Legal Alerts

Damages from the Spill
by Chris Hanslik
July 23, 2010

The BP oil spill has adversely impacted the lives and businesses along the Gulf Coast and beyond. People have lost jobs and certain ways of life are gone for years if not generations. One of the first questions asked is who will be responsible for the harm caused by this disaster. While there are several companies who may end up being help accountable, the more appropriate question is will those affected be able to recover for the monetary damages they have suffered. The subject of damage caps has received a lot of attention recently because of the size and scope of the oil spill. While there are caps on damages under certain statutes they will not work to limit the ultimate liability of certain companies.

The primary statute at issue is the Oil Pollution Act of 1990 (OPA). The OPA was enacted in 1990 in response to the Exxon Valdez oil spill in Alaska. The principal purpose of the OPA is to compensate any party suffering damages from discharges of oil or hazardous substances. The OPA is designed to provide protection for the environment as well as to aid the victims of oil spills.

To establish liability under the OPA only two elements must be proven: (1) that there is a discharge of oil or covered oil-related substances, and (2) that the discharge either went into navigable waters or poses a substantial threat to navigable waters of the United States. If a plaintiff proves these elements, he will recover all damages covered by the OPA that result from the discharge.

The OPA provides four classes of damages:

1. removal costs;
2. damage to real or personal property owned or leased by the claimant;
3. damages to natural resources that the claimant used for subsistence; and
4. economic damages because of damage to property or resources even if the claimant did not own or lease the damage property (this covers damage to or impairment of earning capacity).

The OPA provides a cap on the damages against a responsible party relating to an offshore facility. The general rule is that the total liability of a responsible party is capped at the total of all removal costs plus $75,000,000.00. However, the OPA provides two exceptions to the cap on damages: (1) gross negligence or willful misconduct; or (2) the violation of an applicable Federal safety, construction, or operating regulation by the responsible party or someone acting on behalf of the responsible party.

In addition, the OPA does not preempt state law and the damages that flow from state law claims. Therefore, claims to recover damages resulting from the spill will not necessarily be limited to the caps set forth in the OPA.

The Great Freight Recession
by Gus Bourgeois
July 21, 2010

The Council of Supply Chain Management Professionals released a report in late June 2010 entitled "The Great Freight Recession", which stated that U.S. business logistics costs plummeted to $1.1 trillion in 2009, a decrease of $244 billion from 2008. In addition, the report noted that in 2009, "U.S. logistics costs as a percentage of Gross Domestic Product (GDP) hit a record low of 7.7 percent, the lowest point ever recorded in the 30 years that data has been collected. In the past, a low ratio signified that American logistics managers were doing a good job controlling costs and efficiently moving and storing goods. But last year, that number slipped for a different reason. As the volume of goods produced in the United States declined, so did the amount of tonnage to be shipped, thus dragging down logistics spending."

The fact of the downturn in logistics spending is certainly no surprise — but the depth of this downturn remains a major concern, not only for the transportation and logistics industry, but for the U.S. economy as a whole. Conventional wisdom holds that the Great Recession ended in late 2009 and that economic activity began to substantially rebound in early 2010, with manufacturing leading the way. However, unless shipping and logistics activities enjoyed a significant bounce in the first two quarters of 2010 — which appears unlikely, in light of recent downward GDP revisions for that time period — then, to paraphrase Mark Twain, reports of the death of the Great Recession may have been greatly exaggerated.

Texas Supreme Court Decides in Favor of Employers on Issue of First Impression
by Matt Veech
July 1, 2010

In Waffle House v. Williams, the Texas Supreme Court was presented with an issue of first impression relating to the exclusivity provision of the Texas Commission on Human Rights Act (TCHRA). In Waffle House, the employee prevailed at trial on her claims of sexual harassment and negligent supervision and retention. The trial court entered judgment on the negligence claims under an election of remedies because the employee was able to avoid the TCHRA's statutory cap on damages.

After the Court of Appeals affirmed that judgment, the Texas Supreme Court granted petition to consider several issues, including an issue of first impression: "may a plaintiff recover negligence damages for harassment covered by the TCHRA?" In its June 11, 2010 opinion, the Texas Supreme Court recognized that the TCHRA is preemptive in nature, and as such, the Court held that the plaintiff could not recover on her negligence claims when the complained-of negligence is intertwined with the complained-of harassment. In its opinion, the Court stated:

The root of [the employee's] negligence claim is that Waffle House kept around a known harasser, but this claim does not arise from separate, non-harassment conduct; it is premised on the same conduct that the TCHRA deems unlawful.

