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The National Law Forum - Page 490 of 753 - Legal Updates. Legislative Analysis. Litigation News.

Source Aggregation: Recent Court Decision Addresses Whether Certain Facilities are “Adjacent”

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On February 23, 2015, the U.S. District Court for the Middle District of Pennsylvania issued a decision finding eight compressor stations to be “separate sources” under the Clean Air Act and State of Pennsylvania regulations.  Citizens for Pennsylvania’s Future v. Ultra Resources, Inc., 4:11-CV-1360, 2015 WL 769757 (M.D. Pa. Feb. 23, 2015).  This case addresses a concept known as “source aggregation,” also referred to as “single source” or “co-location.”  This is the concept where a regulatory agency views multiple facilities or activities as a “single source,” air emissions from which must be aggregated to determine whether certain permitting thresholds are met, such as the Clean Air Act’s Title V or New Source Review major source programs.

As discussed in detail in the following sections, there are many EPA determinations, advisory letters and memoranda discussing whether certain facilities are “adjacent” under the source aggregation test, but there have not been many court decisions. Thus, this District Court decision in Citizens for Pennsylvania’s Future is notable because it is one of only a few cases that provide guidance on this issue. In addition, the Court decision itself is important in that there are now two federal court decisions holding that the plain meaning of the term “adjacent” is determinative in the inquiry of whether multiple facilities are co-located under the source aggregation test.

With these insights, read on to see why facility operators need to be aware of how states in which they operate interpret the “adjacency” element of the source aggregation test and why possibilities for controversy remain.

Underlying Facts in Citizens for Pennsylvania’s Future

In Citizens for Pennsylvania‘s Future, the operator of eight compressor stations, Ultra Resources, Inc., obtained eight separate minor source permits for each of its compressor stations. The compressor stations were scattered across two counties.  The shortest linear distance between any two of the compressor stations was more than ¾ mile apart, and the furthest linear distance was nearly 4½ miles apart.  If lines were drawn between all of the compressors, the total area within the lines would be less than 5 square miles.

Each compressor station was connected to a central metering and regulating station, but the compressor stations were not connected to each other.  While none of the compressor stations individually had the capacity to emit more than 100 tons per year (tpy) of nitrogen oxide (NOx), collectively the eight compressor stations could potentially emit more than 100 tpy of NOx.  The applicable major source permitting threshold for NOx discussed in Citizens for Pennsylvania’s Future was 100 tpy.

An environmental group, Citizens for Pennsylvania’s Future (known as “PennFuture”) filed a citizen suit against Ultra Resources, claiming that the eight compressor stations should be considered a single source of air emissions; and therefore, emissions from the eight stations should be aggregated.  PennFuture argued that because the aggregated NOx emissions would exceed major source thresholds, Ultra Resources was in violation of the Clean Air Act and certain Pennsylvania regulations for not having obtained a major source permit under the nonattainment New Source Review program.

Ultra Resources filed a Motion for Summary Judgment, arguing that the compressor stations were separate sources and that it properly obtained separate minor source permits for each of the compressor stations.  The February 23, 2015 Court decision was issued in response to Ultra Resources’ Motion for Summary Judgment.  The contested issue addressed by the Court decision was whether the eight compressor stations were properly considered to be separate sources or whether they should be deemed a single source.

Source Aggregation Test and the “Adjacent” Element

The federal New Source Review program defines a single source using a three-part test, under which facilities are a single source if they: (1) are under common control; (2) have the same two-digit, i.e., major industry grouping, SIC code; and (3) are co-located, i.e., they are located on adjacent or contiguous properties. 40 C.F.R. § 51.166(b)(5) and (6) (defining a “stationary source” under the New Source Review program); 40 C.F.R. § 52.21 (b)(5) and (6) (defining a “stationary source” under the New Source Review program, as applied to delegated state programs).  Each element must exist to be deemed a single source.

The State of Pennsylvania adopted a similar test in its regulation, defining a “facility” as “[a]n air contamination source or a combination of air contamination sources located on one or more contiguous or adjacent properties and which is owned or operated by the same person under common control.”  25 Pa. Code § 121.1.

In Citizens for Pennsylvania’s Future, the Court explained that it was undisputed that the compressor stations were under common control and that they were not located on contiguous properties.  Because Pennsylvania’s regulatory definition of a source, quoted above, does not contain the SIC code element, that element was not discussed in the case.  Thus, the Court’s inquiry focused on whether the compressor stations were “adjacent.”

The term “adjacent” is not expressly defined in the Clean Air Act or in the U.S. Environmental Protection Agency (EPA) regulations.  Over the many years of Clean Air Act implementation, EPA has interpreted the term to entail a review of not only whether facilities are physically proximate, but also whether the facilities are functionally interrelated.

