June 19, 2013

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Colorado Supreme Court: LLC Act Does Not Allow LLC’s Creditor to Assert Claim Against Managers of LLC

June 12, 2013 by Leave a Comment

The Colorado Supreme Court issued its opinion in Weinstein v. Colborne Foodbotics LLC on Monday, June 10, 2013.

Limited Liability Company (LLC)—LLC Creditor’s Claims Against Members and Managers—CRS § 7-80-606—Fiduciary Duty of LLC Manager.

The Supreme Court held that, pursuant to CRS § 7-80-606, an LLC’s members are liable for an unlawful distribution to the LLC but not to the LLC’s creditors. The Supreme Court also held that an insolvent LLC’s managers do not owe the LLC’s creditors the same common law fiduciary duty an insolvent corporation’s directors owe the corporation’s creditors. Accordingly, plaintiff, a creditor of an LLC, may not assert a claim for either unlawful distribution against the defendant members or common law breach of fiduciary duty against the defendant managers absent express statutory authority.

Summary and full case available here.

Filed Under: Case Law Tagged With: , , , , ,

Bills Regarding Crimes Against Pregnant Women, UCC Article 9 Security Interests, and Valuations of Real Property Signed

June 11, 2013 by Leave a Comment

On June 5, 2013, Governor Hickenlooper signed 52 bills, the final bills of the 2013 legislative session. Any bills as yet not signed or vetoed by the governor 30 days after the last day of the legislative session, May 8, 2013, will become law.

Although there is not room here to summarize all of the bills signed on June 5, some of them are discussed below.

For a complete list of Governor Hickenlooper’s 2013 legislative decisions, click here.

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Bills Regarding Protection Orders and Mandatory Reporters Signed by Governor Hickenlooper

May 17, 2013 by Leave a Comment

Governor Hickenlooper continues to sign legislation as it crosses his desk. To date, he has signed an impressive 240 pieces of legislation into law. He is expected to sign more bills in the coming days and weeks.

On Tuesday, May 14, 2013, Governor Hickenlooper signed five bills. They are summarized here.

Governor Hickenlooper also signed 12 bills on Wednesday, May 15, and Thursday, May 16, 2013. Five of the bills are summarized here.

It’s not over yet—stay tuned for the latest legislative decisions by Governor Hickenlooper. For a complete list of the bills that have been signed this legislative session, click here.

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After You’ve Found Your Assisting Attorney, Face the Music and Make a Plan

May 16, 2013 by Leave a Comment

JulieDavisAmySymons

By Amy Symons and Julie Davis

I am going to blame it on the natural highlights that are making an appearance at my temples, but for the first time in more than a decade of practice a client asked me, “So what happens if something happens to you?”

I had an answer for him because my co-author and I had previously discussed it over lunch, but it was my wake-up call that we needed to take our conversation to the next level. Fortunately, Barb Cashman made that easy with her CLE presentation “Death of a Solo, Death of a Practice.”  One of us attended her presentation and the other, in exchange for a peek at her materials, offered up a blog on what we did to put our own succession plan into place.

The first thing was to get permission from our clients to allow another attorney to access the client file if we were unable to complete the matter. Each of us added provisions in our engagement letter requesting that the client waive confidentiality if we were unable to complete the matter. The provision or casualty clause also included details about steps that would be taken after death, incapacity, or our inability to complete the mater. Although we noticed that some of the engagement letter provision examples that we reviewed didn’t provide contact information of the assisting attorney, we figured it was a comfort to our clients and provided the name, telephone number, and email address of the other attorney.

We met for coffee to discuss the ins and outs of the other’s practice.  Both of us are cloud-based – one uses Google Docs and the other Clio and Dropbox – making our offices accessible with a password. We discussed how to access that password and how to determine which client matters are open and which are closed. We also talked about general operations, such as the fact that one of us is paper-based while a client’s matter is open, and executed documents are scanned into the system before they are mailed to the client.

Clio is a cloud-based practice management system that allows the user to log client matters and report the status of each, including when a matter is completed.  It also includes COLTAF and Operating Account ledgers, making it easy to determine whose money is in the trust account.  Because the COLTAF funds are still the client’s money, not knowing to whom they belong is another ethical violation waiting to rear its head.

Being able to slip into the others’ shoes in a password-based world is easy enough, but we needed to have documentation in place for financial institutions. A trip to the bank ensured that our Limited Power of Attorney was effective and that the safe deposit box could be accessed. One of us banks at a local, small bank and was asked by a teller if the COLTAF should be POD.  It was worth a conversation with her as to why that should never be the case!

