Not-So-Free Shipping: Yeezy Brand to Pay Us$950,000 Over Late Shipping Under California Consumer Protection Laws

Supply chain disruptions, coupled with a surge in online shopping, have led to overstretched companies and impatient customers. The supply chain crisis1 continues to cause shipping delays across the nation as companies struggle to work around pandemic-related constraints. A recent case in the Los Angeles County Superior Court has put companies and individuals who advertise or conduct business, online or otherwise, in California on notice that failure to adequately communicate with customers regarding accurate shipping times could result in consumer protection law liability for missed shipment deadlines.

On 8 November 2021, the Los Angeles County District Attorney’s Office announced that the high-end sneaker and retail clothing companies, Yeezy Apparel LLC and Yeezy LLC (collectively, Yeezy), will pay US$950,000 to settle a civil consumer protection lawsuit. The lawsuit, filed by district attorneys in Los Angeles, Alameda, Sonoma, and Napa counties, alleged that Yeezy engaged in unlawful business conduct under the California Business and Professions Code (BPC) for failing to ship items in a timely manner and false advertising.2

THE LAWSUIT – CALIFORNIA V. YEEZY APPAREL LLC

In its complaint, filed on 22 October 2021, the state of California alleged that sneaker and apparel brand Yeezy, owned by entertainer Ye (previously known as Kanye West), advertised on its website that customers could expect two to three business days for order processing and an additional three to five days for shipping, but in fact failed to send products within 30 days after certain orders were placed, in violation of California BPC Sections 17538 and 17500.3

Under Section 17538, companies must ship goods within 30 days4 of the customer placing an order unless otherwise conspicuously stated in the advertisement or on the website. Upon determining that a shipment may be untimely, a company may (1) provide a full refund,5 (2) send a written notice to the buyer that offers a full refund and either details the expected duration of the delay or proposes product substitution,6 or (3) ship a substitute product of equivalent or superior quality to the buyer with an option for the buyer to return the product.7

Section 17500 governs untrue or misleading statements, including a prohibition against the advertisement of goods or services with the intent to not sell them as advertised. The statute bars “any advertising . . . which is untrue or misleading.”8 Further, the statute prohibits advertisements that the company either knew or should have known would be misleading.9 Violation of Section 17500 can result in a fine of up to US$2,500, up to six months of imprisonment, or both.10

The state of California’s claims against Yeezy ultimately were resolved by a settlement agreement in which Yeezy agreed to refund future customers whose items are not timely shipped, refrain from making any false or misleading statements regarding shipping times, and pay US$950,000 in civil penalties.

KEY TAKEAWAYS

  • If you are expecting significant shipping delays, promptly send written notices to customers explaining the expected duration of the delay (expressed using a specific number of days or weeks) and offering to provide a refund upon request.
  • If proposing to substitute goods or services, adequately describe the substitute goods or services, fully indicating how the substitution differs from the original order.
  • Provide a toll-free telephone number or another free method for the buyer to request a refund.
  • Include a clear and conspicuous disclosure statement in your advertisements or on your website that notifies customers that shipping times may be delayed due to COVID-19 or other supply chain-related factors.11

With a thorough and proactive response to potentially delayed shipments, retailers can avoid costly litigation and financial penalties and continue to build transparent and reliable relationships with customers.

FOOTNOTES

1 For more information on supply chain disruptions, see Melissa J. Tea and Sarah A. Decker, No Supplies in the Chain, K&L GATES (Oct. 20, 2021).

2 Complaint, California v. Yeezy Apparel LLC, No. 21STCV38971 (Cal. Super. Ct. Oct. 22, 2021).

3 Id. at *3–4. According to the complaint, Yeezy’s alleged untimely shipments had been occurring for at least four years.

4 If the customer applies for an open-end credit plan at the same time as placing an order for products that are to be purchased on credit, the company will have 50 days to comply with § 17538, rather than 30.

5 Cal. Bus. & Prof. Code § 17538(a)(2).

6 Id. § 17538(a)(3).

7 Id. § 17538(a)(4).

8 Cal. Bus. & Prof. Code § 17500.

9 See id.

10 See id.

11 Notably, although Ye partnered with sportswear brand Adidas to sell Yeezy products, Adidas was not included as a defendant in the lawsuit. Adidas displayed a disclaimer on its website that informed customers that shipping times would be delayed due to COVID-19’s impact and related federal, state, and local mandates.

Copyright 2021 K & L Gates

Article By Melissa J. Tea and Kelsi E. Robinson of

K&L Gates

For more articles on supply chain, visit the NLR Utilities & Transport section

Text Messaging for Lawyers: Building Stronger Client Relationships

In today’s world of instant gratification and text savviness, lawyers should consider changing the way they communicate with clients. Some people detest answering calls, and with the rise of robocalls, this aversion is only getting worse with all generations. Add in the fact that today’s consumer expects a response within seconds, it’s clear that text messaging is becoming the new way of communication for most businesses.

For lawyers that are accustomed to emailing their clients, this may come as a curveball. Especially, considering that the legal industry has an average open rate of 18.30 percent for emails. Phone calls and emails are no longer the preferred method of communication, which is why you should be texting your clients.

Benefits of Texting

Marketers have been studying the effectiveness of text messaging and spreading the news of its benefits so much that 62 percent of business marketers plan to use automated text messaging in the next year. What is it that has these marketing experts so convinced?

  • Change of Preference – The vast majority of consumers prefer to communicate via text instead of calls or email. If a business is trying to send a message to prospects, it’s important to know it’s actually going to be seen.
  • Faster Delivery – When time is of the essence, delivering a message via text is the fastest way to ensure your recipient sees your communication. Email open rates are at an all-time low, so those messages may go days without being seen, if they’re seen at all.
  • Faster Response – With faster delivery comes faster response times. Studies have shown text response rates are eight times faster than that of email.

Business Text Messaging

Business owners have already started incorporating text messaging in both their marketing and client retention strategies. Studies have shown that the new generations will ignore calls, even from known contacts, and typically only use email to reset passwords and register for services. As a workaround, businesses are enlisting the help of text messaging services to reach out to potential customers.

