Tag: California

No More Fraud Vampires: Whistleblowers Put a Stake in Phlebotomy Unlawful Kickback Scheme

31 October 2024. Two whistleblowers “stopped the bleeding” caused by an alleged kickback scheme perpetrated by a mobile phlebotomy service based in California. Veni-Express, Inc. and its owners have agreed to pay $135,000 to settle allegations of violating the Anti-Kickback Statute and False Claims Act. While the award for the two whistleblowers has not yet been determined, False Claims Act qui tam whistleblowers may be rewarded between 15-25% of the settlement.

Overview of the Case

According to the allegations, from 2015 to 2019, Veni-Express allegedly submitted false claims to federal health care programs for services that were not actually performed. These services included venipuncture procedures during homebound patient visits and non-reimbursable travel mileage claims for the visits. The fraudulent activities were reportedly conducted with the oversight of the company’s owners, Myrna and Sonny Steinbaum.

Additionally, between July 2014 and June 2015, Veni-Express allegedly paid unlawful kickbacks to Altera Laboratories, also known as Med2U Healthcare LLC, to market their services. These kickbacks were disguised as a percentage of company revenue.

Unlawful Kickbacks and Phantom Billing

The Anti-Kickback Statute (AKS) is a federal law that prohibits healthcare providers from offering, soliciting, or receiving anything of value to induce or reward referrals for services covered by federally funded healthcare programs, such as Medicare and Medicaid. When providers violate the AKS, they compromise patient care by prioritizing financial gain over medical necessity, which can lead to unnecessary, costly, or substandard treatments. Phantom billing, which involves charging Medicare and Medicaid for services never provided, drains funds that could otherwise be used for essential care for beneficiaries. It leads to increased healthcare costs, putting a strain on federally funded healthcare programs and potentially causing cuts or restrictions in services. This fraudulent practice also erodes trust in the healthcare system, which can prevent beneficiaries from seeking the care they need. As the Special Agent in Charge for the Department of Health and Human Services Office of the Inspector General said about the case, “Improper incentives and billing Medicare for services never actually provided divert taxpayer funding meant to pay for medically necessary services for Medicare enrollees.”

Settlement Details

The settlement agreement is based upon the parties’ ability to pay, requiring Veni-Express to pay $100,000, with additional payments contingent upon the sale of company property. Myrna Steinbaum will pay $25,000, while Sonny Steinbaum will contribute $10,000.

Whistleblower Involvement

The whistleblowers in the qui tam actions were a former phlebotomist and a laboratory technical director. The qui tam provision in the False Claims Act allows private citizens with knowledge of fraud to report fraud schemes to the government and share in the government’s recovery.

Implications for Healthcare Professionals

This whistleblower settlement serves as a cautionary tale for healthcare professionals, emphasizing the need for strict adherence to regulatory standards. It underscores the power industry insiders have to speak up and put an end to fraud schemes that taint the healthcare profession.

© 2024 by Tycko & Zavareei LLP
For more on Whistleblowers, visit the NLR Criminal Law Business Crimes section.

PRIVACY ON ICE: A Chilling Look at Third-Party Data Risks for Companies

An intelligent lawyer could tackle a problem and figure out a solution. But a brilliant lawyer would figure out how to prevent the problem to begin with. That’s precisely what we do here at Troutman Amin. So here is the latest scoop to keep you cool. A recent case in the United States District Court for the Northern District of California, Smith v. Yeti Coolers, L.L.C., No. 24-cv-01703-RFL, 2024 U.S. Dist. LEXIS 194481 (N.D. Cal. Oct. 21, 2024), addresses complex issues surrounding online privacy and the liability of companies who enable third parties to collect and use consumer data without proper disclosures or consent.

Here, Plaintiff alleged that Yeti Coolers (“Yeti”) used a third-party payment processor, Adyen, that collected customers’ personal and financial information during transactions on Yeti’s website. Plaintiff claimed Adyen then stored this data and used it for its own commercial purposes, like marketing fraud prevention services to merchants, without customers’ knowledge or consent. Alarm bells should be sounding off in your head—this could signal a concerning trend in data practices.

Plaintiff sued Yeti under the California Invasion of Privacy Act (“CIPA”) for violating California Penal Code Sections 631(a) (wiretapping) and 632 (recording confidential communications). Plaintiff also brought a claim under the California Constitution for invasion of privacy. The key question here was whether Yeti could be held derivatively liable for Adyen’s alleged wrongful conduct.

So, let’s break this down step by step.

Under the alleged CIPA Section 631(a) violation, the court found that Plaintiff plausibly alleged Adyen violated this Section by collecting customer data as a third-party eavesdropper without proper consent. In analyzing whether Yeti’s Privacy Policy and Terms of Use constituted enforceable agreements, it applied the legal frameworks for “clickwrap” and “browsewrap” agreements.

Luckily, my Contracts professor during law school here in Florida was remarkable, Todd J. Clark, now the Dean of Widner University Delaware Law School. For those who snoozed out during Contracts class during law school, here is a refresher:

Clickwrap agreements present the website’s terms to the user and require the user to affirmatively click an “I agree” button to proceed. Browsewrap agreements simply post the terms via a hyperlink at the bottom of the webpage. For either type of agreement to be enforceable, the Court explained that a website must provide 1) reasonably conspicuous notice of the terms and 2) require some action unambiguously manifesting assent. See Oberstein v. Live Nation Ent., Inc., 60 F.4th 505, 515 (9th Cir. 2023).

The Court held that while Yeti’s pop-up banner and policy links were conspicuous, they did not create an enforceable clickwrap agreement because “Defendant’s pop-up banner does not require individuals to click an “I agree” button, nor does it include any language to imply that by proceeding to use the website, users reasonably consent to Defendant’s terms and conditions of use.” See Smith, 2024 U.S. Dist. LEXIS 194481, at *8. The Court also found no enforceable browsewrap agreement was formed because although the policies were conspicuously available, “Defendant’s website does not require additional action by users to demonstrate assent and does not conspicuously notify them that continuing to use to website constitutes assent to the Privacy Policy and Terms of Use.” Id. at *9.

What is more, the Court relied on Nguyen v. Barnes & Noble Inc., 763 F.3d 1171, 1179 (9th Cir. 2014), which held that “where a website makes its terms of use available via a conspicuous hyperlink on every page of the website but otherwise provides no notice to users nor prompts them to take any affirmative action to demonstrate assent, even close proximity of the hyperlink to relevant buttons users must click on—without more—is insufficient to give rise to constructive notice.” Here, the Court found the pop-up banner and link on Yeti’s homepage presented the same situation as in Nguyen and thus did not create an enforceable browsewrap agreement.

Thus, the Court dismissed the Section 631(a) claim due to insufficient allegations that Yeti was aware of Adyen’s alleged violations.

However, the Court held that to establish Yeti’s derivative liability for “aiding” Adyen under Section 631(a), Plaintiff had to allege facts showing Yeti acted with both knowledge of Adyen’s unlawful conduct and the intent or purpose to assist it. It found Plaintiff’s allegations that Yeti was “aware of the purposes for which Adyen collects consumers’ sensitive information because Defendant is knowledgeable of and benefitting from Adyen’s fraud prevention services” and “assists Adyen in intercepting and indefinitely storing this sensitive information” were too conclusory. Smith, 2024 U.S. Dist. LEXIS 194481, at *13. It reasoned: “Without further information, the Court cannot plausibly infer from Defendant’s use of Adyen’s fraud prevention services alone that Defendant knew that Adyen’s services were based on its allegedly illegal interception and storing of financial information, collected during Adyen’s online processing of customers’ purchases.” Id.

Next, the Court similarly found that Plaintiff plausibly alleged Adyen recorded a confidential communication without consent in violation of CIPA Section 632. A communication is confidential under this section if a party “has an objectively reasonable expectation that the conversation is not being overheard or recorded.” Flanagan v. Flanagan, 27 Cal. 4th 766, 776-77 (2002). It explained that “[w]hether a party has a reasonable expectation of privacy is a context-specific inquiry that should not be adjudicated as a matter of law unless the undisputed material facts show no reasonable expectation of privacy.” Smith, 2024 U.S. Dist. LEXIS 194481, at *18-19. At the pleading stage, the Court found Plaintiff’s allegation that she reasonably expected her sensitive financial information would remain private was sufficient.

However, as with the Section 631(a) claim, the Court held that Plaintiff did not plead facts establishing Yeti’s derivative liability under the standard for aiding and abetting liability. Under Saunders v. Superior Court, 27 Cal. App. 4th 832, 846 (1994), the Court explained a defendant is liable if they a) know the other’s conduct is wrongful and substantially assist them or b) substantially assist the other in accomplishing a tortious result and the defendant’s own conduct separately breached a duty to the plaintiff. The Court found that the Complaint lacked sufficient non-conclusory allegations that Yeti knew or intended to assist Adyen’s alleged violation. See Smith, 2024 U.S. Dist. LEXIS 194481, at *16.