As the complained-of acts constitute actionable harassment under the TCHRA, they cannot moonlight as the basis for a negligence claim, a claim that presents far different standards, procedures, elements, defenses, and remedies. It is untenable that the Legislature would craft an elaborate anti-harassment regime so easily circumvented.

The court's opinion is an obvious victory for employers. The opinion is particularly significant to employers when faced with employment discrimination, harassment or retaliation lawsuits that also assert claims of negligent hiring or negligent retention.

Obama Proposes New Taxation of Private Equity Fund Managers' Carried Interest
by Steve Kesten
June 23, 2010

President Obama recently proposed to tax the income from so called "carried interest" as ordinary income rather than capital gains as it is under current law.

Currently, ordinary income is subject to marginal tax rates up to 35% (39.6% in 2011) while income from capital gains is taxed at a maximum rate of 15% (20% in 2011). Carried interest accrues to certain investment fund managers, including managers of private equity funds, hedge funds and venture capital partnerships. These managers often receive part of their compensation in the form of an interest in the partnership, which entitles them to a share of partnership profits. If the partnership earns a capital gain, the manager reports his share - the carried interest - as capital gain income. Obama's proposal would tax this income as ordinary income on the grounds that the income represents compensation for services, not a return on investment.

Employees May Have a Privacy Interest in Emails Sent from Employer-Provided Computers
by Matt Veech
April 28, 2010

Since the use of email and the internet have become a predominant method of communication, employers have established written policies governing their employees' use of email and access to the internet.

The typical practice for employers is to include a policy in the Employee Handbook that states all email and internet usage may be monitored at any time by the employer and that the employee should not expect any such usage to be private and confidential. However, in a recent ruling by the New Jersey Supreme Court, the court recognized that there are limitations to such monitoring by the employer. In Stengart v. Loving Care Agency, Inc., 2010 WL1189458 (N.J. March 30, 2010), the court stated that an employee has an expectation of privacy in email communications when corresponding with an attorney through a personal email account (i.e. not an email account provided by the employer) despite the employer's written policy stating that email communications should not be considered private or personal to any employee. Importantly, the employer's written policy did not clearly address whether the company would monitor internet-based email services accessed through the employer's computer system.

The Court framed the issue succinctly: "This case presents novel questions about the extent to which an employee can expect privacy and confidentiality in personal emails with their attorney which they accessed on a computer belonging to their employer". In conducting its analysis, the court noted that there were two principal areas involved: 1) notice provided by the employer's policy and 2) important public policy concerns of the attorney-client privilege.

Ultimately, the court held that the employee could reasonably expect e-mail communications with their lawyer through a personal account to remain private, and that sending and receiving email via a company computer did not eliminate the attorney-client privilege that protected them. Importantly, the court stated that its decision does not mean that employers are prohibited from monitoring workplace computers. Rather, employers can adopt lawful policies, enforce those policies, and discipline employees for violations of those policies when appropriate. However, the court expressly recognized that employers have no need to read the specific contents of privileged communications to enforce a company policy.

Texas Supreme Court Clarifies Post-Arbitration Appeal Rights
by Chris Hanslik
April 18, 2010

On March 12, the Texas Supreme Court overruled two previous court of appeal's decisions to settle a debate over the State's arbitration statute.

At issue in East Texas Salt Water Disposal Co. Inc. v Werline was whether a party could appeal a trial court decision to deny confirmation, vacate the award and direct a new arbitration to be conducted.

Werline won the underlying arbitration, but the company petitioned the district court to vacate, modify or correct the award while Werline counterclaimed for confirmation of the award. The trial court denied confirmation and vacated the award. However, the trial court did not stop there — it went on to make certain fact findings and ordered a new arbitration consistent with its findings. Werline then appealed. The company's position on appeal was that the appellate courts lacked jurisdiction because the trial court had vacated the award and ordered a rehearing.The specific statute at issue was Section 171.098(a) subsections (3) and (5).

The Texas Supreme Court found that the trial court's judgment was appealable because it fit under subsection (3). The court recognized that the right to appeal under Section 171.098(a) assures that a trial court does not exceed its authority in reviewing an arbitration award. It further noted that that purpose would be circumvented if a trial court's order for rehearing could not be appealed immediately. This opinion will help keep trial court's review of arbitration awards in check while protecting the parties' right to contract when they have agreed to "final and binding" arbitration of their disputes.

