Category: Regulatory

D.C. Circuit Court Vacates EPA’s Cross-State Emissions Rule

GT Law

In a 2-1 decision issued today, the U.S. Court of Appeals for the District of Columbia Circuit ruled in EME Homer City Generation, L.P v. EPA, that the U.S. Environmental Protection Agency exceeded its statutory authority in adopting the Cross State Air Pollution Rule (CSAPR or Transport Rule).  The D.C. Circuit found that EPA’s Transport Rule exceeded the agency’s authority on 2 separate grounds, both of which violated the Clean Air Act and required that the Rule be vacated.

Led by Texas, various States, local governments, industry groups and labor organizations had challenged the Rule, which was a significant air policy regulation of the Obama administration.  Acknowledging the complexity of the facts,  Judge Brett Kavanaugh, writing for the majority, noted that “the legal principles that govern this case are straightforward : Absent a claim of constitutional authority (and there is none here), executive agencies may exercise only the authority conferred by statute, and agencies may not transgress statutory limits on that authority.” The Court went on to note that its decision should not be viewed as a comment on the Rule’s wisdom or underlying merits but rather “to ensure that the agency stays within the boundaries Congress has set.”

©2012 Greenberg Traurig, LLP

D.C. Circuit Vacates CSAPR, Instructs USEPA to Continue Administering CAIR

Schiff Hardin LLP‘s Environmental Group recently had an article regarding CSAPR published in The National Law Review:

 

In a 2-1 decision, the Court of Appeals for the D.C. Circuit vacated the United States Environmental Protection Agency’s (“USEPA”) Cross-State Air Pollution Rule (“CSAPR” or the “Transport Rule”), USEPA’s attempt to “fix” the Clean Air Interstate Rule (“CAIR”) to regulate downwind state air pollution under the Clean Air Act (“CAA”). EME Homer City Generation LP v. EPA, D.C. Cir. No. 11-1302 (Aug. 21, 2012). In 2008, the D.C. Circuit struck down and remanded CAIR, with instructions to USEPA to continue administration of the CAIR until the replacement rule was implemented. Here, in light of the vacatur of the CSAPR, the D.C. Circuit has instructed USEPA to “continue administering CAIR pending [USEPA’s] promulgation of a valid replacement.”

By way of background, USEPA promulgated the Transport Rule in August 2011 in response to the court’s order in North Carolina v. EPA, 531 F.3d 896 (D.C. Cir. 2008) remanding the CAIR, and to address the 2006 24-hour national ambient air quality standard (“NAAQS”) for fine particulate matter. The Transport Rule established an interstate program to require power companies in 28 “upwind” states to reduce emissions of sulfur dioxide (“SO2”) and nitrogen oxides (“NOx”) to enable downwind states to achieve and maintain NAAQS for ozone and fine particulate matter. Following challenges by affected states and industry, the D.C. Circuit stayed the Transport Rule on December 30, 2011. The stay remained in effect until today’s decision on the merits, where the D.C. Circuit provided two independent grounds for vacatur.

First, the court found that USEPA exceeded its statutory authority granted under Section 110(a)(2)(D), the so-called “good neighbor” provisions of the CAA, by potentially requiring an upwind state to reduce emissions in excess of its contribution to a downwind states exceedance of air quality standards. In so ruling, the court explained that USEPA may require an upwind state to “eliminate only its own ‘amounts which will . . . contribute significantly’ to a downwind State’s ‘nonattainment,'” and “may not require any upwind State to ‘share the burden of reducing other upwind states’ emissions.'” Moreover, while the court acknowledged that USEPA may consider the cost of pollution reductions to lessen the burden upon an upwind state, it may not, as the court found USEPA did in establishing emission reductions under the Transport Rule, use cost considerations to impose pollution reduction obligations above and beyond what was necessary for downwind states to meet air quality standards.

Second, the D.C. Circuit struck USEPA’s decision to require that each state comply with a federal implementation plan (“FIP”) to implement the emission reductions mandated by the Transport Rule rather than allowing each state to determine how best to achieve the reductions within the state, i.e., the FIP-first approach included in the Transport Rule. By imposing a FIP prior to allowing states to implement their own plans, USEPA had usurped a role that was clearly designated by statute to the states. With regard to the “good neighbor” provision, the court held that USEPA must first inform states of their reduction obligations and then provide the states time to develop and submit SIPs, just as it does for new NAAQS. USEPA may not impose a FIP that directs each state on how to achieve the requirements of the Transport Rule without first providing each state a “reasonable time to implement that requirement [under a state implementation plan] with respect to sources within the State.”

