SEC Adopts FAST Act Disclosure Simplification and Modernization Amendments

On March 20, 2019, the U.S. Securities and Exchange Commission (SEC) adopted amendments to modernize and simplify Regulation S-K’s disclosure requirements and related rules and forms, as required by the Fixing America’s Surface Transportation (FAST) Act. The amendments were proposed by the SEC in October 2017. The SEC adopted most of the amendments as proposed and some of the amendments with modifications, and elected not to adopt certain proposed amendments at all.

The SEC intends for the amendments to improve the readability and navigability of company disclosures and to discourage repetition and disclosure of immaterial information. These amendments complement other recent amendments adopted by the SEC to simplify disclosure, such as in the Disclosure Update and Simplification Final Rule that became effective in November 2018.

Below are brief summaries of some of the more significant amendments:

Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) 

(Regulation S-K, Item 303 and Form 20-F). Registrants may omit discussion of the earliest of three years in the MD&A if they already discussed that year in any of their prior EDGAR filings that required such discussion. Registrants who elect not to include a discussion of the earliest year must include a statement that identifies the location in the prior filing where the omitted discussion may be found.

Description of Property (Regulation S-K, Item 102)

Registrants must provide disclosure about physical property only to the extent that the property is material to the registrant’s business.

Risk Factors (Regulation S-K, Item 503(c) (moved to new Item 105))

The examples are deleted from the risk factors item to emphasize the principles-based nature of this disclosure requirement.

Material Contracts Two-Year Look Back (Regulation S-K, Item 601(b)(10))

Only “newly reporting registrants” are required to file fully performed material contracts that the registrant has entered into within two years of the applicable registration statement or report.

Redaction of Confidential Information in Material Contracts (Regulation S-K, Items 601(b)(10) and 601(b)(2) and investment company registration forms)

Registrants may omit or redact confidential information from their filed material contracts without submitting a confidential treatment request to the SEC if the confidential information (i) is not material and (ii) would likely cause competitive harm to the registrant if publicly disclosed. This amendment is effective upon the rule’s publication in the Federal Register.

New Form 10-K Exhibit (new Regulation S-K, Item 6(b)(4)(iv)).

Registrants are required to file an additional Exhibit to Form 10-K containing the description of the registrant’s securities required under Regulation S-K, Item 202(a)-(d) and (f).

Schedules and Attachments as Exhibits (Regulation S-K, Item 601(a)(5) and investment company forms).

Registrants are no longer required to file attachments to their material agreements if such attachments do not contain material information or were not otherwise disclosed.

Hyperlinks (Securities Act Rule 411(b)(4); Exchange Act Rules 12b-23(a)(3) and 12b-32; Investment Company Act Rule 0-4; and Regulation S-T Rules 102 and 105).

Registrants are no longer required to file as an exhibit any document that is incorporated by reference in the filing, but instead registrants must provide a hyperlink to such document.

Financial Statements: Incorporation by Reference and Cross-Reference (Forms 8-K, 10-Q, 10-K, 20-F, and 40F).

Financial statements are prohibited from incorporating by reference, or cross-referencing to, information outside the financial statements (including in other parts of the same filing), unless otherwise specifically permitted by the SEC’s rules, U.S. Generally Accepted Accounting Principles, or International Financing Reporting Standards, as applicable.

Cover Page (Forms 8-K, 10-Q, 10-K, 20-F, and 40F).

Registrants are required to disclose on the form cover page the national exchange or principal U.S. market for their securities, the trading symbol, and the title of each class of securities. Additionally, registrants are required to tag all cover page information using Inline XBRL. This cover page Inline XBRL requirement has a three-year phase-in compliance period identical to the phase-in compliance period for the SEC’s Inline XBRL rules adopted in 2018, with large accelerated filers required to comply beginning with fiscal periods ending on or after June 15, 2019.

Section 16 Disclosure (Regulation S-K, Item 405 and Form 10-K).