EPA’s assessment of whether facilities are functionally interrelated has been controversial.  Some have touted the consideration of functional interrelatedness as useful to assess whether the subject facilities approximate the “common sense notion of a plant,” which EPA has described as a fundamental feature of a single source.  See EPA, Final Rule, Requirements for Preparation, Adoption, and Submittal of Implementation Plans; Approval and Promulgation of Implementation Plans, 45 Fed. Reg. 52676, 52695 (Aug. 7, 1980).  Others have opposed the consideration of functional interrelatedness as inserting too much subjectivity to the source aggregation test and as varying from the plain meaning of the language used in the regulatory definition of a source.

While various EPA guidance materials discuss whether certain facilities are “adjacent,” such as EPA decisions, opinions and memoranda, and while some states have developed their own such guidance materials, there have not been many court decisions.  Thus, Citizens for Pennsylvania’s Future is one of the few court cases addressing this controversial topic.

District Court’s Analysis of Whether the Compressor Stations were “Adjacent”

The Citizens for Pennsylvania’s Future Court reviewed several resources to guide its analysis of whether the eight compressor stations were “adjacent.”  The Court discussed the 2012 U.S. Court of Appeals for the Sixth Circuit decision in Summit Petroleum Corp. v. EPA, 690 F.3d 733, which directed EPA to apply the plain meaning of the term “adjacent” as determinative.  Summit Petroleum involved a gas sweetening plant and approximately 100 sour gas wells scattered across 43 square miles and ranging from 500 feet to 8 miles in distance from the sweetening plant.  EPA had concluded the sweetening plant and gas wells were a single source, based on EPA’s consideration of the functional interrelatedness of the plant and wells.

On appeal filed by the operator, the Sixth Circuit held that EPA’s consideration of functional interrelatedness was improper and, under the Clean Air Act’s definition of a source, EPA must determine whether the sweetening plant and gas wells are “close to,” “next to,” “adjoining,” or “physically proximate.”  The District Court in Citizens for Pennsylvania’s Future acknowledged that the Sixth Circuit decision in Summit Petroleum was non-binding; however, the District Court ultimately followed the Sixth Circuit’s conclusion that the plain meaning of the term adjacent is determinative in the source aggregation analysis.

The District Court also reviewed relevant Pennsylvania decisions and guidance interpreting Pennsylvania’s definition of a source.  Unlike most other states in the U.S., Pennsylvania has adopted guidance to help address the question of what is adjacent.  The Pennsylvania guidance reviews the dictionary definition of “adjacent” and provides that the plain meaning of the term “adjacent” should be the dispositive factor when determining whether sources are located on adjacent properties.  However, the guidance also states that functional interrelatedness may be considered when performing a source aggregation analysis. The guidance further provides that properties located within ¼ mile are considered adjacent.  For properties located further than ¼ mile apart, a case-by-case review must be performed.  Thus, the guidance does not foreclose the possibility that facilities located further than ¼ mile apart may be deemed adjacent based on a case-by-case consideration of functional interrelatedness.

Following its review of Summit Petroleum and the Pennsylvania guidance, the District Court applied the plain meaning of “adjacent” and concluded that the Ultra Resources’ compressor stations were not sufficiently “close to” or “near” enough to each other to be considered “adjacent.”  Although the Court held that the plain meaning of “adjacent” should be determinative, the Court noted that, given the Pennsylvania guidance, functional interrelatedness could be considered on a case-by-case basis.

Even looking at functional interrelatedness, the Court concluded that because the compressor stations were not connected to each other and they operated independently of one another, and despite the fact that each station was connected to a metering and regulating station for ultimate deposit into a transmission pipeline, the compressor stations were not functionally interrelated anyhow. Therefore, the Court granted Ultra Resources’ Motion for Summary Judgment concluding that the compressor stations were not adjacent and, as such, were not a single source and were properly permitted as separate sources.

Import of Citizens for Pennsylvania’s Future

The recent District Court decision in Citizens for Pennsylvania’s Future is noteworthy as one of the few court cases that offers guidance on this controversial topic.  The outcome of the Court decision itself is also significant because there are now two federal court decisions that reached similar conclusions that the plain meaning of the term “adjacent” is determinative in the inquiry of whether multiple facilities are co-located under the source aggregation test.  Though, unlike the Sixth Circuit’s decision in Summit Petroleum, there was a Pennsylvania policy which was relevant in the District Court’s analysis of adjacency in Citizens for Pennsylvania’s Future and the District Court acknowledged that pursuant to the Pennsylvania policy the consideration of functional interrelatedness may be appropriate on a case-by-case basis.

Thus, Citizens for Pennsylvania’s Future highlights that facility operators need to be aware of how states in which they operate have interpreted the “adjacency” inquiry of the source aggregation test and be alert to any future guidance and court decisions on this controversial topic.

Source Aggregation: Recent Court Decision Addresses Whether Certain Facilities are "Adjacent"

RCA Logo

On February 23, 2015, the U.S. District Court for the Middle District of Pennsylvania issued a decision finding eight compressor stations to be “separate sources” under the Clean Air Act and State of Pennsylvania regulations.  Citizens for Pennsylvania’s Future v. Ultra Resources, Inc., 4:11-CV-1360, 2015 WL 769757 (M.D. Pa. Feb. 23, 2015).  This case addresses a concept known as “source aggregation,” also referred to as “single source” or “co-location.”  This is the concept where a regulatory agency views multiple facilities or activities as a “single source,” air emissions from which must be aggregated to determine whether certain permitting thresholds are met, such as the Clean Air Act’s Title V or New Source Review major source programs.

