The National Law Forum

California Jury Rejects Employee’s Discrimination Claims Against Chipotle

Proving it still is possible to obtain a favorable jury verdict in California (see contrary evidence), a federal jury sided with Chipotle Mexican Grill last Wednesday in a case involving disability discrimination claims by former assistant store manager, Lucia Cortez.

Cortez alleged she suffered a miscarriage at work after years of trying to get pregnant, fell into a depression, and then needed extended medical treatment as a result. In response to her request for leave, her manager gave her 12 weeks of unpaid family medical leave. When Cortez later asked for another month off to “sort out a final doctor’s appointment,” her manager granted her one additional “courtesy week” of leave. Cortez then went behind her manager’s back and got her leave extended by another month by calling the employee benefits center.

Cortez failed to provide any medical documentation when she asked for the additional time off, while at the same time claiming that she might not be medically approved to return to work. When Chipotle informed Cortez that they were about to fill her position, she immediately asked to be put back on the schedule. Her manager refused to put her back on the schedule until she produced a doctor’s note certifying that she was able to return to work.

Cortez never sent Chipotle the required medical documentation and was thereafter fired, but was also told she could reapply for her job without losing any of her tenure or benefits. Instead of simply reapplying once she was able to return to work, Cortez sued Chipotle for discrimination based on an alleged mental disability and failure to accommodate.

Fortunately, the jury sided with Chipotle, finding that Cortez’s leave of absence and her alleged disability were not motivating factors in her termination. The jury found that her failure to return to work was the motivating factor for her discharge and that Chipotle had not failed to reasonably accommodate her alleged disability.

An employer can indeed require an employee to submit documentation from a health care provider, certifying that the employee is able to resume work following a medical leave (Cal. Code Regs. tit. 2 § 11091(b)(2)(E)). This case demonstrates, however, how complicated even a simple leave of absence situation can be in California and how easy it is for disgruntled employees to sue their employer – and to try to get a jury to second-guess the employer. The employer in this case no doubt incurred hundreds of thousands of dollars in costs and attorney’s fees in successfully defending against this action – none of which can be recovered from the employee who justifiably lost the case.

This post was written by Anthony J Oncidi and Cole D. Lewis of Proskauer Rose LLP.

The Real Estate Problem of Retail

The retail sky is falling. At least that is how it appears from recent and unprecedented number of retailers filing for bankruptcy. From iconic stores such as Sears and Toys ‘R’ Us, to department stores such as Bon Ton, to mall stores including Brookstone, The Rockport Company, Nine West, among others. The reasons given for such filings vary as much as their products but one theme seems to be constant — the inability of retailers to maintain “brick and mortar” operating expenses in the era of online shopping. Accordingly, it appears that what some retailers actually have is a real estate problem.

Another troubling theme of many retail filings is the use of bankruptcy courts to achieve a quick liquidation of the company, rather than a reorganization. Chapter 11 filings over the past several years have shown a dramatic shift away from a process originally focused on giving a company a “fresh start” to one where bankruptcy courts are used for business liquidation. The significant increase in retail Chapter 11 cases and the speed at which assets are sold in such cases is disturbing and provides a cautionary tale for developers and landlords alike. Indeed, such parties need to be extremely diligent in protecting their rights during initial negotiations as well as when these cases are filed, starting from day one, lest they discover that their rights have been extinguished by the lightning speed of the sale process.

Recent statics suggest that the average time to complete a bankruptcy sale is only 45 days from the petition date. Moreover, under the Bankruptcy Code, and arguably, best practices, the sale will close shortly after court approval thereby rendering any appeal likely moot. This leaves little time for parties to protect their rights.

Bankruptcy Code Section 363(f) permits a debtor to sell property free and clear of interests in the property if certain conditions are met. Unlike a traditional reorganization, which requires a more engaging process, including a disclosure statement containing “adequate information,” a sale under Section 363 is achieved by mere motion, even though it results in property interests being entirely wiped out. Not only are property rights altered by motion, rather than by an adversary proceeding or a plan process, but these sale motions are being filed in retail cases as “first day motions” and concluded in as short as a month and half.

Even more alarming is that the notice accompanying such motions can be ambiguous as to how it will impact parties such as developers who have multiple interests in retail/multi-use properties. Often, the reference to the developer and its property is buried in a 20+ page attachment in 8 point font, listed in an order only the debtor (or its professionals) understands. If that was not concerning enough, these notices are being served by a third-party agent who may not have access to the most updated contact information necessary to ensure that non-debtors are actually receiving the notices in time to properly protect their rights. It is not uncommon for these notices to be inaccurately addressed and not be received until after an order is entered; an order which will undoubtedly contain a provision that notice was proper.

Notably, despite Section 363(f)’s reference solely to “interests” (the group of things that an asset may be sold free and clear of), these sales are commonly referred to as sales free and clear of “claims and interests.” Lacking an actual definition, courts have expansively interpreted “interests” to include “claims.” Indeed, it is now the norm for bankruptcy courts to enter extensive findings of fact and conclusions of law supporting 363 sales that extinguish every imaginable potential claim (rather than merely “interests”). While consistent with the overall spirit of the Bankruptcy Code to promote maximization of value through the alienability of property, it comes at the expense of those holding an interest in that property, such as a mall or shopping center developer.

