Articles on Legal Issues from Danna McKitrick

Lessening the Stress of Travel for Travelers with Disabilities

2013-04-25T22:26:51Z

Flying can be a frustrating experience for anyone, but for those with disabilities it is even more difficult. Knowing what rights a passenger with disabilities has is the first step to ensuring the next flight is as stress-free as possible.

Booking a Flight

When booking a flight, travelers with disabilities are generally not required to provide pre-flight notification with a few exceptions:

Traveling by stretcher;
Using an electronic wheelchair (or other device with special batteries); or
Requiring connection to the airplane’s oxygen system during flight.

If none of these categories apply, the airline cannot deny travel for not being informed of a passenger with a disability’s travel plan. However, notifying the airline may ensure any desired accommodations are met with less stress on the day of travel.

Federal law has made provisions for people with disabilities who want to travel by airplane through the Air Carrier Access Act (ACAA) of 1986. The ACAA required the Department of Transportation to develop regulations to ensure non-discriminatory treatment of travelers with disabilities.
Note: While travelers with disabilities do have accommodations for air travel under the ACAA, they are not required to accept any or all accommodations.

Travel With an Attendant

Each airline determines whether an attendant is required, except in the following situations, which always require an attendant:

Passengers who cannot comprehend or respond appropriately to safety instructions,
Passengers with severe mobility issues who cannot assist in their own evacuation from the aircraft, and
Passengers with both severe hearing and vision impairment that make it impossible to receive safety instructions.

When an airline determines a traveler needs an attendant, it is not required to supply one. The airline can appoint an off-duty staff member on the flight to serve as an attendant or ask another passenger to volunteer to assist.

If the traveler and the airline disagree over the need for an attendant, the airline can require one but cannot charge for transportation of the attendant. Travelers with disabilities may also consider getting a letter from a licensed medical provider stating that they are capable of performing the necessary functions if there is any concern about the airline requiring an attendant.

Medical Certificate

Generally a medical certificate is not required. However, there are exceptions and reasons why carrying a medical certificate may be a good idea. An airline may request a medical certificate if the traveler is on a stretcher or incubator, needs medical oxygen during the flight, or has a medical condition that causes the airline to have reasonable doubt that the person can complete the flight safely without extraordinary medical assistance. ACAA language leaves a lot up to airline personnel discretion. If concerned, the traveler with disabilities should get a medical certificate to avoid being denied the right to fly.

Airport Escort and Service Animals

Passengers with a disability may have an escort take them through security and to the gate if desired. The escort gets a permit from the ticket counter to pass through security. Security screenings should be the same as for any other passenger, with a few exceptions. Individuals who are not physically capable of standing and raising their arms at shoulder level for five-seven seconds, are unable to stand without the aid of a crutch, walker, etc., have a service animal, or use oxygen will be screened using alternative measures (e.g., pat-downs). If a private screening is requested, it must be provided in time for the traveler to make the flight.

Once through security, travelers with disabilities and their escorts may move freely about the terminal. The personnel at the gate are required to give all the information available to other passengers to these travelers as well. Trained staff must be available to aid travelers with disabilities on and off the plane if needed. By being proactive and informing personnel that a person with disabilities is on the flight, and the accommodations needed, the airline can ensure the traveler’s needs are met. In addition, the traveler is made aware of any information that may affect travel.

Once on the plane, seating cannot be made on the basis of disability, with the exception of FAA requirements for exit rows. Service animals must be permitted on board; however, animals may be placed in cargo if there is no safe place to put them on the flight. Airline personnel must help passengers with disabilities move around the cabin while on board (e.g., to the restroom), open food/beverage containers as needed, and load/retrieve baggage.

Refusing Travel on an Airplane

To ensure a smooth trip for travelers with disabilities, it is important to both know their rights and to be proactive in exercising these rights. While travelers cannot be denied travel due to disability, they can be denied travel if their presence on the flight would endanger others. Airline personnel can refuse travel to any person they believe would endanger the health and safety of the other passengers. This can apply to someone they deem unable to assist themselves. Airline personnel cannot ask what disability a traveler has. However, they may ask questions to understand what the traveler can and cannot do and what accommodations the airline must make for the traveler.

When passengers are refused boarding, they must be informed by the airline how their presence on the flight would endanger other passengers. However, the airline does not have to provide the reasons for refusing boarding at the time of refusal but can wait until after the date of travel.

The best way to avoid unexpected delays is to be prepared. Knowing the rights of travelers with disabilities, how to enforce those rights, and the questions airline and airport personnel are allowed to ask are all key to ensuring a successful trip.

This overview by no means addresses every nuance of the Air Carrier Access Act and travel by air for persons with disabilities. There may be special rules that apply to particular situations, so be sure to research this before travel.

Download full 2013 Special Needs Community Newsletter

Posted by Attorney Misty A. Watson. Watson’s practice focus is estate-related: planning, administration, and probate. She creates trusts, wills, financial, and health care powers of attorney, guardianships, and conservatorships.

Entrepreneurs Are Closer to Mass Media “Private” Offerings – The SEC’s Tentative First Step

2012-10-05T20:37:04Z

Under present rules, entrepreneurs may not use the Internet, or even less powerful methods of mass media, to seek investors in their offerings. Under a proposal made August 29, 2012 by the Securities and Exchange Commission (the “SEC”), mass media would become available to them – with drawbacks.

In the May 2012 issue of Enterprise, we noted that the JOBS Act, among many provisions, directed the SEC to develop a rule allowing entrepreneurs to offer their securities without the present prohibition on “general solicitation.” “General solicitation” means use of mass communications, e.g., the Internet, mass mailings, telephone campaigns, newspaper advertisements, etc. The SEC on August 29, 2012 issued its proposed Rule 506(c), effectively creating a new offering method by elimination of the present ban on general solicitation.

