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The National Law Forum - Page 719 of 753 - Legal Updates. Legislative Analysis. Litigation News.

Carried Interest Language Narrowed, but Remains Far-Reaching

Recently posted in National Law Review an article by Kevin J. Feeley, Gary C. Karch and Patrick J. McCurry of McDermott Will & Emery regarding Obama administration’s recent carried interest tax provision:

This newsletter summarizes the Obama administration’s recent carried interest tax provision. The provision is not expected to be enacted soon, but the proposal contains drafting changes of interest to those following the discussion.

On September 12, 2011, President Obama submitted to U.S. Congress legislative text for the American Jobs Act, including a revised version of the carried interest tax provision that has been introduced several times since 2007. The latest provision is unlikely to be enacted soon, but gives an indication of the form that ultimately enacted legislation may take. The latest language appears narrower than prior versions, but remains potentially applicable to more taxpayers and transactions than one would expect from the announced purpose to treat the carried interest income of investment fund managers as ordinary income subject to self-employment tax.

General Approach Continues

The latest provision would add a new Section 710 to the Internal Revenue Code. New Section 710 would continue to create a new defined term called anInvestment Services Partnership Interest (ISPI). It also continues to provide thata partner’s income from holding or disposing of an ISPI is ordinary and subject to self-employment tax, even if it would be capital gain and not subject to self-employment tax under general tax rules.

The latest provision also continues to apply to all partnership interests, not just interests received for services or otherwise disproportionate to capital, unless a Qualified Capital Interest (QCI) exception applies. The QCI exception continues to apply only to a class of equity that is held by persons who do not provide any services to the partnership and are not related to the partner holding the ISPI. There is no exception for completely pro rata partnerships, as there was in the most recent prior version.

ISPIs Defined More Narrowly

Prior versions defined an ISPI as any partnership interest where the holder was expected to provide services regarding the acquisition, financing, management and disposition of securities, real estate and partnership interests, referred to as Specified Assets. The latest proposal limits the ISPI definition to partnerships in which “substantially all” of the assets are Specified Assets; the holder owns the partnership interest in connection with a business that “primarily involves” the acquisition, financing, management and disposition of Specified Assets; and more than half the contributed capital of the partnership is contributed by persons who hold their partnership interests for the production of income. The “production of income” requirement appears intended to imply that the interest is not held as part of a business. This change may exclude partnerships that conduct operating businesses, and partnerships in which more than half the owners are involved in the business.

The ISPI definition attributes a business of one member of a corporate group to all others. This provision may be intended to remove most corporate internal partnerships and external joint ventures from becoming subject to the rules.

The limitation of the ISPI definition to partnerships in which substantially all of the assets are Specified Assets may remove the so-called enterprise value of some investment fund managers from ordinary income treatment. The fund manager’s carried interest from funds it operates would be ordinary, but a gain attributable to the enterprise value of the fund manager itself might qualify as capital gain.

No Loss Deferral

Prior versions of the carried interest legislation deferred all losses from an ISPI. This provision is dropped from the most recent legislation.

Disposition Provisions Narrowed Somewhat

The proposed legislation continues to require recognition of ordinary income in normally tax-free transfers. The proposal continues the exception for contributing an ISPI to another partnership if an election is made to treat the resulting partnership interest as an ISPI. The proposal adds an exception for some gifts and charitable contributions. However, other tax-free transactions including corporate contributions and mergers where ISPIs are among the assets would be taxable to the extent of the gain inherent in the ISPIs.

Publicly Traded Partnership Provisions Deferred 10 Years

The proposed legislation provides that publicly traded partnerships with income from ISPIs could continue to be publicly traded pass-through entities for 10 years after enactment.

Exceptions and Phase-Ins Removed

Unlike some prior versions of the legislation, the latest version would apply to 100 percent of ISPI income beginning January 1, 2013. The legislation does not contain an exception or a reduced rate of recharacterization for the disposition of ISPIs held more than five years.

The proposal does not contain exceptions for pro rata partnerships or family farms. The pro rata partnership exception was thought to exclude family partnerships that could not use the QCI exception because all partners are related. It is unclear whether family partnerships and family farms would avoid the provision due to the narrowing of the ISPI definition described above.

© 2011 McDermott Will & Emery

Recent NLRB Actions: Notice Posting Requirement, Proposed Election Rules and New Case Law Tilt Toward Organized Labor

Recently posted in the National Law Review an article by  Irving M. Geslewitz of Much Shelist Denenberg Ament & Rubenstein P.C.  regarding NLRB published proposed rules:

Many recall the push a few years ago to enact a legislative bill, the Employee Free Choice Act, that would have required an employer to recognize and bargain with a union without a secret ballot election if the union could present cards signed by a majority of the employer’s workers indicating their wish to have a union. That bill, strongly favored by organized labor, never got enough traction to get passed into law.

Proponents of the measure turned to non-legislative approaches to alter what they saw as a stacked deck against unions that accounted, in part, for their poor record in union elections. With the advent of a newly constituted National Labor Relations Board (NLRB) appointed by the Obama administration, some of that hope may have been fulfilled. Through its rule-making authority, the NLRB recently has imposed on employers a new notice posting requirement intended to heighten employee awareness of their collective bargaining rights, and is also proposing a new set of election rules that should improve unions’ chances in elections. In addition, through its administrative case adjudication authority, the NLRB has issued three case decisions reversing precedent—one that makes it easier for a union to choose the unit of employees in which an election will be conducted, and two that make it harder for employees to oust an incumbent union.

