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January 23, 2012

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What Hath My Email Wrought?

Tim Heinrich — 2012-02-21T00:00:00

What Hath My Email Wrought?
by Tim Heinrich
February 2, 2012

On May 24, 1844, Samuel Morse transmitted, in the first telegraph message ever, from Washington, DC to Baltimore: “What hath God wrought.” His assistant, Alfred Vail, sent the same message back to him. Flash forward 150 years. Hundreds of millions of people are using the Internet daily to transmit email, photos, music files, and all other sorts of information on a truly global basis.

One common question attorneys hear today is, “Is my email sufficient to make a binding agreement?” By now, the fairly settled rule is, “Yes, if it appears you intended to enter into a binding agreement.”

More than 10 years ago, the Texas legislature adopted the Electronic Transactions Act (ETA) to govern electronic contracts, such as online purchases and signatures on card readers at retail shops. However, given the scope and breadth of the ETA, it also applies to seemingly casual e-mail exchanges between parties.

Prior to the ETA, many states prohibited the use of electronic records and transactions, recognizing and enforcing only written agreements in many circumstances. However, in June 2000, the federal government adopted the Electronic Signatures in Global and National Commerce Act, which set forth certain standards for implementing electronic commerce. However, this act also provided that if a state adopted the Uniform Electronic Transactions Act, promulgated by the National Conference of Commissions on Uniform State Laws, the state law would override the federal act. Since that time, almost all states, including Texas, have adopted the Uniform Electronics Transactions Act.

The ETA covers any and all “transactions.” It broadly defines a transaction as, “an action or set of actions” occurring “between two or more persons” relating to the conduct of “business, commercial, or governmental affairs”. Although the word “consumer” is not referenced in the ETA itself, one of the comments to the ETA provides that it is essential that the term “commerce and business” be broadly construed to include commercial and business transactions involving individuals who might qualify as consumers under other applicable law.

The lynchpin of the ETA is a section stipulating that a signature may not be denied legal effect or enforceability solely because it is in electronic form; and that a contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation. The ETA further provides that if a law requires a record to be in writing, an electronic record satisfies the law; and that if a law requires a signature, an electronic signature satisfies the law.

Although the ETA does not require that parties use electronic records or signatures, it does apply to transactions where parties have agreed to use electronic means. Whether the parties agree to conduct a transaction by electronic means is determined from the context and surrounding circumstances, including the parties’ conduct. The ETA also allows a party the right to refuse electronic transactions even if the person has conducted transactions electronically in the past. The effectiveness of a party's refusal to conduct a transaction electronically will be determined under other applicable law in light of all surrounding circumstances. Such circumstances must include an assessment of the transaction involved.

The comments to the ETA state that in order to facilitate electronic transactions, the circumstances cannot be limited to a full-fledged contract to use electronics. For example, if a party gives out his business card with his business e-mail address it may be reasonable, under the circumstances, for a recipient of the card to infer that such party has agreed to communicate electronically for business purposes. However, in the absence of additional facts, it would not necessarily be reasonable to infer such party’s agreement to communicate electronically for purposes outside the scope of the business indicated by use of the business card.

Given the broad scope of the ETA, a party must be vigilant in order to avoid unintentionally entering into any agreement through email, voice mail or any other electronic means of communications when engaging in business or commerce. Specifically, a party should clearly state that it is not intending to enter into any agreement. If a document is only a draft, it should be clearly identified as such, either through watermarks or a statement to such effect in the email. Often a party may attempt to use email footers disclaiming any intention to enter into a binding agreement. However, this is not a fool-proof system. If a party’s email message is inconsistent with such a disclaimer (e.g. “I agree to purchase 10 items at the price of $100 each”), then the party runs the risk of having entered into a binding agreement in spite of any disclaimer to the contrary.

What Every Business Owner Should Know About E-Discovery

Chris Hanslik — 2012-02-22T00:00:00

What Every Business Owner Should Know About E-Discovery
by Chris Hanslik
February 22, 2012

In today’s technology era, where computers, servers, email, smart phones, text messages, external storage devices and social media are operational mainstays, written and printed communications are going the way of the horse-drawn carriage. Add “green” initiatives and paper-reduction policies – sparked by operational efficiencies (cheaper, faster and better for the environment) – and it’s clear to see that electronic mediums are here to stay. For the business owner, it’s important to understand that, just like physical files and hard copies, if you find yourself involved in a lawsuit, electronic information (both saved and deleted) can be subject to discovery.

This new form of discovery is known as “E-Discovery” and encompasses much more than printing out emails, pdfs or Word documents. E-Discovery may also include forensic searches on servers, hard drives, smart phones, external storage devices and individual work-stations. Emails and other electronically stored information are generally subject to discovery. In fact, discoverable electronic information even includes documents that have been “deleted,” but still exist on storage devices in unallocated space.

Once a company has been notified that documents in its possession are relevant to pending litigation, destruction of documents must cease. Failing to prevent the destruction of documents could result in court imposed sanctions, even where the documents are destroyed according to a routine document retention policy. If a party reasonably anticipates litigation, it must suspend its routine document retention/destruction policy and put in place a “litigation hold” to ensure preservation of relevant documents – including electronic information.

Preserving, locating, searching and reviewing what could potentially be discoverable information can be a very expensive process. It is important for companies to have a good understanding of how and where electronic information is stored. When companies are faced with this situation counsel should be engaged on the front-end to work directly with the IT department to avoid potential pitfalls down the road.

Pipeline Safety Bill Signed into Law

Jeremy J. Sanders — 2012-02-27T00:00:00

Pipeline Safety Bill Signed into Law
by Jeremy Sanders
February 27, 2012

On January 3, 2012, President Obama signed into law a pipeline safety bill that gained momentum after a string of high-profile incidents in 2010. A September 2010 explosion in northern California killed eight people, injured dozens and destroyed 38 homes. Other pipeline malfunctions have occurred in Michigan, Montana, and Pennsylvania. U.S. Rep. Fred Upton, R-Mich., chairman of the House energy and commerce committee, said pipeline accidents during the last few years provided regulators with valuable lessons for the new law.

The new law, referred to as the Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011, contains the following:

Doubles the maximum fine for pipeline safety violations to $2 million and extends federal safety oversight of gas, oil and other liquid pipelines through 2015.
Authorizes the Pipeline and Hazardous Materials Safety Administration to hire 10 more safety inspectors.
Commissions studies to determine if more needs to be done to secure transmission pipelines throughout the system and in more populated areas as well.
Contains a strong incentive for states to remove current one call exemptions, requiring all entities that excavate around pipelines to call a hotline before they dig to learn about what might be below – a provision that is sure to help reduce the number of accidents due to digging,
Newly constructed pipelines will be required to include automatic shutoff valves that isolate a section of pipe in event of a rupture, preventing further gas or liquid from escaping.
Pipeline operators must confirm, through records or testing, the maximum safe-operating pressure of older, previously untested pipelines in populated areas.

It does not include a National Transportation Safety Board recommendation to require such shut-off valves on existing pipelines in heavily populated areas. The call for automatic shut-off values on existing pipelines has faced industry opposition because of cost.

“This is landmark legislation that provides the regulatory certainty necessary for the pipeline industry to make critical investments and create American jobs,” Rep. Bill Shuster (R-Pa.), who chairs a House subcommittee that oversees pipelines, said in a statement.

"Safety is always of the highest priority and this law strengthens current law, fills gaps in existing law where necessary, and focuses on directly responding to recent pipeline incidents with balanced and reasonable policies..."

This new law provides a strong framework to prevent future accidents and the enactment of this federal law could begin a trend of broader safety laws throughout the states. California has already passed legislation requiring such shut-off valves on all pipelines in densely populated and seismically active areas.