This is only a proposal, but there will be a new rule allowing general solicitation, and past history shows that a first SEC proposal tends to be very close to, if not identical to, the rule finally adopted.

Under present exemptions from the federal requirement to register with the SEC (essentially impossible for entrepreneurs) in making offerings of their securities, even to accredited investors, companies may only contact persons with whom they have a pre-existing relationship or, according to most authorities, may contact only a small number (in the range of five to, say, 35, prospects) in one-on-one meetings or in very small private gatherings. Also, under the present most available exemption, the Rule 506 “accredited investor” exemption, the issuing company “must have reasonable grounds to believe, and believe, that the purchaser is accredited.”

The JOBS Act, and Rule 506(c) as proposed by the SEC, will allow the use of general solicitation, including offerings on the Internet. However, Congress in the JOBS Act required that the new Rule require the company “take reasonable steps to verify” that each purchaser is accredited.

Note the differing language between the present law and the JOBS Act: “having reasonable grounds to believe” a purchaser is accredited (present law) and “taking reasonable steps to verify” accredited status” (JOBS Act). Much speculation arose over whether the SEC in its rule would impose additional truly burdensome requirements on companies based upon the new word “verify.”

In its proposal of August 29, it is probable the SEC has required significantly more effort by the issuing company to “verify” the accredited status of the investor if general solicitation is to be used, than it requires for simple “reasonable grounds to believe” accredited status if the company does not propose to use general solicitation.

In their use of the presently existing exemption, that is, when not using general solicitation, most securities attorneys meet the “reasonable grounds to believe” requirement by simply having prospective investors complete “suitability questionnaires” describing their net worth and/or income, sometimes with simply a box to be checked indicating their net worth or income satisfy the requirement. Most issuers and their attorneys simply take the word of the investor, and the SEC and other regulators have generally not required further action.

The SEC’s new Rule 506(c) simply repeats the language of the JOBS Act itself, stating only “the issuer shall take reasonable steps to verify that purchasers of securities (under this new rule) are accredited investors,” without stating what actions will constitute sufficient “verification.” Its 69-page release, however, which cannot be covered in detail here, requires the company to determine what steps will constitute “verification” (and hope that juries, judges, the SEC and other regulators in future litigation will agree). The SEC release gives these companies only “factors to consider” in making that determination, which factors are (1) “the nature of the purchaser,” (2) “the amount and type of information which the company has about each purchaser,” and (3) “the nature of the offering.”

And in requiring the company to “consider” the “nature of” and “the information it has about” the purchaser, the SEC’s release implies that the company should require prospective investors to provide documents, such as net worth statements, tax returns, W-2 forms, and/or pay stubs to establish their net worth or income. The SEC makes that suggestion even though it admits “the privacy concerns” which such investors may have.

The release, in requiring consideration of “the nature and terms of the offering,” states, as an example, that a company will be required to exert more effort to “verify” the accreditation of purchasers who are solicited through ads in publicly available websites or social media than those solicited from databases of investors already pre-screened and determined to be accredited by, say, registered broker-dealers. (Of course, the latter method would probably not actually involve “general solicitation” anyway – author’s opinion.) Having investors in an Internet or social media offering just check a box would not be sufficient verification, but (by implication) it would for sales to the pre-screened investors.

These comments, and others throughout the lengthy release, indicate to this writer that the SEC intends that some discernible added effort by the company to actually verify the truth of representations made by prospective investors in offerings in which investors are individual natural persons. Probably the SEC also expects that a body of practice will develop over the first few years of implementation which will better define and quantify the appropriate requirements. The SEC’s release does not indicate how robust the SEC’s enforcement will be during the interim period.

The release also reminds entrepreneurs that, if sued by regulators or aggrieved purchasers, the entrepreneur has the burden of proof, i.e., must prove the existence of facts establishing the exemption (the claimant need only show there was no registration with the SEC – an easy showing). Therefore, the company is well advised “to retain adequate records . . . (of) the steps taken . . . .”

Another interesting question, not addressed by the SEC, or even by the numerous bloggers on this topic, is how this amended rule will be received by state securities law officials. Most states have exemptions from their own registration requirements based upon compliance by the issuing company with Rule 506. Whether and how compliance with new Rule 506(c) will comply with state law remains to be addressed.

Attorney Joseph R. Soraghan practices in legal matters pertaining to business operations and growth. He guides businesses in financing, contracts, acquisitions, mergers, and sales. Soraghan frequently resolves commercial disputes as an arbitrator or mediator, or through litigation.

Posted by permission from Missouri Venture Forum, Enterprise, October 2012

Missouri Supreme Court Limits What Constitutes an Accidental Injury in Work Comp

2012-06-14T21:23:57Z

The Missouri Supreme Court recently held that an employee who was injured while turning to walk away from a coffeemaker was not entitled to workers’ compensation benefits under Missouri law.

In Johme v. St. John’s Mercy Healthcare, Johme worked for St. John’s as a billing representative. While clocked into work, Johme made a pot of coffee. As she turned to walk back to her desk, Johme’s foot slipped off her shoe, causing her to twist her ankle and fall on her right side. The court noted that Johme was wearing “sandals with a thick heel and a flat bottom.” It also noted the following:

“There were no irregularities or hazards on the kitchen’s floor. The floor was not wet, and there was not any trash on the floor.”

An administrative law judge denied Johme’s claim for workers’ compensation benefits on the grounds that “she was not performing her [work] duties at the time of her fall at work,” and she “just fell and … would have been exposed to the same hazard or risk” outside of work.

In noting the relevance of exposure to “the same hazard or risk” outside of work, the judge was referencing language from Section 287.020.3(2) of the Missouri Revised Statutes. Section 287.020.3(1) defines “injury” as an injury that has “arisen out of an in the course of employment.” Section 287.020.3(2) states that an injury arises “out of and in the course of the employment” only if:

(a) It is reasonably apparent, upon consideration of all the circumstances, that the accident is the prevailing factor in causing the injury; and

(b) It does not come from a hazard or risk unrelated to the employment to which workers would have been equally exposed outside of and unrelated to the employment in normal nonemployment life.