Fortunately, there are certain well-accepted exceptions to the courts’ expansive application of “interest.” Courts generally limit a debtor’s attempt to use Section 363 to strip off traditional in rem interests that run with the land. When faced with such attempts, courts routinely constrain the interpretation of the statute to block the sale free and clear of an in rem interest.

The majority of state laws have long treated covenants, easements, and other in rem interests that are said to “run with the land” as property interests. Although clearly falling within the common definition of “interests,” courts routinely hold them not to be strippable interests for purposes of a Section 363(f), as being so ingrained in the property itself that they cannot be severed from it, or, alternatively, that the in rem interests are not included in Section 363(f)’s use of the term “interests.”

The protection afforded to in rem interests should provide forward-thinking transactional attorneys with a valuable opportunity to insulate many rights and remedies for their developer clients. A hypothetical real estate transaction is illustrative — consider a transaction in which a developer sells two parcels to a large retailer as part of a retail/mixed use shopping center and takes back a long-term ground lease for one of the parcels. There are a number of methods available to document this deal: a sale-leaseback agreement; a separate contract to convey in the future secured by a lien; entry into a partnership, joint venture, or similar agreement. When analyzed with respect to the risk of a potential retailer bankruptcy, these mechanisms are inferior to the use of a reciprocal easement agreement (“REA”) or similar devise that creates an in rem property interest that runs with the land in favor of the developer.

If traditional contractual methods are used, the documents run the risk of being construed as executory contracts in the retailer’s subsequent bankruptcy case, subject to rejection, leaving the developer with only a prepetition claim. A lien in favor of the developer would only marginally improve its position, as any lien will likely be subordinated to the retailer’s development financing and therefore of little value. But, based on the current state of the law, a non-severable REA or similar document recorded against the retailer’s property will not be stripped off the property absent consent or a bona fide dispute. Thus, rights incorporated into a properly drafted and recorded REA provide the developer with a level of “bankruptcy-proofing” against a potential future retailer bankruptcy. Further, as REAs in mixed-use developments are the norm in the industry, they are likely to be accepted, if not embraced, by the retailer’s construction lender, making their adoption that much more likely.

The lesson is be forward thinking and be diligent.

This post was written by Christopher J. Giaimo of Squire Patton Boggs (US) LLP.

Trend to Watch: State Legislatures Target Restaurants for Mandatory Sexual Harassment Training

In the New Year, two states – New Jersey and Illinois – have proposed legislation requiring restaurants to adopt a sexual harassment training policy and provide anti-sexual harassment training to employees. While it remains to be seen whether these bills will become law, attempts to target and reform working conditions in the hospitality industry are nonetheless noteworthy, particularly given that unlike New York and California, neither New Jersey nor Illinois have enacted broad legislation requiring private sector employers, regardless of occupation, to provide sexual harassment training to staff.

New Jersey Bill (A4831)

New Jersey Bill A4831 requires restaurants that employ 15 or more employees to provide sexual harassment training to new employees within 90 days of employment and every five years thereafter. This training requirement would go into effect within 90 days of the law’s effective date.

As to the content of the training, the bill specifies that supervisors and supervisees receive tailored content relevant to their positions/roles that include topics “specific to the restaurant industry” in an “interactive” format, including practical examples and instruction on filing a sexual harassment complaint. Implicitly recognizing the diverse nature of the hospitality workforce, the bill requires that such training must be offered in English and Spanish.

The bill would also require restaurants to adopt and distribute sexual harassment policies to employees (either as part of an employee handbook or as a standalone policy), though it does not prescribe the contents of such policies.

While the bill cautions that compliance with the act would not “insulate the employer from liability for sexual harassment of any current or former employee,” strict compliance is advisable as the bill creates fines for non-compliance – i.e., up to $500 for the first violation and $1,000 for each subsequent violation.

Illinois Bill 3351

Illinois Bill 3351, the proposed Restaurant Anti-Harassment Act, is broader than the proposed New Jersey legislation in that it applies to all restaurants regardless of the number of employees on staff. Like its New Jersey analogue, this bill requires restaurants to adopt a sexual harassment policy and provide training to all employees.

The sexual harassment policy must contain the following elements:

(1) a prohibition on sexual harassment;

(2) the definition of sexual harassment under Illinois and federal law;

(3) examples of prohibited conduct that would constitute unlawful sexual harassment;

(4) the internal complaint process of the employer available to the employee;

(5) the legal remedies and complaint process through the Illinois Department of Human Rights;

(6) a prohibition on retaliation for reporting sexual harassment allegations; and

(7) a requirement that all employees participate in sexual harassment training.

Like New Jersey’s bill, the Illinois bill requires separate training for employees and for supervisors/managers, and delineates the topics to be covered in each training. Specifically, the employee training must include: (i) the definition of sexual harassment and its various forms; (ii) an explanation of the harmful impact sexual harassment can have on victims, businesses, and those who harass; (iii) how to recognize conduct that is appropriate, and that is not appropriate, for work; (iv) when and how to report sexual harassment. The supervisor training must include the aforementioned topics in addition to: (i) an explanation of employer and manager liability for reporting and addressing sexual harassment, (ii) instruction on how to create a harassment-free culture in the workplace, and an (iii) explanation of how to investigate sexual harassment claims in the workplace. In addition to these requirements, the training programs must be offered in English and Spanish, be specific to the restaurant or hospitality industry and include restaurant or hospitality related activities, images, or videos, and be “created and guided by an instructional design model and processes that follow generally accepted practices of the training and education industry.”