DOL Proposes New FMLA Rules

Joseph "Trey" L. Wood, III — 2012-02-24T00:00:00

DOL Proposes New FMLA Rules
by Joseph "Trey" L. Wood, III
February 24, 2012

The U.S. Department of Labor (DOL) has announced that it is proposing new regulations implementing the changes to the Family Medical Leave Act (FMLA) made by the 2010 National Defense Authorization Act ( Military Leave Amendments) and the 2009 Airline Flight Crew Technical Corrections Act (Flight Crew Amendments).

Military Leave Amendments
The National Defense Authorization Act amended the FMLA to provide leave for qualifying exigencies and military caregiver leave. According to the Department of Labor website, the major provisions of the proposed rules include the following:

the extension of military caregiver leave to eligible family members of recent veterans with a serious injury or illness incurred in the line of duty;
a flexible, three-part definition for serious injury or illness of a veteran;
the extension of military caregiver leave to cover serious injuries or illnesses for both current service members and veterans that result from the aggravation during military service of a preexisting condition;
the extension of qualifying exigency leave to eligible employees with covered family members serving in the Regular Armed Forces; and
inclusion of a foreign deployment requirement for qualifying exigency leave for the deployment of all service members (National Guard, Reserves, Regular Armed Forces).

Flight Crew Amendments
Because of the way duty hours are calculated for airline crews, it is difficult for many of them to qualify for the FMLA’s 1,250 work hours requirement. The new proposed rules address this in the following manner:

the addition of a special hours of service eligibility requirement for airline flight crew employees; and
the addition of specific provisions for calculating the amount of FMLA leave used by airline flight crew employees.

The proposed rules have not yet been published in the Federal Register. Comments to the proposed rules will be due sixty days from the date they are published. We will continue to monitor this situation and will provide you with updates as they become available.

Ineligible Employees May Be Protected By FMLA

Joseph "Trey" L. Wood, III — 2012-01-23T00:00:00

Ineligible Employees May Be Protected By FMLA
by Joseph "Trey" L. Wood, III
January 23, 2012

Employers subject to the Family Medical Leave Act (FMLA) know that for an employee to be eligible for FMLA leave, he or she must have: 1) worked for the company for at least 12 months; and, 2) have worked at least 1250 hours during the previous 12 months. However, would the FMLA protect a relatively new employee who is not yet eligible for FMLA leave if the employee gives notice of an intent to take FMLA leave after the employee would be eligible? Recently, the Eleventh Circuit Court of Appeals found that such an employee would be protected by the Act. ¹

What Happened
Kathryn Pereda started work with Brookdale Senior Living Community on October 5, 2008. In June 2009, Pererda let her employer know that she was pregnant and would be requesting FMLA following the birth of her child in November 2009. In September 2009, only 11 months after her hire, she was fired.

Pereda sued her employer alleging that her termination was interference with her rights under the FMLA and/or retaliation. The trial court threw the case out finding that because Pereda had only worked for the company for 11 months that she was not eligible for protection under the FMLA.

The Appeal
On Pereda’s interference claim, the Eleventh Circuit found that “because the FMLA requires notice in advance of future leave, employees are protected from interference prior to the occurrence of a triggering event, such as the birth of a child.” The court indicated that it was not expanding the FMLA to cover a new class of employees but, rather a way of protecting employees from employers who attempt to “avoid having to accommodate that employee with rightful FMLA leave rights once that employee becomes eligible.”

On Pereda’s retaliation claim, the court found that since it had already determined that the FMLA protects pre-eligible requests from employees for post-eligible leave, that the FMLA also protects employees from retaliation for making such requests.

Now the case heads back to the trial court to determine whether the employer’s reason for terminating the employee was valid, or whether that reason was a pretext for violating the employee’s protected status under the FMLA.

What this Means for You
Employers subject to the FMLA know that they must be careful in making decisions affecting the employment status of employees who are eligible for FMLA leave and have made a request for such leave. This case means that employers will also need to be careful with those same decisions even if the employee is not yet eligible for leave, but has indicated that it will be taking FMLA once the employee is eligible.

¹Pereda v. Brookdale Senior Living Communities, Inc.

NLRB Weighs In On Social Media - Again

Joseph "Trey" L. Wood, III — 2012-02-06T00:00:00

NLRB Weighs In On Social Media — Again
by Joseph "Trey" L. Wood, III
February 6, 2012

As reported in previous posts, the National Labor Relations Board (NLRB) has taken employers to task for terminating employees for engaging in “protected activity” on various social media outlets. Recently, the NLRB’s Acting General Counsel released a second report describing social media cases reviewed by his office.

The Operations Management Memo covered 14 cases. Several of the cases reviewed involved issues surrounding the validity of an employer’s social media policy and the remaining cases involved the termination of employees following comments that they posted on Facebook.

The two main points to take away from the report are the following:

Social networking policies that prohibit employees from “making disparaging comments about the employer” are, in the eyes of the NLRB, overly broad because they could interfere with the employees’ rights to discuss terms and conditions of employment. Specifically, the NLRB feels that the use of the word “disparaging” is too broad because it could “chill” employees from engaging in protected activity such as making comments that the employer is “not treating employees fairly or paying them sufficiently.”
An employee’s comments on social networking sites are not generally protected if they are “mere gripes not made in relation to group activity among employees.” Accordingly, if an employee makes comments about its employer on Facebook and other employees who are “friends” of the employee do not comment on the post, the employee’s posts are often not protected.

What You Should Do
It would be prudent to review your social media policy and if it prohibits employees from making “disparaging comments” about the company, it should be revised to exclude the use of terms that could be viewed as overly broad. For example, one policy that the NLRB found to be permissible prohibited “the use of social media to post or display comments about co-workers or supervisors or the Employer that are vulgar, obscene, threatening, intimidating, harassing, or a violation of the Employer’s workplace policies against discrimination, harassment, or hostility on account of age, race, religion, sex, ethnicity, nationality, disability, or other protected class, status, or characteristic.” Another policy that withstood scrutiny provided that the employer could request employees to confine their social networking to matters unrelated to the company if necessary to ensure compliance with securities regulations and other laws. It also prohibits employees from using or disclosing confidential and/or proprietary information. In the end, making your social media policy as specific as possible will help ensure its enforceability.

What to Do When the 'ICE' Man Cometh: Guidelines for Employers Facing Immigration Audits

Joseph "Trey" L. Wood, III — 2012-02-28T00:00:00

What to Do When the "ICE" Man Cometh: Guidelines for Employers Facing Immigration Audits
by Joseph "Trey" L. Wood, III
February 28, 2012

An audit into a company’s immigration compliance by Immigration and Customs Enforcement (ICE) can certainly send chills down any employer’s back. Frequently, during or shortly after an audit, employers will take punitive measures against certain employees who have been singled out as a result of the audit. These measures can, and do lead to valid discrimination claims against employers who mistakenly believe that they were simply complying with immigration laws. However, the Department of Labor (DOL) recently issued some “do's” and “con'ts” when dealing with employees to help employers avoid unnecessary discrimination claims. Here is what the DOL has to say:

Develop a transparent process for interacting with employees during the audit, including communicating with employees that the employer is subject to an ICE audit.
Provide all workers with a reasonable amount of time to correct discrepancies in their records identified by ICE. Treat all workers in the same manner during the audit, without regard to national origin or citizenship status. This means that all workers with like discrepancies who are asked to present additional documents are provided with the same time frames and the same choice of Form I‐9 documents to present.
If your workers are represented by a union, inform the union of the ICE audit and determine whether a collective bargaining agreement triggers any obligations.
Inform employees from whom you seek specific information that you are seeking this information in response to an ICE audit.
Communicate in writing with employees from whom you seek information, and describe the specific basis for the discrepancy and/or what information you need from them. Follow the instructions on the ICE notice and the instructions for the Form I‐9 when seeking to correct Form I‐9 defects, including the Lists of Acceptable Documents and the anti‐discrimination notice.