The D.C. Circuit advised that its “decision … should not be interpreted as a comment on the wisdom or policy merits of EPA’s Transport Rule” and that USEPA should “proceed expeditiously” to promulgate yet another replacement for CAIR consistent with this decision and, presumably, with the North Carolina decision. The decision in this case further clarifies USEPA’s role and obligations regarding identifying states’ air quality impacts on downwind states. It also emphasizes that the cooperative federalism concept embodied in the CAA is vital to successful implementation of the Act.

© 2012 Schiff Hardin LLP

Federal Trade Commission Sends Strong Message with $22.5 Million Google Settlement

An article by Amy Malone of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. regarding FTC’s Google Settlement was published recently in The National Law Review:

The FTC has finally released details of their settlement with Google, including the hefty price tag of $22.5 million, the highest fine ever slapped on a violator of an FTC consent order. The Internet giant was charged with breaking the terms of the consent order they entered into last year by misrepresenting how users could opt out of having certain cookies dropped on their browser.

A majority of Google’s earnings is generated through online advertising, some of which is targeted at online users through the use of third party cookies.  Those third party cookies are “dropped” from an advertising network on a user’s Internet browser (e.g., Internet Explorer, Firefox, Safari) which then allows that network to track information such as what sites the user visits and this allows targeted ads to be sent to the user.   Some users prefer not to receive targeted advertisements, and there are ways for them to opt out of having these types of cookies dropped on their Internet browsers.

The Safari Problem. According to the FTC complaint, when Safari (a browser provided by Apple) users visited the Google “Advertising Cookie Opt-out Plugin” page they were told that if they left the Safari default settings on they didn’t have to do anything else because those settings prevent third party cookies from being dropped.  Safari’s default settings prevent third party cookies from being dropped except in limited circumstances such as when a site uses a “form submission,”  used in situations such as online purchases when a user enters information like an email address. It’s important to note that once Safari accepts a third party cookie from a site it accepts all cookies from that site.   In this case Google communicated with the Safari browser saying it was generating a form submission, but in reality Google was dropping a cookie from DoubleClick, their advertising network. Once the cookie was set, Safari then accepted all cookies from DoubleClick and  DoubleClick sent targeted advertisements to those users.  Google managed to circumvent the Safari settings and do exactly what they said they were not doing.

Google denies the allegations in the FTC complaint, but has agreed to pay the fine.   According to the FTC’s statement they have enough reason to believe Google violated the order and assessing the fine is in the public interest. The FTC asserts that this penalty helps ensure that Google will abide by the consent order and provides a “strong message” that the FTC is paying attention to consent orders and those that misstep will be brought to task “quickly and vigorously”.

©1994-2012 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

Derivatives Use by Public Companies – A Primer and Review of Key Issues

The Public Companies Group of Schiff Hardin LLP recently had an article regarding Derivatives published in The National Law Review:

Over the last several decades, the use of derivatives as a tool to mitigate and control risk has expanded significantly. Despite well-publicized abuses involving derivatives, the efficacy of derivatives as a means of managing economic and other forms of risk remains widely accepted. The evolving mix of users of derivatives in the last ten years has also impacted the derivatives landscape. Traditionally, commercial hedgers such as processors, mills and large corporations used derivatives to manage risks; today, while commercial hedgers remain active,much of the increase in volume in derivatives is attributable to non-traditional end-users, such as public companies, which have been active users of derivatives, most notably interest rate and foreign currency hedging instruments.

This article provides a brief primer on the various uses of derivatives, including the use of derivatives by public companies to manage risks. It also addresses a number of questions arising out of the Dodd-Frank Act, which provides a new level of regulation over derivatives.

1. What is a Derivative?

Put simply, a derivative is a contract whose value is based upon (or derived from) the value of something else. Virtually every derivative, from the most complex to the most mundane, falls within this definition. The “something else,” which is often referred to as the “underlying” or the “commodity,” can be a security (e.g., a share of company stock or a U.S. Treasury note), a commodity (e.g., gold, soybeans or cattle), an index (e.g., the S&P 500 index), a reference rate (e.g., LIBOR), or virtually anything else to which a value can be assigned and validated. As long as the value of the contract is based on or “derived” from the value of something else, the contract is a derivative.

