Federal Judge in Missouri Dismisses Legal Challenge to Health Care Reform
The Judge in the U.S. District Court for the Eastern District of Missouri, Southeastern Division, entered an order dismissing a lawsuit filed by Lt. Gov. Peter Kinder that challenged the Patient Protection and Affordable Care Act. Kinder et al v. Geithner et al. was filed in July 2010 by Kinder, joined in by six other Missouri residents, as a private citizen after the state’s attorney general declined to join other states in challenging the health care law. To read more about the order in this case, please click here to see the Alert published by the Life Sciences and Health Care Client Service Group on May 3, 2011.
FTC Cracking Down on Affiliate Advertisers
In April the FTC filed 10 lawsuits against companies and individuals that run affiliate advertising websites. These lawsuits come within two months of an earlier round of lawsuits targeting affiliate advertising programs. The most recent targets are fake news websites that promote weight loss products. To learn more, please click here to read the Alert published by the Retail Team on May 5, 2011.
Arbitration Clauses May Waive Class Proceedings
The U.S. Supreme Court recently ruled that the Federal Arbitration Act does not allow state law to invalidate class action waivers in arbitration agreements on the basis of unconscionability. While AT&T Mobility v. Concepcion involved consumer claims, the language of the ruling will bolster enforceability of class action waivers in employment related arbitration agreements. To read more about the ruling, click here for the Alert published by the Labor & Employment Client Service Group on May 18, 2011.
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W-2 Reporting of Employer-Provided Health Care Costs
The 2010 health care reform legislation included an obligation for employers to inform employees of the cost of their health coverage. The IRS has now issued Notice 2011-28, which provides interim guidance for employers on W-2 reporting of the cost of coverage. For more information, please click here to read the Alert regarding the Notice published by the Employee Benefits & Executive Compensation Client Service Group on April 5, 2011.
Form I-9: Changes to Accepted Documentation
As of May 16, 2011, the documents employees present to employers for I-9 verification are subject to new regulations. The U.S. Citizenship and Immigration Services of the Department of Homeland Security has issued a final rule concerning the list of acceptable documentation. To learn more about the changes in acceptable documentation, please click here to read the Alert published by the Labor & Employment Client Service Group on April 27, 2011.
Reminder for Plan Administrators to Review Confidentiality Procedures for Qualified Retirement Plans
Plan administrators of plans that offer employer stock as an investment alternative should review the disclosures provided to plan participants. Investment in employer stock represents a significant litigation threat for plan fiduciaries. However, the plan fiduciary may be relieved of liability for participant losses resulting from the decision to invest in employer stock if certain disclosures are provided under ERISA Section 404(c). To learn more, please click here to read the Alert published by the Employee Benefits & Executive Compensation Client Service Group on April 12, 2011.
Pension Plan Reporting of Foreign Bank and Financial Accounts
Representatives of pension plans with interests in foreign financial accounts may be required to report those accounts to the Internal Revenue Service. On February 24, 2011 the Treasury Department issued final regulations greatly expanding the reporting requirements for individuals and entities that hold interests in foreign accounts. To learn more about the regulations, please click here to read the Alert published April 12, 2011 by the Employee Benefits & Executive Compensation Client Service Group.
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On November 15, 2010, the Federal Deposit Insurance Corporation (FDIC) issued a final rule to implement Section 343 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”). Section 343 of the Act provides for unlimited deposit insurance for “noninterest-bearing transaction accounts” through December 31, 2012.
In the months since the FDIC issued its final rule, we have observed some confusion in the banking industry as to exactly what kinds of accounts will be considered to be “noninterest-bearing transaction accounts.” It is not the case, as some seem to have believed, that the definition covers only accounts offered to businesses. Consumer accounts can qualify for the unlimited deposit insurance, if properly structured. For some banks, this may mean a change to their existing deposit agreement terms.
FDIC regulation now defines “noninterest-bearing transaction account” as any deposit or account maintained at an FDIC insured bank or other depository institution with respect to which all three of the following are true:
(i) no interest may be paid or accrued on the account;
(ii) the depositor must be able to make withdrawals by using a negotiable or transferable payment instrument, payment order of withdrawal, telephone or other electronic media, or other similar items for the purpose of making payments or transfers to third parties; and
(iii) The depository institution may not reserve the right to require advance notice of intended withdrawal.