Johme appealed the judge’s decision to the Labor and Industrial Relations Commission, which reversed the decision and awarded benefits.

The LIRC undertook a two-step process to come to its decision. First, the LIRC found that Johme’s risk of injury while making coffee was “incidental to and related to her employment” under the “personal comfort doctrine.” This doctrine, which was espoused prior to the 2005 amendments of the Workers’ Compensation Act, states that a risk or hazard is related to employment if the employee encounters it while acting to the benefit of the employer.

Second, the LIRC determined that once the hazard or risk that caused the injury is found to be “incidental to and related to the employment,” there is no need to determine whether the risk was one “to which workers would have been equally exposed outside of employment” under Section 287.020.3(2)(b). In support of this determination, the LIRC cited a 2010 Southern District Court of Appeals case, Pile v. Lake Regional Health Systems.

The employer appealed the LIRC’s decision on the basis that it was “not supported by sufficient competent evidence…to show that Johme’s injury arose out of and in the course of her employment” under Section 287.020.3(2).

The Missouri Supreme Court, in a 5-to-2 decision, reversed the LIRC’s decision. The court held that Johme failed to prove that her injury arose “out of and in the course of [her] employment” under Section 287.020.3(2). More specifically, Johme did not show that her injury resulted from a “risk related to her employment activity as opposed to a risk to which she was equally exposed in her ‘normal nonemployment life.’”

The court distinguished between two methods of analyzing whether an injury-causing risk is one to which the employee would be equally exposed outside of work. In the first method, the focus is on what the employee was doing when the injury occurred (e.g., Johme was making coffee for herself and others). The court implied that this method leads to a determination solely of whether the injury occurred “in the course of employment.” In the second method, the focus is on the “risk source” of the injury (e.g., Johme was turning to walk). The court implied that this method leads to a determination of whether the injury “[arose] out of” the employment.

The court noted that the LIRC relied on the first method in assessing whether Johme’s hazard/risk was one to which she would be equally exposed outside of work. The court found that the LIRC’s failure to also use the second method was erroneous.

In support of its decision, the court cited a previous Missouri Supreme Court case, Miller v. Missouri Highway & Transportation Commission. In Miller, the employee injured his knee “while he was walking briskly toward a truck containing repair material that was needed for his job.” The court held that the employee was not entitled to workers’ compensation benefits because, though his injury occurred “in the course of employment,” it did not arise “out of employment,” because the “source-risk” underlying the injury – walking – was one to which the employee would have been equally exposed outside of work.

What This Case Means for Missouri Employers

It is important to understand that there are two types of compensable injuries under the Missouri Workers’ Compensation Act:

accidental injuries, which occur suddenly as the result of one single incident; and
“occupational diseases,” which occur as a result of long-term exposure to a hazard or as a result of repetitive use of the injured body part.

The court’s holding in Johme is applicable solely to accidental injuries, such as Johme’s accidental fall.

Because of the Johme case, it is now as important as ever for Missouri employers to gather copious details regarding the circumstances of alleged accidental injuries. For example, when an employee allegedly suffers an injury as a result of a fall, the employer should immediately determine (a) whether any specific environmental condition – i.e., debris, trash, water, food – caused the employee to fall; (b) what kind of shoes the employee was wearing when the fall occurred; (c) whether the employee was carrying anything when the fall occurred (and, if so, whether what was being carried had anything to do with the employee’s work activities); etc.

In gathering details, employers need to repeatedly ask themselves, “Did the risk that caused this injury arise out of the employee’s employment?” If the employer believes there is any possibility that the answer is “No,” the employer needs to gather all facts that could be even remotely supportive of the “No” answer.

In Johme’s case, relevant facts included that there was nothing on the floor where Johme fell and Johme’s shoe appeared to play a role in the fall. Johme’s supervisor completed an injury report, on which he stated that Johme was “…making coffee in the kitchen, turned to put [coffee] grounds in [the] trash, twisted [her] ankle and fell off [her] shoe….” This factual account was noted by the court in its decision, and the court emphasized the fact that Johme fell off her shoe in determining whether the cause of Johme’s injury was causally related to her work activities.

This shows just how important it can be for an employer to proactively gather information when confronted with an alleged accidental injury and how much of an impact that information can have.

Of course, after gathering as much information as possible regarding an alleged injury, employers should quickly provide the information to their workers’ compensation insurers.

Posted by Attorney Christopher D. Vanderbeek. Vanderbeek is involved in the evaluation and defense of workers’ compensation and other insurance claims, protecting the interests of employers and insurers.

Whither the Joint Session

2012-05-14T20:48:42Z

Recently I represented a client in a mediation at which the mediator – from New York – told me that he would not hold a “joint session” (i.e., a discussion in which all the parties or their representatives, personally, and all counsel, are present, and at least “opening statements” are given) unless the parties required one. The reason he gave was to avoid putting my client, a 72-year-old widow, in a stressful situation. I was skeptical, but agreed. (The case did not settle, though I cannot necessarily blame that on the lack of a joint session.)

Since then I have researched the mediation literature, and found that in many areas of the U.S. mediators are recommending to the parties that the joint session be dispensed with and that the mediation consist only of separate caucuses. The reason typically given is, as above, the potential volatility of the parties or their reluctance to be in the same room with their opponent.

After that research, and discussion with numerous other mediators, I believe that a joint session, properly structured and moderated, generally increases the likelihood of a settlement, and a fair one.

Negatives of the Joint Session

A number of reasons are given for dispensing with the joint session:

The joint session takes additional time;
It puts a timid party in a stressful situation;
Some counsel or parties will use it to intimidate the other side;
The joint session is not appropriate

(a) when criminal behavior or physical abuse is a factor, and
(b) when the parties know and literally hate each other too much.

