Category: Uncategorized

U.S. Supreme Court Agrees to Review Obama Immigration Action Case

The U.S. Supreme Court agreed today to hear a case challenging President Barack Obama’s executive action on immigration. The Supreme Court will decide whether President Obama can proceed with plans to defer deportation and provide work authorization to millions of individuals currently in the United States without lawful status.

The Supreme Court granted certiorari in Texas et al. v. U.S. et al. today and indicated that it will take up an additional issue on whether the Obama administration’s action violates a constitutional clause that requires the president to faithfully execute the law (i.e., the Take Care Clause in Article II of the Constitution). The Court will hear arguments this April and a decision is likely to be issued this June, before the end of the Court’s current session.

In November 2014, the Obama Administration issued new policies allowing certain undocumented immigrants to apply for deferred action and work authorization allowing them to remain and work legally in the United States.  These programs were to apply to certain individuals brought to the U.S. when they were under the age of sixteen (Deferred Action for Childhood Arrivals), and also to undocumented individuals who are parents of U.S. citizens or lawful permanent resident children (Deferred Action for Parents of Americans and Lawful Permanent Residents).  Twenty six states filed suit to stop these policies from being implemented in December 2014. The United States District Court for the Southern District of Texas issued a preliminary injunction in February 2015, and, on November 9, 2015, the U.S. Court of Appeals for the Fifth Circuit affirmed the injunction. The Obama administration petitioned the Supreme Court on November 20, 2015 seeking immediate review of the Fifth Circuit’s decision

Article By Cynthia Liao of Jackson Lewis P.C.

Jackson Lewis P.C. © 2016

Supreme Court Rules TCPA Class Action Not Mooted by Unaccepted Settlement Offer to Named Plaintiff

Today the U.S. Supreme Court ruled 6-3 that a company’s unaccepted offer of complete relief to a named plaintiff in a putative class action does not moot the plaintiff’s case. Before the ruling, authored by Justice Ruth Bader Ginsburg, there was disagreement among the Courts of Appeals over whether an unaccepted offer can moot a plaintiff’s claim, thereby depriving federal courts of Article III jurisdiction. While not specific to the Telephone Consumer Protection Act (“TCPA”), this issue is common to cases involving statutes like the TCPA because damages are statutorily set and thus easily calculated. Under this ruling, a company facing a TCPA class action lawsuit cannot moot the case by offering complete relief to the named plaintiff before class certification.

Background on the Case

In Campbell-Ewald Co. v. Gomez, the U.S. Navy hired a nationwide advertising and marketing communications agency to execute a multimedia recruiting campaign that involved text messages. The marketing agency then hired a vendor to generate a list of cellular telephone numbers geared towards the Navy’s target audience who had consented to receive solicitations by text message. Under this campaign, the vendor sent text messages to over 100,000 recipients. One of those recipients was the named plaintiff, who alleged that he had not consented to receive the text message, and that the advertising agency violated the TCPA by sending the message (and perhaps others like it).

Before the deadline to file class certification, the advertising agency filed an offer of judgment under Federal Rule of Civil Procedure 68. The agency offered the named plaintiff complete relief – including his costs and $1,503 per text message that he could show he received. Note that the maximum the plaintiff could recover under the TCPA is $1,500 per text message plus the costs of filing suit. The plaintiff did not accept the settlement offer and allowed the Rule 68 submission to lapse after the time, 14 days, specified in the Rule.

The take-away from this important Supreme Court decision is that an unaccepted settlement offer has no force. Like other unaccepted contract offers, it creates no lasting right or obligation. Because plaintiff’s individual claim was not made moot by the expired settlement offer, the claim retained its vitality during the time to determine whether the case could proceed on behalf of the class.

Article By Robert V. Spake, Jr. of Polsinelli PC

© Polsinelli PC, Polsinelli LLP in California

Ramping Up For H1B Cap Season

USCISEach year, USCIS issues 65,000 H-1B visas and 20,000 “master’s cap” visas. April 1, 2016 is he first date on which an H-1B petition may be filed for FY 2017, in anticipation of an October 1, 2016 start date. Last year, USCIS accepted 233,000 petitions in the first week. A lottery was conducted and over 60% of all petitions were rejected.

What does this mean?