These developments come on the heels of the controversial legal action by the NLRB’s Acting General Counsel seeking to enjoin Boeing from opening a new non-union manufacturing facility in South Carolina, as well as a flurry of unfair labor practice complaints against employers that discipline employees in connection with the use of social media (see related article on the NLRB’s recent guidance regarding social media in the workplace). Together, these actions have some in the business community complaining of a decidedly pro-union tilt by the NLRB.

The New Posting Rule

The NLRB has issued a final rule requiring most private-sector employers, beginning on November 14, 2011, to notify employees of their rights under the National Labor Relations Act (NLRA) by posting a standard notice. Now available on the NLRB website and from NLRB regional offices, the notice informs employees that they have the following rights:

  • To organize a union to negotiate with their employer concerning their wages, hours and other terms and conditions of employment;
  • To form, join or assist a union;
  • To bargain collectively through representatives of their own choosing for a contract with their employer setting wages, benefits, hours and other working conditions;
  • To discuss their terms and conditions of employment or union organizing with their coworkers or a union; and
  • To strike and picket under certain circumstances.

The notice also advises employees of their right to choose not to engage in any of these activities.

The posting requirement applies to all but the smallest of private-sector employers, but not to agricultural, railroad and airline employers that are excluded from coverage by the NLRA. Posting is required whether or not there is a union in the employer’s workplace. In addition to a physical posting, every covered employer must post the notice on an Internet or Intranet site if personnel rules and policies are customarily available there.

Failure to post the notice may be treated as an unfair labor practice under the NLRA. In addition, if there are other unfair labor practice allegations against the employer, the NLRB may extend the six-month statute of limitations for the filing of those charges. Also, a failure to post may be considered evidence of unlawful motive in an unfair labor practice case involving other alleged violations of the NLRA.

The NLRB justifies its actions by claiming that many employees are not aware of their rights under the NLRA and that the new rule is in line with other labor laws that impose posting requirements. Opponents argue, however, that such a notice posting (previously required only in limited situations, such as when an election is scheduled) is unnecessary and promotes unionization through its heavy emphasis on the right to unionize and collectively bargain.

Proposed Rule Changes to NLRB Election Procedures

The NLRB has published proposed rules that would significantly accelerate the union election process. While not explicitly stated, the likely combined effect of the rule changes would shorten the time between the filing of an election petition and the election itself by more than half. Under the proposed rules, employers could expect the NLRB to conduct elections within 10 to 21 days after a petition is filed, rather than the current average of 31 days.

Among the more significant changes are the following:

  • Regional NLRB offices typically conduct pre-election hearings within 14 days after a petition is filed. Under the new rules, pre-election hearings would be held within seven days after an election petition is filed.
  • Employers are not currently required to identify every issue prior to the pre-election hearing. Under the new rules, employers would be required to identify all issues regarding unit scope, voter eligibility and supervisory issues before the pre-election hearing, at the risk of waiving issues not raised at the first opportunity.
  • Under current practice, pre-election hearings can involve disputes over whether certain employees are eligible to vote, such as whether an individual is a supervisor. Under the proposed rules, however, disputes over the eligibility or inclusion of less than 20% of the employees in the proposed unit will be deferred to post-election proceedings.
  • Review of pre-election hearing decisions now takes place before the election is conducted. Under the proposed rules, such review would be deferred until after the election.
  • Currently, employers must provide the NLRB with a list of eligible voters and their home addresses (used by the union to communicate with voters) within seven days after the NLRB Regional Director issues an order setting the election. Under the proposed rules, not only would that period be reduced to two days, but also the employer would have to provide the e-mail addresses and telephone numbers of employees eligible to vote in the election.

In effect, the proposed new rules would dramatically alter the landscape in NLRB-conducted union elections. By significantly shortening the pre-election period, the rules would hamper the employer’s ability to contest the scope of the unit of employees selected by the union for inclusion in the election. But of even more importance, the new rules would shorten the timeframe available to employers to communicate with employees on the wide variety of issues that arise in a union organizing campaign, such as the reasons why voting for the union may not be in their best interests. Opponents, who include dissenting NLRB Board Member Brian Hayes, contend that the real objective of the proposed new rules is to make it easier for unions to win elections by handicapping the employer’s ability to oppose them.

At the same time, the U.S. Department of Labor (DOL) has proposed a new rule that also would negatively affect an employer’s ability to communicate with employees in union elections. The Labor-Management Reporting and Disclosure Act (LMRDA) already requires reporting of arrangements, receipts and expenditures derived from providing so-called “persuader activity” services. Historically, attorneys providing legal advice regarding lawful employer communications to employees have been exempt from this requirement. The DOL’s proposed rule, however, would severely curtail this exception, rendering such attorney advice as “reportable” under the law.

Recent NLRB Decisions Reversing Case Precedent

In addition to having rule-making authority, the NLRB acts as a review body that establishes case law interpreting the NLRA. In three decisions issued on August 26, 2011, the NLRB set new standards favoring organized labor—each time over a dissent.

Perhaps the most wide-ranging of these decisions is Specialty Healthcare and Rehabilitation Center of Mobile, 357 NLRB No. 83, in which a union sought an election at a non-acute care nursing home limited to certified nursing assistants. The employer argued that the unit was too small and should include cooks, schedulers, recreational staffers and other workers. Reversing case precedent, the NLRB disagreed. But the NLRB also indicated that in any case in which an employer challenges a petitioned-for unit as inappropriate because it does not contain additional employees, the burden is on the employer to demonstrate that the employees excluded by the petition share an overwhelming community of interest with the included employees. This decision may make it significantly easier for unions to organize sub-units of an employer—such as employees of one department—as opposed to an entire facility.