As discussed in detail in the following sections, there are many EPA determinations, advisory letters and memoranda discussing whether certain facilities are “adjacent” under the source aggregation test, but there have not been many court decisions. Thus, this District Court decision in Citizens for Pennsylvania’s Future is notable because it is one of only a few cases that provide guidance on this issue. In addition, the Court decision itself is important in that there are now two federal court decisions holding that the plain meaning of the term “adjacent” is determinative in the inquiry of whether multiple facilities are co-located under the source aggregation test.

With these insights, read on to see why facility operators need to be aware of how states in which they operate interpret the “adjacency” element of the source aggregation test and why possibilities for controversy remain.

Underlying Facts in Citizens for Pennsylvania’s Future

In Citizens for Pennsylvania‘s Future, the operator of eight compressor stations, Ultra Resources, Inc., obtained eight separate minor source permits for each of its compressor stations. The compressor stations were scattered across two counties.  The shortest linear distance between any two of the compressor stations was more than ¾ mile apart, and the furthest linear distance was nearly 4½ miles apart.  If lines were drawn between all of the compressors, the total area within the lines would be less than 5 square miles.

Each compressor station was connected to a central metering and regulating station, but the compressor stations were not connected to each other.  While none of the compressor stations individually had the capacity to emit more than 100 tons per year (tpy) of nitrogen oxide (NOx), collectively the eight compressor stations could potentially emit more than 100 tpy of NOx.  The applicable major source permitting threshold for NOx discussed in Citizens for Pennsylvania’s Future was 100 tpy.

An environmental group, Citizens for Pennsylvania’s Future (known as “PennFuture”) filed a citizen suit against Ultra Resources, claiming that the eight compressor stations should be considered a single source of air emissions; and therefore, emissions from the eight stations should be aggregated.  PennFuture argued that because the aggregated NOx emissions would exceed major source thresholds, Ultra Resources was in violation of the Clean Air Act and certain Pennsylvania regulations for not having obtained a major source permit under the nonattainment New Source Review program.

Ultra Resources filed a Motion for Summary Judgment, arguing that the compressor stations were separate sources and that it properly obtained separate minor source permits for each of the compressor stations.  The February 23, 2015 Court decision was issued in response to Ultra Resources’ Motion for Summary Judgment.  The contested issue addressed by the Court decision was whether the eight compressor stations were properly considered to be separate sources or whether they should be deemed a single source.

Source Aggregation Test and the “Adjacent” Element

The federal New Source Review program defines a single source using a three-part test, under which facilities are a single source if they: (1) are under common control; (2) have the same two-digit, i.e., major industry grouping, SIC code; and (3) are co-located, i.e., they are located on adjacent or contiguous properties. 40 C.F.R. § 51.166(b)(5) and (6) (defining a “stationary source” under the New Source Review program); 40 C.F.R. § 52.21 (b)(5) and (6) (defining a “stationary source” under the New Source Review program, as applied to delegated state programs).  Each element must exist to be deemed a single source.

The State of Pennsylvania adopted a similar test in its regulation, defining a “facility” as “[a]n air contamination source or a combination of air contamination sources located on one or more contiguous or adjacent properties and which is owned or operated by the same person under common control.”  25 Pa. Code § 121.1.

In Citizens for Pennsylvania’s Future, the Court explained that it was undisputed that the compressor stations were under common control and that they were not located on contiguous properties.  Because Pennsylvania’s regulatory definition of a source, quoted above, does not contain the SIC code element, that element was not discussed in the case.  Thus, the Court’s inquiry focused on whether the compressor stations were “adjacent.”

The term “adjacent” is not expressly defined in the Clean Air Act or in the U.S. Environmental Protection Agency (EPA) regulations.  Over the many years of Clean Air Act implementation, EPA has interpreted the term to entail a review of not only whether facilities are physically proximate, but also whether the facilities are functionally interrelated.

EPA’s assessment of whether facilities are functionally interrelated has been controversial.  Some have touted the consideration of functional interrelatedness as useful to assess whether the subject facilities approximate the “common sense notion of a plant,” which EPA has described as a fundamental feature of a single source.  See EPA, Final Rule, Requirements for Preparation, Adoption, and Submittal of Implementation Plans; Approval and Promulgation of Implementation Plans, 45 Fed. Reg. 52676, 52695 (Aug. 7, 1980).  Others have opposed the consideration of functional interrelatedness as inserting too much subjectivity to the source aggregation test and as varying from the plain meaning of the language used in the regulatory definition of a source.

While various EPA guidance materials discuss whether certain facilities are “adjacent,” such as EPA decisions, opinions and memoranda, and while some states have developed their own such guidance materials, there have not been many court decisions.  Thus, Citizens for Pennsylvania’s Future is one of the few court cases addressing this controversial topic.