Department of Labor Extends Non-Enforcement Period for Certain Internal Claims and Appeals Requirements Applicable to Non-Grandfathered Plans Under the Affordable Care Act
On March 18, 2011, the Department of Labor issued Technical Release 2011-01 extending, with some modifications, the enforcement grace period established under DOL Technical Release 2010-02 until plan years beginning on or after January 1, 2012. To learn more the extension of the enforcement grace period, please click here to read the Employee Benefits and Executive Compensation Client Service Group’s Alert published March 21, 2011.
Reporting for Participants with Deferred Vested Benefits – IRS Replaces Schedule SSA
Plan administrators are required to report certain information regarding participants who separate from service with the right to a deferred vested retirement benefit. In Announcement 2011-21, the IRS designated Form 8955-SSA to be used to satisfy this reporting requirement, replacing Schedule SSA. To learn more about the filing requirements for the new form, please click here to read the Employee Benefits & Executive Compensation Client Service Group’s Alert published March 28, 2011.
Supreme Court Says Two Exemptions are Unavailable to Companies Trying to Protect Their Information from Disclosure under FOIA
Companies frequently find that information they submit to the Federal government is sought by others — perhaps competitors — under the Freedom of Information Act. The submitting company may be able to block the disclosure if the information falls within one of the exemptions in FOIA. On March 1 the Supreme Court made two of those exemptions unavailable to companies. To read more about the Court’s decision in FCC v. AT&T Inc. please click here to read the Government Contracts Team Alert published March 3, 2011
FTC Takes a Bite Out of Cookie-Based Behavioral Advertising
On March 14, 2011, the Federal Trade Commission announced a settlement with a behavioral advertising company that places cookies in consumers’ internet browsers to track online activities. This settlement marks one of the agency’s first enforcement actions against a behavioral advertising company and signals that the FTC has begun to act on its repeated warnings about scrutinizing behavioral advertising more closely. To learn more about the settlement, please click here to read the Consumer Protection Group’s Alert published March 17, 2011.
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CPSC Opens Business Registration for New Consumer Product Safety Information Database
The new Consumer Product Safety Information Database is now available online on a trial basis, and will launch officially in March at www.SaferProducts.gov. The Database allows a broad range of people to file so-called “reports of harm” informing the CPSC about an incident or concern that the submitter believes is an indication a product is unsafe or potentially hazardous. To read more the database, please click here to see the Alert published by the Retail Team on February 3, 2011.
IRS Reverses Course — Breast Pumps and Other Lactation Supplies are Now Deductible Medical Expenses Subject to Reimbursement under FSAs, HRAs and HSAs
In Announcement 2011-14, the Internal Revenue Service concluded that breast pumps and supplies that assist lactation are medical care under Section 213(d) of the Internal Revenue Code and can therefore be reimbursed under a health flexible spending arrangement. To learn more about this announcement, please click here to read the Feburary 22, 2011 Alert published by the Employee Benefits & Executive Compensation Client Service Group.
Patent Reform Act of 2011
On January 25, 2011, The Patent Reform Act of 2011 was introduced by Senator Leahy (D-VT) with bipartisan support. The Bill is the latest installment of Congress’ attempts to pass patent legislation reform, following the Patent Reform Act of 2009 and other bills in recent years, all of which died in Congress. To learn more, please click here to read the February 22, 2011 Bulletin published by the Intellectual Property Client Service Group.
Wide-Open House Budget Debate Moves Toward Finish Line
The House continues to work towards completing a major budget bill to fund the federal government for the remainder of the 2011 fiscal year. Of the hundreds of amendments which have been offered and voted upon, major energy and environment-related amendments would reverse a law that requires the federal government to pay the legal costs of some environmental plaintiffs, de-fund the White House climate czar’s office, prevent an EPA appeals board from revoking air permits for oil exploration in the Arctic, and de-fund the EPA’s greenhouse gas emissions registry. To read more about the proposed amendments and other energy updates, please click here to see the February 18, 2011 Energy Update.