The other recent decisions make it harder for employees to oust incumbent unions. In Lamons Gasket Company, 357 NLRB No. 72, the NLRB ruled that if an employer voluntarily recognizes a union as a collective bargaining representative for a particular unit of the workforce based on a card check, then the NLRB would observe a strict bar of six to 12 months after the union’s first bargaining session during which it would not consider a petition by employees for an election to decertify the union or otherwise attempt to oust the union. This action reversed a 2007 decision holding that employees could ask for such an election within 45 days of management’s recognition of the union. Similarly, in UGL-UNICCO Service Company, 357 NLRB No. 76, the NLRB overruled a prior decision that had created a small window—immediately after the sale or merger of a business—during which the incumbent union’s status could be challenged if 30% of employees showed interest. Now, an incumbent union will have six to 12 months after the parties’ first bargaining session to negotiate with the successor company before such a challenge could be mounted.

© 2011 Much Shelist Denenberg Ament & Rubenstein, P.C.

Behavior Modification: Trial Lawyer's Edition

Posted in the National Law Review on September 22, 2011 an article regarding a lawyer that was defending himself, pro se by Kendall M. Gray of Andrews Kurth LLP:

 

Just about the time you think there is nothing new under the sun or nothing interesting to blog about, the legal profession continues to astound and amaze.

More specifically, trial lawyers will never let you down.

On Monday I was trolling my usual blog buffet and I saw this item on the ABA Blogabout a lawyer that was defending himself, pro se, in his own criminal trial.

You know the old saying, a lawyer who represents himself has a fool for a client. But this guy took it to a whole new level. He was essentially appearing in court with the human equivalent of a canine shock collar:

Four U.S. marshals will be in the courtroom as attorney Paul Bergrin goes on trial in federal court in Newark, N.J., next month in a racketeering case in which he is accused of operating his law firm as a criminal enterprise and conspiring with another New Jersey lawyer to murder government witnesses.

But that’s not not enough security, court officials apparently have decided. Bergrin, who is defending himself pro se, will also wear a hidden ankle bracelet. If he moves too far from his assigned area of the courtroom and violates rules against approaching the bench or the jury, he could get a jolting electric shock from the marshals, via the bracelet, . . . .

A jolting, electric shock for trial counsel who neglects to seek permission before approaching the bench?

Now this could come in handy. Really, really handy . . . .

Of course, my first thought was that the Supreme Court of Texas might find such a device useful for all of those trial lawyers who handle their own appeals when they are prone to wander from the podium in order to re-deliver their closing argument:

  • But do you give the button to Chief Justice Jefferson? He might be too restrained, nice guy that he is.
  • One button to each member of court? That could be dangerous, especially if all nine are fighting to get their questions answered. That gives new meaning to the words “hot bench.”
  • Maybe just give “the button” to Justice Hecht as the senior justice empowered to act on behalf of the court?

I’m probably just a bad and vindictive person, but I began to daydream about all the other habits of trial lawyers that such a device might plausibly correct. The list began to expand rapidly with everything from pet peeves that make my head explode to matters of real substance.

But before I publish my own list, I want to hear from you:

  • What are the things that other lawyers do that drive you crazy or make it harder to successfully do your job in representing the client?
  • What behaviors would you change if you could?
  • And in particular, what do lawyers do, often without thinking, for which you might give them a zap?
  • And what about you judges out there? Be anonymous if you need to, but what lawyer conduct do wish was Taze-worthy?

Use the comments. Weigh in. Speak out.

Or else.

© 2011 Andrews Kurth LLP

Broker Malpractice Claim Does Not Require Expert Testimony Proving Reasonableness of Underlying Settlement

Recently posted in the National Law Review an article by Dana Ferestien of Williams Kastner  regarding the reasonableness of an underlying products liability settlement is not a prerequisite to a broker malpractice claim.

 

On September 12, 2011, United States District Judge Lonny Suko ruled in Colman Coil Manufacturing, Inc. v. Seabury & Smith, Inc., 2011 U.S. Dist. LEXIS 102238, that expert testimony regarding the reasonableness of an underlying products liability settlement is not a prerequisite to a broker malpractice claim.

The insured manufacturer had been sued for damages caused by an ammonia link in their equipment. Their liability insurer, Wausau, provided a reservation of rights defense, but filed a separate coverage action seeking a declaration that the policy’s total pollution exclusion eliminated coverage. Based upon advice from both their personal coverage counsel and appointed defense counsel, the insured elected to settle the products liability lawsuit for $1.15 million, with the insured paying $450,000 of the settlement. The insured then sued its broker, Seabury & Smith, alleging that their negligence had resulted in incomplete insurance.

Seabury & Smith argued on summary judgment that the professional malpractice claim failed, as a matter of law, because the insured did not have any expert to establish the reasonableness of the underlying settlement. Judge Sukorejected the argument, noting that there is no Washington authority imposing any expert testimony requirement. Judge Suko distinguished this scenario from cases in which there has been a consent judgment to settle the underlying liability claim. The Court concluded that it is for the finder of fact to weigh whether the insured acted reasonably in settling the underlying claim.

