Category: Uncategorized

The Effects Of The SEC Shutdown On The Capital Markets

Although EDGAR continues to accept filings, the government shutdown has now eclipsed its 28th day and the SEC continues to operate with limited staff which is having a crippling effect on the ability of many companies to raise money in the public markets. This is particularly due to the fact that the SEC is unable to perform many of the critical functions during the lapse in appropriations, including the review of new or pending registration statements and/or the declaration of effectiveness of any registration statements.

Although Section 8(a) of the Securities Act of 1933, as amended, creates an avenue whereby a registration statement will automatically become effective 20 calendar days after the filing of the latest pre-effective amendment that does not include “delaying amendment” language, many companies seeking to raise money in the public markets, including through an initial public offering, are reluctant to use this route for the following reasons. First, any pre-effective amendment which removes the “delaying amendment” language must include all information required by the form including pricing information relating to the securities being sold as Rule 430A is not available in the absence of a delaying amendment. This means that companies must commit to pricing terms at least 20 days in advance of the offering which may be difficult due to the volatility in the markets. In the event pricing terms change, companies must file another pre-effective amendment which restarts the 20-day waiting period. Second, companies run the risk that the SEC may, among other things, issue a stop order. Finally, companies may run into issues with FINRA, Nasdaq or the NYSE as these organizations may not agree to list securities on such exchanges without the SEC confirming that they have reviewed and cleared such filing and affirmatively declared the registration statement effective. These risks, among others, associated with using Section 8(a) as a means by which a registration statement can become effective after the 20-day waiting period, seem to outweigh the benefits of pursuing this alternative despite the fact that many companies with a December 31st year end will soon be required to file audited financial statements for the year ended December 31, 2018 pursuant to Rule 3-12 of Regulation S-X which will further delay the process resulting in an increase in both cost and time related to the offering.

Although companies seeking to raise money in the public markets, including through initial public offerings or shelf registration statements, may be reluctant to rely upon Section 8(a), some companies have already chosen to remove the “delaying amendment” language. For example, some companies which appear to have cleared all comments from the SEC prior to the partial government shutdown have elected to remove the “delaying amendment” and proceed with their offerings after the 20-day waiting period. In addition, other companies conducting rights offerings, such as Trans-Lux Corporation and Roadrunner Transportation Systems, Inc., are also relying on Section 8(a) as a means of raising money. Finally, some special purpose acquisition companies (“SPACs”), including Andina Acquisition Corp. III, Gores Metropoulous, Inc., Pivotal Acquisition Corp. and Wealthbridge Acquisition Limited, are among the issuers that are using Section 8(a) as a way to procced with their offerings during this partial government shutdown since SPACs, in particular, are not sensitive to price volatility in the markets because they have no operations.

Companies and underwriters that may be considering filing a pre-effective amendment to a registration statement to take advantage of Section 8(a) of the Securities Act should discuss the effects of removing the “delaying amendment” language with securities counsel before proceeding down such path.

 

Copyright © 2019, Sheppard Mullin Richter & Hampton LLP.
Read more legal news on the Government Shutdown at the National Law Review.

Colorado Supreme Court Vindicates the Colorado Oil and Gas Commission: Recent Ruling In Favor of the Oil and Gas Industry

In an important victory for Colorado’s oil and gas industry, the Colorado Supreme Court unanimously supported the decision of the Colorado Oil and Gas Conservation Commission (the “Commission”) to decline a rulemaking sought by environmental activists that could have eliminated new oil and gas drilling. The Commission, which has regulatory authority under the Colorado Oil and Gas Conservation Act, declined to act on a proposed rule that would have required oil and gas developers to prove that every future oil and gas development project, individually and cumulatively with other projects, had zero impact on the environment and public health, and would not contribute to climate change.

The Background

The Colorado Oil and Gas Conservation Commission v. Martinez case began in 2013 when environmental activists requested the Commission implement a rule that would have prohibited it from issuing any permits for the drilling of oil and gas wells “unless the best available science demonstrates, and an independent, third-party organization confirms, that drilling can occur in a manner that does not cumulatively, with other actions, impair Colorado’s atmosphere, water, wildlife, and land resources, does not adversely impact human health, and does not contribute to climate change.”

After holding extensive hearings on the proposed rule, the Commission ultimately declined to consider it given that the state statutes under which the Commission regulates oil and gas development require it to balance certain considerations with other factors, including the responsible development of Colorado’s oil and gas resources. The Commission was also addressing the activists’ concerns in conjunction with the Colorado Department of Public Health and Environment.

While a Colorado district court affirmed the Commission’s decision, a panel of the Colorado Court of Appeals reversed the district court’s order in a split decision based on Commission’s construction of the Colorado Oil and Gas Conservation Act.