We each are drafting policy manuals that will offer a compass to the other.  These include:

  • a copy of the Limited Power of Attorney;
  • a copy of our will and contact information for our Personal Representative;
  • passwords to our computers, document retention systems, and online bank accounts;
  • instructions to access our calendaring system;
  • bank location and contact information, account numbers and where to access COLTAF balances;
  • safe deposit box or office-safe access information;
  • insurance information, including malpractice carrier and when we renew, life insurance policy numbers, providers, and amounts;
  • disability insurance numbers and providers;
  • health insurance providers, amount, and how paid;
  • an explanation of how clients pay us and/or where to find that information in each client’s engagement letter;
  • financial information such as annual and monthly budgets and operating expenses;
  • contact information for accountants and bookkeepers or information about Quick Books and Intuit or other accounting systems;  contact information for employees;
  • employees’ salaries and employment arrangement or contract;
  • general instructions about client files such as where to find engagement letters (including the casualty clause or relevant succession plan provision) and billing information;
  • information about closed client files and how to access scanned documents after the paper file has been destroyed;
  • the procedure the succession attorney is to follow when contacting clients and how to handle particular matters;
  • and the procedure the succession attorney is to follow regarding death notices to the Bar and others.

There is nothing that illustrates the analogy of the shoemaker whose children have holes in their shoes as much as two estate planning attorneys who admit to each other that they have not drafted their own estate plans.  The Limited Power of Attorney was drafted after we had coffee and we are committed to completing wills in the near future.

It is an interesting play in psychology to see yourself in your client’s shoes.  One of us knows that she needs to call her insurance agent and increase her life insurance and acquire disability insurance but there is a hesitancy there – the same hesitancy that we see clients have about planning for their own demise. It isn’t so much that the fear of death is bothersome, it is the rationalization that there is plenty of time to do this.  Most lawyers make a living based on planning for the unknown happening at any time.  This blog post has prompted inquires of other solos and it is shocking how many of us do not plan for our own practice as we would for a client’s.

Follow this series and see previous articles about solo attorney succession planning here.

Amy Symons is an estate planning and estate administration attorney who has an office in Denver and Colorado Springs.  Three years ago she started her own practice after working in larger firms.  She is the incoming treasurer for the Colorado Bar Association Solo-Small Firm Section Council.

Julie Davis is an Elder Law and Estate Planning Attorney who started her own firm in 2009. Julie is an accredited attorney with the Veterans Administration and is a member of NAELA.

Amy and Julie are contributors to the SOLOinCOLO blog, where this post originally appeared.

The opinions and views expressed by Featured Bloggers on CBA-CLE Legal Connection do not necessarily represent the opinions and views of the Colorado Bar Association, the Denver Bar Association, or CBA-CLE, and should not be construed as such.

Filed Under: Practice Management Tagged With: , , , , ,

Tenth Circuit: Judgment Against Individual for Participation in Telemarketing Scheme Affirmed

May 9, 2013 by Leave a Comment

The Tenth Circuit published its opinion in Federal Trade Commission v. Chapman on Tuesday, May 7, 2013.

This consumer protection action was brought by the Federal Trade Commission and four states against several individual and corporate defendants who marketed and sold to consumers grant-related goods and services with false representations that the consumers were guaranteed or likely to receive grants. After the claims against the other defendants were settled or adjudicated, the district court held a bench trial on the remaining claim against Meggie Chapman. Following the trial, the court found that Ms. Chapman violated the Telemarketing Sales Rule by providing substantial assistance to the telemarketing defendants while knowing or consciously avoiding knowing of their deceptive telemarketing practices. The court ordered a permanent injunction and $1,682,950 in monetary damages against Ms. Chapman. The court also denied Ms. Chapman’s post-judgment motion to alter or amend the judgment or, alternatively, for remittitur. Ms. Chapman appealed.

It is undisputed the Kansas defendants violated § 310.3(a)(2) by misrepresenting material aspects of the grant-related goods or services they sold. Thus, the only disputed issues are (a) whether Ms. Chapman provided substantial assistance to the Kansas defendants and (b) whether Ms. Chapman knew or consciously avoided knowing of their misrepresentations.