District Court’s Analysis of Whether the Compressor Stations were “Adjacent”

The Citizens for Pennsylvania’s Future Court reviewed several resources to guide its analysis of whether the eight compressor stations were “adjacent.”  The Court discussed the 2012 U.S. Court of Appeals for the Sixth Circuit decision in Summit Petroleum Corp. v. EPA, 690 F.3d 733, which directed EPA to apply the plain meaning of the term “adjacent” as determinative.  Summit Petroleum involved a gas sweetening plant and approximately 100 sour gas wells scattered across 43 square miles and ranging from 500 feet to 8 miles in distance from the sweetening plant.  EPA had concluded the sweetening plant and gas wells were a single source, based on EPA’s consideration of the functional interrelatedness of the plant and wells.

On appeal filed by the operator, the Sixth Circuit held that EPA’s consideration of functional interrelatedness was improper and, under the Clean Air Act’s definition of a source, EPA must determine whether the sweetening plant and gas wells are “close to,” “next to,” “adjoining,” or “physically proximate.”  The District Court in Citizens for Pennsylvania’s Future acknowledged that the Sixth Circuit decision in Summit Petroleum was non-binding; however, the District Court ultimately followed the Sixth Circuit’s conclusion that the plain meaning of the term adjacent is determinative in the source aggregation analysis.

The District Court also reviewed relevant Pennsylvania decisions and guidance interpreting Pennsylvania’s definition of a source.  Unlike most other states in the U.S., Pennsylvania has adopted guidance to help address the question of what is adjacent.  The Pennsylvania guidance reviews the dictionary definition of “adjacent” and provides that the plain meaning of the term “adjacent” should be the dispositive factor when determining whether sources are located on adjacent properties.  However, the guidance also states that functional interrelatedness may be considered when performing a source aggregation analysis. The guidance further provides that properties located within ¼ mile are considered adjacent.  For properties located further than ¼ mile apart, a case-by-case review must be performed.  Thus, the guidance does not foreclose the possibility that facilities located further than ¼ mile apart may be deemed adjacent based on a case-by-case consideration of functional interrelatedness.

Following its review of Summit Petroleum and the Pennsylvania guidance, the District Court applied the plain meaning of “adjacent” and concluded that the Ultra Resources’ compressor stations were not sufficiently “close to” or “near” enough to each other to be considered “adjacent.”  Although the Court held that the plain meaning of “adjacent” should be determinative, the Court noted that, given the Pennsylvania guidance, functional interrelatedness could be considered on a case-by-case basis.

Even looking at functional interrelatedness, the Court concluded that because the compressor stations were not connected to each other and they operated independently of one another, and despite the fact that each station was connected to a metering and regulating station for ultimate deposit into a transmission pipeline, the compressor stations were not functionally interrelated anyhow. Therefore, the Court granted Ultra Resources’ Motion for Summary Judgment concluding that the compressor stations were not adjacent and, as such, were not a single source and were properly permitted as separate sources.

Import of Citizens for Pennsylvania’s Future

The recent District Court decision in Citizens for Pennsylvania’s Future is noteworthy as one of the few court cases that offers guidance on this controversial topic.  The outcome of the Court decision itself is also significant because there are now two federal court decisions that reached similar conclusions that the plain meaning of the term “adjacent” is determinative in the inquiry of whether multiple facilities are co-located under the source aggregation test.  Though, unlike the Sixth Circuit’s decision in Summit Petroleum, there was a Pennsylvania policy which was relevant in the District Court’s analysis of adjacency in Citizens for Pennsylvania’s Future and the District Court acknowledged that pursuant to the Pennsylvania policy the consideration of functional interrelatedness may be appropriate on a case-by-case basis.

Thus, Citizens for Pennsylvania’s Future highlights that facility operators need to be aware of how states in which they operate have interpreted the “adjacency” inquiry of the source aggregation test and be alert to any future guidance and court decisions on this controversial topic.

Bank of America’s Inconsistent Positions re: Faulty Residential Mortgage-backed Securities

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Bank of America recently moved to dismiss a lawsuit filed by Ambac Assurance Corp. in New York state court, alleging $600 million in damages for fraudulent inducement in connection with payments it made under policies insuring faulty residential mortgage-backed securities issued by Countrywide. In its complaint filed at the end of 2014, Ambac claims that it insured securities in eight RMBS trusts worth $1.68 billion at the height of the housing boom from 2005 to 2007, in reliance on Countrywide securities offerings that contained false and misleading information. Ambac contends it would have never insured the transactions had it known Countrywide failed to follow strong underwriting guidelines as it claimed. The bond insurer filed a similar lawsuit against Bank of America in 2010 which is still ongoing.

BofA Launches Stones From its Glass House

MoneyIn its motion seeking dismissal, Bank of America denigrates Ambac’s lawsuit as a “sophisticatedmonoline insurer’s hindsight effort to shift blamefor its own recklessness.” Bank of America goes on to state that Ambac, having sued every major participant in the RMBS market it did business with in the years leading up to the collapse of the housing market, is now “unwilling to accept the consequences of its own losing bets.” In its heated argument for dismissal, Bank of America is also critical of Ambac for having “access to offering documents rife with relevant disclosures” and that it was “incumbent on an insurer of its size and sophistication” to conduct its own due diligence.