The Decision

On January 14, 2019, the Colorado Supreme Court announced its decision in Colorado Oil and Gas Conservation Commission v. Martinez, 2019 CO 3, unanimously reversing the decision of the Court of Appeals, thereby affirming the Commission’s rejection of the proposed rule. The Supreme Court relied primarily on the language of the Colorado Oil and Gas Conservation Act, C.R.S. §34-60-101 et seq., which directs the Commission to foster the development of oil and gas resources, protecting and enforcing the rights of owners and producers, and in doing so, to prevent and mitigate significant adverse environmental impacts to the extent necessary to protect public health, safety, and welfare – but only after taking into consideration cost-effectiveness and technical feasibility.

In addition, the Supreme Court found support in the Colorado Oil and Gas Conservation Act’s statutory and legislative history. The Act’s statutory history was initially entirely pro-development and later evolved to include environmental considerations. The Court also considered the Act’s legislative history, particularly how sponsors of the latest amendments that added environmental factors to the Commission’s balancing explained the amendments were not intended to halt all oil and gas production – which the proposed rule would have likely done.

What it means for your business

The proposed rule in Martinez, if adopted and implemented, might have caused a complete shut-down of Colorado’s oil and gas industry. The Supreme Court’s affirmance of the Commission’s rejection of this proposed rulemaking establishes that Colorado’s courts will not presume to direct agencies to implement such potentially significant regulatory proposals, but will defer to the political process to make any such changes to the state’s regulatory landscape.

 

© Polsinelli PC, Polsinelli LLP in California
This post was written by Bennett L. Cohen, Ghislaine G. Torres Bruner Philip W. Bledsoe and Megan Rose Garnett of Polsinelli PC.
Read more oil and gas news on our Energy and Environment type of law page.

Second Circuit Upholds District Court’s Choice of Equitable Remedies Under ERISA and Its Decision to Award Prejudgment Interest at the Federal Prime Rate

The Second Circuit Court of Appeals recently issued an opinion in Frommert v. Conkright, affirming a district court decision regarding appropriate equitable remedies under ERISA and the amount of prejudgment interest to be applied. The Second Circuit’s views on each of these issues should be of interest to plan fiduciaries as well as practitioners.

This litigation has a long history, dating back to 1999, and has generated many court opinions along the way, from the district court level all the way up to the U.S. Supreme Court. Indeed, this is the Second Circuit’s fourth decision in this case. (Readers are likely familiar with this case from the 2010 Supreme Court decision, which addressed the standard of review and held that an honest mistake does not strip a plan administrator of the deference otherwise granted to it to construe plan terms.)

By means of background, the litigation was initiated by Xerox employees who had left the company in the 1980s, received distributions of the retirement benefits they had earned up to that point, and who were subsequently rehired by Xerox. In addition to the issues concerning interpretation of the Plan and related documents, the primary focus of the case was how to account for the employees’ past distributions when calculating their current benefits so as to avoid a “double payment” windfall.

In 2016, the District Court for the Western District of New York issued two decisions that led to the instant appeal. After having been previously directed by the Second Circuit to fashion, in its discretion, an equitable remedy providing appropriate retirement benefits to the rehired employees (referred to as the “New Benefits”), the District Court chose the equitable remedy of reformation and held that the New Benefits should be calculated as if the plaintiffs were newly hired upon their return to Xerox, without any reduction of the benefits to account for prior distributions or any credit for prior years of service. In a second decision later that year, the District Court determined that the plaintiffs were entitled to prejudgment interest at the federal prime rate.

The plaintiffs appealed both decisions. As to the remedy, the plaintiffs argued that the “new hire” remedy fashioned by the District Court was inadequate, and the court should have chosen a calculation of New Benefits that was more favorable to them using either surcharge or estoppel. The Second Circuit was not persuaded. In affirming the District Court’s decision, the Second Circuit noted that each of the equitable approaches considered for calculating the New Benefits were imperfect and even the new hire approach had its flaws. Nevertheless, it found that the District Court did not abuse its discretion in selecting this method. The Second Circuit pointed out that the new hire approach accounted for the time value of money and better balanced the competing interests of the Plan Administrator and the plaintiffs. Having determined there was no abuse of discretion by the District Court, the Second Circuit found it unnecessary to address whether relief would alternatively have been proper pursuant to different equitable remedies such as surcharge or estoppel.

