Tag: Regulatory

What Windsor Means for Same-Sex Married Couples Seeking U.S. Immigration Benefits

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On June 26, 2013, the Supreme Court ruled in United States v. Windsor that Section 3 of the 1996 Defense of Marriage Act (“DOMA”) is unconstitutional. This Section of DOMA prohibited the U.S. government from conferring any federal benefits to same-sex couples who were married in any jurisdiction in the world.

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What does the Windsor decision mean for same-sex couples seeking immigration benefits?

On the immigration front, DOMA has been the main obstacle prohibiting married same-sex couples from accessing any immigration benefits that would otherwise flow to a spouse. For example, a U.S. citizen may sponsor a spouse who is a foreign national for permanent residence, and that foreign national spouse is considered an “immediate relative” of a U.S. citizen and exempt from annual numerical limitations on immigrants. Before Windsor, this option of “immediate relative” sponsorship did not exist for same-sex couples. Same-sex spouses also were not able to qualify for derivative nonimmigrant visas, or to qualify as dependents in an employment-based immigrant visa or adjustment of status process. Windsor has permanently shifted this landscape, with same-sex married couples being recognized as married and therefore able to access immigration benefits, provided they can demonstrate eligibility under the law for the specific benefits sought.

What marriages are valid under Windsor?

Generally, if a couple’s marriage is valid where it is performed, it is valid for purposes of immigration law. If you and your foreign national spouse were married in one of the 12 U.S. states that recognize same-sex marriage or in a foreign country that recognizes same-sex marriage, such as Canada, your green card sponsorship and application process should be treated exactly like the application of a different-sex couple. In fact, Edie Windsor, the plaintiff in Windsor, married her wife in Canada. To determine the validity of the marriage, U.S. Citizenship and Immigration Services (“USCIS”) focuses on the place where the marriage took place, not the location where one or both spouses live. This same principle is applied by other agencies within the Department of Homeland Security as well as at U.S. Embassies and Consulates.

Recent Guidance from the Federal Government

We expect government agencies to implement the Windsor decision swiftly. This means that immediately we will see changes at the various federal agencies that process applications for immigration benefits and visas. Secretary of Homeland Security Janet Napolitano issued a statement following the Court’s decision. She directed USCIS “to review immigration visa petitions filed on behalf of a same-sex spouse in the same manner as those filed on behalf of an opposite-sex spouse.” Recent Department of Homeland Security guidance is now clear that family-based immigrant visas will no longer “be automatically denied as a result of the same-sex nature of your marriage.” Following the Court’s decision, Secretary of State John Kerry stated that the Department of State (DOS) will work with the Department of Justice and other agencies “to review all relevant statues as well as benefits administered” by DOS. We expect to see guidance from U.S. Consulates in the coming weeks.

Conclusion

Same-sex couples who are married now have equal access to immigration benefits. The scope of the Windsor decision extends to same-sex spouses of individuals pursuing employment-based immigration benefits, such as green card and nonimmigrant visa sponsorship. We will continue to monitor developments in the law and provide guidance on immigration options for LGBT families.

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SAP Joins Patent and Trade Office against Versata in Eastern District of Virginia

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You may recall that Versata sued the Patent Office in the Eastern District of Virginia to challenge the PTAB’s decision to institute a CBM review of Versata’s U.S. 6,553,350 patent.  Versata Development Group, Inc. v. Rea, 1:13-cv-00328-GBL-IDD (E.D. VA).  It turns out that SAP America, Inc. and SAP AG (collectively “SAP”) filed a Motion to Intervene in that suit.  On June 24, 2013, Judge Gerald Bruce Lee granted SAP’s Motion to Intervene over Versata’s objections (the PTO did not oppose the motion).  The motion was granted under Federal Rule of Civil Procedure 24(b).  SAP is now an intervenor in the lawsuit.

SAP also filed a motion to dismiss the suit under Federal Rule of Civil Procedure 12(b)(1), alleging a lack of subject-matter jurisdiction.  That motion has not yet been decided; however, this is a very important case for all post-grant practitioners because it will likely give guidance as to which types of PTAB decisions may be appealed.   First, SAP argues that the decision is not appealable under the AIA, in particular 35 U.S.C. § 324(e).  Second, SAP contends that a decision to institute trial is not appealable because it is not a final decision by the PTAB; it is the very beginning of the PTAB trial.  In its Memorandum in Support of Motion to Dismiss, SAP stated:

First, Versata invokes the APA to challenge a decision by the Director of the United States Patent and Trademark Office (“PTO”) made on her behalf by the newly-created Patent Trial and Appeal Board (the “Board”). 37 C.F.R. §§ 42.2, 42.4. Specifically, Versata challenges the Board’s initial decision to institute a post-grant review proceeding. But under the America Invents Act (“AIA”), Congress expressly precluded judicial review of the exact decision that Versata seeks to challenge: “The determination by the Director whether to institute a post-grant review . . . shall be final and nonappealable.” 35 U.S.C. § 324(e). Simply put, the APA does not apply—and this Court cannot exercise jurisdiction—where, as here, a “statute precludes judicial review.” 5 U.S.C. § 701(a)(1).