If enacted, employees would need to receive training within 90 days after the effective date of the act or within 30 days of employment and every 2 years thereafter.

Like New Jersey, the Illinois bill contemplates a $500 fine for the first violation and a $1,000 fine for each subsequent violation.

Recommendation

Restaurants should carefully track the progress of these bills and be on the lookout for similar legislative efforts in other states. Given that a number of states, including New York and California, already require all private employers (of a particular size) to provide sexual harassment training, restaurants operating in Illinois and New Jersey may want to move towards implementing a sexual harassment policy and training program sooner than later.

This post was written by Jeffrey H. Ruzal and Carly Baratt of Epstein Becker & Green, P.C.

In re Celexa and Lexapro – The First Circuit Weighs in on China Agritech and American Pipe Tolling

The Supreme Court meant what it said in China Agritech, Inc. v. Resh – that is the primary lesson from the First Circuit’s January 30^th decision in In re Celexa and Lexapro Marketing and Sales Practices Litigation. As my partner, Don Frederico, explained in a blog post last year, the Supreme Court observed in China Agritech that its prior ruling in American Pipe & Constr. Co. v. Utah “tolls the statute of limitations during the pendency of a putative class action, allowing unnamed class members to join the action individually or file individual claims if the class fails.” China Agritech went on to hold that “American Pipe does not permit the maintenance of a follow-on class action past expiration of the statute of limitations.” The First Circuit, in In re Celexa and Lexapro, rejected a plaintiff’s attempt to read China Agritech narrowly.

In re Celexa and Lexapro involved consolidated prescription drug marketing cases. Plaintiffs asserted RICO and state-law claims, alleging that defendants fraudulently promoted antidepressant drugs for uses the FDA had not approved – referred to as “off-label” uses. The same defendants had previously been named in a qui tam action that was unsealed in February 2009. One of the plaintiffs, Painters, and Allied Trades District Council 82 Health Care Fund (“Painters”), sought certification of two classes of third party-payors that had paid for or reimbursed off-label prescriptions of Celexa or Lexapro. The district court denied class certification.

On appeal, the First Circuit – while brushing aside the district court’s concerns about individual issues of causation and injury – nevertheless affirmed the denial of class certification. Judge Kayatta, writing for a unanimous panel, concluded that Painters had put forward evidence that could establish causation and injury on a class-wide basis. He went on, however, to find that the class action was time-barred.

The Court first found that Painters’ individual claims were timely. The Court concluded that the four-year statute of limitations was subject to the discovery rule and held that, as a matter of law, the limitations period began running in March 2009 after the qui tam action was unsealed. Painters’ claim was timely because the running of the limitations period was stayed for eight months by a prior class action (the “N.M. UFCW case”). Because Painters was a putative class member of that prior class action, American Pipe tolling applied to its claim during the pendency of the N.M. UFCW case.

Even though Painters’ own claim was timely, the Court nevertheless held that Painters’ class action was not. As Judge Kayatta wrote,

China Agritech clarified that [American Pipe] tolling has limits: While a putative class member may join an existing suit or file an individual action upon denial of class certification, a putative class member may not commence a class action anew beyond the time allowed by the untolled statute of limitations.

The Court refused to limit China Agritech to situations in which class certification was denied in the earlier-filed class action. Painters had argued that, unlike China Agritech, there was no substantive ruling on class certification in the N.M. UFCW case that had preceded Painters’ own action. The First Circuit, however, held that the decision in China Agritech stood for the broad proposition that the “tolling effect of a motion to certify a class applies only to individual claims, no matter how the motion is ultimately resolved. To hold otherwise would be to allow a chain of withdrawn class-action suits to extend the limitations period forever.” The Court, therefore, affirmed the denial of class certification.

After In re Celexa and Lexapro, there is no doubt that China Agritech is no paper tiger in the First Circuit. The rule is clear: a class action does not toll the statute of limitations for subsequent class actions.

This post was written by Joshua D. Dunlap of Pierce Atwood LLP.

Read more litigation news on the National Law Review’s Litigation type of law page.

U.S.EPA Announces National “PFAS Action Plan”

The United States Environmental Protection Agency (U.S.EPA) acting Administrator, Andrew Wheeler, held a press conference at EPA Region III in Horsham, Pennsylvania on Feb. 14, 2019, to announce the U.S.EPA’s PFAS Action Plan. Wheeler indicated that similar announcements of and press conferences relating to the PFAS Action Plan were being held simultaneously in each of the U.S.EPA’s ten regional offices, underlying the importance of the announcement. Wheeler stated that the Agency’s plan was the most comprehensive cross-agency plan introduced by the U.S.EPA.

