July 22, 2014

Inherited IRAs in Light of the U.S. Supreme Court’s Decision in Clark v. Rameker

This post originally appeared on Barbara Cashman’s Denver Elder Law blog on June 18, 2014.

CashmanBy Barbara Cashman

Everyone knows what an IRA is – right?  We think IRAs have been around a really long time, but they only came into being in 1975 with ERISA legislation, and Roth IRAs came in 1997. IRAs are classic nonprobate property that someone can pass to others without probate in many circumstances.

Q: What happens if I complete the beneficiary designation form?

A: Your beneficiaries will have much more flexibility and protections (especially on the tax front).

Q: What happens if I don’t bother with the beneficiary form?

A: Well, you won’t be around to find out – right?!  Here’s a link to a Colorado Business Magazine article about the importance of designating a beneficiary to maintain that flexibility.

Some handy IRA vocabulary words:

  • RBD – required beginning date (701/2 years of age), after which you are required to withdraw the
  • RMD – required minimum distribution, an annual distribution.

Here it is important to consider whether the decedent died after his or her RBD.  If she or he was already receiving RMDs, you will want to determine whether the distribution for that final year needs to be paid. Be sure to check with the account custodians to determine if the distribution was made before the date of death.  There are two basic types of IRAs that can be passed along to survivors:

  1. Spousal IRA 
    This is generally the simplest to accomplish and a spouse will want to consider among several choices –  to roll them over into an IRA, start receiving benefits, have them paid out in a lump sum, or disclaim some portion to minimize estate taxes in the spouse’s estate.
  2. Inherited IRA
    There is an important distinction initially regarding whether the beneficiary designation was made out to the beneficiaries or left blank. . .  There is generally much more flexibility when the designations are completed.

So here’s a question . . . . Whether inherited IRAs are generally exempt from creditors depends on where you live! Are these funds still qualified and exempt, or are they just another inherited asset?

In an inherited IRA scenario, a beneficiary (often an adult child) will need to take out the RMD in the parent’s IRA every year and declare that as income. In addition, the IRA cannot be added to by the inheritor. You might be wondering what types of protections are afforded inherited IRAs from the creditors of the inheritor. Well, I can say with all lawyerlike confidence . . .  it depends. Under Colorado law, specifically Colo. Rev. Stat. § 13-54-102(1)(s), there is an exemption from judgment creditors for certain types of retirement accounts and benefits. The definition includes IRAs “as defined under Section 408 of the Code” (this would be 26 U.S.C. § 408(d)(3)(C)(ii)). Under the Bankruptcy Abuse Preventive and Consumer Protection Act of 2005 (BAPCPA), many states opted out of the federal bankruptcy exemptions in favor of state law exemptions. Read more on this topic here from my learned colleague Laurie Hunter.

It is important to consider that there are at least three different layers to the inherited IRA treatment: federal tax law, state law relating to bankruptcy and what creditors can collect, and bankruptcy. Until just a few days ago, when the U.S. Supreme Court ruled on a writ of certiorari on the U.S. Court of Appeals for the Seventh Circuit’s 2013 decision, In re Clark, there was a split among the federal circuit courts of appeal – you can read more about it here.

The Federal Circuit Courts of Appeal Were Split Over the Meaning of the Phrase “Retirement Funds”

Two federal courts of appeal – the Fifth and Seventh Circuits (whose decisions were binding in the regions that they cover – Colorado is part of the Tenth Circuit) had come to opposite conclusions while interpreting the meaning of the same term. In 2013, the Fifth Circuit decided that the phrase “retirement funds” in the bankruptcy exemption statute quoted above means any funds “set apart” in anticipation of “withdrawal from office, active service, or business” and that the statute does not limit “retirement funds” solely to funds of the bankrupt debtor, so long as the funds were originally “set apart” for someone’s retirement. In re Chilton, 674 F.3d 486 (5th Cir. 2012). Once the funds were set apart for retirement, they maintained that same character for bankruptcy exemption purposes. The court thereby permitted the debtor in Chilton to exempt all of a $170,000 IRA inherited from her mother.

In Clark, the Seventh Circuit expressly disagreed with the Fifth Circuit, adding that it “do[es] not think the question is close.” The Seventh Circuit observed that, while inherited IRAs do shelter money from taxes until it is withdrawn, they lack many of the other attributes of an IRA. That court noted in particular that the beneficiary of an inherited IRA is prohibited from rolling those funds over into his or her own IRA and from adding her own funds to the inherited IRA. The beneficiary must take distributions from the inherited IRA within a year of the original owner’s death and complete those payouts over a defined period, often as little as five years, regardless of the beneficiary’s age and employment status. In short, once the original owned died, “the money in the inherited IRA did not represent anyone’s retirement funds.” That court of appeals declined to extend the character of a decedent’s retirement funds into the inheritance context and therefore decedent’s daughter could not then use that money as her own retirement savings, and it became no different from an inherited certificate of deposit or money market account: non-exempt and available to distribute to the daughter’s creditors.  That was the essence of the split in the circuits.

Just a few days ago, the U.S. Supreme Court ruled unanimously in Clark v. Rameker that inherited IRAs are not protected in bankruptcy. Here’s a link to the SCOTUSblog coverage of the decision. The US Supreme Court followed the line of reasoning of the bankruptcy court and the Seventh Circuit, disallowing the attempt by petitioner in bankruptcy court, Hedi Heffron-Clark, to exclude the funds in the IRA from the bankruptcy estate using the “retirement funds” exemption under Section 522 of the Bankruptcy Code, which exempts tax-exempt retirement funds from a bankruptcy estate. Just in case you are an insomniac and want to read the entire decision, rendered June 12, 2014, here it is in pdf format.

I still think that, notwithstanding the U.S. Supreme Court’s ruling, inherited IRAs are  an important legacy for a parent to leave an adult child, and it is important to not underestimate the “emotional” value of the money from a deceased parent’s retirement savings for the use of a child’s retirement. But beware, they won’t be protected from an adult child’s creditors in a bankruptcy proceeding. So please remember that an IRA and an inherited IRA are not really the same animal!

Barbara Cashman is a solo practitioner in Denver, focusing on elder law, estate law, and mediation. She is active in the Trust & Estate and Elder Law sections of the CBA and is the incoming chair of the Solo/Small Firm section. She contributes to the SOLOinCOLO blog and blogs weekly on her law firm blog, where this post originally appeared. She can be contacted at barb@DenverElderLaw.org.

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.

Recent Colorado Cases Broaden Independent Contractor versus Employee Considerations

Mike-Schreiner_WEBBy Michael Schreiner

Two recent Colorado Supreme Court cases, Industrial Claims Appeals Office v. Softrock Geological Services, Inc., 2014 CO 30, No. 12SC501 (May 12, 2014) and its companion Western Logistics, Inc. v. Industrial Claims Office2014 CO 31, No. 12SC911 (May 12, 2014), clarify that the determination of whether an individual is an independent contractor or employee for purposes of unemployment tax liability is based on the “totality of the circumstances” and not the rigid application of the nine-factor test set forth in C.R.S. § 8-70-115(1)(c).

Under the Colorado Employment Security Act (CESA), employers are required to pay unemployment taxes on wages paid to employees but not on payments made to independent contractors. A division of the Industrial Claims Appeal Office (ICAO) routinely audits businesses to determine whether a business is classifying its employees appropriately and collecting and submitting the correct amount of tax. Under CESA, an employer can prove that an individual is an independent contractor by demonstrating that (1) the individual is free from the employer’s control and direction, and (2) the individual is “customarily engaged in an independent trade, occupation, profession or business related to the service performed.” C.R.S. § 8-70-115(1)(b).

Alternatively, under C.R.S. § 8-70-115(1)(c), an employer could submit a written document signed by both the employer and the individual that meets nine conditions. These conditions are that the employer will not do any of the following:

  1. Require the individual to work exclusively for the person for whom services are performed, except that the individual may choose to work exclusively for the said person for a finite period of time specified in the document;
  2. Establish a quality standard for the individual, except that the employer can provide plans and specifications regarding the work but cannot oversee the actual work or instruct the individual as to how the work will be performed;
  3. Pay a salary or hourly rate but rather a fixed or contract rate;
  4. Terminate the work during the contract period unless the individual violates the terms of the contract or fails to produce a result that meets the specifications of the contract;
  5. Provide more than minimal training for the individual;
  6. Provide tools or benefits to the individual, except that the materials and equipment may be supplied;
  7. Dictate the time of performance, except that a completion schedule and a range of mutually agreeable work hours may be established;
  8. Pay the individual personally, except for making checks payable to the trade or business name of the individual; and
  9. Combine the employer’s business operations in any way with the individual’s business, but instead maintains such operations as separate and distinct.