Instead of only investing in generating prospects, more and more businesses are using technology to help retain customers by enabling text help and communication. This feature is often embedded on the business’s website and allows the customer to text a business directly from their phone for quick, personalized help.

Text messaging has increasingly grown in popularity across several industries. Studies show that businesses that respond to a customer’s inquiry within five minutes increase their chances of converting that prospect by nine times. In addition, studies show that the majority of consumers will go to the business that responds first, regardless of affiliation, pricing, or worthiness.

With statistics like this, industries across the spectrum are seeing the need for lightning-fast responses which can only be achieved through text messaging. The legal industry is no exception.

Text Messaging for Lawyers

The legal industry is not one that has historically been quick to respond to change, so it’s no wonder that some lawyers are hesitant to adopt text messaging in their communication process. Common objections to this method of communication seem to be propriety and confidentiality, while others are admittingly stuck in their old ways.

While the third issue is difficult at best to overcome, there are clear solutions and arguments for the first two which are detailed below.

Is It Appropriate to Text Clients?

This question comes up often when lawyers are trying to decide if text messaging is a professional mode of communication. However, instead of viewing it from a proprietary standpoint, a lawyer should be asking the legal duty they have to communicate to their client efficiently. As the younger generations are coming of age and becoming clients, it’s important to adapt to their preferred mode of communication.

If a client only has a cell phone and no easy access to email, the lawyer should accommodate the client and reach out to them in the best way possible. For most, that means adopting text messaging as a primary mode of communication.

Are Text Messages Confidential?

Text messages may not be confidential in nature, creating challenges for texting clients. Instead of avoiding text messaging due to this potential issue, lawyers should ask their clients to use screen locks and other security features on their phones. In most cases, clients are just as dedicated to protecting their privacy as their lawyer.

While expectations should be discussed in advance, it’s easy for conversations to slip into gray areas. If a conversation may be veering into a confidentiality issue, the lawyer may suggest switching to a phone or in-person conversation.

Best Practices for Text Messaging Clients

As lawyers make the transition to using text messages more often, the standards for best practices will grow. Thus far, the top tips for texting clients include:

  • Adopt a legal practice management software that provides users with a business number to text clients within the platform and safely stores all correspondences with each contact.
  • Never negotiate terms of attorney-client relationships or anything that feels like a grey area. Remember: business text messages are supposed to be quick and informal.
  • Discuss expectations and appropriate topics for texting. Make sure clients understand some topics are off-limits for text messaging and should be saved for in-person meetings.

Keeping with the Times

While many lawyers may remember calling their client’s on wall-mounted phones and landlines, times have quickly changed. The legal industry has to get on board if it’s going to serve clients effectively and retain clients.

Despite the concerns, the benefits of text messaging outweigh the cons, and law firms will likely see an increase in client retention and improved communication once they adopt text messaging. With a minimal upfront effort, lawyers can start texting their clients while maintaining confidentiality and professionalism, allowing clients to receive the best, and most convenient, representation possible.

 

This article was prepared by PracticePanther. For more articles about client relations, please see here.

Tennessee Enacts Law Restricting Enforcement of Vaccine Mandates

On November 10, 2021, Tennessee Governor Bill Lee announced that he would sign legislation that addresses various COVID-19–related issues, including vaccine mandates and mask mandates. The law is effective immediately. There are several major issues for employers regarding COVID-19 prevention measures addressed in the new law. Below is an overview of the law’s key points.

Vaccine Mandates

The law does not prohibit private employers from adopting vaccine mandates. It seeks, in an indirect manner, to restrict employers from mandating vaccines… The law focuses on prohibiting employers from requiring proof of vaccination status. The express language of the new law is as follows: “A private business, governmental entity, school, or local education agency shall not compel or otherwise take an adverse action against a person to compel the person to provide proof of vaccination if the person objects to receiving a COVID-19 vaccine for any reason.”

It would appear that the law potentially creates a perverse “don’t ask/don’t tell” incentive for both employers and employees. If an employee openly objects to receiving a vaccine, an employer can still ask why—to determine if there is a bona fide Title VII religious or Americans with Disabilities Act (ADA) accommodation issue—but the employer would appear to be able to discharge or discipline the employee for the employee’s objection (absent accommodation issues). What a Tennessee employer cannot to do is ask employees for proof of vaccination status and then take an adverse action if the employees fail or refuse to provide proof of their vaccination status. By contrast, an employee might have an incentive to keep quiet and not answer (or lie) if asked about vaccination status.

Mask Mandates

An earlier version of the legislation sought to prohibit mask mandates entirely. The version that has become law limits the prohibition on mask mandates to government employers: “An employer that is a governmental entity shall not require an employee to wear a face covering as a term or condition of employment, or take an adverse action against an employee for failing to wear a face covering, unless severe conditions exist at the time the requirement is adopted and the requirement is in effect for not more than fourteen (14) days.” (Emphasis added.)

Unemployment Benefits

The law allows employees discharged for refusing to be vaccinated to receive unemployment benefits—and it is retroactive.

Medicare and Medicaid Vaccine Requirements

The law excludes from its coverage healthcare providers that are subject to Medicare or Medicaid vaccine requirements.  On November 5, 2021, the Centers for Medicare & Medicaid Services published their interim final vaccine mandate rules.

Exemptions

The new law allows employers, private businesses, schools, and state and local governmental entities to apply to the state comptroller for exemption from the requirements of the statute if compliance would result in a loss of federal funding. This exemption process would allow employers that are federal contractors to seek exemption.

Federal Emergency Temporary Standard

The law may set up a potential showdown between the Tennessee Occupational Safety and Health Administration (TOSHA) and the federal Occupational Safety and Health Administration (OSHA) over the implementation and enforcement of OSHA’s recently issued COVID-19 Vaccination and Testing Emergency Temporary Standard (ETS) for large employers (100 or more employees). The Tennessee law’s prohibition on compelling employees to provide proof of vaccination status is in direct conflict with the federal ETS (which requires employers to determine the vaccination status of each employee, including requiring each vaccinated employee to provide “acceptable proof of vaccination status”).