Regardless of the standard of review, the Tenth Circuit concluded Ms. Chapman played an integral part in the Kansas defendants’ telemarketing scheme. The Court found no error in the district court’s determination that Ms. Chapman provided substantial assistance to the Kansas defendants. Additionally, the Tenth Circuit concluded that district court’s finding that Ms. Chapman knew or consciously avoided knowing of the Kansas defendants’ misrepresentations was supported by the record and was not clearly erroneous.

Ms. Chapman argued in the alternative that the district court erred in denying her post-judgment motion to alter or amend the judgment or for remittitur. She argued that if she knew or consciously avoided knowing of the Kansas defendants’ misrepresentations, this did not occur until some time during the course of their business relationship, and thus the damages award should not have included the entire amount she billed to the Kansas defendants from the start of their relationship.

In denying the post-judgment motion, the district court first noted that a motion to alter or amend judgment under Rule 59(e) may only be granted under certain limited circumstances, such as when there is a need to correct clear error or prevent manifest injustice. Similarly, remittitur is only appropriate if the award is so excessive that it shocks the judicial conscience and raises an irresistible inference that passion, prejudice, corruption, or other improper cause invaded the trial. The Tenth Circuit was not persuaded the district court abused its discretion by denying Ms. Chapman’s postjudgment motion to reduce the amount of damages. Accordingly, under this deferential standard of review, the Court AFFIRMED the district court’s denial of post-judgment relief.

Filed Under: Case Law Tagged With: , , , ,

HB 13-1324: Adding Two Members of the General Assembly to the State Internet Portal Authority Board of Directors

May 8, 2013 by Leave a Comment

On April 29, 2013, Rep. Carole Murray and Sen. Jeanne Nicholson introduced HB 13-1324 - Concerning the Addition of Members of the General Assembly to the Board of Directors of the Statewide Internet Portal Authority. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

The bill enlarges the board of directors of the statewide Internet portal authority from 13 to 15 members by adding a member who is appointed by the minority leader in the Senate and a member who is appointed by the minority leader in the House of Representatives. The bill also specifies when the appointments are to be made and when the terms of the new board members begin and end.

The bill was introduced in the House on April 29 and passed out of the Business, Labor, Economic, & Workforce Development Committee on May 2. The House approved the bill on 2nd Reading May 2 and 3rd Reading on May 3. The bill was then introduced in the Senate on May 3 and passed out of the Judiciary Committee and is now on the 2nd Reading Consent calendar in the Senate.

Since this summary, the bill passed Second Reading in the Senate, unamended, and also passed Third Reading in the Senate.

Filed Under: Legislation Tagged With: , , ,

e-Legislative Report, 5/6/13

May 7, 2013 by Leave a Comment

CBA Director of Legislative Relations Michael Valdez issued his weekly e-Legislative Report on May 6, 2013. In this edition, he gives a day-by-day report of what happened at the legislature during the week of April 29. He also summarizes a few more late bills of interest, and notes that the CBA Legislative Policy Committee did not meet on May 3.

At the Capitol

Boxscores

Monday, April 29

  • The House adopted the conference committee report for HB 13-1058. Concerning guidelines for the determination of spousal maintenance (advisory guideline formula to determine spousal maintenance). The adoption of the conference committee report signals the end of the legislative journey for the bill; the bill now heads to Gov. John Hickenlooper for action. The final Senate version of the bill is what the Governor will see when the bill gets to his desk.
  • The House adopted the conference committee report for HB 13-1204. Concerning the “Uniform Premarital and Marital Agreements Act.” The conference committee report made a conforming amendment to the act to address changes made in SB 13-11. Civil Unions.
  • The House adopted the conference committee report for HB 13-1200. Concerning the “Uniform Deployed Parents Custody and Visitation Act.” The conference committee report adopted several important amendments suggested by the Family Law Section.
  • The House adopted HB 13-1317. Concerning the recommendations made in the public process for the purpose of implementing retail marijuana legalized by section 16 of article XVIII of the Colorado constitution, and in connection therewith, making an appropriation on 3rd Reading by a vote of 35 yes, 29, no, and 1 excused.
  • The Senate approved 13-1246. Concerning modifications in connection with current property tax exemptions for nonprofit organizations on 3rd and final reading by a vote of 35–0.
  • The Senate approved 13-255. Concerning child fatality review teams, and, in connection therewith, increasing the capacity and resources, clarifying the responsibilities and processes of state and local child fatality review teams in the departments of public health and environment and human services, and making an appropriation on a 22–13 vote.