Lastly, the Court analyzed Plaintiff’s invasion of privacy claim under the California Constitution using the framework from Hill v. Nat’l Coll. Athletic Ass’n, 7 Cal. 4th 1, 35-37 (1994). For a valid invasion of privacy claim, Plaintiff had to show 1) a legally protected privacy interest, 2) a reasonable expectation of privacy under the circumstances, and 3) a serious invasion of privacy constituting “an egregious breach of the social norms.” Id.

The Court found Plaintiff had a protected informational privacy interest in her personal and financial data, as “individual[s] ha[ve] a legally protected privacy interest in ‘precluding the dissemination or misuse of sensitive and confidential information.”‘ Smith, 2024 U.S. Dist. LEXIS 194481, at *17. It also found Plaintiff plausibly alleged a reasonable expectation of privacy at this stage given the sensitivity of financial data, even if “voluntarily disclosed during the course of ordinary online commercial activity,” as this presents “precisely the type of fact-specific inquiry that cannot be decided on the pleadings.” Id. at *19-20.

Conversely, the Court found Plaintiff did not allege facts showing Yeti’s conduct was “an egregious breach of the social norms” rising to the level of a serious invasion of privacy, which requires more than “routine commercial behavior.” Id. at *21. The Court explained that while Yeti’s simple use of Adyen for payment processing cannot amount to a serious invasion of privacy, “if Defendant was aware of Adyen’s usage of the personal information for additional purposes, this may present a plausible allegation that Defendant’s conduct was sufficiently egregious to survive a Motion to Dismiss.” Id. However, absent such allegations about Yeti’s knowledge, this claim failed.

In the end, the Court dismissed Plaintiff’s Complaint but granted leave to amend to correct the deficiencies, so this case may not be over. The Court’s grant of “leave to amend” signals that if Plaintiff can sufficiently allege Yeti’s knowledge of or intent to facilitate Adyen’s use of customer data, these claims could proceed. As companies increasingly rely on third parties to handle customer data, we will likely see more litigation in this area, testing the boundaries of corporate liability for data privacy violations.

So, what is the takeaway? As a brilliant lawyer, your company’s goal should be to prevent privacy pitfalls before they snowball into costly litigation. Key things to keep in mind are 1) ensure your privacy policies and terms of use are properly structured as enforceable clickwrap or browsewrap agreements, with conspicuous notice and clear assent mechanisms; 2) conduct thorough due diligence on third-party service providers’ data practices and contractual protections; 3) implement transparent data collection and sharing disclosures for informed customer consent; and 4) stay abreast of evolving privacy laws.

In essence, taking these proactive steps can help mitigate the risks of derivative liability for third-party misconduct and, most importantly, foster trust with your customers.

© 2024 Troutman Amin, LLP
For more news on Companies’ Consumer Data Risks, visit the NLR Consumer Protection section.

It’s Election Time: Time Off to Vote, Political Activities, and Political Speech in the Workplace

With Election Day quickly approaching, it is the right time for employers to refresh themselves on the various protections that may exist for their employees when it comes to voting and other political activities. Below is an overview of employees’ rights related to voting and other political activities leave, as well as protections for political speech and activity both in and outside the workplace.

Voting Leave Laws

Approximately thirty states require that employers provide their employees with some form of time off to vote. Twenty-one of these states require that the leave be paid. The exact contours of these laws – such as the amount of leave, notice requirements, and whether there is an exception when the employee has sufficient time outside of working hours to vote – vary by state. For example:

  • In New York, employers must provide leave to employees who do not have sufficient time outside of working hours to vote. An employee is deemed to have sufficient time to vote if the polls are open for four consecutive hours before or after the employee’s shift. Employees who do not have such a four-hour window are eligible to take the amount of leave that will – when added to their voting time outside working hours – enable them to vote, up to two hours of which must be without loss of pay. Employees may take time off for voting only at the beginning or end of their shift, as designated by the employer, unless otherwise mutually agreed to between the employee and employer. Employees are required to notify their employer that working time off to vote is needed between two and ten working days before the election.
  • Similarly, in California, employees are entitled to sufficient time off to vote, up to two hours of which must be paid. Unless the employer and employee agree otherwise, the employee must take the leave at the beginning or end of the employee’s shift, whichever allows the most time to vote and the least time off from work. Employees are required to provide notice that time off to vote is needed at least two working days before the election.
  • In the Washington, D.C., employees are entitled to up to two hours of paid leave to vote in either an election held in D.C. if the employee is eligible to vote in D.C., or in an election held in the jurisdiction in which the employee is eligible to vote. Employees must submit requests for leave a reasonable time in advance of the election date. Employers may specify the hours during which employees may take leave to vote, including requiring employees to vote during the early voting period or vote at the beginning or end of their shift during early voting or election day.
  • In Illinois, employers must provide two hours of paid voting leave to employees whose shifts begin less than two hours after the opening of the polls and end less than two hours before the closing of the polls. Employees must provide notice of the need for leave before the day of the election.
  • In Maryland, employees are entitled to up to two hours of paid voting leave, unless the employee has at least two non-working hours to vote while the polls are open. Employees must furnish proof to their employers that they either voted or attempted to vote, which can be in the form of a receipt issued by the State Board of Elections.

Certain states, includingNew York, California, and Washington, D.C., require that employers post a notice of an employee’s right to take leave in a conspicuous location before the election. Sample notices have been published by the New York State Board of Elections, the California Secretary of State, and D.C. Board of Elections.

Other Political Leave Laws

Some states require that employers provide leave for political-related reasons beyond just voting. For example:

  • Alabama, Delaware, Illinois, Kentucky, Nebraska, Ohio, Virginia, and Wisconsin require that certain employers provide unpaid leave for employees to serve as election judges or officials on Election Day. In Minnesota, employees are entitled to paid leave for this reason; however, employers may reduce an employee’s salary or wages by the amount the employee receives as compensation for their service as an election judge.
  • Minnesota and Texas require that certain employers provide employees with unpaid leave to attend party conventions and/or party committee meetings.
  • Connecticut, Iowa, Maine, Nevada, Oregon, South Dakota, and Vermont require that certain employers provide employees with an unpaid leave of absence to serve as elected members of state government. In Iowa, employees are also entitled to leave to serve in a municipal, county, or federal office.
  • In Vermont, employees may take unpaid leave to vote in annual town hall meetings.

Some of these laws only apply to larger employers. For example, in Nevada, employers with at least fifty employees are required to provide leave for employees to serve as members of the state legislature. State laws also vary with respect to the amount of notice that employees must provide to their employers in order to be eligible for leave.

Political Speech in the Workplace

In our current political climate, many employers are concerned with what steps they can take regarding political speech and activity in the workplace. When these discussions or activities occur during working hours, they have the potential to negatively impact performance, productivity, or even possibly cross the line into bullying or unlawful harassment.

When employees publicly attend political rallies or support causes on social media, they may also (intentionally or not) create an actual, or perceived, conflict of interest with their employer. The complicated question of what exactly employers can do around employee political speech and activity is governed by various sources of law, some of which is discussed below.

Additionally, for employers with designated tax statuses, certain political speech can give pose risk to an organization’s tax-exempt status. Many tax exempt-organizations are subject to significant restrictions on lobbying and political activities. For example, 501I(3) organizations risk losing their tax-exempt status if they engage in political campaign activities or if a substantial part of its activities involves lobbying. Speech by an employee that constitutes political campaign or lobbying activity risks being attributed to an organization if an employee’s speech is seen as representative of the organization and being ratified by the organization. For example, if an employee urges their social media followers to contact their state representative about proposed legislation, this risks carrying the inference that the employee was speaking on behalf of the organization.

Employee “Free Speech”

There is no general right to “free speech” in a private sector workplace. Because the U.S. Constitution is primarily concerned with state actors, the First Amendment does not prevent private employers from prohibiting or restricting political speech in the workplace. Therefore, subject to certain exceptions discussed below, private sector employers are generally able to enact prohibitions around discussing politics at work and discipline employees for violating such policies.

However, as noted, an employer’s ability to restrain political speech in the workplace comes with some restrictions. At the federal level, Section 7 of the National Labor Relations Act (“NLRA”), which applies to both unionized and non-union employees, protects certain “concerted activities” of employees for the purposes of “mutual aid or protection.” Political speech or activity that is unrelated to employment, such as an employee distributing pamphlets generally encouraging co-workers to vote for a candidate or support a political party, would not likely be covered or protected by the NLRA. The NLRA therefore does not universally prevent employers from prohibiting political discussions or activities in the workplace.

However, political speech may be protected by the NLRA when it relates to the terms or conditions of employment, such as communicating about wages, hours, workplace safety, company culture, leaves, and working conditions. Therefore, an employee encouraging co-workers to vote for a candidate because the candidate supports an increase in the minimum wage might claim to come under the protection of the NLRA.