Employers need to be prepared to file H-1B petitions on April 1. Now is the time to review your employees’ immigration status and start talking to your managers and HR teams to identify employees who may need H1B sponsorship in 2017.  Many possible candidates may be working pursuant to an Optional Practical Training (OPT) work authorization card that may not expire until sometime in 2017. We nevertheless strongly suggest filing petitions for these employees for this fiscal year as well to maximize their chance for selection in the H-1B lottery.

Article By Jessica Feinstein of Jackson Lewis P.C.

Jackson Lewis P.C. © 2015

Is Inconsistent Application Of Social Media Policy Evidence Of Discrimination?

A District Court in Louisiana concluded recently that a television station’s inconsistent application of its social media policy entitled a terminated employee to defeat summary judgment regarding his discrimination claim.

The television station in question, KTBS, had implemented a social media policy that included a prohibition on employees responding to viewer complaints. The station also held a mandatory meeting at which the policy was discussed. Shortly thereafter, Chris Redford, a male on-air reporter, wrote a negative post on his Facebook page about a viewer who had commented on one of his stories. Upon being notified of Redford’s post, KTBS fired Redford for violation the station’s social media policy.

Redford sued KTBS, alleging, among other things, gender discrimination because the station had not terminated a female on-air personality (Sarah Machi), who also had written a negative post on her Facebook page in response to a viewer’s comment.

KTBS moved for summary judgment, including as to Redford’s gender discrimination claim. In support of its motion, the station admitted that it did not consider an employee’s negative comments on his or her “private Facebook page” regarding a viewer to violate its social media policy. Although both Redford and Machi had posted negative comments on their personal Facebook pages, the station argued that Machi’s situation was different because her Facebook page was protected by privacy settings that only permitted it to be viewed by people she had “friended” whereas Redford’s Facebook page was public and he used it to promoted his work at KTBS. The court was not persuaded by the station’s attempted distinction. Rather, the court determined that the station’s inconsistent application of its social media policy to Redford’s and Machi’s same conduct—i.e., Redford was fired whereas Machi was not disciplined at all—created a triable issue of fact. Therefore, it denied the station’s motion as to Redford’s gender discrimination claim.

The important takeaway for employers, as we previously have discussed in various posts, is the critical importance of consistently applying its social media policies. It is not sufficient merely to have a social media policy. It is just as important to apply it in a consistent manner to avoid potential discrimination claims.

Article By Alexander Nestor of Allen Matkins Leck Gamble Mallory & Natsis LLP
© 2010-2016 Allen Matkins Leck Gamble Mallory & Natsis LLP

USCIS Issues New Rule for Highly Skilled Workers: U.S. Citizenship and Immigration Services

U.S. Citizenship and Immigration Services (“USCIS”) issued its long-awaited final rule regarding highly skilled workers from Australia, Chile, Singapore, and the Commonwealth of the Northern Mariana Islands (“CNMI”), along with amendments favoring employment-based immigration. In summary, this rule:

  • facilitates more favorable processing of H-1B1 and E-3 treaty-based extension of status petitions;

  • adds E-3 Australian, H-1B1 Chilean/Singaporean, and CW-1 CNMI nationals to the list of those work-authorized nonimmigrants who can secure up to 240 days of continued employment authorization beyond their current expiration date simply by filing their timely extensions with USCIS before their current status expires;

  • clarifies that principal E-3 and H-1B1 nonimmigrants are authorized to work incident to their status and thus do not have to obtain independent employment authorization (applied in practice but not officially adopted as a formal regulation); and

  • expands the type of evidence that foreign nationals being sponsored under EB-1 outstanding professor and researcher permanent residency petitions can submit to include “comparable evidence” of their outstanding professor or research work.

This rule is expected to take effect on February 16, 2016.

Article By Robert S. Groban, Jr., Pierre Georges Bonnefil, Patrick G. Brady & Jang Hyuk Im of Epstein Becker & Green, P.C.
©2015 Epstein Becker & Green, P.C. All rights reserved.

Tax Talk: When Reporting Gifts at Discounted Values, a Qualified Appraisal is Crucial

A common method for transferring wealth from one generation to the next involves contributing assets to a partnership or limited liability company, then transferring minority interests in the partnership or LLC to descendants or other family members.  Done correctly, the technique allows donors to reduce their taxable estates by making gifts at reduced values, because of discounts for lack of control and lack of marketability.  In so doing, the donor also effectively shifts the tax on any appreciation of the underlying assets to the younger generation.