The caption for reporting delinquent reporting under Section 16(a) of the Exchange Act is changed from “Section 16(a) Beneficial Ownership Reporting Compliance” to “Delinquent Section 16(a) Reports,” and the checkbox on the cover page of Form 10-K related to such delinquencies is eliminated. Additionally, registrants are allowed to rely on Section 16 reports filed on EDGAR (as opposed to only paper copies of reports).

Investment Companies.

The adopted amendments include parallel amendments to several rules and forms applicable to investment companies and investment advisers, including amendments that require certain investment company filings to include a hyperlink to each exhibit listed in the filings’ exhibit index and that require registrants to submit such filings in HyperText Markup Language (HTML) format. The requirements that all investment company registration statements and Form N-CSR filings be made in HTML format and comply with the hyperlink rule and form amendments applies to all filings made on or after April 1, 2020.

Except as otherwise noted, the amendments will be effective 30 days from publication in the Federal Register.

The above summaries are not comprehensive and provide only highlights of certain amendments. They do not reflect all of the amendments nor all of the rules and forms that are affected by the amendments.

 

© 2019 Schiff Hardin LLP

U.S. Supreme Court to Consider Whether Courts Must Defer to an Agency’s Interpretation of its Regulations – a Judicial Policy That Recently Resulted in Dismissal of Litigation Over ‘No Sugar Added’ Claims on 100% Juices

The U.S. Supreme Court heard arguments on March 27, 2019 about whether to overturn the principle of judicial review of federal agency actions that requires a federal court to yield to an agency’s interpretation of an ambiguous regulation that the agency has promulgated.  Under this policy, known as ‘Auer deference’ from the 1997 case Auer v. Robbins, a court must yield to an agency’s interpretation of its own unclear regulation unless the court finds that the interpretation is “plainly erroneous or inconsistent with the regulation.”

Auer deference was the basis for successful defendant motions to dismiss over the past year in a number of class actions concerning ‘No Sugar Added’ claims on 100% juices.  We reported, for example, on the U.S. District Court for the Central District of California granting a motion for summary judgment in favor of Odwalla, in Wilson v. Odwalla Inc. et al. (Case Number 2:17-cv-02763) based on the Food and Drug Administration’s (FDA) interpretation of paragraph (c)(2)(iv) of 21 CFR 101.60 (“Nutrient content claims for the calorie content of foods”) as permitting juice with no added sugar to be considered a substitute for juice with added sugar and similar sugar-sweetened beverages.

Based on the Justices’ comments in the recent hearing, it is not clear if Auerdeference will be intact at the end of June, by which time a ruling is expected.  Many food product labels could face renewed attacks under state consumer protection and false advertising laws if courts are no longer bound by FDA’s interpretation of ambiguous regulatory requirements, including the use of ‘no sugar added” under the regulation on nutrient content claims.

 

© 2019 Keller and Heckman LLP

IRS Periods of Limitation on Refunds, Assessment of Tax, and Collection

Statutes of limitation prescribe a period of limitation for the bringing of certain types of action. There are three such statutes of limitation that come into play when dealing with the Internal Revenue Service. These limitations periods relate to tax refunds, IRS examination and assessment, and IRS collections.

How long do you have to file a claim for refund?

Under IRC 6511(a), a taxpayer has three years from the date of filing a tax return to claim a credit or refund, or two years from the date the tax was paid, whichever is later. If a taxpayer files his/her return or makes payment prior to the date prescribed for doing so, the return or payment is considered filed or paid on that last day for doing so. Further, for claims for refund not filed within the three year period, the amount of the refund is limited to the portion of the tax that was paid within the two years preceding the filing of the claim. IRC 6511(b). There are exceptions to these general rules, however, and you should consult with a tax attorney to see if those exceptions apply in your case.