SAP’s Memorandum in Support of Motion to Dismiss, page 1 (italics in original).

This is certainly an interesting development.  We will stay tuned into the future events of this matter.

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In a Pro-Employee World, U.S. Supreme Court Rulings Offer Employers Hope

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In a pair of important opinions released last week, both of which are helpful to employers, the U.S. Supreme Court raised the bar for employees asserting claims under Title VII of the Civil Rights Act, 42 U.S.C. § 2000e. In University of Texas Southwestern Medical Center v. Nassar, 570 U.S. _, No. 12-484 (2013), the Court ruled that an employee claiming retaliation must do more than show that retaliatory animus was a “motivating factor” for discipline – it must be the “but-for” cause.  In Vance v. Ball State University, 570 U.S. _, No. 11-556 (2013), the Court ruled that for employers to be held vicariously liable for the actions of a “supervisor,” the plaintiff must demonstrate that the “supervisor” had power to take a “tangible employment action,” such as transferring or terminating the employee. Authority merely to direct aspects of the employee’s work will not suffice.

Nassar and Vance represent significant victories for employers faced with Title VII retaliation and discrimination claims. The heightened requirements that charging employees now face should enhance an employer’s prospects for obtaining summary judgment and, failing that, impose a more rigorous hurdle for plaintiffs at trial.

Nassar Imposes More Stringent “But-For” Causation Test for Title VII Retaliation Claims

Plaintiff in Nassar was a physician of Middle Eastern descent. The defendant university hired him as a member of its medical faculty, and under the terms of the university’s affiliation agreement with a local hospital, the plaintiff also worked at the hospital as a staff physician. The plaintiff alleged that the University’s Chief of Infectious Disease Medicine harassed him because of her discriminatory “bias against Arabs and Muslims.” The plaintiff ultimately resigned from the university faculty, and accused his superior of discriminatory bias in his letter of resignation, which he sent to the university’s chair of Internal Medicine and other faculty members. The chair was allegedly dismayed by the public accusations of discrimination, and said that the chief must “be publicly exonerated” of the charges against her. When he learned that plaintiff had been offered a staff physician position at the hospital, the chair objected that the affiliation agreement required all staff physicians to also be faculty members, and the hospital therefore withdrew its offer to plaintiff.

Plaintiff brought suit under Title VII, 42 U.S.C. § 2000e, alleging that he had been constructively discharged by reason of the chief’s discriminatory harassment, and that the chair subsequently allegedly retaliated against him for complaining of that harassment. A jury found for plaintiff on both claims, but the Fifth Circuit affirmed only as to the retaliation claim, holding that retaliation claims under Title VII required a showing merely that retaliation was a “motivating factor” for an adverse employment action rather than its “but-for” cause.

The Supreme Court vacated that decision, concluding that “the text, structure and history of Title VII demonstrate that a plaintiff making a retaliation claim … must establish that his or her protected activity was a but-for cause of the alleged adverse action by the employer.” The Court reasoned that because Title VII’s anti-retaliation provision appears in a different section from the status-based discrimination ban, which utilizes the lesser “motivating factor” causation test, the “but-for” standard applies to Title VII retaliation claims. Accordingly, “Title VII retaliation claims require proof that the desire to retaliate was the but-for cause of the challenged employment action.” To establish a retaliation claim, employees must now show that their employer would not have taken the challenged employment action but for the employee’s protected activity.

Vance Limits “Supervisors” to Those with Power to Take a Tangible Employment Action

In a second critical decision for employers, plaintiff in Vance, an African-American woman, worked in the university’s Banquet and Catering Division of Dining Services. Plaintiff alleged that a fellow employee, a white woman named Davis, harassed and intimidated her because of her race.  Plaintiff sued under Title VII, alleging that her white co-worker created a racially hostile work environment. “The parties vigorously dispute[d] the precise nature and scope of Davis’ duties, but they agree[d] that Davis did not have the power to hire, fire, demote, promote, transfer, or discipline Vance.”

The District Court granted defendant summary judgment, holding the university was notvicariously liable for Davis’s alleged actions because she could not take tangible employment actions against the plaintiff and therefore was not a “supervisor.” The Seventh Circuit affirmed, and the Supreme Court granted certiorari to decide “who qualifies as a ‘supervisor’” under Title VII. The Court held that “an employee is a ‘supervisor’ for purposes of vicarious liability under Title VII [only] if he or she is empowered by the employer to take tangible employment actions against the victim” and affirmed.

