Navigating the Business Landscape After Silicon Valley Bank and Signature Bank

NOTE: The information contained in the following alert is up-to-date as of March 15, 2023. News and events are evolving, so check the websites for the FDIC and the applicable banks for updates and announcements.

Start-up, emerging, middle market and other companies and their founders, executives, and investors, are facing heightened demands in the wake of recent developments involving Silicon Valley Bank (SVB) and Signature Bank. You can navigate the situation and be well-positioned for continued growth and success by considering the suggestions below.

We banked with Silicon Valley Bank or Signature Bank. How can we get our funds?

  • All funds, including those above Federal Deposit Insurance Corporation (FDIC) insurance limits, were transferred to Silicon Valley Bridge Bank, N.A. and Signature Bridge Bank, N.A., respectively, and depositors have full access to their money beginning March 13, 2023

  • You may continue to use the same online banking access, checks and/or ATM/debit cards to access your funds

What are the applicable FDIC insurance limits generally?

  • The FDIC exercised its authority under the systemic risk exception to cover uninsured deposits at Silicon Valley Bank and Signature Bank, but has not otherwise modified the FDIC insurance thresholds

  • Deposits are insured up to at least $250,000 per depositor, per FDIC-insured bank, per ownership category

  • Legal entities with independent operations are generally entitled to $250,000 in FDIC-insurance per FDIC-insured bank

  • Bank customers do not need to purchase deposit insurance; it is automatic for any deposit account opened at an FDIC-insured bank

  • Funds swept into money market funds on an overnight basis are not treated as deposits of the bank, are not subject to FDIC insurance, and the FDIC will honor the banks obligation to convert the money market funds back into cash the next day

  • Banks may also offer a multibank sweep vehicle, often via IntraFi’s ICS or CDARS program, which allows balances in excess of the $250,000 amount to be transferred to other banks to take advantage of each bank’s $250,000 FDIC insurance limit

  • FDIC Link to Are My Deposit Accounts Insured by the FDIC

  • FDIC’s Electronic Deposit Insurance Estimator

We have venture debt or another form of loan from Silicon Valley Bank or Signature Bank. Do we need to continue to make payments? Are the terms of the facility or any security interest modified? Can we continue to draw on a line of credit? Is a letter of credit issued by one of those banks still valid?

  • Payment obligations continue, and the terms of any arrangements are unchanged

  • The FDIC can repudiate contracts under certain circumstances, and so it may not honor advances or letters of credit

  • The FDIC’s general policy is that its role as receiver generally precludes continuing the lending operations of a failed bank

  • The FDIC will consider advancing funds if it determines that the advance is in the best interest of the receivership

  • Upon receiving a funding request, the FDIC may: make all or a portion of the requested loan advance, undertake discussions to reach a mutually satisfactory agreement to restructure the loan, or exercise its statutory right as receiver to repudiate its funding obligations with respect to the loan

  • Accordingly, letter of credit counterparties may  not view Silicon Valley Bank-issued or Signature Bank-issued letters of credit as creditworthy in the current circumstances, and it may be beneficial to take proactive steps to make alternate arrangements where possible

  • However, Silicon Valley Bridge Bank has indicated that it will honor all commitments to advance under existing credit agreements

  • As receiver, the FDIC is looking to maximize recovery and will likely sell the assets of the banks in receivership, either individually or collectively to a successor institution.

What about any warrants issued to such institutions?

  • Warrants issued to a bank in receivership should remain valid and outstanding with no change impacting the cap table

  • As receiver, the FDIC is looking to maximize recovery and will likely sell the assets of the banks in receivership, either individually or collectively to a successor institution.

Can we leave our current bank or at least diversify our deposits across financial institutions?

  • Examine banking relationships and review loan agreements and lines of credit for restrictions and covenants that may require you to maintain primary banking relationship or certain deposit accounts (e.g., your receivables) at the lender

  • Look into ICS or CDARS programs at network banks, which provide FDIC insurance coverage for certain business deposits of $250,000 or more

  • New bank relationships require “Know Your Customer” processing, which requires lead time that could be even more protracted in the current climate

  • An international company considering cash repatriation will want to consider tax implications

Payroll is coming due. Can we delay payments to employees? What should our company do if it is tight on cash?

Labor and wage payment laws and regulations impose requirements on when employers must pay employees

  • Under the Federal Fair Labor Standards Act, employers must pay non-exempt employees for hours worked and exempt employees for their regularly weekly rate of pay on regularly scheduled pay days for the covered pay period

  • Where state law imposes higher standards regarding unpaid wages, minimum wage, and other wage payment obligations, consider furloughs or changes for future wages to avoid violations

  • Failure to pay wages when due can subject U.S. employers to, among other things, fines and liquidated damages including double or treble damages, attorney fees (for litigation) and individual personal civil and, in some cases, criminal liability on owners and executives

  • Employers remain obligated to deduct and remit payroll taxes from wages even when under stress caused by the insolvency of its bank

  • If company has employees or independent contractors outside the United States, consult local lawyer(s)

Assess payroll, legal and contractual requirements and alternatives

  • Identify other available funds to ensure that payroll requirements can be met and, if not, explore alternative sources of funding

  • Request company owners, senior executives and board to consider pay cuts

  • Consider measures ranging from furloughs of nonexempt employees to pay cuts and/or reductions in hours in compliance with labor and employment laws, and clearly communicate changes to employees

  • Consider use of retention/stay bonuses

  • If an employee decides to leave or a decision is made to let an employee go, consider separation agreement issues and limits on use of non-compete, non-solicitation, non-disclosure, non-disparagement and appropriate release terms in specific context, including in light of existing employee agreements

  • Confirm and comply with prior employee documentation, including employment agreements, offer letters, employee handbooks and policies, IP assignment terms, confidentiality terms, and option or other equity terms

  • Consider governance and contractual requirements with respect to changes in compensation, bonus plans, etc.

  • Take control and communicate with employees as appropriate, to manage the situation and help allay fears and risk of departures and to enhance productivity

What are our options for payments owed to lenders, landlords, suppliers, vendors and other creditors?