Positives of the Joint Session

In favor of holding joint sessions, however, are factors too numerous to list but which include:

The discomfort caused the parties, even parties unfamiliar with litigation, is perhaps positive, in that it familiarizes those parties, to a small extent, with the discomfort they will face in trial;
It gives the parties a “day in court;”
It provides an opportunity for the parties to see each other as human beings, at least during the course of small talk unrelated to the dispute, which is generally included in joint sessions;
It informs each party, and counsel, of how the other party will look and sound at trial should the case not be settled.
It saves time in covering issues jointly rather than separately.

Be Creative

And even in situations in which it is anticipated that the parties will not get along, or in which events or certain persons in the joint session may obstruct the effectiveness of the joint session, a limited joint session may still be advantageous, and a creative mediator will consider changes to the classic joint session model in order to avoid losing all the benefits of the joint session. These include:

Professionals only, in which opening statements, and possibly further discussion, are made with only the attorneys present (requiring agreement of all parties before such session is begun);
Partial client attendance, excusing one or more parties from portions of the joint session, such as allowing a party to listen to presentation of his own case, but excusing him from presentation of the other side if he would not receive it constructively;
Limited issues, in which certain particularly incendiary issues are precluded from the joint session and the parties and counsel focus on only those issues which might lead to settlement.

Obviously, planning ahead for such modified joint sessions is best brought about by discussions between the mediator and counsel for the parties well in advance of the mediation itself. During those conferences, the mediator should ask counsel about the possible reaction of his or her clients to persons who might be present, to the issues which might be brought up, etc., and determine what counsel intend themselves to do at the joint session.

After such pre-mediation discussions with counsel, the mediator should encourage counsel to agree to as much of a joint session as possible, but should also respect counsels’ desire to limit or eliminate the joint session.

Posted by Attorney Joseph R. Soraghan. Soraghan practices in legal matters pertaining to business operations and growth. He guides businesses in financing, contracts, acquisitions, mergers, and sales. Soraghan frequently resolves commercial disputes as an arbitrator or mediator, or through litigation.

Social Security Survivor Benefits for Noncitizens

2012-06-07T16:09:06Z

Co-authored by Misty A. Watson and Cliff Smith

Social Security survivor benefits can be an important component of your spouse’s financial security after your death. While the majority of U.S. citizens in the American workforce have survivor insurance protection for their spouses, noncitizens who are working in the United States are subject to different eligibility rules. Even if you are working in Social Security covered employment and your immigration status is fully legal, your spouse may not be able to receive survivor benefits after your death if these requirements are not met. Also, your surviving spouse may unknowingly forfeit survivor benefits upon leaving the United States. Read on to see if you are eligible and what your spouse will have to do to continue receiving benefits.

If You Are a Noncitizen…

The first question is whether you are currently covered by the Social Security program. In most cases, if you are working for a U.S. employer, even without authorization, the answer is yes. Among the few exceptions are people working under certain visa categories designated in § 101(a)(15) of the Immigration and Nationality Act. These categories are designated by short alphanumeric codes, and they include the following:

H-1B temporary professional workers
H-2A agricultural workers
F-1 foreign students
J-1 cultural exchange participants

Second, if you received your Social Security Number on or after January 1st, 2004, you may need federal work authorization in order to be eligible for any kind of Social Security benefits, including survivor benefits. Does not make a difference when you receive your work authorization; even if you did not have it when you began working in the U.S., you may obtain it at a later date and still be eligible for benefits. Noncitizens admitted to the U.S. under a B visa or D visa are exempt from the work authorization requirement.

Third, in order for your spouse to receive survivor benefits, you must work long enough to obtain fully insured status. Insured status is determined by the number of quarters of coverage (“QCs”) you accumulate during your working years. In 2012, workers will earn one QC for every $1,130 in wages they receive. To achieve fully insured status, you will generally need to earn one QC for every year that elapses between the year you turn 21 and the year you either turn 62, become disabled, or die, whichever comes first.

If Your Spouse is a Noncitizen…

After your death, assuming you are either a U.S. citizen or a noncitizen who has met all the above eligibility requirements, your spouse must meet Social Security’s lawful presence requirement in order to receive benefits while he or she is in the United States. It is important to know that being lawfully present for Social Security purposes is not the same as having lawful status under United States immigration law. The definition of “lawfully present” is a multi-part definition, and it includes lawful permanent residents, refugees, asylees, noncitizens paroled into the United States for less than one year, and Cuban-Haitian entrants.

In addition, if your surviving spouse ever leaves the United States, there are two rules that may limit his or her ability to receive survivor benefits. However, your spouse may be exempt from these rules if the country of origin falls into one of three categories:

Social insurance countries. These are countries with social insurance or pensions systems that will pay benefits to U.S. citizens who reside outside that country. The United States will extend a reciprocal benefit to citizens of social insurance countries who reside outside the U.S.
Treaty obligation countries. The United States has entered into treaties with certain countries requiring the payment of Social Security benefits to noncitizens under certain circumstances.
Totalization agreement countries. A totalization agreement is an agreement between the United States and another country with a program similar to the American Social Security system. Totalization agreements allow greater flexibility for workers who split their careers between the two countries.

Under the first rule, unless you are a citizen of a treaty obligation country or a totalization agreement country, your spouse must have lived in the United States for five consecutive years (lawfully or unlawfully), and you must have been married during some part of that five-year period. Under the second rule, unless your spouse is a citizen of a social insurance country or a totalization agreement country, your spouse will stop receiving benefits if he or she lives outside the United States for more than six consecutive months.

Ensuring Your Spouse’s Eligibility for Survivor Benefits

It is important to fully understand your status and that of your spouse under Social Security as early as possible. If there are any problems with your eligibility, they cannot be remedied after your death, so be sure to look into the matter while you are planning your estate. In addition, the Social Security residency requirements for surviving spouses may influence your spouse’s decisions about his or her residency after your death.