© 2002-2011 by Williams Kastner ALL RIGHTS RESERVED

OFAC Settles Alleged Sanctions Violations for $88.3 million

Posted in the National Law Review an article by Thaddeus Rogers McBride and Mark L. Jensen of Sheppard Mullin Richter & Hampton LLP regarding OFAC’s settlements with financial institutions:

 

On August 25, 2011, a major U.S. financial institution agreed to pay the U.S. Department of Treasury, Office of Foreign Assets Control (“OFAC”) $88.3 million to settle claims of violations of several U.S. economic sanctions programs. While OFAC settlements with financial institutions in recent years have involved larger penalty amounts, this August 2011 settlement is notable because of OFAC’s harsh—and subjective—view of the bank’s compliance program.

Background. OFAC has primary responsibility for implementing U.S. economic sanctions against specifically designated countries, governments, entities, and individuals. OFAC currently maintains approximately 20 different sanctions programs. Each of those programs bars varying types of conduct with the targeted parties including, in certain cases, transfers of funds through U.S. bank accounts.

As reported by OFAC, the alleged violations in this case involved, among other conduct, loans, transfers of gold bullion, and wire transfers that violated the Cuban Assets Control Regulations, 31 C.F.R. Part 515, the Iranian Transactions Regulations, 31 C.F.R. Part 560, the Sudanese Sanctions Regulations, 31 C.F.R. Part 538, the Former Liberian Regime of Charles Taylor Sanctions Regulations, 31 C.F.R. Part 593, the Weapons of Mass Destruction Proliferators Sanctions Regulations, 31 C.F.R. Part 544, the Global Terrorism Sanctions Regulations, 31 C.F.R. Part 594, and the Reporting, Procedures, and Penalties Regulations, 31 C.F.R. Part 501.

Key Points of Settlement. As summarized below, the settlement provides insight into OFAC’s compliance expectations in several ways:

1. “Egregious” conduct. In OFAC’s view, three categories of violations – involving Cuba, in support of a blocked Iranian vessel, and incomplete compliance with an administrative subpoena – were egregious under the agency’s Enforcement Guidelines. To quote the agency’s press release, these violations “were egregious because of reckless acts or omissions” by the bank. This, coupled with the large amount and value of purportedly impermissibly wire transfers involving Cuba, is likely a primary basis for the large $88.3 million penalty.

OFAC’s Enforcement Guidelines indicate that, when determining whether conduct is “egregious,” OFAC gives “substantial” weight to (i) whether the conduct is “willful or reckless,” and (ii) the party’s “awareness of the conduct at issue.” 31 C.F.R. Part 501, App. A. at V(B)(1). We suspect that OFAC viewed the conduct here as “egregious” and “reckless” because, according to OFAC, the bank apparently failed to address compliance issues fully: as an example, OFAC claims that the bank determined that transfers in which Cuba or a Cuban national had interest were made through a correspondent account, but did not take “adequate steps” to prevent further transfers. OFAC’s emphasis on reckless or willful conduct, and the agency’s assertion that the bank was aware of the underlying conduct, underscore the importance of a compliance program that both has the resources to act, and is able to act reasonably promptly when potential compliance issues are identified.

2. Ramifications of disclosure. In this matter, the bank voluntarily disclosed many potential violations. Yet the tone in OFAC’s press release is generally critical of the bank for violations that were not voluntarily disclosed. Moreover, OFAC specifically criticizes the bank for a tardy (though still voluntary) disclosure. According to OFAC, that disclosure was decided upon in December 2009 but not submitted until March 2010, just prior to the bank receiving repayment of the loan that was the subject of the disclosure. Although OFAC ultimately credited the bank for this voluntary disclosure, the timing of that disclosure may have contributed negatively to OFAC’s overall view of the bank’s conduct.

This serves as a reminder that there often is a benefit of making an initial notification to the agency in advance of the full disclosure. This also serves as reminder of OFAC’s very substantial discretion as to what is a timely filing of a disclosure: as noted in OFAC’s Enforcement Guidelines, a voluntary self-disclosure “must include, or be followed within a reasonable period of time by, a report of sufficient detail to afford a complete understanding of an apparent violation’s circumstances.” (emphasis added). In this regard, OFAC maintains specific discretion under the regulations to minimize credit for a voluntary disclosure made (at least in the agency’s view) in an inappropriate or untimely fashion.

3. Size of the penalty. The penalty amount—$88.3 million—is substantial. Yet the penalty is only a small percentage of the much larger penalties paid by Lloyds TSB ($350 million), Credit Suisse ($536 million), and Barclays ($298 million) over the past few years. In those cases, although the jurisdictional nexus between those banks and the United States was less clear than in the present case, the conduct was apparently more egregious because it involved what OFAC characterized as intentional misconduct in the form of stripping wire instructions. The difference in the size of the penalties is at least partly attributable to the amount of money involved in each matter. It also appears, however, that OFAC is distinguishing between “reckless” conduct and intentional misconduct.

4. Sources of information. As noted, many of the violations in this matter were voluntarily disclosed to OFAC. The press release also indicates that certain disclosures were based on information about the Cuba sanctions issues that was received from another U.S. financial institution (it is not clear whether OFAC received information from that other financial institution). The press release also states that, with respect to an administrative subpoena OFAC issued in this matter, the agency’s inquiries were at least in part “based on communications with a third-party financial institution.”