State OSHA plans, such as Tennessee’s, have 30 days to adopt the federal standard. However, the Tennessee law includes a provision that prohibits any state funds from being allocated to implement or enforce any “federal law, executive order, rule, or regulation that mandates the administration of a COVID-19 countermeasure” (including vaccines, testing, and masking). TOSHA receives funding from both the state government and the federal government. It is unclear whether TOSHA will be eligible to seek an exemption as described above. While the language of the exemption provision would appear to apply to TOSHA, the statements of proponents of the Tennessee law during the special session of the Tennessee General Assembly during which the legislation was approved made it clear that their efforts were aimed at curbing the impact of the federal ETS in Tennessee.

On Monday, November 8, 2021, TOSHA issued the following statement:  “Tennessee OSHA is currently reviewing the latest OSHA Emergency Temporary Standard regarding vaccines in the workplace.  As the agency did with the prior ETS, staff will review the OSHA standards and then determine how Tennessee will move forward. This process could take multiple weeks to complete.”

Key Takeaways

Business groups were strongly opposed to this new law, and that opposition contributed to the legislative shift away from an outright ban on vaccine mandates and to the narrowing of the anti-mask provision. There are still questions to be answered regarding this new law, including whether it will be challenged in court, what the process for requesting an exemption will look like, and whether Tennessee will adopt the federal COVID-19 Vaccination and Testing ETS.

This article was written by William Rutchow of Ogletree Deakins Law firm. For more information regarding vaccine mandate challenges, please see here.

Mandatory Retirement – Can You Toss the Old Guy Out?

A common trope of a 1930’s film is the callous boss handing a wizened older Wallace Barry looking man a gold watch and showing him the door as a young up-and-comer sits himself down at his desk. Is mandatory retirement legal in 2021?

With a few exceptions, the answer is no. For those employers covered by the Federal Age Discrimination in Employment Act (ADEA), it is unlawful to discriminate against employees who are 40 or more years of age. A mandatory retirement age is a form of discrimination since it is tantamount to an involuntary termination. That is the case even where the employer has a retirement policy to which the employee agrees when hired.

The ADEA has two exceptions:

A.   The first exception allows a mandatory retirement age if the employer can show that age is a “bona fide occupational qualification;” (BFOQ). Generally, to establish a BFOQ, the employer must demonstrate an objective safety issue such as police or fire fighter work.

B.    The second exception applies to workers in a “bona fide executive or high policymaking position”. This does not generally apply to every executive or vice president, but only those who have overall authority over the enterprise or a portion such as those occupying “c-suite” positions or who lead divisions of a larger company. Furthermore, the executive or policy maker must have been in such a position for at least two years before retirement and must be entitled to receive a pension or similar retirement benefit of at least $44,000 per year post-retirement.

The issue of mandatory retirement becomes more complex when the older worker is an equity partner and not technically an employee. This often arises in the context of law, accounting, and consulting firms. The ADEA only protects employees and not partners, who are the owners of the enterprise. In 2003, the U.S. Supreme Court created a six-part test for determining whether a shareholder of a medical practice was an employee or an owner. Some federal courts have extended the protection of the ADEA to partners particularly where the partnership is large and the partner has minimal authority and autonomy. Those courts found little to distinguish the ordinary partner in a large partnership from the ordinary employee.

While an employer may not enforce a mandatory retirement policy or use age as a criteria for termination, subject to the limited exceptions described above, the courts cut some slack regarding asking an older employee about plans for retirement. Whether such an inquiry is lawful will depend on how and why the question is asked. If asked so that the employer can engage in succession planning, the question is likely lawful. However, if it is posed as a not-so-subtle suggestion that the employer wants to employee to leave because he is older, it might be regarded as evidence of age bias.

© 2021 Foley & Lardner LLP

Article By Bennett L. Epstein of Foley & Lardner LLP

For more articles on retirement, visit the NLR Labor & Employment section.

POT HOLE: Cannabis Companies Getting Caught in the Mini-TCPA Trap

One of the biggest TCPA trends earlier in the year was the onslaught of suits against cannabis companies related to marketing texts.

After my big interview with the National Cannabis Industry Association, those filings went down as dispensary TCPA awareness went up. (You’re welcome.)

But the trend of high dollar TCPA class suits against pot dealers seems to have moved South for the winter–down to the Sunshine State.

We’ve picked up a few new recent filings brought under the Florida Telephone Solicitation Act (Mini-TCPA). The suits allege that the blast text platforms used to send marketing texts meet the state’s extremely broad definition of an autodialer and require express written consent (which is allegedly missing).

For instance in the latest suit filed earlier today, the allegations focus on the automatic selection and dialing of numbers: Defendant utilized a computer software system that automatically selected and dialed Plaintiff’s and the Class members’ telephone numbers.

Notably this suit appears to be brought against a cannabis delivery platform and not an actual dispensary.

Read all about it here: Herban Delivery

Per usual the suit seeks to represent all individuals receiving similar messages in the state of Florida. It is brought by the folks at Shamis and Gentile who file a lot of these things.

© Copyright 2021 Squire Patton Boggs (US) LLP

Article By Eric J. Troutman of Squire Patton Boggs (US) LLP

For more articles on the TCPA, visit the NLR Communications, Media & Internet section.

H.R. 3684: Infrastructure Investment and Jobs Act

On November 5, the U.S. House of Representatives approved a $1.2 trillion infrastructure spending bill that will make historic investments in core infrastructure priorities including roads and bridges, rail, transit, ports, airports, the electric grid, and broadband.

The legislation, titled the Infrastructure Investment and Jobs Act (“IIJA”), will have major implications for states and municipalities of all sizes, as well as the entities involved in responding to governments’ needs for hard and cyber infrastructure.

Improvements to roadways, ports and mass transit are the focus of the legislation and the majority of the funding is targeted at these traditional hard infrastructure projects. U.S. Senator Rob Portman (R-OH) has championed the massive infrastructure bill and pushed for its passage.