In Softrock, ICAO held that an individual was an employee because he provided services only to the employer during the period in question and therefore he did not have an independent trade or business. The Colorado Court of Appeals reversed, holding that ICAO incorrectly relied on a single factor. Instead, the court of appeals found that ICAO should have determined whether the individual was an employee by considering the nine factors set forth in C.R.S. § 8-70-115(1)(c).

The Colorado Supreme Court agreed with the court of appeals that the there is no single factor test and that the nine factors should be considered. However, the supreme court found that the nine factors required to be set forth in a document are not exclusive, but rather a fact-finder should also consider “the dynamics of the relationship between the employer and the putative employee and should not be limited to only considering nine factors.” According to the court, it would also be appropriate to consider such factors as “whether the putative employee maintained an independent business card, listing, address or telephone; had a financial investment such that there was a risk of suffering a loss on the project; used his or her own equipment on the project; set the price for performing the project; employed others to complete the project; and carried liability insurance.”

The court also held that the fact that the putative employee did not provide services to another does not conclusively establish that the individual is an employee. Rather, the determinative issue is “whether the putative employee chose to work for another in the field, regardless of, among other things, the intent of the parties, the number of weekly hours the putative employee actually worked for the employer, or whether the putative employee even sought other work in the field.”

The decision in Softrock means that the determination of whether an individual is an independent contractor or an employee for purposes of collecting unemployment compensation tax is no longer limited to the application of the nine factors set out in C.R.S. § 8-70-115(1)(c), or that the alternative single factor test factor test is dispositive. Instead, an employer can present additional information beyond the nine factors to establish the relationship. Further, the fact that an individual provides services only to one business does not conclusively establish that the individual is an employee. Rather, it is appropriate to determine the motivation of the individual and the circumstances surrounding the individual’s actions. In sum, a fact-finder will be required to look at the totality of the circumstances surrounding the relationship to determine whether a service provider is an employee or an independent contractor.

Michael Schreiner is a senior litigator at Caplan and Earnest LLC. His practice focuses on employment matters, employment-related litigation, commercial litigation and public education. He previously worked in the Colorado’s attorney general’s office, Colorado State University and the University of Colorado. He may be reached at mschreiner@celaw.com.

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.

Colorado Supreme Court News: Two New Cases to Decide Seven Issues

Stuart-StullerBy Stuart Stuller

The Colorado Supreme Court agreed to review two cases covering seven different issues, six of them raised in one case.

Criminal Sentencing Based on Prior Offenses

The case with one issue, Jarrod Ralph Rutter v. The People of the State of Colorado (No. 13SC523), focuses on Colorado’s habitual criminal sentencing statute under which the sentence of a person convicted of a crime is quadrupled if the person has three prior convictions of a certain class of crimes. Because the multiplier is formulaic, there is a possibility that the resulting sentence could be grossly disproportionate to the underlying criminal conduct, violating the Eighth Amendment’s prohibition against cruel and unusual punishment. As a result, such a sentence is subject to a proportionality review to determine whether it is constitutional.

Jarrod Rutter was convicted on charges relating to the manufacture of methamphetamine. Rutter had three prior convictions for possession and use of controlled substances, exposing him to the habitual criminal sentence enhancement. In the interim, the Colorado General Assembly had reduced possession and use drug crimes to misdemeanors, but if the crimes were felonies at the time of the fourth offense, they still would be counted toward habitual criminal status. With only the manufacture conviction, Rutter would have faced a 24-year sentence. Because of the possession and use offenses, Rutter’s sentence was quadrupled to 96 years.

Rutter argued that while the possession and use convictions could be counted toward the statutory sentence enhancement, the fact that the General Assembly had reduced the possession and use crimes to misdemeanors should be considered in the proportionality inquiry. The court of appeals, in an unpublished opinion by Judge Hawthorne, Judge Taubman concurring, rejected the argument. Judge Graham concurred in part and dissented in part.

School Vouchers

The six-issue case, Taxpayers for Public Education et al. v. Douglas County School District et al, (No. 13SC233), arises out of a statutory and constitutional challenge to a private school voucher program funded by the Douglas County School District under which public school funding is used to pay some students’ tuition at private schools, many of which are religious schools.

The statutory challenges are brought under the Public School Finance Act, which regulates the sourcing and distribution of funding for public education. The initial question is whether citizens have the ability, or standing, to raise such a challenge, an issue that the court held turned on whether the Finance Act gives rise to an implied private right of action.

If the Finance Act challenge is permitted, the next question will be whether the voucher program violates the Act by allowing the school district to include students who are enrolled in private schools in the enrolled student count that the district submits to the state for funding.

The remaining four questions focus on constitutional challenges brought under three different provisions of the Colorado Constitution.

One question extends to all three provisions, that is, whether the voucher program is entitled to a presumption of constitutionality that can be rebutted only by proof “beyond a reasonable doubt.”

The first constitutional challenge is that the voucher program violates the constitutional provision that money from the state public education fund shall remain “inviolate and intact.” The trial court’s Judge Michael Martinez determined that state fund money, which comprises 2 percent of the funding received by the district, was diverted to private schools; therefore, this violated the constitution. The court of appeals, in an opinion by Judge Jones with Judge Graham concurring and Judge Bernard dissenting, relied on the constitutional presumption to assume that the voucher program was funded entirely with the remaining 98 percent of the district’s funding.

The second challenge arises from a provision in Colorado’s Bill of Rights that lacks both the brevity of the federal constitution’s religious clauses and the well-developed case law. The pertinent part of the provision states that no person shall be “required to attend or support any ministry, or place of worship, religious sect or denomination against his consent.” The trial court held that the program violated the Bill of Rights by using taxpayer money to support religious instruction. The court of appeals reversed, holding that the federal constitution forbids state constitutional law from turning on inquiries into the extent to which private schools are religious in character.

The final constitutional challenge is anchored to a provision that prohibits public entities from using public funds to support sectarian purposes using terms that go well beyond the usual constitutional proscription of “shall,” that is, the provision states in pertinent part that no public entity “shall ever make any appropriation, or pay from any public fund . . . anything in aid of any church or sectarian society, or for any sectarian purpose . . . whatsoever.”

Motions to exceed word and page limits are expected.

Stuart Stuller practices appellate, litigation, constitutional, employment discrimination, and education law. He regularly appears before both state and federal appellate courts and has played a substantial role in more than 30 cases that resulted in published decisions. He can be reached at sstuller@celaw.com.

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.

IAALS: Let’s Stop Choosing Law School Like It’s 1999

Alli_Gerkman_bw_2014

This post originally appeared on IAALS Online, the blog for IAALS, the Institute for the Advancement of the American Legal System at the University of Denver, on April 29, 2014.

By Alli Gerkman

I was preparing for a presentation to prospective law students last month when I realized it has been 15 years since I was standing in their shoes, trying to make the right decision about law school. I wanted to tell them about resources they should be looking for—beyond law school rankings—but as I tapped into all the resources I know of, one thing became very clear: we’re still asking prospective law students to make one of the most important decisions of their lives almost the same exact way we were doing it in 1999. And probably 1989, for that matter.

Which is pretty funny (and tragic), if you think about everything else that has happened in the last 15 years. “Google” became a verb. Our smart phones let us talk to anyone at any time—by video. Cars drive themselves. And, more relevant to the concept of choosing law school, all of our decisions have been made easier through individualized recommendations. When I go to the New York Times, it recommends articles based on my usage. My Amazon home screen recommends books based on past purchases. And Spotify introduces me to new music based on what I play. All of these used to be dominated by generic recommendations—newspapers were driven by “front page” articles, booksellers touted bestseller lists, and Billboard charted the top hits in the country. These generic recommendations persist (and provide some value), but they have been richly supplemented by individualized recommendations that drive our choices.

In the world of choosing law schools, we have the generic rankings and recommendations—including US News & World Report, and a number of others that have popped up over the years—and these provide a certain value, but they hardly give the whole picture and they certainly don’t provide prospective students with individualized information about a decision that, in the end, is very personal.

We’re trying to help with that. Last year, Educating Tomorrow’s Lawyers launched Law Jobs: By the Numbers, an employment calculator that allows you to review school employment numbers based on the criteria you care about most. With the American Bar Association’s release of the 2013 employment numbers, we made the tool easier for prospective students to use by adding a Q&A tool that walks you through each factor, explains what it is, and lets you decide whether you want to include it in your final calculations. At the end of the Q&A, you get a personalized list of schools based on your personal selections (here’s one example). Lots of groups will tell you which law schools are best, but only Law Jobs: By the Numbers lets you decide for yourself.

This is just the first step, but we think it’s a step in the right direction. Perhaps US News & World Report rankings won’t go away anytime soon. And perhaps that’s okay, so long as, like other industries, we find ways to supplement the generalized rankings with individualized information that allows prospective students to make choices about where to go to law school that are, in the end, right for them.