It may not be the case here that another financial institution (or institutions) blew the proverbial whistle, but it appears that at least one other financial institution did provide information that OFAC used to pursue this matter. Such information sharing is a reminder that, particularly given the interconnectivity of the financial system, even routine reporting by financial institutions may help OFAC identify other enforcement targets.

5. Compliance oversight. As part of the settlement agreement, the bank agreed to provide ongoing information about its internal compliance policies and procedures. In particular, the bank agreed to provide the following: “any and all updates” to internal compliance procedures and policies; results of internal and external audits of compliance with OFAC sanctions programs; and explanation of remedial measures taken in response to such audits.

Prior OFAC settlements, such as those with Barclays and Lloyds, have stipulated compliance program reporting obligations for the settling parties. While prior agreements, such as Barclay’s, required a periodic or annual review, the ongoing monitoring obligation in this settlement appears to be unusual, and could be a requirement that OFAC imposes more often in the future. (Although involving a different legal regime, requirements with similarly augmented government oversight have been imposed in recent Foreign Corrupt Practices Act settlements, most notably the April 2011 settlement between the Justice Department and Johnson & Johnson. See Getting Specific About FCPA Compliance, Law360, at:http://www.sheppardmullin.com/assets/attachments/973.pdf).

Conclusions. We think this settlement is particularly notable for the aggression with which OFAC pursued this matter. Based on the breadth of the settlement, OFAC seems to have engaged in a relatively comprehensive review of sanctions implications of the bank’s operations, going beyond those allegations that were voluntarily self-disclosed to use information from a third party. Moreover, as detailed above, OFAC adopted specific, negative views about the bank’s compliance program and approach and seems to have relied on those views to impose a very substantial penalty. The settlement is a valuable reminder that OFAC can and will enforce the U.S. sanctions laws aggressively, and all parties—especially financial institutions—need to be prepared.

Copyright © 2011, Sheppard Mullin Richter & Hampton LLP.

 

NLRB Permits Micro-Units In Specialty Healthcare Decision

Recently posted in the National Law Review an article by Mark A. Carter of Dinsmore & Shohl LLP regarding NLRB’s controversial decision to overturn 20 years of precedent:

In one of its most controversial decisions to date, the National Labor Relations Board (“NLRB”) has overturned 20 years of precedent and will now permit unions to organize a minority share of an employer’s workforce. As a result of this decision, organized labor will be able to establish footholds in businesses where the majority of the employees may not desire to be represented by a union. 

On August 26, 2011 the NLRB released its decision in Specialty Healthcare and Rehabilitation Center of Mobile, 357 NLRB No. 83 (2011). In Specialty Healthcare, the United Steelworkers petitioned for a representational election in a bargaining unit that was very distinct from the typical “wall to wall” unit. For decades, the NLRB has concluded that where employees share a “community of interest” that the appropriate bargaining unit in a representational election should include all of the employees of the employer who are similarly situated. Typically this type of unit is called a “wall to wall” bargaining unit and its common description includes all “production and maintenance” workers employed by the employer excluding clerical, administrative and security employees. This scope of employees insured that the union would be elected where the majority of the employer’s employees desired to be represented by a union, but that where a majority of the employees did not desire to be represented, their terms and conditions of employment, and their workplace, would not be impacted by the presence of a labor union. Moreover, the “wall to wall” unit insured that there was not a fracturing of the employer’s workforce where several unions represented several small groups of employees making the collective bargaining unmanageable for any of the parties.

This logical and longstanding policy of Democratic and Republican majority labor boards has been scuttled.

In Specialty Healthcare, the employer operates a nursing home and rehabilitation center in Mobile, Alabama. Among the job classifications – or job titles – at this facility is a “CNA”, or, certified nursing assistant. Rather than seeking to represent all of the employer’s employees, the union petitioned for a bargaining unit consisting only of the CNAs. The employer objected on the basis of the NLRB’s decision in Park Manor Care Center, 305 NLRB 872 (1991) and the Board’s longstanding practice of not certifying “fractured” units but insisting that all of the employer’s employees who shared a community of interest comprised an appropriate bargaining unit. The NLRB, through a regional director, initially concluded that this petition was appropriate and directed an election be held amongst only the employer’s full and part time CNAs. The employer appealed this decision, in essence, by asking the NLRB to review the regional director’s decision. The NLRB not only accepted this obligation but requested briefs from interested parties regarding whether its decision inPark Manor and its longstanding practice of certifying only bargaining units of all of the employees with a community of interest should remain the law. Significantly, the NLRB also requested interested parties’ positions regarding whether its decision should have application in all industries rather than just the health care industry which maintains unique standards under the National Labor Relations Act.

After inviting and, presumably, considering this argument, the NLRB reversed the Park Manor decision and will now permit appropriate units to be petitioned-for and certified even when larger and “more appropriate” bargaining units exist in the employer’s workforce.

“Nor is a unit inappropriate simply because it is small. The fact that a proposed unit is small is not alone a relevant consideration, much less a sufficient ground for finding a unit in which employees share a community of interest nevertheless inappropriate.”

To that end, the NLRB wrote that it will focus on the community of interest of the employees, the extent of common supervision, interchange of employees, geographic considerations “etc., any of which may justify the finding of a small unit.” An employer can challenge the determination regarding the composition of the unit, but the Board will now require that the burden to establish that a bargaining unit is not appropriate will be an “overwhelming” community of interest between the employees in the petitioned-for unit and the larger workforce.