Posted by Attorney Misty A. Watson and law clerk Cliff Smith. Watson’s practice focus is estate-related: planning, administration, and probate. She creates trusts, wills, financial, and health care powers of attorney, guardianships, and conservatorships. Smith is a second year law student at Saint Louis University School of Law and is on the staff of the Saint Louis University Law Journal. He graduated from Washington University in St. Louis in 2008, majoring in philosophy, neuroscience, psychology and computer science.

Quick! . . . Mediate That Business Divorce!

2011-12-30T16:10:16Z

One of the officers of a corporate client calls. You note the distress in his voice immediately. He tells you that a dispute has arisen between the major shareholder factions of the company, and he wants you to advise on what he and those in his faction can do to win this. And you can tell he expects you to talk “reason” to the other faction.

But you quickly realize that although for the moment knowledge of the dispute is restricted to people in the company, it will only be a short time before it gets out to the customers, suppliers, banks and others with whom the company does business, threatening the existence of the company.

You should consider recommending the factions mediate the dispute, if possible before litigation is filed.

Advantages of Mediation

Some advantages of mediation are:

No Publicity. No lawsuit is filed. The situation can be kept as confidential as the parties want.

Speed. Trial, or even a hearing for significant injunctive relief, will take months, if not years. And as soon as customers hear there is an internal dispute — and they will — they will take their business elsewhere, to a “stable” competitor. And this risk increases significantly if a lawsuit is filed. A mediation can begin immediately.

Possible Quick Reduction in Ill-Will. The early part of most mediations give the parties the opportunity to vent, and then to be brought by the mediation format to look for rational resolutions. The mediator could, for example, hold an immediate mediation session, not necessarily to reach resolution immediately but as a way to begin gathering information. But another objective would be to reduce the ill-will between the factions, pending one or more future sessions to be held a short time later. During the following interim, they would likely work better together, and the company’s employees will understand that they have begun to work out their problems.

Better Resolutions than are Available in Litigation. In most business divorce situations, the court at best has very limited options for resolution, usually being able only to dissolve the company and distribute the assets. The parties in mediation, on the other hand, have unlimited possibilities to resolve the dispute. The easy ones come readily to mind: one faction buys out the other, perhaps on a “push-pull” basis. Frequently a company has two or more lines of business, and different factions can take different lines into separate companies.

And courts, with crowded dockets and lack of expertise in complicated corporate structure, with tax and very complicated technical issues arising from the nature of each unique business line (hence the Business Judgment Rule), frequently make mistakes in their attempts at resolution, mistakes which the parties with their lawyers, advisors and a mediator are unlikely to make.

Complicated Issues Must be Resolved

The company’s lawyer, and the lawyers for the disputing factions, must be versed in those issues in deciding whether to go to mediation, and indeed, in choosing a mediator. And they and the mediator must be familiar with them in the mediation process.

Some of those issues are, to name a few:

Valuation (virtually all such cases require valuation of the business as a whole, and valuation of its lines, its hard assets, value claimed by each faction for work and assets previously contributed without compensation, etc.);

Possible legal restrictions on settlement by the statutes, the articles of incorporation and bylaws (or the articles of organization and operating agreements of LLCs) (e.g., companies may not purchase their own stock if it will “impair capital”; there may be shareholders who are not in the disputing factions whose rights must be preserved; labor laws may set requirements on treatment of employees in any settlement);

Rights of third parties (e.g., creditors and third parties to the company’s contracts may have guarantees and other rights from the disputing principals that must be accommodated);

Regulatory issues (e.g., brokerage firms, bars/restaurants and other businesses are frequently required to have licenses the continuation of which requires persons with certain qualification stay in management);

Tax issues (e.g., some flow-through entities incur serious consequences if the ownership of more than 50% of their equity changes).

But underlying the parties’ negotiation positions will always be their (and their attorneys’) beliefs about how favorable a resolution they would get if they filed and completed litigation. So the mediator must also be familiar with the complexities and vagaries of litigation: the remedies available, (partition? injunctive relief vs. mandamus?), motion practice, what evidence would be admissible in trial, the level of understanding of most judges with complicated business law issues, and others.

Mediation, Even Prior to Filing, is Usually the Best Decision

My experience as a transactional attorneyand a business litigator and arbitrator is that seeking to settle as quickly as possible, even before filing litigation or arbitration, has historically improved the outcomes for both (or all) disputing factions. Admittedly, business people as a class are strong-willed and aggressive, and often want to “win.” But they are also business people who regularly evaluate risk and prospective benefit, and negotiate to “deals.” With that mindset on the part of the disputing factions, the probability of a mediated settlement is greater among business persons than among most other groups. And even if the mediation does not resolve the dispute, it usually improves the tone and quality of outcomes in litigation that follows.

Crowdfunding – Good and Not So Good

2011-12-30T16:10:58Z

On November 3, 2011, with a bi-partisan 407-17 vote the U.S. House of Representatives passed the Entrepreneur Access to Capital Act (H.R. 2930 and the “Access to Capital for Job Creators Act” H.R. 2940) (the “Acts”). The bills will now go to the U.S. Senate for reconciliation.

This Acts amend the Securities Act of 1933 to essentially allow “general solicitation,” heretofore illegal, in small offerings of investments if they meet numerous other restrictions. The Acts allows an issuing company to offer and sell securities, without regard to the general solicitation–type methods of promotion used, to an unlimited number of purchasers, so long as no purchaser is allowed to spend more than the lesser of $10,000.00 or 10% of his or her net worth, and the total amount of securities purchased within any 12 month period is no greater than one million dollars. And purchasers need not be “accredited” (usually meaning having a net worth of no less than one million dollars or annual income of $200,000.00 or $300,000.00 if purchasing jointly with a spouse). (And, if the issuer provides potential investors with audited financial statements, the offering may be as much as two million dollars. This may be particularly important in light of the ease of auditing a newly formed issuer with no history of operations and earnings).