Tuesday, April 30

  • The Senate adopted HB 1163. Concerning payment for medical costs associated with obtaining a medical forensic examination for victims of sexual offenses, and, in connection therewith, making an appropriation on 3rd Reading on a 35–0 vote.
  • The Senate approved HB 12-1276. Concerning limitations on the actions a unit owners’ association under the “Colorado Common Interest Ownership Act” may take against a unit owner with respect to the collection of debt owed to the unit owners’ association by a 35–0 vote.
  • The Senate passed 13-1142. Concerning reforms to the “Urban and Rural Enterprise Zone Act,” and, in connection therewith, making an appropriation on a vote of 21–14.
  • The Senate adopted HB 13-1156. Concerning creation of an adult diversion program, and, in connection therewith, making an appropriation on a 35–0 vote.
  • The Senate gave final approval to HB 13-1138. Concerning benefit corporations, and, in connection therewith, making an appropriation on a party line vote 20–15. The bill was sent back to the House for consideration of the Senate amendments.
  • The Senate adopted HB 13-1134. Concerning unit owners’ associations under the “Colorado Common Interest Ownership Act” on a party line vote of 20–15.
  • The Senate unanimously approved SB 13-271. Concerning funding for the address confidentiality program on 3rd and final reading.
  • With a smidgen of bipartisan support, the Senate gave final approval of HB 13-1266. Concerning the alignment of state health insurance laws with the requirements of the federal “Patient Protection and Affordable Care Act” on a vote of 21–14.
  • The Senate adopted on 3rd and final Reading HB 13-1082. Concerning juvenile delinquency records on a 35–0 vote.
  • The House gave final approval of SB 13-252. Concerning measures to increase Colorado’s renewable energy standard so as to encourage the deployment of methane capture technologies on a vote of 37 yes, 27 no, and 1 excused.
  • The House adopted HB 13-1318. Concerning the recommendations made in the public process for the purpose of implementing certain state taxes on retail marijuana legalized by section 16 of article XVIII of the Colorado constitution, and, in connection therewith, making an appropriation on a vote of 37 yes, 27 no, and 1 excused.
  • The House approved HB 13-1306. Concerning creating a task force to consider persons who pose a threat of harm to themselves or others on 3rd and final reading; the vote: 35 yes, 29 no, and 1 excused.

Wednesday, May 1

  • The House adopted—34 yes, 28 no, and one excused—HB 13-1316. Concerning the Colorado oil and gas conservation commission’s adoption of uniform statewide groundwater sampling rules, and, in connection therewith, making an appropriation.
  • The House approved SB 13-47. Concerning protections for youth in foster care against identity theft, and, in connection therewith, making an appropriation on a vote of 63 yes, 1 no, and one excused.
  • The House approved 13-246. Concerning creation of a task force to study discovery costs in criminal case by a vote of 64 yes, 1 no, and 1 excused.
  • The House adopted HB 13-111. Concerning abuse of at-risk adults, and, in connection therewith, making an appropriation by a vote of 56 yes, 8 no, and 1 absent.
  • The House voted to concur with the amendments added by the Senate to HB 13-1138. Concerning benefit corporations, and, in connection therewith, making an appropriation. The Senate amendments to the bill represent a significant compromise on the bill. The motion to concur with Senate amendments was passed on a vote of 37 yes, 27 no, and 1 excused.
  • The House voted to concur with the amendments added by the Senate to HB 13-1276. Concerning limitations on the actions a unit owners’ association under the “Colorado Common Interest Ownership Act” may take against a unit owner with respect to the collection of debt owed to the unit owners’ association; the vote: 47 yes, 17 no, and 1 excused.
  • The House voted to concur with the amendments added by the Senate to HB 13-1156. Concerning creation of an adult diversion program, and, in connection therewith, making an appropriation on a vote of 61 yes, 3 no, and 1 excused.
  • The Senate gave its final approval to 13-250. Concerning changes to sentencing of persons convicted of drug crimes, and, in connection therewith, making an appropriation. The final vote was 34–1.
  • The Senate gave final approval to SB 13-244. Concerning a task force to study substance abuse. The final vote was 34–1.