State laws may also place certain limitations on employer attempts to restrict employee political speech. For example, Connecticut law prohibits employers from taking adverse action against employees for exercising their First Amendment rights, provided that such activity does not interfere with the employee’s job performance or the employment relationship.

Lawful Outside Activity/Off-Duty Conduct

Many states have laws that prohibit adverse action against employees based on lawful activities outside the workplace, which may include political activities. For example:

  • In approximately a dozen states, employers are prohibited from preventing employees from participating in politics or becoming candidates for public office. New York Labor Law § 201-d prohibits employers from discharging or otherwise discriminating against employees because of their “political activities outside of working hours, off of the employer’s premises and without use of the employer’s equipment or other property, if such activities are legal.” Political activities include (1) running for public office, (2) campaigning for a candidate for public office, or (3) participating in fund-raising activities for the benefit of a candidate, political party, or political advocacy group. Similar laws exist in California, Louisiana, and Minnesota, among other states.
  • Other states – including Delaware, Florida, Massachusetts, and New Jersey– prohibit employers from attempting to influence an employee’s vote in an election. In Florida, “[i]t is unlawful for any person … to discharge or threaten to discharge any employee … for voting or not voting in any election, state, county, or municipal, for any candidate or measure submitted to a vote of the people.” A dozen or so states approach this issue in a more limited fashion by prohibiting employers from attaching political messages to pay envelopes.
  • At least two states, Illinois and Michigan, prohibit employers from keeping a record of employee’s associations, political activities, publications, or communications without written consent.
  • Washington, D.C. prohibits discrimination in employment on the basis of political affiliation. Despite its seemingly broad scope, this statute has been interpreted to only protect political party membership and not (1) membership in a political group, or (2) other political activities, such as signing a petition.

These laws vary considerably from state to state, so it is important for employers to consult the laws when considering policies or rules around employee political activity.

* * *

As the election approaches and early voting takes place, employers should review the applicable laws for each jurisdiction in which they operate and ensure that their policies and practices are compliant. Employers should also ensure that managers are well versed in the employer’s policies around voting and political speech and activities so that they can properly respond as situations arise.

© 2024 Proskauer Rose LLP.
For more on Workplace Speech, visit the NLR Labor Employment section.

California Poised to Further Regulate Artificial Intelligence by Focusing on Safety

Looking to cement the state near the forefront of artificial intelligence (AI) regulation in the United States, on August 28, 2024, the California State Assembly passed the “Safe and Secure Innovation for Frontier Artificial Intelligence Models Act” (SB 1047), also referred to as the AI Safety Act. The measure awaits the signature of Governor Gavin Newsom. This development comes effectively on the heels of the passage of the “first comprehensive regulation on AI by a major regulator anywhere” — the EU Artificial Intelligence Act (EU AI Act) — which concluded with political agreement in late 2023 and entered into force on August 1, 2024. It also follows the first comprehensive US AI law from Colorado (Colorado AI Act), enacted on May 17, 2024. And while the United States lacks a comprehensive federal AI framework, there have been developments regarding AI at the federal level, including the late 2023 Executive Order on AI from the Biden White House and other AI-related regulatory guidance.

We have seen this sequence play out before in the world of privacy. Europe has long led on privacy regulation, stemming in large part from its recognition of privacy as a fundamental right — an approach that differs from how privacy is viewed in the United States. When the European General Data Protection Act (GDPR) became effective in May 2018, it was not the world’s first comprehensive privacy framework (not even in Europe), but it did highlight increasing awareness and market attention around the use and protection of personal data, setting off a multitude of copycat privacy regulatory regimes globally. Not long after GDPR, California became the first US state with a comprehensive privacy regulation when then-California Governor Jerry Brown signed the California Consumer Privacy Act (CCPA) into law on June 28, 2018. While the CCPA, since amended by the California Privacy Rights Act of 2020 (CPRA), is assuredly not a GDPR clone, it nevertheless felt familiar to many organizations that had begun to develop privacy compliance programs centered on GDPR standards and definitions. The CCPA preceded the passage of comprehensive privacy regulations in many other US states that, while not necessarily based on CCPA, did not diverge dramatically from the approach taken by California. These privacy laws also generally apply to AI systems when they process personal data, with some (including CCPA/CPRA) already contemplating automated decision-making that can be, but is not necessarily, based on AI.

AI Safety Act Overview

Distinct from the privacy sphere, the AI Safety Act lacks the same degree of familiarity when compared to the EU AI Act (and to its domestic predecessor, the Colorado AI Act). Europe has taken a risk-based approach that defines different types of AI and applies differing rules based on these definitions, while Colorado primarily focuses on “algorithmic discrimination” by AI systems determined to be “high-risk.” Both Europe and Colorado distinguish between “providers” or “developers” (those that develop an AI system) and “deployers” (those that use AI systems) and include provisions that apply to both. The AI Safety Act, however, principally focuses on AI developers and attempts to solve for potential critical harms (largely centered on catastrophic mass casualty events) created by (i) large-scale AI systems with extensive computing power of greater than 10^26 integer or floating-point operations and with a development cost of greater than $100 million, or (ii) a model created by fine-tuning a covered AI system using computing power equal to or greater than three times 10^25 integer or floating-point operations with a cost in excess of $10 million. Key requirements of the AI Safety Act include:

  • “Full Shutdown” Capability. Developers would be required to implement capabilities to enact a full shutdown of a covered AI system, considering the risk that a shutdown could cause disruption to critical infrastructure and implementing a written safety and security protocol that, among other things, details the conditions under which such a shutdown would be enacted.
  • Safety Assessments. Prior to release, testing would need to be undertaken to determine whether the covered model is “reasonably capable of causing or materially enabling a critical harm,” with details around such testing procedures and the nature of implemented safeguards.
  • Third-Party Auditing. Developers would be required to annually retain a third-party auditor to conduct audits on a covered AI system that are “consistent with best practices for auditors” to perform an independent audit to ensure compliance with the requirements of the AI Safety Act.
  • Safety Incident Reporting. If a safety incident affecting the covered model occurs, the AI Safety Act would require developers to notify the California Attorney General (AG) within 72 hours after the developer learns of the incident or learns of facts that cause a reasonable belief that a safety incident has occurred.
  • Developer Accountability. Notably, the AI Safety Act would empower the AG to bring civil actions against developers for harms caused by covered AI systems. The AG may also seek injunctive relief to prevent potential harms.
  • Whistleblower Protections. The AI Safety Act would also provide for additional whistleblower protections, including by prohibiting developers of a covered AI system from preventing employees from disclosing information or retaliating against employees for disclosing information regarding the AI system, including noncompliance of any such AI system.

The Path Forward

California may not want to cede its historical position as one of the principal US states that regularly establishes precedent in emerging technology and market-driven areas of importance. This latest effort, however, may have been motivated at least in part by widely covered prognostications of doom and the potential for the destruction of civilization at AI’s collective hands. Some members of Congress, however, have opposed the AI Safety Act, stating in part that it should “ensure restrictions are proportionate to real-world risks and harms.” To be sure, California’s approach to regulating AI under the AI Safety Act is not “wrong.” It does, however, represent a different approach than other AI regulations, which generally focus on the riskiness of use and address areas such as discrimination, transparency, and human oversight.

While the AI Safety Act focuses on sophisticated AI systems with the largest processing power and biggest development budgets and, thus, presumably those with a greater potential for harm as a result, developers of AI systems of all sizes and capabilities already largely engage in testing and assessments, even if only motivated by market considerations. What is new is that the AI Safety Act creates standards for such evaluations that, with history as the guide, would likely materially influence standards included in other US AI regulations if signed into law by Governor Newsom (who has already signed an executive generative AI order of his own that predated President Biden’s) even though the range of covered AI systems would be somewhat limited.

With the potential to transform every industry, regulation of AI in one form or another is critical to navigate the ongoing sea change. The extent and nature of that regulation in California and elsewhere is certain to be fiercely debated, whether or not the AI Safety Act is signed into law. Currently, the risks attendant to AI development and use in the United States are still largely reputational, but comprehensive regulation is approaching. It is thus critical to be thoughtful and proactive about how your organization intends to leverage AI tools and to fully understand the risks and benefits associated with any such use

© 2024 Jones Walker LLP
For more news on Artificial Intelligence Regulation, visit the NLR Communications Media Internet section.

Lyft Owes No Duty To Its Drivers To Do Background Checks On Riders

Al Shikha v. Lyft, Inc., 102 Cal. App. 5th 14 (2024)

While working as a Lyft driver, Abdu Lkader Al Shikra was stabbed by a passenger in a “sudden and unprovoked attack.” Al Shikra sued Lyft for negligence based on its failure to conduct criminal background checks on all passengers. The trial court granted Lyft’s motion for judgment on the pleadings, and the Court of Appeal affirmed dismissal of the complaint after concluding that conducting criminal background checks on all passengers would be “highly burdensome” to Lyft and that the type of harm Al Shikha suffered was not “highly foreseeable.”