The IRS estimates that it has $1.4 billion in refunds for taxpayers that did not file an income tax return (Form 1040) for the 2015 tax year. In order to be entitled to their refunds, most taxpayers must file their 2015 return no later than April 15, 2019. If the 2015 tax return is not filed by that date, the tax refund will become property of the U.S. Treasury.

How long does the IRS have to audit your return? 

Generally speaking, the IRS has three years from the due date of your tax return or three years from the date it was filed, whichever is later, to audit your return and make an assessment. However, there are exceptions that may apply to extend the audit period:

  1. If there is a substantial omission of gross income, then the IRS has six years to make an assessment. A substantial omission of gross income is one that amounts to more than 25 percent of the amount reported on the tax return.
  2. If the additional tax is related to undisclosed foreign financial assets and the omitted income is more than $5,000, the IRS has six years to make an assessment.
  3. The statute of limitation is open indefinitely if the taxpayer has filed a false or fraudulent tax return.

Keep in mind, the statute of limitation on assessment does not start to run until a tax return has been filed. If a tax return has not been filed, the statute for assessment remains open.

How long can the IRS collect a tax liability?

Generally speaking, the statute of limitation for the IRS to collect on a tax debt, plus penalties and interest, is 10 years from the date of assessment. Note that this is 10 years from the date of the assessment, not 10 years from the due date of the return. In addition, this 10-year period can be suspended under certain circumstances, including:

  • if the taxpayer has filed for bankruptcy protection, plus an additional six months
  • if the taxpayer resides outside of the US for at least six months
  • if the taxpayer files a request for a collection due process hearing
  • if the taxpayer files a claim for innocent spouse relief
  • if the taxpayer files for an offer-in compromise (OIC)
  • while there is a pending installment agreement request

Finally, the IRS can take action to collect beyond the 10-year limitation period by filing suit to reduce the assessments to judgment.

© 2019 Varnum LLP
This post was written by Angelique M. Neal of Varnum LLP.

New Application of Anti-Money Laundering Rules to Art Transactions

Art dealers and intermediaries are about to face new transparency regulations in several European nations. Art brokers and dealers involved in any cross-border transactions with people in E.U. nations should pay careful attention to the new rules as they roll out over the next year.

I. New European Union Rules

A recent European Council Directive will likely have a significant impact on European art and antiquities transactions by requiring brokers and dealers to identify buyers and sellers in most transactions.  The Directive, intended to increase transparency in the art market, aims to make it harder to launder money through anonymous art sales.

This Directive builds on more broadly applicable European Council directives designed to prevent abuse in financial transactions. (Council Directive 2015/849, art. 2 (EU) (“Fourth EU Money Laundering Directive”)). The Fourth EU Money Laundering Directive targets both money laundering, i.e., the transfer, concealment, or acquisition of property derived from criminal activity, as well as terrorist financing, i.e., providing funds that may be used to carry out terrorist activities.  (Fourth EU Money Laundering Directive, art. 1).

The recent Fifth EU Money Laundering Directive expands the scope of these rules to art dealers and brokers, specifically:

persons trading or acting as intermediaries in the trade of works of art, including when this is carried out by art galleries and auction houses, where the value of the transaction or a series of linked transactions amounts to EUR 10 000 or more; and

persons storing, trading or acting as intermediaries in the trade of works of art when this is carried out by free ports, where the value of the transaction or a series of linked transactions amounts to EUR 10 000 or more.

(Council Directive 2018/843, art. 1 (EU) (“Fifth EU Money Laundering Directive”)).

Under the new Fifth Directive, art gallerists, auction houses, brokers and dealers must conform to due diligence requirements designed to increase transparency, including:

…identifying the customer and verifying the customer’s identity…

identifying the beneficial owner and taking reasonable measures to verify that person’s identity…

verify[ing] that any person purporting to act on behalf of [a] customer is so authorised and identify[ing] and verify[ing] the identity of that person…

(Fourth EU Money Laundering Directive, art. 13).