Thursday, May 2

  • The Senate adopted HB 13-1230. Concerning compensation for persons who are exonerated of their crimes after a period of incarceration, and, in connection therewith, making an appropriation on a vote 32 yes, 0 no, and 3 excused.
  • The Senate gave final approval to HB 13-1240. Concerning penalties for persistent drunk drivers, and, in connection therewith, making an appropriation on a vote 32 yes, 0 no, and 3 excused.
  • Adopted on a vote of 33 yes, 1, no, and 1 excused, the Senate gave final support for HB 13-1160. Concerning criminal theft, and, in connection therewith, reducing an appropriation.
  • The Senate gave final approval of SB 13-283. Concerning implementation of amendment 64, and, in connection therewith, making and reducing an appropriation. The vote was 32 yes, 2, no, and 1 excused.
  • The Senate voted to concur with the House amendments to SB 13-111. Concerning abuse of at-risk adults, and, in connection therewith, making an appropriation (Mandatory reporting of elder abuse). The vote to concur was 24 yes, 10 no, and 1 excused.
  • The Senate voted to concur with the House amendments to SB 13-147. Concerning protections for youth in foster care against identity theft, and, in connection therewith, making an appropriation. The vote to concur was 34 yes, 0 no, and 1 excused.

Friday, May 3

  • The House gave final approval to SB 13-262. Concerning the exemption of representative services of enrolled agents from the definition of debt management services. The vote was unanimous—65-0.
  • On 3rd and final reading, the House adopted HB 13-1323. Concerning requiring the department of corrections to obtain clarification if a court-issued mittimus omits instruction concerning whether a defendant’s sentences are to be served consecutively or concurrently on a vote of 65–0.
  • The Senate gave final approval to HB 13-1284, Concerning documents that can be filed regarding security interests under the “Uniform Commercial Code.”

The full e-Legislative Report, including summaries of late bills of interest, can be found here.

Filed Under: Legislation Tagged With: , , , , , , , , , , , ,

SB 13-283: Developing Regulations for the Implementation of Amendment 64

May 3, 2013 by Leave a Comment

On Monday, April 22, 2013, Sen. Cheri Jahn introduced SB 13-283 – Concerning Implementation of Amendment 64. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

The bill permits a local government to prohibit the use of a compressed flammable gas as a solvent in residential marijuana cultivation.

The bill allows retail marijuana businesses to participate in the medical marijuana responsible vendor program.

The bill declares that it is public policy of the state that a contract related to a marijuana business is not void.

The bill creates the crime of illegal possession of retail marijuana by an underage person to mirror the same crime for alcohol.

The bill amends the offenses related to marijuana and drug paraphernalia to conform to the legal structure of amendment 64 and creates crimes for the gaps not covered by current law based the legal quantity and age limit for marijuana.

The bill authorizes the governor to designate the appropriate state agency to:

  • Create a list of banned substances in marijuana cultivation;
  • Work with a private organization to develop good cultivation and handling practices;
  • Work with a private organization to develop good laboratory practices;
  • Establish an educational oversight committee for marijuana issues;

The bill requires peace officer training to include advanced roadside impairment driving enforcement training.

The bill requires the division of criminal justice in the department of public safety to undertake or contract for a scientific study of law enforcement activities related to retail marijuana implementation.

The bill requires the department of public health and environment to create a marijuana destruction program for marijuana that cannot be legally sold by licensed businesses.

The department of public health and environment must monitor the emerging science and medical information regarding marijuana through a panel of health care experts. The panel must report its findings every two years.

Current law prohibits the use of all tobacco products on school property. The bill adds lawful retail marijuana products to the prohibition.

The bill adds marijuana to the Colorado clean indoor air act.

The bill allows the license of a child care center, children’s resident camp, cradle house, day treatment center, family child care home, foster care home, guest child care facility, homeless youth shelter, medical foster care, neighborhood youth organization, public services short-term child care facility, residential child care facility, secure residential treatment center, and specialized group facilities to be denied, suspended, or revoked if retail marijuana is consumed or cultivated onsite.

The bill prohibits the cultivation, use, or consumption of marijuana at a community residential home or regional center.

Federal law prohibits deducting certain business expenses related to the sale of marijuana to calculate the federal tax owed. The bill would permit those deductions to be used to calculate the state tax owed.

The bill creates an open container offense for marijuana to mirror the open container offense for alcohol.

On April 22, the bill was introduced and assigned to the Business, Labor, & Technology Committee; the committee amended the bill and referred it to the Appropriations Committee on April 24. The bill is on the Appropriations Committee schedule for Monday, April 29 at 7:30 a.m.

Since this summary, the bill was passed with amendments on Second Reading in the Senate.