Acting Administrator Wheeler highlighted five key elements of the PFAS Action Plan:

U.S.EPA has initiated actions to develop a Maximum Contaminant Level, or MCL, for PFAS, and specifically for two PFAS compounds, PFOS and PFOA, by the end of 2019. Wheeler stated that this would be the first substance to have an MCL established since the Safe Drinking Water Act was amended in 1996. Wheeler added that the U.S.EPA maintains that the 70 parts per trillion (ppt) standard is a federally enforceable groundwater standard, despite misconceptions to the contrary.
U.S.EPA will continue to pursue enforcement actions utilizing the existing Health Advisory Level for PFAS of 70 ppt or 70 nanograms per liter.
U.S.EPA will expand monitoring and data gathering related to PFAS, including adding PFAS to the toxics release inventory, which should generate additional information on the extent of PFAS in the industry and in the environment. Wheeler indicated that U.S.EPA is using enhanced mapping tools to identify where and in what communities PFAS is in the groundwater and in the environment.
U.S.EPA will expand research into the impacts of PFAS on human health and the environment, studying fate and transport issues associated with PFAS. Wheeler stated that U.S.EPA wants to “close the gap” on the science related to PFAS, including the more recently manufactured perfluourinated compound known as “GenX”,
U.S.EPA will develop a “risk communication toolbox” that will provide information to the public and the regulated community more clearly.

This post was written by Arthur J. Harrington and Daniel C.W. Narvey and Edward (Ned) B. Witte.

For more Environmental News, check out the National Law Review’s Environmental Type of Law page.

Trouble In Paradise: Florida Court Rules That Selling Bitcoin Is Money Transmission

The growing popularity of virtual currency over the last several years has raised a host of legislative and regulatory issues. A key question is whether and how a state’s money transmitter law applies to activities involving virtual currency. Many states have answered this – albeit in a non-uniform way – through legislation or regulation, including regulatory guidance documents. For instance, Georgia and Wyoming have amended their money transmitter statutes to include or exclude virtual currencies explicitly. In other states, such as Texas and Tennessee, the state’s primary financial regulator has issued formal guidance. In New York, the Department of Financial Services issued an entirely separate regulation for virtual currencies. Still, in others, neither the legislature nor the relevant regulator has provided any insight into how the state’s money transmitter law may apply.

In most states, the judicial branch has not yet weighed in on the question. But Florida is an exception. On January 30, 2019, in State v. Espinoza, Florida’s Third District Court of Appeal interpreted the state’s money transmission law broadly and held that selling bitcoin directly to another person is covered under the law.^[1]The decision will have broad implications for the virtual currency industry in Florida.

BACKGROUND: MIAMI BEACH POLICE DEPARTMENT AND MICHELL ESPINOZA

In December 2013, the Miami Beach Police Department (“MBPD”) perused an Internet website that provided a directory of buyers and sellers of bitcoin. In an undercover capacity, an MBPD agent contacted one of the users, Michell Espinoza. Shortly thereafter, the agent arranged to meet and purchase bitcoin from Espinoza in exchange for cash. The MBPD agent who purchased the bitcoin implied that he would use the bitcoin to fund illicit activities. One month later, the MBPD made a second purchase from Espinoza, telling him that the bitcoin would be used to purchase stolen credit card numbers. After a third and fourth transaction, the MBPD arrested Espinoza. The State of Florida charged him with two counts of money laundering and one count of engaging in the business of a money transmitter without a license. Espinoza moved to dismiss the charges, arguing, among other things, that Florida’s money transmitter law does not apply to bitcoin. The trial court agreed and dismissed all counts against Espinoza.

THE THIRD DISTRICT COURT’S OPINION: SELLING BITCOIN CONSTITUTES MONEY TRANSMISSION

Florida appealed, and the appellate court reversed the trial court’s ruling. The court started its analysis noting that the state’s money transmitter law requires anyone engaging in a “money services business” to be licensed. ^[2] A “money services business” is defined as “any person . . . who acts as a payment instrument seller, . . . or money transmitter.” ^[3] The court held that bitcoin is regulated by Florida’s money transmitter law, and, as a result, Espinoza was both “acting as a payment instrument seller” and “engaging in the business of a money transmitter.”

Under the Florida statute, a “payment instrument seller” is an entity that sells a “payment instrument.”^[4] The phrase “payment instrument” is defined to include a variety of instruments, including “payment of money, or monetary value whether or not negotiable.”^[5] The phrase “monetary value,” in turn, is defined as “a medium of exchange, whether or not redeemable in currency.”^[6] The court interpreted these definitions – which it described as “plain and unambiguous” – to conclude bitcoin falls under the definition of “payment instrument.” To reach that conclusion, it reasoned that bitcoin, which is redeemable for currency, is a medium of exchange, which falls under the definition of “monetary value.” Therefore, it falls under the definition of “payment instrument.” ^[7] To purportedly bolster its point, the court noted that several businesses in the Miami area accepted bitcoin as a form of payment. It also pointed to a final order from the Florida Office of Financial Regulation (“OFR”) in which OFR granted Coinbase a money transmitter license. The court noted that Coinbase provides a service “where a Coinbase user sends fiat currency to another Coinbase user to buy bitcoins.” “Like the Coinbase user,” the court reasoned, the MBPD detective “paid cash to Espinoza to buy bitcoins.”