“…when employees or a labor organization petition for an election in a unit of employees who are readily identifiable as a group (based on job classifications, departments, functions, work locations, skills, or other similar factors) and the Board finds that the employees in the group share a community of interest after considering the traditional criteria, the Board will find the petitioned-for unit to be an appropriate unit, despite a contention that employees in the unit could be placed in a larger unit which would also be appropriate or even more appropriate, unless the party so contending demonstrates that employees in the larger unit share an overwhelming community of interest with those in the petitioned-for unit…”

The NLRB did agree that cases may exist where the petitioned-for unit inappropriately “fractured” the workforce. For example, had the union petitioned only for CNAs working the night shift vs. all employees, or only CNAs working on the first floor and not the second floor, but it is eminently clear that the Board will direct elections and certify bargaining units of employees simply because they have one job title or job function and permit the union to ignore the other employees with distinct job titles or functions even when that means that the minority of the employees overall support the union. The reality is that all of the employees will have to deal with the union.

Employers should take no stock in some press suggestions that this decision has limited application to the health care industry. There is no holding or assurance that the rule is limited to the health care industry merely because the case arose within the health care industry. Rather, employers will be well served to heed the opening of Member Brian Hayes dissent which is absolutely accurate:

“Make no mistake. Today’s decision fundamentally changes the standard for determining whether a petitioned-for unit is appropriate in any industry subject to the Board’s jurisdiction.”

© 2011 Dinsmore & Shohl LLP. All rights reserved.

The Truth about Clean Energy Jobs

Recently posted in the National Law Review an article by U.S. Department of Energy in response to The Washington Post’s assertions  about the Department of Energy’s loan programs:

The Washington Post’s assertions today about the Department of Energy’s loan programs are both incomplete and inaccurate.

Here are the facts: over the past two years, the Department of Energy’s Loan Program has supported a robust, diverse portfolio of more than 40 projects that are investing in pioneering companies as we work to regain American leadership in the global race for clean energy jobs. These projects include major advances for our renewable power industry including the world’s largest wind farm, several of the world’s largest solar generation facilities, and one of the country’s first commercial-scale cellulosic ethanol plants. Collectively, the projects plan to employ more than 60,000 Americans, create tens of thousands more indirect jobs, provide clean electricity to power three million homes, and save more than 300 million gallons of gasoline a year, all while investing in American competitiveness. What matters to the men and women who have those jobs is that the investments that this Administration is making are helping to keep factories open and running.

When the Washington Post claims that the program has created 3,500 jobs, here is what the reporters are excluding:

  • 33,000 American auto jobs saved at Ford. The Post article does acknowledge that the program enabled Ford to modernize its factories to produce more fuel efficient vehicles, which a Ford spokeswoman credits for “helping retain the 33,000 jobs by ensuring our employees can build the fuel-efficient cars people want to drive.”
  • More than 7,300 construction jobs. Many of the projects funded by the program are wind and solar power plants, which create significant numbers of construction jobs but once built can be operated inexpensively without a large workforce. But the Washington Post chose to ignore all of those jobs. If a community built a new highway or a bridge that employed 200 workers directly during construction – and many more in the supply chain — and that also strengthened the local economy by making it faster to transport goods, would anyone say that the project created zero jobs?
  • Supply chain jobs. While these jobs aren’t reflected in official government estimates because of the difficulty in obtaining a precisely accurate count, that doesn’t mean they don’t exist. When a company spends $100 million or $200 million building a wind farm or a solar power plant, most of that economic value actually goes into the supply chain – creating huge manufacturing opportunities for the United States.

In fact, when you look at the Washington Post’s graphic, you can see that the program has already created or saved roughly 44,000 jobs.  Many of the projects it has funded are just getting going, and many of the loans won’t even go out the door until the next few weeks. Others have not ramped fully up to scale. But we are on pace to achieve more than 60,000 direct jobs – and many more in the supply chain.

Here’s a simple example:

Last year, the Department awarded a loan guarantee to build the Kahuku wind farm in Hawaii. It employed 200 workers during construction. Those wind turbines were built in Cedar Rapids, Iowa. The project also features a state of the art energy storage system supplied by a company in Texas. The supply chain reached 104 U.S. businesses in 21 states. But by the Washington Post’s count, none of those jobs – not even the 200 direct construction jobs – should count.

What’s critically important and completely ignored by the Washington Post, is that the value of this program can’t be measured in operating jobs alone. The investments are helping to build a new clean energy industry here in America. We are now on pace to double renewable energy generation from wind and solar from the time the President took office. Yet we are still in danger of falling behind China and other nations that are competing aggressively for leadership in these technologies. This is a race we can and will win, but only if we make these investments today. These investments will pay dividends not just in today’s jobs but in entire industries and supply chains – and in cleaner air and water for our children and grandchildren.

One of the goals of the program is to create projects that will encourage the private sector to take the financing risk on other, similar projects on its own. If we can show, for example, that a commercial scale cellulosic biofuel plant in Iowa can succeed, the private sector will likely finance many more of them around the country.

America’s economic strength has been built on technological leadership. The next great technological revolution is the clean energy revolution, and this Administration is committed to making sure that America will continue to lead the world.

Department of Energy – © Copyright 2011

How the NCAA Has Used the Term “Student-Athlete” to Avoid Paying Workers Comp Liabilities

Recently posted in the National Law Review an article by Jared Wade of Risk and Insurance Management Society, Inc. (RIMS) regarding the how and the why of the NCAA’s creation and widespread promotion of the term “student-athlete.”

