured, processed, or distributed in commerce solely for export from the United States.

Commentary

Bergeson & Campbell, P.C. (B&C®) commends EPA on this historical achievement. Unsurprisingly, there are aspects of this precedent-setting proposed rule that invite discussion and warrant comment from affected parties. Key among these issues is a potential significant legal vulnerability in the underlying risk evaluation (i.e., Asbestos RE Part 1) for the proposed rule, an issue that may overshadow this historic achievement in a manner reminiscent of EPA’s failed ban of asbestos in 1991 (Corrosion Proof Fittings v. EPA, 947 F.2d 1201 (5th Cir., 1991)).

EPA proposed that the prohibition on specific conditions of use (e.g., chrysotile asbestos diaphragms used in the chlor-alkali industry) would take effect two years after the effective date of the final rule. EPA stated that it “believes an aggressive transition away from chrysotile asbestos will spur adoption of superior technology [e.g., membrane cells with increased concentrations of per- and polyfluoroalkyl substances (PFAS)].” The clear need to consider EPA’s intended action on asbestos in the context of its ongoing actions on PFAS is of course not lost on the Agency. EPA acknowledged that “the transition away from asbestos-containing diaphragms could result in greater usage and release of PFAS.”

B&C notes that innovative new technologies, such as alternative membrane cells, may be available in the future, but those technologies must be proven to be economically and technically viable. Once proven effective, the underlying chemical substances must be reviewed as new chemicals if so classified under TSCA. The development, review, and approval are all on indeterminate timelines, so it is speculative when novel, non-PFAS-based technologies will be commercially available and, of course, whether that time will be prior to the effective date of EPA’s proposed ban on asbestos.

EPA requested comment on specific aspects of the proposed rule that B&C encourages potentially impacted parties to consider. For example, EPA discussed its authority under TSCA Section 6(g) to grant a time-limited exemption for a specific condition of use, such as the chlor-alkali industry, where EPA finds “that compliance with the proposed requirement would significantly disrupt the national economy, national security, or critical infrastructure.”

EPA also requested comment on a primary alternative regulatory option that EPA discussed for the chlor-alkali diaphragm and sheet gasket categories that would allow a prohibition to take effect five years after the effective date of the final rule. As part of this option, EPA would include establishment of a risk-based performance standard known as an existing chemical exposure limit (ECEL). EPA developed an eight-hour time-weighted average (8-hr TWA) ECEL of 0.005 fibers/cubic centimeter (f/cc) for inhalation exposures to chrysotile asbestos as an eight-hr TWA ECEL-action level of 0.0025 f/cc, with associated requirements for initial and periodic monitoring and respirator usage/type if exceedances are found.

As part of the monitoring requirements, EPA stated that it would “require use of appropriate sampling and analytical methods to determine asbestos exposure, including: … Compliance with the Good Laboratory Practice Standards at 40 CFR Part 792,” despite the fact that EPA acknowledges that other standards, such as Industrial Hygiene Laboratory Accreditation Program (IHLAP), are more appropriate for industrial hygiene monitoring. EPA’s TSCA Section 5(e) order template states the following under Section III.D:

Compliance with TSCA GLPS, however, is not required under this New Chemical Exposure Limit Section where the analytical method is verified by a laboratory accredited by either: the American Industrial Hygiene Association (“AIHA”) Industrial Hygiene Laboratory Accreditation Program (“IHLAP”) or another comparable program approved in advance in writing by EPA.

EPA devoted one paragraph in the proposed rule to “TSCA section 26(h) considerations.” EPA stated, in part, that its unreasonable risk determination “was based on a risk evaluation, which was subject to peer review and public comment, was developed in a manner consistent with the best available science and based on the weight of the scientific evidence as required by TSCA sections 26(h) [and 26(i)] and 40 CFR 702.43 and 702.45.”

B&C notes that EPA stated in the Asbestos RE Part 1 the following:

TSCA § 26(h) and (i) require EPA, when conducting Risk Evaluations, to use scientific information, technical procedures, measures, methods, protocols, methodologies and models consistent with the best available science and base its decisions on the weight of the scientific evidence. To meet these TSCA § 26 science standards, EPA used the TSCA systematic review process described in the [2018] Application of Systematic Review in TSCA Risk Evaluations document [citation omitted] [2018 SR Document].