  • Consider contacting creditors to negotiate short-term credit and payment extensions in light of cash flow needs and credit risk issues

  • Consider drawing existing and available lines of credit to shore up working capital position

  • Consider strategically stretching out payments to certain other non-critical trade creditors

  • Consider reaching out to investors for short-term liquidity or equity infusions

How can we identify and secure alternative sources of funding?

  • Focus on maintaining current payments to lifeblood sources

  • Consider reaching out to investors for short-term liquidity or equity infusions

  • Consider straight loan or promissory note if the company is in a position to pay a fixed sum or interest, and evaluate valuation, dilution and cap table impacts if considering SAFE, convertible note, warrant, preferred or other equity

  • Consider governance issues including necessary board and investor approvals, creditor consents, intercreditor and tax issues

  • Consider selling non-core assets

How do we obtain a line of credit in this environment?

  • New bank relationships require “Know Your Customer” processing, which require lead time that could be even more protracted in the current climate

  • New lines of credit require lead time for underwriting, credit approval and documentation and, if you have other debt facilities in place already, potential consent from existing lenders

  • Consider expanding existing banking relationships to shorten potential lead times,

What else should we take into account if we are considering bridge financing or other funding from our investors?

  • In addition to above, consider SAFE, convertible note or a preferred stock round and extending any repayment terms

  • Obtain interested party transaction approvals and addition to typical governance requirements such as board and investor approvals

What are my company’s reporting or disclosure obligations? What information should we share internally?

  • Your obligations depend in part on whether the company is public or private, accounting standards, securities laws, exchange rules, state corporate law, and your governance documents

  • For a private company, managing the situation through open and informal communications with stakeholders may provide insight and useful information for financial and operational issues and reporting to the Board

  • A public company affected by a bank shutdown or experiencing a liquidity challenge may have SEC disclosure obligations, and communications with stakeholders will be governed by securities laws

What should I keep in mind about board decision-making

  • Maintain acute awareness of the possibility of self-dealing or even the appearance of self-dealing, and obtain appropriate approvals for any insider transactions, such as disinterested director or stockholder approval

We are focused on conserving and managing cash. What should we be doing?

  • Engage or hire experienced financial and accounting advisors (whether an outside consulting or other firm, or a fractional or full-time experienced finance employee or independent contractor)

  • Track financial position and obligations closely, with an eye on foot faults that could arise in the near, medium, and long-term horizon

  • Challenge assumptions: long-term risks might suddenly become near-term ones.

  • Focus on liquidity issues (cash position, cash flow and burn rate) and forecast for several months to meet obligations to creditors, considering limits on access to significant deposits or credit lines if a banking partner has closed and potential changes in the credit market more broadly

  • Assess availability of alternative funding sources

  • Update financial statements, plans and projections and underlying assumptions, and consult with board, advisors and key investors about appropriate adjustments

  • Consult with advisors and partners on appropriate cash management, financial institution diversification and risk management strategies for your situation

How do we know if our business insurance is the right kind and amount to cover the risks our company and its directors and officers may face?

  • Determine whether losses from a bank closure are covered by business interruption or other insurance

  • Review current D&O insurance coverage, including the applicable limits and periods of coverage

Our company’s insurance premium payment is coming due. Can we delay or defer payment if we are tight on cash?

  • Insurance premiums should be paid when due, as failing to pay an insurance premium could cause the policy to lapse leaving it without coverage

  • Consider contacting the insurance company to clarify any grace period or adjust any deductible

  • Consult with an insurance broker and the board to evaluate whether there is a more affordable option. Review governance terms to see whether changes to insurance may require investor approval

Article By Lori Anne Czepiel, Robert Klingler, James W. Bartling, Mitch Boyarsky, Jason L. Watkins, Paul Z. Rothstein, Joe Daniels, Jackson Hwu, Neil Grayson, Benjamin Barnhill, J. Brennan Ryan, Dowse Bradwell Rustin IV, Richard Levin, and Craig Nazarro of Nelson Mullins.

For more financial and banking legal news, click here to visit the National Law Review.

Copyright ©2023 Nelson Mullins Riley & Scarborough LLP

The Silicon Valley Bank Failure: Implications on Commercial Leasing

This past Friday, March 10, 2023, the Federal Deposit Insurance Corp. (FDIC) announced its takeover of the failed Silicon Valley Bank (“SVB”) after a run on the bank late last week caused the largest-scale U.S. bank failure since Washington Mutual in the 2008 financial crisis. Two days later, New York regulators shuttered Signature Bank (“Signature”). The federal government has made it clear that, while FDIC will guaranty all deposits, including uninsured ones, bailouts of these banks will not occur. The failures of SVB and Signature are likely to have widespread ramifications across many industry sectors, including commercial leasing.

How will the bank failures impact landlords in the commercial leasing sector?

  • SVB was a very common issuer of tenant letter of credit security deposits. A letter of credit security deposit is the issuing bank’s contractual obligation to pay the landlord beneficiary the amount that such landlord’s tenant is in default.
  • Landlords holding tenant letters of credit issued by SVB or Signature as security deposits will be directly impacted by the bank failures. Any undrawn standby letters of credit issued by SVB, Signature or any other bank under FDIC receivership may be repudiated by the FDIC, making any such letter of credit worthless. Any affected landlord will want to act promptly to provide proper protection of their interests under any applicable lease.

How can landlords protect their interests under such leases?

  • Any landlord holding a letter of credit security deposit should identify the issuing bank.
  • In any lease where the security deposit is a letter of credit issued by SVB or Signature, the landlord should carefully review the terms of the lease regarding the security deposit and the landlord’s approval rights over the issuing bank, but in any event require the tenant to provide it with a letter of credit issued by a different financial institution.
  • All landlords should review the terms their lease agreements relating to landlord approval rights over issuing banks, draw procedures and requirements and the process for replacing a letter of credit.
  • In the event the lease agreement in question does not provide landlord with adequate approval rights over the issuing bank, clear draw procedures and stringent replacement requirements, the landlord should consider amending the lease agreement to so require.