In analyzing when an employer is vicariously liable for the actions of its employees, the Court defined “tangible employment actions” to include effecting “‘a significant change in employment status, such as hiring, firing, failing to promote, reassignment with significantly different responsibilities, or a decision causing a significant change in benefits.’” The Court specifically rejected the EEOC’s definition of “supervisor,” which tied “supervisor status to the ability to exercise significant direction over another’s daily work[,]” as “a study in ambiguity.” Hence, under Title VII, if an employee is not authorized to impose tangible employment actions against another, the employer cannot be vicariously liable for the subject employee’s alleged harassment.

Vance enhances an employer’s ability to limit the company’s responsibility for harassment. Employers should remain mindful of the duties of their employees, ensuring that only key management and supervisory personnel possess the power to effect a “significant change in employment status”. Clear definitions of an employee’s responsibilities should greatly limit any future claims of vicarious liability against employers. This more precise definition of “supervisor” should, like Nassar, increase the likelihood of dismissal at the summary judgment stage and help obtain favorable in limine and trial rulings.

Conclusion

Nassar and Vance afford significant advantages to employers defending against discrimination and retaliation claims.  Importantly, although the decisions themselves were concerned with claims arising under federal anti-discrimination (not just Title VII) laws, the Court’s reasoning may well find acceptance among state courts, which frequently apply the Title VII analysis to claims asserted under analogous state laws. Nassar and Vance are likely to prove valuable tools to employers defending against claims of discrimination and/or retaliation, increasing both the prospects of obtaining summary judgment and, if necessary, the odds of success at trial.

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New Requirement for Long-Term Care (LTC) Facilities That Arrange Hospice Services through a Medicare-Certified Hospice

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Effective August 26, 2013, the Centers for Medicare & Medicaid Services require that a long-term care, or LTC, facility that chooses to arrange for the provision of hospice services through a Medicare-certified hospice must have a signed agreement with the hospice delineating the services that will be provided by each.

New Condition of Participation Requirement for Long-Term Care Facilities

The Centers for Medicare & Medicaid Services (CMS) has added a new Condition of Participation (CoP) that requires that long-term care (LTC) facilities (that is, Medicare-certified skilled nursing and Medicaid-certified nursing facilities) that choose to arrange for the provision of hospice services through a Medicare-certified hospice must have in place a written agreement delineating the respective roles and responsibilities of each.  The CoP requires that the agreement, signed by an authorized official of the LTC facility and the hospice, must be in place before any hospice services can be provided through the arrangement by the hospice.  The new CoP requirement is effective August 26, 2013.

In its description of the requirement, published in the June 27, 2013, Federal Register, CMS explains that where LTC facilities and hospices provide many of the same services to residents who have elected the hospice benefit, the purpose of the agreement is to ensure that duplicative or conflicting services are not provided to the resident as part of the hospice benefit, and that there will be no missing hospice services.  CMS believes that the written clarification of the responsibilities of the LTC facility and the hospice will increase coordination of care for patients as well as foster communication between the two providers assisting patients and their families.  CMS also believes that the clear division of responsibilities and increased communication required by this new rule will help address the duplication of services criticized by the Office of Inspector General in a July 2011 report, and address situations where neither the LTC facility nor the hospice are providing a needed hospice service.

Options and New Requirement

An LTC facility has two options under the newly added CoP: it may arrange for the provision of hospice services through a written agreement with a Medicare-certified hospice specifying the services to be provided by the LTC facility and the hospice, or it may assist the resident in transferring to a facility that will arrange for the provision of hospice services when a resident requests a transfer.

If the hospice care is furnished in an LTC facility through an agreement with a Medicare-certified hospice, the agreement must ensure, among other things, that the hospice services meet professional standards and principles that apply to individuals providing services in the facility and to the timeliness of the services.  The regulations prescribe what must be addressed in the agreement.  For example, the agreement would specify that it is the LTC facility’s responsibility to furnish 24-hour room and board care, meet the resident’s personal care and nursing needs in coordination with the hospice representative, and ensure that the level of care provided is appropriately based on the resident’s needs.  The hospice’s responsibilities are delineated to include providing medical direction and management of the patient, nursing, counseling (including spiritual, dietary and bereavement), social work and medical supplies and drugs necessary for palliative care associated with the terminal illness.  The final regulation and CMS’ commentary published in the Federal Register provide considerable guidance to providers in developing new agreements, or amending existing agreements with hospices, to address the new requirement.