DON'T

Selectively verify the employment eligibility of certain employees based on their national origin or citizenship status based on the receipt of an ICE Notice of Inspection.
Terminate or suspend employees without providing them with notice and a reasonable opportunity to present valid Form I‐9 documents.
Require employees to provide additional evidence of employment eligibility or more documents than ICE is requiring you to obtain.
Limit the range of documents that employees are allowed to present for purposes of the Form I‐9.
Treat employees differently at any point during the audit because they look or sound foreign, or based on assumptions about whether they are authorized to work in the U.S.

For any questions pertaining to any of these recommendations, do not hesitate BoyarMiller.

Department of Transportation Issues Guidance on Texting by Commercial Drivers

Gus Bourgeois — 2012-03-08T00:00:00

Department of Transportation Issues Guidance on Texting by Commercial Drivers
by Gus Bourgeois
March 8, 2012

U.S Transportation Secretary Ray LaHood announced federal guidance to expressly prohibit texting by drivers of commercial vehicles last month. The prohibition became effective immediately. Truck drivers who text while driving commercial vehicles may be subject to civil or criminal penalties of up to $2,750.

Given the pervasive nature of texting as a means of communication, and the distinctions made in the rules regarding what is and what isn’t considered texting, motor carriers should take steps to ensure that their drivers are aware of the rules and confirm such awareness in writing.

Here are the relevant portions of new rules for commercial motor drivers to consider:

Prohibitions against Texting

No commercial driver shall engage in texting while driving.
No motor carrier shall allow or require its drivers to engage in texting while driving.
Texting while driving is permissible by drivers of commercial motor vehicles when necessary to communicate with law enforcement officials or other emergency services.

DEFINITION OF KEY WORDS

Driving

Includes: Operating a commercial motor vehicle, with the motor running, including while temporarily stationary because of traffic, a traffic control device, or other momentary delays.
Does Not Include: Operating a commercial motor vehicle with or without the motor running when the driver moved the vehicle to the side of, or off, a highway, and halted in a location where the vehicle can safely remain stationary.

Texting

Includes: Manually entering alphanumeric text into, or reading text from, an electronic device. This action includes, but is not limited to, short message service, e-mailing, instant messaging, a command or request to access a World Wide Web page, or engaging in any other form of electronic text retrieval or electronic text entry for present or future communication.

Does Not Include: Reading, selecting, or entering a telephone number, an extension number, or voicemail retrieval codes and commands into an electronic device for the purpose of initiating or receiving a phone call or using voice commands to initiate or receive a telephone call; inputting, selecting or reading information on a global positioning system or navigation system; or using a device capable of performing multiple functions (e.g., fleet management systems, dispatching devices, smart phones, citizens band radios, music players, etc.) for a purpose that is not otherwise prohibited in “Prohibitions Against Texting” above.

Electronic Devices (includes, but is not limited to):

Cellular telephone
Personal digital assistant
Pager
Computer
Any other device used to input, write, send, receive or read text.

Texas Legislature Now Requires Award of Attorney Fees and Costs to Prevailing Lien Holders

Jeremy J. Sanders — 2012-03-09T00:00:00

Texas Legislature Now Requires Award of Attorney Fees and Costs to Prevailing Lien Holders
by Jeremy Sanders
March 9, 2012

While historically there have been specific remedies available to parties who have perfected their lien rights on property, it can be time consuming and expensive for parties to pursue those remedies and further their rights under the law. New legislation in Texas could make these remedies more rewarding to the prevailing party.

The Texas Legislature recently passed a bill that awards attorney fees and costs in any proceeding (1) to foreclose a lien, (2) to enforce a claim against a construction-related bond, or (3) to declare that any lien or claim is invalid or unenforceable under the law governing mechanic’s, contractor’s or materialman’s liens. However, with respect to a lien or claim arising out of a residential construction contract, the court is not required to order the property owner to pay costs and attorney fees. The law became effective September 1, 2011 for any actions commenced on or after that date.

Texas Senate Bill 539 amends the 53.156 of the Texas Property Code to require, rather than authorize, a court to award costs and reasonable attorney's fees as are equitable and just. Prior to September 2011, a judge had discretion regarding the award of costs and reasonable attorney's fees to the prevailing party in a successful suit in this context. Recent court cases also held that a mechanic's or materialman's lien holder who forecloses on a lien or bond is not entitled to court costs or reasonable attorney fees.

This new law could lead to more construction-related lawsuits for parties willing to pursue their lien rights and interests under the law.

EEOC Explains Position on ADA and High School Diplomas

Joseph "Trey" L. Wood, III — 2012-03-13T00:00:00

EEOC Explains Position on ADA and High School Diplomas
by Joseph "Trey" L. Wood, III
March 13, 2012

In a prior posting, we informed you about the EEOC’s position that an employer’s requirement of a high school diploma as a job prerequisite may violate the Americans With Disabilities Act.

“The EEOC recently posted on its website that requiring a high school diploma may violate the American’s With Disabilities Act if the requirement unfairly discriminates against individuals with learning disabilities. It is the EEOC’s position that such a requirement may be unlawful if it not “job related and consistent with business necessity.”

The EEOC has now indicated “[t]here has been significant commentary and conjecture about the meaning and scope of the letter.” Accordingly, the EEOC has posted a number of questions and answers to its website to help explain its position. Of critical importance is its explanation that the ADA “only protects someone whose disability makes it impossible for him or her to get a diploma. It would not protect someone who simply decided not to get a high school diploma.” Employers would be allowed to require applicants to prove that their alleged disability prevented them from meeting the diploma requirement. Finally, the EEOC reiterated that employers are always allowed to hire the most qualified person for the job and does not have to give preferential treatment to an individual with a disability over someone who is more qualified.

Federal Court Endorses Use of Predictive Coding Software in E-Discovery

Chris Hanslik — 2012-03-26T00:00:00

Federal Court Endorses Use of Predictive Coding Software in E-Discovery
by Chris Hanslik
March 26, 2012

A New York Magistrate Judge recently endorsed the use of predictive coding technology as an appropriate method to satisfy a producing party’s review obligations in appropriate cases. In Da Silva Moore v. Publicis Groupe & MSL Group, 11 Civ. 1279 (S.D.N.Y. Feb. 24, 2012), Magistrate Judge Peck issued the first judicial opinion formally recognizing the use of computer-assisted review over a large volume of documents. Specifically, Judge Peck wrote: “What the Bar should take away from this Opinion is that computer-assisted review is an available tool and should be seriously considered for use in large-data-volume cases where it may save the producing party (or both parties) significant amounts of legal fees in document review.”

Computer-Assisted Review refers to tools that use sophisticated algorithms to enable a computer to determine relevance of a document based on interaction with a human reviewer. The process involves a senior attorney, with extensive knowledge of the case, reviewing and coding a “seed set” of documents from the collected data. The individual document review “trains” the computer to recognize other relevant documents so that it can “predict” the reviewer’s coding of the entire dataset. This process enables the computer to identify properties of those documents that it then uses to code other documents. As the reviewer continues to review and code additional sample documents, the computer refines its predictions of the reviewer’s coding. When the system’s predictions and the reviewer’s coding become sufficiently consistent, the system has “learned” enough to accurately make predictions from the remaining documents.