Article By Jeff Bates and Blake Young of Winstead

For more finance and banking legal news, click here to visit the National Law Review.

© 2023 Winstead PC.

President Biden’s FY 2024 Budget Includes Additional Funding for TSCA and Funding to Address PFAS Pollution

On March 9, 2023, President Biden released his fiscal year (FY) 2024 budget. According to the U.S. Environmental Protection Agency’s (EPA) March 9, 2023, press release, the budget requests over $12 billion in discretionary budget authority for EPA in FY 2024, a $1.9 billion or 19 percent increase from the FY 2023 enacted level. Highlights of the FY 2024 budget include:

  • Ensuring Safety of Chemicals for People and the Environment: The budget provides an investment of $130 million, $49 million more than the 2023 enacted level, to build core capacity to implement the Toxic Substances Control Act (TSCA). Under TSCA, EPA has a responsibility to ensure the safety of chemicals in or entering commerce. According to EPA, in FY 2024, it “will focus on evaluating, assessing, and managing risks from exposure to new and existing industrial chemicals to advance human health protection in our communities.” EPA states that “[a]nother priority is to implement [the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA)] to ensure pesticides pose no unreasonable risks to human health and the environment.”
  • Tackling Per- and Polyfluoroalkyl Substances (PFAS) Pollution: The budget provides approximately $170 million to combat PFAS pollution. This request allows EPA to continue working toward commitments made under EPA’s 2021 PFAS Strategic Roadmap, including: increasing its knowledge of PFAS impacts on human health and ecological effects; restricting use to prevent PFAS from entering the air, land, and water; and remediating PFAS that have been released into the environment.

EPA states that it will release the full Congressional Justification and Budget in Brief materials “soon.”

Article By Lynn L. Bergeson and Carla N. Hutton of Bergeson & Campbell, P.C.

Click here for more environmental legal news from the National Law Review.

©2023 Bergeson & Campbell, P.C.

Information for Borrowers with Loans from Silicon Valley Bank or Signature Bank

This alert provides information for borrowers with loans from Silicon Valley Bank (“SVB”) or Signature Bank (“Signature”) based on information available from the FDIC and our clients’ experiences over the last few days. We have also included information regarding the FDIC’s general policies and procedures when selling and administering loans of failed banks. We will update this alert as additional information becomes available.

Borrowers with loans from SVB or Signature continue to wait for information from the FDIC, and the new bridge banks it formed, with respect to their loans, including any information regarding the sale of their loans, new bank contact information and updates to borrowing procedures and payoff logistics. At present, we understand that the bridge banks are attempting to operate in the same manner with respect to their borrowers (and depositors) that SVB and Signature operated prior to their failures, including through use of the existing relationship managers/bank contacts and online platforms and consistent borrowing and payment mechanics.

Systemic Risk Exception

As widely reported, on Sunday, March 12, the Federal Reserve, the FDIC and the Treasury Secretary announced a systemic risk exception and created Silicon Valley Bridge Bank, N.A. and Signature Bridge Bank, N.A. (together, the “Bridge Banks”). The systemic risk exception is an attempt to avoid a widespread bank run and to ensure that all of SVB and Signature Bank’s depositors would be made whole after the failures of the two banks. The systemic risk exception is an exception to federal law that otherwise would require the FDIC to resolve a bank failure at the lowest cost to the Government’s deposit insurance fund.  See Crisis and Response: An FDIC History, 2008-2013, p. 36. Otherwise, the FDIC would not have been in a position to backstop uninsured deposits beyond the $250,000 insured limit per depositor per ownership category. For more information about FDIC deposit insurance limits please see our prior alert: SVB Receivership – What You Need to Know.

Prior to Sunday, the only uses of the systemic risk exception occurred in 2008 and 2009.  Id., pp. 35-36. The systemic risk exception has never before been used to create bridge banks at which loans at failed institutions would then be sold or administered by the FDIC.

Sale of SVB and Signature Loans

The general expectation after a bank failure is that the failed bank’s loans will be sold to a new lender as expeditiously as possible. The FDIC conducted an auction for the assets of SVB (including its loan portfolio) on Sunday, March 12. The Wall Street Journal reported on Monday, March 13 that, while none of the largest U.S. Banks bid on SVB at the initial auction, there was at least one offer which was declined by the FDIC. The WSJ is also reporting that regulators are planning to hold another auction of SVB’s assets. We also anticipate an auction of Signature’s assets. The timing of these auctions remains unclear.

In the event that either or both of these auctions produce buyers of the Bridge Banks’ respective assets in bulk, those buyers will become the lenders under the failed banks’ loans. In that case, the applicable successor lender will advise its new borrowers of their new bank contacts and provide relevant loan administration information including loan payment procedures.

If either or both of the auctions fail to produce a buyer for all of the bank’s assets, a bank’s loan portfolio may be split up and sold piecemeal. In this event it may take longer before borrowers know the identity of their new lender. If some or all of the loans are not purchased, they will continue to be administered by the respective Bridge Banks or the FDIC. As noted above, the intent of the FDIC is to continue to operate the Bridge Banks pending substantial completion of the sale process.

Borrowing Under an SVB or Signature Line of Credit

In general, when the FDIC is appointed receiver, it immediately begins analyzing loans that require special attention, such as unfunded and partially funded lines of credit, and construction and development loans. Typically speaking, the role of receiver generally precludes the FDIC from continuing the lending operations of a failed bank; however, the FDIC will consider advancing funds if it determines an advance is in the best interest of the receivership, such as to protect or enhance collateral, or to ensure maximum recovery to the receivership. See A Borrowers Guide to an FDIC Insured Bank Failure.

When the FDIC is operating as receiver, its general procedures provide that if a borrower submits a request for additional funding, the FDIC will conduct a thorough analysis to determine the best course of action for the receivership. The FDIC uses information contained in the failed bank’s loan files to the extent available and considered reliable. Because the files of failed banks are often incomplete or poorly documented, the FDIC may require additional financial information to perform its analysis and make decisions.