In order to benefit from this estate planning technique, however, it is crucial that the gift is adequately disclosed on a gift tax return and its value backed by a qualified appraisal or a detailed description of the method used to determine the fair market value of the transferred partnership or LLC interest.  Unfortunately, we have encountered situations recently in which a gift was not supported by a qualified appraisal, leading the Internal Revenue Service to challenge the value claimed by the donor and to propose additional gift tax, penalties and interest.  Such challenges can lead to significant uncertainty, stress and legal expense—even if the donor’s valuation ultimately is sustained.

This article describes what constitutes a qualified appraisal and the information that is necessary if no appraisal is provided, and offers some practical advice for donors based on our recent experiences dealing with the IRS in audits and administrative appeals involving disputed gift tax valuations.

IRS Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, requires donors to disclose whether the value of any gift reflects a valuation discount and, if so, to attach an explanation.  If the discount is for “lack of marketability, a minority interest, a fractional interest in real estate, blockage, market absorption, or for any other reason,” the explanation must show the amount of, and the basis for, the claimed discounts.  Moreover, in order for the statute of limitations to begin running with respect to a gift, the gift must be adequately disclosed on a return or statement for the year of the gift that includes all of the following:

  • A complete Form 709;

  • A description of the transferred property and the consideration, if any, received by the donor;

  • The identify of, and relationship between, the donor and each donee;

  • If the property is transferred in trust, the employer identification number of the trust and a brief description of its terms (or a copy of the trust);

  • A statement describing any position taken on the gift tax return that is contrary to any proposed, temporary or final Treasury regulations or IRS revenue rulings; and

  • Either a qualified appraisal or a detailed description of the method used to determine the fair market value of the gift.

While most of these requirements are straightforward, the last generally requires the donor to provide a more complete explanation.  Fortunately, the IRS has published regulations that describe what constitutes a qualified appraisal and what information must be provided in lieu of an appraisal.

With respect to the latter, the description of the method used to determine fair market value must include the financial data used to determine the value of the interest, any restrictions on the transferred property that were considered in determining its value, and a description of any discounts claimed in valuing the property.  If the transfer involves an interest in a non-publicly traded partnership (including an LLC), a description must be provided of any discount claimed in valuing the entity or any assets owned by the entity.  Further, if the value of the entity is based on the net value of its assets, a statement must be provided regarding the fair market value of 100% of the entity (determined without regard to any discounts in valuing the entity or any assets owned by the entity), the portion of the entity subject to the transfer, and the fair market value of the transferred interest as reported on the return.[1]

Donors and their counsel will rarely have the expertise needed to provide such a description.  While it may be relatively simple to provide some of the factual information, determining the appropriate actuarial factors and discount rates is a highly complex and specialized field.  Moreover, even if a donor or his or her counsel happened to have the relevant expertise, a description that is not prepared by an independent expert may be viewed suspiciously by the IRS because of a lack of impartiality.  Moreover, if the description (or the appraisal, for that matter) is prepared by the donor’s counsel, it may negate the attorney-client privilege, at least with respect to any work papers prepared by the attorney in connection with the description or appraisal.

For these reasons and others, we strongly recommend that donors obtain an appraisal from an independent, reputable valuation firm before claiming discounts with respect to a gift of a partnership or LLC interest.  The applicable Treasury regulations provide that the requirement described above will be satisfied if, in lieu of submitting a detailed description of the method used to determine the fair market value of the transferred interest, the donor submits an appraisal of the transferred property prepared by an appraiser who meets all of the following requirements:

  • The appraiser holds himself or herself out to the public as an appraiser or performs appraisals on a regular basis;

  • Because of the appraiser’s qualifications, as described in the appraisal that details the appraiser’s background, experience, education, and membership, if any, in professional appraisal associations, the appraiser is qualified to make appraisals of the type of property being valued; and

  • The appraiser is not the donor or the donee of the property or a member of the family of the donor or donee or any person employed by the donor, the donee or a member of the family of either.