LTC facilities choosing to provide hospice services through arrangements with hospices without the required written agreement can face sanctions for their failure to meet the requirement of this new CoP.  While one commenter suggested extending the deadline for implementation of the rule to allow hospices and LTC facilities more time to develop agreements, CMS believes that the August 26, 2013, effective date is an adequate timeframe.

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Does a Valid Copyright Exist in the Song “Happy Birthday To You”?

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Ownership of a copyright in one of the most popular songs in the English language has recently been challenged in several lawsuits around the country.  At the heart of the dispute is whether the music publisher Warner Chappell legitimately owns a copyright in, and thus has the right to license (and enforce) the rights to, the ubiquitous song “Happy Birthday to You.”  Since it acquired a company in 1998 that claimed to own the rights in this song, some have estimated that Warner makes as much as $2M per year licensing the rights to use this song in various movies and television shows.  Two recently filed lawsuits are challenging this ownership claim and seek a ruling that the rights to the song have passed into the public domain.

The long and tortured history of the song, which has been methodically detailed by Professor Robert Brauneis in his excellent article on the topic, begins with the melody of the song which was originally written in the late 19th Century by two sisters, Mildred and Patty Hill.  Although there is still some dispute over the originality of the melody, Professor Bauneis’s research indicates it may have been wholly original even if loosely based on prior folk songs. What is undisputed, however, is that the Hill sisters’ melody was first published in a collection of children’s songs in 1893.  That melody (with different lyrics) was originally titled “Good Morning to All,” and was intended to be used as a greeting by teachers to their students.  What may be forever lost to history is who combined the current words with the Hill sisters’ melody and when. There is evidence from as early as 1911 that the current words and melody (i.e., the “Good Morning to All” melody) were being used together.

 Warner argues that its rights stem from two principal sources acquired over the years through many corporate mergers: (1) a 1935 piano arrangement of the melody of the song, which critics have noted is a specific arrangement of the song that is not the popular version known today, and (2) a copyright registration in a 1924 songbook containing the lyrics.

The suits challenge Warner’s claimed rights on several grounds. One is lack of originality. To be protected by copyright, a work must be sufficiently “original.”  Plaintiffs allege that Warner’s claimed versions of the song are not original enough, and do not protect the version of the song we know today.  Second, they allege that the version of the music in which Warner claims rights, the specific 1935 piano arrangement of the song, is not sufficiently similar to the current version to enable it to claim any rights in the current version. Finally, according to the Plaintiffs, any copyright in the prior versions expired long ago, either through term limits on copyright protection or through the failure of the original owners to properly renew those rights many years ago.

Since the license fees Warner charges for use of the song are not exorbitant, there has been little financial incentive for anyone to take Warner to court over the rights to the song. Since multiple litigations are now pending, there will likely be amicus briefs filed on plaintiffs’ side from many sources. This “crowdsourcing” of history, knowledge and effort (and cost) in re-creating as accurate a picture as possible of the history of the rights of this song is probably the best chance yet of getting to the bottom of the long open question regarding the ownership of “Happy Birthday to You.”

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No Implied Duty to Develop Particular Strata in Pennsylvania (e.g. Marcellus Shale)

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On June 21, 2013, the Superior Court of Pennsylvania (the “Court”) held that a lessee does not owe a duty to a lessor to develop each and every “economically exploitable strata” under an oil as gas lease in Pennsylvania.

In early 2012, Terry L. Caldwell and Carol A. Caldwell, husband and wife (“Plaintiffs”) sued Kriebel Resources Co., Range Resources—Appalachia, LLC and others (“Defendants”) regarding an oil and gas lease executed between the Plaintiffs and Defendants on January 19, 2001 (the “Lease”). The Lease provided for a primary term of twenty four (24) months and so long thereafter as oil or gas was being produced. The Defendants drilled a number of shallow wells on the property that Defendants alleged held the entire property under the terms of the Lease. Plaintiffs brought suit against the Defendants in early 2012 alleging that, among other things, Defendants breached the implied duty to develop the property by not drilling deeper wells to exploit the valuable Marcellus Shale and, based on such potential unexploited value, the current production did not amount to production in paying quantities. The trial court sustained certain preliminary objections raised by the Defendants that resulted in a dismissal of Plaintiffs’ claims. In Terry L. Caldwell et al. v. Kriebel Resources Co. et al. (1305 WDA 2012), the Court affirmed the trial court’s dismissal of the case.

Regarding the duty to develop, Plaintiffs argued that without direct Pennsylvania case law on topic the Court should follow a Louisiana case, Goodrich v. Exxon Co., 608 So.2d 1019 (La. App. 1992), which held that Exxon’s duty to develop as a reasonably prudent operator included the obligation to develop valuable oil-producing sands underlying the leased premises. Based on this rationale, Plaintiffs alleged there is an implied duty to “develop all strata, not simply to extract shallow gas . . .” The Court rejected the application of the Goodrich rationale and held that the specific terms of the Lease were to control. Therefore, because the Lease provides for the continued validity of the Lease upon production of gas and allows for the guarantee of delay rentals if no gas is produced, the Court found that it was “not compelled to follow Louisiana law.” The production from various shallow wells was found to be sufficient to hold the entirety of the leased estate.