Prior to completing Asbestos RE Part 1, EPA requested the National Academies of Science, Engineering, and Medicine (NASEM) to review the 2018 SR Document. In February 2021, NASEM released its consensus study report on EPA’s 2018 SR Document and concluded that it did not meet the criteria of “comprehensive, workable, objective, and transparent” and that “The OPPT approach to systematic review does not adequately meet the state-of-practice.”

NASEM recommended that “With regard to hazard assessment for human and ecological receptors, OPPT should step back from the approach that it has taken and consider components of the OHAT, IRIS, and Navigation Guide methods that could be incorporated directly and specifically into hazard assessment.”

In response to the NASEM review, EPA revised its systematic review method. On December 20, 2021, EPA released the “Draft Systematic Review Protocol Supporting TSCA Risk Evaluations for Chemical Substances” (2021 Draft Protocol) for public comment. EPA acknowledged in the 2021 Draft Protocol that:

Previously [in the 2018 SR Document], EPA did not have a complete clear and documented TSCA systematic review (SR) Protocol. EPA is addressing this lack of a priori protocol by releasing [the 2021 Draft Protocol].

EPA further stated that the:

[2021 Draft Protocol] is significantly different [from the 2018 SR Document] in that it includes descrition [sic] of the Evidence Integration process…, which was not previously included in the [2018 SR Document].

B&C recognizes that the scientific methods used to inform systematic review are not static and that updates will be required as the science evolves. In this instance, however, many of the documents cited as supporting information for updating the 2021 Draft Protocol (e.g., Office of Health Assessment and Translation (OHAT), 2015) were available prior to EPA issuing the 2018 SR Document. Rather than utilizing these documents at the time, EPA developed the 2018 SR Document de novo. In other words, EPA chose to develop its own methodology in 2018 rather than incorporating and adapting existing methodologies that represented the best available science at the time.

These issues raise interesting procedural questions and issues around whether EPA demonstrated that Asbestos RE Part 1 was based on the best available science and weight of scientific evidence, as required under TSCA Sections 26(h) and 26(i) and the implementing regulation under 40 C.F.R. Part 702.

B&C encourages stakeholders to review EPA’s proposed risk management rule on chrysotile asbestos, even for entities that do not manufacture, process, distribute, or use this substance. We urge this review because of the precedential nature of EPA’s decisions. B&C also encourages interested parties to provide public comments on the proposed rule, given that risk management decisions in the proposed rule will likely serve as a basis from which EPA regulates other chemical substances EPA is evaluating under TSCA Section 6.

Article By: the Government Regulation practice at Bergeson & Campbell, P.C.

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

©2022 Bergeson & Campbell, P.C.

One Less Way for Ohio Landowners to Challenge Royalty Severances

On February 15, 2022, the Ohio Supreme Court issued a significant decision in Peppertree Farms, L.L.C. v. Thonen establishing that, unless expressly stated otherwise, an oil and gas royalty interest retained in a deed executed prior to 1925 is not limited to the lifetime of the grantor. In so holding, the Ohio Supreme Court cut off one of the only grounds, other than the Dormant Minerals Act and Marketable Title Act, for landowners to quiet title and eliminate past oil and gas severances.

Ohio follows a legal tradition under which the default rules of English “common law” were adopted and then adapted by statute to form the basis of our legal system. At common law, a conveyance of real property had to include “words of inheritance” (i.e., an express statement that the royalty interest would last in perpetuity and be inheritable) or the interest being conveyed would be limited to the lifetime of the grantee (a life estate). Additional complications arose when a grantor sought to retain an interest by deed. If the grantor was retaining a right which had already been conveyed to him in perpetuity, then the retention qualified as a “technical exception” of a pre-existing right and additional words of inheritance were not required. However, if the grantor was creating and then retaining a new right, the retention qualified as a “technical reservation” and was limited to a life estate.

As new modes of production and corresponding property rights were discovered, it became unclear exactly what rights pre-existed a severance and the whole system of distinctions fell apart. In 1925, the General Assembly passed a law establishing that all future conveyances of real property were presumed perpetual unless stated otherwise. While eliminating this issue as to future deeds, the General Assembly did not settle the issue as to deeds executed before 1925 or clarify whether the retention of an oil and gas royalty was a “technical exception” or “technical reservation.”