Further, the appraisal itself must contain all of the following:

  • The date of the transfer, the date on which the transferred property was appraised, and the purpose of the appraisal;

  • A description of the property;

  • A description of the appraisal process employed;

  • A description of the assumptions, hypothetical conditions, and any limiting conditions and restrictions on the transferred property that affect the analyses, opinions and conclusions;

  • The information considered in determining the appraised value, including, in the case of an ownership interest in a business, all financial data used in determining the value of the interest that is sufficiently detailed to allow another person to replicate the process and arrive at the appraised value;

  • The appraisal procedures followed, and the reasoning that supports the analyses, opinions, and conclusions;

  • The valuation method used, the rationale for the valuation method and the procedure used in determining the fair market value of the asset transferred; and

  • The specific basis for the valuation, such as specific comparable sales or transactions, sales of similar interests, asset-based approaches, merger-acquisition transactions and the like.[2]

While there is no firm rule on when or how often appraisals must be obtained, appraisals that are more than a year old may be less reliable—particularly if there is good reason to believe that the value of the underlying assets has changed—and thus more vulnerable to challenge.

An appraisal that meets all of the requirements described above is not unassailable, of course, but if the IRS does choose to challenge a gift tax valuation that is supported by such an appraisal, the donor will be in a significantly stronger position in the resulting examination or proceeding than a donor who failed to obtain a qualified appraisal or opted to rely on a stale appraisal.

In sum, obtaining a qualified appraisal is a crucial step in any estate planning or gifting strategy that involves making gifts of assets valued at a discount.  Although donors may occasionally balk at the time and expense of preparing a reliable appraisal, it is almost certainly less time-consuming and costly than battling the IRS in an examination, administrative appeal or in litigation and should give donors confidence that their gifts are unlikely to be successfully challenged by the IRS.

Article By Ivan H. Gold of Schiff Hardin LLP
© 2015 Schiff Hardin LLP

[1] Treas. Reg. § 301.6501(c)-1(f)(2)(iv).

[2] Treas. Reg. § 301.6501(c)-1(f)(3).

Agriculture, Food, and Health Issues to Watch for 2016

Label Food Organic.jpgAs the agriculture and food industries head into the new year, a number of important cases and regulatory issues that have the potential to dramatically affect the industry are front and center. Below, an overview of the status of several of the key cases and issues that related industries should keep an eye on during 2016.

Waters of the United States

On October 9, 2015, following an earlier ruling by the U.S. District Court for the District of North Dakota, the United States Circuit Court for the Sixth Circuit issued a nationwide stay of the so-called “Waters of the United States” or “WOTUS” rule. The stay halted implementation of the WOTUS rule, pending resolution of jurisdictional issues that were the subject of oral argument on December 8, 2015. Those jurisdictional issues are focused on whether the Sixth Circuit is the proper venue to hear challenges to the rule. A ruling is expected in 2016.

A number of district court cases across the country also remain pending, and the District of North Dakota’s earlier injunction against implementation of the WOTUS rule in 13 states, including Missouri, remains in place.

Vermont Act 120

On October 8, 2015, the U.S. Circuit Court of Appeals for the Second Circuit heard oral argument of an appeal filed by the Grocery Manufacturers Association and other plaintiffs seeking review of the U.S. District Court for the District of Vermont’s denial of their Motion for Preliminary Injunction on April 27, 2015. The motion sought a preliminary injunction enjoining implementation of Vermont Act 120, passed on May 8, 2014, with an effective date of July 1, 2016. Act 120 would, among numerous provisions, mandate new labeling requirements on the part of manufacturers and other food processors for any food that is “produced with genetic engineering,” “partially produced with genetic engineering,” or “may be produced with genetic engineering.” Violators of Act 120 are subject to civil penalties of up to $1,000 per day, per product.

A decision is expected in the first two quarters of 2016 in advance of the July 1, 2016, effective date of the law.

Federal Activity Regarding GMOs and the Safe and Accurate Food Labeling Act

The U.S. House of Representatives passed the Safe & Accurate Food Labeling Act (SAFL) on July 23, 2015. The SAFL Act would, among other things, serve to pre-empt any state laws governing labeling of GMO-containing food products, including Vermont’s Act 120 due to become effective on July 1, 2016. Despite pressure on the U.S. Senate to address the SAFL Act and pass a companion or similar bill before the end of 2015, efforts to include any such bill or related provisions in the year-end omnibus spending bill were unsuccessful. Senate Agricultural Committee Group leaders, including Sen. Debbie Stabenow, D-Mich., have pledged to make the issue a top priority in January 2016, and many expect Sen. John Hoeven, R-N.D., to play a role in trying to secure passage of a bipartisan bill.