This weekend, Senator Portman noted the massive impact the IIJA will have on Ohio, highlighting the bill’s bridge investment program which will award competitive grants to certain governmental entities to improve the condition of bridges. “This additional federal funding means we are one step closer to a solution for the Brent Spence Bridge,” Portman said.

The Brent Spence Bridge, which connects Cincinnati, Ohio with Covington, Kentucky has one of the busiest trucking routes in the nation. Questions about its safety and long shutdowns for repair have long concerned area residents as well as the business owners responsible for the more than $400 billion of freight which passes over the bridge every year.

While hard infrastructure priorities like bridge maintenance, port modernization, freight rail, and highway improvements account for a majority of the new spending appropriated by the bill (which totals $550 billion over five years), a sizable portion is dedicated to the expansion of broadband networks and the improvement of cybersecurity.

The new cybersecurity grant program and record-setting investments in broadband development could be game changing for state and local leaders wishing to modernize and protect their communities in these ways.

The U.S. Senate approved the IIJA in August 2020. Friday’s vote means the infrastructure bill will now move to the desk of President Joe Biden, who has indicated a bill signing ceremony will happen soon. Answers to questions about the billions of dollars in new infrastructure grants and programming are below.

Question: How will the money be distributed? 

Answer: The IIJA contains formulaic allocations of funds as well as earmarks and competitive grants. Some categories and sub-categories contain both non-competitive and competitive grants.

  • NON-COMPETITIVE FUNDING ALLOCATION PROCESSES
    • Formulas dictated by the bill are based on criteria like state population, or, potentially for specific items, users (ex: transit funds potentially determined by ridership)
    • Once the money is directed to the states, the local bureaucrats are able to make the important decisions about which projects deserve the funding.
    • States can also decide to allocate some of the funding to the county or city governments within their state
  • EARMARKS AND COMPETITIVE GRANT PROCESSES
    • Earmarks override state plans for how infrastructure funds should be spent. “Earmarks come out of the money that the state was going to get anyway.”
    • Localities must compete for Competitive Grants via an application process. The U.S. Department of Transportation’s Discretionary Grant Process is officially outlined on their website.
    • Generally, the award of competitive grants can be influenced by advocates who confer with decisionmakers in the Executive Branch about the merits of certain proposals.

Question: Which projects will qualify for funding?

Answer: The bill details specific funding streams for the specific projects included in its provisions. Categories of projects included in the $550 billion in new spending are below.

  • Roads, Bridges, & Major Projects: $110B — Funds new, dedicated grant program to replace and repair bridges and increases funding for the major project competitive grant programs. Preserves the 90/10 split of federal highway aid to states.
  • Passenger and Freight Rail: $66B — Provides targeted funding for the Amtrak National Network for new service and dedicated funding to address repair backlogs. Increases funding for freight rail and safety.
  • Safety and Research: $11B — Addresses highway, pedestrian, pipeline, and other safety areas (highway safety accounts for the bulk of this funding).
  • Public Transit: $39.2B — Funds nation’s transit system repair backlog, which includes buses, rail cars, transit stations, track, signals, and power systems. This allocation also includes money to create new bus routes and increase accessibility to public transit for those with physical mobility challenges.
  • Broadband: $65B — Funds grants to states for broadband deployment and other efforts to address access issues in rural areas and low-income communities. Expands eligible private activity bond projects to include broadband infrastructure.
  • Airports: $25B — Increases Airport Improvement grant amounts for runways, gates, & taxiways and authorizes a new Airport Terminal Improvement program.
  • Ports and Waterways: $17.4B — Provides funding for waterway and coastal infrastructure, inland waterway improvements, port infrastructure, and land ports of entry through the Army Corps, DOT, Coast Guard, the GSA, and DHS.
  • Water Infrastructure: $54B — Provides a $15 billion for lead service line replacement and $10 billion to address PFAS in water, in addition to other items.
  • Power and Grid: $65B — Funds grid reliability and resiliency projects and support for a Grid Development Authority; critical minerals and supply chains for clean energy technology; key technologies like carbon capture, hydrogen, direct air capture, and energy efficiency; and energy demonstration projects from the bipartisan Energy Act of 2020.
  • Resiliency: $46B — Funds cybersecurity projects to address critical infrastructure needs, flood mitigation, wildfire, drought, coastal resiliency, waste management, ecosystem restoration, and weatherization.
  • Low-Carbon and Zero-Emission School Buses & Ferries: $7.5B — Funds and authorizes the adoption of low-carbon and zero-emission school buses, including through hydrogen, propane, LNG, compressed natural gas, biofuel, and electric technologies. Provides support for a pilot program for low emission ferries and rural ferry systems.
  • Electric Vehicle Charging: $7.5B — Funds alternative fuel corridors and a national build out of electric vehicle charging infrastructure. The federal funding will have a particular focus on rural and/or disadvantaged communities.
  • Reconnecting Communities: $1B — Provides dedicated funding for planning, design, demolition, and reconstruction of street grids, parks, or other infrastructure (funding is especially targeted at infrastructure which is deteriorating due to age).
  • Addressing Legacy Pollution: $21B — Funds to clean up brownfield and superfund sites, reclaim abandoned mine lands, and plug orphan oil and gas wells, improving public health and creating good-paying jobs.

Article By Katherine M. Caprez of Roetzel & Andress LPA

For more legislative and legal news, read more from the National Law Review.

©2021 Roetzel & Andress

The National Law Review Launches ‘Legal News Reach’ Podcast, Featuring Experts in the Legal Marketing Industry

The National Law Review is excited to announce the launch of Legal News Reach, a new bi-weekly podcast that features guests with expertise in legal marketing, SEO, law firm best practices, and more. Hosted by NLR’s Editorial Manager Rachel Popa, and Web Content Specialist Jessica Scheck, Legal News Reach highlights for listeners the latest legal marketing strategies to help them stand out and stand firm in the legal industry.

The first season of the podcast focuses on topics such as hiring and marketing in the legal industry, legal marketing budgets post COVID-19, the attorney-client relationship, diversity and inclusion initiatives (D&I) and law firm pro bono initiatives.