The court also concluded Espinoza was acting as a money transmitter. Under the Florida statute, a money transmitter is an entity that “receives currency, monetary value, or payment instruments for the purpose of transmitting the same by any means….” [8] Espinoza argued he fell outside this definition because he did not receive payment for the bitcoin for the purpose of transmitting the same to a third party. The court disagreed. It held that the law does not require the presence of a third party because the definition of money transmitter does not mention a third party, either expressly or implicitly. [9] It also disagreed with the trial court and Espinoza’s “bilateral limitation,” which would require Espinoza to have both received and transmitted the same form of currency, monetary value, or payment instrument. According to the court, Espinoza fell within the ambit of the law because he received fiat for the purpose of transmitting bitcoin. It explained that the phrase “the same” in the definition of “money transmission” modifies the list of payment methods, and the use of “or” in that list of payment methods – “currency, monetary value, or payment instrument” – means that “any of the three qualifies interchangeably on either side of the transaction.”

As additional support for its position, the court distinguished a final order entered into by OFR: In re Petition for Declaratory Statement Moon, Inc. According to the court’s description, Moon sought to establish a bitcoin kiosk program under which a Moon customer would pay fiat to a licensed money services business in exchange for a PIN, and the customer would then enter the PIN into a Moon kiosk, which would initiate a transfer of bitcoins to the user from a Moon bitcoin address. Once the PIN was redeemed, the licensed entity would pay Moon. OFR determined Moon did not a license. The court distinguished the Moon order because “Moon merely facilitated the transfer of bitcoins through the use of a licensed money services business,” whereas “[h]ere, no licensed money services business was utilized in the exchange of U.S. dollars for bitcoins that occurred between Espinoza and” the MBPD agent.

COUNTERPOINTS TO THE COURT’S OPINION

Several state legislatures or regulators have amended or interpreted their money transmitter laws to apply to virtual currency, but those actions do not take the form of a judicial opinion. Here, the Third District Court provided its specific reasoning for reaching its conclusions. It remains to be seen whether Espinoza will seek review from the Florida Supreme Court, but there are at least a few points in the court’s opinion that warrant further review and analysis.

First, Espinoza did not receive money for the purpose of transmitting it. He received it in exchange for selling bitcoin; he received it for the purpose of possessing it. The court rejected Espinoza’s attempt to impose a third-party requirement, but the most natural reading of the phrase “transmitting” would require Espinoza to send onward whatever value he received. Merriam-Webster defines “transmit” as “to send or convey from one person or place to another.” By using the words “receive” and “transmit,” the Florida law focuses on the act of sending money to another person and excludes the act of selling money or monetary value. If simply selling property were sufficient to trigger the money transmitter law, the statute would likely sweep far more broadly than intended. Here, Espinoza was acting as a merchant selling goods. This would not constitute money transmission under any reasonable reading of the law. Indeed, some states (and FinCEN) have recognized that a party selling its own inventory of virtual currency in a two-party transaction is not a money transmitter.

Second, the court’s conclusion is further undercut by considering the Moon proceeding the court discusses. The opinion notes “the PIN provided by the licensed money services business to Moon’s customers provided a mechanism by which the exchange of U.S. dollars for bitcoins could be identifiable.” The PIN could arguably be classified as a payment instrument because it is an “other instrument” or “monetary value.” If transmission to a third party is not required, as the court holds, then Moon should have needed a license when it received the PIN and then transmitted bitcoins back to the user that was redeeming the PIN. But that wasn’t the conclusion OFR reached.

Third, the court’s interpretation of how OFR would treat Espinoza’s actions is questionable. In 2014, OFR issued a consumer alert stating that “[v]irtual currency and the organizations using them are not regulated by the OFR.” [10] In addition, in January 2018, OFR released another consumer alert regarding cryptocurrency, stating that “[cryptocurrencies] are subject to little or no regulation,” which further indicates OFR does not interpret the money transmission law to cover cryptocurrencies. [11] The court does not acknowledge these statements. Although the court focuses on an OFR order regarding Coinbase, that order granted Coinbase a license and listed a variety of activities in which Coinbase was engaged or planned to engage. The order does not specify what specific activity was licensable, but it is likely that a license was granted because of the receipt and transmission of fiat currency.

CONCLUSION

If Espinoza appeals, the case could go to the Florida Supreme Court, where the virtual currency industry will receive a more definitive answer. In the meantime, virtual currency businesses should be aware that the Florida Attorney General’s Office interprets the state’s money transmitter act to regulate bilateral sales of virtual currency for fiat currency and is willing to prosecute at least certain cases of unauthorized sales. As of now, Florida’s Third District Court agrees. How the Espinoza case concludes and whether and how the Florida legislature responds will be important to the virtual currency industry.

NOTES

_{[1] — So. 3d –, 2019 WL 361893 (Fla. 3d DCA 2019).}

_{[2] FLA. STAT. § 560.125.}

_{[3] Id. § 560.103(22).}

_{[4] Id. § 560.103(30).}

_{[5] Id. § 560.103(29) (emphasis added).}

_{[6] Id. § 560.103(21).}

_{[7] The court principally discusses whether bitcoin falls under Florida’s money transmitter law. In a few instances, it also references “virtual currency” generally, but it is not clear how broadly it was intending to apply its holding.}

_{[8] Id. § 560.103(23).}

_{[9] As a counterpoint, the court noted that the Financial Crime Enforcement Network’s (“FinCEN”) definition of money transmitter explicitly includes a third party requirement because it defines a money transmitter as someone that accepts value from one person and transmits value to “another location or person by any means….” 31 C.F.R. § 1010.100(ff)(5)(i)(A).}

_{[10] Consumer Alert: Update on Virtual Currency, Office of Financial Regulation, Sept. 17, 2014.}

_{[11] Consumer Alert: Cryptocurrency, Office of Financial Regulation, Jan. 17, 2018.}

This post was written by Judith E. Rinearson Daniel S. Cohen and Jeremy M. McLaughlin of K&L Gates.