In the Peppertree Farms case, Plaintiffs Peppertree Farms, Jay Moore and Amy Moore (collectively, “Peppertree”) sought to quiet title to certain lands in Monroe County, Ohio, against a severed oil and gas royalty interest (the “Royalty Interest”) originally retained by the grantor under a 1921 deed. In addition to a claim for extinguished under Ohio’s Marketable Title Act, Peppertree asserted that the Royalty Interest did not include words of inheritance and was therefore a newly created right which terminated upon the death of the grantor under the 1921 deed. Conversely, the defendant royalty owners (“Royalty Owners”) argued that the Royalty Interest was a pre-existing right which the grantor already held, and therefore could retain, in perpetuity without words of inheritance.

While Peppertree was able to convince both the trial and appellate court that the Royalty Interest was a newly created interest which was limited to a life estate, it was unsuccessful with the Ohio Supreme Court. Reasoning that a royalty was nothing more than the retention of part of the right to receive the proceeds of oil and gas production, the Court ultimately found that the Royalty Interest was a “technical exception” which survived the lifetime of the grantor. As a result, Peppertree was limited to its claims for extinguishment under the Marketable Title Act and Ohio surface owners lost another means to challenge ancient royalty reservations.

©2022 Roetzel & Andress
For more articles on local state litigation, visit the NLR Litigation section.

Retaining a Cell Tower Lease When Selling Property

When selling property with a cell tower lease, keeping the lease is a good option. Done properly, you get the best of both worlds: full value for the property and ongoing lease payments, with the option to sell the lease in the future should you desire.

Selling a property and cell lease together will rarely yield the full value for the lease; however, selling the lease in advance of selling the property may also not be attractive. You may not have other places to invest the proceeds where you will get the same return, for example, and taxes can take a big bite. Additional options, such as 1031 like-kind exchanges, are complicated with short deadlines.

Increasingly, real estate investors are opting to sell property — commercial, residential, land for development and, in a unique case, an office condo — but keeping the cell leases and future leasing rights.

To do this successfully, you should aim to establish balance with purchasers by retaining sufficient future rights to (1) renew the lease, (2) expand it some, and (3) satisfy their requirements for paying full value of the lease, should you decide to sell it in the future. You do not want to grant yourself so many rights that it interferes with a purchaser’s ordinary use and development of the property in question, thus decreasing its selling price.

Essentially, you are trying to attain the balance that would occur in a well-drafted cell lease sale to a third party, whereby keeping the lease is the equivalent of “selling” to yourself!

Specific subject areas where rights must be balanced include:

  • Permitted and restricted uses by both parties within the leased area;
  • Restrictions on uses or devices allowed on portions of the property outside the leased area, such as Wi-Fi using radio frequencies, which cell companies and lease purchasers alike desire;
  • Access rights and rights-of-way for tenants and utilities, as well as who pays for same;
  • Height and building envelope restrictions on new construction outside the leased area;
  • Property owner approval rights of changes in the leased area, and;
  • Relocation.
© 2022 Varnum LLP
For more articles about telecommunications, visit the NLR Cybersecurity, Media & FCC section.

How to Improve Cities After COVID-19: What to Know About the Revitalizing Downtowns Act

In July, Democratic Senators Gary Peters and Debbie Stabenow (along with Democratic  Representatives Dan Kildee, John Larson, and Jimmy Gomez) introduced the Revitalizing Downtowns Act (“The Act”) to Congress. With the goal of reviving urban districts and downtown commerce, the Act would establish a new federal tax credit that encourages property developers to convert unused office space into residential or mixed-use space.

The Act defines an obsolete office structure as a building at least 25 years old, and at least 20 percent of the residential conversion must be dedicated to affordable housing. If these criteria are met, 20 percent of the conversion expenses will be covered by the tax credit. The Act has  growing support from economic development organizations across the country, including the International Downtown Association and the Federal City Council. Together, 37 organizations formed the Revitalize Our Cities coalition, committed to reenergizing downtown spaces and strengthening the U.S. economy.

The Act presents a substantial opportunity to improve American cities of all sizes. Justin P. Weinberg, Partner in Charge at Taft Stettinius & Hollister’s Minneapolis office, said of the Act, “It’s an opportunity to revitalize and reenergize existing spaces. Giving new purpose – and attracting new tenants – to buildings that would otherwise be vacant means more people, customers, and workers to build and sustain a strong community and business district where there wasn’t one before.”