In the inaugural episode, Rachel and Jess discussed marketing tactics for law firms in the post-COVID work environment with Melanie Trudeau, Director of New Business & Digital Strategies at Jaffe PR.

“A few things I would like to see stick around would be giving some more autonomy to attorneys to just do their work effectively from a home office. They don’t have to spend all that time getting ready to go to work, and juggling childcare. If you can create a lot more flexibility in the work environment, that’s going to make firms competitive,” Ms. Trudeau said.

To adjust to the challenges of COVID-19, the legal industry pivoted and made adjustments as to how they delivered their services and how attorneys work. However, as the pandemic continues, law firms that remain flexible will find it easier to stand out from their competitors. Legal News Reach provides a platform for legal professionals to learn from the top experts in the industry, as well as showcase their own expertise. Episodes are published and featured on the National Law Review website, which today is one of the highest volume business law publications in the US after over 10 years of steady growth.

“Law firm marketers have a wealth of knowledge and experience that’s often unique to the legal industry. Legal News Reach provides a forum for them to share their insights, discuss industry trends, and showcase examples of real-world experience,” Ms. Trudeau said.

Pivoting to changes brought on by the COVID-19 pandemic carried over into the second episode of the podcast, with Rachel and Jess discussing the COVID-19 pandemic’s impact on legal marketing budgets with Guy Alvarez, Founder and Chief Engagement Officer of Good2bSocial.

“What we’re seeing is really a shift in terms of budget from the real world into the virtual world. And as a result, we’re seeing law firms spend a lot of their budget on digital marketing, ways that they can enhance their website, and how they can communicate to their clients and prospects their knowledge, their experience and basically stay top of mind and develop strategic relationships,” Mr. Alvarez said.

Prior to the pandemic, many firms focused on live events, conferences and trade events. Now that meeting in person is more difficult, firms are pivoting to hosting more webinars and podcasts. Both lawyers and legal marketers can pick up tips from legal marketing leaders on Legal News Reach on how to stay connected with their clients, and highlight their firm’s unique value proposition.

“The National Law Review’s Legal News Reach podcast is a great platform for lawyers and legal marketers to learn the latest trends affecting the industry,” Mr. Alvarez said.

In the third episode of the Legal News Reach podcast, Rachel and Jess spoke with Baker, Donelson, Bearman, Caldwell & Berkowitz President and Chief Operating Officer Jennifer Keller, and Chief Marketing and Business Development Officer Adam Severson about law firm management, D&I initiatives and attorney-client relationship building.

“I think from the law firm management perspective, there’s a lot of interesting work going on right now in analyzing the changes in law firm management the last 18 months have brought us. I think what you’re going to see looking 5 to 10 years ahead is younger, more diverse teams of leadership in firms,” Ms. Keller said.

“D&I is one of those areas that I think we all recognize that we can all be better. It’s an area that I think has been important for everybody. Without a clear roadmap and some specificity to it, we’re not going to get to where we need to be as a firm and candidly, as an industry,” Mr. Severson said.

Despite the challenges brought on by the COVID-19 pandemic, many law firms found silver linings as well, embracing new diversity initiatives that will have an impact for years to come. Legal News Reach builds off the National’s Law Review’s audience of over 2 million legal and business professionals to highlight the best practices of leading-edge law firms.

“It was great to be featured in the Legal News Reach podcast to share some of the great things Baker Donelson is doing. The National Law Review’s audience has tremendous reach so it was great to be highlighted,” Mr. Severson said.

The first four episodes of the first season of Legal News Reach are currently available on natlawreview.com, as well as major podcast platforms such as Spotify, Apple Podcasts, Google Podcasts, Breaker, Anchor.fm, Pocket Casts, Radio Public, Soundcloud and more. Listeners can also find Legal News Reach podcast clips on the National Law Review YouTube channel. The first season of the podcast includes 10 episodes, with the second season planned to launch in 2022.

For more articles on legal marketing, visit the NLR Law Office Management section.

The Confidentially Marketed Public Offering for the Smaller Reporting Company

What is it?

A Confidentially Marketed Public Offering (“CMPO”) is an offering of securities registered on a shelf registration statement on Form S-3 where securities are taken “off the shelf” and sold when favorable market opportunities arise, such as an increase in the issuer’s price and trading volume resulting from positive news pertaining to the issuer.  In a CMPO, an underwriter will confidentially contact a select group of institutional investors to gauge their interest in an offering by the issuer, without divulging the name of the issuer.  If an institutional investor indicates its firm interest in a potential offering and agrees not to trade in the issuer’s securities until either the CMPO is completed or abandoned, the institutional investor will be “brought over the wall” and informed on a confidential basis of the name of the issuer and provided with other offering materials.  The offering materials made available to investors are typically limited to the issuer’s public filings, and do not include material non-public information (“MNPI”).  By avoiding the disclosure of MNPI, the issuer mitigates the risk of being required to publicly disclose the MNPI in the event the offering is terminated.  Once brought over the wall, the issuer, underwriter and institutional investors will negotiate the terms of the offering, including the price (which is usually a discount to the market price) and size of the offering.  Once the offering terms are determined, the issuer turns the confidentially marketed offering into a public offering by filing a prospectus supplement with the Securities and Exchange Commission (“SEC”) and issuing a press release informing the public of the offering.  Typically, this occurs after the close of markets.  Once public, the underwriters then market the offering broadly to other investors, typically overnight, which is necessary for the offering to be a “public” offering as defined by NASDAQ and the NYSE (as discussed further below).  Customarily, before markets open on the next trading day, the issuer informs the market of the final terms of the offering, including the sale price of the securities to the public, the underwriting discount per share and the proceeds of the offering to the issuer, by issuing a press release and filing a prospectus supplement and Current Report on Form 8-K with the SEC.  The offering then closes and shares are delivered to investors and funds to the issuer, typically two or three trading days later.

What Type of Issuer Can Conduct a CMPO and How Much Can an Issuer Raise?