Food Safety Modernization Act Roll-Out

The Food Safety Modernization Act (FSMA) was signed into law on January 4, 2011, and represents the most comprehensive overhaul of the U.S. food safety regulatory scheme since the passage of the Food, Drug and Cosmetic Act in 1938. For nearly five years, the U.S. Food and Drug Administration (FDA) has been developing the seven final rules that implement FSMA. Each final rule impacts a different fundamental area of the U.S. food system.

In September and November 2015, the FDA issued the first five of the seven final rules: (1) Preventive Controls for Human Food; (2) Preventive Controls for Animal Food; (3) Foreign Supplier Verification Program; (4) Standards for Produce Safety; and (5) Accredited Third-Party Certification. The issuance of these rules initiates the countdown for the relevant compliance deadlines for covered entities.

It is anticipated that the final two FSMA rules regarding Sanitary Transportation and Intentional Adulteration will be issued on March 31, 2016. The Sanitary Transportation final rule will establish criteria for the sanitary transportation of food, including criteria targeted at shipping conditions and practices, employee training, and record keeping. The Intentional Adulteration final rule will require domestic and foreign food processing facilities to address vulnerabilities in their operations to prevent acts on the food supply intended to cause large-scale public harm. In 2016, the FDA will also be working with certain alliance groups to further develop FSMA compliance and enforcement guidance.

FDA Menu Labeling Requirements

Section 4205 of the Affordable Care Act charges the FDA with establishing labeling requirements for certain retail food establishments and vending machines. On December 1, 2014, the FDA issued two rules requiring calorie information to be listed on menus and menu boards at retail food establishments if they are a part of a chain of twenty or more locations operating under the same name and offering for sale substantially the same restaurant-type food items.

In July 2015, the FDA announced that the compliance deadline for the menu labeling rule was being extended by one year. All covered establishments (e.g., restaurants, grocery stores, and gas station convenience stores) now have until December 1, 2016, to identify calorie count and other information on their menus and menu boards as required by the FDA menu labeling rules.

Article By Laura A. Bentele, Scott K.G. Kozak & Jonathan D. Valentino of Armstrong Teasdale
© Copyright 2016 Armstrong Teasdale LLP. All rights reserved

New Rule Provides Additional Flexibility, Enhanced Opportunities for Certain Highly Skills Workers

visaOn January 13, 2016, the Department of Homeland Security (“DHS”) released an advance copy of an updated rule providing additional flexibility and enhanced opportunities for certain highly skilled workers. It covers workers who are in the U.S. in H-1B1 (from Chile and Singapore), E-3 (from Australia), temporary workers in the Commonwealth of the Northern Mariana Islands (CNMI)-Only Transition Worker (CW-1), and immigrant classification for outstanding professors and researchers (EB-1).

Current regulation (8 CFR § 2741.12(b)(20)) allows other high skilled workers in the following nonimmigrant visa categories to continue to work for up to 240 days beyond their current expiration date as long as they file a timely extension request before the expiration date:

  • H-1B specialty occupation workers,
  • L-1 intracompany/multinational corporation transferees,
  • O-1 extraordinary ability aliens,
  • E-1/E-2 treaty traders and investors,
  • TN NAFTA professionals, and
  • Certain international organizational workers and so on.

Because the nonimmigrant visa categories of H-1B1 and E-3 were created after the prior regulation was published, visa holders in these categories have not been able to continue to work unless they submitted their extension requests early or paid an additional $1,225 USCIS premium processing fee for expedited services.

Additionally, DHS added in its regulation allowing immigrant visa (“green card”) applicants to include important patents or prestigious peer-reviewed funding grants as evidence to establish their eligibility as an internationally recognized outstanding professor or researcher in their specialized academic field. Under 8 CFR 204.5(i)(3)(i), USCIS would accept an applicant’s claim to have met the statutory requirement for having satisfied two of the six criteria, such as receipt of major prizes or awards, original authorship of scholarly articles, serving as a judge of the work of others. Although important patents or prestigious peer-reviewed funding grants previously could be used to support the international recognition criterion for final merits review by USCIS, DHS has now codified this as threshold eligibility evidence to meet the statutory requirement.