2. Types of Derivatives

Conceptually, derivatives take many different forms. At the highest and broadest level, there are two types of derivatives: (1) exchange-traded derivatives, and (2) over-the-counter, or “OTC,” derivatives, which are not traded an exchange.

Exchange-traded derivatives include futures, options on futures, security futures and listed equity options. OTC derivatives are privately negotiated contracts conducted almost entirely between institutions on a principal-to-principal basis and designed to permit customers to adjust individual risk positions with greater precision. OTC derivatives include swaps, options, forwards and hybrids of these instruments.

3. Dodd-Frank Act

In July 2010, President Obama signed into law the Dodd-Frank Act. Title VII of the Dodd-Frank Act imposes a new regulatory regime on OTC derivativesand the market for those derivatives. The primary regulators are the Commodity Futures Trading Commission (“CFTC”) for “swaps” and the SEC for “security-based swaps.” Subject to certain exceptions, [1] the term “swap” is broadly defined to include most types of products now known as OTC derivatives, including interest rate, currency, credit default and energy swaps. “Security-based swap” is a much narrower category of transactions based on a single security or loan or a “narrow-based security index” (as defined under the Commodity Exchange Act or “CEA”).

The CFTC’s general directive from Congress under the Dodd-Frank Act is to cause as many swaps as possible to be cleared by central clearing entities in order to reduce “systemic risk” to the financial markets, and to have as many swaps as possible traded on CFTC-regulated exchanges, or on or through other CFTC-regulated entities, in order to increase transparency in the markets. The Dodd-Frank Act thus makes it unlawful for a person to enter into a swap without complying with the Commodity Exchange Act and the rules published by the CFTC.

Fortunately, most public company users of derivatives can make use of an exemption under the Dodd-Frank Act. Under Title VII, an “end user” generally means a company that is not a “financial entity” and that uses derivatives to hedge or mitigate commercial risk. The concept is intended to include industrial corporations and other non-financial enterprises that use swaps on interest rates, foreign currencies, energy, commodities and other derivatives, as appropriate to their businesses, to hedge their business risks. A so-called “end-user exemption” from the clearing and exchange trading requirements is generally available to counterparties that (1) are not financial entities, (2) are hedging their own commercial risks and (3) notify the CFTC or SEC, as applicable, how they generally meet their financial obligations associated with entering into uncleared swaps. A public company that relies on the exemption is also required to obtain the approval of its board of directors or other governing body.

4. Use of Derivatives by Public Companies

As end-users, public companies often use derivatives to manage various risks associated with running a large enterprise, including interest rate, foreign currency and commodity risk. According to a recent study, 29 of the 30 companies that comprise the Dow Jones Industrial Average (DJIA) use derivatives. Similarly, a study has found that two-thirds of companies with sales of more than $2 billion use OTC derivatives and more than half of all companies that have sales between $500 million and $2 billion are “very active” in derivatives markets.

Further, the International Swaps and Derivatives Association conducted a survey on the use of derivatives by Fortune Global 500 companies and found that 94% of these companies use derivatives to manage business and macroeconomic risks. According to the survey, the most widely used instruments were foreign exchange and interest rate derivatives. Many industries reported participation at rates greater than 90%, including financial companies (98%), basic materials companies (97%), technology companies (95%), and health care, industrial goods and utilities (92%).

Public companies typically use derivatives to manage interest rate risk and foreign currency risk and to minimize accounting earnings volatility and the present value of their tax liabilities. A company, for instance, may use derivatives to offset increases in the price of commodities it uses in manufacturing or its other operations. Further, large public companies borrow and lend substantial amounts in credit markets. In doing so, they are exposed to significant interest rate risk — they face substantial risk that the fair values or cash flows of interest sensitive assets or liabilities will change if interest rates increase or decrease. These companies also have significant international operations. As a result, they are also exposed to exchange rate risk — the risk that changes in foreign currency exchange rates will negatively impact the profitability of their international businesses. To reduce these risks, companies enter into interest rate and foreign currency swaps, forwards and futures as a hedge against potential exposures.