© 2024 Proskauer Rose LLP.
For more from California Courts, visit the NLR Litigation Trial Practice section

The Privacy Patchwork: Beyond US State “Comprehensive” Laws

We’ve cautioned before about the danger of thinking only about US state “comprehensive” laws when looking to legal privacy and data security obligations in the United States. We’ve also mentioned that the US has a patchwork of privacy laws. That patchwork is found to a certain extent outside of the US as well. What laws exist in the patchwork that relate to a company’s activities?

There are laws that apply when companies host websites, including the most well-known, the California Privacy Protection Act (CalOPPA). It has been in effect since July 2004, thus predating COPPA by 14 years. Then there are laws the apply if a company is collecting and using biometric identifiers, like Illinois’ Biometric Information Privacy Act.

Companies are subject to specific laws both in the US and elsewhere when engaging in digital communications. These laws include the US federal laws TCPA and TCFAPA, as well as CAN-SPAM. Digital communication laws exist in countries as wide ranging as Australia, Canada, Morocco, and many others. Then we have laws that apply when collecting information during a credit card transaction, like the Song Beverly Credit Card Act (California).

Putting It Into Practice: When assessing your company’s obligations under privacy and data security laws, keep activity specific privacy laws in mind. Depending on what you are doing, and in what jurisdictions, you may have more obligations to address than simply those found in comprehensive privacy laws.

Copyright © 2024, Sheppard Mullin Richter & Hampton LLP.
For more on Privacy Laws, visit the NLR Communications Media Internet section.

Navigating the Nuances of LGBTQ+ Divorce in California

The end of a marriage is always challenging for the couple involved, and the impact on family members can be significant. Those in LGBTQ+ marriages are no different. Issues around child custody, property division, spousal support, and the enforcement of prenuptial agreements all apply to same-sex couples.

In California, there is no common-law marriage. In some cases, the LGBTQ+ couple may not have been married long at the time of the divorce, but they may have been together for much longer than the marriage itself. Whether they were registered as a domestic partnership will make a difference. In such cases, the couple will have similar rights and obligations as those married for the same length of time.

For example, in California, if the couple were married four years ago, spousal support—in most cases—would only be for approximately two years. However, if they were registered as domestic partners for 20 years and then had a four-year marriage, spousal support could be until either party’s death or the recipient spouse’s remarriage.

The Unique Challenges Around Parental Rights

Dealing with parental rights is difficult regardless of the orientation of the couple involved. When I advise clients, I try my best to have them focus on the best interests of their children. Divorce is typically the most challenging for the children.

Nuanced complications can arise depending on how the children came into the family. Was it by adoption, surrogacy, or assisted reproductive technology? For LGBTQ+ couples, it is essential that everything is done legally and correctly and that both parents are included in legally binding contracts. In the case of surrogacy or assisted reproductive technology (also known as IVF), mainly when sperm or eggs are donated from someone outside the relationship, it is critically important that the sperm or egg donor has no rights or obligations. Otherwise, things can get murky in a legal sense.

The bottom line is that couples need to secure an excellent lawyer to protect their interests and those of their children. Putting the children first should always be the priority.

Additional Considerations

I have been told that in the LGBTQ+ community, particularly amongst those who identify as men, there can be a preponderance of open relationships. I have been asked if that can complicate a potential divorce. Because California is a no-fault state regarding divorce, it does not matter who sleeps with whom. The only issue is if one person spends community dollars on another person outside the marriage. A relevant factor would be if it were an open marriage and what the understanding of that meant financially and otherwise. Ideally, a couple would document these nuances with their lawyer. Without pre- or post-nuptial agreements addressing such relationship guidelines, spending outside the marriage on another relationship can become a problem during divorce proceedings.

Another question I am often asked is if same-sex couples should seek divorce attorneys who identify as similar to themselves. I can easily see how that might be a comfortable choice. And I do not advocate against it. The most important criterion is the attorney’s skill and if you can relate to them. I know for myself, I am confident I can help my clients, whether they are gay, non-binary, or fluid. My commitment and level of advocacy are always going to be the same.

Concerns over the Future Loom Large

In the past, same-sex couples who married in other states faced the risk that their marriages would not be recognized in another state. The U.S. Supreme Court’s landmark Obergefell v. Hodges decision in 2015 required that all states, including California, recognize same-sex marriages performed in other jurisdictions. For those married in California, we are fortunate that LGBTQ+ rights have long been progressive. On the other hand, recent rumbling from the U.S. Supreme Court suggests those protections may be in jeopardy.

I am personally troubled by what some Justices have indicated in dissenting opinions. I remember life before Roe v. Wade and life before Obergfell. I have always been concerned about subsequent elections and the future makeup of our nation’s highest court. Personally, I would hate to see our country go backward on marriage equality.

I have always believed in the institution of marriage. And I am a realist who recognizes that marriages can and do end for a multitude of reasons. It might be surprising to hear a divorce attorney say this, but I would prefer to see couples work things out. But when they cannot, I will be the best advocate for my clients, regardless of how they identify. In the end, divorce is a tricky thing to go through, and whether you are part of a same-sex couple or opposite-sex makes little difference.

© 2024 Blank Rome LLP
For more news on LGBTQ+ Family Law, visit the NLR Family Law / Divorce / Custody section.

Recently Effective & Pending State Housing Laws: 2024 Land Use, Environmental & Natural Resources Update

Various state housing bills are currently making their way through the State Legislature that are expected to benefit mixed-income multifamily housing developers. The following summaries reflect the status of the legislation as of May 15, 2024. The legislative process is ongoing and future amendments are expected.

The recently effective state housing laws are also summarized below.

PART I: RECENTLY EFFECTIVE STATE HOUSING LAWS

Governor Newsom approved multiple state housing bills passed by the State Assembly and Senate during the last legislative session. The following is an abbreviated summary of a few of the key bills that are expected to benefit mixed-income multifamily housing developers, with a more detailed summary available in our prior legal alert.

SENATE BILL 423 — EXPANSION AND EXTENSION OF SENATE BILL 35

SB 423 (Wiener) extends the sunset provision for and makes other substantive changes to SB 35. As explained in our prior legal alert, SB 35 provides for a streamlined ministerial (i.e., no CEQA) approval process for qualifying housing development projects in local jurisdictions that have not made sufficient progress towards their state-mandated Regional Housing Needs Allocation (RHNA), as determined by the California Department of Housing and Community Development (HCD).

SB 423 made the following key amendments to SB 35:

  • Extended SB 35 to January 1, 2036
  • Expanded SB 35 to apply when a local jurisdiction fails to adopt a housing element in substantial compliance with state housing element law (regardless of RHNA progress), as specified and as determined by HCD
  • Revised the coastal zone development prohibition to allow for projects in specified urban coastal locations (e.g., property not vulnerable to five feet of sea level rise or within close proximity to a wetland) where the property is zoned for multifamily housing and is subject to a certified local coastal program or a certified land use plan
  • Removed skilled and trained workforce requirements for projects below 85 feet in height and imposes modified skilled and trained workforce requirements, as specified, for projects at least 85 feet in height. In exchange, projects with 50 or more dwelling units and using construction craft employees to meet apprenticeship program requirements and provide health care expenditures for each employee, as specified

Please see our prior legal alert for information about other SB 35 amendments made by SB 423, including San Francisco-specific amendments.

ASSEMBLY BILL 1287 — ADDITIONAL DENSITY BONUS UNDER STATE DENSITY BONUS LAW

AB 1287 (Alvarez) amended the State Density Bonus Law (Government Code § 65915) by incentivizing the construction of housing units for both the “missing middle” and very-low-income households by providing for an additional density bonus, and incentive/ concession for projects providing moderate-income units or very-low-income units.

The project must provide the requisite percentage of on-site affordable units to obtain the maximum density bonus (50%) under prior law: 15% very-low-income units, or 24% low-income units, or 44% moderate-income (ownership only) units (the Base Bonus). To qualify for an additional density bonus (up to 100%) and an additional incentive/concession under AB 1287, the project must provide additional on-site affordable units, as specified (the Added Bonus). The Added Bonus may be obtained by adding moderate-income units to either a rental or ownership project, but that is capped at a total maximum of 50% moderate-income units.

ASSEMBLY BILL 1633 — EXPANSION OF HOUSING ACCOUNTABILITY ACT PROTECTIONS: CEQA

AB 1633 (Ting) closed a loophole in the Housing Accountability Act (HAA) (Government Code section 65589.5 et seq.) by establishing when a local agency’s failure to exercise its discretion under CEQA, or abuse of its discretion under CEQA, constitutes a violation of the HAA.