Like a chameleon that changes its colors to conform to the surrounding environment, Bank of America appears to be changing positions to meet the needs of each case. The use of the defenses cited above are astounding considering that Bank of America itself (which can easily be regarded as a “sophisticated” financial institution engaged in a “hindsight effort to shift blame,” because it is “unwilling to accept the consequences of its own losing bets”) has alleged in various lawsuits and pre-litigation payment demands that correspondent lenders misrepresented the quality of the loan products it structured, such as stated income loans, no doc loans, and “fast and easy” loans. Countrywide originated such loans on a retail basis, and also was a voracious purchaser from correspondent lenders and other parties during the housing boom. In these lawsuits, Bank of America engages in revisionist history by attempting to shift the blame onto correspondent lenders for its own recklessness. For each transaction, Countrywide, a bank of considerable size and sophistication, had access for years as purchaser and usually servicer, to documents that contained the same alleged “misrepresentations” and “defects” that form the very questionable basis for its lawsuits filed years later.

Correspondent lenders defending buyback lawsuits brought by Bank of America should consider the bank’s use of these key defenses as a validation of the merit of those defenses. In any such lawsuit, correspondent lenders now have an even greater ability than they already did to hold Bank of America’s strikingly inconsistent positions against it.

Insurers See Worldwide Drop in Customer Satisfaction

Risk Management Magazine / Risk Managment Montitor a publication of RIMS

Non-life insurers in most of the world saw improved underwriting ratios last year, thanks to a significant drop in claims expenses and rising premium volume aided by growth in emerging markets. According to Capgemini’s 2015 World Insurance Report, however, insurers were not nearly as successful with their customers.

Globally, positive customer experiences decreased significantly in 2014, indicating that steps taken by insurers are not matching rising customer expectations, the consultancy reported. The fall was pervasive worldwide, but North America witnessed the largest drop of 8.3 percentage points, followed by Latin America with 5.3 points.

According to the report, “The agent channel delivered positive experience levels that were almost double those of digital channels, suggesting that digital channels are dragging down global customer experience levels. Customer expectations of digital channels such as mobile and social media are rising rapidly along with their usage and importance. However, more than 40% of customers cited positive experiences through the agency channel, while less than 30% of customers had positive experiences through digital channels such as mobile and social media.”

Claims servicing is also problematic in terms of customer experience, seeing the lowest percentage of happy customers.

Among all customers, Gen Y currently presents the biggest decrease in satisfaction. The drop in positive experience levels was much steeper for this age group than any other, and this trend is seen across all regions, especially in the developed markets. In North America, the drop in experience levels for Gen Y customers was approximately 10 percentage points steeper than other age segments, while in developed Asia-Pacific the difference was around five percentage points, Capgemini reported.

Check out more of the study’s key findings in the infographic below:

Insurers See Worldwide Drop in Customer Satisfaction

ARTICLE BY

Hilary Tuttle
Risk and Insurance Management Society, Inc. (RIMS)

Target Corp. v. Destination Maternity Corp., Final Written Decision IPR2013-00532

Drinker Biddle & Reath LLP a leading law firm with a national footprint

Takeaway: Where neither party provides an interpretation of a term that provides additional clarity, the Board will give the term its plain and ordinary meaning.

In its Final Written Decision, the Board found that Petitioner had shown by a preponderance of the evidence that all challenged claims (claims 1, 2, 5, 6, 10, 11, and 15-17) of the ’531 patent are unpatentable. The ’531 patent “relates to a garment worn during different stages of pregnancy and different stages of postpartum body changes.”

The Board addressed claim construction, stating that claims in an unexpired patent are given their broadest reasonable construction in light of the specification of the patent. The Board first analyzed the term “just beneath the wearer’s breast area.” Patent Owner argued that the term means “beneath the location of the breasts by a very small margin.” However, the term “very small margin” does not provide any further clarity. The Board determined that because neither party offered a construction that provides additional clarity, the plain and ordinary meaning will be given. Also, the Board determined that the term is a term of approximation and that a garment may satisfy claim 1 for one wearer but not another because of differences in the wearers’ body types.

The Board then analyzed the term “different body types” used in claims 2 and 17. Although Patent Owner did not propose constructions for this limitation, its patentability arguments advance an implicit construction of “different body types” that requires an unspecified amount of difference between said body types. The Board determined that the broadest reasonable construction of “different body types” means “two or more body types that are not identical.”

The Board then analyzed the term “an elastic fabric that is contractible elastically to cover an abdomen during different stages of postpartum body changes” from claim 5. Although Patent Owner did not propose constructions for this limitation, the Board determined that its patentability arguments advanced an implicit construction that claim 5 requires a specific, yet unspecified, minimum amount of contractability. However, the specification does not specify any minimum amount of contractability and does not describe or identify any stages of postpartum body changes. Accordingly, the Board determined that the broadest reasonable construction of “during different stages of postpartum body changes” means “during any postpartum body change of any wearer,” which means that the fabric does not have to contract to cover postpartum body changes of every potential wearer or to cover all postpartum body changes of any wearer.