The plaintiffs also argued that the District Court was affirmatively required to interpret the Plan, which might have yielded a higher benefits award. Again, the Second Circuit was not persuaded, finding that this argument ran afoul of one of its prior decisions in the case finding that the District Court need not engage in plan interpretation if it determined an appropriate equitable remedy existed. Citing to Cigna v. Amara, the Second Circuit reaffirmed that district courts generally may avoid interpreting a pension plan and instead fashion equitable remedies for ERISA violations where the plan is “significantly incomplete” and misleads employees, and reformation is among the equitable remedies available.

As to the issue of prejudgment interest, the plaintiffs sought the New York statutory interest rate of nine percent, whereas the Plan Administrator proposed the federal post-judgment interest rate of 0.66 percent. The District Court rejected the state statutory interest rate as too high and the federal rate as too low. It awarded prejudgment interest at the federal prime rate of 3.5 percent, explaining that it struck an appropriate balance and fairly compensated the plaintiffs. Noting that the District Court enjoyed broad discretion as to whether to grant prejudgment interest in the first place and to select a rate, the Second Circuit upheld the decision, finding that the District Court had carefully considered all the relevant factors and thoroughly explained its reasoning for using the federal prime rate.

 

Copyright © 2019 Robinson & Cole LLP. All rights reserved.
This post was written by Jean E. Tomasco of Robinson & Cole LLP.

EPA Sued to Issue Pending Methylene Chloride Prohibition Rule in Final

On January 14, 2019, in the U.S. District Court for the District of Vermont, the Vermont Public Interest Group; Safer Chemicals, Health Families; and two individuals (plaintiffs) followed up on their earlier notice of intent to sue and filed a complaint against Andrew Wheeler and the U.S. Environmental Protection Agency (EPA) to compel EPA to perform its “mandatory duty” to “address the serious and imminent threat to human health presented by paint removal products containing methylene chloride.”  Plaintiffs bring the action under Toxic Substances Control Act (TSCA) Section 20(a) which states that “any person may commence a civil action … against the Administrator to compel the Administrator to perform any act or duty under this Act which is not discretionary.”  Plaintiffs allege that EPA has not performed its mandatory duty under TSCA Sections 6(a) and 7.  TSCA Section 6(a) gives EPA the authority to regulate substances that present “an unreasonable risk of injury to health or the environment” and TSCA Section 7 gives EPA the authority to commence civil actions for seizure and/or relief of “imminent hazards.”  Plaintiffs’ argument to direct EPA to ban methylene chloride is centered on the issue of risk to human health only, however, stating that it presents “an unreasonable risk to human health” as confirmed by EPA.  Under TSCA Section 20(b)(2), plaintiffs are required to submit a notice of intent to sue 60 days prior to filing a complaint which they did on October 31, 2018.

Background

On January 19, 2017, EPA issued a proposed rule under TSCA Section 6 to prohibit the manufacture (including import), processing, and distribution in commerce of methylene chloride for consumer and most types of commercial paint and coating removal (82 Fed. Reg. 7464).  EPA also proposed to prohibit the use of methylene chloride in these commercial uses; to require manufacturers (including importers), processors, and distributors, except for retailers, of methylene chloride for any use to provide downstream notification of these prohibitions throughout the supply chain; and to require recordkeeping.  EPA relied on a risk assessment of methylene chloride published in 2014, the scope of which EPA stated included “consumer and commercial paint and coating removal.”  The proposed rule stated that in the risk assessment, EPA identified risks from inhalation exposure including “neurological effects such as cognitive impairment, sensory impairment, dizziness, incapacitation, and loss of consciousness (leading to risks of falls, concussion, and other injuries)” and, based on EPA’s analysis of worker and consumer populations’ exposures to methylene chloride in paint and coating removal, EPA proposed “a determination that methylene chloride and NMP in paint and coating removal present an unreasonable risk to human health.”  The comment period on the proposed rule was extended several times, ending in May 2017, and in September 2017 EPA held a workshop to help inform EPA’s understanding of methylene chloride use in furniture refinishing.

No further action was taken to issue the rule in final, however, until December 21, 2018, when EPA sent the final rule to the Office of Management and Budget (OMB) for review.  On the same day, EPA also sent another rule to OMB for review titled “Methylene Chloride; Commercial Paint and Coating Removal Training, Certification and Limited Access Program,” which has not previously been included in EPA’s Regulatory Agenda; very little is known about this rule.  Plaintiffs do not refer to it in the complaint but there is speculation, based on its title, that this second rule may allow for some commercial uses of methylene chloride.

Commentary

We recall the lawsuit filed by the Natural Resources Defense Counsel (NRDC) in 2018 challenging EPA’s draft New Chemicals Decision-Making Framework document as a final rule.  The current action further reflects the commitment of detractors of EPA to use the courts and every other means available to oppose the Administration’s TSCA implementation efforts.  Whether and when this court will respond is unclear.  What is clear is that the case will be closely watched, as the outcome will be an important signal to the TSCA stakeholder community regarding the utility of TSCA Section 20(a)(2) to force non-discretionary EPA actions that the Administration may be disinclined to take.