Alli Gerkman became the first full-time Director of Educating Tomorrow’s Lawyers, a national initiative to align legal education with the needs of an evolving profession, in May 2013. She joined IAALS in June 2011 as Online Content Manager, developing and managing all IAALS web properties, including Educating Tomorrow’s Lawyers, and became IAALS’ Director of Communications in August 2012. She brings significant professional development experience to the initiative, having spent five years in continuing legal education, first as a program attorney organizing multi-day conferences for a national provider and then as program attorney and manager of online content for Colorado Bar Association CLE. While at CBA-CLE, she developed an online legal resource that was the recipient of the Association of Continuing Legal Education’s 2011 Award of Professional Excellence for use of technology in education. She has written and presented nationally to continuing legal education providers, bar executives, and lawyers. Prior to her work in continuing legal education, she was in private practice.

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.

Law Day 2014: American Democracy and the Rule of Law — Why Every Vote Matters

ChrisBryanIn honor of Law Day, this article will be circulated to all local bar leaders. We encourage you to distribute it to your local media and any other interested parties as well.

By Christopher Bryan

Colorado, like the rest of the United States, celebrates Law Day on May 1. The American Bar Association has designated today as Law Day to draw attention to facets of our justice system and constitutional form of government. The 2014 theme is “American Democracy and the Rule of Law: Why Every Vote Matters.”

Here in Aspen and the Roaring Fork Valley, and in western Colorado generally, we know first-hand the importance of every single vote. Small towns—whether in Colorado’s resort communities or in more rural areas—have had numerous elections decided by a few votes or even a single vote. We know that voter turnout matters not only to determine who our elected leaders will be but also because a highly engaged citizenry that votes and participates in representative democracy means stronger communities, more robust ideas, and, ultimately, a better future for everyone.

Protecting citizens’ right to vote and ensuring eligible voters’ universal access to the ballot are among the most important tasks of our legal system, and they are tasks that many people in our community are involved with—from city staff, county clerks, and elected officials, to the election commissioners, poll watchers, and election judges who volunteer their time to ensure proper elections. Watchdog organizations, lawyers’ committees, and civil liberties groups are also important in ensuring legal access to the ballot for everyone, including minorities and under-served populations, and for the orderly administration of processing elections. And, of course, everything depends on voters being well-informed about candidates and issues they vote on, and going to the polls or mailing in their filled-out ballots on time.

So that “every vote matters,” we must be vigilant in ensuring that the “rule of law” remains intact. In Aspen, in Colorado, and throughout the United States, the “rule of law” depends on an intelligent, independent judiciary that safeguards the rights of everyone and applies the law equally. Every schoolchild knows that the judicial branch is a co-equal branch of government in our three-part system of checks and balances. But Law Day is a particularly appropriate day to recognize the difficult and important role that judges serve in our society.

The federal district, bankruptcy, and appellate judges and magistrates who serve Colorado are an impressive bunch: smart, even-tempered, scrupulous, respectful of the truth, and fair to all sides. Under Article III of the Constitution, federal judges appointed to district court and appellate court judgeships are nominated by the President and confirmed by the Senate; they enjoy lifetime appointments, ended only by impeachment, resignation, or death. Bankruptcy court judges and magistrates are appointed for time-determined terms. Unlike many federal districts throughout the country, Colorado is lucky to have a highly functional federal judiciary with no vacant judgeships, which slow down the administration of justice for everyone.

Our state court judges deserve special mention, for they are the ones who most people in Colorado encounter when they are summoned to jury duty, appear at a hearing to testify, or attend trial as a party. The county, district, and appellate state court judges in Colorado work incredibly hard, day in and day out, with dedicated but over-stretched support staff members, limited resources, and ever-expanding civil and criminal dockets. Our state court judges are the ones who decide every legal matter brought in state court: probate, family law and divorce cases, drunk driving, domestic abuse, sexual assault, violent crimes, theft, fraud, property fights, municipal and water matters, business disputes, and civil litigation, among many others. By definition, our state court judges must be highly knowledgeable in all areas of the law; be proficient in the rules of evidence and procedure; be able to discern untruthful testimony, pick apart attorneys’ arguments; make litigants, jurors, and lay witnesses feel at ease; and maintain decorum in a sometimes seemingly chaotic courtroom.

In Colorado, we have an appointment/retention system for placing judges. A judicial nominating commission (consisting of several lawyers and even more non-lawyers) from each judicial district interviews and vets applicants for district court judgeships. The commission then nominates three finalists to the governor, who conducts his own review process. The governor appoints a judge to a provisional two-year term. Thereafter, the judge stands for retention by the voters for an additional six-year term. County court judges stand for retention every four years. Judges standing for retention are thoroughly reviewed and scrutinized by a local judicial performance commission, whose members vote for or against retention. This process avoids lifetime appointments and allows voters to remove ill-behaving or under-performing judges but does not subject our judges to the indignities of judicial elections and ensures steadiness in the judiciary by avoiding high turnover.

Some states elect judges, which politicizes the judiciary. In judicial-election states, candidates for judgeships have to “run” against one another, raise money from lawyers and special interest groups, and serve under the common impression that their rulings reward their benefactors. Other states impose strict term limits on judges, robbing their citizens of experienced judges who often are at their very best toward the end of their judicial career.

In the Ninth Judicial District, encompassing Pitkin, Garfield, and Rio Blanco counties, we are lucky to have exemplary judges. Our county court judges are perhaps the most visible, as they process a high number of misdemeanor criminal cases each year and hear hundreds of small claims and county court civil cases. Our five district court judges—Chief Judge Boyd, Judge Petre, Judge Lynch, Judge Nichols, and Judge Neiley—are all popular, diligent, thoughtful judges with sharp intellects and commensurate work ethics. They have been faced with one of the busiest dockets in Colorado, and the counties they represent are among the fastest growing in population. Their jobs are among the most difficult anywhere, and they have earned the right to be called “Your Honor.”

On this Law Day, take a moment to be thankful that we live in a nation where “every vote matters,” where the “rule of law” governs. Be glad you live in a state where judges serve the public interest. Be proud that you live in a community with judges who treat everyone with dignity, respect, fairness, and equality.

Chris Bryan is an Aspen attorney and the president of the Pitkin County Bar Association. 

Colorado Supreme Court News: Pretrial Discovery Process Under Review

Stuart-StullerBy Stuart Stuller

On April 7, 2014, the Colorado Supreme Court agreed to review a case that will be watched closely by the legal community. The issue before the court does not concern how cases are to be decided, nor how cases will be tried, but the authority of a trial court to control the discovery process that precedes trial.

The case, Antero Resources Corp., et al v. Strudley, case no. 13SC576, will address whether the Colorado Rules of Civil Procedure permit trial courts to issue so-called Lone Pine orders that are sometimes used in large and complex personal injury cases often involving environmental contamination where there is some doubt that the plaintiffs can prove contamination and causation.

The case involves claims by a family alleging that nearby natural gas operations contaminated their well water, causing them medical harm. Prior to full-blown discovery, the phase of litigation in which parties demand records, conduct depositions and inspections, and otherwise gather information, the trial court required the family to submit evidence showing that their well was contaminated by pollutants from the defendants’ operations, that scientific research links the alleged contaminants to the maladies suffered by the family, and that the contaminants did cause such harm to the family.

After the family responded, the defendants argued that the materials submitted by the family did not meet the threshold showing required by the court’s order. The court agreed and dismissed the case. The Colorado Court of Appeals reversed, holding that the trial court’s order was inconsistent with the Colorado Rules of Civil Procedure.

Questions related to pretrial discovery are enormously significant within the legal community because the cost of conducting discovery can be substantial. Defendants, such as the companies here, contend that the prospect of large discovery costs is often used as leverage to settle cases that are not meritorious. Conversely, plaintiffs and the Colorado Court of Appeals contend that the ordinary rules of civil procedure are sufficient to prevent such scenarios. Trial courts, charged with managing cases in a manner that protects the integrity of the judicial process, are caught in the middle.

The Colorado Defense Lawyers Association, the Colorado Civil Justice League and the American Petroleum Institute filed amicus curiae (friend of the court) briefs urging the Colorado Supreme Court to review the court of appeals’ decision. Now that the court has agreed to address the issue, organizations on both sides of the issue are expected to participate.

Stuart Stuller focuses on appellate practice, litigation, constitutional law, employment discrimination and education law. He regularly appears before both state and federal appellate courts and has played a substantial role in more than 30 cases that resulted in published decisions. He can be reached at sstuller@celaw.com.

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.