To be eligible to conduct a CMPO, an issuer needs to have an effective registration statement on Form S-3, and is therefore only available to companies that satisfy the criteria to use such form.  For issuers that have an aggregate market value of voting and non-voting common stock held by non-affiliates of the issuer (“public float”) of $75M or more, the issuer can offer the full amount of securities remaining available for issuance under the registration statement.  Issuers that have a public float of less than $75M will be subject to the “baby shelf rules”.   In a CMPO, issuers subject to the baby shelf rules can offer up to one-third of their public float, less amounts sold under the baby shelf rules in the trailing twelve month period prior to the offering.  To determine the public float, the issuer may look back sixty days from the date of the offering, and select the highest of the last sales prices or the average of the bid and ask prices on the exchange where the issuer’s stock is listed.  For an issuer subject to the baby shelf rules, the amount of capital that the issuer can raise will continually fluctuate based on the issuer’s trading price.

What Exchange Rules Does an Issuer Need to Consider?

The public offering period of a CMPO must be structured to satisfy the applicable NASDAQ or New York Stock Exchange criteria for a “public offering”.  In the event that the criteria are not satisfied, rules requiring advance shareholder approval for private placements where the offering could equal 20% or more of the pre-offering outstanding shares may be implicated.  Moreover, a sale of securities in a transaction other than a public offering at a discount to the market value of the stock to insiders of the issuer is considered a form of equity compensation and requires stockholder approval.  Nasdaq also requires issuers to file a “listing of additional shares” in connection with a CMPO.

Advantages and Disadvantages of CMPOs

There are a number of advantages of a CMPO compared to a traditional public offering, including the following:

  • A CMPO offers an issuer the ability to raise capital on an as needed basis as favorable market conditions arise through a process that is much faster than a traditional public offering.
  • The shares issued to investors in a CMPO are freely tradeable, resulting in more favorable pricing for the issuer.
  • In a CMPO, the issuer can determine the demand for its securities on a confidential basis without market knowledge.  If terms sought by investors are not agreeable to the issuer, the issuer can abandon the CMPO, generally without adverse consequences on its stock price.
  • If properly structured as a public offering, a CMPO will negate the requirement to obtain stockholder approval for the transaction under applicable Nasdaq and NYSE rules.

Disadvantages of conducting a CMPO include:

  • To conduct a CMPO, an issuer must be eligible to use Form S-3 and have an effective registration statement on file with the SEC.
  • Issuers subject to the baby shelf rules may be limited in the amount of capital they can raise in a CMPO.
  • In the event a CMPO is abandoned, investors that have been “brough over the wall” and received MNPI concerning the issuer may insist that the issuer publicly disclose such information to enable such investors to publicly trade the issuer’s securities.

This article is for general information only and may not be relied upon as legal advice.  Any company exploring the possibility of a CMPO should engage directly with legal counsel.

© Copyright 2021 Stubbs Alderton & Markiles, LLP
For more articles on the NASDAQ and NYSE, visit the NLR Financial, Securities & Banking section.

OFAC Reaffirms Focus on Virtual Currency With Updated Sanctions Law Guidance

On October 15, 2021, the US Department of the Treasury’s Office of Foreign Asset Control (OFAC) announced updated guidance for virtual currency companies in meeting their obligations under US sanctions laws. On the same day, OFAC also issued guidance clarifying various cryptocurrency-related definitions.

Coming on the heels of the Anti-Money Laundering Act of 2020—and in the context of the Biden administration’s effort to crackdown on ransomware attacks—the recent guidance is the latest indication that regulators are increasingly focusing on virtual currency and blockchain. In light of these developments, virtual currency market participants and service providers should ensure they are meeting their respective sanctions obligations by employing a “risk-based” anti-money laundering and sanctions compliance program.

This update highlights the government’s continued movement toward subjecting the virtual currency industry to the same requirements, scrutiny and consequences in cases of noncompliance as applicable to traditional financial institutions.

IN DEPTH

The release of OFAC’s Sanctions Compliance Guidance for the Virtual Currency Industry indicates an increasing expectation for diligence as it has now made clear on several occasions that sanctions compliance “obligations are the same” for virtual currency companies who must employ an unspecified “risk-based” program (See: OFAC Consolidated Frequently asked Questions 560). OFAC published it with the stated goal of “help[ing] the virtual currency industry prevent exploitation by sanctioned persons and other illicit actors.”

With this release, OFAC also provided some answers and updates to two of its published sets of “Frequently Asked Questions.”

FAQ UPDATES (FAQ 559 AND 546)

All are required to comply with the US sanctions compliance program, including persons and entities in the virtual currency and blockchain community. OFAC has said time and again that a “risk-based” program is required but that “there is no single compliance program or solution suitable for all circumstances” (See: FAQ 560). While market participants and service providers in the virtual currency industry must all comply, the risk of violating US sanctions are most acute for certain key service providers, such as cryptocurrency exchanges and over-the-counter (OTC) desks that facilitate large volumes of virtual currency transactions.

OFAC previously used the term “digital currency” when it issued its first FAQ and guidance on the subject (FAQ 560), which stated that sanctions compliance is applicable to “digital currency” and that OFAC “may include as identifiers on the [Specially Designated Nationals and Blocked Persons] SDN List specific digital currency addresses associated with blocked persons.” Subsequently, OFAC placed certain digital currency addresses on the SDN List as identifiers.

While OFAC previously used the term “digital currency,” in more recent FAQs and guidance, it has used a combination of the terms “digital currency” and “virtual currency” without defining those terms until it released FAQ 559.

In FAQ 559, OFAC defines “virtual currency” as “a digital representation of value that functions as (i) a medium of exchange; (ii) a unit of account; and/or (iii) a store of value; and is neither issued nor granted by any jurisdiction.” This is a broad definition but likely encompasses most assets, which are commonly referred to as “cryptocurrency” or “tokens,” as most of these assets may be considered as “mediums of exchange.”

OFAC also defines “digital currency” as “sovereign cryptocurrency, virtual currency (non-fiat), and a digital representation of fiat currency.” This definition appears to be an obvious effort by OFAC to make clear that its definitions include virtual currencies issued or backed by foreign governments and stablecoins.