Also, the Acts allow entrepreneur issuers to utilize “intermediaries,” who need not be registered as broker-dealers with the SEC, to assist in finding investors. This is a significant change from the present law, albeit with many restrictions on the use of the intermediary.

This is a “sea change” in the law of private placements. Perhaps its greatest significance is the new ability of such issuers to use the internet in private offerings. Also, it allows many potential investors, not sufficiently affluent to be “accredited,” to participate in an admittedly limited method in the growth of entrepreneurial companies. And, of course, it opens to entrepreneurial companies’ access to a body of investors hereto for prohibited to them.

However, some of the “restrictions” on crowdfunding should cause some companies to select other methods of private placement, particularly those who can attract sufficient accredited investors. These negative factors should also cause the Senate, in its considerations, to consider improving this new exemption.

Under pressure from state regulators, who believe that the $10,000.00/10% of net worth restrictions are too high and still allow purchases by unsuitable (i.e. non-affluent) prospective investors, it is likely that the Senate versions and eventually the House versions, if adopted at all, will decrease the minimum investment allowed by each investor. Even without such reduction, the amount that most persons will invest will be significantly smaller than that of average private placements under present law. This will result in there being many more investors–many more holders of interests in the entrepreneur’s business–than in traditional private offerings, increasing the cost of administering investor relations. And precise administration of investor relations is crucial to an entrepreneurial business’s ability to get future financing from venture capitalists or to achieve an exit event such as a purchase by a larger company.

Perhaps worse, the presence of many persons with the right to vote on whether to go forward with future financings or exit/liquidity events, perhaps requiring giving significant pre-emptive voting or other rights to venture capitalists, may also hinder such future financings. For this reason, crowdfunding, if it ever becomes law, may better be used for debt or other investments which do not include voting rights.

Also, the House bills require that the issuing company engage a “qualified third-party custodian, such as a broker or dealer registered” with the SEC or an “insured depository institution” to handle its “cash-management functions.” The bills do not define “cash–management” functions, and the issuer may have difficulty retaining a custodian, at least until prospective “cash managers” receive some assurances that they do not face the same problems which cause registered broker-dealers to avoid involvement with entrepreneurial issuers.

Crowdfunding, should it become law, will significantly improve the fundraising opportunities for some companies. However, it will not be best for all companies and will prove complicated and problematic even for those companies it benefits.

Reprinted with permission by the Missouri Venture Forum, Enterprise, December 2011 issue.

Employees Can Sue Employers in Civil Court for Occupational Disease Claims: Missouri Appeals Court

2011-12-30T16:11:51Z

Missouri’s Western District Court of Appeals recently decided that an employee can sue his employer in civil court for an “occupational disease” claim. The case, KCP & L Greater Missouri Operations Co. v. Cook, involved Monroe Gunter’s claim for damages stemming from a work-related injury. He claimed that he contracted mesothelioma as a result of having been exposed to asbestos during his employment with KCP&L. The court ruled that Gunter was allowed to file suit in civil court because, under Missouri law, the workers’ compensation forum is not the exclusive forum for a claim premised on an “occupational disease,” such as mesothelioma. (Note the distinction between an “occupational disease,” which develops over a period of time, versus an injury that happens instantaneously or acutely as a result of a single accident.)

This is a major change from prior law. Historically, the exclusive remedy for an employee with any employment-related injury – whether acute or gradual in onset – was to pursue a claim in the workers’ compensation forum. This is a system that clearly benefits employers (as well as third-party workers’ compensation insurers).

There are two types of employers in the workers’ compensation context: those who carry insurance policies issued by third-party insurance companies, and those who self-insure – that is, who create and pay into their own private workers’ compensation insurance policies. In every work-injury case, there are three benefits to which an injured employee is presumptively entitled: medical costs, lost wages, and permanent disability.

Two Scenarios

Consider the difference between the likely cost of a workers’ compensation claim versus the possible cost of a civil lawsuit with regard to: (1) a Missouri business with a workers’ compensation insurance policy issued by a third-party insurance carrier; and (2) a Missouri business that self-insures.

1. Missouri business with a third-party policy.

Workers’ Compensation Claim

The only substantial cost the employer incurs as a result of a work injury is the increase in monthly premium that results from the “exposure” of the injury. The insurance carrier pays all claim-related costs for medical treatment, lost wages, and permanent disability. The insurance carrier also pays all attorneys’ fees associated with defending the claim, if necessary.

Civil Lawsuit

It is possible, depending on the terms and language contained in the employer’s workers’ compensation insurance policy, that the workers’ compensation insurance will not cover the company’s liability because the injury is not a “workers’ compensation” injury. If this is the case, the employer will be liable for all injury-related costs, including medical treatment, lost wages, permanent disability, and attorneys’ fees.

The good news for employers is that, in the civil realm, the employee will have to prove that the injury was caused by the employer’s negligence. Contrast this with the workers’ compensation system, in which the employer and its insurance company are strictly liable (i.e. liable without evidence of fault) for all injuries as long as the employee proves that the injury was caused by his work activities. Clearly, the evidentiary standard is harder on the employee in a civil lawsuit than in the workers’ compensation forum.

Still, if the employee is able to prove employer negligence, the employer will face costs dramatically higher than the increased insurance premium it would face in the workers’ compensation system. Plus, regardless of whether the employer wins or loses a civil case, it will be responsible for attorneys’ fees with the workers’ compensation insurer out of the picture.

2. Employer that self-insures.

Workers’ Compensation Claim

The maximum cost to the employer is still relatively low. The maximum number of weeks a claimant can possibly obtain in permanent disability is 400, and the maximum rate per week is currently $811.73 (for permanent total disability). That caps the possible cost to the employer for permanent disability at $324,692. And note that in order to be entitled 400 weeks of disability, the employee essentially has to have died as a result of the injury.