IAALS Releases Preliminary Findings on Colorado Civil Access Pilot Project

Corina_Gerety_bw_smallThis post originally appeared on IAALS Onlinethe blog for IAALS, the Institute for the Advancement of the American Legal System at the University of Denver, on April 7, 2014.

By Corina Gerety

IAALS is pleased to announce the completion of its preliminary evaluation report on the Colorado Civil Access Pilot Project (CAPP), which tests a new set of pre-trial procedures for business actions in state district court. The project, which began in January 2012 and runs through December 2014, is in place in five Denver metro-area courts.

Relating to pleadings, disclosures, discovery, and case management, the CAPP rules were designed to bring the disputed issues to light at the earliest possible point, tailor the process proportionally to the needs of the case, provide active case management by a single judge, and move the case quickly toward trial or other appropriate resolution. The preliminary report combines the results of a docket study with attorney and judge surveys.

Our initial analysis reveals that the CAPP process as a whole has succeeded in achieving many of its intended effects, including a reduced time to disposition, increased court interaction, proportional discovery and costs, and a lower level of motions practice. Much of the positive feedback relates to CAPP’s early, active, and ongoing judicial management of cases, with many calling for this to become a permanent feature of the rules.

For those cases that are at least minimally contested, one of the challenges of the project relates to differences between simple and complex cases. The first part of the CAPP process (rolling and staggered deadlines for pleadings and initial disclosures) appears to work better in simple cases, while it can fall apart in complex cases. The second part of the CAPP process (everything from the joint case management report forward) appears to provide a real benefit for complex cases, while it can be too much for simple cases. This is just one nuance in the results, and the full report will provide interesting reading for those engaged in these issues—both inside and outside of Colorado.

This report accompanies other recent reports on rules projects taking place around the country, includingNew HampshireMassachusetts, and Utah. It is preliminary because some cases in the docket study sample have not yet resolved and because differences in the survey data based on case or respondent characteristics will need to be more fully explored. The final report will be released in the fall of 2014.This is, however, a very valuable starting point.

Click here to download the Preliminary Findings on the Colorado Civil Access Pilot Project.

Corina Gerety directs long-term research and evaluation projects for IAALS. Her work involves legal and empirical research, analysis, and writing, as well as research-related collaboration and presentation. She conducts research for all IAALS initiatives on an as-needed basis. Gerety came to IAALS in the Spring of 2009 from the public sector, having worked for a number of years in the Office of the Colorado Attorney General and in clerkships at the Colorado Supreme Court, Colorado’s Second Judicial District Court, and the Office of the Presiding Disciplinary Judge.

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.

Complexity of Mission and the Power of Form

joe_yockeyBy Joseph Yockey
Associate Professor of Law, University of Iowa

Consider two different social enterprises: Blue River Technology and Greyston Bakery.

Blue River applies expertise in robotics to develop new agricultural technologies. Recognizing that $25 billion is spent annually on herbicides that pose environmental risks, the company offers farmers the option to reduce their chemical usage by switching to robots pulled behind tractors that can quickly identify and kill weeds with a rotating blade.

Greyston sells brownies (including some found in Ben & Jerry’s ice cream), but it also adheres to a strict workforce development program. The company staffs its operations with hard-to-employ individuals and teaches them skills that they can use when looking for jobs across the wider foodservices industry. As Greyston’s slogan says, “We don’t hire people to bake brownies, we bake brownies to hire people.”

Greyston is organized as a benefit corporation; Blue River is not. That probably makes sense.

Blue River approaches what some call “the hybrid ideal” – a situation where everything a company does generates social value and revenue. The company’s social objectives are market driven. There is little tension between profits and impact. Mission drift is relatively easy to monitor. I wouldn’t think Blue River has much to gain by becoming a benefit corporation. Indeed, it seems to be doing just fine.

Greyston is different. It can’t align profits with public good quite as neatly. Its social mission is broader and open to greater interpretation. What does it mean for someone to be “hard-to-employ?” How should we measure something as fuzzy as workforce development? Even if we say that Greyston is near the hybrid ideal, can we be sure it won’t move toward greater pursuit of profits at the expense of public benefit? This might follow from something as simple as a change in ownership or leadership, and it could be hard to detect. Blue River’s products strike me as easily observable, but if Greyston makes discrete changes to its hiring policies, those decisions seem easier to keep under wraps.

The provisions found in benefit corporation statutes do not fully resolve these issues. However, I’m not ready to say that benefit corporation statutes are a mistake, or that becoming a benefit corporation is only about greenwashing. Instead, I argue that the benefit corporation’s best opportunity for influence is to be seen as a new institutional structure—one that can motivate the development of self-regulatory standards and provide a normative framework for social entrepreneurs and pro-social investors. This framework, in turn, can be particularly helpful to companies like Greyston that pursue more complex social missions.

First, the benefit corporation form offers a rallying or focal point that ought to make it easier for like-minded private actors to come together and collaborate on issues ranging from corporate governance practices to the development of social impact metrics. Seeing benefit corporation laws as focal in this way does not mean they will dictate particular standards. Rather, they simply incentivize firms and stakeholders to participate in a self-regulatory process by providing an archetype and hub that can facilitate communication and standards development. The form’s mandate to consider multiple interests should make such cooperation more palatable. Firms that prioritize profits above other objectives often lack the incentive to share information with their competitors. In that case, first-movers will see their profits slip if information sharing allows others to easily replicate their strategies. However, by definition, the benefit corporation form means that profits are not the overriding focus. It thus creates more room for cooperation and coordination—and as Haskell Murray reports, this already appears to be happening.

Additionally, a key step in addressing issues like mission drift is to recognize that, just as they send broader signals about values to the market, legal forms also influence corporate behavior. The people within an organization are the most significant determinants of its commitment to mission. With respect to the benefit corporation, forms that reflect a specific ideological commitment can influence internal culture by signaling the values that should inform employee decision-making.Patagonia cited this belief as a motivating factor in its decision to become a benefit corporation.

Finally, establishing a culture that leads to the internalization of values is easier when organizational goals match employees’ personal beliefs. The benefit corporation’s emphasis on dual objectives should attract socially minded employees by signaling that they will find a supportive structure in place. When employees then enter organizations that reflect their own values, they often exhibit greater motivation to act consistently with those values.

There is obviously much more to say about these points, and for anyone looking to wade deeper into them, I offer a fuller explanation here.

Unless the rapid spread of benefit corporation laws is evidence of an enthusiastic or cynical mistake (which I think is possible but unlikely), then there must be some underlying logic to unpack. My aim is to keep working to explain the social enterprise phenomenon, to put it into a clear theoretical framework, and to distill the best justifications for offering special organizational options for social entrepreneurs.

Joseph W. Yockey joined the faculty of the University of Iowa as an Associate Professor of Law in 2010 and was voted Professor of the Year by the law school student body for 2011-12.  He is also a two-time nominee for the University of Iowa’s campus-wide President and Provost Award for Teaching Excellence.  He teaches Business Associations, Securities Regulation, and a seminar on Securities Litigation.  His writing interests are in the areas of corporate governance, securities regulation, and corporate crime.

Before coming to Iowa, Professor Yockey taught as a Visiting Assistant Professor at the University of Illinois College of Law.  He is also a summa cum laude graduate of the University of Illinois College of Law, where he served as articles editor for the University of Illinois Law Review and was elected to the Order of the Coif.  After graduating from law school, he clerked for Judge John D. Tinder (presently of the U.S. Court of Appeals for the Seventh Circuit) in Indianapolis and practiced corporate and securities litigation at Sidley Austin LLP in Chicago.  He is a member of the Illinois Bar.

Professor Yockey is also a guest blogger for The Conglomerate, where this post originally appeared on March 20, 2014.

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.

 

CLE Homestudy: Public Benefit Corporation Act, Effective April 1, 2014

This CLE presentation took place on February 12, 2014. Click here to order the Video On Demand and watch the entire presentation online, click here for the MP3 Audio Download homestudy, click here for the CD homestudy, or call (303) 860-0608 to order by phone.

 

U.S. Supreme Court Rules Private Contractors and Subcontractors Are Covered By SOX Whistleblower Protections

CoburnSuttleRiordanBy Bob Riordan, Brett E. Coburn, and Brooks A. Suttle

On March 4, 2014, the U.S. Supreme Court issued its decision in Lawson v. FMR LLC,[1] addressing for the first time the whistleblower provision of Section 806 of the Sarbanes-Oxley Act (SOX), which provided in relevant part:

No [public] company . . . or any officer, employee, contractor, subcontractor, or agent of such company, may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of [whistleblowing or other protected activity].[2]

While it is clear from the statutory language that a private contractor or subcontractor of a public company cannot engage in retaliatory actions against an employee, courts have divided on whether “an employee” refers only to the public, SOX-reporting company’s employees, or also protects employees of the private contractor or subcontractor from retaliation.