The Board next addressed the asserted grounds of unpatentability. Addressing anticipation based on a JC Penney catalog for fold-over panel jeans, the Board disagreed with Patent Owner’s assertion that the product shown in the catalog did not disclose a panel extending “high enough on the wearer’s body.” The Board found that the JC Penney catalog disclosed a panel substantially covering the belly region and noted that it was the belly region, and not the panel, that the claims require to extend to just beneath the wearer’s breast area. Thus, the Board was persuaded that claim 1 was anticipated by the JC Penney reference. Also, the Board disagreed with Patent Owner’s assertion that Petitioner has failed to prove that the panel of the JCP fold-over panel jeans stretches or expands enough to conform to different body types, because the claims do not require any quantified amount of stretching or expansion and the term “different body types” includes any two or more body types that are not identical. The Board was also not persuaded by Patent Owner’s argument that the panel of the JCP fold-over panel jeans is not described as being contractible as allegedly recited in claim 5. The Board indicated that contraction is always present where there is contraction, and the claims did not require any specific amount of contraction.

With respect to dependent claims 6, 11, 15, and 16, Petitioner asserted obviousness based on the JC Penney catalog applied to claim 1 in view of JC Penney Bootcut jeans. Patent Owner alleged nonobviousness based on the secondary consideration of commercial success. However, Patent Owner failed to link the alleged commercial success of the products to the inventions of claims 6, 11, 15, and 16. Specifically, Patent Owner’s witness conceded that the commercial success of Patent Owner’s products had nothing to do with the unique characteristics of claims 6 and 11, which add limitations directed exclusively to features of the garment lower portion.

Target Corp. v. Destination Maternity Corp., IPR2013-00532
Paper 76: Final Written Decision
Dated: February 12, 2015
Patent: RE43,531 E
Before: Jennifer S. Bisk, Michael J. Fitzpatrick, and Mitchell G. Weatherly
Written by: Fitzpatrick
Related Proceedings: Destination Maternity Corp. v. Target Corp., Case No. 2:12-cv-05680-AB (E.D. Pa.); IPR2013-00531; IPR2014-00508; IPR2013-00530; IPR2013-00533; IPR2014-00509

ARTICLE BY

Carrie A. Beyer
OF
Drinker Biddle & Reath LLP

Utah Passes Law Prohibiting LGBT Employment Discrimination

Squire Patton Boggs (US) LLP law firm

On March 12, Utah Governor Herbert signed into law S.B. 296, which amends the Utah Antidiscrimination Act to prohibit discrimination in employment by Utah employers on the basis of sexual orientation and gender identity. Notably, and perhaps not surprisingly given that 60% of Utah residents identify as Mormons, although the law had the support of the Church of Jesus Christ of Latter-Day Saints, it exempts from coverage religious institutions, organizations, and affiliates (as well as the Boy Scouts of America) from its definition of employer.

It also allows for employee expression of religious or moral beliefs in the workplace – which would appear to include opposition to LGBT issues or lifestyles – as long as such expression is “reasonable, non-disruptive and non-harassing.” In passing this law, Utah becomes the 18th state (including the District of Columbia) to adopt LGBT anti-discrimination legislation. (LGBT discrimination is also prohibited against federal employees pursuant to Executive Order 13672, signed by President Obama in June 2014.)

ARTICLE BY

Daniel B. Pasternak
Squire Patton Boggs (US) LLP

Supreme Court: DOL Can Flip-flop on its Interpretation of Its Own Regulations

Godfrey & Kahn S.C. Law firm

In 2010, the United States Department of Labor (DOL) issued an “Administrator’s Interpretation” stating that DOL would no longer consider employees who perform duties typical of mortgage loan officers to be exempt from the Fair Labor Standards Act’s overtime pay requirements.  This particular ruling revolved around the FLSA’s exemption for administrative employees.

Supreme court DOL FLSA

The DOL’s 2010 stance represented a change of course, as DOL had previously issued an “Opinion Letter” in 2006 stating that mortgage loan officers were generally exempt from the FLSA’s overtime pay requirements under the administrative exemption.  Litigation ensued following the 2010 Administrator’s Interpretation.  The focus of that litigation was a rather technical issue:  Should DOL have followed the formal rulemaking process before it could flip-flop on its interpretation of its own regulations?  You can read more about the details of the litigation here.

On Monday, March 9, 2015, the United States Supreme Court ruled that DOL was not required to follow the formal rulemaking process whenever it took a position that was contrary to previous guidance issued by DOL.

Why does this ruling matter to employers of mortgage loan officers?  Those businesses should classify those employees as non-exempt and evaluate their compensation structures immediately to comply with DOL’s interpretation of the administrative exemption.  Otherwise, these employers run the risk of DOL enforcement actions and private litigation.  Of course, these employers can disregard the DOL’s interpretation and rely on individual merits of their classifications, but they would do so at their peril.