As a result of the Dodd-Frank Act’s regulation of derivatives, a number of questions arise that public companies must consider (and revisit often as the regulatory landscape changes):

  • What are the implications of having our swaps — which were previously unregulated — executed on a regulated exchange or facility and cleared through a regulated clearinghouse?
  • How do we assure compliance with Section 723(b) of the Dodd-Frank Act, which provides that a public company may not enter into non-cleared swaps unless an “appropriate committee of the issuer’s board or governing body has reviewed and approved its decision to enter into swaps that are subject to such exemptions” and other aspects of the end-user exemption? A similar requirement for “approval by an appropriate committee” is included for security-based swaps under the SEC’s jurisdiction.
  • Are we able to continue to effect bilateral, uncleared swap transactions in the same manner as we have historically done? What alternatives are there to hedge risk?
  • How will our relationship with our banks change as a result of these evolving regulatory requirements?
  • To what extent are our transactions in swaps subject to CFTC or SEC jurisdiction and oversight? How does that change over time as new regulations and rules are imposed and the regulatory regime evolves?
  • How do these rules impact our inter-affiliate transactions?
  • What type of derivatives risk management infrastructure and compliance monitoring protocol should we have in place?

5. Conclusion

In light of the Dodd-Frank Act and various rulemakings of the CFTC and SEC since its passage, the derivatives markets are undergoing an unprecedented regulatory and structural evolution that will present public company end-users of derivatives with both compliance and disclosure challenges, as well as new opportunities. Public companies should continually assess their use of derivatives and the potential implications under the Dodd-Frank Act as this regulatory regime continues to evolve.

1 Among the excepted categories are options on securities subject to the Securities Act of 1933 and the Securities Exchange Act of 1934, contracts for the sale of commodities for future delivery and certain physically settled forward contracts.

© 2012 Schiff Hardin LLP

NLRB Political “Tit for Tat” Continues

The National Law Review recently published an article, NLRB Political “Tit for Tat” Continues, by Keith J. Brodie of Barnes & Thornburg LLP:

 

 

Another Obama recess appointment to the NLRB is drawing Congressional scrutiny in recent days, in a continuation of the behind-the-scenes politicking between the Administration and certain Congressional members.  As we have reported previously, Republican Board Member Terrance Flynn resigned in May in the wake of allegations of inappropriate communications during his time as Chief Counsel for Board Member Brian Hayes.   Now Senator Orin Hatch, a prominent Utah Republican, has set his sights on Democratic Board Member Richard Griffin.  Prior to being appointed to the Board by President Obama in January, Mr. Griffin was General Counsel of the International Union of Operating Engineers.

In a letter sent to Mr. Griffin on July 18, Senator Hatch raises questions about Mr. Griffin’s actions during his time as General Counsel for the union, specifically requesting information about his role in defending IUOE union officials accused of fraud and extortion, an area that he claims would have been investigated in detail at Mr. Griffin’s confirmation hearing in front of the Senate, if not for President Obama’s actions in appointing Mr. Griffin as a recess appointment.  It remains to be seen whether Member Griffin will actually respond to Senator Hatch’s questions.  But Senator Hatch’s letter illustrates that the Board is likely to continue to be closely scrutinized by Congress, especially as the election season progresses, and that the political “tit for tat” is likely to continue.

Senator Hatch’s letter to Mr. Griffin is available here (PDF).

© 2012 BARNES & THORNBURG LLP

Canadian International Trade Compliance Conference – POSTPONED

THIS EVENT HAS BEEN POSTPONED BY THE ORGANIZER

The National Law Review is pleased to bring you information about the upcoming Canadian International Trade Compliance Conference:

Addressing the Global Trade Compliance Concerns Involving Export Controls, Custom Compliance and Cross Border Trade in CanadaEvent Date: September 12-14, 2012
Location: Toronto, Ontario, Canada
Key conference topics
  • Assess the latest export permit requirements in Canada with Pratt and Whitney Canada
  • Address re-exports of U.S. origin goods from Canada to comply with both Canadian and U.S. export controls with Future Electronics
  • Integrate an effective anti-corruption compliance program as part of a global trade compliance program with Methanex Corporation
  • Analyze supply chain security concerns when dealing with cross border trade with Stanley Black & Decker, Inc.
  • Uncover the updates to the Export Controls List and their impact upon Canadian companies with Research in Motion Limited

Currently, international trade compliance professionals need to stay up to date on the changing regulations within Canada and also abroad. With the changes to the Export Controls List and the ever-complex nature of Canadian-U.S. cross border trade, companies need to be aware of how these changes affect their international trade compliance programs.

Canada’s relationship with the U.S. makes it imperative that the International Trade Compliance community is informed on the impact that U.S. rules and regulations can have on Canadian companies.