To qualify under AB 1633, the project must be a “housing development project” under the HAA and meet other specified requirements, as summarized in our prior legal alert. Under AB 1633, the following circumstances constitute “disapproval” of the project, in which case the local agency could be subject to enforcement under the HAA:

  • CEQA Exemptions. If (i) the project qualifies for a CEQA exemption based on substantial evidence in the record (and is not subject to an exception to that exemption) and (ii) the local agency does not make a lawful determination, as defined, on the exemption within 90 days (with a possible extension, as specified) of timely written notice from the applicant, as specified.
  • Other CEQA Determinations. If (i) the project qualifies for a negative declaration, addendum, EIR, or comparable environmental review document under CEQA; (ii) the local agency commits an abuse of discretion, as defined, by failing to approve the applicable CEQA document in bad faith or without substantial evidence in the record to support the legal need for further environmental study; (iii) the local agency requires further environmental study; and (iv) the local agency does not make a lawful determination, as defined, on the applicable CEQA document within 90 days of timely written notice from the applicant, as specified.

AB 1633 includes a limited exception to enforcement where a court finds that the local agency acted in good faith and had reasonable cause to disapprove the project due to the existence of a controlling question of law about the application of CEQA or the CEQA Guidelines as to which there was a substantial ground for difference of opinion at the time of the disapproval.

ASSEMBLY BILL 1485 — STATE ENFORCEMENT OF HOUSING LAWS

AB 1485 (Haney) granted the California Attorney General the “unconditional right to intervene” in lawsuits enforcing state housing laws, whether intervening in an independent capacity or pursuant to a notice of referral from HCD. Under prior law, the Attorney General and HCD were required to petition the court to be granted intervenor status and join a lawsuit, which can be a “lengthy and onerous process.”

PART II: PENDING STATE HOUSING LAWS

Various state housing bills are currently making their way through the State Legislature that are expected to benefit mixed-income multifamily housing developers. AB 2243 (Wicks) would amend AB 2011 (the Affordable Housing and High Road Jobs Act of 2022). AB 1893 (Wicks) and AB 1886 (Wicks and Alvarez) would amend Builder’s Remedy provisions under the HAA. AB 2560 (Alvarez) and SB 951 (Wiener) would help facilitate housing development in the coastal zone. AB 3068 (Haney) would provide for the streamlined ministerial (i.e., no CEQA) approval of qualifying adaptive reuse projects involving the conversion of an existing building to residential or mixed-uses. SB 1227 (Wiener) would help facilitate middle-income housing and other projects in the San Francisco Downtown Revitalization Zone.

The following summaries reflect the status of the legislation as of May 15, 2024. The legislative process is ongoing and future amendments are expected.

ASSEMBLY BILL 2243 — AB 2011 AMENDMENTS

AB 2243 (Wicks) would amend AB 2011 (operative as of July 1, 2023). As explained in our prior legal alert, AB 2011 provides for “by right” streamlined ministerial (i.e., no CEQA, no discretion) approval of qualifying mixed-income and affordable housing development projects along commercial corridors in zoning districts where office, retail, and/or parking uses are principally permitted.

As currently proposed, AB 2243 would:

Project Review and Approval
  • Require the local government to approve the AB 2011 project within a specified timeframe. Once the project is deemed to be consistent with applicable objective planning standards, the local government would be required to approve the project within 180 days (for projects with more than 150 housing units) or 90 days (for projects with 150 or fewer housing units).
  • Require the local government to determine project consistency or inconsistency with applicable objective planning standards within 30 days when a project is resubmitted to address written feedback. The otherwise applicable timeframe is within 60 or 90 days, with the longer timeframe applying to projects with more than 150 housing units.
  • Provide that a density bonus under the State Density Bonus Law, including related incentives, concessions and/or waivers, “shall not cause the project to be subject to a local discretionary government review process” even if the requested incentives, concessions and/or waivers are not specified in a local ordinance. This is important because some local governments purport to require discretionary approval for specified “off menu” incentives, concessions and waivers despite the fact that AB 2011 provides for a ministerial (i.e., no CEQA) project approval process and specifically contemplates utilization of the State Density Bonus Law in conjunction with AB 2011.
  • Provide that the Phase I Environmental Assessment (ESA) requirement would be imposed as a condition of project approval versus prior to project approval. If any remedial action is required due to the presence of hazardous substances on the project site, that would need to occur prior to issuance of a certificate of occupancy (as specified).
Residential Density
  • Provide that the AB 2011 (base) residential density, which varies depending on the location and size of the project site, is now the “allowable” density (prior to any density bonus) instead of a minimum (“meet or exceed”) density requirement.
  • Impose a new minimum residential density requirement, which would be 75% of the greater of the applicable “allowable” residential density.
  • Specify that the imposition of applicable objective planning standards shall not preclude the “required” (minimum) AB 2011 residential density (prior to any density bonus) or require a reduction in unit sizes. It appears that this new provision is instead intended to apply to the “allowable” AB 2011 residential density pursuant to the cross-referenced subsections.
Commercial Corridor Frontage Requirements
  • Revise the definition for “commercial corridor” based on the applicable height limit. Where local zoning sets a height limit for the project site of less than 65 feet, the right-of-way would need to be at least 70 feet, which is the current AB 2011 requirement. For all other project sites, the right-of-way would now only need to be at least 50 feet.
  • Clarifies that the width of the right-of-way includes sidewalks for purposes of determining whether it is a “commercial corridor.”
  • Expand eligible sites to include conversions of “existing office buildings” that meet all other AB 2011 requirements, even if they are not on a commercial corridor.
Project Site Size Requirements
  • Waive the current 20-acre project site size limitation for “regional malls” that are up to 100 Regional malls is defined to include malls where (i) the permitted uses on the site include at least 250,000 square feet of retail, (ii) at least two-thirds of the permitted uses on the site are retail, and (iii) at least two of the permitted retail uses on the site are at least 10,000 square feet. Additional criteria for the redevelopment of regional mall sites is expected to be added to the bill.
Setback Requirements
  • Provide that density bonus incentives, concessions, and waivers permitted under the State Density Bonus Law may be utilized to deviate from specified AB 2011 setback requirements related to existing adjacent residential uses. The HCD previously opined that under existing AB 2011, only the AB 2011 height and density maximums can be modified via the density bonus approval process.
Freeway, Industrial Use, & Oil/Natural Gas Facility Proximity
  • Eliminate the freeway proximity and active oil/natural gas facility proximity prohibitions and replace those with specified air filtration media requirements.
  • Revise the AB 2011 limitation on project sites dedicated to industrial uses. Currently, project sites are disqualified where more than one-third of the square footage is dedicated to industrial use or the project site adjoins a site exceeding that threshold. “Dedicated to industrial use” would no longer include sites (i) where the most recently permitted use was industrial, but that use has not existed on the site for over three years; or (ii) where the site is designated industrial by the general plan, but residential uses are a principally permitted use on the site or the site adjoins an existing residential use.
  • Revise the definition of “freeway” to specify that freeway on-ramps and off-ramps are not included.
Coastal Zone Projects
  • Newly prohibit AB 2011 projects in the coastal zone that do not meet SB 35 coastal zone siting requirements (as recently amended by SB 423) under Government Code section 4(a)(6), exclusive of the requirement for the project site to be zoned for multifamily housing (since AB 2011 allows for multifamily housing on commercially zoned properties), including (but not limited to) where the applicable area of the coastal zone is not subject to a certified local coastal program or a certified land use plan.
  • Provide that the public agency with coastal development permitting authority, as applicable, shall approve the permit if it determines that the project is consistent with all objective standards of the local government’s certified local coastal program or certified land use plan, as applicable.
  • Provide that any density bonus, concession, incentive, waiver, and/or (reduced) parking ratios granted pursuant to the State Density Bonus Law “shall not constitute a basis to find the project inconsistent with the local coastal program.”
Residential Conversion Projects
  • Eliminate the residential density limit for the conversion of existing buildings to residential use, except where the project would include net new square footage exceeding 20% of the “overall square footage of the project.”
  • Prohibit the local government from requiring common open space beyond “what is required for the existing project site” versus required pursuant to the objective standards that would otherwise apply pursuant to the closest zoning district that allows for the AB 2011 residential (base) density, where applicable.
  • Exempt the conversion of “existing office buildings” from the commercial corridor frontage requirement.
Clarifications
  • Clarify that the AB 2011 on-site affordable housing requirement only applies to new housing units created by the project.
  • Clarify that the number of on-site affordable housing units required under AB 2011 is based on number of housing units in the project prior to any density bonus (i.e., the “base” project), which is consistent with the State Density Bonus Law.
  • Clarify the process for calculating the on-site affordable housing requirement under AB 2011 where the local jurisdiction requires a higher percentage of affordable units and/or a deeper level of affordability.
  • Clarify that the “allowable” density under AB 2011 is calculated prior to any density bonus under the State Density Bonus Law.
  • Clarify that “urban uses” includes a public park that is surrounded by other urban uses.
Implications

AB 2243 would make important clarifications in advance of the to-be-provided HCD guidance document on the implementation of AB 2011. The bill would make important amendments to the prior freeway and oil/natural gas facility proximity prohibitions by instead requiring installation of air filtration media, consistent with Senate Bill 4 (Affordable Housing on Faith and Higher Education Lands Act of 2023). The bill would also help facilitate AB 2011 projects in specified coastal zone areas. Under existing law, a qualifying AB 2011 project would be subject to streamlined ministerial approval at the local level, but not by the Coastal Commission, which could separately trigger a discretionary (i.e., CEQA) review and approval process. AB 2243 partially addresses that, but only in qualifying coastal zone areas (pursuant to SB 423, as modified) that are subject to a certified local coastal program or certified land use plan, which excludes various coastal zone areas.