With regard to medical costs, the self-insured employer has the right to direct and control medical treatment. With that right comes substantially depressed medical costs due to state-regulated re-pricing of medical billing.

Civil Lawsuit

Again, the injured employee has to prove employer negligence. This is not a simple task, but assume that the employer accomplishes it. $342,692 may seem like a high cost. However, consider the possible liability in a civil jury trial where, depending on the circumstances, an employer could face a punitive damages award that could reach $500,000.

In addition, in a civil case, the employer no longer is afforded the right to direct medical treatment, as it would in a workers compensation case. The employee can treat wherever he wants. And without directing treatment, the employer loses the benefit of re-priced (i.e. lowered) medical costs and selecting treatment providers with whom it has established client relationships. Under Missouri law, it is possible for injured claimants in a civil trial to obtain more money for medical costs than their insurance provider actually paid for their medical care. As a result, the workers’ compensation forum is unquestionably preferable for the self-insured employer.

What This Means for Missouri Employers

Most “occupational disease” claims involve “repetitive use” injuries, such as carpal tunnel syndrome (wrists/hands) and epicondylitis (elbows). It is yet to be seen whether or not Missouri courts will allow pursuit of these sorts of claims in the civil forum as well. However, it seems clear that KCP & L would permit an injured employee to pursue a repetitive use claim in civil court.

Still, this does not mean that most – or even many – employees will do so. Repetitive use injuries like carpal tunnel syndrome are caused by repetitive use. Plain and simple. It is hard to believe an employee would be able to prove that his employer’s negligence caused this sort of injury. To prove negligence, an employee must prove that the employer knew or should have known that a harmful condition existed and that its employees were at risk as a result. If the employee cannot prove negligence, it would be foolish for his attorney to file a civil lawsuit rather than a workers’ compensation claim.

“Injuries” such as mesothelioma, which results from years of exposure to asbestos, are do not commonly result from employment. However, Missouri employers need to ensure that they are not subjecting their employees to hazards – like asbestos – that can cause disease. Employers should also ensure that there is no way an employee can show that the employer’s negligence caused him to develop a repetitive use injury. How can employers do this? Ensure that:

Machines work as they should. This includes making sure that machines are routinely maintained.
Employees are educated and trained in the proper manner of using machines, tools, and other devices used in the course and scope of their job activities.
Employees use safe/proper techniques in performing their job activities, and employees who do not are reprimanded.
Employees are instructed to immediately report any acute injury. (This will help prevent acute injuries from becoming, arguably, repetitive-use/occupational disease injuries.)
At least one administrative employee has the job function of monitoring employee activities and machine performance.

The more employers use their imaginations with regard to how they could possibly be viewed as negligent with regard to employee safety, the better they will be insulated against civil claims for “occupational disease” claims.

Employers should act accordingly to reduce “occupational disease” risk to their employees and protect their business from civil claims beyond the scope of workers’ compensation.

Control Agreements from the Secured Party’s Perspective – Perfecting Security Interests in a Securities Account

2011-12-30T16:12:40Z

Any secured party, e.g. a bank, making a loan inevitably wants as much control over its collateral as the borrower is willing to give, and the law allows. In a declining real estate market, an obvious source of collateral for lenders may include a borrower’s securities account. But, taking a securities account as collateral adds an additional element to the loan process by bringing a new party to the table – the financial intermediary.

As people in the industry know all too well, different forms of collateral require different procedures to properly perfect their security interests. Real property, for example, is relatively straight forward; a secured party in Missouri records a properly executed deed of trust with the recorder of deeds office in the county in which the property is located. Investment property (stocks, bonds, mutual funds, brokerage accounts, etc.) are a different animal altogether. Under the Uniform Commercial Code (the “UCC”), a securities account is classified as investment property (UCC § 9-102(a)(49)). Most investors do not maintain physical possession of their certified securities (stock certificates or bonds); rather, these are held by their financial intermediaries. Understanding that your borrower will not have the ability to hand you its certified security for this reason, a creditor wishing to obtain its highest priority should perfect its security interest in investment property by control (UCC § 9-314(a)).

The secured party gains control over the securities account when the owner of the account instructs the securities intermediary, after the secured party has rights in the account, that the intermediary shall comply with the secured party’s orders without consent of the owner.

Put more simply, for a lender to perfect its security interest in a securities account two steps are required: (1) execute a written security agreement whereby the borrower acknowledges its pledge of the account (rights to the account); and (2) enter into a written three-party agreement among the lender, borrower, and financial intermediary (borrower’s instructions to the intermediary).

The most efficient method of gaining control in a securities account is by use of a control agreement (alternatively, the borrower may agree to have the securities titled in lender’s name). Most control agreements start with the secured intermediary’s, e.g. a securities or brokerage firm, standard control agreement form. The financial intermediary has two primary goals with this document: (1) accommodate its client so that the borrower may use its account as collateral for a loan; and (2) limit its own liability for entering into this transaction. When representing a secured party, this leaves significant room for improvement from the bank’s attorney’s perspective.

Aside from the typical concerns in a contract – jurisdiction, venue, notice provisions, etc. – below are a few issues a secured party should consider when taking a securities account as collateral:

Is the securities account properly identified? Here, the name of the borrower, the financial intermediary, and the secured party, in addition to the account number, should all be clearly identified.
Does the financial intermediary agree to comply with instructions from the secured party, even if it is to the borrower’s detriment?
What representations and warranties does the intermediary provide? The intermediary should, at a minimum, represent and warrant that: (a) it will provide copies of all statements and trade confirmations to lender; (b) notify lender if anyone makes a claim to the account, and that there are no current claims to the account other than those of lender and the financial intermediary; (c) the account is held in borrower’s name; (d) the statement provided to lender is accurate at the time the control agreement becomes effective; (e) the account does not contain any financial asset registered in borrower’s name, payable to borrower’s order, or specifically endorsed to borrower, which has not been endorsed to the intermediary, lender, or in blank; and (f) neither borrower nor the intermediary shall terminate the account.
Who has priority as between the financial intermediary and lender? The lender should insist the intermediary subordinate its set-off rights in the account to the rights of lender.
What is the current value of the account? Lender may require borrower’s account maintain a minimum value.