Building upon the success of the 2nd Annual International Trade Compliance Conference, the marcusevans Canadian International Trade Compliance conference addresses the Global Trade Compliance Concerns involving export controls, customs compliance and cross border trade in Canada.

By attending this event, industry leaders will be able to overcome any potential challenges in crafting and sustaining a comprehensive trade compliance program.

Attending This Conference Will Enable You To:

1. Dissect the latest updates from the Department of Foreign Affairs and International Trade with Research in Motion Limited
2. Comprehend the U.S. Export Reform Initiative and the impact upon Canadian companies with Public Works and Government Services Canada
3. Develop and understanding of import value and transfer pricing with Ericsson Canada Inc.
4. Focus on NAFTA and other Free Trade Agreements with Plains Midstream Canada

Industry leaders attending this event will benefit from a dynamic presentation format consisting of workshops, panel discussions and case studies. Attendees will experience highly interactive conference sessions, 10-15 minutes of Q&A time after each presentation, 4+ hours of networking and exclusive online access to materials post-event.

Audience:

SVPs, VPs, Directors, Superintendents, Supervisors, Engineers, Specialists, Leaders and Managers from the Chemical, Petrochemical, and Refining Industries with responsibilities in:

  • EHS Environmental Health and Safety
  • Safety/Process Safety Management
  • Plant Management/Operations
  • Inspection/Reliability
  • Mechanical/Asset Integrity
  • Manufacturing/Technology
  • Training & Development

SEC Adopts Compensation Committee and Adviser Independence Rules

Morgan, Lewis & Bockius LLP‘s David A. Sirignano, Amy I. Pandit, and Albert Lung recently had an article regarding The SEC’s New Rules featured in The National Law Review:

 

 

New rules address compensation committee member and adviser independence and disclosure requirements for compensation consultant conflicts of interest.

On June 20, the Securities and Exchange Commission (SEC) adopted final rules directing national securities exchanges and national securities associations (collectively, the exchanges) to establish listing standards addressing the independence of compensation committee members; the committee’s authority to retain Compensation Advisers (as defined below); and the committee’s responsibility for the appointment, compensation, and oversight of its advisers. The final rules implement Section 952 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), which added Section 10C of the Securities Exchange Act of 1934, as amended (the Exchange Act), and which requires the SEC to adopt rules directing the exchanges to prohibit the listing of any equity security of an issuer that is not in compliance with Section 10C’s compensation committee and Compensation Adviser requirements. The final rules also amend Item 407 of Regulation S-K to require companies to provide additional disclosures in their proxy statements on conflicts of interest of compensation consultants.

Under the final rules, the exchanges are required to propose new listing standards by September 25, 2012, and must have final rules or amendments that comply with Rule 10C-1 of the Exchange Act by June 27, 2013. Companies must provide new disclosures on conflicts of interest of compensation consultants in any proxy or information statement for an annual or special meeting of stockholders at which directors will be elected occurring on or after January 1, 2013.

Compensation Committee Independence Requirements

New Rule 10C-1 of the Exchange Act directs the exchanges to adopt new listing standards requiring a compensation committee to be composed solely of independent members of the board of directors, and requires the exchanges to establish new independence criteria for these members. While the final rules do not require a company to have a compensation committee, the new independence criteria, as well as the requirements relating to the consideration of a Compensation Adviser’s independence and requirements relating to the responsibility for the appointment, compensation, and oversight of Compensation Advisers, are equally applicable to any board committee performing the functions typically performed by a compensation committee. In formulating the new independence standards, the exchanges are instructed to consider relevant factors, which must include the following:

  • The sources of compensation, including consulting, advisory, or other fees paid by the issuer to such member of the board of directors.
  • Whether the board member is affiliated with the company, any subsidiary of the company, or an affiliate of a subsidiary of the issuer.

The exchanges may consider additional relevant criteria, such as share ownership or business relationships with the issuer. The SEC emphasizes that the exchanges are provided with the flexibility to develop their own independence standards consistent with the nature and types of listed companies. In this regard, the SEC notes that it may not be appropriate to prohibit directors affiliated with large stockholders, such as private equity funds and venture capital firms, from serving on a compensation committee. The SEC recognizes that directors elected by certain funds may have a strong institutional belief in the importance of appropriately structured and reasonable compensation arrangements and that their significant equity ownership may align the directors’ interests with public stockholders on matters of executive compensation.