The plaintiffs in Da Silva Moore brought a class action discrimination case under Title VII and the Family Medical Leave Act. In response to the plaintiffs’ initial document requests, the defendant asserted that it had approximately three million documents that it needed to review. As a result, the defendant requested that it be allowed to use a computer-assisted review technology.

It is important to note that both parties in Da Silva Moore agreed to use some form of predictive coding, but they disagreed on the details. Judge Peck commented on how essential transparency was when using predictive coding and praised the defendants for being open about its methods and coding. Specifically, the defendants agreed to turn over all non-privileged documents in the “seed set” and each of the “judgment based sample” sets providing both relevant and irrelevant documents. The defendants also incorporated any coding changes proposed by the plaintiffs based on their review of these documents. As a guide for other litigants, the court annexed the parties stipulated protocol for utilizing the predictive coding to its opinion.

The court also addressed the argument of using computer-assisted review versus other known alternatives noting that:

computer-assisted review works better than most of the alternatives, if not all the [present] alternatives. So the idea is not to make this perfect, it’s not going to be perfect. The idea is to make it significantly better than the alternatives without nearly as much cost.

The court referenced studies showing that manual review is not only expensive and slow, but also not necessarily as accurate as computer-assisted review. The court also noted that the Federal Rules do not require a party to certify that its production is complete or perfect, rather courts apply the Rule 26(b)(2)(C) proportionality doctrine.

Ultimately, Judge Peck found that the use of predictive coding software was appropriate in Da Silva Moore having considered the following five factors:

The parties’ agreement;
The vast amount of electronically stored information to be reviewed;
The superiority of the computer-assisted review over the available alternatives (such as linear manual review or keyword searches);
The need for cost effectiveness and proportionality under Rule 26(b)(2)(C); and
The transparent process proposed by the defendant.

In today’s ever-increasing world of electronic information, companies are creating and storing large volumes of electronic data every day. If, and when, those companies become involved in a lawsuit it is more likely today that a significant portion of the relevant data will be electronically stored. The Da Silva Moore opinion will now serve as a focal point to encourage parties and courts to allow computer-assisted review to help reduce the costs associated with manually reviewing such large amounts of data. There are, however, higher vendor costs associated with loading and processing the documents so that a computer-assisted program can be used, but in situations like the Da Silva Moore case, those costs should be much lower than the fees associated with a manual review. It should also be noted that a computer-assisted technology can always be used for internal reviews after a large volume of data has been produced or in conducting an internal investigation.

See No Evil, Hear No Evil, See no Evil - Louis Vuitton Hits $3.5M Judgment against its Landlord

Lee Collins — 2012-03-27T00:00:00

See No Evil, Hear No Evil, See No Evil
Louis Vuitton Hits $3.6M Judgment Against Its Landlord for Contributory Trademark Infringement
by Lee Collins
March 27, 2012

A jury sitting in the United States District Court for the Western District of Texas, in Louis Vuitton Malletier v. Eisenhauer Road Flea Market, Inc., Bruce L. Gore, and Patricia D. Walker, found a landlord liable for $3.6 million to the designer brand Louis Vuitton for allowing tenants to sell knock-offs of its Louis Vuitton products.

Previously, no Federal Court sitting in Texas had extended the doctrine of contributory trademark infringement to the landlord/tenant relationship. The United States Supreme Court, in Inwood labs., Inc. v. Ives Lab., Inc., 456 U.S. 844, 854 (1982), defined contributory infringement when “a manufacturer or distributor intentionally induces another to infringe on a trademark, or if it continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement.” Id. In instructing the jury on the standard for contributory trademark infringement, Federal District Judge Harry Lee Hudspeth extended the doctrine to a landlord/tenant relationship for first time in Texas.

Over and above extending liability where it had not previously been extended, this case is a blow to landlords because the landlord in Louis Vuitton, Eisenhauer Road Flea Market, had no control over what products were delivered to the leased premises, what products the tenant stocked in inventory, and what products the tenant actual sold; save and except the power to evict the tenant. While the landlord has filed various post-trial motions to set aside the jury verdict, a prudent landlord should vigilantly monitor their tenants activities and respond quickly if and when infringing activity is discovered.

Texas Becomes 34th State to Prohibit Private Transfer Fees on Real Property

Blake Royal — 2012-03-29T00:00:00

Texas Becomes 34th State to Prohibit Private Transfer Fees on Real Property
by Blake Royal
March 29, 2012

The Texas Legislature has passed legislation that prohibits new private transfer fee obligations in the future and terminates existing transfer fees that fail to comply with certain obligations.

Private transfer fees are restrictions placed on real property that require that a fee, usually an amount equal to 1% of the purchase price, be paid to the original developer of the property each time the property is sold. For example, if a homeowner sells his or her home for $250,000, and the home is burdened with a private transfer fee obligation, the homeowner would owe the original developer of the property a fee equal to $2,500. Although private transfer fees have not been prevalent in Texas, they have been used in several other jurisdictions and Texas becomes the 34^th state to prohibit the practice.

Developers entitled to the benefit of existing private transfer fee obligations were required to file a notice of the transfer fee obligation by January 31, 2012 in the real property records of the county in which the burdened property is located. This notice must be filed again every three years. Failure to file the notice in a timely manner will void the obligation going forward.

The legislation – which is codified as Subchapter G in Chapter 5 of the Texas Property Code – specifically excludes certain one-time fees, such as recording fees, and fees related to organizations such as homeowners’ associations.

Increased Activity at Port of Houston Reflects Strengthening Economy

Gus Bourgeois — 2012-04-04T00:00:00

Increased Activity at Port of Houston Reflects Strengthening Economy
by Gus Bourgeois
April 4, 2012

The Port of Houston Authority reported a 143 percent increase in its amount of steel tonnage from February to March 2012, and an increase in total tonnage at the port of more than 26 percent during that time period.

As with many recent growth stories in the local Houston economy, the Port's successes are tied to trends in the oil & gas industry. Ricky Kunz, vice president of trade development and marketing for the port authority, stated that, "You can attribute the tonnage primarily to the shale plays that are occurring in the United States for the drilling for gas. If the construction business was doing better, we would see even better numbers. But that's still coming, and we expect that to turn around."

In addition, the port authority reported that import cargoes of consumer goods are also rising. Kunz says that's a sign consumers are growing more comfortable with the economy and more willing to spend.

These numbers bode well for Houston economy, which has reverted back to growth mode after the 2008-2010 recession, as well as the larger US economy, which is showing signs of strength recently with improving unemployment and manufacturing figures.

Good News for Business: Supreme Court Appears Willing to Address Health Care Reform Law Now

Ryan Bardo — 2012-04-10T00:00:00

Good News for Business: Supreme Court Appears Willing to Address Health Care Reform Law Now
by Ryan Bardo
April 10, 2012

The U.S. Supreme Court recently heard three days of oral argument on several challenges to the Patient Protection and Affordable Care Act of 2010. These challenges involved the so called “individual mandate” in the law, which, with certain religious and income-level exceptions, requires all Americans to acquire health insurance coverage by 2014 or be subject to a penalty of $95 or 1% of the individual’s income, whichever is greater (the penalty increases to $695 or 2.5% of income by 2016). Although it is estimated that only 7% of the population would potentially be subject to the penalty, the mandate is a political hot-button issue and the ideological centerpiece of the Act.

The first day of argument centered on the issue of whether the individual mandate penalty is a tax. Under the Anti-Injunction Act of 1867, a tax cannot be challenged until it has been applied and paid. If the individual mandate penalty is determined to be a tax, the Supreme Court could not address its constitutionality until the mandate goes into effect in 2014 and a penalty is assessed and paid by an individual. Such a challenge would likely not happen, or be heard, until 2015 at the earliest. The questions and arguments on Monday indicated that the Court is more likely to determine that the penalty is not a tax and, therefore, can be addressed today.