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In Dish Network Corp. v. DBSD N. Am., Inc. (In re DBSD N. Am., Inc.), — F.3d —-, 2011 WL 350480, (2d Cir. Feb. 7, 2011), the Second Circuit issued a ruling that sends two very important messages to parties involved in chapter 11 restructurings. First, the Second Circuit enforced the absolute priority rule in favor of an unsecured creditor who opposed a debtor’s plan that was premised on a “gifting” strategy, where a secured creditor left value behind for the benefit of the equity holders even though unsecured creditors were not paid in full. Second, and perhaps more importantly, the Second Circuit ruled that a competitor of the debtor that bought a large claim was properly denied the right to vote on the claim because it did so for an improper “ulterior motive.
The Absolute Priority Rule “Trumps” The Strategy Of Gifting Value To A Debtor’s Equity Holders
In DBSD, Sprint Nextel Corporation (“Sprint”) held a general unsecured, unliquidated litigation claim temporarily allowed in the amount of $2 million against debtor DBSD North America, Inc. (“DBSD”). DBSD’s plan provided that the second lien secured creditor class, which was composed of $740 million in convertible senior notes, would receive the bulk of the shares in the reorganized debtor valued at 51% to 73% of their original claims. Unsecured creditors, including Sprint, received shares valued at 4% to 46% of their original claims. DBSD’s old shareholders received shares and warrants in the reorganized debtor pursuant to a “gift” from the second lien secured creditor class.
Sprint objected to the gift to old equity and argued it was an improper end run around the absolute priority rule of 11 U.S.C. § 1129(b)(2)(B). The Bankruptcy Court for the Southern District of New York confirmed the plan over Sprint’s objection and the Federal District Court affirmed on appeal. The Second Circuit, however, held that voluntary gifting to a junior class when an intermediary class does not receive full value on their claims is a violation of the absolute priority rule.
SEC Issues Final “Say-on-Pay” and “Golden Parachute” Rules
On January 25, 2011, the Securities and Exchange Commission released its final “say-on-pay” and related golden parachute rules to implement the provisions of Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. For a summary of the rules, please click here to read the Bulletin published by the Corporate Finance and Securities Group on January 27, 2011.
SEC Issues Proposed Rules for “Conflict Minerals” Disclosure
The Securities and Exchange Commission has issued proposed rules to implement the “conflict minerals” disclosure requirements in Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Section 1502 amended the Securities Exchange Act of 1934 (the “Exchange Act”) by adding Section 13(p). Section 13(p) requires the SEC to promulgate disclosure rules concerning the use of certain minerals that originate in the Democratic Republic of the Congo or its adjoining countries (the “DRC countries”). For more information on the proposed rules, please click here to read the Client Alert published by the Corporate Finance and Securities Client Service Group on January 3, 2011.
When All Appropriate Inquiry Isn’t Enough: Court Highlights the Significance of Other Factors in the Bona Fide Prospective Purchaser Defense
Anyone who has been involved in a real estate transaction relating to commercial or industrial property has likely dealt with conducting “All Appropriate Inquiry” into the site, which generally includes the preparation of a Phase I Environmental Site Assessment and may include Phase II sampling work. All Appropriate Inquiry (“AAI”) is one necessary component of the “bona fide prospective purchaser” (“BFPP”) defense established under the 2002 Brownfields amendments to Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”). The BFPP defense is intended to protect property owners from liability for contamination that clearly occurred prior to their period of ownership. However, conducting AAI is not the only prerequisite to establishing a BFPP defense. The BFPP requirements beyond AAI are highlighted in Ashley II of Charleston, LLC v. PCS Nitrogen, et al., 2010 U.S. Dist. LEXIS 104772 (D.S.C. Sep. 30, 2010), one of the first cases to address in detail the BFPP defense. To learn more about this case, please click here to read the Client Alert published by the Environmental Client Service Group on January 3, 2011.
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IRS Issues Guidance Expanding and Modifying 409A Correction Program and New Reporting Requirements for Stock Transfers under ISOs and ESPPs
The IRS issued Notice 2010-80 (the “Notice”), which made favorable changes to the procedures for voluntary correction of failures to comply with Internal Revenue Code Section 409A (“Section 409A”) originally issued in Notice 2010-6. These changes should make the correction procedures more accessible and less burdensome. For a summary of the changes, please click here to read the Executive Compensation Update published by the Employee Benefits and Executive Compensation Client Service Group on December 7, 2010.