In Lawson, the U.S. Court of Appeals for the First Circuit took the former view, holding that the meaning of “employee” in Section 806 is unambiguous, and that employees of privately-held companies are not covered by SOX’s whistleblower protections regardless of who their employer contracts with.[3] In a 6-3 split decision, however, the high court reversed and remanded the First Circuit’s decision, finding instead that SOX’s anti-retaliation provision also covers employees of private contractors and subcontractors that are hired by public companies covered by the law. In so doing, the Court significantly expanded SOX’s whistleblower protections to give the law what appears to be, in the words of Justice Sotomayor’s dissent, a “stunning reach.”

The plaintiffs in Lawson were two former employees of private companies that contracted to advise and manage mutual funds, which had no employees and are covered by SOX as companies required to make certain regulatory filings. After they were allegedly retaliated against for attempting to report a purported fraud related to mutual funds, the plaintiffs brought a whistleblower claim against their former employers under Section 806. The defendants’ motion to dismiss was initially denied by the District Court, but the First Circuit reversed the decision and found that dismissal was appropriate because Section 806 did not protect the plaintiffs as employees of private companies.

On appeal, the Supreme Court examined the text of the statute, the context in which it was enacted, and its legislative history. Writing for the majority, Justice Ruth Bader Ginsburg wrote with regard to statutory text that the language of Section 806 is unambiguous, and contains “numerous indicators that the statute’s prohibitions govern the relationship between a contractor and its own employees.”[4] With regard to legislative intent, Justice Ginsburg likewise found that Section 806 was enacted “to encourage whistleblowing by contractor employees who suspect fraud involving the public companies with whom they work.”[5] Justice Ginsberg was joined in the majority by Chief Justice Roberts, and Justices Breyer and Kagan. Justices Scalia penned a separate opinion, joined by Justice Thomas, concurring in the ruling but criticizing the majority’s focus on legislative intent and comparisons to other whistleblower laws.

In a strongly worded dissent in which she was joined by Justices Kennedy and Alito, Justice Sotomayor wrote that the majority’s opinion gave the SOX whistleblower laws a “stunning reach” that could lead to “absurd results,” and that “nothing in the text, context, or purpose of the Sarbanes-Oxley Act suggests that Congress actually wanted to do so.”[6] Finding that the statutory text is ambiguous, and that Congress intended a narrow reading of Section 806 that excluded employees of private companies, Justice Sotomayor dissented that whatever “laudatory purpose” the majority’s interpretation of the whistleblower law might serve, “that is not the statute Congress wrote.”[7]

The dissent notwithstanding, the Court’s decision is now the law of the land, and will likely remain so unless and until Congress acts to overturn the majority’s interpretation of Section 806. While the majority was dismissive of any “floodgate-opening concerns” about a potential deluge of new whistleblower litigation,[8] there is no question that the number of employees covered by SOX’s whistleblower provisions has been enormously expanded by the Court’s ruling. As such, many private employers who have become accustomed to thinking of themselves as outside the scope of SOX’s whistleblower provisions will need to reevaluate their practices and procedures in light of Lawson, and take steps to minimize the potential for whistleblower claims. Such steps can include, among other things, changes to the company’s training programs, employee documentation and record-keeping procedures, and internal policies governing the discipline process and the permissible grounds for taking adverse action against an employee.

At a minimum, private companies who contract to do business with public companies should seek the assistance of counsel to conduct a thorough review of their internal control and compliance procedures, in addition to modifying their anti-retaliation policies as needed. Companies should also conduct training on what is and is not permissible given SOX’s whistleblower provisions, and make it clear that knee-jerk firings and other adverse actions must be avoided when an employee reports fraud or other misconduct covered by SOX, whether allegedly occurring at the public company or at the contractor-employer. Likewise, public companies need to recognize that they may now be found liable not only for retaliation against their own employees who report SOX violations, but also for retaliatory acts conducted by agents of the public company against the employees of its private contractors and subcontractors. Public company employers thus may also need to reconsider their SOX reporting and anti-retaliation policies in light of the fact that Lawson greatly expanded the pool of potential whistleblower claimants.

As a final note on Lawson, it is worth noting that the Supreme Court chose not to weigh in on another important issue recognized in the case – the extent to which a prior decision by the Department of Labor’s (“DOL”) Administrative Review Board’s (“ARB”) was entitled to deference by the Court. Several months after the First Circuit’s decision in Lawson, the ARB came to the opposite conclusion in Spinner v. David Landau & Associates, LLC.[9] In that case, the ARB held that the meaning of “employee” in Section 806 was ambiguous, and therefore the ARB did not have to follow the First Circuit’s ruling. Instead, the ARB sought to expand SOX’s reach in holding that Section 806 applied to employees of privately-held companies if they had contracts with publicly-traded companies.[10]

Thus, when the Supreme Court agreed to hear Lawson, many observers hoped that the Court would use it as an opportunity to decide the proper level of deference that courts should give to the ARB’s construction of SOX. The Court, however, essentially passed on the issue, simply noting in a footnote that “[b]ecause we agree with the ARB’s conclusion that [Section 806] affords protection to a contractor’s employees, we need not decide what weight that conclusion should carry.”[11] But while the deference issue was left unanswered, the Court’s Lawson decision will almost certainly have a large impact in the arena of SOX whistleblower litigation. At the very least, it has given both public company and private company employers plenty to consider in ensuring that they are in compliance with SOX’s anti-retaliation laws.

Brett Coburn is a partner who concentrates his practice on employment litigation and counseling. His litigation experience includes gender, race, age and disability discrimination suits under Title VII, the ADEA and the ADA, as well as FLSA wage and hour claims and FMLA interference and retaliation claims. His experience also includes the defense of collective actions under the FLSA and ADEA. He has litigated cases involving misappropriation of trade secrets, breach of employment contracts, violation of non-competition and other restrictive covenants, defamation, breach of employee duties, tortious interference and related customer and employee raiding claims.

Brooks Suttle is an associate in the firm’s Labor & Employment Group. Brooks received his J.D., with honors, from Emory University School of Law, where he was elected to the Order of the Coif. While at Emory, he served as the executive symposium editor for the Emory Law Journal, where he was responsible for planning and organizing the 2012 Randolph W. Thrower Symposium, “Innovation for the Modern Era: Law, Policy, and Legal Practice in a Changing World.” He also received the 2011 Myron Penn Laughlin Award for Excellence in Legal Research and Writing for his journal comment: “Reframing Professionalism: An Integral Approach to Lawyering’s Lofty Ideals.”

Bob Riordan is a litigator who focuses on disputes relating to employment, business torts, unfair competition and commercial transactions. He regularly represents clients in both federal and state courts, as well as various agencies and arbitral forums. He has appeared in trial and appellate courts throughout the country, and has been recognized for his achievements in Best Lawyers in AmericaChambers USA: America’s Leading Lawyers for Business, Georgia Trend’s Legal Elite, PLC Which Lawyer? and Super Lawyers magazine. Mr. Riordan has extensive experience in defending wage disputes brought on a mass and class basis as well as whistleblower claims. He also regularly defends companies against claims of all varieties of discrimination and retaliation, as well as claims relating to the law of public accommodation, tortious interference, breach of fiduciary and other duties, theft of trade secrets and similar matters. In addition, Mr. Riordan often litigates contract disputes, including earn-out and other claims tied to business combinations.

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.

 


[1] 571 U.S. ___ (March 4, 2014).

[2] 18 U.S.C. § 1514A(a) (2006 ed.) (emphasis added).

[3] See Lawson v. FMR, LLC, 670 F.3d 61 (1st Cir. 2012).

[4] Slip op. at 16.

[5] Id. at 19. Despite Justice Ginsburg’s observation, the rule of Lawson extends to reports of alleged misconduct committed by both the public company and the employer-contractor. Indeed, as pointed out in the dissent, under the majority’s holding, the employer-contractor’s alleged misconduct may have nothing to do with the contract between the employer-contractor and the public company.

[6] Id. at 2 (Sotomayor, dissenting).

[7] Id. at 20.

[8] Slip op. at 22.

[9] ARB Nos. 10-111, 10-115 (May 31, 2012).

[10] For its part, the First Circuit noted in its decision that, because the statute was unambiguous, the court owed no so-called Chevron deference to any contrary agency determinations. See Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984) (holding that agency interpretations of ambiguous statutes will be upheld so long as they are reasonable, but where a statute is unambiguous, the courts as well as the administrative agencies must give effect to its clear meaning).

[11] Slip op. at 9 n.6. The dissent in Lawson argues that the majority in fact declined deference by not endorsing all of the ARB’s holding in Spinner. Slip op. at 17 n.11.