The Court also rejected Plaintiffs’ claim that the concept of “paying quantities” should be based on all potential gas strata underlying the Lease and should impose some obligation relating to good faith. The Court quickly dismissed this claim and made clear that “paying quantities” in Pennsylvania merely requires the well to “consistently pay[] a profit, however small.” It is of no legal effect that the extent of the profit produced from these shallow wells is “not to the extent appellants desire.” Due to the continued production in paying quantities and the Court’s failure to impose a duty on Defendants to develop all potentially economic strata, the Court chose not to terminate Defendants’ Lease.

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America Invents Act – Practical Considerations for Portfolio Companies

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Private equity funds should familiarize themselves with recent changes to U.S. patent law that affect patent protection strategies for their portfolio companies.  In September 2011, the U.S. Congress enacted the America Invents Act (AIA) patent reform bill, which significantly overhauled U.S. patent law.  This article summarizes practical considerations that private equity funds should bear in mind when evaluating and managing the patent portfolio of their investments.

First Inventor to File 

In the broadest sense, the AIA converts U.S. patent law into a “first-inventor-to-file” system from a “first-to-invent” system.  This conversion harmonizes U.S. patent law with the rest of the world’s patent laws.  In practice, it means that businesses should not delay filing patent applications, as they can no longer antedate patent-defeating prior art with an earlier invention date.

Challenges to Patent Rights 

Effective September 12, 2012, the AIA provided businesses new post-issuance patent validity challenge options that may be exercised before the U.S. Patent and Trademark Office (USPTO).  The new post-issuance challenges provide businesses new and predictable avenues to test the validity of a competitor’s patent that is, or may in the future be, an impediment to commercialization.  These post-issuance challenges include post-grant review, inter partes review and the Transitional Program for Covered Business Methods.  Each of the three post-issuance challenges is defined briefly here.

Post-Grant Review

Someone other than the patent owner may file a petition for post-grant review challenging the validity of a patent within nine months of the patent’s date of issue or reissue on any statutory grounds for invalidity.  Thus, even if a patent has been grated to a portfolio company, it may be subject to challenge by third parties in the time period immediately following issuance.  Similarly, a portfolio company could elect to challenge a competitor’s rights, even after a patent has been issued.

Inter Partes Review 

Someone other than the patent owner may file a petition for inter partes review challenging the validity of the patent nine months after the date of issue or reissue on limited invalidity grounds.  Inter partes review may only be instituted after the time period for post-grant review has expired and offers only a subset of the challenges available in post-grant review.  This means that throughout the entire life of an issued patent, generally 20 years from the filing date of the earliest priority document, it may be subject to challenge and invalidation.  Private equity funds should closely consider any potential challenges that could be lodged against a portfolio company and should evaluate potential risk before investing.

Transitional Program for Covered Business Methods

With regard to business method patents, someone other than the patent owner may file a petition for covered business method review challenging the validity of a patent if (1) the petitioner has been sued for infringement or threatened with an infringement suit, and (2) the patent claims a financial product or service.  Practically speaking, this scope is broader than mere financial products or services, such that any patent claiming anything related to money may potentially be challenged using a covered business method review.  Versata Development Group Inc. recently filed suit against the USPTO in the Eastern District of Virginia alleging that such a scope is impermissibly broad.  Until the result of that case or guidance is issued by the USPTO, private equity funds should proceed under the broad definition of “financial product or service” when evaluating a portfolio company with patents that may be challenged under the covered business method review.

Conclusion

Whether used against competitors’ patents or in defense of a business’ own interests, the new post-issuance challenges available under the AIA are powerful new tools in a portfolio company’s strategic toolbox.

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Federal Court Stops Serial Americans with Disabilities Act (ADA) Plaintiff’s Latest Effort: Payne v. Chapel Hill North Properties

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The United States District Court for the Middle District of North Carolina recently dismissed an Americans with Disabilities Act (“ADA”) case filed by Denise Payne, a Florida resident, and National Alliance for Accessibility, Inc. (“NAA”), a nonprofit Florida corporation (Payne is the founder of and a member of NAA).   Payne and NAA sued Chapel Hill North Properties, LLC (“CHNP”) alleging the company’s shopping center in Chapel Hill, NC did not comply with ADA requirements for accessibility to disabled individuals.  Poyner Spruill attorneys Nick Ellis and Kevin Ceglowski filed a Motion to Dismiss the case and a supporting brief for CHNP arguing that the court did not have subject matter jurisdiction because Payne lacked standing to proceed.