In the current circumstances, with the Bridge Banks operating under the systemic risk exception, these general FDIC rules appear to have been relaxed, at least for the time being and our clients are reporting that borrowing (and deposit) operations are generally functioning in the ordinary course. We have not yet heard from any clients that additional information has been required in connection with advances from the Bridge Banks.

SVB Contact Information

The FDIC is currently directing SVB borrowers with questions about drawing on lines of credit to contact their existing relationship manager/bank representative at SVB. SVB also has a call center at 800-774-7390 open from 5:00 AM to 5:30 PM (Pacific) with representatives that can assist borrowers.

Signature Contact Information

The FDIC is currently directing Signature borrowers with questions about drawing on lines of credit to contact their existing relationship manager/bank representative at Signature Bank. Signature Bank also has a 24-hour call center at 866-744-5463 with representatives that can assist borrowers.

On Monday, March 13, our clients had mixed results contacting their existing bank relationship managers and drawing on lines of credit. Some clients requested online draws but have not been successful as a result of system malfunctions (and we heard the same reports with respect to some attempts to access and move deposits). On the other hand, we heard reports from our clients that automatic draws and account sweeps have continued to function (and many borrowers successfully accessed their accounts). Today (March 14), clients appear to be having more success in accessing their lines of credit. We will continue to gather information about borrowers’ ability to access their lines as it becomes available.

Loan Payoff/Lien Release Information

Many clients have inquired about the mechanics for arranging a loan payoff/refinancing of their SVB loan or Signature loan. In the event that the loan is sold, the borrower can coordinate payoff with the new lender that purchased the loan. In the meantime, borrowers should reach out to their relationship managers or otherwise contact the bank using the means provided above to arrange any payoff and/or lien release. Further information regarding lien releases may also be found on the FDIC lien release website. In the event that borrowers’ loans are not sold quickly by the FDIC to a new lender, we expect that those borrowers will be strongly encouraged by the FDIC to arrange for a refinancing. See A Borrowers Guide to an FDIC Insured Bank Failure.

Continue Performing Obligations under Loan Documents

Notwithstanding the failures of SVB and Signature, their borrowers should continue to abide by their loan documents, including submitting payments as required by their loan documents at the same addresses and complying with all other covenants and agreements. Borrowers will be advised by the FDIC, the Bridge Banks or a subsequent purchaser of their loan if there are any updates to payment mechanics or bank contact information.

Article By Timothy John Carter, Jonathan C. Hayden, Trevor Hoffmann, Muryum Khalid, Kevin Renna, Douglas B. Rosner, Andrew Rothstein, Jesse Rubinstein, and Jesse Scott of Goulston & Storrs.

Click here for more financial legal news from the National Law Review.

2023 Goulston & Storrs PC.

The EPA and Army Corps’ “Waters of the U.S.” (WOTUS) Rule to Become Effective on March 20

In January of 2023, the federal Environmental Protection Agency (EPA) and the U.S. Army Corps of Engineers (USACE) published in the Federal Register (see Federal Register/Vol. 88, No. 11, January 18, 2023) new rules that define which water bodies are classified under the Clean Water Act (CWA) as “waters of the U.S.” (WOTUS). While this may not appear to be significant, the adoption of these rules will have major implications for how federal agencies will identify the types of water bodies that are subject to jurisdiction under the CWA. The January 18th Federal Register publication provides that these new rules will become effective on March 20, 2023.

The CWA is the law that provides federal agencies the authority to prohibit or limit various activities that can impact WOTUS, such as the regulation of industrial and municipal wastewater discharges to navigable waters, the dredging or filling of wetlands, and the requirement to prepare “Stormwater Pollution Prevention Plans” (SWPPP) for industrial facilities. It also is the basis for much State law water regulation.

Applicability of the CWA

To be classified as a WOTUS, a water body must be considered to be “navigable,” but this term is more arcane than it might at first appear. Navigable waters as defined by the CWA includes, “waters of the United States,” and has been further defined by regulation to include those waters that “are subject to the ebb and flow of the tide and/or are presently used, or have been used in the past, or may be susceptible for use to transport interstate or foreign commerce.” This approach to navigability has led some states to adopt a “saw log test” as to whether the body of water could float a saw log for commercial purposes. In other states, such as Wisconsin, the test for navigability is whether the body of water can on a recurring basis – even if intermittent – support navigation by the smallest recreational craft, such as a canoe or kayak. Therefore, navigable waters not only can include larger lakes, rivers and streams, but can also include less obvious smaller water types such as wetlands adjacent to navigable waters, and even in some instances, ditches that hold water. While the CWA provides federal jurisdiction over WOTUS, the CWA does not actually define the term WOTUS; rather, it provides authority for EPA and the USACE to define WOTUS in regulations, which since the 1970s, the agencies at various times have done.

The Rapanos Decision and Competing Rationales

Further, the definition of what constitutes WOTUS has been reviewed in several U.S. Supreme Court cases, but the most significant case on this subject is the 2006 case of Rapanos v. United States, 547 U.S. 715 (2006), in which the Supreme Court interpreted the definition of WOTUS using two separate tests. In a four-justice plurality opinion written by Justice Scalia, WOTUS was defined as “only those relatively permanent, standing or continuously flowing bodies of water forming geographic features that are described in ordinary parlance as streams[,] … oceans, rivers, [and] lakes,” and “wetlands with a continuous surface connection” to a “relatively permanent body of water connected to traditional interstate navigable waters.” However, Justice Kennedy applied a different approach in a concurring opinion and stated that WOTUS must possess a “significant nexus” to waters that are or were navigable in fact or that could reasonably be so made.” He added that adjacent wetlands could possess a significant nexus if the wetlands “either alone or in combination with similarly situated lands in the region, significantly affect the chemical, physical, and biological integrity of other covered waters more readily understood as ‘navigable.'”