On the second day, the argument focused on the constitutionality of the individual mandate. Generally, the government’s argument is based on the premise that all individuals consume health care, so Congress can regulate that consumption of health care under the Constitution’s interstate commerce clause. Opponents argue that the Constitution does not allow Congress to force people to engage in commercial activity, such as buying health insurance. Scholars and pundits tend to agree that Justice Kennedy will be the deciding vote in the Court’s decision on this issue. Kennedy’s statements on Day 2 indicated that he favored declaring the individual mandate unconstitutional.

Argument on the third day covered the effect of declaring the mandate unconstitutional on the rest of the Act. If the Court decides that it can sever the individual mandate from the Act, then the other provisions of the Act would remain effective. If the mandate cannot be severed, then the Court must decide if the entire Act is nullified or only parts of it. The Court appears unlikely, even unwilling, to review the 2,700 pages of the Act and select the provisions that would no longer be effective. However, the Court also appears hesitant to nullify the entire law, which includes many provisions that are unrelated to the individual mandate, some of which are already in effect and politically popular (e.g., coverage for children up to age 26, no denial of coverage for pre-existing conditions). The Court appeared to accept that the individual mandate is the “heart” of the Act but appeared divided on how its treatment of the rest of the Act would, or could, meet Congress’ intent.

What does this mean for business? The Court’s apparent willingness to address the constitutionality of the mandate and the Act now, rather than waiting for a penalty to be paid in two or three years, brings greater certainty to the health care industry, employers, and the economy. A decision is expected in June 2012 and will undoubtedly impact the focus and nature of this year’s presidential election. If the Supreme Court punts the issue into 2015, there will be less certainty, and the election will likely focus on desired changes to the Act without any guidance from the highest court in the land as to whether and how much of it is constitutional. Regardless of how the Court decides on the mandate’s constitutionality and its effect on the Act, its willingness to decide will provide a more concrete political and economic environment for the upcoming election and for employers to make rational choices with less risk due to uncertainty. That’s good for business and the economy.

Energy Developments in the Arctic Highlight Norway's Importance to Houston and World

Edgar Saldivar — 2012-04-11T00:00:00

Energy Developments in the Arctic Highlight Norway's Importance to Houston and World
by Edgar Saldivar
April 11, 2012

On April 6, 2012, Stratfor reported on the increasing Arctic militarization by Norway, as evidenced by its recent announcement that it would establish an “Arctic Batallion” in response to similar military moves by Russia in the region a year earlier. According to Stratfor, the Arctic has become more relevant to geopolitics over the past decade. This is reinforced by a recent report in the Atlantic Sentinel that the Arctic is in the process of assuming newfound importance in the global economy as a result of climate change. The Atlantic Sentinel report explains that melting ice in the High North could shorten global supply chains and free up vast oil and gas reserves to exploration. Although the probability of increased exploration has prompted a flood of activity by both Norway and Russia to ostensibly protect their territorial claims, it has also stimulated vast interest in the Arctic from Houston to as far away as Beijing.

The developments in the Arctic are of special significance to Houston, where Norwegian Foreign Minister Jonas Gahr Store recently revealed Norway’s visions and strategies for the “High North” in a speech at the Petroleum Club in Downtown. Mr. Store emphasized that while the energy industry has previously focused on developments to the east (e.g., China) or those to the south (e.g., Brazil), the future will focus on the developments to the north, specifically, the Arctic. The Atlantic Sentinel report states that the Arctic is estimated to contain 13 percent of the world’s undiscovered oil and as much as 30 percent of the world’s undiscovered natural gas, comprising a combined 22 percent of all untapped but recoverable hydrocarbons. In light of these figures, what goes on in Norway is of particular importance to Houston, which the Norwegian Foreign Ministry acknowledges is still the energy capital of the world. It is no wonder why, according to Foreign Minister Store, Houston now serves as the American base for a multitude of Norwegian companies and is home to more Norwegians than any other U.S. city. With the growing influence of Norway in the global energy markets, Houston will continue to play a key role in the Arctic for years to come.

Though far removed from the Arctic, the Atlantic Sentinel notes that China has a definite interest in asserting a presence there. Relations between China and Norway soured in 2010 when the Nobel Peace Prize committee honored a Chinese dissident. But that has not stopped the Chinese government from building six new heavy ice breaker ships to prepare for routes that promise to open up in the Arctic. To put in perspective how far ahead China is thinking, Norwegian Foreign Minister Store noted that the U.S. currently only has one heavy polar ice breaker ship – and it is not operational. Clearly, China is seeking inroads to the untapped energy resources in the Arctic, which reinforces the complex geopolitics of the Arctic region. This complexity is underscored by an agreement between Norway and Russia this past March to improve military cooperation in the Arctic, not to mention that their respective state energy companies, Statoil and Gazprom, continue to jointly develop offshore energy projects. Perhaps in the long run the recently expanded militarization by Norway and Russia has more to do with protecting their interests from outside influence than from each other.

Energy Back and Forth: Either Way We Win

Gregory N. Jones — 2012-04-13T00:00:00

Energy Back and Forth: Either Way We Win
by Gregory N. Jones
April 13, 2012

In 2003, mostly in response to publicity related to global warming, the world was abuzz with expectations for new nuclear power plants given that nuclear power plants release no greenhouse gases. The Massachusetts Institute of Technology issued a study entitled The Future of Nuclear Power: an Interdisciplinary Study which influenced emerging rapidly-growing economies, such as China, India, Korea and Russia, to build new nuclear power plants. Highly developed economies, such as France, which currently has 75% of its electricity generated from nuclear generators, and the U.S., which has 104 existing nuclear plants, announced plans to add dozens of new nuclear power plants in order to significantly reduce carbon dioxide and other greenhouse gases. But something happened along the way.

In March 2011, a tsunami hit Fukushima, Japan utterly destroying one of Japan’s nuclear power plants and causing rising angst about the release of radioactive material as a result of the slams by the 45+foot tsunami. Combined with the tsunami was another storm, figuratively speaking; namely, the fracking of oil and gas shale. This new drilling technology has produced huge volumes of natural gas in the U.S. which has resulted in the lowest price per million BTU’s in decades -- below $2.00, which means that the production of a kilowatt-hour of electricity is less than 2 cents. The U.S. is even liquefying natural gas and exporting it because of storage incapacity. Natural gas reduces greenhouse gases about 40% when used in the production of electricity, particularly when compared to coal-fired plants. As a result of the new low prices of natural gas combined with the Fukushima scare, natural gas is the new rage being touted for the clean production of energy, from electrical power plants to fuel for trucks, buses and other larger vehicles. The combination of a real storm and a drill/production storm has cooled the passion for the development of new nuclear power plants.

But nuclear power development has not stopped. The Nuclear Regulatory Commission recently issued approval for the construction of two pairs of reactors in Georgia and South Carolina, which will use new, advanced technology developed by Westinghouse, an energy company 81% owned by the Toshiba Group.

Also interesting, private enterprise entities are focused on nuclear power. Alternate Energy Holdings, Inc., the nation’s only independent nuclear power plant developer and a current client of BoyarMiller, recently announced the completion of initial site improvements and its agreement with ENERCON, a U.S. industry leader utilizing the 10CFR Part 52 Combined Operating License Application Process, to license and build the Idaho Energy Complex, a nuclear plant in Payette County, Idaho.

Global warming or not, clean energy is here to stay.