Payne was seeking injunctive relief, requesting CHNP to remedy the alleged ADA violations.  In order to seek injunctive relief, a plaintiff must have constitutional standing to proceed with the lawsuit, which depends on showing a likelihood of future harm from the alleged violations.  Payne alleged she encountered architectural barriers when she visited the shopping center on June 10, 2010, April 1, 2012  and on September 27, 2012.  Payne alleged only vague future plans to visit the shopping center, saying she “intends to visit North Carolina again in June of 2013” and “intends to visit Defendant’s property once again.”  Payne’s Complaint alleged she intends to continue to meet with existing NAA members in Asheville, Wilmington, and Fayetteville, none of which are near CHNP’s property.  After CHMP filed its Motion to Dismiss, Payne filed an affidavit, hoping to avoid dismissal of her case, and in which she stated she specifically intended to return to the shopping center in June 2013.  In her Complaint, she alleged she stopped at the shopping center on her visits to North Carolina because it “has an attractive selection of goods and services” and “is convenient based on her travel patterns.”

CHNP argued the plaintiffs failed to sufficiently show that Payne would return to the property and, therefore, that they were unable to demonstrate she was likely to suffer any harm in the future.  Specifically, CHNP argued Payne lives over 700 miles from the property, lacks a reliable record of past patronage, and her alleged intent to return to the property in the future is not credible.  In order to evaluate this argument, the court used what is known as the proximity test – a set of factors for determining standing that takes into account (1) the plaintiff’s proximity to the defendant’s business; (2) the plaintiff’s past patronage of the business; (3) definiteness of plans to return to the business; and (4) the frequency of the plaintiff’s nearby travels.

The court first examined the proximity factor because as the court said, “the further away a plaintiff ordinarily finds herself from a business, the less likely she is to suffer future harm.”  In this case, Payne lives over 700 miles from the shopping center, which the court decided weighed against finding she was likely to return and suffer harm.  More importantly, the court reviewed Payne’s filings in other ADA cases in North Carolina courts and determined her representations to the courts were not consistent from case to case.  Specifically as it related to this case, the court pointed out that Payne’s allegation that she passes through Chapel Hill on the way to see her attorney when traveling to North Carolina contradicted a sworn statement made in another case that her “first stop is always Greensboro.”  The court said, “the fact that Payne has submitted such clearly conflicting statements clearly calculated to avoid dismissal in these cases is very troubling and casts significant doubt on her claims.”

The court also examined Payne’s past patronage of the shopping center.  Although the court noted Payne had made only three past visits and did not explain why she chose this particular shopping center instead of many others on her route, it allowed this factor to weigh in her favor, if only slightly.

The court next examined Payne’s intent to return to the shopping center.  The court found this factor weighed against Payne and NAA because the shopping center is located on a 100-mile stretch of highway between the airport at which Payne arrives and her lawyer’s office, which is her alleged destination when she comes to North Carolina.  Moreover, several of the cities Payne alleged she intended to visit in the future (Fayetteville and Wilmington) are in the opposite direction from the shopping center. In sum, the court determined Payne did not express any definite reason she would return to the shopping center other than to test its compliance with the ADA.

Finally, the court assessed Payne’s frequency of travel to areas near the shopping center.  The court said Payne’s sporadic trips to North Carolina provided weak evidence she would suffer actual or imminent harm.  Beyond that, Payne’s frequent lawsuits worked against her efforts to maintain standing in this case.  The court noted it was implausible that in her one or two visits a year to North Carolina, Payne could return to each of the 80 plus properties she has sued in the state for alleged noncompliance with the ADA.  The court found this final factor weighed against finding that Payne had standing to proceed with her lawsuit.  After considering all the factors together, the court determined Payne was unlikely to suffer future harm at the shopping center and rules that she did not have standing to proceed and the lawsuit should be dismissed.

CHNP also argued that Plaintiff NAA lacked standing to proceed with the lawsuit because, as an association, its standing depended on an allegation that one or more of its members was suffering immediate or threatened injury as a result of the allegations in the Complaint.  Because Payne was the only member of NAA identified in the Complaint and the court decided she was not suffering immediate or threatened injury, the lawsuit was also dismissed as it related to allegations made by NAA.

The court’s opinion is a victory for CHNP, but also an example of how serial plaintiffs in ADA cases have credibility issues because the volume of lawsuits they file can create inconsistent “facts” they allege to be true.  The result in this case was also a strong rebuke against Payne’s dishonesty to the courts in an effort to maintain standing in her multitude of lawsuits against North Carolina companies.  (Payne has filed over 80 cases in NC.)  Businesses that find themselves facing ADA suits from out-of-state plaintiffs may find the arguments and result in this case helpful in defending those claims.