The reference to “sovereign cryptocurrency” is focused on cryptocurrency issued by foreign governments, such as Venezuela. This is not the first time OFAC has focused on sovereign cryptocurrency. It ascribed the use of sovereign backed cryptocurrencies as a high-risk vector for US sanctions circumvention. Executive Order (EO) 13827, which was issued on March 19, 2018, explicitly stated:

In light of recent actions taken by the Maduro regime to attempt to circumvent U.S. sanctions by issuing a digital currency in a process that Venezuela’s democratically elected National Assembly has denounced as unlawful, hereby order as follows: Section 1. (a) All transactions related to, provision of financing for, and other dealings in, by a United States person or within the United States, and digital currency, digital coin, or digital token, that was issued by, for, or on behalf of the Government of Venezuela on or after January 9, 2018, are prohibited as of the effective date of this order.

On March 19, 2018, OFAC issued FAQs 564, 565 and 566, which were specifically focused on Venezuela issued cryptocurrencies, stating that “petro” and “petro gold” are considered a “digital currency, digital coin, or digital token” subject to EO 13827. While OFAC has not issued specific FAQs or guidance on other sovereign backed cryptocurrencies, it may be concerned that a series of countries have stated publicly that they plan to test and launch sovereign backed securities, including Russia, Iran, China, Japan, England, Sweden, Australia, the Netherlands, Singapore and India. With the release if its most recent FAQs, OFAC is reaffirming that it views sovereign cryptocurrencies as highly risky and well within the scope of US sanctions programs.

The reference to a “digital representation of fiat currency” appears to be a reference to “stablecoins.” In theory, stablecoins are each worth a specified value in fiat currency (usually one USD each). Most stablecoins were touted as being completely backed by fiat currency stored in segregated bank accounts. The viability and safety of stablecoins, however, has recently been called into question. One of the biggest players in the stablecoin industry is Tether, who was recently fined $41 million by the US Commodities Futures Trading Commission for failing to have the appropriate fiat reserves backing its highly popular stablecoin US Dollar Token (USDT). OFAC appears to have taken notice and states in its FAQ that “digital representations of fiat currency” are covered by its regulations and FAQs.

FAQ 646 provides some guidance on how cryptocurrency exchanges and other service providers should implement a “block” on virtual currency. Any US persons (or persons subject to US jurisdiction), including financial institutions, are required under US sanctions programs to “block” assets, which requires freezing assets and notifying OFAC within 10 days. (See: 31 C.F.R. § 501.603 (b)(1)(i).) FAQ 646 makes clear that “blocking” obligations applies to virtual currency and also indicates that OFAC expects cryptocurrency exchanges and other service providers be required to “block” the virtual currency at issue and freeze all other virtual currency wallets “in which a blocked person has an interest.”

Depending on the strength of the anti-money laundering/know-your-customer (AML/KYC) policies employed, it will likely prove difficult for cryptocurrency exchanges and other service providers to be sure that they have identified all associated virtual currency wallets in which a “blocked person has an interest.” It is possible that a cryptocurrency exchange could onboard a customer who complied with an appropriate risk-based AML/KYC policy and, unbeknownst to the cryptocurrency exchange, a blocked person “has an interest” in one of the virtual currency wallets. It remains to be seen how OFAC will employ this “has an interest” standard and whether it will take any cryptocurrency exchanges or other service providers to task for not blocking virtual currency wallets in which a blocked person “has an interest.” It is important for cryptocurrency exchanges or other service providers to implement an appropriate risk-based AML/KYC policy to defend any inquiries from OFAC as to whether it has complied with the various US sanctions programs, including by having the ability to identify other virtual currency wallets in which a blocked person “has an interest.”

UPDATED SANCTIONS COMPLIANCE GUIDANCE

OFAC’s recent framework for OFAC Compliance Commitments outlines five essential components for a virtual currency operator’s sanctions compliance program. These components generally track those applicable to more traditional financial institutions and include:

  1. Senior management should ensure that adequate resources are devoted to the support of compliance, that a competent sanctions compliance officer is appointed and that adequate independence is granted to the compliance unit to carry out their role.
  2. An operative risk assessment should be fashioned to reflect the unique exposure of the company. OFAC maintains both a public use sanctions list and a free search tool for that list which should be employed to identify and prevent sanctioned individuals and entities from accessing the company’s services.
  3. Internal controls must be put in place that address the unique risks recognized by the company’s risk assessment. OFAC does not have a specific software or hardware requirement regarding internal controls.
    1. Although OFAC does not specify required internal controls, it does provide recommended best practices. These include geolocation tools with IP address blocking controls, KYC procedures for both individuals and entities, transaction monitoring and investigation software that can review historically identified bad actors, the implementation of remedial measures upon internal discovery of weakness in sanction compliance, sanction screening and establishing risk indicators or red flags that require additional scrutiny when triggered.
    2. Additionally, information should be obtained upon the formation of each new customer relationship. A formal due diligence plan should be in place and operated sufficiently to alert the service provider to possible sanctions-related alarms. Customer data should be maintained and updated through the lifecycle of that customer relationship.
  4. To ensure an entity’s sanctions compliance program is effective and efficient, that entity should regularly test their compliance against independent objective testing and auditing functions.
  5. Proper training must be provided to a company’s workforce. For a company’s sanctions compliance program to be effective, its workforce must be properly outfitted with the hard and soft skills required to execute its compliance program. Although training programs may vary, OFAC training should be provided annually for all employees.

KEY TAKEAWAYS

As noted in OFAC’s press release issued simultaneously with the updated FAQ’s, “[t]hese actions are a part of the Biden Administration’s focused, integrated effort to counter the ransomware threat.” The Biden administration’s increased focus on regulatory and enforcement action in the virtual currency space highlights the importance for market participants and service providers to implement a robust compliance program. Cryptocurrency exchanges and other service providers must take special care in drafting and implementing their respective AML/KYC policies and in ensuring the existence of risk-based AML and sanctions compliance programs, which includes a periodic training program. When responding to inquiries from OFAC or other regulators, it will be critical to have documented evidence of the implementation of a risk-based AML/KYC program and proof that employees have been appropriately trained on all applicable policies, including a sanctions compliance policy.