ASSEMBLY BILL 2560 & SENATE BILL 951 — COASTAL ZONE PROJECTS

Assembly Bill 2560

AB 2560 (Alvarez) would amend the State Density Bonus Law to partially address coastal zone projects. Currently, the State Density Bonus Law explicitly provides that it “does not supersede or in any way alter or lessen the effect or application of the California Coastal Act of 1976” (Public Resources Code § 30000 et seq.). As currently proposed, AB 2560 would revise that provision to instead provide that any density bonus, concessions, incentives, waivers, or reductions of development standards, and (reduced) parking ratios to which an applicant is entitled under the State Density Bonus Law “shall be permitted notwithstanding the California Coastal Act of 1976” but only if the development is not located on a site that is any of the following:

  • An area of the coastal zone that is not subject to a certified local coastal program
  • An area of the coastal zone subject to paragraph (1), (2), or (3) of subdivision (a) of Section 30603 of the Public Resources Code (i.e., within a specified distance of the sea, estuary, stream, coastal bluff, tidelands, submerged lands, public trust lands, or sensitive coastal resources area)
  • An area of the coastal zone that is vulnerable to five feet of sea level rise, as determined by the National Oceanic and Atmospheric Administration, the Ocean Protection Council, the United States Geological Survey, the University of California, or a local government’s coastal hazards vulnerability assessment
  • A parcel within the coastal zone that is not zoned for multifamily housing
  • A parcel in the coastal zone and located on either of the following: (i) on, or within a 100-foot radius of, a wetland, as defined in Section 30121 of the Public Resources Code or (ii) on prime agricultural land, as defined in Sections 30113 and 30241 of the Public Resources Code
Implications

AB 2560 should help facilitate density bonus projects in coastal zone areas, but the coastal zone area would need to be subject to a certified local coastal program (versus either that or a certified land use plan pursuant to SB 423). Again, that excludes various coastal zone areas.

Senate Bill 951

SB 951 (Wiener) would amend the State Housing Element Law (Government Code § 65580 et seq.). Existing law requires rezoning by a local government, including adoption of minimum density and development standards (as specified), when the local government’s Housing Element site inventory does not identify adequate sites to accommodate the applicable state mandated RHNA. As currently proposed, SB 951 would require local governments in the coastal zone to make “any necessary local coastal program updates” to meet the applicable RHNA.

SB 951 would also amend the California Coastal Act to target the City and County of San Francisco. Existing law provides that approval of a coastal development permit by a “coastal county” with a certified local coastal program may be appealed to the California Coastal Commission under specified circumstances, including where the approved use is not “the principal permitted use” under the local zoning ordinance or zoning map. As currently proposed, SB 351 would provide that for purposes of that provision, “coastal county” does not include a local government that is both a city and county.

Implications

SB 951 would effectively require consistency between local coastal programs and any upzoning or rezoning required under State Housing Element Law. The appealability of coastal zone permits approved by the City and County of San Francisco would also be limited by the bill, which could help facilitate new housing development projects.

ASSEMBLY BILL 1893 & ASSEMBLY BILL 1886 — BUILDER’S REMEDY AMENDMENTS

As explained in our prior legal alert, the Builder’s Remedy applies when a local jurisdiction has not adopted an updated Housing Element in compliance with State Housing Element Law (Gov. Code § 65580, et seq.), in which case the local jurisdiction cannot deny a qualifying housing development project even if it is inconsistent with the local general plan and zoning ordinance (subject to limited exceptions).

To qualify for the Builder’s Remedy, the project must currently (i) fall under the definition of a “housing development project” under the HAA (i.e., a project consisting of residential units only, mixed-use developments consisting of residential and non-residential uses with at least two-thirds of the square footage designated for residential use, or transitional or supportive housing) and (ii) dedicate at least 20% of the dwelling units in the project as lower income (or 100% of the units as moderate income), as defined in the HAA.

Assembly Bill 1893

As currently proposed, AB 1893 would (i) reduce the required percentage of affordable units for mixed-income Builder’s Remedy projects from 20% lower income to 10% very low-income; (ii) impose new size and location guardrails on Builder’s Remedy projects; and (iii) authorize local jurisdictions to require compliance with other specified objective development standards so long as they do not reduce the “allowed” residential density or result in an increase in “actual costs.” AB 1893 would also eliminate the affordability requirement for Builder’s Remedy projects consisting of 10 units or fewer, so long as the project site is smaller than one acre with a minimum density of 10 units per acre.

New Basis for Denial & New Project Requirements

AB 1893 would significantly amend the most controversial component of the Builder’s Remedy, which is that a local jurisdiction without a substantially compliant Housing Element (“Non-Compliant Jurisdiction”) cannot deny a qualifying Builder’s Remedy project unless specified findings are made, which are intended to create a high threshold for denial by local jurisdictions.

As currently proposed, AB 1893 would newly authorize a Non-Compliant Jurisdiction to deny a qualifying Builder’s Remedy project if the project fails to meet any of the following “objective” standards. In other words, Builder’s Remedy projects would need to meet all the following new requirements (unless the project is “grandfathered” as explained below):

  • The project site must be designated by the general plan or located in a zone where housing, retail, office, or parking are “permissible” uses. Alternatively, if the project site is designated or zoned for agricultural use, at least 75% of the perimeter of the project site must adjoin parcels that are developed with urban uses, as defined under AB 2011. Recall that AB 2243 would amend the AB 2011 definition of “urban use” to clarify that urban use includes a public park that is surrounded by other urban uses.
  • The project site must not be on a site or adjoined to any site where more than one-third of the square footage on the site is “dedicated to industrial use,” as defined under AB 2011. Recall that AB 2243 would amend the AB 2011 definition of “dedicated to industrial use” to no longer include sites (i) where the most recently permitted use was industrial, but that use has not existed on the site for over three years; or (ii) where the site is designated industrial by the general plan, but residential uses are a principally permitted use on the site or the site adjoins an existing residential use.
  • The residential density for the project must not exceed the “greatest” of the following density calculations, as applicable, prior to any density bonus under the State Density Bonus Law (there is no codified limit under existing law):
    • For project sites within “high or highest resource census tracts” (as defined): (i) 50% greater than the “maximum” density deemed appropriate to accommodate (lower income) housing for the local jurisdiction as specified in Government Code section 65583.2(c)(3)(B) (e.g., for a local jurisdiction in a metropolitan county, “at least” 30 dwelling units per acre); or (ii) three times the density allowed by the general plan, zoning ordinance, or state law (prior to any density bonus under the State Density Bonus Law), whichever is greater.
    • For other project sites, (i) the “maximum” density appropriate to accommodate (lower income) housing for the local jurisdiction as specified in Government Code section 65583.2(c)(3)(B) (see above); or (ii) twice the density allowed by the general plan, zoning ordinance, or state law (prior to any density bonus under the State Density Bonus Law), whichever is greater.
    • For project sites located within one-half mile of a major transit stop, up to 35 dwelling units per acre more than the “amount allowable” specified above, as applicable.
    • The project must comply with “other” objective development standards (as defined) imposed by the local jurisdiction that apply in closest zone in the local jurisdiction for multi-family residential use at the “allowed” residential density If no such zone exists, the applicable objective standards shall be those for the zone that allows the greatest density within the city, county, or city and county, as applicable.

AB 1893 would provide that in no case may the local agency apply any objective development standards that will (i) have the effect of physically precluding the construction of the project at the “allowed” residential density (see above) or (ii) result in an increase in “actual costs.” The local agency would bear the burden of proof under these circumstances.

Project “Grandfathering”

As currently proposed, the foregoing new requirements would not apply to Builder’s Remedy applications that are “deemed complete” on or before April 1, 2024. Under existing law, “deemed complete” is defined to mean that the applicant has submitted a SB 330 preliminary application or, if that has not been submitted, a complete development application (as defined) has been submitted. AB 1893 would add that the local agency shall bear the burden of proof in establishing that the applicable application is not complete.

Implications

AB 1893 is an attempt to “modernize” the Builder’s Remedy by providing clarity to developers, local jurisdictions, and courts to avoid the “legal limbo” described by Attorney General Rob Bonta. As part of that compromise, significant new requirements would be imposed on Builder’s Remedy projects, including a new “cap” on residential density where no codified limit currently exists. In return, the clarifications made by AB 1893 and the reduced affordability requirement for mixed-income projects could help facilitate Builder’s Remedy projects in Non-Compliant Jurisdictions.