Anyone who has spent much time following college sports should be aware of the NCAA’s hypocrisy. It demands purity from its “amateur” “student-athletes” while at the same time taking in billions in revenue from their on-field and on-court efforts. And whenever the nation expresses outrage at the revelation of yet another “scandal” in which a player received some compensation for their athletic abilities, there is much hand-wringing and finger-pointing from the sport’s governing body, which in turn imposes sanctions and other penalties against the offending schools and players.

Well, never before has anyone detailed this NCAA hypocrisy better than Taylor Branch did in the latest cover story of The Atlantic, “The Shame of College Sports.”If this sort of stuff interests you, the looooong account is well worth your time to read.

For our purposes, however, the most interesting excerpt chronicles the how and the why of the NCAA’s creation and widespread promotion of the term “student-athlete.” According to Branch, the main reason that former NCAA head Walter Byers, in his own words, “crafted the term student-athlete” and soon made sure it was “embedded in all NCAA rules and interpretations” was because it was an excellent defense against being held liable for workers compensation benefits that those injured in athletic competition could seek.

“We crafted the term student-athlete,” Walter Byers himself wrote, “and soon it was embedded in all NCAA rules and interpretations.” The term came into play in the 1950s, when the widow of Ray Dennison, who had died from a head injury received while playing football in Colorado for the Fort Lewis A&M Aggies, filed for workmen’s-compensation death benefits. Did his football scholarship make the fatal collision a “work-related” accident? Was he a school employee, like his peers who worked part-time as teaching assistants and bookstore cashiers? Or was he a fluke victim of extracurricular pursuits? Given the hundreds of incapacitating injuries to college athletes each year, the answers to these questions had enormous consequences. The Colorado Supreme Court ultimately agreed with the school’s contention that he was not eligible for benefits, since the college was “not in the football business.”

The term student-athlete was deliberately ambiguous. College players were not students at play (which might understate their athletic obligations), nor were they just athletes in college (which might imply they were professionals). That they were high-performance athletes meant they could be forgiven for not meeting the academic standards of their peers; that they were students meant they did not have to be compensated, ever, for anything more than the cost of their studies.Student-athlete became the NCAA’s signature term, repeated constantly in and out of courtrooms.

Using the “student-athlete” defense, colleges have compiled a string of victories in liability cases. On the afternoon of October 26, 1974, the Texas Christian University Horned Frogs were playing the Alabama Crimson Tide in Birmingham, Alabama. Kent Waldrep, a TCU running back, carried the ball on a “Red Right 28” sweep toward the Crimson Tide’s sideline, where he was met by a swarm of tacklers. When Waldrep regained consciousness, Bear Bryant, the storied Crimson Tide coach, was standing over his hospital bed. “It was like talking to God, if you’re a young football player,” Waldrep recalled.

Waldrep was paralyzed: he had lost all movement and feeling below his neck. After nine months of paying his medical bills, Texas Christian refused to pay any more, so the Waldrep family coped for years on dwindling charity.

Through the 1990s, from his wheelchair, Waldrep pressed a lawsuit for workers’ compensation. (He also, through heroic rehabilitation efforts, recovered feeling in his arms, and eventually learned to drive a specially rigged van. “I can brush my teeth,” he told me last year, “but I still need help to bathe and dress.”) His attorneys haggled with TCU and the state worker-compensation fund over what constituted employment. Clearly, TCU had provided football players with equipment for the job, as a typical employer would—but did the university pay wages, withhold income taxes on his financial aid, or control work conditions and performance? The appeals court finally rejected Waldrep’s claim in June of 2000, ruling that he was not an employee because he had not paid taxes on financial aid that he could have kept even if he quit football. (Waldrep told me school officials “said they recruited me as a student, not an athlete,” which he says was absurd.)

The long saga vindicated the power of the NCAA’s “student-athlete” formulation as a shield, and the organization continues to invoke it as both a legalistic defense and a noble ideal. Indeed, such is the term’s rhetorical power that it is increasingly used as a sort of reflexive mantra against charges of rabid hypocrisy.

Today, the term “student-athlete” is intended to carry with it the nobility of amateur athletics that the NCAA epitomizes.

Originally?

It was a good protection for keeping those carried off the field from suing the schools.

Risk Management Magazine and Risk Management Monitor. Copyright 2011 Risk and Insurance Management Society, Inc. All rights reserved.

Seeking Corporate Dissolution: One Way to Turn Up the Heat on a Deadbeat Debtor

Posted in the National Law Review an article by Jeffrey M. Schwartz of Much Shelist Denenberg Ament & Rubenstei P.C. regarding a seldom-used remedy that can significantly increase your chances of recovering a debt:

Put yourself in the place of a creditor. One of your customers, an Illinois corporation, owes you money. The customer does not dispute the debt and has even admitted it in writing. However, you can’t get the customer to pay. You have tried everything. First, you are told “the check is in the mail” and of course, it does not show up. The customer then agrees to a payment plan but fails to make the required payments. Finally, the customer promises to “pay next month when we have the money.” Still no check. In a last ditch effort, you call repeatedly, but the customer has now gone incommunicado. It has become obvious that the only way to collect the debt is to file a lawsuit.

You are hesitant, however, because of the time and expense it will take to obtain and enforce a judgment. After all, the customer will likely go to great lengths to delay the lawsuit and hold you at bay for as long as possible. From the customer’s point of view, the worst case scenario is that it will have to pay you the money it has already admitted it owes. Is there anything you can do to minimize the time and expense of obtaining and enforcing a judgment?