Top 10 Reasons Attorneys Go In-House

Sharon_MclaughlinBy Sharon A. McLaughlin, Esq.

The majority of attorneys begin their legal careers in law firms (versus in-house corporate legal departments – i.e., “in-house”) for a variety of reasons–- e.g., there are fewer in-house opportunities for new attorneys, law school graduates often want to get “big firm” experience and training before going in-house, and the compensation can often be higher in big firms.  Nonetheless, in my experience as an attorney recruiter, many attorneys in law firms either know starting out or within their first 5 years of practice that they want to eventually transition in-house, and they usually cite one of the following 10 reasons.

 1.     Billable-hours

With in-house legal departments, companies pay their attorneys’ annual salaries/bonuses/benefits and do not have billable hour requirements or quotas that their attorneys must meet to justify their cost.  Conversely, law firms generally have a minimum billable hour requirement and quota that their attorneys must meet to justify their high salaries and to qualify for bonuses and salary increases. The billable-hour system is the way most lawyers in law firms charge their clients, and it’s a key measure of associate and partner productivity.  This system can create a culture in which everyone is pushed hard and works long hours, eventually resulting in frustration, fatigue and exhaustion.  Many attorneys despise this system, and it’s one of the most common complaints that recruiters hear from law firm attorneys.  Consequently, it’s one of the top reasons attorneys in law firms want to go in-house.

 2.     Work-life balance

Many law firm attorneys have the belief that they will have greater work-life balance going in-house, and this is often true.  However, that’s not always the case.  In their goal to become a profit center, some in-house legal departments have long, exhausting hours with a lower level of compensation.  However, this is generally not the norm.  It is incumbent on attorneys to vet this issue when interviewing with any prospective company to ensure that work-life balance exists (with appropriate questioning at the appropriate time, of course).  Many in-house interviewers will volunteer information about their organization’s work-life balance since they know this is generally something incoming attorneys want to know and a big selling point when it exists.  In addition, attorneys are often, by nature, intuitive and can sense when the in-house attorneys with whom they’re interviewing are happy and content in their roles versus overworked, exhausted and miserable.   The latter is generally a tell-tale sign that work-life balance does not exist.

3.     Predictability of schedule

Another common complaint among law firm attorneys is the fact that they are essentially on call at all times.  They must be available to deal with client emergencies or deadlines that arise at unpredictable and inopportune times – e.g., 4:00 p.m. on a Friday afternoon or over the weekend.  As a legal recruiter, I have worked with and placed many in-house attorneys who report that they keep regular hours (e.g., 8:00 am – 5:00 p.m.), do not work weekends, spend quality time with their families, plan vacations in advance and, most importantly, do not fear being penalized for taking vacation with mountains of work upon their return.

 4.    Working closely with the business team and interfacing with upper level management and executives.

Another appealing quality that attorneys have identified about going in-house is the opportunity to work closely with an organization’s business team and regularly interface with upper level management and executives.  An in-house attorney’s clients are the internal business units and the managers and executives who lead those units at the organization at which they work.  As a result, these are often the people with whom the attorneys are regularly working, communicating and assisting on a day to day basis.  For law firm attorneys, this level of interaction and exposure can be limited if not non-existent.

 5.     Career Track

In a law firm, an attorney’s career track is generally one dimensional – you begin your career as an associate and then you may or may not make partner.  If you do not make partner, you either remain an associate for many years until it becomes too embarrassing to stay; or, if it exists at your firm, you may move into a non-partner role with a special title – e.g., Counsel, Special Counsel, Of Counsel, etc.

At a company, attorneys often have various long term career opportunities available to them.  Depending on the organization and its size, you may have the opportunity to move between practice disciplines in the legal group (e.g., litigation to commercial, commercial to regulatory, etc.), be promoted to managerial positions within the legal group, move to the business side in non-legal management or executive positions, etc.  The in-house long term career opportunities are broader and may be more easily achieved than law firm partnership.

 6.     Focus on practicing law versus business development

Because law firms value attorneys that can develop and bring in new business to the firm with some level of regularity, this is generally a prerequisite to becoming a partner and remaining a partner.  However, this can be a daunting task for many attorneys because business development is generally sales-oriented, and it is not a skill that law schools or law firms teach.  And, not everyone is a natural at business development, particularly those attorneys who are more “cerebral” in the way that they approach things.

In an in-house setting, there is no business development pressure, need or requirement.  The company is the attorney’s client.  As such, in-house attorneys may simply focus on the practice of law without the worry of developing business or the pressure of “eating what you kill.”

 7.     Work on deals from start to finish

Attorneys at law firms often are called to assist their corporate clients part-way through a deal or transaction when, for example, an issue arises; or, they may only be asked to handle a specific portion of a deal.  Conversely, in-house attorneys are generally not only part of deals from start to finish, but they frequently participate in the pre-planning and business strategy.  They also have the opportunity to see how their work and legal counsel impacts the company long-term.

8.     Focus on one client

Attorneys in law firms generally have various individual and/or corporate clients with whom they work at any given time.  For in-house attorneys, the company (or business unit(s) within the company) is the client.  Only working with a single client allows you to get to know that client more intimately, better understand the client’s business strategies and perhaps assist the client in shaping future business strategies and goals.  The in-house attorney works with internal legal and business teams, all having a common goal to assist their single client.  This is contrasted with doing a little here and a little there for multiple clients and lacking the same level of cohesiveness.

9.     Sophisticated work

While many attorneys are under the impression that they may get less sophisticated work by leaving a big law firm and going in-house, this is simply not the case with many companies.  As a cost-cutting measure, more and more companies are keeping their legal work in-house versus outsourcing it to outside counsel.  So, where you have a large, global company that keeps much of their legal work in-house and engages in complex and sophisticated transactions or litigation valued at billions of dollars, the end result is that their in-house attorneys have the opportunity to work on exciting, high-profile and sophisticated legal matters to which they may not otherwise have access.  This is even more true at many big law firms where some associates get little hands-on experience or interaction with the clients.

10.  Overseas assignments

Large companies with global operations require legal counsel in the countries in which they are conducting business.  This is often accomplished with attorneys native to the country in which the company has operations, but many companies are also sending their U.S. attorneys on international expatriate assignments or temporary rotations to work in conjunction with their foreign counterparts.  This is a very appealing opportunity for some attorneys and can be a primary motivation to work for global companies.

Sharon A. McLaughlin, Esq. is a Regional Search Director with Special Counsel in Houston, Texas. As a Regional Search Director for Special Counsel, she trains and advises internal Attorney Search Directors on the permanent placement of attorneys in in-house corporate legal departments. Her role focuses on training, strategizing, coaching, developing and implementing solutions for Special Counsel’s Attorney Search Directors nationally to provide the company’s clients the best attorney search power on the market. Ms. McLaughlin has more than nine years of legal recruiting experience placing associate and partner level attorneys with law firms and in-house corporate legal departments throughout the country. Prior to transitioning into legal recruiting, Ms. McLaughlin was an attorney in private practice and specialized in business and employment-based immigration law in Texas and California. Ms. McLaughlin is admitted to the State Bar of Texas as well as the State Bar of California. She received her B.A. from Stephen F. Austin State University in Nacogdoches, Texas in 1992, and her J.D. from Southwestern University School of Law in Los Angeles, California in 1996. Special Counsel operates in 42 markets across the United States. Through its affiliation with its parent company, Adecco Group North America, the company has access to a vast network of additional locations throughout the U.S. and in over 60 other countries, enabling the company to provide permanent placement and legal staffing services and solutions nationally or internationally. Special Counsel also has a blog, where this post originally appeared on February 23, 2014.

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.

Colorado Court of Appeals Kicks the Can as to Whether HPA Voids Limitations-of-Liability Clauses in Residential A/E Contracts Between Construction Professionals

Tim_GordonBy Timothy Gordon

Colorado’s Homeowner Protection Act (the “HPA”) protects homeowners by voiding any contractual provision that would result in the waiver of a homeowner’s rights under the Construction Defects Action Reform Act. C.R.S. § 13-20-806(7)(a). But some have argued that this same law should also void certain waivers and releases in agreements between construction professionals working on residential projects. Recently, the Colorado Court of Appeals was faced with, but did not decide, this issue.

The HPA provision in question provides as follows:

In order to preserve Colorado residential property owners’ legal rights and remedies, in any civil action or arbitration proceeding described in section 13-20-802.5 (1), any express waiver of, or limitation on, the legal rights, remedies, or damages provided by the “Construction Defect Action Reform Act”, this part 8, or provided by the “Colorado Consumer Protection Act”, article 1 of title 6, C.R.S., as described in this section, or on the ability to enforce such legal rights, remedies, or damages within the time provided by applicable statutes of limitation or repose are void as against public policy.