Regulatory Attempts to Define WOTUS Following Rapanos

Following Rapanos, the agencies have at various times developed guidance for implementing the WOTUS definition. For example, in 2015, under the Obama administration, the agencies amended their regulations defining WOTUS as part of the “Clean Water Rule, which expanded the definition of which water bodies were defined as WOTUS, and included the use of the “significant nexus” test. Again, in 2020, under the Trump administration, another rule was adopted, known as the “Navigable Waters Protection Rule” (NWPR), which limited the types of water bodies that were considered WOTUS under the previous 2015 Clean Water Rule. However, in 2021, in Pasqua Yaqui Tribe v. EPA, (Case No. 4:20-cv-00266), the U.S. District Court for the District of Arizona vacated implementation of the NWPR nationwide. The new rules published in the January 2023 Federal Register represents the Biden administration’s effort to rewrite the WOTUS rules following the vacation of the NWPR, allowing the agencies the ability to use both Justice Scalia’s “relatively permanent” test or Justice Kennedy’s “significant nexus” test in determining whether they have jurisdiction over water bodies.

WOTUS under the New Rule

Use of the “relatively permanent” test or the “significant nexus” test is apparent in the new rule’s definition of WOTUS. The 2023 rules identify the following waters as WOTUS:

  • Traditional navigable waters, the territorial seas, and interstate waters;
  • Impoundments of waters otherwise identified as WOTUS;
  • Tributaries of navigable waters, territorial seas, interstate waters, or impoundments if the tributaries meet the relatively permanent test or the significant nexus test;
  • “Adjacent wetlands,” which includes wetlands adjacent to navigable waters, wetlands adjacent to and with a continuous surface connection to relatively permanent impoundments, wetlands adjacent to tributaries that are relatively permanent, and wetlands adjacent to impoundments or tributaries which meet the significant nexus test; and
  • Intrastate lakes and ponds, streams, or wetlands not listed above which meet the relatively permanent test or the significant nexus test.

The 2023 rules specifically exclude the following from the WOTUS definition, though some activities may still be subject to Wisconsin rules:

  • Prior converted cropland;
  • Waste treatment systems;
  • Ditches (including roadside ditches) excavated wholly in and draining only dry land, and that do not carry a relatively permanent flow of water;
  • Artificially irrigated areas that would revert to dry land if the irrigation ceased.
  • Artificial lakes or ponds created by excavating or diking dry land, that are used exclusively for stock watering, irrigation, settling basins or rice growing;
  • Artificial reflecting pools or swimming pools, and other small ornamental water bodies created by excavating or diking;
  • Waterfilled depressions in dry land incidental to construction activity and pits excavated in dry land for obtaining fill, sand or gravel unless the construction is abandoned and the water body meets the definition of WOTUS; and
  • Swales and erosional features that are characterized by low volume, infrequent, or short duration flow.

Where is this Going?

While these new WOTUS rules become effective on March 20, 2023, the future of these new rules is in question as the U.S. Supreme Court is reviewing a case (Sackett v. EPA, 142 S. Ct. 896 (2022)) in which the legal sufficiency of the “significant nexus” test, in the context of wetland permitting, is under review. The Court’s opinion is expected to be issued after the 2023 rules becomes effective. Therefore, depending on the Court’s opinion related to the “significant nexus” test, it is possible that the 2023 rules may need to be revised. Further, in early March, a federal Congressional Committee (the House Transportation and Infrastructure Committee) approved a joint resolution to overturn the 2023 rules. In addition, several industry groups have filed suits to overturn the 2023 rules. These definitions have always been politically and scientifically contentious and we expect that to continue.

Due to the potential flux in which this new rule may ultimately be applied and considered, it will be increasingly important for the regulated public to keep abreast of which water bodies are ultimately determined to be classified as WOTUS, either by the agencies through regulation or guidance, by a U.S. Supreme Court decision in Sackett, and/or other legal or Congressional challenges. We will be tracking the implementation of this new rule by the agencies and related caselaw developments and Congressional challenges and will provide timely future Legal Updates. In the meantime, the extent of regulations of WOTUS – particularly wetlands – will continue to be very challenging.

Article By David P. Ruetz of von Briesen & Roper, s.c.

For more environmental legal news, click here to visit the National Law Review.

©2023 von Briesen & Roper, s.c

March 2023 Legal Industry News Highlights: Law Firm Hiring News, Industry Awards and Recognition, and the Latest Updates in Diversity and Inclusion

Welcome back to another edition of the National Law Review’s legal industry news roundup. We hope you are remaining safe, happy, and healthy! Please read on below for the latest in law firm hiring and expansion news, key industry awards and recognition, and a spotlight on important diversity, equity, and inclusion updates!

Law Firm Hiring and Expansion

Joanna Horsnail has been named managing partner of Mayer Brown’s Chicago office, effective February 28, 2023. Her appointment marks the fourth consecutive female leader for the firm’s largest office. Ms. Horsnail’s practice has primarily focused on advising clients on key transformational deals, primarily in the City of Chicago and State of Illinois. Most notably, she counseled on the deal securing the James R. Thompson Center as the corporate headquarters for Google, and has also previously worked with the Illinois Sports Facilities Authority, the Metropolitan Pier & Exposition Authority, the Chicago Symphony Orchestra and other public and not-for-profit organizations.

“Joanna’s well-earned reputation for professional excellence, coupled with her outstanding profile in the Chicago community make her an exceptional choice to lead the office,” said firm chair Jon Van Gorp. “Her natural charisma, approachability as a mentor to many and vision for the office will make her an inspirational and hugely successful leader. I look forward to working closely with her to achieve the growth and development objectives that the firm has for this office, which is where I started my career at Mayer Brown.”

“I’m delighted to be named office managing partner,” said Ms. Horsnail. “I have such tremendous enthusiasm for both Mayer Brown and this office and look forward to guiding the office as we continue our success in Chicago.”

Morten Lund has joined Foley & Lardner’s San Diego office as an of counsel in the Finance Practice Group. Mr. Lund has more than 25 years of experience advising developers, lenders, investors, and other project participants and has extensive experience in the energy sector.

Mr. Lund’s practice has primarily focused on solar energy and energy storage projects. His range of project experience also includes wind energy projects, combustion generator projects, nuclear energy facilities, hydroelectric facilities, cogeneration facilities, chemical facilities, forestry/paper facilities, large aircraft, and shipping fleets. He earned his JD from Yale University.