Why does this ruling matter to employers generally?  Based on the Court’s ruling, DOL can arguably change its tune about any interpretation of its own interpretive regulations without any warning to employers.  An emboldened DOL could revisit regulatory interpretations that currently favor employers and flip those interpretations on their head, without warning.  More importantly, the Court’s ruling was not limited to the DOL, which means that other federal administrative agencies (e.g., OSHA) could follow suit, leaving employers with little recourse to challenge such changes of heart.

ARTICLE BY

M. Scott LeBlanc
Rufino Gaytán
OF
Godfrey & Kahn S.C.

Taking Control of Cybersecurity: A Practical Guide for Officers and Directors

Foley and Lardner LLP

Major cybersecurity attacks of increased sophistication — and calculated to maximize the reputational and financial damage caused to the corporate targets — are now commonplace. These attacks have catapulted cybersecurity to a top priority for senior executives and board members.

To help these decision makers get their arms around cybersecurity issues, Foley Partners Chanley T. Howell, Michael R. Overly, and James R. Kalyvas have published a comprehensive white paper entitled: Taking Control of Cybersecurity — A Practical Guide for Officers and Directors.

The white paper describes very practical steps that officers and directors should ensure are in place or will be in place in their organizations to prevent or respond to data security attacks, and to mitigate the resulting legal and reputational risks from a cyber-attack. The authors provide a blueprint for managing information security and complying with the evolving standard of care. Checklists for each key element of cybersecurity compliance and a successful risk management program are included.

Excerpt From Taking Control of Cybersecurity: A Practical Guide for Officers and Directors

Sony, Target, Westinghouse, Home Depot, U.S. Steel, Neiman Marcus, and the National Security Agency (NSA). The security breaches suffered by these and many other organizations, including most recently the consolidated attacks on banks around the world, combined with an 80 percent increase in attacks in just the last 12 months, have catapulted cybersecurity to the top of the list of priorities and responsibilities for senior executives and board members.

The devastating effects that a security breach can have on an enterprise, coupled with the bright global spotlight on the issue, have forever removed responsibility for data security from the sole province of the IT department and CIO. While most in leadership positions today recognize the elevated importance of data security risks in their organization, few understand what action should be taken to address these risks. This white paper explains and demystifies cybersecurity for senior management and directors by identifying the steps enterprises must take to address, mitigate, and respond to the risks associated with data security.

Officers and Directors are Under a Legal Obligation to Involve Themselves in Information Security

The corporate laws of every state impose fiduciary obligations on all officers and directors. Courts will not second-guess decisions by officers and directors made in good faith with reasonable care and inquiry. To fulfill that obligation, officers and directors must assume an active role in establishing correct governance, management, and culture for addressing security in their organizations.

Download This White Paper

ARTICLE BY

Chanley T. Howell
James R. Kalyvas
Michael R. Overly
OF
Foley & Lardner LLP

Advisory Committee’s Recommendations: Positive Sign for South Florida Companies

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We previously discussed the SEC’s decision to allow businesses to solicit accredited investors and what this could mean for the growth of companies inFlorida. Now, the SEC is weighing whether the definition of ‘accredited investor’ needs to be amended in the context of continuing to guarantee the health of start-up and other companies and their impact on our economy.

On March 4, 2015, the Securities and Exchange Commission Advisory Committee on Small and Emerging Companies approved its written recommendations regarding changes to the SEC’s definition of “accredited investor.”  Every four years starting in 2014, the Dodd-Frank Act requires the SEC to review the definition of “accredited investor,” as it applies to natural persons, to determine whether it should be modified for the protection of investors, in the public interest and in light of the economy. Since the SEC amended its private placement rules in 2013 to allow companies to engage in general solicitation of investors and advertise their private placement offerings, there has been increased focus on whether the SEC should change the definition of “accredited investor.”

Any changes to the definition could have dramatic effects on the private securities markets and the general economy by significantly increasing or decreasing the number of persons who qualify to invest in the private securities markets. To put this in context, more than $1 trillion was raised in private placements in 2013, as compared to $1.3 trillion raised in public offerings in the same year. As noted in the Advisory Committee’s recommendations, since a majority of net new jobs in the United States is generated by companies less than five years old, their ability to raise capital in the private securities markets is critical to the well-being of the United States.

Many proponents for increasing the dollar thresholds for an individual to qualify as an accredited investor argue that such increases are necessary to prevent fraud against investors who may be unable to fend for themselves. However, the Advisory Committee notes that the connection between fraud and the accredited investor thresholds is tenuous at best. In fact, the Advisory Committee found that there is no substantial evidence that the current definition of accredited investor contributes to fraud or that it has resulted in greater exposure to victims of fraud. Furthermore, the Advisory Committee found that there is substantial evidence that the current system works and is critical to supporting privately held businesses and smaller public companies (i.e., those with less than $250 million in public market capitalization). Consistent with these findings, the Advisory Committee’s first recommendation to the SEC is that the SEC’s primary goal in reviewing the definition of accredited investor should be to “do no harm” to the private offering ecosystem and, accordingly, any changes to the definition should expand (and not contract) the pool of accredited investors. As an example, the Advisory Committee recommends including within the definition investors who meet a sophistication test, regardless of income or net worth.