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Update on Advanced Micro Devices (AMD) Trade Secret Misappropriation Case: Judge Hillman Issues Narrow Interpretation of the Computer Fraud and Abuse Act (CFAA)

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As originally discussed on this blog back in February, a lawsuit brought by Advanced Micro Devices (AMD) against former employees accused of taking AMD trade secrets with them to competitor Nvidia has been ongoing and a recent opinion in the case highlights the uncertainty surrounding the Computer Fraud and Abuse Act (CFAA).

A recent opinion issued by Judge Timothy S. Hillman narrowly interpreted the CFAA in this case. Judge Hillman declined a broad interpretation of the CFAA and held that AMD’s allegations in its complaint are insufficient to sustain a CFAA claim.

The relevant portion of the CFAA provides that it is a violation of the CFAA to:

Knowingly and with intent to defraud, [access] a protected computer without authorization or [exceed] authorized access, and by means of such conduct [further]the intended fraud and [obtain] anything of value, unless the object of the fraud and the thing obtained consists only of the use of the computer and the value of such use is not more than $5,000 in any 1-year period.

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There exists a circuit split on the interpretation of this clause. As Judge Hillman noted, the 1st Circuit has not clearly articulated its position on the issue. The broad interpretation defines access in terms of agency or use. That is, whenever an employee breaches a duty of loyalty or a contractual obligation and acquires an interest adverse to their employer, then all subsequent access exceeds the scope of authorized access. Proponents of the narrower interpretation argue that the intent of the CFAA was to deter computer hacking and not to supplement common law trade secret misappropriation remedies and therefore fraudulent means must be used to obtain the information initially.

Judge Hillman utilized a narrow interpretation of the CFAA and held that AMD had not pleaded sufficient facts to maintain a cause of action under the CFAA. AMD had pleaded that the defendants used their authorized access to computer systems to download and retain confidential AMD information which they retained when they left to go work at Nvida. The complaint, while alleging the defendants had the intent to defraud AMD, provided no facts which support the allegation that the defendants obtained the information through fraudulent or deceptive methods.

Judge Hillman did not outright dismiss the claim given the truncated evidentiary record and has allowed AMD the opportunity to plead specific details indicating that some or all of the defendants used fraudulent or deceptive means to obtain the confidential information and that they intentionally defeated or circumvented technologically implemented restrictions to obtain the confidential information. If other judges in the 1st Circuit follow Judge Hillman’s approach, plaintiffs will need to ensure that they plead with sufficient detail that the defendants obtained the information through a fraudulent or deceptive method as opposed to simply obtaining the information through permissible access.

Financial Innovation for Clean Energy Deployment: Congress Considers Expanding Master Limited Partnerships for Clean Energy

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Technological innovation is driving renewable energy towards a future where it is cost competitive without subsidies and provides a growing share of America’s energy. But for all the technical progress made by the clean energy industry, financial innovation is not keeping pace: access to low-cost capital continues to be fleeting, and the industry has yet to tap institutional and retail investors through the capital markets. This is why a bipartisan group in Congress has proposed extending master limited partnerships (MLPs), a financial mechanism that has long driven investment in traditional energy projects, to the clean energy industry.

Last month Senators Chris Coons (D-DE) and Jerry Moran (R-KS) introduced the Master Limited Parity Act (S. 795); Representatives Ted Poe (R-TX), Mike Thompson (D-CA), and Peter Welch (D-VT) introduced companion legislation (H.R. 1696) in the House of Representatives. The bills would allow MLP treatment for renewable energy projects currently eligible for the Sec. 45 production tax credit (PTC) or 48 investment tax credit (ITC) (solar, wind, geothermal, biomass, hydropower, combined heat and power, fuel cells) as well as biofuels, renewable chemicals, energy efficient buildings, electricity storage, carbon capture and storage, and waste-heat-to-power projects. The bill would not change the eligibility of projects that currently qualify as MLPs such as upstream oil and gas activities related to exploration and processing or midstream oil and gas infrastructure investments.

MLPs have been successfully utilized for traditional fossil-fuel projects because they offer an efficient means to raise inexpensive capital. The current total market capitalization of all energy-related MLPs exceeds $400 billion, on par with the market value of the world’s largest publicly traded companies. Ownership interests for MLPs are traded like corporate stock on a market. In exchange for restrictions on the kinds of income it can generate and a requirement to distribute almost all earnings to shareholders (called unitholders), MLPs are taxed like a partnership, meaning that income from MLPs is taxed only at the unitholder level. The absence of corporate-level taxation means that the MLP has more money to distribute to unitholders, thus making the shares more valuable. The asset classes in which MLPs currently invest lend themselves to stable, dividend-oriented performance for a tax-deferred investment; renewable energy projects with long-term off-take agreements could also offer similar stability to investors. And since MLPs are publicly traded, the universe of potential investors in renewable projects would be opened to retail investors.