The final rule is scheduled to be published in the Federal Register on January 15, 2016 with an effective date of February 16, 2016.

Article By Minnie Fu of Jackson Lewis P.C.

Jackson Lewis P.C. © 2015

2016 TSCA Chemical Data Reporting – Are You Prepared?

The Toxic Substances Control Act (TSCA) Chemical Data Reporting (CDR) rule (40 C.F.R. Part 711) will require U.S. manufacturers and importers of certain chemical substances to report information on these substances to the U.S. Environmental Protection Agency (EPA) by September 30, 2016. Industry should be well aware of and theoretically has ample time to meet this deadline, but the 2016 CDR is more complicated, more onerous, and requires more information than the 2012 CDR. Particularly given the significant penalties for CDR noncompliance (up to $2-5,000 per chemical per site), companies should devote significant time and effort to ensuring full compliance with this requirement.

Companies should be preparing now for the CDR submission period in 2016.

  • CDR reports must be submitted between June 1 and September 30, 2016.

  • Companies must report if they manufactured in or imported into the U.S. at least 25,000 pounds (lbs.) of a TSCA Inventory listed substance at any one U.S. site during any one of the following calendar years – 2012, 2013, 2014, or 2015.

  • Certain regulated chemicals (e.g., chemicals subject to TSCA section 5 significant new use rules (SNUR)) are subject to a lower, 2,500 lbs./year, manufacture / import volume threshold for these calendar years. —

  • CDR reports must include detailed, chemical-specific and site-specific manufacture / import and processing / use information for calendar year 2015 (the “principal reporting year”), and production volume information for each calendar year from 2012 to 2015.

  • Information reported for the CDR can be claimed as TSCA confidential business information (CBI) only if “upfront” substantiation is provided.

EPA regulations governing CDR appear at 40 C.F.R. Part 711. For additional information, visit http://www.epa.gov/cdr.

The CDR Program

Since 1986, U.S. manufacturers and importers have been required to periodically submit under TSCA certain basic information on many of the now over 85,000 chemicals appearing on the TSCA Chemical Substance Inventory (Inventory). Information submitted to EPA under this reporting requirement has been used as a tool for regularly updating the Agency and the public as to potential human and environmental exposure to substances in U.S. commerce.

In 2011, EPA overhauled this reporting requirement, which was originally known as the TSCA Inventory Update Rule (IUR) rule. The new “CDR” rule ushered in significant changes to reporting requirements beginning with the first CDR submission period, which ended in August 2012. For the 2012 CDR, about 1,600 U.S. companies reported activities for about 7,700 chemicals at about 4,800 sites. The second CDR reporting period will occur between June 1 and September 30, 2016 (to recur at 4-year intervals thereafter). Given the broader time period beginning in 2016 during which chemical production can trigger CDR reporting, in the future even more companies will likely be subject to and have to report on more chemicals.

Basic Thresholds and Reporting Requirement

For the 2016 submission period, companies must report for the CDR if, at one or more U.S. sites, they manufactured in or imported into the U.S. at least 25,000 pounds (lbs.) of a reportable chemical substance during any one of the calendar years 2012, 2013, 2014, or 2015. The CDR reporting form is known as the “Form U.”

The Form U requires companies to provide a variety of information, including technical contact information, and a Chemical Abstracts (CA) Index Name and corresponding Chemical Abstracts Service (CAS) Registry Number (CASRN) (if available) for each reportable substance.

To the extent that it is known or reasonably ascertainable, the Form U requires reporting of the following information on manufacture / import activities for each reportable substance at each site:

  • Volume of the substance that is manufactured or imported;

  • Number of workers reasonably likely to be exposed to the substance at each site;

  • Physical form(s) of the substance as it leaves the submitter’s possession, along with the associated percent production volume; and

  • Maximum concentration of the substance as it leaves the submitter’s possession;

  • Volume of a substance used on site;

  • Volume of a substance that is directly exported and not domestically processed or used;

  • Whether an imported substance is physically at the reporting site; and

  • Whether a substance is being recycled, remanufactured, reprocessed, or reused.