The Rise of the Chief Data Officer

There is a new kid on the block . . . the Chief Data Officer (CDO). There is no surprise in our data-driven world that such a role would exist. Yet, many organizations struggle with defining the role and value of the CDO. Effective implementation of a CDO may be informed by other historical evolutions in the C-Suite.

Examining the rise of the Chief Compliance Officer (CCO) in the 2000’s mirrors some of the same frustrations that organizations faced when implementing the CCO role. While organizations were accustomed to having legal, HR, and internal audit departments working together to ensure compliance, suddenly CCOs stepped in to pull certain functions from those departments into the folds of the newly-minted Compliance department. Integrating CDOs appears to follow a similar approach. Particularly in health care, the CDO role is still afloat, absorbing functionality from other departments as demand inside of organizations evolves and intensifies to focus on the financial benefits of their data pools.

Corporate evolution is challenging and often uncomfortable, but the writing is on the wall . . . there are two types of companies: ones that are data-driven and ones that should be. Which will you be?

What is a Chief Data Officer?

CDO responsibilities will vary depending on the organization. Some organizations position the CDO to oversee data monetization strategies, which requires melding business development acumen with attributes of a Chief Information Officer. In some organizations, the CDO may oversee the collection of all of the company’s data in order to transform it into a more meaningful resource to power analytical tools.

A survey of CDO positions identified three common aspirations that organizations have for the role: Data Integrator, Business Optimizer, and Market Innovator. Data Integrators primarily focus on infrastructure to give rise to innovation. Business Optimizers and Market Innovators focus on optimizing current lines of business or creating new ones. These aspirations will likely vary depending on the nature and maturity of organizations. Regardless of the specific role, CDOs can help organizations bridge the widening gap between business development, data management, and data analytics.

Further, a key component of a CDO’s activity will relate to responsible data stewardship. CDO activities will heavily depend on developing a data strategy that complies with legal, regulatory, contractual and data governance boundaries around data collection, use and disclosure. CDOs should work closely with legal counsel and compliance personnel to effectively navigate these challenges. Further discussion of the legal and regulatory landscape around data use is available here.

The Importance of CDOs in Transforming Healthcare Companies

It is clear that leveraging data will be key to innovating, gaining efficiencies, and driving down costs over time. Yet, many organizations continue to struggle with making sense of the data they possess. For some, the CDO may be a critical driving force to advance a business into a new landscape. Just as the CCO helped address decades of frustration with corporate ethics and practices (and was soon demanded by lawmakers and regulators), the role of the CDO has emerged in response to demand for efficiencies in business practices and the recognition that data has become the world’s most valuable commodity.

In light of the explosion of data in the healthcare industry, organizations should consider whether and how a CDO will fit into the corporate structure. Furthermore, organizations should work to understand how having a person at the table with a keen eye towards giving life to an organization’s data resources can benefit the business long term from internal and external perspectives. The ultimate question a CDO can help solve is: What don’t we know that, if we knew, would allow our organization to innovate or operate more efficiently or effectively?

This post was written by Alaap B. Shah and Andrew Kuder of Epstein Becker & Green P.C.

Amazon 2-Day Free Shipping to Serve Divorce Papers: The Bezos Divorce through the Lens of New Jersey Law

Earlier this month, Amazon founder Jeff Bezos and his wife Mackenzie announced their plans to divorce, setting off speculation as to what would occur with their estimated $138 billion in net worth.

From a first glance, you may assume that the Bezos divorce would be much more acrimonious and hard fought than a case involving the typical John and Jane Doe case as the thought may be that there is more to fight for financially.

However, wealth in these incredibly high net worth cases actually removes many of the most challenging issues in divorce like payment of legal and expert fees or trying to continue the lifestyle for both parties with insufficient income from both parties to same to occur. The world’s richest couple will not have these challenges.

Instead, high net worth divorces have a whole different set of challenges that middle-class families typically do not need to consider.

First, the logical step-wise process in any division of assets and debts in a divorce is to ascertain, account for and value all of the assets and debts owned by either or both parties. For the Bezoses and other high net worth divorcees, this will likely be a complex, incredibly time-consuming process.

Beyond typical assets like cash, brokerage accounts, and retirement assets, parties like the Bezoses likely have ownership interests in many separate enterprises, corporations, partnerships, subsidiaries, investment trusts, along with extensive real estate, private equity holdings, and even art and jewelry collections all of which need to be accounted for and valued. Trusts and incredibly complex ownership structures will need to be investigated, digested and analyzed.

The Bezoses are going to need all sorts of professionals supervising and drafting documents to make sure that any kind of asset transfer will be well drafted and will protect both parties. If we do find any details about the Bezoses settlement (which I expect to remain private, as further outlined below), it will not likely be completed for years to come.

The most expensive part of the divorce process is not likely to be legal fees, but rather fees and costs for experts and appraisers who must figure out how to divide up the largest tranche of personal assets in the world.

Privacy is paramount in cases dealing with prominent figures and celebrities such as the Bezoses. Millions are chomping at the bit to hear about what they have, how it will be divided, and whether the fight will get ugly. In fact, this blog relies on the assumption that those of you reading this have at least some interest as to their personal lives and the theater of their divorce.