Assembly Bill 1886

A recent Builder’s Remedy lawsuit exposed some ambiguity regarding when a Housing Element is deemed “substantially compliant“ with State Housing Element Law. Opposing sides of the litigation disputed where (retroactive) self-certification by the local jurisdiction was sufficient. The court ruled that it was not. See our prior legal alert for our coverage of this ruling, which appears to be the impetus for the amendments proposed under AB 1886 (Alvarez and Wicks).

As currently proposed, AB 1886 would:

  • Clarify the point at which a Housing Element is deemed substantially compliant with State Housing Element Law: (i) the Housing Element has been adopted by the local jurisdiction and (ii) the local jurisdiction has received an affirmative determination of substantial compliance from HCD or a court of competent jurisdiction.
  • Clarify that the Housing Element shall continue to be considered in substantial compliance with State Housing Element Law until either: (i) HCD or a court of competent jurisdiction determines that the adopted Housing Element is no longer in substantial compliance (e.g., where any required rezoning is not approved in a timely manner) or (ii) the end of the applicable Housing Element cycle.
  • Specify that Housing Element compliance status is determined at the time the SB 330 Preliminary Application is submitted for the qualifying Builder’s Remedy project, which is consistent with HCD’s prior determination that the Builder’s Remedy is vested on that filing date. If a SB 330 Preliminary Application is not submitted, then the compliance status would be determined when a complete development application (as defined) is filed for the Builder’s Remedy project.
    • Require a local jurisdiction that adopted its Housing Element despite HCD’s non-compliance determination to submit the required findings, as specified, to HCD. In any legal proceeding initiated to enforce the HAA, HCD’s determination on the required findings would create a rebuttable presumption of substantial compliance or lack thereof.
Implications

AB 1886 would make it clear that a local jurisdiction cannot “self-certify” its Housing Element. Rather, an affirmative determination must be granted by HCD or, if a local jurisdiction adopts its Housing Element notwithstanding HCD’s determination to the contrary, a court of competent jurisdiction would need to agree with the local jurisdiction, notwithstanding the “rebuttable presumption” in favor of HCD’s non-compliance determination, where applicable.

ASSEMBLY BILL 3068 — ADAPTIVE REUSE PROJECTS

AB 3068 (Haney, Quirk-Silva, and Wicks) would provide for the streamlined ministerial (i.e., no CEQA) approval of qualifying adaptive reuse projects involving the conversion of an existing building to residential or mixed-uses, as specified. Qualifying adaptive reuse projects would be deemed “a use by right” regardless of the applicable zoning district, with the exception of any proposed non-residential uses.

As currently proposed, the following requirements would need to be met:

Threshold Requirements
  • The project must retrofit and repurpose an existing building to create new residential or mixed-uses (Adaptive Reuse). The Adaptive Reuse of light industrial buildings is prohibited unless the local planning director (or equivalent) determines that the “specific light industrial use is no longer useful for industrial purposes.”
  • At least 50% of the Adaptive Reuse project must be designated for residential use, which is defined to include housing units, dormitories, boarding houses, and group housing. For purposes of calculating total project square footage, underground spaces, including basements or underground parking garages, are excluded.
  • Any nonresidential uses must be “consistent with the land uses allowed by the zoning or a continuation of an existing zoning nonconforming use.”
  • If the existing building is a listed historic resource or is over 50 years old, specified requirements must be met.
Affordability Requirements
  • For rental projects, either (i) 15% of the units must be lower income (as defined) or (ii) 8% of the units must be very low income and 5% of the units must be extremely low income (as defined), unless different local requirements apply.
  • For ownership projects, either (i) 15% of the units must be lower income (as defined) or (ii) 30% of the units must be moderate income (as defined), unless different local requirements apply.
  • Where different local requirements apply, the project must include the higher percentage requirement and the lowest income target, unless local requirements require greater than 15% lower income units (only), in which case other specified requirements apply.
  • For rental projects, the affordable units must be restricted for 55 years and for ownership projects, the affordable units must be restricted for 45 years.
  • Affordable units in the project must have the same bedroom and bathroom count ratio as the market rate units, be equitably distributed within the project, and have the same type or quality of appliances, fixtures, and finishes.
Project Site Requirements
  • The Adaptive Reuse project site must be in an urbanized area or urban cluster (as defined and specified) and at least 75% of the perimeter must adjoin (as defined) parcels that are developed with urban uses (not defined in AB 3068 but separately defined in AB 2011).
  • Required Phase I ESA and if a recognized environmental condition is found, specified requirements must be met.
Labor Requirements
  • All construction workers must be paid at least the general prevailing wage of per diem wages for the type of work in the geographic area (as specified), except that apprentices registered in approved programs (as specified) may be paid at least the applicable apprentice prevailing rate.
  • The prevailing wage requirement must be included in all construction contracts, and all contractors and subcontractors must comply with specified requirements.
  • If the Adaptive Reuse project would include 50 or more dwelling units, additional requirements would apply (as specified), including but not limited to participation in an approved apprenticeship program and health care expenditures for any construction craft employees.
Project Approval Process
  • If the Adaptive Reuse project is determined by the local planning director (or equivalent) to be consistent with the foregoing requirements (referred to collectively as “objective planning standards”), the local agency must approve the project. That consistency determination must be based on whether there is “substantial evidence that would allow a reasonable person to conclude that the project is consistent with the objective planning standards.”
  • If the project is deemed to conflict with any applicable objective planning standards, the local agency must notify the project sponsor within 60 to 90 days of submittal of the development proposal, depending on whether the project contains more than 150 dwelling units. If the local agency fails to provide the required documentation (as specified), the project shall be deemed to satisfy applicable objective planning
  • Design review may be conducted by the local agency but must be objective (as specified) and must be concluded within 90 to 180 days of submittal of the development proposal, depending on whether the project contains more than 150 dwelling units.
Development Impact Fees

Adaptive Reuse projects would be exempt from all development impact fees “that are not directly related to the impacts resulting from the change of use of the site from nonresidential to residential or mixed-use” and any development impact fees charged must be “proportional to the difference in impacts caused by the change of use.” The project sponsor may also request that payment of development impact fees be deferred to the date that the certificate of occupancy is issued, subject to a written agreement to pay the development impact fees at that time.

Adjacent Projects

A qualifying Adaptive Reuse project “may include the development of new residential or mixed-use structures on undeveloped areas and parking areas on the parcels adjacent to the proposed adaptive reuse project site” if specified requirements are met.

Implications

AB 3068 would be another tool in the growing toolbox available to real estate developers to encourage the adaptive reuse of underutilized commercial buildings, including office buildings. Financial feasibility is likely to remain an issue due to high interest rates and construction costs. There are well-documented design challenges associated with the conversion of existing buildings to residential use due to required compliance with the strict provisions of the California Building Code, the California Residential Code, and local amendments to those codes. Even if alternate buildings standards are available for adaptive reuse projects (see the directive under AB 529), it not clear yet whether alternative standards would be available for required seismic upgrades, which are often cost-prohibitive.

Financial feasibility would be partially addressed by AB 3068, which would authorize local agencies to establish an Adaptive Reuse Investment Program funded by ad valorem property tax revenues (as specified), which could be transferred to the owners of qualifying Adaptive Reuse projects for the purpose of subsidizing the on-site affordable housing units required by AB 3068. The bill would also “align program requirements to encourage the utilization of existing programs such as the Federal Historic Tax Credit, the newly adopted California Historic Tax Credit, the Mills Act, and the California Historical Building Code.”

SB 1227 — SAN FRANCISCO DOWNTOWN REVITALIZATION ZONE PROJECTS

SB 1227 (Wiener) aims to speed the recovery of downtown San Francisco by creating a new CEQA exemption for qualifying student housing and mixed-use residential projects (along with commercial and institutional projects) in the Downtown Revitalization Zone, which includes the Financial District, Union Square, Eastern SOMA, Mid-Market, and Civic Center neighborhoods. Projects that do not meet all the requirements for the new CEQA exemption could qualify for the new CEQA streamlining process proposed under the bill. SB 1227 would also create a new property tax exemption for moderate-income housing in the Downtown Revitalization Zone.