How Can Federal Tax Credits Help Unused Office Space Redevelopment?

With employees still working from home and a permanent return to the office for countless businesses seeming more uncertain as the COVID-19 pandemic continues, many office buildings may remain vacant and unused, leaving downtowns with fewer opportunities for investment and revenue generation.

“This Act would be huge in encouraging all types of business to invest in downtown markets. It would be most helpful though if the tax credit provided could be used in conjunction with other credits, such as historic tax credits, Low-Income Housing Tax Credits (“LIHTCs”) and/or new markets and also incentivized business owners to open. Residential development works best if it is in conjunction with other retail, services and other amenities and, of course, plenty of parking,” said Kelly Rushin Lewis, partner in Jones Walker’s tax practice and leader of the firm’s tax credit finance team.

For buildings needing a lot of work, tax credits are essential to ensuring the project has the necessary financing. Without them, many projects requiring a lot of renovations and updates may not be able to move forward, Ms. Lewis said.

“Tax incentives are a key tool in attracting private capital in neighborhoods or towns in need of revitalization. These conversions can be much more challenging than building from the ground up, especially if dealing with vacant buildings that may have environmental, zoning, code compliance, or other latent issues that may be expensive to correct. The projects often are just not financially feasible and will not get done without those incentives,” she said. “A credit or some other incentive for potential tenants in the commercial spaces would be helpful – many business owners may be reluctant to be the first or one of few to open in what may be an otherwise quiet downtown. Tax incentives would encourage them to come and hopefully give them a cushion while the neighborhood is being revitalized.”

Another potential impact of the bill would be the increased investment in affordable housing. With many cities large and small struggling to provide enough affordable housing, the Act would create an opportunity to develop vacant buildings into much-needed affordable housing developments.

“Now more than ever, investment in affordable housing is critical.  Housing costs are at an all-time high with demand outpacing supply. The costs of acquiring housing is high and the cost of building it is as well,” Ms. Lewis said. “Affordable housing developments do so much more than create housing – they create jobs and careers in everything from construction, accounting, legal work, property management, and more.”

In addition to creating jobs, the creation of affordable housing has the potential to slow down the gentrification affecting many large cities, said Lacy Clay, a former congressman from Missouri and a Senior Policy Advisor at Pillsbury Winthrop Shaw Pittman LLP.

“If you can convert these older buildings into affordable housing units, then you will slow down the gentrification process taking place in quite a few of these urban centers. You can look at any major city now and see that low to moderate income families and people of color are being pushed out of those cities, and then to further into the suburbs,” he said. “This would help reverse those trends.”

How Investing in Affordable Housing Actually Can Help with the Current Labor Shortage.

The Revitalizing Downtowns Act is a timely piece of legislation for investing in urban centers during the COVID-19 pandemic. For many industries, it appears that widespread remote work is here to stay, and it is critical that American cities reflect that new reality. By providing incentives for developers and property owners, the Act makes these necessary overhauls far more viable. “Tax incentives reduce investors’ financial risk,” explained Mr. Weinberg. “[This makes] taking on such a project highly attractive.”

The bill’s emphasis on affordable housing is especially notable. Through this provision, legislators hope to provide equal footing for renters and thereby attract young talent to fill employment needs.

“I want to compliment Senator Stabenow and Gary Peters and Dan Kildee for coming up with this innovative way to be able to bring populations back in a way that does not exclude communities of color, but will include communities of color,” Mr. Clay said. “If you build enough affordable housing units, according to the legislation, at least 20 percent of any of those redevelopments have to be dedicated to affordable housing.”

Through investing in affordable housing, downtowns would benefit from an increased flow of commerce, as well as a buffer against the ongoing U.S. labor shortage and or talent mismatch.

“The trick is to prioritize affordable housing without eliminating or displacing families in market-rate housing that do not otherwise qualify for affordable housing,” said Mr. Weinberg. “But if done well, a city that strikes the right balance of available affordable housing benefits from additional economic stability and makes itself a sustainable destination for business, families, and communities.”

Copyright ©2021 National Law Forum, LLC
For More Articles on Real Estate, visit the NLR Construction & Real Estate section.