Eversheds Sutherland has added Megan K. Hall to their Tax Practice Group as a partner. Ms. Hall, located in the firm’s Washington D.C. office, further strengthens the firm’s international tax capabilities, focusing chiefly on transactional matters, cross-border employment and global mobility. She has previously worked with clients including multinational corporations on international tax matters, including the tax aspects of acquisitions, mergers, internal restructurings and business formations.

“I’m very excited to welcome Megan to the team and know she will add depth to our international tax practice,” said Robert S. Chase, US Tax Practice Group Leader. “Megan’s familiarity with cross-border operational structures and the tax considerations relevant to operating a multinational business enhances the firm’s ability to support clients in an area of increased focus for international tax authorities. The firm’s global footprint will provide a unique opportunity to enhance support to her international network.”

Jeremiah Kelly and Justin Coen have joined Venable LLP as partners in the firm’s FDA Group. Mr. Kelly’s practice concentrates on the FDA’s complex regulatory framework, helping clients with product development, application, and compliance for drugs, biologics, medical devices, and combination products. Mr. Coen’s practice focuses on guiding companies through FDA regulations related to drug, biologic, and device development, advising them on every stage of product development and commercialization.

Claudia A. Lewis, a co-chair of the firm’s FDA Group, said, “Venable has established itself among the premier practices in the FDA regulatory space and is regularly called upon to handle a myriad of issues involving the development and marketing of products regulated by the FDA. With the addition of Jeremiah and Justin, our services now include robust legal capabilities for companies navigating the FDA regulatory framework to commercialize drugs, biologics, devices, and combination products, among other product categories.”

Legal Industry Awards and Recognition

Janet Wagner, principal in the Banking practice at Chuhak & Tecson, P.C., has been accepted as a fellow of the respected American College of Mortgage Attorneys (ACMA) for 2023. Fellows of ACMA, which is composed of lawyers in North America who are authorities in mortgage law, seeks to give back to their profession, improving and reforming laws and procedures affecting real estate secured transactions and raising the level of performance of lawyers practicing in this area. Candidates are recommended each year and are selected after thorough review of their qualifications and achievements.

Ms. Wagner primarily focuses her practice on banking and commercial financing transactions, providing key counsel to commercial banks, credit unions, institutional lenders, insurance companies and other lenders. Previously, she has represented lenders involving a variety of classes of real estate in states across the country on acquisitions, refinancing and construction loans.

The Brain Injury Association of America (BIAA) has named Lawrence J. Buckfire to their prestigious Preferred Attorneys Program. The objective of the Preferred Attorneys Program is to offer a credible, diverse listing of outstanding attorneys to be used as a resource for both referring attorneys and individuals with brain injury, their family members/caregivers, and others seeking legal counsel. BIAA Preferred Attorneys are selected for their demonstrated legal credentials and their knowledge of the physical, cognitive, emotional, and financial tolls a brain injury inflicts.

Mr. Buckfire has consistently demonstrated skill and ability in representing those affected by a brain injury. He is the lead trial attorney and managing partner at Buckfire & Buckfire, P.C. His practice focuses primarily on child lead paint poisoning, wrongful death, nursing home neglect, medical malpractice, and other serious injury cases.

Adam Beaudoin of Ward and Smith has been chosen to serve as President-Elect of the Board of Directors for the Community Associations Institute of North Carolina (CAI-NC). The Community Associations Institute seeks to promote and strengthen community associations, focusing on education and resources for homeowners, volunteers, and professional managers.

Mr. Beaudoin brings extensive experience to his new role with CAI-NC, having previously practiced community associations law for nearly two decades. He is the Co-Chair of Ward and Smith‘s Community Associations Practice Group, and he has been a CAI-NC member since 2006. He has presented at several local and national CAI events, served on the Legislative Action Committee, and was a board member prior to his election.

Diversity, Equity, and Inclusion News

Katten Health Care Partner and Deputy General Counsel Kenya Woodruff has been profiled as a Leader in Diversity by the Dallas Business Journal. Ms. Woodruff is the National Chair of Katten’s Diversity Committee Women’s Leadership Forum, where she leads efforts to provide women attorneys with the professional tools and support to take their rightful place as leaders in law.

“I’m particularly proud of the professional development programming we have offered through the Women’s Leadership Forum to help empower our female attorneys at the firm and give them the skills needed to advance in their careers,” says Ms. Woodruff.

Woodruff’s practice centers around the healthcare industry, where she uses her legal, business, and regulatory expertise to support successful clinical operations and corporate transactions. She has previously worked as Deputy General Counsel for Parkland Health & Hospital System and Privacy Officer for a publicly traded radiology company.

Three Barnes and Thornburg attorneys will represent the firm in two 2023 Leadership Council for Legal Diversity Programs. Adetayo Osuntogun, Partner at the D.C. office, will join LCLD’s Fellows Program, a year-long training program focused on relationship-building and leadership skill development. Indianapolis Associate Alyssa Hughes and Los Angeles Associate Mihran Yezbekyan are joining the LCLD Pathfinders Program, which gives early career professionals the chance to develop tools related to leadership, career development, and professional networking.

Mr. Osuntogun is an international trade law expert focused on helping businesses handle global commerce matters related to trade policy, customs, imports, economic sanctions, export laws, and more. He is active with Alpha Phi Alpha, the Diverse Associates Network, and the National Bar Association. Ms. Hughes, who The Best Lawyers in America listed as one of 2023’s “Ones to Watch,” works in the Litigation Department on matters related to government and internal investigations, corporate criminal defense, and general commercial disputes. Mr. Yezbekyan also works in the Litigation Department, handling product liability, mass torts, and consumer class actions. Outside of the office, he volunteers with the Los Angeles County Bar Association Judicial Elections Evaluation Committee.

“LCLD has been a long-standing partner of Barnes & Thornburg. Their pathfinder and fellow programs align with our mission to position all of our talent to win,” said Dawn R. Rosemond, firm diversity partner. “We know that these programs will only further elevate Adetayo, Alyssa and Mihran’s professional practice and presence.”