Article By Joseph B. Evans, Edward B. Diskant, and Alexandra C. Scheibe of McDermott Will & Emery.

Ethan Heller, a law clerk in the firm’s New York office, also contributed to this article.

© 2021 McDermott Will & Emery
For the latest in Financial, Securities, and Banking legal news, read more at the National Law Review.

CMS Requires COVID-19 Vaccine for Health Care Workers at all Facilities Participating in Medicare and Medicaid

On Nov. 4, 2021, the Centers for Medicare and Medicaid (CMS) released a new Interim Final Rule (IFR) regarding staff vaccination at facilities that participate in the Medicare and Medicaid programs. The IFR requires covered employers to ensure that staff receive their first dose no later than Dec. 5, 2021 and achieve full vaccination no later than Jan. 4, 2022.

The vaccine rule that was also released on Nov. 4, 2021 by the Occupational Safety and Health Administration (OSHA) does not apply to employees of health care entities who are covered under the CMS IFR. However, employees of health care providers who are not subject to the CMS IFR may be subject to the OSHA vaccine rule if the facility has more than 100 employees. For more information on the OSHA vaccine rule, please click here.

Justification for the Rule

CMS cited a number of reasons for the IFR, including the risk unvaccinated staff pose to patients, reports of individuals foregoing health care due to concerns of contracting COVID-19 from health facility staff, disrupted health care operations due to infected staff, and low vaccination rates among health care staff.

Scope of Coverage

The requirements of the IFR apply to health care facilities that participate in Medicare and Medicaid and that are subject to Conditions or Requirements of Participation, including but not limited to:

  • Ambulatory surgical centers;
  • Hospices;
  • Hospitals, such as acute care hospitals, psychiatric hospitals, hospital swing beds, long-term care hospitals, and children’s hospitals;
  • Long-term care facilities;
  • Home health agencies;
  • Comprehensive outpatient rehabilitation facilities;
  • Critical access hospitals;
  • Home infusion therapy suppliers; and
  • Rural health clinics/federally qualified health centers.

While the IFR does not directly apply to physician offices, which are not regulated by CMS Conditions or Requirements of Participation, physicians may nevertheless be required to vaccinate as a result of their relationships with other health care entities. For example, the IFR requires hospitals to implement policies and procedures to ensure “individuals who provide care, treatment, or other services under contract or by other arrangement” are fully vaccinated.

Covered Personnel

The IFR requires vaccinations for staff who routinely perform care for patients and clients inside and outside of the facility, such as home health, home infusion therapy, hospice, and therapy staff. CMS’s vaccination requirement also extends to all staff who interact with other staff, patients, residents, or clients, at any location, and not just those who enter facilities. However, staff who provide services 100% remotely—that is, staff who never come into contact with other staff, patients, residents, or clients—are not subject to the IFR vaccination requirements. Additionally, providers and suppliers are not required to ensure IFR vaccination compliance of one-off vendors, volunteers, or professionals, such as (a) those who provide infrequent ad hoc non-health care services (e.g. annual elevator inspectors), (b) those who perform exclusively off-site services (e.g. accounting services), or (c) delivery and repair personnel.

Definition of Full Vaccination

CMS considers “full vaccination” as 14 days after receipt of either a single-dose vaccine (such as the Johnson & Johnson vaccine) or 14 days after the second dose of a two-dose primary vaccination series (such as the Pfizer or Moderna vaccines). At this time, CMS is not requiring the additional (third) dose of mRNA vaccine for moderately/severely immunosuppressed persons or the “booster dose” in order for staff to be considered “fully vaccinated.” Additionally, CMS considers individuals receiving heterologous vaccines—doses of different vaccines—as satisfying the “fully vaccinated” definition so long as they have received any combination of two doses. In order to gauge compliance, CMS is requiring that providers and suppliers track and securely document the vaccination status of each staff member as well as vaccine exemption requests and outcome. The IFR does not specify that weekly testing, masking, and social distancing are an alternative to vaccination, meaning employers must ensure all employees are either (1) fully vaccinated or (2) exempted under a permissible exemption.

Exemptions

The IFR explicitly provides that employers must continue to comply with anti-discrimination laws and civil rights protections which allow employees to request and receive exemption from vaccination due to a disability, medical condition, or sincerely held religious belief or practice. Exemptions should be provided to staff with recognized medical conditions for which a vaccine is contraindicated as a reasonable accommodation under the Americans with Disabilities Act. For exemptions for a sincerely held religious belief or practice, CMS encourages health care entities to refer to the Equal Employment Opportunity Commission’s Compliance Manual on Religious Discrimination. Despite the ability to provide an exemption, CMS states that exemptions may be provided to staff only to the extent required by law, and that requests for exemption should not be provided to those who seek solely to evade vaccination. CMS also notes at length that the Food and Drug Administration considers approved vaccines safe. Accordingly, CMS will likely be unwilling to excuse provider and supplier noncompliance due to employees refusing vaccination based on fears about safety.

Penalties

Although the IFR does not identify specific penalties for non-compliance, CMS is expected to use enforcement tools such as civil money penalties, denial of payment for new admissions, or termination of the Medicare/Medicaid provider agreement. CMS will utilize State Survey Agencies to review compliance with the IFR through standard recertification surveys and complaint surveys. Noncompliance with the IFR will be addressed through established classification channels of “Immediate Jeopardy,” “Condition,” or “Standard” deficiencies.

Preemption

While CMS recognizes that some states and localities have established laws to prevent mandatory compliance with vaccine mandates, CMS ultimately considers the Supremacy Clause of the United States Constitution as preempting inconsistent state and local laws as applied to Medicare- and Medicaid-certified providers and suppliers.

© 2021 Dinsmore & Shohl LLP. All rights reserved.
For more updates on COVID-19, visit the NLR Coronavirus News section.

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