 

©2019 Bergeson & Campbell, P.C.

Federal Appellate Courts Ring In the New Year by Taking Up Website and Mobile Application Accessibility

As expected given the extreme volume of website accessibility lawsuits filed over the last few years, in the first few weeks of the new year, United States’ Circuit courts have finally begun to weigh in on the law as it pertains to the accessibility of websites and mobile applications, and the results are generally disappointing for businesses.

Background

The U.S. Department of Justice (“DOJ”) has long taken the position that Title III of the Americans with Disabilities Act (“Title III”, “ADA”) applies to both websites and mobile apps, however, its withdrawal of Advanced Notice of Proposed Rulemaking (“ANPRM”) on December 26, 2017 and its September 25, 2018 letter (which effectively passed the onus to Congress to issue legislation on website accessibility standards), have prompted an onslaught of private demand letters and lawsuits filed in both state and federal court against businesses based on the theory that their websites are inaccessible to individuals with disabilities. As those who have confronted these lawsuits may know, the current state of the law has led to businesses being subject to duplicative actions in different jurisdictions, primarily, New York, California, and Florida. Last fall, both the Ninth and Eleventh Circuit courts held oral argument on website accessibility cases, with both panels expressing similar concerns about the current uncertainty in the law and how one can achieve and confirm a sufficient level of accessibility.

The Ninth Circuit Reverses Domino’s

Yesterday, in Robles v. Domino’s Pizza, the Ninth Circuit held that Title III applies to both websites and mobile applications. This decision reversed the district court’s dismissal of a class action lawsuit which asserted that Domino’s Pizza violated the ADA and California’s Unruh Civil Rights Act (UCRA) by failing to make its website and mobile app accessible to individuals who are blind or visually impaired. While the district court’s decision in Robles was always considered an outlier, the Circuit Court’s decision is significant because the Ninth Circuit considered, and rejected, defenses which have traditionally been advanced by businesses that have litigated website accessibility matters. For example, the Court refused to accept as a matter of law/summary judgment that providing a telephone hotline is sufficient alternative method for a company to satisfy its obligations under Title III to customers who are blind or have low vision (noting it was an issue of fact that required specific and contextual supporting factual evidence). The Court also rejected the concept that imposing liability in this context violates companies’ due process rights because DOJ has failed to issue clear technical standards for compliance.

At the outset, the Ninth Circuit agreed with the district court that Domino’s is a “place of public accommodation” and accordingly, the ADA applies to its website and mobile app, thereby requiring it to provide auxiliary aids and services to make its visual materials available to individuals who are blind. Drawing upon prior district court decisions from within the Ninth Circuit, the Court focused on the “nexus” between Domino’s website and mobile app and its physical restaurants, and found that the alleged inaccessibility of the website and app unlawfully prevents customers from accessing the goods and services at Domino’s physical locations. Notably, the Ninth Circuit declined to determine whether the ADA covers websites or mobile apps whose inaccessibility does not impede access to the goods and services at a physical location, reinforcing courts in the circuit’s position more narrowly construing the ADA to apply only to websites with a nexus to a brick-and-mortar location (as opposed to the more expansive positions taken by district courts in Massachusetts, New York, and Vermont).

The Circuit Court also noted that after the plaintiff filed the lawsuit, Domino’s website and mobile app began displaying a telephone number to assist customers who are visually impaired and who use a screen reading software. The Ninth Circuit held that a company’s use of a telephone hotline presents a factual issue, and, simply having a hotline, without any discovery regarding its effectiveness, is insufficient to award summary judgment to a company and determine that it has complied with the ADA. (This underscores that proving the sufficiency of an alternative means of access to a website – short of making the website itself accessible – could prove to be a costly endeavor.)

Citing DOJ’s failure to issue technical standards and withdrawal of ANPRM, Domino’s had argued that: (i) imposing liability would violate due process because it lacks fair notice of the technical standards that it is required to abide by; and (ii) the complaint was subject to dismissal under the doctrine of primary jurisdiction pending DOJ’s resolution of the issue. The Ninth Circuit rejected both arguments. First, the court held that DOJ’s failure to issue guidance on the specific standards or regulations does not eliminate a company’s obligation to comply with the ADA and its obligation to provide “full and equal enjoyment” to individuals with disabilities. Second, the Ninth Circuit held that the district court erred by invoking the doctrine of primary jurisdiction in order to justify its dismissal of the complaint without prejudice pending DOJ’s resolution of the issue. The court found that DOJ’s withdrawal of ANPRM meant that undue delay in resolving this issue “is not just likely, but inevitable,” which required the court to weigh in.