CDC Eviction Moratorium: The Final Word

Yesterday, the United States Supreme Court nullified a nationwide residential eviction moratorium that has been in place for nearly a year. Alabama Association of Realtors v. U.S. Department of Health and Human Services, 594 U.S. —- (2021)

Last September, the Centers for Disease Control and Prevention (CDC) ordered this nationwide moratorium, citing authority it said granted sweeping powers to limit the spread of the SARS CoV‑2 virus. 85 Fed. Reg. 55,292. Specifically, the CDC said it could enact the order as a measure it deemed “necessary” to achieve its goal of limiting the spread of the novel coronavirus. See 42 U.S.C. § 264(a) (referred to as § 361(a)). Challengers argued that the order exceeded the scope of authority Congress had vested in the CDC under § 361(a). Nonetheless, this order remained effective until its July 31, 2021 expiration date. Three days after it lapsed, the CDC replaced it with a new one. 86 Fed. Reg. 43,244.

On August 26, 2021, the Supreme Court agreed with the parties challenging the CDC’s orders. Saying that it “strains credibility to believe that this statute grants the CDC the sweeping authority it asserts,” the court found that the CDC’s broad interpretation of its mandate could permit dramatic administrative overreach. To illustrate this, the court posed several hypotheticals: “Could the CDC, for example, mandate free grocery delivery to the homes of the sick or vulnerable? Require manufacturers to provide free computers to enable people to work from home? Order telecommunications companies to provide free high-speed Internet service to facilitate remote work?” To the contrary, the court found that § 361(a)’s second sentence was instructive as to the types of measures the CDC could implement, which focused strictly on “measures [that] directly relate to preventing the interstate spread of disease by identifying, isolating, and destroying the disease itself.” Here, the CDC’s remedy was too attenuated.

“It is up to Congress, not the CDC, to decide whether the public interest merits further action here.” Indeed, “Congress was on notice that a further extension would almost surely require new legislation, yet it failed to act in the several weeks leading up to the moratorium’s expiration.” Even if the CDC was faced with legislative inaction and motivated by “desirable ends,” “our system does not permit agencies to act unlawfully[.]” See also Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579, 582, 585-586 (1952).

Given all of this, the court determined that the parties challenging the moratorium “not only have a substantial likelihood of success on the merits—it is difficult to imagine them losing.” Accordingly, the court vacated the stay on the District Court’s decision holding the CDC order invalid.

Critically, this decision is not a blanket nullification of any other moratoria that may be in effect (including state and local moratoria), nor does it affect any practical limitations on the exercise of remedies, such as the inability to hold a public sale necessary to foreclose in certain jurisdictions. It also leaves open the possibility of further congressional action.

© 2021 Miller, Canfield, Paddock and Stone PLC
For more on COVID-19 Evictions, visit the NLR Construction & Real Estate section.

Oregon Bans Home Buyers’ ‘Love Letters’ to Sellers

As a potential harbinger of the future, Oregon has become the first state in the nation to ban real estate “love letters.” The new law goes into effect January 1, 2022.

The State of Oregon passed a law (HB 2550), and it signed by Governor Kate Brown, that, among other things, states the following:

In order to help a seller avoid selecting a buyer based on the buyer’s race, color, religion, sex, sexual orientation, national origin, marital status or familial status as prohibited by the Fair Housing Act (42 U.S.C. 3601 et seq.), a seller’s agent shall reject any communication other than customary documents in a real estate transaction, including photographs, provided by a buyer.

What exactly is the Oregon legislature seeking to prevent a seller’s agent from communicating? The new law prohibits buyer’s agents from providing the seller’s agent with what is known as “love letters,” letters written by the buyer with the intent of wooing sellers to accept their offers. The use of such letters has become a common tactic to pull at sellers’ heartstrings, especially in a sellers’ market, where many buyers are bidding for a property (often significantly over the asking price).

The practice usually involves the buyers writing about how much they love the home, and how they imagine their family living there. However, these letters may include descriptive details and family photos, which could reveal protected characteristics, such as a person’s race, national origin, skin color, sex, religion, sexual orientation, familial status, or marital status. The rationale behind a ban like Oregon’s is that information in these letters could be used by the seller, whether consciously or not, and create potential unlawful biases in the seller’s decision-making process as to whose offer to accept.

Concerns over housing discrimination has been around for decades. Yet, recently, there have been increased federal, state, and local enforcement efforts directed toward eradicating it. The Oregon statute may represent a growing trend against these types of “love letters.” For instance, as The Real Deal reported, the National Association of Realtors and Ohio Realtors have issued warnings and frowned upon the practice. Whether other states and real estate industry groups will follow suit remains to be seen, but it sounds like the Oregon ban may not be the last.