C.R.S. § 13-20-806(7)(a).

The reference to “section 13-20-802.5(1)” is to the definition of the word “Action”, which is defined as “a civil action or an arbitration proceeding for damages, indemnity, or contribution brought against a construction professional to assert a claim, counterclaim, cross-claim, or third party claim for damages or loss to, or the loss of use of, real or personal property or personal injury caused by a defect in the design or construction of an improvement to real property.” So the basic argument is that construction professionals who bring cross-claims or third party claims for indemnification against other construction professionals should be protected under C.R.S. § 13-20-806(7)(a).

In Taylor Morrison of Colorado, Inc. v. Bemas Construction, Inc., et al., 2014 COA 10, Taylor Morrison hired Terracon to perform certain geotechnical engineering and construction materials testing for a residential subdivision that Taylor Morrison was developing. After many homes were constructed, homeowners began complaining about cracks in the drywall. Taylor Morrison investigated the complaints and ended up spending significant amounts of money to remedy the defective conditions.

Taylor Morrison then sued Terracon to recover the money that it spent remedying the defects. Terracon’s contract with Taylor Morrison limited Terracon’s liability to $550,000, but Taylor Morrison was seeking more. So Taylor Morrison filed a motion with the trial court, asking the trial court to determine whether the HPA invalidated the limitation of liability in its contract with Terracon. The trial court ruled in favor of Terracon, holding that the HPA did not apply to invalidate a limitation of liability clause in a contract between it and Taylor Morrison because the HPA was meant to protect homeowners, not commercial entities. The Court of Appeals affirmed, but on different grounds. Specifically, the Court of Appeals held that the HPA could not apply retroactively to the contract between Terracon and Taylor Morrison. So the issue of whether the HPA would void a limitation of liability in an engineer’s agreement with a developer remains unresolved at the appellate level.

Consider the outstanding issue in light of the Court of Appeals’ decision in Mid Valley Real Estate Solutions V, LLC v. Hepworth-Pawlak Geotechnical, Inc., et al., 2013 COA 119. There, the Court of Appeals held that a bank holding title to residential property qualifies as a “homeowner” for purposes of the economic loss rule, and therefore may bring tort claims against construction professionals for construction defects. The Court’s reasoning in Mid Valley Real Estate Solutions is broad enough to include just about any person or entity holding title to residential property. So query the following:

  • Can developers who still hold title to homes that they have developed sue their own subcontractors and consultants in tort for alleged construction defects under Mid Valley Real Estate Solutions?
  • If so, are the developers bound by limitations of liability in their contracts with their subcontractors and consultants, or does the HPA void such limitations?
  • Finally, does it make sense to make a distinction between developers who still hold title to homes and developers who no longer hold title to homes when deciding whether or not the HPA applies?

Timothy Gordon represents construction and commercial real estate clients in complex disputes, and understands the interrelationship between the long-term real estate development, project construction, and property management. A thought leader in construction law, he currently authors Construction Law in Colorado, a blog that provides insight on key cases and developments relevant to construction law in Colorado, where this post originally appeared on February 21, 2014. He is the Co-Managing Editor of The Practitioner’s Guide to Colorado Construction Law, a three-volume treatise on construction law in Colorado.

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.

Surveying Intellectual Property: Predictions for the Supreme Court’s Rulings in 10 IP Cases

HarrisDoughertyBy Ray K. Harris and Thomas Dougherty

There are now ten IP cases under review in the Supreme Court. Why so many? And what will the Court do?

Why So Many IP Cases?

The Supreme Court docket demonstrates the accelerating importance of intellectual property. In the decade of the 1990s the Supreme Court wrote seven patent opinions.[1] The prior two decades saw a similar volume of patent cases. In the same decade, copyright cases decided in the Supreme Court (six)[2] and trademark cases decided in the Supreme Court (three, including two trade dress cases)[3] were about equally rare.

In the decade from 2000 to 2009, the Supreme Court increased the volume to 10 patent related opinions.[4] Total copyright cases (three)[5] and trademark cases (five, including two trade dress cases)[6] decided in the Supreme Court remained about the same.

In 2010 to 2012 the Supreme Court increased the pace to issue four patent opinions in three years.[7] The pace of Supreme Court copyright decisions (two)[8] remained about the same as over the last 20 years. The increase in patent litigation appears not to be aberrational.

Last year the Supreme Court again more than doubled the volume of patent cases handled and issued four patent-related opinions in one year.[9] The Supreme Court also decided one copyright case[10] and one trademark case.[11]

This year the Supreme Court has again increased the volume of patent cases and already has accepted for review six patent cases – more than half the volume it handled in the entire first decade of the 21st Century. The Court has also accepted for review two copyright and two trademark cases.

Why has the Supreme Court accepted review in so many IP cases? Because IP rights have grown in economic importance and clarity is required to maintain that economic value. The Federal Circuit was given exclusive jurisdiction over patent cases to avoid conflicts in treatment among the different Circuit Courts, but clarity (for example, on treatment of software-related inventions) has not uniformly emerged. Also, abusive assertion of IP rights imposes a substantial cost on the economy. Guidance for the Federal Circuit requires either Supreme Court review or Congressional action.

What Will The Court Do?

Here summaries of the issues raised and our humble PREDICTIONS of how these 10 current IP cases may be decided.

Patent. Two patent cases focus on the scope of what a patent may claim.

Alice Corp. Pty Ltd. v. CLS Bank Int’l, 717 F.3d 1269 (Fed. Cir. 2013), cert. granted, 134 S. Ct. 734 (2013) (the test for patentable subject-matter for software inventions). An equally divided court affirmed the District Court holding that the claims were not patent eligible. The Federal Circuit generated seven opinions and could not agree on the appropriate test. NEITHER CAN WE, BUT THE COURT CONTINUES TO DECIDE CASES DEFINING THE LINE BETWEEN INVENTION AND ABSTRACT IDEAS. The court will limit the scope of software patentability, but not eliminate it. SOFTWARE CAN BE PATENTED BUT NOT THESE CLAIMS. AFFIRMED. Watch for oral argument March 31.

Nautilus Inc. v. Biosig Instruments, Inc., 715 F.3d 891 (Fed. Cir. 2013), cert. granted, 134 S. Ct. 896 (2014) (determining when a claim term is indefinite — therefore invalidating the claim) There were multiple reasonable interpretations of the claim language “spaced relationship.” The Federal Circuit concluded the term was not insolubly ambiguous because “inherent parameters” would allow a person of ordinary skill to understand the term. Particular and distinct patent claiming is required by statute. 35 U.S.C. 112. REVERSED. THE COURT WILL REQUIRE TIGHTER CLAIM DRAFTING SO WHAT IS CLAIMED IS DISTINCT FROM WHAT IS NOT CLAIMED AND INFRINGEMENT LIABILITY IS MORE PREDICTABLE. Watch for oral argument April 28.

The remaining 4 patent cases focus on enforcement issues:

Medtronic Inc. v. Boston Scientific Corp., 571 U.S. ___ (Jan. 22, 2014). In a declaratory relief suit by a patent licensee the licensor/patentee always has the burden to prove infringement. REVERSED. WE ARE CERTAIN WE GOT THIS “PREDICTION” CORRECT.

Highmark Inc. v. Allcare Management Systems, Inc., 687 F.3d 1300 (Fed. Cir. 2012), cert. granted, 134 S. Ct. 48 (2013), and Octane Fitness, LLC v. ICON Health & Fitness, Inc., 496 Fed Appx. 57 (Fed. Cir. 2012), cert. granted, 134 S. Ct. 49 (2013) (the standard for awarding attorneys’ fees to the prevailing party). The infringement defendant prevailed in both cases. The Federal Circuit found no deference is owed to a district court’s finding regarding whether allegations of infringement were objectively unreasonable and neither case was “exceptional” under 35 U.S.C. § 285. The prevailing defendants assert (1) the District Court is entitled to deference, and (2) a showing that the litigation is objectively baseless and brought in subjective bad faith sets too high a standard for prevailing defendants (accused infringers) and conflicts with the lower bar set for prevailing plaintiffs (patent owners) — a showing “that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent.”). THE COURT WILL ELIMINATE THE SUBJECTIVE ELEMENT OF THE REASONABLENESS TEST AND OTHERWISE AFFIRM THE APPELLATE DECISIONS ON THE OBJECTIVE ELEMENT WITHOUT DEFERENCE TO THE TRIAL COURT. This case was argued Feb. 26.