The Fifth EU Money Laundering Directive will have a significant impact on legitimate art transactions.  Those involved in such transactions will need to take appropriate steps to determine the real parties in interest in the art transaction. This requirement runs counter to the industry practice in many transactions, where agents and intermediaries sometimes control information about the ultimate buyer.

The Fifth EU Money Laundering Directive became operative on July 9, 2018 but has no force until adopted in the national law of EU Member states. States have until January 2020 to adopt the provision into their national laws. Electronic copies of the Directives may be found here and here.

II. New Rules in the U.S.

U.S.-based art dealers, brokers, gallerists and auction houses should carefully consider how the Fifth Directive will apply to them if they are involved in art transactions occurring at least in part in E.U. Member states that have implemented the Directive in their national law. As with other E.U. rules, such as the E.U. General Data Protection Regulation, the applicability of E.U. law to U.S. entities is not always straightforward.

Here in the U.S., legislators have proposed similar rules, but none have yet been acted on. In the last session of Congress, a bipartisan House bill was introduced to amend the Bank Secrecy Act (31 U.S.C. §§ 5311 et seq) to include “dealers in art or antiquities.” (115 H.R. 5886). Like the E.U. Fourth Directive, the Bank Secrecy Act aims to prevent money laundering and terrorist financing, in part through recordkeeping standards and mandated reports of possible criminal activity. If the Act were amended to include those involved in art transactions, art dealers would be subject to the same requirements.

Electronic copies of the proposed bill (now expired) can be found here, and the Bank Secrecy Act can be found here.

 

© 1998-2019 Wiggin and Dana LLP

U.S. Supreme Court to Decide If Immigration Law Preempts State Law Prosecution

Does the Immigration Reform and Control Act (IRCA) preempt states from using information in Form I-9 to prosecute a person under state law? The U.S. Supreme Court has agreed to review a case involving prosecution for identity theft under Kansas law based on information in the Form I-9 Employment Eligibility Verification. Kansas v. Garcia (No. 17-834).

Background

Ramiro Garcia, Donaldo Morales, and Guadalupe Ochoa-Lara did not have social security cards. They were all convicted of identity theft in Kansas for using other people’s social security numbers to gain employment in various restaurants. In September 2017, the Kansas Supreme Court reversed those convictions on the grounds that the state was prohibited from using information found on the defendants’ I-9 forms to prove its case because such prosecution was preempted by the IRCA. State v. Garcia, 401 P.3d 588 (Kan. 2017).

Questions Presented

The State of Kansas petitioned the U.S. Supreme Court for review and, on March 18, 2019, the Court agreed to review the case. The Court will decide the following:

  • Whether IRCA expressly preempts the states from using any information entered on or appended to a federal Form I-9, including common information such as name, date of birth, and social security number, in a prosecution of any person (citizen or alien) when that same, commonly used information also appears in non-IRCA documents, such as state tax forms, leases, and credit applications; and
  • Whether IRCA impliedly preempts Kansas’ prosecution of the defendants.

Kansas Supreme Court Opinion

IRCA expressly limits the use of information on or attached to I-9 forms. The Kansas Supreme Court held that the state may not use such information even if the information could be found elsewhere. In this case, the defendants’ “fake” social security numbers also had been entered on their tax withholding forms. The Kansas Supreme Court’s opinion would prevent all prosecutions by states based on false employment verification data supplied to employers on I-9 forms. Indeed, the broad effect of this was pointed out by Kansas Supreme Court Justice Daniel Biles in his dissent. Justice Biles noted that the decision would “wipe numerous criminal laws off the books” and that Congress “did not intend to immunize [defendants] from traditional state prosecutions for identity theft” by enacting IRCA.

The State of Kansas echoed the argument that the Kansas Supreme Court’s opinion would prohibit the use of all sorts of identifying data in state criminal prosecutions that happened to also be found on I-9 forms.

***

Oral arguments in Kansas v. Garcia will take place during the U.S. Supreme Court’s term starting in October 2019.