For the 2016 submission period, companies must also report production volume, by substance and site, for each of the calendar years 2012, 2013, 2014, and 2015.

Processing and Use Information

As was the case under the 2012 CDR, companies are required under the 2016 CDR to report detailed “processing and use” information associated with downstream domestic customer facilities regardless of whether the facilities are controlled by the manufacturer or importer. For the 2012 submission period, information on processing and use activities was required only for substances manufactured or imported in quantities ≥ 100,000 lbs. in the principal reporting year. This higher threshold, however, has been eliminated such that, other than substances specifically exempted from this required as described and listed at section 711.6, this extensive processing and use information is now required for all CDR-reportable substances.

Required processing and use information includes the following:

  • Type of industrial processing or use operations at downstream sites;

  • Approximate number of sites and estimated number of industrial processing and use workers reasonably likely to be exposed to each substance for each combination of processing or use code and industrial function category;

  • Estimated percentages of the submitter’s production volume for each processing or use code and corresponding industrial function category;

  • Whether the products are intended for use by children; and

  • Maximum concentration of the reportable chemical substance in each commercial and consumer product category.

Processing and use information must be reported if it is “known to or reasonably ascertainable by” the manufacturer or importer. This is a considerably lower standard compared to the previous IUR requirement to report information that was “readily obtainable.”

Exemptions from CDR Reporting

Several categories of substances are exempt from CDR – certain polymers, microorganisms, and certain natural gas streams – so long as the specific substance is not subject to certain specified TSCA actions, such as proposed or final rules issued under section 4, 5(a)(2), 5(b)(4), or 6 of TSCA (e.g., test rules, significant new use rules), or to orders issued pursuant to section 5(e) or 5(f). Note that substances that are subject to an enforceable consent agreement (ECA) are similarly ineligible for these exemptions, even if the CDR reporter is not a signatory to the ECA. Also, otherwise polymeric substances resulting from hydrolysis, depolymerization, or chemical modification of polymers must be reported if the hydrolysis, depolymerization, or chemical modification occurs to such an extent that the resulting product is no longer totally polymeric in structure.

Exemptions also exist for substances that are produced or imported in small quantities for research and development, substances imported as part of an “article,” and substances manufactured or imported as an “impurity” or “non-isolated intermediate.” Other types of substances that are described at 40 C.F.R. § 720.30(h) are also excluded from CDR.

“Byproducts” are excluded from CDR if their only commercial purpose is to be burned as a fuel, disposed as a waste, or from which component chemical substances are extracted for a commercial purpose. Note, however, that any extracted component substances are potentially reportable for CDR.

Under section 711.6, certain petroleum process streams and other specifically listed “low interest” substances are exempt from the requirement to submit processing and use information. Manufacturers and importers of partially exempt substances, however, are still required to provide the traditional information required on the Form U if the general 25,000 / 2,500 lbs. production volume threshold is exceeded. EPA has established a process for revising these “partially exempt” substance lists.

Electronic Reporting

CDR reports must be submitted electronically using e-CDRweb, EPA’s free electronic reporting tool, to EPA’s Central Data Exchange (CDX).

CDR Violations, Penalties

EPA can assess substantial monetary penalties (up to $25,000 per chemical per site) for failure to comply with the CDR. Violations subject to penalties include seemingly minor CDR reporting violations such as late reporting, or reporting a slightly inaccurate manufacture or import volume. Companies would be well-advised to carefully review their production / import records and their prior CDR filing before preparing and submitting the 2016 report. If non-compliance occurs, companies may be able to rely on EPA’s “Audit Policy” (65 Fed. Reg. 19,618 (April 11, 2000)) to mitigate or eliminate penalties for past reporting errors or omissions, but companies should consult with legal counsel before examining past CDR compliance.

Confidentiality and Records Retention

To claim the chemical identity, site identity, or processing and use information as confidential business information (CBI), reporting companies must substantiate such CBI claims at the time of reporting. Submitters cannot claim information as CBI when it is identified as “not known to or reasonably ascertainable.” CDR records must be kept for 5 years.

Small Business Exemption

Certain small manufacturers are exempt from the CDR. A company may qualify for a small business exemption from reporting if it either: (1) produces less than 100,000 lbs. of the otherwise reportable substance and has total annual sales of less than $40 million (including those sales of the parent company); or (2) has annual sales of less than $4 million regardless of production / import volume.