Logistics Data Points to Improving Economy
by Gus Bourgeois
April 16, 2010

The commercial strength of logistics providers is often seen as a leading indicator of an expanding economy. The Council of Supply Chain Management Professionals recently reported that the March 2010 Supply Chain Index (SCI), a monthly index of accounts receivable activities covering approximately 350,000 businesses, dropped to 7.65 days beyond terms, its lowest level since August 2008.

"Payment behavior can been seen as a barometer of confidence in future sales and demand. And when payments between partners show this kind of improvement, it provides an indicator of overall optimism," says Jim Swift, CEO of Cortera, creator of the SCI. "It remains to be seen whether such optimism can be maintained, but it is clearly a positive development for businesses seeking what has been an elusive improvement in cash flow."

Implied Warranty Recognized in Commercial Construction
by Lee Collins
March 25, 2010

In an opinion and order issued March 12, 2010, Federal Court in the Southern District of Texas recognized, under Texas law, the existence of implied warranty of good and workmanlike performance in commercial construction.

In denying a motion for summary judgment filed against a BoyarMiller client, the Judge's accompanying opinion held that the implied warranty extends beyond ordinary vulnerable home buyers in the residential context to sophisticated entities in a commercial context, where the contractor failed to complete the work it was required to perform under the parties' contract.

Social Networking Impersonation Now a Felony in Texas
by Matt Veech
February 1, 2010

The Texas legislature passed a new law effective September 1, 2009 that deals in part with impersonating another on a social networking website (Texas Penal Code Section 37.07-"Online Harassment"). This law makes it a felony to use the name or persona of another person to create a web page on or to post one or more messages on a commercial social networking site (1) without obtaining the other person's consent; and (2) with the intent to harm, defraud, intimidate, or threaten any person.

The law further provides that it is a misdemeanor for a person to send an electronic mail, instant message, text message or similar communication that references a name, domain address, phone number or other item of identifying information belonging to any person (1) without obtaining the other person's consent; (2) with the intent to cause a recipient of the communication to reasonably believe that the other person authorized or transmitted the communication; and (3) with the intent to harm or defraud any person.

This law could prove to be particularly helpful to employers who are presented with the issue of a disgruntled former employee posting or sending under the name of someone else disparaging statements about the employer's business, management, or other employees.

The law could also prove helpful to employers that are dealing with the task of effectively monitoring employee communications about company-related business on the various social-networking websites.

ADA Amendments Act Expand Scope of Protected Disabilities
by Chris Hanslik
January 20, 2010

In 2009, Congress drafted the Americans With Disabilities (ADA) Amendments Act to address the increasingly narrow definition of "disability" that courts, including the U.S. Supreme Court, have applied in interpreting the original act for more than a decade. The Amendments Act took effect on January 1, 2010 (a similar amendment to the Texas Commission on Human Rights Act took effect on September 1, 2009).

The ADA Act's original definition of "disability" was "a physical or mental impairment that substantially limits one or more major life activities." Subsequently, the Supreme Court held that courts must take into account the effects of mitigating measures such as medication, hearing aids and prosthetic devices when determining if an individual has a substantially limiting impairment protected by the ADA. In the event such mitigating measures ameliorated the condition the individual was not considered disabled under the act. The Supreme Court also narrowed what could be considered a "major life activity" to something that was of "central importance to most people's daily lives."

The ADA Amendments Act broadens the ADA's coverage by specifically disapproving the Supreme Court's interpretation of "disability." As amended, the new law requires the term to be "construed in favor of broad coverage of individuals ... to the maximum extent permitted by the terms of this Act." But Congress did not stop there. The amended act also states that an impairment that is episodic or in remission qualifies as a disability if it would substantially limit a major life activity when active. In fact, courts are not to consider mitigating measures as a factor when determining whether an impairment substantially limits a major life activity.

Finally, the ADA Amendments Act expands the definition of "major life activities" by including a non-exhaustive list for courts to consider, including: seeing, hearing, eating, sleeping, walking, standing, lifting, bending, speaking, breathing, reading, communicating and working. These amendments make it more likely that courts will find impairments qualify as a "disability" under the law.