Jackson Lewis P.C. © 2019

Did You Send Notice to the Partners?

The implementation of the centralized partnership audit regime (CPAR) has finally arrived. Enacted by the Bipartisan Budget Act of 2015, CPAR wasn’t effective until tax years beginning after December 31, 2017. Many taxpayers and tax practitioners placed it behind the Tax Cuts and Jobs Act on their list of priorities. Now 2019 brings the first filing season under CPAR as 2018 tax returns are filed.

Most partnerships and LLCs that qualify will choose to elect out of CPAR’s application. The election out is available if (1) each partner is an individual, a C corporation, a foreign entity that would be treated as a C corporation were it domestic, an S corporation, or an estate of a deceased partner, and (2) the partnership is required to furnish 100 or fewer Form K-1s for the year. To elect out, a partnership must make an affirmative election each year on its timely filed tax return and file a Schedule B-2 that sets forth the name and taxpayer identification number of every partner and every shareholder of an S corporation that is a partner. The schedule also requires that the type of partner (e.g., individual, C corporation, etc.) be identified.

Electing out of CPAR is straightforward for qualifying partnerships. The partnership tax return Form 1065 specifically asks whether the partnership is electing out and instructs taxpayers to complete a Schedule B-2. However, there is one more requirement. Did you notify all the partners of the election? The Internal Revenue Code requires that a partnership notify each of its partners that it has elected out of CPAR, and the final regulations require that the notice be delivered to the partners within 30 days of the election being made.

There is no prescribed form or manner for the notice, nor is requirement of the notice addressed on Form 1065 or Schedule B-2. The preliminary comments to the proposed regulations say it may be in writing, electronic or other form chosen by the partnership. The IRS has said that it intends to “carefully review” a partnership’s decision to elect out of CPAR to determine whether the election is valid. Partnerships and tax return preparers using tax-preparation software should make sure the partner notification is on the Form K-1s, and if it is not, notice should be sent by whatever manner within 30 days of the tax return’s filing.

 

© 2019 Jones Walker LLP
This post was written by Robert E. Box, Jr. of Jones Walker LLP.

U.S. Senators Seek Formal Investigation Of Non-Compete Use And Impact

Earlier this month, a group of six United States Senators made a joint request for the Government Accountability Office (GAO) to investigate the impact of non-compete agreements on workers and the U.S. economy as a whole. This action suggests that the federal non-compete reform effort is not going away.

Recent Legislative Efforts

On February 18, 2019, we reviewed a new bill by Florida Senator Marco Rubio to prohibit non-competes for low-wage employees. That bill followed an effort in 2018 by Democrats in both houses of Congress to ban non-competes altogether. Although Senator Rubio’s bill represents a more limited attack on non-competes, we noted that it “suggests a level of bipartisan support that was not previously apparent.”

The Joint Letter

The recent joint letter to the GAO, issued on March 7, 2019, is signed by two Senators who were not involved in the prior legislative efforts: Democratic Senator Tim Kaine (VA); and Republican Senator Todd Young (IN). This represents additional evidence of bipartisanship on non-compete reform.

The joint letter does not formally oppose the use of non-competes. Nevertheless, from the Senators’ explanation for their request, it is clear that they believe the use of non-competes has become excessive, and that significant harm is being done to workers and the greater economy as a result.

In the letter, the Senators cite three ways in which non-competes allegedly are being abused:

  • The allegedly excessive imposition of non-competes on low-wage workers;
  • The alleged inability of workers to “engage in genuine negotiation over these agreements”; and
  • The belief that “most working under a non-compete were not even asked to sign one until after receiving a job offer.”

Further, the Senators allege that “[a]cademic experts and commentators from across the political spectrum have raised serious concerns about the use and abuse of these clauses[.]”