You may want to consider a seldom-used remedy that can significantly increase your chances of recovering a debt. Under the Illinois Business Corporation Act, a creditor may seek to have its claims against an Illinois corporation satisfied by bringing an action for dissolution in the state’s circuit court. By adding a cause of action for corporate dissolution to a collection lawsuit, creditors may increase pressure on the debtor to pay what is owed or resolve the dispute in a timely, cost-effective manner. In essence, this alternative remedy can change the dispute from a simple beach of contract or collection matter to a scenario where the customer risks losing control of the corporation and must fight for its very existence.

The Illinois Business Corporation Act, which has little case law interpreting it, does not require much. The statute provides that in an action brought by a creditor, a circuit court in Illinois may dissolve a corporation if it is established that:

  1. The creditor’s claim has been reduced to judgment, a copy of the judgment has been returned unsatisfied and the corporation is insolvent; or
  2. The corporation has admitted in writing that the creditor’s claim is due and owing, and the corporation is insolvent.

(Note: Many other states have similar statutes that allow a creditor to satisfy a claim against a corporation through dissolution or liquidation. Accordingly, if your customer is not an Illinois corporation, you should check to see if its state of incorporation has a similar statute.)

One advantage of using this statute is that it does not actually require a creditor to obtain a judgment. The creditor need only show that the debtor has admitted in writing that it owes the money and that the corporation is insolvent. The written admission can come in a variety of forms. For example, the debtor may have sent a letter or e-mail admitting that it owes the debt or may have acknowledged the debt in a forbearance or settlement agreement. In addition, the admission need not be made directly to the creditor. According to People Ex Rel. Day v. Progress Ins. Ass’n, a 1955 Illinois Appellate Court decision, it may be sufficient that the indebtedness is recognized in the debtor’s books and records. Furthermore, the insolvency requirement is satisfied if the corporation is “unable to pay its debts as they become due in the usual course of its business,” as stated in the Illinois Business Corporation Act.

The statue also allows the circuit court, as an alternative to dissolution, to (1) appoint a custodian to manage the business and affairs of the corporation to serve for the term and under the conditions prescribed by the court; and (2) appoint a provisional director to serve for the term and under the conditions prescribed by the court. Like the prospect of dissolution itself, these alternatives put the debtor at risk of losing control of the company.

While your customer may be willing to take the chance that a judgment will be entered against it after extensive litigation and delay, it may not be willing to risk dissolution or loss of control of the corporation. Therefore, adding a count for corporate dissolution to a collection lawsuit can alter the playing field and give you—the creditor—significant negotiating power to resolve the dispute quickly and on better terms.

© 2011 Much Shelist Denenberg Ament & Rubenstein, P.C.

 

 

Fifty Ways To Leave Your Lover And Nine Ways To Attack Patents

Recently posted in the National Law Review an article by Warren Woessner of Schwegman, Lundberg & Woessner, P.A. about the Patent Reform Bill, H.R. 1249:

As a “quick guide” to the Patent Reform Bill, H.R. 1249, that will soon become law, these are the sections of the Act and of the present statute that will all be, or remain effective, upon enactment, to facilitate blocking the issuance of applications or cancellation of objectionable claims. I will try to be brief, but it is not easy. Section references are to section of the Bill; “s.” references are to sections of 35 U.S.C.

  1. Sec. 3: Derivation proceedings (This replaces s. 291 – Interfering patents)
  2. Sec. 6: Citation of prior art and written statements  (Modifies s. 301 – Citation of prior art in an issued patent).
  3. S. 302-307 – “Old” ex parte reexamination is not affected by Bill. (But, remember, ex parte reexamination is essentially unused now.)
  4. S. 251-253. Reissue section is unscathed.
  5. Sec. 6: Inter partes review (Substantially modifies inter partes reexamination – must wait to file until after “opposition period” for post-grant review).
  6. Sec. 6: s. 321: Post-grant review (This is the new “opposition” section – must be filed within 9 mos. of issuance.)
  7. Sec. 8: Adds s. 122(e)   to permit preissuance submissions of art by third parties.
  8. Sec. 12: Adds s. 257: “Supplemental examination to consider, reconsider, or correct information.” Commentators have noted that these proceedings will permit patent owners to purge “fraud,” but there are exceptions.
  9. Sec. 18: Transitional post-grant review proceeding  for review of validity ofbusiness method patents – Can be initiated by defendant in civil suit.

Since reissue, ex parte reexamination, and supplemental examination are owner-initiated, perhaps I should have titled this post, “Nine Ways to Limit Patent Protection”, but then I would have had to list sections involving limiting false marking suits and  the ban on patenting human organisms.  I hope that this will help you locate specific parts of the Bill and of 35 USC as the commentary begins to pile up. As Prof. Hal Wegner summarizes this array:

“A major feature of the [Bill] is the creation of a variety of new post-grant review procedures. The difficulty with both the current and the new procedures results in part from the fact that essentially nothing is being  taken away while time consuming procedures are added to the burden of the upper end professionals at the Patent Office, all at a time when the Board is slowly sinking into an ever greater backlog.” (H.C. Wegner, The 2011 Patent Law: Law and Practice, Version 5.0, Sept. 8, 2011).

Hear! Hear! And, by the way, the Patent Office Board of Appeals and Interferences  is now “The Patent Trial and Appeal Board.” Check out its duties at Section 6 of the Bill.

© 2011 Schwegman, Lundberg & Woessner, P.A. All Rights Reserved