The paperwork for MLP investors can be complicated, however. Also, investors are subject to rules which limit their ability to offset active income or other passive investments with the tax benefits of an MLP investment. Despite the inherent restrictions on some aspects of MLPs, the opportunities afforded by the business structure are generating increasing interest and support for the MLP Parity Act.

Proponents of the MLP Parity Act envision the bill as a way to help renewable energy companies access lower cost capital and overcome some of the limitations of the current regime of tax credits. Federal tax incentives for renewable energy consist primarily of two limited tools: tax credits and accelerated depreciation rates. Unless they have sizeable revenue streams, the tax credits are difficult for renewable project developers to directly use. The reality is only large, profitable companies can utilize these credits as a means to offset their income. For a developer who must secure financing though a complicated, expensive financing structure, including tax equity investors can be an expensive means to an end with a cost of capital sometimes approaching 30%. Tax credits are a known commodity, and developers are now familiar with structuring tax equity deals, but the structure is far from ideal. And as renewable energy advocates know all too well, the current suite of tax credits need to be extended every year. MLP treatment, on the other hand, does not expire.

Some supporters have noted that clean energy MLPs would “democratize” the industry because private retail investors today have no means to invest in to any meaningful degree in clean energy projects. Having the American populace take a personal, financial interest in the success of the clean energy industry is not trivial. The initial success of ‘crowd-funded” solar projects also provides some indication that there is an appetite for investment in clean energy projects which provide both economic and environmental benefits.

Sen. Coons has assembled a broad bipartisan coalition, including Senate Finance Energy Subcommittee Chair Debbie Stabenow (D-MI) and Senate Energy and Natural Resources Ranking Member Lisa Murkowski (R-AK). Republican and Democratic cosponsors agree that this legislation would help accomplish the now-familiar “all-of-the-above” approach to energy policy.

However, some renewable energy companies that depend on tax credits and accelerated depreciation are concerned that Republican supporters of the legislation will support the bill as an immediate replacement for the existing (but expiring) suite of renewable energy tax credits. Sen. Coons does not envision MLP parity as a replacement for the current production tax credits and investment tax credits but rather as additional policy tool that can address, to some degree, the persistent shortcomings of current financing arrangements. In this way, MLPs could provide a landing pad for mature renewable projects as the existing regime of credits is phased out over time, perhaps as part of tax reform.

So would the clean energy industry utilize MLP structures if Congress enacts the MLP Parity Act? The immediate impact may be hard to predict, and some in renewable energy finance fear MLP status will be less valuable than the current tax provisions. This is in part because the average retail investor would not be able to use the full share of accompanying PTCs, ITCs, or depreciation unless Congress were also to change what are known as the “at-risk” and “passive activity loss and tax credit” rules. These rules were imposed to crack down on perceived abuse of partnership tax shelters and have tax implications beyond the energy industry. Modifying these rules is highly unlikely and would jeopardize the bipartisan support the bill has attracted so far. But other renewable energy companies believe they can make the structure work for them now, and industries without tax credits — like renewable chemicals, for instance — would not have the same concerns with “at-risk” and “passive activity loss” rules. Furthermore, over the long term, industry seems increasingly confident the structure would be worthwhile. Existing renewable projects that have fully realized their tax benefits and have cleared the recapture period could be rolled up into existing MLPs. Existing MLP infrastructure projects could deploy renewable energy assets to help support the actual infrastructure. Supporters of the legislation see the change as a starting point, and the ingenuity of the market will find ways to work within the rules to deliver the maximum benefit.

The future of the MLP Parity Act will be linked to the larger conversation in Congress regarding tax reform measures. The MLP Parity Act is not expected to pass as a stand-alone bill; if it were to be enacted, it would most likely be included as part of this larger tax-reform package. Congress currently is looking at ways to lower overall tax rates and modify or streamline technology-specific energy provisions. This has many renewable energy advocates on edge: while reform provides an opportunity to enact long-term policies (instead of one-year extensions) that could provide some level of stability, it also represents a chance for opponents of renewable energy to exact tough concessions or eliminate existing incentives. As these discussions continue in earnest this year, the reintroduction of the MLP Parity Act has already begun to generate discussions and mentions in policy white papers at both the House Ways and Means Committee and the Senate Finance Committee. Whether a highly partisan Congress can actually achieve such an ambitious goal as tax reform this year remains uncertain. But because of its bipartisan support, the MLP Parity Act certainly will be one of the many potential reforms Congress will consider seriously.