Creating a Social Media Policy
by Chris Hanslik
December 28, 2009

In today's world of social media, every company with more than two employees should develop a social media policy. These policies serve several purposes, including, but not limited to: (1) educating your workforce on the various types of social media outlets; (2) determining how social media can be used to further your company's business interests; and (3) establishing guidelines for using social media consistent with your company's core values and/or code of conduct.

With this in mind, the best way to start is by not trying to recreate the wheel — several large institutions have social media policies in place that provide a good template for any company to draw from. You can find some of these policies at www.socialmediagovernance.com/policies.php

Armed with this information, you should form a small committee from different constituent groups within your company to evaluate the various policies. Establish a system to determine what portions of each policy will work for your company given the industry you serve as well as how your company operates. Part of the process should include interviewing your employees to determine which social media outlets they regularly use and how they think using social media can help or hurt the company's ability to accomplish its goals.

Obviously, before any policy is finalized you should make sure that the legal implications are addressed. For example, you want to make sure your employees avoid violating any advertising laws your company may be bound by, guard against employees making defamatory statements or infringing upon intellectual property rights of others, and address privacy concerns. The one legal issue all policies should cover is consequences for violating the policy. This will become an issue if an employee should be terminated because of their conduct on a social media outlet.

Finally, an important aspect of any policy is regularly evaluating whether it is still appropriate for your business. As fast as social media is evolving you will need to make sure your social media policy keeps up with the technology.

All Texas Entities to be Governed by the TBOC Effective January 1, 2010
by Forrest Gordon
December 11, 2009

On January 1, 2010, all entities organized in Texas prior to January 1, 2006 under statutes other than the Texas Business Organizations Code ("TBOC") will cease to be governed by the statutes under which they were formed and automatically, without any notice to or action required by the entity's owners and management, become governed by the TBOC.

What does this mean for pre-TBOC entities that have not taken any action to early adopt the TBOC?

Provided that the formation documents of the entity complied with the statute under which it was formed, no further action is required of the entity to bring it into compliance with the TBOC. Fortunately, the TBOC includes a list of synonymous terms so that any reference in an entity's governing documents to now obsolete terms such as "articles of incorporation" and "regulations" are treated as legally synonymous with their TBOC equivalents (which, for the above terms would be "certificate of formation" and "company agreement").

That being said, owners and management should be aware that all actions taken by their entity on or after January 1, 2010 will be governed by the TBOC, regardless of when that entity was formed. Additionally, the entity will be required to conform its articles of incorporation to the TBOC if and when it ever files an amendment to that document with the Texas Secretary of State.

Federal Regulators Release New Policy Statement on Commercial Real Estate Loan Work-Outs
by Bill Boyar & Tim Heinrich
November 6, 2009

On October 30, 2009, the Federal Reserve adopted a new policy statement on commercial real estate loan work-outs, replacing a prior policy statement from 1991. This new statement supports prudent commercial real estate loan work-outs. One of the most significant provisions of this statement is "renewed or restructured loans to borrowers who have the ability to repay their debts according to reasonable modified terms will not be subject to adverse classification solely because the value of the underlying collateral has declined to an amount that is less than the loan balance."

The primary focus of an examiner's review of a commercial loan is directed towards the borrower's ability and willingness to repay the loan, including any support by willing and able guarantors. As such, loans to sound borrowers that are renewed or restructured in accordance with prudent underwriting standards should not be adversely classified or criticized unless well-defined weaknesses exist that jeopardize repayment of the loan.

The policy statement includes a number of examples of commercial real estate loan work-outs, providing illustrations of prudent loan work-outs that would not be subject to adverse loan classification.

Click here for a full copy of the policy statement.

Texas Recognizes New Entity: Series Limited Liability Company
by Stephen Johnson
October 30, 2009

As of September 1, 2009, Texas recognizes a new entity called a "series limited liability company." This is a special form of limited liability company (LLC), originally permitted in Delaware, that allows owners to compartmentalize or isolate certain assets and related liabilities within the same limited liability company.

Here's how it works: Instead of forming a parent limited liability company as a holding company with subsidiary LLC's, or forming several sister LLC's, one can now form a limited liability company with designated series or cells. Each series or cell would own distinct assets and incur liabilities separate from other series within the LLC. As long as certain formalities are followed, the assets of each series are protected from the liabilities of any other series within the series LLC. In other words, the liabilities of a series are enforceable only against assets within that series and not against the LLC generally. This reduces the costs and administrative burdens of maintaining several separate LLC entities.