A Lesson from Howard Stern: Say What You Mean and Mean What You Say

Andrew Pearce — 2012-04-23T00:00:00

A Lesson from Howard Stern: Say What You Mean and Mean What You Say
by Andrew Pearce
April 23, 2012

A New York court has dismissed a lawsuit filed by Howard Stern against Sirius in which Stern claimed that the satellite radio broadcaster failed to pay him $300 million in stock awards. In doing so, the court’s decision serves as a cautionary tale for any person that enters into an agreement without fully understanding its terms, or believing it is okay for an agreement to say one thing, but mean something else.

When Howard Stern left traditional radio to join Sirius, Stern and Sirius entered into an agreement that provided, among other things, a “Performance Based Compensation” clause. This clause enabled Stern to receive up to five separate common stock awards valued at $75 million each, which would be triggered by certain Sirius subscriptions totals.

In 2006, Stern received $75 million in common stock based on Sirius subscribers for that year, but the number of Sirius subscribers in 2007 did not reach the total necessary to trigger any bonus. The dispute arose in 2008, when Sirius merged with XM Radio. If only Sirius subscribers were counted, the bonus would not be triggered. However, if the more than 9 million XM Radio subscribers were counted, the Performance Based Compensation clause would be triggered and Stern would receive an additional $300 million.

Sirius filed a motion for summary judgment, seeking dismissal of Stern’s lawsuit because the “Performance Based Compensation” clause did not include subscribers obtained through the XM merger. In an affidavit opposing Sirius’ motion, Stern stated that:

There was no doubt in my mind that all of these subscribers were supposed to be counted for the purpose of determining if the stock awards were payable. When we were negotiating the Agreement, it was clear to everyone that the stock award was based on all of the company's subscribers. Sirius did not ask us to exclude any subscribers from these awards.

Stern further stated that he understood that Sirius was now saying that it did not have to pay because half of its subscribers came in through the acquisition of XM, rather than through the company's own internal growth. According to Stern, this position made no sense because the parties “never discussed or agreed to any such distinction.” Stern stated:

Our Agreement is clear — the stock awards are based upon the total number of subscribers that the company has at the end of any given year. When we were negotiating the agreement, Don [Buchwald, Stern’s agent] raised with Sirius the possibility that Sirius and XM might combine. Sirius never said that if that happened, it would not count the new subscribers for purposes of the stock awards.

The court disagreed with Stern, noting that while it may be true that Stern hoped and expected to reap the benefits from any significant growth experienced by Sirius, such a subjective expectation did not override the clear, unambiguous language of the parties’ agreement.

Further, according to the court, the parties contemplated the relevance of new subscribers acquired by a merger in a separate section of the agreement entitled “XM Merger,” which provided specific compensation to Stern in the event of a merger with XM Radio. Thus, the court held that “the plain language of the agreement is inconsistent with any reading that the parties intended subscribers acquired by merger with XM to be considered when calculating plaintiffs’ ‘Performance Based Stock Compensation.’”

All too often, I meet with individuals that are facing the same dilemma as Howard Stern. Parties may verbally agree to certain terms intended to have certain results, but the terms of the agreement that they sign lead to an entirely different outcome. It is critically important that parties to an agreement understand the agreement’s terms and conditions. If the agreement is unclear, contains incomprehensible legalese, fails to convey the parties’ actual intentions, or says something different from what the parties verbally agreed to, then you must protect yourself and refuse to sign the document until it says what you mean.

Why Were You Absent? Inquiring Minds Want To Know

Joseph "Trey" L. Wood, III — 2012-04-19T00:00:00

Why Were You Absent? Inquiring Minds Want To Know
by Joseph "Trey" L. Wood, III
April 19, 2012

If one of your employees is absent for work due to illness, does your company’s policy require the employee to identify the nature of the health-related reason for absence? If so, your policy may be unlawful under the American’s With Disabilities Act (ADA). In EEOC v. Dillard’s, a federal district court in California ruled that just such a policy violated the ADA.

In the case, an employee was absent for a week for health-related reasons. The employee provided her employer with a note from her doctor which simply indicated “off work this week return 6/5/06.” The employee’s manager refused to excuse the absence because, according to Dillard’s policy, the doctor’s note did not state the nature of the condition being treated. The employee refused to supply any additional information and was terminated for absenteeism.

After filing a charge of discrimination with the EEOC, the Commission sued Dillard’s on behalf of the employee and “other similarly situated individuals” (class action). The EEOC claimed the policy violated the ADA’s prohibition of inquiries into disability-related issues. The court agreed with the EEOC finding that the policy invited intrusive questions about employees’ medical conditions that would reveal information about actual or perceived disabilities. While Dillard’s claimed that the information was necessary to verify legitimate medical absences, the court disagreed indicating that it did not need to know the nature of the medical condition to accomplish this goal.

Why This Is Important For You
If you have a current policy that requires employees to provide a doctor’s note specifying the nature of the health-related problem, change the policy to require only a doctor’s note that provides the dates that the employee was absent from work due to the health-related reason. Also, when the employee returns, managers should avoid asking the employee questions about the nature of the health-related reason for absence—even if they are entirely innocent and done so out of care for the employee.

If you have any questions related to issue, please contact us.

Supreme Court of Texas Continues to Expand the Reach of Arbitration Clauses

Chris Hanslik — 2012-04-24T00:00:00

Supreme Court of Texas Continues to Expand the Reach of Arbitration Clauses
by Chris Hanslik
April 24, 2012

The Supreme Court of Texas has held that parties to an arbitration agreement can grant third parties the right to enforce arbitration as though they had signed the agreement themselves. In In re Rubiola, the court was faced with the issue of whether parties who were not signatories to the agreement containing the arbitration clause could compel parties who did sign the contract to arbitrate. Generally speaking, only parties to a contract can enforce or be required to arbitrate. While not necessarily rewriting the prior case law, the court held that under the circumstances present in Rubiola, the nonsignatories could compel arbitration.

In Rubiola, a dispute arose out of the sale and financing of a home. The sellers of the home were Greg Rubiola and his wife. Mr. Rubiola and his brother J.C. also owned a mortgage company, Rubiola Mortgage Company. The purchasers decided to finance the home through Rubiola Mortgage Company. As part of the financing for the transaction an arbitration agreement was signed between the purchasers and Rubiola Mortgage Company. J.C. Rubiola signed the agreement on behalf of the company.

The agreement contained a broad definition of “parties” to include “individual partners, affiliates, officers, directors, employees, agents, and/or representatives of any party to such documents . . .”

The arbitration clause in the agreement provided: “Arbitrable disputes include any and all controversies or claims between the parties of whatever type or manner, including without limitation, all past, present and/or future credit facilities and/or agreements involving the parties.”

Several months after closing the purchasers sued the Rubiolas. They sought to rescind the transaction and collect damages under theories of fraud and DTPA. All defendants moved to compel arbitration based on the agreement signed between the purchasers and Rubiola Mortgage Company. The trial court denied the motion to compel.

The supreme court found that the Federal Arbitration Act (FAA) governed the provision at issue. The court also concluded that whether a nonsignatory could compel arbitration was subsumed within whether there was a valid arbitration clause and was therefore a question for the court, not an arbitrator. The court then held that the Rubiolas, who had not signed the arbitration agreement, could compel the purchasers, who signed the agreement to arbitrate. Specifically, the court stated:

“The arbitration agreement’s broad definition of parties, at a minimum, made J.C. and Greg Rubiola parties to the arbitration agreement. Rubiola Mortgage Company signed the arbitration agreement, and the Rubiola brothers are clearly officers and representatives of the mortgage company and thus non-signatory parties to the arbitration agreement under the agreement’s terms. Because the arbitration agreement expressly provides that certain non-signatories are considered parties, we conclude that such parties may compel arbitration under the agreement.”