Filed Under: Legislation Tagged With: , , , , , , ,

Funding a Small Business with Retirement Funds? Think Twice

May 2, 2013 by Leave a Comment

AlexWenzelBy Alexander Wenzel

If you have listened to AM radio in the last three years, you may have heard advertisements for arrangements by which small business owners could use tax-deferred funds to inject some capital into their small business from their retirement funds. The IRS refers to these arrangements as Rollovers as Business Start-Ups (or “ROBS”), although the scheme is not limited to start-ups.

Structure of ROBS

One may be able to understand how the IRS feels about these arrangements by the acronym it has chosen for them. The ROBS arrangement is a fairly simple tax work-around that takes funds from an existing tax-deferred retirement account, rolls-over those funds to a new tax-deferred retirement account (the “ROBS Plan”) that has but one client (the business owner) and one investment (the small company). The ROBS Plan would acquire shares of stock in the company as an “investment”by making a nice tax-deferred injection of capital into the company. While this arrangement may be acceptable to the IRS in a narrow set of circumstances, there are some dangers to this type of funding.

Items of Concern

The IRS is most concerned with two aspects of these arrangements: (i) violations of nondiscrimination requirements of retirement plans; and (ii) faulty valuations of the small business stock traded for the capital injection.

Non-discrimination Issue: The Internal Revenue Code prohibits contributions or benefits provided under a qualified retirement plan from discriminating in favor of highly compensated employees—those who either own at least 5 percent of the company, or receive more than $80,000 in salary. The Treasury Regulations also provide that the benefits, rights, and features of a qualified retirement plan (including, in this case, the ROBS Plan) cannot be discriminatory in effect. That is, employees must be able to invest in the ROBS Plan, not just the business owner.

As is often the case, employees may not even know of the existence of a ROBS Plan, much less be able to participate in it. If either the business owner or the ROBS Plan holds more than 5 percent of the company’s equity and employees are not permitted to participate in the ROBS Plan, the ROBS Plan is in danger of violating the non-discrimination requirement.

Valuation Issue: The IRS is also concerned that the valuation of the stock issued to the ROBS Plan may be inflated. The business owner may not want to lose control of the business ownership to the ROBS Plan and may seek to sell a small percentage of the shares to the ROBS Plan at a high price not supportable by the company’s operations or financial condition. Any such transaction should be supported by a well-documented appraisal. Additionally, if the company’s only asset is the capital injected, the investment may be characterized as a “prohibited transaction” which may result in a 15 percent tax on the transaction, or even 100 percent tax if not promptly corrected.

Dangers abound with ROBS Plans, and it may be wise to pursue other avenues of funding a small business before using those hard-earned retirement funds.

Alex Wenzel is an associate attorney at Burns, Figa & Will, P.C. His practice focuses on real estate transactions and litigation, securities, and corporate formation and transactional work. Prior to becoming an attorney, Mr. Wenzel was a Presidential Writer for the White House in the Office of Special Letters and Responses. A native Ohioan, he earned his B.A. at the University of Cincinnati and his J.D. at the University of Denver.

The opinions and views expressed by Featured Bloggers on CBA-CLE Legal Connection do not necessarily represent the opinions and views of the Colorado Bar Association, the Denver Bar Association, or CBA-CLE, and should not be construed as such.

Filed Under: Practice Management Tagged With: , , , , ,

SEC Issues Report on Social Media Disclosures

April 26, 2013 by Leave a Comment

TrevorCrow

By Trevor A. Crow

The Securities and Exchange Commission (SEC) recently issued a report of its investigation relating to a Facebook post by Reed Hastings, the CEO of Netflix, which stated Netflix’s monthly online viewing had exceeded 1 billion hours. The SEC’s investigation was to determine whether Hastings or the Company violated Regulation FD under the Securities Exchange Act through the posting of this information.

In general, Regulation FD prohibits public companies, or persons acting on their behalf, from selectively disclosing material, nonpublic information to certain securities professionals, or shareholders, where it is reasonably foreseeable that they will trade on that information, before it is made available to the general public. Here, the SEC decided not to initiate an enforcement action against Netflix or Hastings. However, the report also offers guidance to public companies on the application of Regulation FD to disclosures made through social media.

The report explains that, under certain circumstances, public companies may disseminate material, nonpublic information through social media without violating Regulation FD if investors previously have been notified that specific social media will be used to spread such information. The report states that the framework set forth in theSEC’s August 2008 Guidance on the Use of Company Websites should be used when analyzing communications made through social media. Specifically, “the central focus of this inquiry is whether the company has made investors, the market, and the media aware of the channels of distribution it expects to use, so these parties know where to look for disclosures of material information about the company or what they need to do to be in a position to receive this information.”