Virginia Federal Court Rules Health Reform “Individual Mandate” Unconstitutional
On December 13, the U.S. District Court for the Eastern District of Virginia ruled that the individual mandate of the Patient Protection Affordable Care Act, as amended (“PPACA”), which requires individuals to purchase health insurance or pay a penalty, was unconstitutional. Virginia v. Sebelius, E.D. Va., No. 3:10-CV-188, memorandum opinion 12/13/10. The 42-page ruling declared that the penalty was beyond Congress’s Commerce Clause powers and could not be rationally construed as a tax. To learn more about this ruling, please click here to read the Client Alert published by the Employee Benefits and Executive Compensation Client Service Group on December 16, 2010.
Criminal Action Against In-House Lawyer Underscores Risks in Dealing with Government Investigations
Lawyers who deal with government investigators and regulators should take note of a recent federal criminal action charging a former in-house lawyer at GlaxoSmithKline for statements she made while representing the company in a government investigation. For more information, please click here to read the Client Alert published by the White Collar Defense & Investgations, Securities Litigation and Enforcement practice group on November 29, 2010.
Qualified Retirement Plans: Year-End Compliance
Although 2010 has been dominated by new healthcare-related laws and regulations requiring significant design changes to group health plans, as discussed in a prior alert, qualified retirement plans are not immune to new requirements that must be addressed by the end of 2010. For more information, please see the Client Alert published b y the Employee Benefits and Executive Compensation Client Service Group on November 30, 2010.
SEC Proposed Whistleblower Rules Attempt to Balance Competing policy Considerations
The Securities and Exchange Commission has now issued proposed rules to implement the whistleblower provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank“). Dodd-Frank amended the Securities Exchange Act of 1934 by adding Section 21F. Section 21F directs the SEC to pay awards to whistleblowers who provide the SEC with information about securities laws violations that lead to successful enforcement actions. Proposed Regulation 21F defines statutory terms, establishes the standards and procedures for rewarding eligible whistleblowers and generally seeks to explain the program. For more information on the proposed rules, please click here to see the Client Alert published by the Corporate Finance and Securities Client Service Group on November 11, 2010.
SEC Proposes “Family Office” Exemption from Definition of Investment Advisers
On October 12, 2010, the U.S. Securities and Exchange Commission (the “SEC”) proposed Rule 202(a)(11)(G)-1 (the “Proposed Rule”) under the Investment Advisers Act of 1940, as amended (the “Advisers Act”) to define family offices for purposes of excluding them from the definition of “investment adviser.” For more information on the Rule, please click here to see the Client Alert published by the Private Client practice group on November 1, 2010.
A recent Ninth Circuit Court of Appeals decision provides several clear messages regarding the dangers of poorly thought out involuntary bankruptcy petitions. In In re Southern California Sunbelt Developers, Inc., 608 F.3d 456 (9th Cir. 2010), the two debtors placed into involuntary bankruptcies won an attorney fee award of $745,000 and a punitive damages award of $130,000 against all 13 petitioning creditors.
Section 303(b) of the Bankruptcy Code provides the general rule that an involuntary chapter 7 or 11 case may be commenced “by three or more entities, each of which is either a holder of a claim . . . that is not contingent as to liability or the subject of a bona fide dispute as to liability or amount, or an indenture trustee representing such a holder, if such noncontingent, undisputed claims aggregate at least $13,475 . . .” more than the value of the underlying collateral (if any). (There are different rules for entities with less than 12 creditors and partnership debtors. See 11 U.S.C. § 303(b)(2), (3).)
In Southern California Sunbelt, the circumstances were somewhat unusual. Two individuals controlled all 13 petitioning creditors. The debtors proved the 13 petitioning creditors had debts which were the subject of a bona fide dispute. Their counsel then litigated whether or not the involuntary filings were “bad faith filings” which would open up the petitioning creditors to an award for actual or punitive damages.