Understanding that a secured party’s highest form of priority is for a secured lender to take control is the first step properly securing such an account. Realizing that you are not relegated to using a broker’s pre-printed control agreement enables the lender to further enhance its position.

Posted by Attorney James M. Heffner. Heffner practices in corporate and real estate law. He is experienced in the purchase, sale, financing, and leasing of real estate, as well as the creating and negotiation of construction documents. In corporate matters, he supports business owners in structuring entities, shareholder disputes, mergers, and stock purchases/redemptions.

Employee Social Media Griping: Can An Employer Terminate Employees Because of Their Social Media Posts Without Violating Section 8(a)(1) of the National Labor Relations Act

2011-08-30T15:45:50Z

Social Media is the new water cooler conversation. It enables and facilitates conversations that years ago would have taken places at the old-fashioned water cooler. In today’s world of Facebook and Twitter, employee complaining is instantly, electronically and permanently transmitted to the world. Social Media users think less about their posts and disclose more so that a simple gripe monologue is turned into dialogue – on steroids – with the world. Such platforms encourage employees to blur their personal and professional lines of behavior and blurt out what is bothering them without engaging their higher level thinking tools.

With seven hundred and fifty million people actively using Facebook, there is a significant chance that a post about working conditions, compensation or other issues related to their employment will spark a conversation with an employee’s colleagues, and such conversations may constitute concerted activity under the National Labor Relations Act.

The question remains, if your employees say something negative on Facebook about your company, their fellow employees or their supervisors, can you terminate without running afoul of the National Labor Relations Act?

The answer depends on the facts surrounding the post(s). The test is whether the employee is engaging in activity solely for himself or on behalf of other employees.

Individual social media griping activity that is the “logical outgrowth of concerns expressed by the employees collectively” are considered “concerted” and protected under Section 8(a)(1) of the the National Labor Relations Act (“Act”). “Concerted activity includes ‘circumstances where individual employees seek to initiate or to induce or to prepare for group action’ and where individual employees bring ‘truly group complaints’ to management’s attention.” Meyers Industries, 281 NLRB 882, 885 (1986)

The following factors should be considered:

Is the post concerted activity?
Is the post directed at other employees?
Does the post suggest that the employees take some action?
Is the employee posting a Spokesperson for Common Concerns?
Does the post arise out of a previous union or employee group?

What this means is that not all online posts are protected. Two Advice Memorandums issued this July by the National Labor Relations Board, Office of The General Counsel regarding non-union companies provide guidance. In JT’s Porch Saloon & Eatery, Ltd., the NLRB found no concerted activity when a bartender complained to his step-sister on Facebook that he had not received a raise in five years, he was performing waiter’s work without tips, the Company’s customers were “rednecks” and he hoped the customers choked on glass as they drove home drunk. The Board found that the termination was not in violation of the Act because the post was not discussed with any other employees, before or after he wrote it and there had been no employee meetings or attempt to initiate group action regarding the tipping policy.

Similarly, in Wal-Mart, the NLRB found no concerted activity when a customer service employee, after an interaction with the Assistant Manager, posted the following comment on his Facebook page: “Wuck Falmart! I swear if this tyranny doesn’t end in this store they are about to get a wakeup call because lots are about to quit.” The Facebook friend responses were mixed with some friends responding favorably and others not. The customer service employee responded further by making negative comments regarding his supervisor, using profanity and claiming false advertisement on behalf of Walmart. Of course, a co- worker “friend” gave a copy of the post to the supervisor at issue and the supervisor required him to take down the post, suspended him for a “decision day,” and prepared a discipline report.

In defense, Walmart claimed that the postings were not concerted activity for mutual aid or protection, and even assuming so, the Charging Party’s use of profanity was so “opprobrious” as to deprive him of the Act’s protection. The Advice Memorandum found the customer service employee’s comments were solely about him and were “mere griping.” The comments did not look toward group action.

In contrast, the National Labor Relations Board issued a complaint alleging that the Hispanics United of Buffalo unlawfully discharged five employees because they took to Facebook to criticize working conditions, including work load and staffing issues. In this case, an employee, in advance of a meeting with management regarding working conditions, posted an allegation that employees did not do enough to help the organization’s clients. Five employees responded and defended citing work loads and staffing issues. The organization terminated the five defending employees because their defense constituted harassment of the employee originally mentioned in the post. The National Labor Relations Board Complaint claims that the Facebook discussion was protected concerted activity. Outcome of this complaint is not known at time of this post.

Social Media has been likened to a “loaded gun.” For all its benefits, it can be quite dangerous to the employer as well as the employees if it is not used appropriately. It is in the employer’s best interest to establish legal social media policies and train employees on the ramifications of their social media use as it relates to their employment.

However, employers should not impair an employee’s ability to act in concert or to effect some change in the terms and conditions of the workplace.

Just as employees should think before posting on Facebook, employers should think carefully before disciplining employees to avoid running afoul of the National Labor Relations Act. As unwise as it may be to complain about one’s employer on Facebook, it may be unlawful for an employer to discipline an employee for voicing such a complaint.

For more information and guidance, please check out the National Labor Relations Board Acting General Counsel Report on Social Media Cases.

Posted by Attorney Ruth A. Binger. Binger serves both emerging and mature businesses concentrating in corporate law, intellectual property and technology law, and labor and employment law. Her commitment to the success of small to medium-sized businesses, and her understanding of multi-faceted issues inherent in operations, are what distinguish Binger’s practice.