The final rules also reiterate an important distinction between the compensation committee independence requirements under Section 952 of the Dodd-Frank Act and the existing independence requirements for audit committee members under Rule 10A-3 of the Exchange Act. While the audit committee independence rules prohibit a director from serving on the audit committee if such director accepts consulting or advisory fees or is otherwise affiliated with the listed company or any of its subsidiaries, the Dodd-Frank Act does not require any mandatory exclusion of compensation committee membership due to these factors. Instead, the final rules only require that these two factors be considered in determining the independence of compensation committee members.

Exemptions from Independence Standards

The following categories of listed issuers are not subject to the independence standards described above:

  • Limited partnerships
  • Companies in bankruptcy proceedings
  • Open-end management investment companies registered under the Investment Company Act of 1940
  • Any foreign private issuer that discloses in its annual report the reasons that the foreign private issuer does not have an independent compensation committee

The exchanges may exempt from the independence requirements a particular relationship with respect to members of the compensation committee as each exchange may determine, taking into consideration the size of an issuer and any other relevant factors.

Compensation Adviser Requirements

Authority and Oversight

The final rules require the exchanges to adopt listing standards providing the compensation committee with full discretion and authority to retain and obtain the advice of compensation consultants, independent legal counsel, and other advisers (collectively, Compensation Advisers). The compensation committee will be directly responsible for the appointment, compensation, and oversight of Compensation Advisers, and listed companies must provide appropriate funding to the compensation committee to retain these advisers. The final rules also make clear that the compensation committee is not required to obtain the advice or recommendation of any independent Compensation Adviser or to follow its advice.

Assessment of Compensation Adviser Independence

While the compensation committee is not required to retain any independent Compensation Adviser, the compensation committee is required to assess the independence of each Compensation Adviser prior to the Compensation Adviser being retained and to consider the following six factors (as well as any other factors identified by the relevant exchange):

  • Whether the employer of the Compensation Adviser is providing any other services to the issuer
  • The amount of fees received from the issuer by the employer of the Compensation Adviser as a percentage of such employer’s total revenue
  • Policies and procedures that have been adopted by the employer of the Compensation Adviser to prevent conflicts of interest
  • Any business or personal relationship of the Compensation Adviser with a member of the compensation committee
  • Any stock of the issuer owned by the Compensation Adviser
  • Any business or personal relationship of the Compensation Adviser or employer of the Compensation Adviser with an executive officer of the issuer

The final rules clarify that these six factors should be considered as a whole, and no one factor is determinative or controlling. This list is not exhaustive, and the exchanges may consider other relevant factors in determining the independence assessment requirement.

The final rules also state that a listed issuer’s compensation committee is required to conduct the independence assessment outlined above with respect to any Compensation Adviser that provides advice to the compensation committee, other than in-house legal counsel.

General Exemptions

The requirements relating to both the independence of compensation committees and the independence of Compensation Advisers shall not apply to the following categories of issuers:

  • Controlled companies (companies where more than 50% of the voting power for the election of directors is held by an individual, a group, or another entity)
  • Smaller reporting companies

The exchanges may also choose to exempt from the above-described requirements any further categories of issuers the exchanges determine appropriate.

In addition, the rules adopted by the exchanges must provide for appropriate procedures for a listed issuer to have a reasonable opportunity to cure any defects that would be a prohibition for listing. Such rules may provide that if a member of a compensation committee ceases to be independent in accordance with the requirements of Rule 10C-1 of the Exchange Act for reasons outside the member’s reasonable control, that person, with notice by the issuer to the applicable exchange, may remain a compensation committee member of the listed issuer until the earlier of (i) the date of the next annual stockholder meeting of the listed issuer or (ii) one year from the occurrence of the event that caused the member to be no longer independent.

Conflicts of Interest Disclosures

The final rules amend Item 407(e) of Regulation S-K to expand the current proxy disclosure requirements regarding compensation consultants identified by listed issuers in their SEC disclosures, pursuant to Item 407(e)(3)(iii) of Regulation S-K, as having played a role in determining or recommending the amount or form of executive or director compensation. The final rules will require additional disclosures on (i) whether the work of a compensation consultant raised any conflict or interest, and (ii) if so, the nature of such conflict and how the conflict is being addressed. The new disclosure requirement applies only to conflicts of interest with respect to a compensation consultant, not to outside legal counsel or other advisers.