For this reason, it is very unlikely that the Bezos divorce ever sees a courtroom. It’s all but guaranteed that the divorce will be resolved through a private negotiated settlement, mediation or a private arbitration, or some combination all held behind closed doors with gag orders and strict confidentiality.

Lastly for this article, Jeff Bezos’ majority stakeholder status at Amazon brings about its own challenges, as would any high net worth divorcee with controlling interest in a business enterprise. Since the vast majority of Bezos’ wealth is tied up in his ownership stake in Amazon, which he started after marrying his wife, providing for equitable distribution may need to become creative.

Jeff and Mackenzie Bezos are based in the state of Washington, which is a community property state. This means that each spouse equally owns all of the assets either party has acquired over the course of their marriage, including their corporate shares. This differs from equitable distribution states like New Jersey, where division of the assets and debts of spouses are determined by a host of statutory factors meant for a fair allocation, which may not be an equal allocation.

Jeff Bezos, according to Forbes, owns 16% of Amazon, by far the largest shareholder. With major stockholders in a divorce, you want to be sure to effectuate division of the assets in such a way that does not divest control from that shareholder. For example, in the Bezos case, Mackenzie may be entitled to 50% of the total shares (remember, they live in a community property state where 50/50 splits are the presumption).

However, if 50% of Jeff Bezos’ shares are conveyed to Mackenzie and she liquidates a portion, shareholder control of Amazon could be significantly affected and the Bezos may lose their controlling stake. This could stagnate the family fortune which would benefit the Bezos’ children and legacy, which is unlikely to be MacKenzie’s goal or desire.

Instead, what is more likely is that Mackenzie will get “constructive ownership” of 50% of the shares, with Jeff retaining control of the business enterprise. Mackenzie will get the dividends from her portion of the shares and if there is a liquidity event, she might get bought out, but there would not likely be an actual transfer that would divest the family of control of Amazon.

There also may be a division based on exchanging values, meaning that perhaps an agreement is made wherein Mackenzie receives a much larger share or the entirety of other assets that would equal the value of her potential portion of her 50% right to the Amazon shares. However, this option appears to be less likely given that the majority of the Bezos net worth is tied to their Amazon holdings. Depending on how diversified they are, perhaps Jeff can convey more of some other assets and less of Amazon.

Time will tell whether we will ever know the result of the Bezos divorce, but we can be assured that the world will be watching to see what we can in regard to the world’s highest net worth divorce on record.

This post was written by Louis M. Ragone of Stark & Stark.

Three Critical Legal Documents Every Parent Should Get in Place Now to Safeguard Their Adult Children

As a parent, you might not fully appreciate that when your child turns 18 years of age, at least in the eyes of the law, you no longer have certain inherent rights related to medical and financial details about your adult child. For this reason, you’re strongly advised to get three simple legal documents in place to ensure you’re able to intervene on behalf of your adult child in the event your child is injured, becomes ill or is otherwise incapacitated.

These situations aren’t easy to think about, but imagine the following scenarios:

Your 19-year-old son, while away at college, is involved in a severe car accident and is rushed to the hospital unconscious.
Your unmarried 25-year-old daughter, while vacationing with friends in Hawaii, is unconscious in the hospital following a jet-skiing accident.
Your newly divorced 30-year-old son is hospitalized after suffering a brain hemorrhage and is put into a medically induced coma.

In each scenario, when you find out that your adult child is in the hospital, you immediately call for details about your child’s condition. You are horrified when the nurse says, “I’m sorry, but I am not authorized to provide you with any information or allow you to make any decisions.”

Here are insights about the three legal documents that would be prudent to have in place on behalf of your adult child before another day goes by.

1. HIPAA Authorization Form (for Authority to Speak with Healthcare Providers)

HIPAA, or the Health Insurance Portability and Accountability Act of 1996, exists for good reason; it is a federal law that safeguards who can access an adult’s private health data. If you call or visit the hospital to inquire about your adult child, as in the above scenarios, healthcare providers are prohibited by law from revealing health information to you – or anybody else – about your child; healthcare practitioners could face severe penalties if they violate HIPAA laws.

This illustrates why a HIPAA authorization, signed by your adult child and naming you as an authorized recipient, is so critical. It gives you the ability to ask for and receive information from healthcare providers about your child’s health status, progress, and treatment. This is particularly important in the event your adult child is unconscious or incapacitated for a period of time. Without a HIPAA authorization in place, the only other way to obtain information regarding your child’s health would be to go to court.

2. Healthcare Power of Attorney (for Medical Decisions)

If your adult child signs a Healthcare Power of Attorney naming you his/her “medical agent,” you will have the ability to view your child’s medical records and make informed medical decisions on his/her behalf. Without this document or a court-appointed guardianship, healthcare decisions concerning your child’s diagnosis and treatment will be solely in the hands of healthcare providers. While this is not always a bad thing, a physician’s primary duty is to keep the patient alive. So, a healthcare provider might not pursue a risky or experimental course of treatment at the risk of exposure to liability.