Based on the above-referenced concerns, the letter instructs the GAO to investigate the following questions:

  • What is known about the prevalence of non-compete agreements in particular fields, including low-wage occupations?
  • What is known about the effects of non-compete agreements on the workforce and the economy, including employment, wages and benefits, innovation, and entrepreneurship?
  • What steps have selected states taken to limit the use of these agreements, and what is known about the effect these actions have had on employees and employers?

Of note, these questions appear to address broader concerns about the use and impact of non-compete agreements than the discreet issues raised by the alleged “abuses” set forth above. The letter does not provide a deadline for the GAO to issue its report. However, the GAO’s explanation of how it handles investigation requests sets forth a six-step process, from Congress making the request to the issuance of the report. Further, while the GAO protocol does not offer a time-frame for every step, it does state that it “typically” takes “about 3 months” to simply design the scope of the investigation. Consequently, it would be reasonable to anticipate waiting months at least for the GAO to issue the report.

Where Does This Leave Us?

As noted above, the joint letter indicates that there is growing bipartisan support for restricting the use of non-competes on a nation-wide level. At the same time, by expressing the need for additional information about the use and impact of non-compete agreements on U.S. workers, the Senators may not move forward with further proposed non-compete legislation until they receive that information and take the time to fully digest its implications.

 

Jackson Lewis P.C. © 2019
For more labor and employment news, check out the National Law Review’s Employment type of law page.

Trademarks, Bankruptcy, and Leverage: What Manufacturers and Other Trademark License Parties Should Know About A Potential Landmark Case Before the Supreme Court

On February 20, 2019, the United States Supreme Court heard oral arguments in the case Mission Products, Inc. v. Tempnology, LLC. The case has important implications for manufacturers and other parties to trademark licenses when a trademark licensor files, or threatens to file, bankruptcy. Lower courts including the First Circuit found that, in the event of a trademark licensor bankruptcy filing, the licensor may reject the trademark license, prevent the licensee from further use of the license, and leave the licensee with the sole remedy of filing a claim in the bankruptcy case. Other courts have disagreed with the effect of a trademark license rejection in bankruptcy, finding that a trademark licensee may retain certain rights following a licensor rejection. When the Supreme Court rules, the Tempnology case is slated to be a landmark decision both on the general issue of what rejection truly means in bankruptcy and on the specific issue of whether a trademark licensee’s rights can essentially be destroyed in a licensor bankruptcy case.

The decision is likely to have broad implications for trademark license parties no matter which way the Supreme Court rules. If the court holds that the rejection of a trademark license effectively terminates the rights of a licensee, both licensors and licenses will know that such a “nuclear option” is available in bankruptcy and negotiating leverage will swing heavily toward a licensor. On the other hand, a decision finding that licensees retain rights post-rejection will make a bankruptcy filing a much less attractive option for a licensor as a solution for dealing with a licensee. Both trademark licensors and licensees should, therefore, be aware that the bankruptcy sword or shield (depending on your perspective) may be about to change.

The Tempnology case involved Tempnology, LLC, a company that manufactured athletic sportswear and licensed the right to use its COOLCORE trademark and related rights to a licensee called Mission Product Holdings, Inc. More details about the company, the bankruptcy court decision, and the First Circuit decision can be found here. In summary, Tempnology attempted to use its Chapter 11 bankruptcy filing as a means to terminate the rights of the trademark license to Mission. Normally, following the rejection of an agreement such as a license in a bankruptcy case, non-debtor parties are limited to filing a general unsecured claim. Depending on the case, general unsecured claimants may receive much less than the face value of their claims. However, some courts have held that rejection does not “vaporize” a licensee’s rights and the non-debtor licensee thus may retain certain post-rejection enforcement rights. To that point, outside of the bankruptcy context, a licensor’s breach of a trademark license agreement does not mean that the licensee no longer has any rights in the license. In fact, state law provides a number of licensee remedies short of termination.