The Robles court did not rule on whether Domino’s website and mobile app comply with the ADA, and did not provide any guidance on how a company’s website or mobile app would comply with the ADA.

The Fourth Circuit Places Minor Restrictions On Standing

Two weeks ago, in Griffin v. Department of Labor Federal Credit Union, the Fourth Circuit considered another defense that has been increasingly asserted by businesses: whether plaintiff has standing to sue. In Griffin, the court rejected the plaintiff’s standing to bring a lawsuit against a Credit Union where he was not eligible for membership, he had no plans to become eligible to be a member, and his complaint contained no allegation that he was legally permitted to use the site’s benefits. The court also held that plaintiff’s status as a tester was insufficient to create standing where he was unable to plausibly assert that returning to the website would allow him to avail himself of its services. Unfortunately, this is an exceedingly narrow holding which should do little to undercut the rampant stream of filings by serial ADA website plaintiffs, as the heightened standard for joining a credit union would not apply to most other industries/websites. Therefore, while technically a victory for businesses, this decision did not issue the significant blow to serial plaintiffs that defendants had hoped would provide a clear defense moving forward.

Looking Ahead

We next await the holding of the 11th Circuit in Winn-Dixie. Unfortunately, it does not appear that, under this administration, we should expect DOJ to promulgate website accessibility guidelines. Similarly, with the government currently shut down (and other issues likely considered more pressing to the general public upon its reopening), it is extremely unlikely that Congress will amend the ADA or promulgate new legislation clarifying these issues in the near future.

Therefore, for the time being, businesses should expect to continue to face the seemingly endless stream of serial plaintiff website accessibility demand letters and lawsuits. As we have repeatedly noted, the best way to avoid falling prey to such a suit is to achieve substantial conformance with WCAG 2.1 Levels A and AA (confirming such status by human-based code and user/assistive-technology testing). Moreover, based upon the scope of the Ninth Circuit’s decision in Domino’s, these matters may soon expand to include mobile apps as well. Therefore, to the extent businesses had, to date, treated mobile application accessibility as a best practice, they should now consider the issue with increased urgency.

 

©2019 Epstein Becker & Green, P.C. All rights reserved.

A Cautionary Fairy-Tale – If Only Cinderella’s Father Had An Estate Plan

Ah, the tale of Cinderella, a classic childhood favorite. We all know it as the story of an orphan who is mistreated by her Evil Stepmother and, with the help of her Fairy Godmother, wins over the heart of Prince Charming.

Often overlooked, however, is how the story began. Cinderella’s Mother died when Cinderella was a child. Cinderella’s Father remarried and shortly after, he also died. Cinderella’s Evil Stepmother then stole Cinderella’s inheritance and enslaved Cinderella in her own home. Surely, Cinderella’s parents never planned on this future for their lovely daughter. But, you see, it was the parents’ failure to plan for the future that put Cinderella in this terrible predicament. With a little planning—estate planning, that is—Cinderella never would have endured such suffering.

Avoid the Stepmother Trap 

There are several ways a skilled estate planning attorney could have helped poor Cinderella, as we analyze author Charles Perrault’s beloved fairytale under modern-day Arizona law.

With no estate planning documents in place, Cinderella’s modern-day predicament would look like this: half of Cinderella’s Father’s estate would be distributed to Evil Stepmother, and half of the estate would be distributed to Cinderella, as a child of the father who was not also a child of Evil Stepmother. Being a minor, Cinderella’s half of the estate would be placed in one of two places.

The first place would be a Uniform Transfers to Minors Act (“UTMA”) account. An UTMA account requires a court-appointed custodian – presumably, Evil Stepmother – who should use those funds for Cinderella’s health, education, maintenance, and support. Unfortunately, with little oversight, we doubt Evil Stepmother would have complied with UTMA. Instead, Evil Stepmother likely would have used Cinderella’s share of the estate to benefit herself and her two biological daughters.

The second place the money might have been placed would be in a trust for the benefit of Cinderella. While the second option is the best option, someone (another family member, on Cinderella’s behalf) would have to petition the court to order that outcome, and it is unlikely that Evil Stepmother would do that for Cinderella.

Why Oh Why Didn’t Cinderella’s Father Create a Trust for His Precious Little Girl? 