With this, holding parties can no longer just assume that a nonsignatory to a contract is immune from an arbitration clause. Consistent with other recent opinions, the Texas Supreme Court continues to allow parties the freedom to expand the scope of arbitration clauses depending on the language they include in the agreement.

Divisional Merger Potential Solution in Asset-Sale Transactions

Stephen Johnson — 2012-04-27T00:00:00

Divisional Merger Potential Solution in Asset-Sale Transactions
by Stephen Johnson
April 27, 2012

I was recently involved in a large asset-sale transaction faced with an issue where one of the assets being sold was an interest in a joint venture (JV) in which our client owned a limited partner interest through a wholly owned subsidiary (Holdco). The other partner in the JV had the right to consent to an assignment, conveyance or transfer of Holdco’s interest in the JV. The partner in the JV, who was recently acquired by another company, tried to use the request for consent as leverage for its desire to buy Holdco out of the JV. Not only was Holdco not interested in selling the interest, the price offered by the other partner was unacceptable.

After trying unsuccessfully to resolve the issues (which was delaying the much larger asset transaction), we investigated merging Holdco into a new buyer entity; however, Holdco also owned an interest in another JV (JV2) that was not part of the assets going to the buyer and which was prohibited from being transferred by the terms of its governing documents without the consent of the other partners in JV2. Like the partners in JV, the JV2 partners had been trying to buy-out Holdco’s interest in JV2 for some time but had not made any acceptable offers to Holdco. After careful consideration, we determined that we could accomplish our client’s objectives by using a divisional merger.

In addition to the more traditional forms of merger, where all of the assets and liabilities of the merging entity become the assets and liabilities of the surviving entity, Section 1.001(55)(A) of the Texas Business Organizations Code (TBOC) also defines “merger” as “…the division of a domestic entity into two or more new domestic entities or into a surviving domestic entity and one or more new domestic or foreign entities…”. Furthermore, Section 10.008(a)(2)(C) of the TBOC states “when a merger takes effect, all rights, title and interests to all…property owned by each organization that is a party to the merger is allocated to and vested…in one or more of the surviving or new organizations as provided in the plan of merger without:...(C) any transfer or assignment having occurred…”.

By using these provisions, and absent any other language in the company agreement of the JV expressly deeming any merger as a prohibited assignment, we were able to merge the assets and liabilities that we wanted to move (including the interest in JV) into a new domestic entity owned by the buyer and to leave behind in Holdco the assets and liabilities that Holdco was prohibited from assigning (including the interest in JV2). Since the statute states by its terms that the merger is not an “assignment or transfer,” no violation of the company agreement of JV occurred.

The divisional merger was a useful tool to deal with our situation; however, whether or not a divisional merger is useful depends on the specific facts and circumstances one is dealing with. It is critical to pay particular attention to the language in the governing documents regarding assignability, transfer and conveyance of interests in determining whether the divisional merger can accomplish your goals.

Fracking Is Likely to Produce Something in Addition to Oil and Gas - Litigation

Chris Hanslik — 2012-04-30T00:00:00

Fracking Is Likely to Produce Something in Addition to Oil and Gas — Litigation
by Chris Hanslik
April 30, 2012

One of the root causes of the current economic boom in Texas (as well as several other states) is the use of hydraulic fracturing, or “fracking” as it is commonly referred , to extract oil and natural gas from underground shales. This hot topic – whether you are for or against its use – is shaping today’s domestic exploration.

Fracking is a process used to permeate and expand subsurface formations so that oil and gas can flow more freely to a wellbore. This process was first used in the oil and gas arena in 1947 and the current fracking technique was first used in the 1990s in the Texas Barnett Shale. Though used in more than a million wells since that time, only recently has fracking received substantial attention and become controversial – mainly over concerns and fears that fracking might adversely affect underground water aquifers which are an important source of drinking water for most parts of Texas. Despite those fears, more than 44,000 wells have been hydraulically fractured in the US to date with no reported cases where fracking the wellbore has influenced the water table.

As with any environmentally controversial issue, fracking has raised environmental and legal challenges spawning litigation in Texas and other US states. While there are only a handful of fracking-related cases in Texas, claims by landowners against the companies that are drilling, operating and servicing wells in the various shale regions are expected to increase. But, what type of claims will be asserted?

In Harris v. Devon Energy (a suit pending in the US District Court for the Eastern District of Texas) allegations were made that illustrate the types of claims potential plaintiffs may assert against exploration and production companies as the development of these natural resources continues. They include:

Trespass/Nuisance
In the context of fracking, there are several scenarios where this might occur:

subsurface trespass resulting from the fractures themselves extending into a neighbor’s property and draining the minerals;
subsurface contamination of a neighbor’s property; and
at and above surface pollution resulting from the drilling operations.

The first scenario was resolved by the Texas Supreme Court in Coastal Oil v. Garza where a neighboring land owner alleged that the operator’s fracturing created a trespass by draining the neighbor’s minerals. Rooted in the common law principle of “rule of capture,” the court made clear that no trespass claim will stand where the allegations are that a frac extended onto a neighbor’s property and drained their oil or gas.

The second scenario deals with subsurface pollution and may be more viable, but will require proof of actual, permanent harm to the property to maintain a trespass action. To establish a nuisance, a plaintiff must prove that the activity was intentional, substantial and unreasonable. Whether an activity is unreasonable is determined by balancing the utility of the activity alleged to be a nuisance with its harm. Additionally, companies operating within the parameters of a Railroad Commission permit will attempt to use it as a liability shield. How well that will work remains to be seen.

The third scenario will likely be the easiest for neighboring landowners to pursue. Pollution that occurs at or above the surface is easier to detect and prove substantial or permanent harm. In the nuisance context, the adverse affects are also easier to describe and quantify in terms of harm. This last category is also more consistent with traditional claims of trespass and nuisance which courts have been dealing with for years.

NOTE: Something the courts will likely consider is that subsurface trespass/nuisance claims are inherently different than traditional surface claims and, as the Texas Supreme Court indicated in a 2008 case, flying a plane through the airspace two miles above property is not trespass…and the same rule should apply two miles below the surface.

Negligence
A negligence claim imposes liability on one who causes harm to another if their conduct fails to meet the standard of what a reasonable person would do in the same or similar circumstance. In the oil and gas arena, there are many legislative or regulatory rules that govern exploration activities. However, the existence of regulations or statutes does not per se establish the standard of care in a negligence claim. In Texas, the adoption of such legislative mandates as the standard of care is left to judicial discretion. In cases where a company fails to comply with a regulation, plaintiffs will undoubtedly use the regulations as evidence of the appropriate standard of care. Of course, the converse is true too. A company sued for negligence but who is in compliance with the regulations governing its activities will argue that it can’t be found negligent for following the law.

Fraudulent Concealment
In Harris v. Devon Energy the plaintiff asserted a claim for fraudulently concealing the dangers of the drilling process. This claim was dismissed by the court based on facts that supported the allegation. It is hard to envision how such a claim might survive in the future given all that has been written about fracking in recent years. In addition, the recent enactment by the Texas Railroad Commission of rules requiring disclosure of chemicals used during the fracking process now makes most of this information part of the public domain.

Breach of Contract
Exploration and production of oil and gas typically occurs pursuant to written contracts – an oil and gas (or mineral) lease and in some cases a surface use agreement. These written agreements set forth the parties obligations towards each other and can lay the ground for a potential claim if not honored.

Private Citizen Suits
Certain statutes, especially those governing environmental issues, contain “citizen suit” provisions. These provisions permit, with some limitations, a private citizen to pursue the violation of an environmental regulation if the government does not bring an enforcement action. A company sued in this situation should first examine the statute and factual circumstances to determine if the “private citizen” has standing to bring the claim.