Second, the Advisory Committee recommends that the SEC should, on a going forward basis, periodically adjust the dollar thresholds in the definition for inflation according to the consumer price index. As its final substantive recommendation, the Advisory Committee suggests that the SEC should focus on enhancing its enforcement efforts and increasing investor education, rather than attempting to protect investors by raising the accredited investor thresholds or excluding certain types of assets from the net worth calculation.

The Advisory Committee was established in 2011 to advise the SEC on its rules, regulations and policies with regard to its mission of protecting investors, maintaining fair, orderly and efficient markets and facilitating capital formation, as they relate to (1) capital raising by privately held businesses and smaller public companies, (2) trading in the securities of privately held businesses and smaller public companies and (3) public reporting and corporate governance requirements of privately held businesses and smaller public companies.

While the SEC is not bound to follow any of the Advisory Committee’s recommendations, the SEC gives significant weight to the views and recommendations made by the Advisory Committee when considering new rulemaking initiatives. The Advisory Committee’s recommendations are a positive sign for companies in South Florida as they continue to grow their operations and break ground on new projects.

ARTICLE BY

David T. Schubauer
OF
Bilzin Sumberg Baena Price & Axelrod LLP

“Hello, Newman” Government Continues to Litigate Reversed Insider Trading Convictions

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The U.S. Attorney for the Southern District of New York, Preet Bharara, has decided not to go down without a fight. Following a Second Circuit panel’s reversal of Bharara’s signature achievement, the insider-trading convictions of former hedge fund managers Todd Newman and Anthony Chiasson, the U.S. Attorney’s office has petitioned the court for rehearing and rehearing en banc. The Securities and Exchange Commission has also weighed in on the U.S. Attorney’s side, arguing in an amicus brief that the panel seriously erred in its decision. Meanwhile, in other cases, particularly outside the Second Circuit, the Justice Department, and the SEC have argued strenuously that the Second Circuit’s panel decision should not be followed.

In the Second Circuit, the battle lines are being drawn. Bharara’s office has asked both the panel and the full Second Circuit to rehear the case. The US Attorney’s office has argued that the panel erred by imposing two requirements that are purportedly contrary to law– first, that a tipper act for a “personal benefit” of financial consideration, or something at least akin to monetary gain; and second, that the tippee know that the tipper supplying the inside information acted for such a benefit. The SEC has concurred with this assessment, elaborating on Newman’s conclusion that evidence of friendship between tipper and tippee is insufficient to prove the “personal benefit” necessary for tipping liability. The Commission contends that this contradicts Dirks v. SEC, the Supreme Court’s seminal insider trading decision. Both the U.S. Attorney and the SEC contend that, if Newmanremains the law, it will seriously threaten the integrity of the securities markets, and government regulators will be dramatically limited in their ability to prosecute “some of the most common, culpable, and market-threatening forms of insider trading.”

In opposition, Newman and Chiasson, along with various law professors, the criminal defense bar, and even Marc Cuban, have argued that the Second Circuit panel got it right when it imposed an important, objective outer bound to an otherwise amorphous illegal activity. The defendants even engaged in ad hominem criticism of Bharara, analogizing him to a “Chicken Little” complaining that the sky is falling, or more precisely, a “petulant rooster whose dominion has been disturbed.” Those supporting the opinion assert that any perceived difficulty created by the decision can, and should, be rectified by Congress.

Even as the Newman case continues forward, its repercussions are being felt within the Second Circuit and beyond. In the Southern District alone, at least a dozen defendants, who were convicted or pleaded guilty underpre-Newman law, have argued that their cases need to be revisited in light of Newman. No court yet has agreed with that argument, but most of these motions remain pending.

Outside the Second Circuit, the Government is looking to ring-fence the Newman decision and limit its applicability elsewhere. Federal prosecutors, for example in North Carolina, have argued that Newman is not the law in the Fourth Circuit and therefore should not be followed. Meanwhile, defendants in other jurisdictions are invokingNewman in pending, and even resolved, insider trading matters, both civil and criminal.

Defendants are even arguing Newman’s applicability within the SEC’s administrative courts – with success. In In re Peixoto, an SEC administrative proceeding related to Herbalife, the Commission voluntarily dropped its case against Peixoto after Newman. Other cases in the agency’s courts (including against SAC founder Steven Cohen) remain on holding pending final resolution of Newman. And in In re Ruggieri, the administrative law judge said that he would require the SEC to demonstrate the Newman standard of “personal benefit.”

Clearly, the Newman saga has not reached its conclusion, but the fall-out already demonstrates what a momentous decision the Second Circuit panel made.

ARTICLE BY

Brian E. Casey
OF
Barnes & Thornburg LLP