The report also explained that without prior notice to investors, it is unlikely that a corporate officer’s personal social media site used to disseminate corporate information would qualify as a method “reasonably designed to provide broad, non-exclusionary distribution of the information to the public” as required under Regulation FD. In the Netflix inquiry, Hastings’ Facebook page had never been previously used to announce company metrics, yet the SEC still chose not to initiate an enforcement action against Netflix or Hastings.

Bottom Line: Public companies should have social media policies in place for their directors and executive officers to educate them about Regulation FD. Before a representative of the company posts any material and nonpublic information on a social media platform, the company should take steps to ensure that investors, the market, and the media are aware of this channel of distribution.

Trevor A. Crow is an associate in Dufford & Brown’s corporate transactions group. He focuses on public company securities compliance, M&A, entity formation, and startup company financing. He has counseled clients on a variety of business issues including entity selection, formation, finance, acquisitions, and numerous operating transactions. Trevor’s LLM in taxation makes him uniquely qualified to handle complex issues regarding business transactions and tax planning.

Trevor received his J.D. and LL.M. in Taxation from the University of Denver’s Sturm College of Law.  He is a member of the American, Colorado, and Denver bar associations; an executive member of the Colorado Bar Association Tax Section; he belongs to the Denver Metro Chamber Impact Denver Class of 2012; and he is a member of the Colorado Association of Business Intermediaries (CABI). He writes for the CBA Business Law Section newsletter, where this article originally appeared.

The opinions and views expressed by Featured Bloggers on CBA-CLE Legal Connection do not necessarily represent the opinions and views of the Colorado Bar Association, the Denver Bar Association, or CBA-CLE, and should not be construed as such.

Filed Under: Practice Management Tagged With: , , , , , ,

Governor Hickenlooper Signs Bills Regarding Water Law, Medical Marijuana, Unemployment Insurance, and More

April 19, 2013 by Leave a Comment

Governor Hickenlooper continues to sign bills as they reach his desk. To date, he has signed 137 bills into law.

On April 4, 2013, the governor signed 19 bills. Five of them are summarized here.

  • SB 13-074 - Concerning the Resolution of Ambiguities in Old Water Right Decrees Regarding the Place of Use of Irrigation Water, by Sen. Mary Hodge and Rep. Jerry Sonnenberg. The bill creates a mechanism to determine the maximum number of acres that may be irrigated under a pre-1937 determination of water rights.
  • HB 13-1054 - Concerning Lessening the Reduction of Unemployment Insurance Benefits Required when a Claimant Withdraws Amounts from a Retirement Plan as a Result of Unemployment, by Reps. Jovan Melton and Tony Exum and Sen. Lois Tochtrop. The bill changes the way unemployment benefits are affected by the withdrawal of funds from employer-sponsored retirement accounts.
  • HB 13-1061 - Concerning Standards for Responsible Medical Marijuana Vendors, by Rep. Dominick Moreno and Sen. Irene Aguilar. The bill creates the Responsible Medical Marijuana Vendor Server and Seller Designation for licensed medical marijuana businesses and establishes procedures for receiving the designation.
  • HB 13-1124  - Concerning the Reduction of Improper Unemployment Insurance Benefit Payments Through Compliance with the Federal “Trade Adjustment Assistance Extension act of 2011″ and Making an Appropriation, by Reps. Dan Pabon and Amy Stephens and Sen. Cheri Jahn. The bill conforms Colorado unemployment insurance law with federal law.
  • HB 13-1157 - Concerning Adoption of the 2012 “Uniform Commercial Code” Article 4.5 Amendments, by Rep. Frank McNulty and Sen. Angela Giron. The bill clarifies provisions of the Uniform Commercial Code regarding remittance transfers.

The governor signed 12 bills on April 8, 2013. Four of them are summarized here.