When Selling Private Securities — No Limit on Number of Accredited Investors
by Steve Kesten
October 27, 2009

A client recently called concerned that, in connection with his efforts to raise money for working capital through the sale of units of membership interest in a Texas limited liability company, his company could only sell to 35 investors.  To make matters worse, there were already 10 owners of the company holding membership units, so he could only sell to 25 more investors.  I quickly dispelled him of his concerns. 

There is a common misunderstanding that when selling private securities, an issuer is limited to selling to 35 investors.  It is true that in order to maintain certain exemptions from having to register the sale of securities with the Securities and Exchange Commission, there is a limit in the number of investors to whom an issuer can sell, but such limitations only relate to unaccredited investors.  Alternatively, there is no limit on the number of accredited investors to whom an issuer can sell securities provided the other applicable requirements are met relative to the exemption from registration that an issuer is pursuing. 

So what is an accredited investor?  Generally speaking, an accredited investor is a natural person, entity or institution that has a level of sophistication, net worth and experience in financial matters that the SEC believes does not require the same level of protection relative to the sale of securities than does someone without such traits.  The list of qualifications of accredited investors can be found in Rule 501 of Regulation D, which is a regulation that was promulgated under the Securities Act of 1933.

Recent Changes to Delaware Limited Liability Company Laws
by Gus Bourgeois
October 12, 2009

Gus Bourgeois recently gave an in-house presentation to BoyarMiller's Business Group regarding recent changes to Delaware's limited liability company laws as discussed in The Wave of the Future and Advising Your Clients About What to Expect, written by Peter J. Walsh, Jr. and Dominick T. Gattuso published in the ABA Business Law Today. 

Highlights include reviews of Spellman v. Katz, C.A. No. 1838 (Del. Ch. Feb. 6, 2009) which cites parol evidence of members' contrary intent as to dissolution of company inadmissible when language in Operating Agreement is clear and unambiguous; and Fish Venture, LLC v. Segal, C.A. No. 30l7-CC (Del. Ch. May 7, 2008) which cites fiduciary duties may be limited or excluded by clear and unambiguous language in Operating Agreement.  For more information download the complete article at http://tiny.cc/ICgmX.

Court Broadens Geographic Scope of Agreement
by Chris Hanslik
September 15, 2009

In Vaughn v. Intrepid Directional Drilling Specialists, Ltd. a Texas court of appeals considered whether an employee violated a covenant not to compete by arranging for his own newly-formed company to provide services on a project outside the geographic zone covered by the covenant. The covenant stated that the employee could not interfere "directly or indirectly, in any manner with any relationship between [the employer and] customers within the Restricted Territory." In upholding the injunction against the employee, the court ruled the provision could reasonably be interpreted to prohibit the employee from serving a customer located in the restricted territory even if the work in question was outside the protected territory.

This ruling provides employers with an advantage when trying to enforce non-compete clauses against former employees by expanding the geographic scope beyond the written terms of the agreement.

Supreme Court Finds Implied Promise Sufficient
by Chris Hanslik
September 9, 2009

In Mann Frankfort v. Fielding, the Texas Supreme Court has held that an employer does not have to make an express promise to provide confidential information for a covenant not to compete to be enforceable. The Court held that if the nature of the employment for which an employee is hired will reasonably require the employer to provide confidential information to the employee to accomplish their job duties, then the employer has impliedly promised to provide confidential information making the covenant enforceable as long as the other requirements of the Covenant Not to Compete Act are satisfied.

This ruling strongly favors employers seeking to enforce non-compete clauses against former employees.

Trade Secret Protection
by Chris Hanslik
September 2, 2009

Companies with trade secrets should adopt a policy prohibiting and/or limiting the copying, disclosure, or dissemination of the confidential information. Recommended steps to protect the trade secrets are:

• Mark your trade secret information as "confidential" or a similar label. Provide access to trade secret information only to people within the company who reasonably "need to know".
• Ensure all employees or third-parties (such as consultants, independent contractors, clients or potential clients, or financial institutions) with access to trade secrets sign a non-disclosure agreement. Adopt as many security measures as possible (i.e. cameras, fences, use of visitor badges, "restricted area" signs . . .), including computer security precautions.
• Make an inventory of your trade secrets and document any measures taken to protect its confidentiality (including location, security measures, and persons with access).

Going through this exercise will help a company accurately assess whether it truly has a trade secret that is capable of being protected in the event litigation arises in the future.