Stanley Blackmon, Partner at Bradley Arant Boult Cummings’ Birmingham office, has also been selected to be a 2023 Leadership Council on Legal Diversity Fellow. The program will provide alumni networks, mentoring, accountability partners, leadership lunches, and class meetings to advance his legal diversity efforts and help others to do the same. LCLD Fellows are selected for their leadership, engagement, and commitment to diversity and inclusion, which Mr. Blackmon demonstrates through his active pro bono practice and involvement with the Birmingham Bar Association as President of the Young Lawyers’ Section, the Magic City Bar Association as an Executive Committee Member, the Alabama Standing Committee on Rules of Appellate Procedure, and the American Bar Association.

“We congratulate Stanley on his selection as an LCLD Fellow,” said Bradley Director of Inclusion and Diversity George D. Medlock, Jr. “Since Bradley joined LCLD in 2020, we have been proud to participate in and support the LCLD’s programs, which help prepare future generations of diverse talent for the highest positions of legal leadership.”

Article By Chandler Ford and Crissonna Tennison of The National Law Review / The National Law Forum LLC

For more legal marketing news, click here to visit the National Law Review.

Copyright ©2023 National Law Forum, LLC

Silicon Valley Bank Fails After Run on Deposits

“The Federal Deposit Insurance Corporation took control of the bank’s assets on Friday. The failure raised concerns that other banks could face problems, too.”

Read the New York Times article (Free Subscription Required)

In light of the news this morning that Silicon Valley Bank (SVB) has been closed by the California Department of Financial Protection, which appointed the Federal Deposit Insurance Corporation as SVB’s receiver, it’s fair to ask if this is the beginning of a trend among regional banks or an isolated incident. SVB, while unique in the banking industry, since it would lend against illiquid (pre-IPO) securities, mainly issued by ventured-backed companies, faced challenges in a rising interest rate environment that are not unique and which, many similarly situated regional banks, are still facing.

As the Federal Reserve considers whether to raise interest rates by 0.25% or 0.5%, in order to combat inflation, a key factor in their analysis will be the impact these interest rate hikes have on regional banks and their portfolios. Regional banks, unlike their Fortune 100, multi-national counterparts, derive their value from vast portfolios of bonds, which are very sensitive to interest rate hikes (as interest rates rise, the value of these bonds fall). For instance, the S&P Regional Banks Select Industry Index is down 3.69% today, 19.92% month-to-date, and 13.02% year-to-date.

Therefore, in the coming days, it will be crucial to watch both the Federal Reserve’s Federal Open Market Committee meeting on March 21-22 and whether SVB’s collapse signals a contagion among the regional bank sector. SVB’s closure is the biggest bank collapse since the financial crisis and many start-up/early-stage companies will be very interested to see if it is the last or the first of many.

© 2023 ArentFox Schiff LLP

Women in Whistleblowing: The Intersection Between Women’s Rights and Federal Employee Whistleblower Protections

Introduction

Pew Research Center data found that 42% of women in the United States have suffered discrimination in the workplace on the basis of their gender. Although there are statutory frameworks in place prohibiting such discrimination, the threat of retaliation can make it exceedingly difficult for employees who are already experiencing discrimination and harassment to come forward as whistleblowers under these provisions. On top of the personal and professional risks inherent in whistleblowing, federal employee whistleblowers have been saddled with added burdens by the statutory framework: in addition to proving her substantive claims, a federal whistleblower of sex discrimination is required to demonstrate that she has exhausted certain administrative remedies before she can be heard by a jury of her peers.  Because workplace discrimination disproportionally affects women, ensuring expansive and effective whistleblower protections and remedies, particularly for women in federal employment, is undoubtedly a women’s rights issue. To celebrate Women’s History Month, this article highlights just a few of the remarkable women who have come forward as whistleblowers within this framework to make enormous strides in preserving, enforcing, and expanding crucial protections for future generations of women in the federal workplace.

Statutory Framework

Title VII of the Civil Rights Act of 1964 (“CRA”) prohibits discrimination by private employers based on race, color, religion, sex, or national origin, and further prohibits retaliation by forbidding discrimination against an employee who has “made a charge, testified, assisted, or participated in” a Title VII proceeding or investigation. In 1972, the Equal Opportunity Act (“EOA”) expanded Title VII’s coverage to include certain categories of federal employees, providing that all personnel actions taken in regard to these employees “shall be made free from any discrimination based on race, color, religion, sex, or national origin.” Many courts have interpreted the EOA to extend both the anti-discrimination and anti-retaliation provisions of the CRA to federal employees. However, in a report on whistleblowing conducted by Senator Patrick Leahy in 1978, it was noted that although some interpretations of the existing statutory framework had been generous to whistleblowers, many courts were still “reluctant to play a role in the whistleblower problem”

Thus, the Civil Service Reform Act (“CSRA”) was passed in an attempt to cement protections for federal whistleblowers, creating an office within the Merit Protections Board (“MSPB”) to bring retaliation claims on behalf of whistleblowers. However, by 1989 not a single corrective action had been brought on behalf of whistleblowers to the MSPB, which was seen as largely ineffectual. In 1989, the Whistleblower Protection Act was passed, which for the first time created an individual right of action for federal employee whistleblowers. As the law currently stands, a federal employee whistleblower may bring a discrimination claim that would have been appealable to the MSPB as a civil action in federal court after the relevant administrative agency has failed to take action for a certain amount of time.

While this statutory framework provides critical tools for female whistleblowers to come forward and expose sex discrimination in the workplace, the accessibility of these tools remains particularly limited for federal employees who are required to go through the MSPB’s arduous administrative procedures before being heard in federal court, all the while often suffering continued discrimination and harassment at work. Thus, the real thrust of the work to protect female whistleblowers has been accomplished not by the provisions of the law but by those individual women brave enough to come forward and fight extensive legal battles to enforce, cement, and expand those provisions.