Keep in mind that doctors prefer to see one medical agent named rather than multiple medical agents. The concern is that multiple medical agents may not agree on the medical course of action to take on behalf of the incapacitated adult. As a best practice, it’s prudent to name multiple agents in priority order with single authority; for example, the adult child’s mother might be listed first as the medical agent; if the mother is unable or unwilling to serve in that capacity, the second person listed—say the child’s father—would be empowered to step in.

3. General Durable Power of Attorney (for Financial Decisions)

If your adult child were ever incapacitated, you would also benefit greatly from having a General Durable Power of Attorney in place, where you were named as the “agent” authorized to make financial decisions on his/her behalf. This would allow you as the named agent to manage bank accounts, pay bills, sign tax returns, apply for government benefits, break or apply for a lease, and conduct similar activities relating to your child’s financial and legal affairs. Otherwise, you will not be able to assist your child in managing his or her financial affairs without a court-appointed conservatorship.

Important Considerations

There are some important considerations to keep in mind regarding these documents:

Update these forms yearly. Be prepared to have your adult child re-sign and re-execute these documents every couple of years. This is especially critical for Powers of Attorney. The institutions where you would be most likely to use these documents – such as hospitals and banks – might refuse to honor them if they perceive them to be outdated.
These documents are only as good as the institutions that will accept them. Making sure these documents are properly executed is half the battle; whether they will be accepted by the involved institutions is the other half of the battle—one you don’t have complete control over.
These documents can be revoked at any time by your adult child either orally or in writing. Your adult child retains control of the ongoing validity of these documents; therefore, your best bet is to maintain a trusting relationship with your child so he/she sees the benefit of giving you the access and control these documents afford.
For adult children attending college at an out-of-state university, parents will want to execute separate documents in both the student’s home state and college state. If your daughter is from Denver but is attending college in Los Angeles, you’ll want one set of documents prepared under and governed by Colorado law and a second set of documents prepared under and governed by California law.

This post was written by Dylan H. Metzner of Ryley Carlock & Applewhite. A Professional Association.

They Are Taking Our Common Area!

The power of eminent domain, also referred to as condemnation, refers to the power of the government or other quasi-governmental entity, such as a utility company, to take private property for a public purpose.

The law requires “just compensation” to be paid when a taking occurs. What happens, however, when the property taken is common area owned by a community association, property owners’ association (“POA”), or homeowners’ association (“HOA”) (collectively, “Association”)?

In a subdivision or planned community managed by an Association, the common area and elements are typically owned by the Association. However, the individual property owners have easement rights granting them the right to use the common area (for example, parks, playgrounds, swimming pools, tennis courts, streets and walkways, and other commonly shared property). An easement is a property right that, if taken, requires the payment of just compensation to the holder of the easement; in this case, the various lot owners in the planned community or subdivision. In the case of a condominium, the condominium unit owners actually own the common area in fee simple as tenants in common. This fee simple ownership, if taken, would normally require the payment of “just compensation” to the unit owners for the value of the property interest lost as a result of the taking.

The taking of common area and common elements can significantly impair the value of the lots, homes and units in a community. Picture, for example, a DOT taking where an elevated highway is built where the community’s swimming pool once stood. Are the lot and unit owners entitled to just compensation for the value of the common area taken and the damage done to their property values in a condemnation proceeding? The answer is “yes, no, and maybe.”

Uniform Planned Community Act/Uniform Condominium Act

In states such as North Carolina that have enacted legislation that substantially follows the Uniform Planned Community Act (“UPCA”) and the Uniform Condominium Act (“UCA”), the Association is granted the power and authority to act for all of the lot owners or unit owners in a condemnation or eminent domain case where common area is taken. The Acts provide that the portion of the just compensation award “attributable to the common elements taken” shall be paid to the Association. The Acts and the governing documents of the planned community or condominium dictate how the just compensation paid to the Association can be used or disbursed.

It would seem that, despite this law, a lot owner or unit owner whose property value has been substantially affected by the taking of common area should also be entitled to compensation for the reduced value of the lot or unit. In a case decided by the Supreme Court of Kansas, for example, the Kansas DOT took lots in a subdivision that were subject to Restrictive Covenants preventing the construction of anything but single-family homes on the subdivision lots. The Court held that the single-family home restriction was a “property right” of the remaining lot owners in the subdivision that was taken when a highway bridge was constructed on the taken lots. The Court sent the case back to the trial court with instructions to determine the damage that each lot owner had sustained as a result of the taking.

Fiduciary Duty

The officers and directors of an Association have a fiduciary duty to properly respond to and deal with a taking. The Association should take advantage of any opportunities that arise before the taking actually occurs for input into the nature and extent of the taking, including, in the case of roads or highways, their location and design. Typically, the condemning entity will have an appraisal done estimating the value of the property to be taken and the just compensation that should be paid to the property owner or, with common elements, the Association. Often times it will be incumbent upon the Association to retain its own appraiser to ensure that a fair price is paid. The condemning entity will certainly have legal counsel, and the Association would be wise to retain its own legal counsel to provide guidance through this process and to ensure that the Association is fulfilling its fiduciary duty.

Conclusion

The taking of a common area or common elements by a condemning entity can be a devastating and traumatic occurrence for an Association and its members. The Association needs to understand the process and deal with it appropriately. Having an attorney who is experienced in both the areas of community association law and eminent domain law will be essential.

This post was written by Ryal W. Tayloe and Allen N. Trask, III of Ward and Smith, P.A.