Brokers should provide regular training to their agents and employees on housing discrimination issues and ways to avoid liability under fair housing laws that, among other things, increase awareness of how materials submitted in support of a home purchase offer like these kinds of letters might do more harm than good and open the door to claims of housing discrimination and bias.

Jackson Lewis P.C. © 2021

Article By Jeffrey M. Schlossberg and John A. Snyder of Jackson Lewis P.C.

For more articles on property law, visit the NLR Real Estate section.

Miami Condo Collapse: What Role Can Whistleblowers Play to Prevent Such Tragedies?

In the early morning hours of June 24, 2021, a 13-story condominium building in the town of Surfside on Miami Beach, Florida, collapsed. Tragically, four people have been confirmed dead, and search and rescue crews continue their efforts to find other survivors, with at least 156 people still unaccounted for. According to recent reports, nearly three years before the collapse, in October 2018, a consultant found evidence of “major structural damage” to concrete slabs beneath the pool deck and beams and walls of the parking garage under the building. While the cause of the collapse remains unknown, the 2018 report suggests that the complex’s management association knew of the potentially severe structural damage to the building.

This tragedy was not the first time a building has collapsed in the County. In 1974, the federal Drug Enforcement Agency building in downtown Miami collapsed. In response, Miami-Dade County created a recertification process for buildings over 40 years old to ensure these buildings’ structural integrity. Because of weather conditions in South Florida and exposure to corrosive salt air, damage to rebar and steel beams can impact the structural integrity of a building over time. The Miami-Dade County Code requires inspections to be conducted to evaluate the general structural condition of the building and to ensure building safety. The association was set to begin plans to repair the building this year, in connection with this recertification process.

This recent disaster leaves many wondering what could have been done to prevent it, and how we can avoid such tragedies. Employees and contractors in the construction industry are uniquely positioned to discover safety risks and other violations in building projects. As such, they can play a significant role in alerting the government, and in turn the public, of serious risks. What laws exist to protect and incentivize these whistleblowers?

Protections for Whistleblowers in Florida

Florida provides broad protection to employees who report legal violations. For employees in the public sector, the law protects public employees, as well as independent contractors with a government agency, who report to an appropriate government agency violations “that create a substantial and specific danger to the public’s health, safety or welfare.” The state’s private sector whistleblower law also protects private employees who disclose wrongdoing to a government agency. Significantly, the law also protects private employees who have “objected to, or refused to participate in, any activity, policy, or practice of the employer which is in violation of a law, rule, or regulation.” An employee who faces retaliation for reporting wrongdoing may be entitled to damages, including lost wages, benefits, and other types of compensatory damages.

False Claims Acts

Protections under the federal False Claims Act (FCA) apply across a wide range of industries, including in the construction industry. The FCA prohibits the intentional presentation of false claims to the government for payment, which includes providing false information in connection with any claims for payment. If a construction whistleblower discovered a violation of the FCA – for example, if a company received federal funds to complete building repairs that were not completed – he or she could file a lawsuit on behalf of the federal government, known as a qui tam. An individual who brings a successful qui tam lawsuit can receive 15 to 30 percent of the damages received by the government. The FCA also includes worker protections so that an individual who brings a qui tam action or tries to stop the FCA violations may be entitled to relief if he or she experiences retaliation on the job.

Like many other states, Florida has a statute modeled on the federal FCA that protects employees for reporting an employer who presents false claims to the state or otherwise misappropriates state property. An individual who brings an action under the Florida FCA may be entitled to a percentage of the amount recovered by the government. Similar to the federal FCA, individuals who report violations under Florida’s FCA are also protected from retaliation for trying to stop such violations or bringing a qui tam action.

Conclusion

News reports state it may take months to know what caused the horrific collapse of the condo building in Miami. Miami-Dade County will undoubtedly evaluate how it may prevent such tragedies in the future. In Miami and elsewhere, whistleblowers can play an integral role in protecting public safety. Federal and state laws provide protections and incentives to those who come forward to report potential violations.

Katz, Marshall & Banks, LLP
For more articles on whistleblowers, visit the NLR Criminal Law / Business Crimes section.