What Cinderella’s Father should have done was create a Revocable Living Trust Agreement (the “Trust”). He should have created the Trust after marrying Evil Stepmother to ensure there was no pesky “omitted spouse” claim. The Trust should state that (1) certain assets, as set forth on an attached Schedule A, are the separate property of Cinderella’s Father, (2) certain assets, if any, as set forth on an attached Schedule B, are the separate property of Evil Stepmother, and finally (3) that certain assets, as set forth on an attached Schedule C, are the community property of Cinderella’s Father and Evil Stepmother.

To assist with the trust administration after his death, Cinderella’s Father also should have named a neutral successor trustee, such as a friend, fiduciary, corporate trustee, or perhaps the best choice of all, Fairy Godmother. The Trust should state that, at the death of Cinderella’s Father, the Trust will be divided into two subtrusts, commonly referred to as an A/B split trust.

Trust A (the Survivor’s Trust) would be allocated all of Evil Stepmother’s separate property as well as one-half of the value of the community property assets. Trust B (the Decedent’s Trust) would be allocated all of Cinderella’s Father’s separate property as well as one-half of the value of the community property assets. The Trust could provide that Evil Stepmother would be able to use the Survivor’s Trust assets as she pleases and can only access the Decedent’s Trust assets (other than perhaps receiving income, if so stated in the estate documents) if the assets allocated to the Survivor’s Trust were depleted or illiquid. Having a neutral successor trustee to either work with Evil Stepmother or to oversee only the Decedent’s Trust would ensure that Cinderella’s share was not being improperly raided and depleted. Then, at the death of Evil Stepmother, the assets in the Decedent’s Trust would be distributed to Cinderella.

Creative Considerations for Dear “Cinderelly”

Other provisions can be added to such trusts that ensure Cinderella’s interests are protected. For example, a provision could be added that gives Cinderella the ability to request funds from the Decedent’s Trust, as needed, for health, education, maintenance or support (payable on her behalf, as a minor, and to her, once she is of age). Another provision could allow Cinderella to receive a portion of the Decedent’s Trust at a certain age or upon her marriage to Prince Charming, prior to Evil Stepmother’s death. Finally, another provision could allow the successor trustee to create and fund a 529 college savings account using funds from the Decedent’s Trust.

There are other possibilities if Cinderella’s Father did not want to create a trust as described above because he was so utterly and completely in love with Evil Stepmother and wanted everything to be considered community property. In this case, he could have planned in some untraditional ways to still ensure Cinderella was cared for. For example, Cinderella’s Father could take out a million dollar term life insurance policy after his second marriage, naming Cinderella as the sole beneficiary and directing funds to be distributed to an UTMA account with a neutral custodian or to a support trust with a neutral trustee.

Cinderella Ultimately Inherited Litigation 

In our modern-day analysis, the only inheritance Cinderella’s Father left her was likely litigation. Although not ideal, in circumstances like these, litigation affords the child of a parent with no estate plan, or with a poor estate plan, the opportunity to recover all or some of the property the child is rightfully entitled to receive. Assuming Cinderella’s Father died intestate (without a will), half of his estate should have passed to Evil Stepmother and the other half to Cinderella. Assuming Evil Stepmother either adopted Cinderella or was her court-appointed guardian, conservator or custodian, Evil Stepmother would owe Cinderella a fiduciary duty to protect her share of the inheritance and should have prepared an accounting of the assets that existed at the time of Cinderella’s Father’s death.

Of course, in the original story, Evil Stepmother never protected Cinderella’s interests and instead pillaged all of the assets. Cinderella, therefore, would have had a cause of action against Evil Stepmother for breach of fiduciary duty and conversion, among others. Fortunately, children like Cinderella are not without a remedy. An experienced estate litigation attorney can assess each case and determine what causes of action exist, the expected cost, and the likelihood of recovery.

Your Fairy Godmother Equivalent

Luckily, Cinderella had allies in the form of her Fairy Godmother and her many animal friends. If you have questions about estate planning, trust administration, and estate litigation issues, there are many resources available to you. This includes the most powerful resource of all: calling upon an estate planning attorney to help you – and others – learn from the cautionary fairy-tale that is the Cinderella story.

Copyright © 2019 Ryley Carlock & Applewhite. A Professional Association. All Rights Reserved.

Privacy Legislation Proposed in New York

The prevailing wisdom after last year’s enactment of the California Consumer Privacy Act (CCPA) was that it would result in other states enacting consumer privacy legislation. The perceived inevitability of a “50-state solution to privacy” motivated businesses previously opposed to federal privacy legislation to push for its enactment. With state legislatures now convening, we have identified what could be the first such proposed legislation in New York Senate Bill 224.