Limelight Networks, Inc. v. Akamai Technologies, Inc., 692 F.3d 1301 (Fed. Cir. 2012), cert. granted, 134 S. Ct. 895 (2014) (inducing infringement where separate elements of the method claim were carried out by different persons, hence there is no one person who directly infringed). The Federal Circuit held there can be inducement liability with no single direct infringer or agency relationship. AFFIRMED. INDUCING MULTIPLE ACTORS TO INFRINGE COLLECTIVELY IS WRONG (ONCE THE ADVERSE PRECEDENT IS NOT CONTROLLING). Watch for oral argument April 30.

Copyright. Both cases deal with defenses to enforcement of copyright protection.

Petrella v. Metro-Goldwyn-Mayer, Inc., 695 F.3d 946 (9th Cir. 2012), cert. granted, 134 S. Ct 50 (2013) (laches as a defense to damages incurred for the three-year period before suit is filed). The Copyright Act has a three-year statute of limitations, 17 U.S.C. 507(b). The Ninth Circuit found claims based on the 1980 film “Raging Bull” barred by laches. The other circuits are less receptive to this defense. AFFIRMED. DAMAGES AND INJUNCTIVE RELIEF ARE BOTH UNAVAILABLE FOR THE CONTINUING TORT ON THE FACTS PRESENTED. This case was argued Jan. 21.

American Broadcasting Companies, Inc. v. Aereo, Inc., 712 F.3d 676 (2nd Cir. 2013), cert. granted, 134 S. Ct. 896 (2014) (streaming a broadcasted video over the Internet so paid subscribers each subscriber receive transmission of a separate copy). The Second Circuit found no infringement of the public performance right. Both parties asked for review. Even the winner below wants to avoid the possibility of inconsistent decisions in other circuits. REVERSED. THE COURT WILL CONCLUDE CONGRESS DID NOT INTEND TO PERMIT THE “RUBE GOLDBERG” DESIGN ADOPTED TO AVOID INFRINGEMENT. STREAMING AND RECORDING ON DEMAND IS A PUBLIC PERFORMANCE. CONGRESS COULD AMEND THE STATUTE IF IT DISAGREES WITH THE COURT (WE ARE NOT ARROGANT ENOUGH TO TRY TO PREDICT CONGRESS — BE SERIOUS). Watch for oral argument April 22.

Trademark. Both cases involve false advertising under the Lanham Act.

POM Wonderful LLC v. Coca-Cola Co., 679 F.3d 1170 (9th Cir. 2012), cert. granted, 134 S. Ct. 895 (2014) (false advertising claims involving the labeling requirements of the Food Drug and Cosmetics Act). The Ninth Circuit found preemption. AFFIRMED. Watch for oral argument April 21.

Lexmark Int’l Inc. v. Static Control Components, Inc., 697 F.3d 387 (6th Cir. 2012), cert. granted, 133 S. Ct. 2766 (2013) (the test for standing to maintain a false advertising claim). The Ninth Circuit requires the plaintiff to be an actual competitor. Other circuits require antitrust standing. The Sixth Circuit and Second Circuit allow the plaintiff to sue if it has a “reasonable interest” in the case. AFFIRMED. THE COURT WILL ADOPT THE REASONABLE INTEREST STANDARD. This case was argued Dec. 3.

Only two of the nine remaining cases reversed. Not a smart bet? “Never tell me the odds.”[12]

Ray K. Harris practices in the area of commercial litigation, including trade secret, trademark, trade dress, computer software copyright, and other intellectual property protection matters. His representation of aerospace clients has included enforcement of patent and trade secret rights and licensing provisions related to IP. Reach Mr. Harris at rharris@fclaw.com.

Thomas A. Dougherty is a registered patent attorney who practices in all areas of intellectual property, and federal appeals. His practice includes international and domestic patent and trademark prosecution; inter partes reexaminations; portfolio management; freedom to operate, medical devices, general counsel services, M&A, and counseling for various clients and technologies. Reach Mr. Dougherty at tdougherty@fclaw.com

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.

 


[1] Eli Lilly & Co. v. Medtronic Inc., 496 U.S. 661 (1990); Cardinal Chemical Co. v. Morton, 508 U.S. 150 (1993); Asgrow Seed Co. v. Winterboer, 513 U.S. 179 (1995); Markman v. Westview Instruments, Inc., 517 U.S. 370 (1996); Warner-Jenkinson Co, Inc. v. Hilton Davis Chemical Co., 520 U.S. 17 (1997); Pfaff v. Wells Electronics Inc., 525 U.S. 55 (1998); and Florida Prepaid Postsecondary Education Expense Board v. College Savings Bank, 527 U.S. 627 (1999). See also Dickinson v. Zurko, 527 U.S. 150 (1999) (administrative burden of proof).

[2] Stewart v. Abend, 495 U.S. 207 (1990), Feist Publications, Inc. v. Rural Telephone Service Co., 499 U.S. 340 (1991); Fogerty v. Fantasy, Inc., 510 U.S. 517 (1994); Campbell v. Acuff-Rose Music Inc., 510 U.S. 569 (1994); Feltner v. Columbia Pictures, 523 U.S. 340 (1998); and Quality King Distributors Inc. v. L’anza Research Int’l Inc., 532 U.S. 135 (1998). See also Lotus Dev. Corp. v. Borland Int’l Inc., 116 S. Ct 804 (1996) (aff’d by an equally divided court); Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc., 508 U.S. 49 (1993) (copyright claim was immune from antitrust liability).

[3] Two Pesos v. Taco Cabana, Inc., 505 U.S. 763 (1992); Qualitex v. Jacobson Products Co., Inc., 514 U.S. 159 (1995) and College Savings Bank v. Florida Prepaid Postsecondary Education Expense Board, 527 U.S. 666 (1999).

[4] JEM Ag. Supply Inc. v. Pioneer Hi-Bred Int’l, Inc., 534 U.S. 124 (2001) (patent alternative to plant variety protection act); Festo Corp. v. Shoketsu Kinzoku Kogyo Kubushiki Co., Ltd., 535 U.S. 722 (2002); Holmes Group, Inc. v. Vornado Air Circulation Systems, Inc., 535 U.S. 826 (2002); Merck KGaA v. Integra Lifesciences I, Ltd., 545 U.S. 193 (2005); Illinois Tool Works Inc. v. Independent Ink, Inc., 547 U.S. 28 (2006) (rule of reason antitrust analysis); eBay Inc. v. Merc-Exchange, LLC, 547 U.S. 388 (2006); MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007); KSR v. Teleflex, Inc., 550 U.S. 398 (2007); Microsoft Corp. v. AT&T Corp, Int’l Co., 550 U.S. 437 (2007); and Quanta Computer Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008).

[5] New York Times Co, Inc. v. Tasini, 533 U.S.483 (2001); Eldred v. Ashcroft, 537 U.S. 186 (2003); and Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 545 U.S. 913 (2005).

[6] Wal-Mart Stores, Inc. v. Samara Bros., Inc. Co., 529 U.S. 205 (2000); TrafFix Devices, Inc. v. Marketing Displays, Inc., 532 U.S. 23 (2001); Moseley v. V Secret Catalogue, Inc., 537 U.S. 418 (2003); Dastar Corp. v. 20th Century Fox Film Corp., 539 U.S. 23 (2003); and KP Permanent Make-Up Inc. v. Lasting Impression I, Inc., 543 U.S. 111 (2004).

[7] Bilski v. Kappos, 130 S. Ct. 3218 (2010); Global-Tech Appliances, Inc. v. SEB S.A., 131 S. Ct. 2060 (2011); Bd of Trustees of Leland Stanford Jr. Univ. v. Roche Molecular Systems, Inc., 131 S. Ct. 2186 (2011); Microsoft Corp. v. i4i Ltd. Partnership., 131 S. Ct. 2238 (2011); and Mayo Collaborative Services v. Prometheus Laboratories, Inc., 132 S. Ct. 1289 (2012). See also Kappos v. Hyatt, 132 U.S. 1690 (2012) (admissible evidence in administrative proceedings).

[8] Reed Elsevier, Inc. v. Muchnick, 559 U.S. 154 (2010), and Golan v. Holder, 132 S. Ct. 873 (2012). See also Costco Wholesale Corp. v. Omega S.A., 131 S. Ct. 565 (2010) (aff’d by an equally divided court).

[9] Bowman v. Monsanto Co., 133 S. Ct. 1761 (2013); Gunn v. Minton, 133 S. Ct. 1059 (2013) (patent-related jurisdiction); Association for Molecular Pathology v. Myriad Genetics, 133 S. Ct. 2107 (2013); and FTC v. Actavis, Inc., 133 S. Ct. 2223 (2013) (reverse payment patent license antitrust analysis).

[10] Kirtsaeng v. John Wiley & Sons, 133 S. Ct. 1351 (2013).

[11] Already LLC v. Nike Inc., 133 S. Ct. 721 (2013).

[12] Han Solo to C-3PO, Star Wars: The Empire Strikes Back (1980).