  • SB 13-030 - Concerning an Additional Review of Rules Promulgated Pursuant to the “State Administrative Procedure Act” by Committees of Reference of the General Assembly, by Sen. Mark Scheffel and Rep. Dan Nordberg. The bill creates additional notice for the public and the General Assembly for rules adopted as a result of legislation.
  • SB 13-041 - Concerning the Protection of Stored Water and Preserving Supplies for Drought and Long-Term Needs, by Sens. Mary Hodge and Ellen Roberts and Reps. Randy Fischer and Jerry Sonnenberg. The bill, enacted because of the Colorado Supreme Court ruling in Upper Yampa Water Conservatory District v. Wolfe, expands the term “beneficial use” and clarifies rules regarding water storage rights.
  • SB 13-116 - Concerning the Authority of Forensic Psychologists to Conduct Mental Health Evaluations under Article 8 of Title 16, Colorado Revised Statutes, by Sen. Jessie Ulibarri and Rep. Pete Lee. The bill authorizes licenses forensic psychologists to conduct mental health evaluations for criminal defendants if so ordered by the court.
  • HB 13-1202 - Concerning Counseling by Medicaid Providers Relating to Medical Orders for Scope of Treatment, by Reps. Cheri Gerou and Mark Ferrandino and Sen. John Kefalas. The bill allows reimbursement for Medicaid providers who offer counseling regarding medical orders for scope of treatment.

Finally, on April 18, 2013, Governor Hickenlooper signed four bills into law. They are summarized here.

  • HB 13-1060 - Concerning Raising the Maximum Fine that may be Assessed by a Municipal Court, by Rep. Mike McLachlan and Sen. Linda Newell. The bill raises the maximum fine that may be assessed by a municipal court and allows for adjustments for inflation.
  • HB 13-1147 - Concerning Voter Registration Facilitated by State Institutions of Higher Education, by Rep. Jovan Melton and Sen. Linda Newell. The bill requires state institutions of higher education to provide a link to voter registration for students who are registering online for classes, and to provide information about voter registration if the institution does not use online registration.
  • HB 13-1179 - Concerning Deadlines for State Agencies to Submit Documents Related to Appropriations to the Joint Budget Committee, by Rep. Claire Levy and Sen. Pat Steadman. The bill requires state agencies to submit budget requests by certain deadlines.
  • HB 13-1243 - Concerning Factual Findings Included in Parenting Time Orders, by Rep. Dave Young and Sen. Jessie Ulibarri. The bill requires courts to submit specific facts to support endangerment of child in orders that restrict parenting time.

For a complete list of the governor’s 2013 legislative decisions, click here.

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HB 13-1274: Authorizing the State Treasurer to Enter Into Lease-Purchase Agreements on Behalf of State Board of Land Commissioners

April 18, 2013 by Leave a Comment

On March 21, 2013, Rep. Dickey Lee Hullinghorst and Sen. Andy Kerr introduced HB 13-1274 - Concerning the State Board of Land Commissioners’ Investment in Commercial Real Property, and, in Connection Therewith, Granting the State Board of Land Commissioners the Authority to Enter into Lease-Purchase Agreements. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

The bill makes amendments to an existing definition and creates others in order to clarify what the lands are to which the article refers.

The bill ensures that any lease payments and rental payments for land, including by definition any lease payments from commercial real property, would be distributed in the same way that all revenues generated from state trust lands are currently distributed.

The bill grants the state board of land commissioners the authority to instruct the state treasurer to enter into lease-purchase agreements on behalf of the state school lands for the acquisition, construction, renovation, and improvement of commercial real property that the board will then lease as office space for state agencies or other tenants. The bill specifies that it is the general assembly’s intent that annual lease payments be paid from commercial real property revenues, but sets up secondary and tertiary options in the event of a shortfall. Prior to instructing the state treasurer to enter into such lease-purchase agreements, the bill requires the state board of land commissioners to present a financial plan related to such a lease-purchase agreement to the department of personnel and the office of state planning and budgeting. No later than 60 days after presentation of the financial plan, the capital development committee is required to review the financial plan and may make recommendations. The bill also:

  • Limits the total amount of annual lease payments payable by the state in any fiscal year;
  • Specifies additional procedural and legal requirements relating to the lease-purchase agreements; and
  • Creates the state board of land commissioners’ lease-purchase fund.

The bill makes clear that any interest earned on damage deposits that the state board of land commissioners receives from a lessee related to leases on state lands for nonagricultural purposes may be retained by the state board of land commissioners.

The bill creates the commercial real property operating fund to properly establish how to account for lease revenues generated from all commercial real property investments held by the state board of land commissioners on behalf of any of the state trust funds.

The bill makes conforming amendments to statutory sections related to contracting for services and procurement for the commercial real property operating fund that are consistent with a similar state board of land commissioners cash fund.

The bill was introduced on March 21 and is assigned to the Finance Committee; the bill is scheduled for committee review on April 25 “Upon Adjournment.”

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