On appeal to the First Circuit, the court disagreed with the characterization that refusing to permit post-rejection rights would “vaporize” a trademark licensee’s rights. The licensee continued to have rights, the court noted, but they were limited to filing a claim for rejection damages. The court further noted that the purpose of rejection under the Bankruptcy Code is to free a debtor of costly obligations and that this purpose would be thwarted if a trademark licensor debtor were required to deal with post-rejection assertions of rights by the licensee.

Mission appealed to the Supreme Court and certiorari was granted on October 26, 2018. While Mission requested review of several issues, the Supreme Court limited the matter to one issue: whether a debtor/licensor’s rejection of a license agreement terminates rights of the licensee that would survive the licensor’s breach under applicable non-bankruptcy law. In addition to the briefs filed by the parties, there were several notable amici curiae briefs, the majority of which adopted Mission’s position that a trademark licensee should retain certain rights post-rejection. Such amici curiae briefs in support of Mission included the United States, the New York Intellectual Property Law Association, a number of revered law professors, and the International Trademark Association. Moreover, the United States, as represented by the Assistant to the Solicitor General, participated in oral argument in support of Mission.

During the oral arguments, the Justices probed the issue of a trademark licensor’s obligations, including contractual obligations under the terms of a license as well as obligations to maintain the trademark under the Lanham Act. This is an important point because rejection is designed to relieve a debtor of its contractual obligations in order to unburden the bankruptcy estate. The Lanham Act, however, may impose continuing obligations on the licensor with respect to the rejected license. Mission argued that Bankruptcy Code section 365 and the concept of rejection speaks to contractual obligations and that the obligation to maintain a trademark is outside the agreement. Justice Breyer challenged the argument with an analogy of a landlord for an igloo whose obligation included air conditioning the premises: “You know, you break your promise to air condition, no more igloo.” There were also some notable statements from the United States, which called the Tempnology’s position “extortionate” because the threat of a rejection would put the licensee to the “choice between paying a higher royalty payment or shutting down their business and firing all their workers.”

Tempnology responded by arguing that a trademark license involves a special relationship that deals with the trademark owner’s reputation. The Justices challenged Tempnology on that point by asking how a licensor’s breach would be treated outside of bankruptcy. When pressed on the point, Tempnology could not point to any case law or other authority that would compel the licensee to stop using the license as a result of the licensor’s breach. Justice Kagan succinctly summarized the parties’ positions that Mission was arguing rejection means breach and Tempnology was arguing that rejection means rescission. The fact that the applicable Bankruptcy Code section – section 365(g) – uses the word “breach” suggests that the Justices may be leaning in favor of Mission in the case. Note, however, the issue of mootness may preclude a substantive decision in this case. Both Justices Gorsuch and Sotomayor asked pointed questions on why the case is not moot on a number of grounds, including the fact that no court actually entered an order specifically preventing Mission from using the COOLCORE trademark post-rejection. The United States responded that the effect of the bankruptcy court order was to prevent such usage. It is not entirely clear, but it seemed that the Justices were able to get past the issue of mootness.

The issues in the Tempnology case have broad implications on whether a Chapter 11 bankruptcy can be used as a sword by a trademark licensor to relieve itself of what it perceives as burdensome licensee obligations. Under the law as adopted by the First Circuit, the scales are tipped decidedly in the favor of a debtor/licensor. If the Supreme Court rules in favor of Mission, it will provide clarity on what exactly rejection means in these circumstances and it will constitute a significant readjustment of negotiating leverage.

 

© 2019 Foley & Lardner LLP
This post was written by Jason B. Binford of Foley & Lardner LLP.
Read more in SCOTUS Litigation on the National Law Review’s Litigation type of law page.

Can You Prohibit Employees From Using Cell Phones At Work?

With the prevalence of cell phones in today’s society, many companies struggle with how to manage employee time spent on personal mobile devices. But there are legal limits on what employers can do on this front. The National Labor Relations Board (NLRB) has taken the position that employees have a presumptive right, in most instances, under the National Labor Relations Act (NLRA) to use personal phones during breaks and other non-working times.