This exemption does not apply for any substance that is the subject of a proposed or existing rule issued under sections 4, 5(b)(4), or 6; an order in effect under section 5(e); or relief that has been granted under a civil action under sections 5 or 7.

CDR Non-Compliance Issues

In our experience, many factors contribute to CDR non-compliance. These can include:

  • inaccurate manufacture and import volume tracking

  • failure to report / file all or some reportable substances

  • incorrect conclusions as to who is the “importer” of a substance

  • failure to report production volume to the required two significant figures of accuracy

  • nomenclature issues

  • “toll” manufacturing issues

  • misinterpretation of exemptions

  • failure to account for reportable “byproduct” and related stream manufacture

  • fractionation issues

As noted above, CDR violations are potentially eligible for EPA’s “Audit Policy,” and companies should strive to preserve their ability to use the Audit Policy to the extent possible and seek legal advice when necessary.

Article By Thomas C. Berger of Keller and Heckman LLP

© 2015 Keller and Heckman LLP

Avoiding Bias in Big Data

As the use of big data in almost every area of business continues to grow, companies need to carefully consider their own use. We’ve previously discussed data analytics and use restrictions in a three-part series (Part 1, Part 2, and Part 3), and this post will highlight another issue that can arise when using big data: discriminatory outcomes. The Federal Trade Commission (FTC) recently issued the report Big Data: A Tool for Inclusion or Exclusion? Understanding the Issues, which focuses on avoiding harmful bias in big data and certain consumer protection laws applicable to big data. The report gathered information and commentary from participants in a workshop that the FTC held last year and supplemented that information with additional research.

The report notes that companies’ use of big data has led to some major benefits, including increased educational attainment and access to employment for certain individuals, better access to credit using nontraditional methods, and healthcare tailored to individual patients’ characteristics.

The report, however, lists three main concerns with big data. First, as with all data, the quality of the data used in big data analytics, including its accuracy and completeness, is important. Second, big data is a great tool for showing correlations, but the FTC is quick to point out a well-known truth that correlation is not causation. Last, big data may be used to categorize consumers in a way that would lead to exclusion of certain populations from certain benefits. In particular, big data use may result in

  • companies mistakenly denying individuals opportunities based on the actions of others,

  • the creation or reinforcement of existing disparities,

  • the exposure of sensitive information,

  • the inadvertent targeting of vulnerable consumers for fraud,

  • the creation of new justifications for exclusion, and

  • higher-priced goods and services for lower-income communities.

The report outlines several laws that may apply to big data practices. These laws include the Fair Credit Reporting Act, federal equal opportunities laws (the report specifically lists the Equal Credit Opportunity Act, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Age Discrimination in Employment Act, the Fair Housing Act, and the Genetic Information Nondiscrimination Act), and Section 5 of the Federal Trade Commission Act.

As to how one of these laws might apply to big data, consider the following example: A company asks a consumer for his or her zip code and social media behavior on an application, and then sends the application to a data analytics firm after removing the consumer’s identifying information. The firm analyzes the creditworthiness of people in the same zip code with the same social media behavior and provides an analysis of such information to the company, knowing that the analysis will be used for a credit decision. If the company uses the consumer’s information to create an analysis of a group that shares certain characteristics with the consumer and then ultimately uses that analysis to make a decision about the consumer, the FTC may very well view such analysis as a consumer report, and the Federal Credit Reporting Act would apply. However, if the company just used the same analysis to inform its general policies, it is unlikely that the FTC would argue that the Federal Credit Reporting Act would apply, because the consumer report was not used for a particular consumer. This example illustrates the distinctions that companies should consider when analyzing and using the data that they collect.

This list of applicable laws is nonexhaustive, and finding whether a practice violates any of these laws is a highly fact-specific inquiry. To assist businesses, the report provides two sets of questions that companies can use when engaging in data analytics—one for legal compliance and one for policy-related issues—and concludes that companies should be mindful of applicable laws when using big data analytics to ensure that their practices do not result in what could be unlawful bias.

Article By Vito Petretti & Katherine B. O’Keefe of Morgan, Lewis & Bockius LLP

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