The proposed legislation is not nearly as extensive as the CCPA and is perhaps more analogous to California’s Shine the Light Law. The proposed legislation would require a “business that retains a customer’s personal information [to] make available to the customer free of charge access to, or copies of, all of the customer’s personal information retained by the business.” It also would require businesses that disclose customer personal information to third parties to disclose certain information to customers about the third parties and the personal information that is shared. Businesses would have to provide this information within 30 days of a customer request and for a twelve-month lookback period. The rights also would have to be disclosed in online privacy notices. Notably, the bill would create a private right of action for violations of its provisions.

We will continue to monitor this legislation and any other proposed legislation.

Copyright © by Ballard Spahr LLP.

This post was written by David M. Stauss of Ballard Spahr LLP.

Coming up in one Week! The 26th Annual Marketing Partner Forum in January 2019

In January 2019, Marketing Partner Forum descends upon The Ritz-Carlton, Laguna Niguel in Dana Point, California for a three-day summit on law firm marketing and business development designed for the industry’s top business professionals and rainmakers. Conveniently situated near John Wayne Airport, Orange County (SNA), Laguna Niguel is the ideal backdrop to launch a new era of industry-leading content focused on profitability and client development in a dynamic and competitive legal services market.

Why You Should Attend:

 

  • Marketing Partner Forum is designed for client development partners, rainmakers, and the senior-most legal marketing and business development leaders across the profession.
  • Our content reflects the experience and sophistication of our international audience in terms of rigor, ambition and scope.
  • Attendees can engage venerable thought leaders both within and outside of the legal industry.
  • Our program offers ample networking opportunities and the stunning scenery, golf course, spa and hiking trails at one of California’s most idyllic resorts.
  • Participants can take advantage of our law firm partner conference track, consisting of several compelling sessions designed specifically for legal practitioners.
  • We have also created a brand new solo & small law firm track, with sessions designed for business development executives & partners alike.
  • Finally, attendees can interact directly with senior clients and network for new business;
  • Refresh & reflect at our Wednesday Welcome Luncheon and Friday Bloody Mary Brunch;
  • And depart the event with practical takeaways to share with peers and firm leadership.

 

Please Save the Date! Online registration now open.

Information about our conference venue and nearby airports is available here.

For questions about this event, please call 1-800-308-1700

Learn more and register here.

Scan Your Practices: Illinois Supreme Court to Resolve Biometric Privacy Standard

Fingerprinting, retina scans, and voiceprints – practices once reserved for FBI agents, criminals, and Jason Bourne – are now widely used by companies of all sizes. These “biometric identifiers” are collected, often by employers, to provide for workplace efficiencies such as clocking time and ensuring secure access to sensitive locations. Or they may be used by businesses looking to track and identify customers. Whatever the case may be, collection and use of biometric identifiers are landing companies in legal hot water.

There has been a frenzy of class action lawsuits filed under the Illinois Biometric Information Privacy Act (BIPA) in recent weeks, in anticipation of a pending decision from the Illinois Supreme Court regarding the statute’s scope. BIPA provides a roadmap for how to lawfully gather, store, and destroy biometric data. When companies flout these requirements, they expose themselves to legal liability.

Compliance with BIPA is not terribly difficult. A private entity must: 1) develop a written policy, available to the public, that establishes a retention schedule and guidelines for permanently destroying biometric data; 2) provide information to the subject in writing, and obtain a written release before collecting and using biometric information; 3) safely store and prevent disclosure or dissemination of the biometric data to unauthorized third parties; and 4) destroy the biometric data when there is no longer a reason for keeping it, or within three years of the individual’s last interaction with the entity, whichever comes first.

The statute provides that “any person aggrieved by a violation” of these rules can bring suit. The tricky question, which the Illinois Supreme Court will soon answer, is who is a person aggrieved? Is someone aggrieved if a private entity technically violates the statute, but does not otherwise cause harm to the individual through unauthorized dissemination or disclosure of his or her biometric data? If a company forgets to obtain written authorization, but otherwise posts appropriate notices and protects the security of the data, are its employees or customers aggrieved persons?

The answer once appeared favorable to companies. In Rosenbach v. Six Flags Entertainment Corporation, the Second District Appellate Court held that “a plaintiff who alleges only a technical violation of the statute without alleging some injury or adverse effect is not an aggrieved person” under BIPA. In other words, technical violations of the statute, without any accompanying harm, did not pave the way for litigation.

At the end of 2018, however, the First District Appellate Court, in Sekura v. Krishna Schaumburg Tan, Inc., signaled a more relaxed, plaintiff-friendly standard by agreeing that an injury to a privacy right may be enough to maintain a lawsuit. Though that case also involved allegations of actual harm (unauthorized disclosure of the data to third parties), it created a fissure and undermined whatever comfort came from knowing that technical violations alone would not produce viable lawsuits. And, while the federal courts sitting in Illinois continue to dismiss these cases for lack of constitutional standing, the majority of BIPA cases are filed and remain in state court, where state precedent controls. Companies will seldom find themselves in the more favorable federal venue.