The final rules do not provide any definition of “conflicts of interest,” and companies should consider their specific facts and circumstances in making such a determination. However, the final rules instruct companies to consider the same six factors described above relating to the independence of Compensation Advisers in analyzing whether conflicts of interest exist.

The new disclosure requirements will be applicable to all reporting companies subject to the proxy rules, regardless of whether the company is listed on an exchange. Accordingly, smaller reporting companies and controlled companies will also be required to provide the additional disclosures, although foreign private issuers will be exempt from such requirements.

Practical Considerations

Assessment of compensation committee composition: While the new compensation committee independence requirements may not become effective until after the 2013 proxy season, companies should begin analyzing the composition of the compensation committee to determine whether the independence of any director may be affected by the new listing standards.

Review of the compensation committee charter and director and officer questionnaire: The new listing standards are likely to require companies to review and update compensation committee charters and director and officer questionnaires to reflect the new independence criteria for directors.

Analysis of Compensation Adviser independence and conflicts of interest: Given that new factors must be considered in determining the independence of Compensation Advisers, companies and compensation committees should be proactive in establishing or updating procedures for collecting the information necessary to conduct the required independence and conflicts of interest analysis. This may include new screening questionnaires for Compensation Advisers, additional interview sessions, and committee meetings to discuss independence and potential conflicts of interest. The collection of such information should be part of an enhanced disclosure and control procedure designed to ensure that companies can prepare and determine, in a timely manner, whether there are independence questions warranting further discussion regarding Compensation Advisers and if there will be conflicts of interest disclosures relating to compensation consultants in their proxy statements.

Copyright © 2012 by Morgan, Lewis & Bockius LLP

NLRB Chills At-Will Acknowledgements of Social Media in Employee Handbooks

The National Law Review recently published an article about the NLRB’s Social Media Rulings written by Jerrold J. Wohlgemuth of  Drinker Biddle & Reath LLP:

 

 

Having warned employers about the legality of their social media policies under theNational Labor Relations Act, NLRB Acting General Counsel Lafe Solomon has apparently turned his attention to at-will employment statements in employer handbooks and manuals.  Employers of union and non-union workforces need to pay careful attention to this development.

Many employers use standard language in their handbooks and manuals in which their employees acknowledge that their employment is at-will; that the employer may terminate the employment relationship at any time, for any reason; and that the at-will employment relationship cannot be amended, altered or modified except by a writing signed by a senior member of management.  The Acting General Counsel apparently believes that such at-will disclaimers may interfere with or chill the right of employees to engage in protected concerted activity.

In a case that did not receive extensive publicity, the General Counsel’s Office filed an unfair labor practice charge in February 2012 against Hyatt Hotels (NLRB v. Hyatt Hotels Corp., Case 28 CA-061114) in which it alleged that the at-will disclaimer in the company’s employee handbook violated Section 8(a)(1) of the Act to the extent it required employees to acknowledge that their at-will employment status could not be altered except by a writing signed by management.  The charge appears to reflect the Acting General Counsel’s belief that such an acknowledgement will have a chilling effect on the Section 7 right of employees to engage in concerted activity for the purpose of organizing to alter their employment relationship with the employer by choosing union representation.  The Hyatt case was settled before the issue was presented for a hearing.  An Administrative Law Judge issued a similar ruling in a case decided in early February against the American Red Cross; the case was resolved when the Red Cross agreed to modify its at-will disclaimer before the issue could be presented to the Board for review. (NLRB v. Am. Red Cross, 2012 WL 311334, Feb 1, 2012).

This is an important initiative on the part of the Acting General Counsel.  As we have seen in the social media context, in analyzing handbooks and policy manuals the Acting General Counsel will apply Section 7 broadly to find statements unlawful to the extent they could be interpreted in almost any fashion to chill employee rights to engage in protected concerted activity.  Accordingly, employers may want to take proactive steps to avoid NLRB scrutiny by including a disclaimer in the at-will sections of their handbooks to the effect that the at-will acknowledgment does not, and is not intended to, undermine or interfere with the employee’s right to engage in protected concerted organizing activity under Section 7 of the Act.