A recent advice memo issued by the agency has reaffirmed its stance – even since the NLRB generally has taken a more lax view of employer personnel policies over the last year. At issue, in this case, was a company policy that limited employees’ use of personal cell phones in the workplace. The relevant analysis in the NLRB memo states:

“This [company’s] rule states that, because cell phones can present a ‘distraction in the workplace,’ resulting in ‘lost time and productivity,’ personal cell phones may be used for ‘work-related or critical, quality of life activities only.’ It defines ‘quality of life activities’ as including ‘communicating with service or health professionals who cannot be reached during a break or after business hours.’ The rule further states that ‘[o]ther cellular functions, such as text messaging and digital photography, are not to be used during working hours.’ This rule is unlawful because employees have a [NLRA] Section 7 right to communicate with each other through non-Employer monitored channels during lunch or break periods. Because the rule prohibits use of personal phones at all times, except for work-related or critical quality of life activities, it prohibits their use on those non-working times. The phrase regarding text messaging and digital photography is more limited, but still refers to ‘working hours,’ which the Board, in other contexts, has held includes non-work time during breaks. Although the employer has a legitimate interest in preventing distractions, lost time, and lost productivity, that interest is only relevant when employees are on work time. It, therefore, does not outweigh the employees’ Section 7 interest in communicating privately via their cell phones, during non-work time, about their terms and conditions of employment.” (emphasis added)

In other words, while an employer may be able to limit employee use of personal mobile devices during working time in order to minimize distractions, having a policy in place that is worded in a way that limits that activity during non-working time may run afoul of the NLRA.

This is another reminder for employers to ensure their policies are drafted in a way that conforms to applicable NLRB standards. A poorly drafted rule – even with the best intentions – can result in legal headaches for a company.

 

© 2019 BARNES & THORNBURG LLP
This post was written by David J. Pryzbylski of Barnes & Thornburg LLP.
Read more employer HR policies on the labor and employment type of law page.

Federal Government Slaps $600K Fine on Wanaque Center After 11 Children Die

The federal government imposed a $600,331 fine on the New Jersey nursing center where a viral outbreak left 11 children dead and 36 sick last year. Investigators reported Wanaque nursing home’s poor infection controls, lack of administrative oversight, and slow response from medical staff “directly contributed” to the rapid spread of the virus and its related death toll.

The 114-page federal inspection report, published in December, claimed the staff at Wanaque failed to correct issues that could have controlled the outbreak, allowing residents and one staff member to contract the virus and placing others in “immediate jeopardy.”

The report alleges the center had a faulty infection-control plan, did not respond appropriately when the outbreak emerged, and failed to properly monitor the infection rate.

Multiple children at Wanaque retained high fevers for days before staff sent them to the emergency room, two of which died within hours of arriving at the hospital. At least two other children, who had been symptom-free, contracted the virus and died after staff failed to separate them from their sick roommates.

Wanaque’s pediatric medical director appeared to be absent during the crisis and claimed he did not fully understand the responsibilities of his position. The director also failed to attend quality assurance and performance meetings and had not filed monthly reports for the last four years.

The Wanaque facility is strongly disputing the findings in the federal investigation report, arguing the staff followed proper protocols and the outbreak was “unavoidable.”

New Jersey ceased all admission to the nursing home following the outbreak, but is now allowing the facility to admit new patients. A restriction does still remain in place barring Wanaque from admitting pediatric ventilator patients until federal and state officials approve the facility’s written infection-control plan.

In addition to the $600,331 federal fine, the New Jersey Department of Health is imposing a $21,000 penalty on the nursing home for each infection-control-related failure.

 

COPYRIGHT © 2019, STARK & STARK
This post was written by Jonathan F. Lauri of Stark & Stark.
Read more Malpractice Enforcement on our Professional Malpractice Page.

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