Meanwhile, the plaintiffs in Rosenbach appealed to the Illinois Supreme Court, which heard oral arguments on this issue at the end of November 2018. The central question the court will soon answer is what type of harm must be alleged in order for a plaintiff to maintain suit under BIPA: Are allegations of mere technical violations enough, or must a plaintiff allege a more particular harm? BIPA aficionados across the state are waiting with bated breath to learn the answer.

In the meantime, companies would be wise to review their biometric data notification, collection, storage, and destruction practices. In many ways, regardless of Rosenbach’s outcome, companies need to be extremely vigilant in deciding whether to collect biometric data in the first place and, if so, in developing and implementing careful practices to ensure full compliance with BIPA. Even if the Illinois Supreme Court ultimately concludes that technical violations alone are not actionable, shrewd plaintiffs and their attorneys will not hesitate to articulate allegations of harm beyond mere technicalities. Now is the time to scan your practices.

 

© 2019 Much Shelist, P.C.
This post was written by Laura A. Elkayam and James L. Wideikis of Much Shelist, P.C.
Read more on emerging employment law issues at the National Law Review’s Employment Law Resources Page.

Under Developing IRS Guidance (Not Final), an Employer Would Be Able to Fully Satisfy ACA’s Employer Mandate Without Maintaining Group Health Plan

Takeaway Message: A recent IRS notice provides a future path for employers to avoid ACA employer mandate penalties by reimbursing employees for a portion of the cost of individual insurance coverage through an employer-sponsored health reimbursement arrangement (HRA). While the notice is not binding and at this stage is essentially a discussion of relevant issues, it does represent a significant departure from the IRS’s current position that an employer can only avoid ACA employer mandate penalties by offering a major medical plan.

Background: As described in more detail in a previous update, the ACA currently prohibits (except in limited circumstances) an employer from maintaining an HRA that reimburses the cost of premiums for individual health insurance policies purchased by employees in the individual market. Proposed regulations issued by the IRS and other governmental agencies would eliminate this prohibition, allowing an HRA to reimburse the cost of premiums for individual health insurance policies (Individual Coverage HRA) provided that the employer satisfies certain conditions.

The preamble of the proposed regulations noted that the IRS would issue future guidance describing special rules that would permit employers who sponsor Individual Coverage HRAs to be in full compliance with the ACA’s employer mandate (described below). As follow up, the IRS recently issued Notice 2018-88 (the Notice), which is intended to begin the process of developing guidance on this issue.

On a high level, the ACA’s employer mandate imposes two requirements in order to avoid potential tax penalties: (1) offer health coverage to at least 95 percent of full-time employees (and dependents); and (2) offer “affordable” health coverage that provides “minimum value” to each full-time employee (the terms are defined by the ACA and are discussed further in these previous updates).

Offering Health Coverage to at Least 95 Percent of Full-Time Employees: Both the proposed regulations and Notice provide that an Individual Coverage HRA plan constitutes an employer-sponsored health plan for employer mandate purposes. As a result, the proposed regulations and Notice provide that an employer can satisfy the 95 percent offer-of-coverage test by making its full-time employees (and dependents) eligible for the Individual Coverage HRA plan.

Affordability: The Notice indicates that an employer can satisfy the affordability requirement if the employer contributes a sufficient amount of funds into each full-time employee’s Individual Coverage HRA account. Generally, the employer would have to contribute an amount into each Individual Coverage HRA account such that any remaining premium costs (for self-only coverage) that would have to be paid by the employee (after exhausting HRA funds) would not exceed 9.86 percent (for 2019, as adjusted) of the employee’s household income. Because employers are not likely to know the household income of their employees, the notice describes that employers would be able to apply the already-available affordability safe harbors (described in more detail here) to determine affordability as it relates to Individual Coverage HRAs. The Notice also describes new safe harbors for employers that are specific to Individual Coverage HRAs, intending to further reduce administrative burdens.

Minimum Value Requirement: The Notice explains that an Individual Coverage HRA that is affordable will be treated as providing minimum value for employer mandate purposes.

Next Steps: Nothing is finalized yet. Employers are not permitted to rely on the proposed regulations or the Notice at this time. The proposed regulations are aimed to take effect on January 1, 2020, if finalized in a timely matter. The final regulations will likely incorporate the special rules contemplated by the Notice (perhaps with even more detail). Stay tuned.

 

© 2019 Foley & Lardner LLP
This post was written by Jessica M. Simons and Nick J. Welle of Foley & Lardner LLP.