©2012 Drinker Biddle & Reath LLP

Impact of Agriculture Reform, Food and Jobs Act of 2012 on Dairy Farmers

The National Law Review recently published an article regarding Agriculture Reform written by Kristiana M. Coutu of Varnum LLP:

Varnum LLP

This summer, the U.S. Senate voted to proceed to consideration of theAgriculture Reform, Food and Jobs Act of 2012 (2012 Farm Bill). The proposed bill can be accessed on the Senate Agriculture Committee’s website, however, be warned, it will take time and perseverance to wade through the 1010 pages of text.  While a complete study of the 2012 Farm Bill may be fascinating for some of us, the practical concern is how it will affect specific industries within agriculture and individual farms. Because Michigan dairy farms are a vital component of our state’s economy, it seems appropriate to consider how this proposed legislation will affect dairy farmers.

Two new programs will replace the current Dairy Product Price Support Payment and the Milk Income Loss Contract Program (MILC).  The new programs are the Dairy Production Margin Protection Program (“Margin Protection Program”) and the Dairy Market Stabilization Program (“Stabilization Program”) which have the stated purpose of guaranteeing dairy farmers a certain margin of milk price over feed costs and assisting in balancing the supply of milk with demand when participating dairy farms are experiencing low or negative operating margins by encouraging dairy farmers to produce less milk.  The two programs must be looked at together since any dairy operation that participates in the voluntary Margin Production Program must also participate in the Stabilization Program.

In its most basic terms, the Margin Protection Program insures farmers a minimum $4.00 margin of average national milk price, termed the “all milk price” over the national average feed price based on the price of corn, soybean meal and alfalfa.   A margin of less than $4.00 for two consecutive months triggers a government payment based 80% of historical milk production. Dairy farmers may also purchase supplemental margin protection to insure up to an $8.00 margin on 90% of historical production.  Although these programs are sometimes referred to as insurance, they are not associated with the federal crop insurance program and no insurance agents are involved.

The Stabilization Program encourages farmers to produce less milk by ordering handlers not to pay farmers for a percentage of milk shipped during any month the Stabilization Program is “in effect” based on low national margins.   Handlers must reduce the producer’s milk check when milk shipped exceeds what is called the “dairy operation’s stabilization base.”  The money that would have gone to the producer is instead paid to the Secretary of Agriculture to use for building demand for dairy products and purchasing dairy products for donation.

These new programs provide a good deal of food for thought, including questions about the effectiveness in various geographic regions of the U.S., considering the difference in milk price and input costs; the effect on various farms based on size; and whether forcing handlers to submit milk proceeds to the government is essentially a tax on dairy farmers.  Dairy farmers should evaluate these programs in light of their individual farm’s circumstances to determine the impact should these programs be included in the final Farm Bill.

It is estimated that debate on the Senate floor will be ongoing for at least the next two weeks and that several amendments to the bill will be proposed and debated.  We will continue to monitor the progress of the Farm Bill in general and also specific dairy provisions.

© 2012 Varnum LLP

FDA Issues Proposed Rule on Medical Device Labeling

The National Law Review recently published an article regarding Medical Device Labeling written by William O. Jackson of von Briesen & Roper, S.C.:

On July 10, the Food and Drug Administration (FDA) released a proposed ruleon medical device labeling. The FDA promulgated the rule to “substantially reduce existing obstacles” to medical device identification. Among other benefits the FDA recognized, the rule is intended to reduce medical errors due to misidentification or incorrect medical device use and improve reporting of adverse events caused by devices.

Under the proposed rule, medical devices are required to have a unique device identifier (UDI) with a standard date format (e.g., JAN 1, 2012). The UDI will also identify the specific version or model of the device, the labeler of the device, and a production identifier, such as a lot or batch number, a serial number, an expiration date, or a manufacture date. The UDI must be in two forms: easily-readable plain-text and automatic identification and data capture (AIDC) technology format.

Subject to limited exceptions, every medical device will require a UDI. Excepted medical devices include (but are not limited to) non-prescription devices sold at retail establishments; a device used solely for research, teaching, or chemical analysis, and not intended for any clinical use; and exported medical devices. The proposed rule also has a procedure to request an exception from or alternative to the UDI requirements.

The FDA plans to phase in the UDI requirement. Class III medical devices and devices licensed under the Public Health Service Act must be labeled within one year after publication of the UDI final rule. Class II medical devices must be labeled within three years. Class I medical devices must be labeled within five years.  Finally, the proposed rule contains reporting requirements, including requiring “labelers” to submit data to the Global Unique Device Identification Database.

The FDA’s press release on the proposed rule is available here. For an example of a UDI, click here.

©2012 von Briesen & Roper, s.c