The Right to a Jury Trial for Federal Whistleblowers

Among the shortcomings of the statutory framework seeking to protect whistleblowers of sex discrimination in the federal workplace is an ambiguity in the scope of the individual right of action. The text of the statute explicitly gives the district court jurisdiction over discrimination claims arising under, inter alia, the Civil Rights Act. Therefore, it remains unclear whether a “mixed case”– which includes both discrimination claims and related non-discrimination retaliation claims – must remain within agency jurisdiction, or whether the entire mixed case, including the whistleblower retaliation claims, can be heard by a federal jury. This crucial gap in the legislation has been directly remedied by individual female whistleblowers.

In 1999, Dr. Duane Bonds was serving as Deputy Chief of the Sickle Cell Disease Branch of the Division of Blood Diseases and Resources within the NIH, where she was a highly prominent medical researcher. Throughout her employment, Dr. Bonds experienced repeated sexual harassment at the hands of her male supervisor. In retaliation for reporting the harassment to the EEOC, Dr. Bonds was removed from her position and demoted. In her new position, Dr. Bonds discovered that human DNA had been improperly used in NIH projects. She escalated these concerns over the objections of her supervisor, who retaliated by submitting negative performance reviews which caused her removal from the project. Dr. Bonds again filed a complaint with the EEOC in 2005, alleging that the removal constituted unlawful discrimination and retaliation. Throughout the complaint and investigation process, Dr. Bonds experienced continued sex discrimination and harassment in her workplace and was ultimately terminated in 2006. Dr. Bonds initiated a final EEOC complaint in 2007, detailing the extensive discrimination and whistleblower retaliation she had experienced. With no administrative action taken within the statutorily determined time frame, Bonds filed her case with the District Court.

Because it included both discrimination and claims of retaliation for protected whistleblowing activity, Bonds’ case was considered a “mixed case,” and the district court struggled with the question of jurisdiction under the CSRA, ultimately dismissing the claims citing failure to exhaust administrative remedies. In her appeal to the 4th Circuit, Dr. Bonds argued that mixed cases like hers must be treated as a single unit and heard in combination in either an administrative proceeding or in federal court. The 4th Circuit agreed, granting Bonds and other whistleblowers in her situation the right to a federal jury trial, on both her CSRA discrimination and WPA retaliation claims.

In determining this jurisdictional question, the 4th Circuit cited to a D.C. Circuit case which held in favor of another female whistleblower bringing both discrimination and retaliation claims. In this case, Kiki Ikossi – an electrical engineer at the Navy Research Lab – suffered continuous discrimination by her employer on the basis of age, gender, and national origin, stunting her career progression. Dr. Ikossi fought the misconduct in federal court, where the D.C. Circuit found that interpreting the law to require a whistleblower’s retaliation claims to be held up in administrative proceedings would be adverse to Congress’ intent to have discrimination and retaliation claims settled “expeditiously.” The Court noted that the regulatory structure surrounding mixed cases had become “extremely complicated,” and that access to a judicial forum for complainants of sexual discrimination in the federal workplace was critical to the legislative purpose, otherwise such claims would “languish undecided in the administrative machinery.”

The decisions on mixed case jurisdiction secured by Dr. Ikossi and Dr. Bonds have been cited by numerous other circuit courts, further expanding protections for federal employee whistleblowers facing sex discrimination in the workplace. On the basis of this precedent, Bunny Greenhouse – a high ranking official at the Army Corps of Engineers who discovered and exposed egregious contracting fraud by the Department of Defense – was able to take her case of whistleblower retaliation to federal court in the District of Columbia. Under pressure of a federal trial, the Army agreed to settle the case for nearly $1 million in restitution. After the settlement, Ms. Greenhouse made an impassioned statement: “I hope that the plight I suffered prompts the Administration and Congress to move dedicated civil servants from second-class citizenry and to finally give federal employees the legal rights that they need to protect the public trust.”

Among many other female whistleblowers who have helped to shape the law as it stands today, Dr. Ikossi, Dr. Bonds, and Ms. Greenhouse’s lengthy legal battles paved the way for future whistleblowers of gender discrimination to have their claims heard by a federal jury of peers rather than a politically appointed federal agency. The whistleblowing community is indebted to these women who were willing to take significant personal, professional, and financial risks to expose sex discrimination in the workplace, and to ensure future whistleblowers remain protected.

Copyright Kohn, Kohn & Colapinto, LLP 2023. All Rights Reserved.
For more White Collar Crime and Consumer Rights Legal News, click here to visit the National Law Review

Michigan House Moves Quickly to Repeal Michigan Right to Work Act

The Michigan House of Representatives moved quickly yesterday to advance legislation repealing Michigan’s Right to Work law, which has been in effect for the last decade. Right to Work prohibits the inclusion of a clause in a union labor contract that conditions access to employment (and continued employment) on becoming and remaining a Union member in good standing. Before enactment of Michigan’s Right to Work law, Unions could legally negotiate a union security clause into a labor contract. In a nutshell, union security means that employees performing work covered by a labor contract must join the union and remain in good standing with the union or be terminated. On March 8, the House passed both House Bill 4005 (private sector unions) and House Bill 4004 (public sector unions). The bills will now be taken up by the Michigan State Senate.

What Does Repeal of Right to Work Mean for Michigan Companies?

If Right to Work is repealed, employers with Union labor contracts can expect requests to meet and bargain regarding union security clauses. If repealed, existing labor contracts will not be presumed to include such clauses. Rather, union security clauses and the terms and scope of such provisions are a subject of negotiation. Existing labor contracts should be reviewed with labor counsel to determine the employer’s obligations to engage in mid-contract bargaining on this important topic. Labor contracts on this issue vary. For example, labor contracts may contain:

  • A union security clause that becomes effective upon a change in the law;
  • An obligation to meet and negotiate with the Company upon a change in the law; or,
  • The labor contract may be silent on the issue.

Article By Maureen Rouse-Ayoub and Ashleigh E. Draft of Varnum LLP

For more labor and employment legal news, click here to visit the National Law Review.

© 2023 Varnum LLP

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