Qualifying Downtown Revitalization Zone Projects

As currently proposed, the following threshold requirements would need to be met:

  • The project site must be in the San Francisco Downtown Revitalization Zone.
  • The general plan land use and zoning designations for the project site must allow for commercial, institutional, student housing, or mixed-uses (as specified below), as applicable to the project.
  • The project must not include any hotel uses, and if residential uses are proposed, the residential square footage must be less than two-thirds the total project square footage (i.e., the project cannot be a “housing development project” already protected under the HAA). The foregoing square footage limitation (see specified calculation requirements) would not apply to student housing.
  • To the extent that residential uses are proposed, the project must comply with applicable San Francisco inclusionary affordable housing requirements.
  • The project must not require the demolition of restricted affordable units, rent-controlled units, or a hotel (as specified). See also the specific requirements that apply to other existing and prior tenant-occupied housing.
  • The project must comply with 24 enumerated San Francisco ordinances related to development impact fees and environmental protection (including but not limited to the reduction of greenhouse gas emissions and water and energy consumption) and specified provisions of the California Green Building Standards Code.
  • The project site must not be environmentally sensitive, e.g., a delineated earthquake fault zone, habitat for protected species, or a hazardous waste site (as defined and specified).
  • The project must not result in net additional emissions of greenhouse gases from demolition or construction.
New CEQA Exemption

As currently proposed, the following additional requirements would need to be met to qualify for the new CEQA exemption:

  • Prevailing wage, skilled and trained workforce, and/or health care expenditure and apprenticeship requirements must be met (as specified), depending on the size of the project.
  • The project must not include any warehouse uses.
  • The project must not require the demolition of a building that is over 75 years old (regardless of its historic status) or result in “substantial harm” to a building on a federal, state, or local historic registry.
  • The project must be LEED Platinum certified (if over 1,000 square feet).
  • The project must be in an area with a per capita vehicle miles traveled (VMT) level 15% lower than the city or regional VMT.
New CEQA Streamlining Pathway

As currently proposed, San Francisco Downtown Revitalization Zone projects that meet the threshold requirements above, but not all of the additional requirements for the new CEQA exemption, could instead pursue CEQA streamlining whereby the project could be certified by the Governor prior to certification of an EIR for the project pursuant to the Jobs and Economic Improvement Through Environmental Leadership Act of 2021 (Leadership Act), which authorizes the Governor to certify qualifying projects (before January 1, 2032) for CEQA streamlining. One of the benefits of CEQA streamlining under the Leadership Act is that any CEQA litigation must be resolved (to the extent feasible) within 270 days, as specified.

As currently proposed, the following additional requirements would need to be met to qualify for CEQA streamlining:

  • Prevailing wage, skilled, and trained workforce requirements must be met (as specified).
  • The project must be at least LEED Gold certified (versus Platinum) if the project contains residential, retail, commercial, sports, cultural, entertainment, or recreational uses.
  • The project must not demolish a historic structure that is placed on a national, state, or local historic register (versus a building that is over 75 years old, regardless of its historic status).
  • The project must avoid a substantial adverse change to the significance of a historical or cultural resource.
  • The project must avoid or minimize significant environmental impacts in a disadvantaged community (as defined) and any required mitigation measures must be undertaken in, and directly benefit, the affected community.
  • The project must not result in any significant and unavoidable impacts under CEQA that would require adoption of a statement of overriding considerations by the lead agency.
  • The lead agency must approve a project certified by the Governor before January 1, 2031.

Please see the text of SB 1227 for more information about the proposed CEQA streamlining provisions for qualifying San Francisco Downtown Revitalization Zone projects.

New Property Tax Exemption for Moderate-Income Housing

This new (welfare) property tax exemption would allow for a partial exemption equal to the percentage of the value of the property that is equal to the percentage of the number of units serving moderate-income households. As currently proposed, the following requirements would need to be met to qualify:

  • The project must be in the San Francisco Downtown Revitalization Zone.
  • The project must include moderate-income rental units, as defined and specified.
  • The project must be owned and operated by a charitable organization (as defined), which includes (but is not limited to) limited partnerships in which the managing partner is an eligible nonprofit corporation or eligible limited liability company meeting specified requirements.
  • A building permit or site permit for the residential units on the property must be filed before January 1, 2035, and the property owner must claim the exemption within five years following the issuance of the first building permit. The new property tax exemption would also apply with respect to lien dates occurring on or after January 1, 2025.
Implications

SB 1227 should help facilitate the development of new housing for the “missing in the middle” in the San Francisco Downtown Revitalization Zone by providing for a new property tax exemption for projects that include moderate-income rental units. That could in turn help increase the financial feasibility of converting underutilized commercial buildings to mixed-uses, including residential uses.

SB 1227 would impose robust labor requirements for both the new CEQA exemption and CEQA streamlining pathway for qualifying projects in the San Francisco Downtown Revitalization Zone, which could inhibit the utilization of those benefits.

© 2010-2024 Allen Matkins Leck Gamble Mallory & Natsis LLP
For more news on California State Housing Laws, visit the NLR Environmental, Energy & Resources section.

Governor Signs Bill to Exempt Certain Businesses from Fast Food Minimum Wage

On March 26, 2024, Governor Newsom signed Assembly Bill (AB) 610, which amends the definition of “fast food restaurant” to exempt restaurants in airports, hotels, event centers, theme parks, museums, and certain other locations from the requirements set forth under the Fast Food Council requirements.

Last year, Newsom signed AB 1228, which repeals the FAST Recovery Act but establishes a modified version of the Fast Food Council (Council) until January 1, 2029. The bill also sets forth the minimum wage increases for fast food workers, with an increase to $20.00 effective April 1, 2024.

The bill includes an urgency clause which means it takes effect immediately. As such the exempted businesses will not need to comply with the minimum wage requirements past in 2023.

Jackson Lewis P.C. © 2024
For more news on Fast Food Minimum Wage Laws, visit the NLR Labor & Employment section.

California PFAS Ban in Products: 6th Largest Global Economy Enters the Fray

We reported extensively on the landmark legislation passed in Maine in 2021 and Minnesota in 2023, which were at the time the most far-reaching PFAS ban in the United States. Other states, including Massachusetts and Rhode Island, have subsequently introduced legislation similar to Maine and Minnesota’s regulations. While we have long predicted that the so-called “all PFAS / all products” legislative bans will become the trend at the state levels, it is significant to note that California, the world’s sixth largest economy, recently introduced a similar proposed PFAS ban for consumer products.

The California proposed legislation, coupled with the existing legislation passed or on the table, will have enormous impacts on companies doing business in or with the state of California, as well as on likely future consumer goods personal injury lawsuits. The California PFAS ban must therefore not be overlooked in companies’ compliance and product development departments.

California PFAS Ban

California’s SB 903 in its current form would prohibit for sale (or offering for sale) any products that contain intentionally added PFAS. A “product” is defined as “an item manufactured, assembled, packaged, or otherwise prepared for sale in California, including, but not limited to, its components, sold or distributed for personal, residential, commercial, or industrial use, including for use in making other products.” It further defines “component” as “an identifiable ingredient, part, or piece of a product, regardless of whether the manufacturer of the product is the manufacturer of the component.”

While the effective date of SB 903’s prohibition would be January 1, 2030, the bill gives the California Department of Toxic Substances Control (“DTSC”) the authority to prohibit intentionally added PFAS in a product before the 2030 effective date. It also allows DTSC to categorize PFAS in a product as an “unavoidable use”, thereby effectively creating an exemption to the bill’s ban, although California exemption would be limited to five years in duration. Similar carve outs were also included in the Maine and Minnesota bans. In each instance, certain information must be provided to the state to obtain an “unavoidable use” exemption. In California, an “unavoidable use” exemption would only be granted if:

  1. There are no safer alternatives to PFAS that are reasonably available.
  2. The function provided by PFAS in the product is necessary for the product to work.
  3. The use of PFAS in the product is critical for health, safety, or the functioning of society.

If a company sells a products containing PFAS in the state of California in violation of the proposed law, companies would be assessed a $1,000 per day penalty for each violation, a maximum of $2,500 per day for repeat offenders, and face possible Court-ordered prohibition of sales for violating products.

Implications To Businesses From The Minnesota PFAS Legislation

First and foremost of concern to companies is the compliance aspect of the California law. The state continues to modify and refine key definitions of the regulation, resulting in companies needing to consider the wording implications on their reporting requirements. In addition, some companies find themselves encountering supply chain disclosure issues that will impact reporting to the state of California, which raises the concern of accuracy of reporting by companies. Companies and industries are also very concerned that the information that is being gathered will provide a legacy repository of valuable information for plaintiffs’ attorneys who file future products liability lawsuits for personal injury, not only in the state of California, but in any state in which the same products were sold.

It is of the utmost importance for businesses along the whole supply chain to evaluate their PFAS risk. Public health and environmental groups urge legislators to regulate these compounds. One major point of contention among members of various industries is whether to regulate PFAS as a class or as individual compounds. While each PFAS compound has a unique chemical makeup and impacts the environment and the human body in different ways, some groups argue PFAS should be regulated together as a class because they interact with each other in the body, thereby resulting in a collective impact. Other groups argue that the individual compounds are too diverse and that regulating them as a class would be over restrictive for some chemicals and not restrictive enough for others.

Companies should remain informed so they do not get caught off guard. Regulators at both the state and federal level are setting drinking water standards and notice requirements of varying stringency, and states are increasingly passing PFAS product bills that differ in scope. For any manufacturers, especially those who sell goods interstate, it is important to understand how those various standards will impact them, whether PFAS is regulated as individual compounds or as a class. Conducting regular self-audits for possible exposure to PFAS risk and potential regulatory violations can result in long term savings for companies and should be commonplace in their own risk assessment.

©2024 CMBG3 Law, LLC. All rights reserved.
For more news on PFAS Ban in California, visit the NLR Environmental, Energy & Resources section.