As the various shale plays across Texas and the rest of the country continue to be developed, an increase in litigation can be expected. As new lawsuits are filed and proceed through the judicial process, these as well as other theories of liability, will receive intense judicial scrutiny.

EEOC Provides Guidance to Employers Using Criminal Background Checks

Joseph "Trey" L. Wood, III — 2012-05-02T00:00:00

EEOC Provides Guidance to Employers Using Criminal Background Checks
by Joseph "Trey" L. Wood, III
May 2, 2012

On April 25, 2012 the EEOC issued its updated guidance on the extent to which employers may use an individual’s criminal history in making employment decisions. The EEOC has long held that the use of criminal histories in the hiring process is most likely illegal as a violation of Title VII of the Civil Rights Act of 1964 if the hiring decision relied solely on the individual’s criminal history.

The new guidelines prescribe that employers may use criminal histories if the employer can show that it considered three factors: 1) The nature and gravity of the offense; 2) The amount of time since the conviction; and, 3) The relevance of the offense to the type of the job being sought. In determining whether a policy to review criminal history is job related, the EEOC has suggested that employers must distinguish between unacceptable and acceptable risks in candidates with criminal histories, and exclusion policies must link specific criminal conduct, and its dangers, with the risks inherent in the duties of a particular position.

The new guidelines do not outlaw criminal background checks, but the EEOC has stated that policies that exclude everyone with a criminal record are not job related and consistent with business necessity and will violate Title VII, unless it is required by federal law. Additionally, the EEOC has indicated that it believes that employers who rely upon arrest records, as opposed to a record of convictions, are not satisfying the law’s requirement that the policy be job related and consistent with business necessity. Lastly, the EEOC has recommended that employers not ask about criminal histories on job applications. This is in keeping with many state efforts to “ban the box,” a reference to a box checked on an application regarding the existence of criminal history.

What Employers Should Do
It is vitally important that if employers have a policy to consider criminal histories in their hiring process, that the policy be very narrowly tailored. Also, the employer should identify specific job duties and determine what it is about those job duties that present a risk with the hiring of someone who has been convicted of a specific criminal offense. Finally, train all individuals who are involved in the hiring process about the EEOC’s new guidelines to make sure that they are following your hiring criteria.

Recent Trade Agreements Signal the Future of China - Mexico Trade Relations

Edgar Saldivar — 2012-05-03T00:00:00

Recent Trade Agreements Signal the Future of China - Mexico Trade Relations
by Edgar Saldivar
May 3, 2012

The Xinhua News Agency recently reported on a meeting in April between Chinese Vice President Xi Jinping and Mexican Foreign Minister Patricia Espinosa in Beijing to reinforce the two countries’ strategic partnership and celebrate the 40^th anniversary of diplomatic ties between the two nations. As part of the official celebration of diplomatic ties, Mexico and China signed a cooperation agreement on April 6, 2012 during the fifth meeting of the two nations’ Permanent Binational Committee that promised increased trade between them. The call increased cooperation and trade between China and Mexico is an effort to improve relations that have had periods of tension as both countries have competed for the U.S. market. In light of the significance of the U.S. to their relations, it is worth taking a brief look at their recent trade history to understand what it bodes for their future relations.

China is Mexico’s second largest trading partner behind the U.S., while Mexico is China’s No. 2 trade partner in Latin America behind Brazil, which ranks 9^th among China’s trade partners. The most significant trading partner for both China and Mexico is clearly the United States. Nevertheless, China and Mexico have seen increasing trade between each other in recent years. The last decade saw Sino-Mexican trade increase from $3 billion in 2000 to almost $35 billion in 2011, according to official Chinese figures.

Though there has been growing trade between China and Mexico since they forged diplomatic ties 40 years ago, there remains a large trade deficit between them, as there is between China and most countries, including the U.S. For example, China’s exports to Mexico in 2011 were about $24 billion, while imports from Mexico were about $9.4 billion; China’s exports to the U.S. in 2011 were about $400 billion, while imports from the U.S. were about $104 billion. While both the U.S. and Mexico seek to balance the trade deficit, Mexico has had the added pressure of competing with China for the U.S. market and has complained in recent years about China dumping cheap goods into the Mexican market. The April 6 agreement between China and Mexico, which promised to boost cooperation between various industries like biotechnology, traditional medicine, and television, and authorized additional exports of pork from Mexico, signals efforts by China to appease any tension with Mexico, address the trade deficit, and create a strategic partnership considering their relation to the U.S.

Reinforcing the cooperation agreement, Reuters reported on April 20, 2012, that Mexico reached an agreement with China aimed at promoting a fairer balance of trade and announcing business deals worth $560 million. “This new relationship looks to answer the imbalance that affects Mexico and establish a basis for more balanced and sustainable trade in the long term,” the Mexican Foreign Ministry said. Among the terms of the April 20 agreement, China agreed to stop certain unfair trade practices relating to Mexico’s complaint about flooding it with cheap imports.

These recent agreements signal that China is making efforts to address the trade deficit with Mexico and strengthen relations with a trade partner who is key to China’s presence in North America. Additionally, it is worth noting that the rhetoric from the current Mexican presidential campaigns signal changes to come in the near future for Mexico’s state-owned oil monopoly, PEMEX. If the prospects of opening up Mexico to future foreign investment in oil are real, then China’s relation with Mexico is evidently part of a larger energy strategy.

Houston's Economic Engine - Driving Forward

Tim Heinrich — 2012-05-09T00:00:00

Houston's Economic Engine - Driving Forward
by Tim Heinrich
May 9, 2012

“Happiness is the Great Recession in the Rearview Mirror”— at least that’s the view Patrick Jankowski presented at the Economic Forecast Luncheon organized by O’Connor & Associates on April 25, 2012. Jankowski, Vice President of Research for the Greater Houston Partnership, stated that if you had to live through the Great Recession anywhere in the United States, then Houston was THE place to be.

Measuring the beginning and the end of the Great Recession by job loss and job creation, respectively, Jankowski presented the following facts:

Houston, together with Washington D.C., was the last of the top 20 metropolitan areas in the United States to experience job losses. Houston did not start to experience net job losses until the middle of 2008, nearly 6 months to a year after most other cities.
Houston’s net job loss during the Great Recession was only about 4.5% of all jobs, the third lowest percentage among the top 20 areas in the United States.
Houston started to realize net job creation in January or February 2010, making the length of the Great Recession in Houston only about 16 months long. Most of the other major metropolitan areas experienced at least 2 or 3 years of net job losses before starting to realize net job creation.
Houston had fully recovered from the Great Recession by the fourth quarter of 2011, having recovered as many jobs as had been lost. Washington D.C. is the only other major metropolitan area in the United States that has recovered all of the jobs lost during the Great Recession. However, several industries in Houston, specifically construction, manufacturing and transportation, have not recovered many of the jobs lost in the Great Recession.

Jankowski also noted that the economic recovery should continue to be strong in Houston, based on several key indicators:

Oil prices have increased from a low of $40 per barrel in 2009, recently averaging $95.53 per barrel over the past 6 months. This is the upper range for the pricing sweet spot of $75 to $100 per barrel. Below this range, oil production suffers; but above this range, the overall US economy tends to suffer.
Advances in exploration technology, specifically hydraulic fracturing, are a boom to the Houston economy. (Hydraulic fracturing is a capital intensive operation, and much of this technology and equipment is provided by Houston based companies.)
The levels of US based exploration and production are increasing dramatically. For example, in the Texas Eagle Ford Shale, the number of drilling permits issued increased from 94 in 2009 to 2,828 in 2011, while the number of barrels of oil produced increased from 308,139 barrels in 2009 to 30,453,253 in 2011.
Exploration and production activities similar to the Eagle Ford Shale are also being conducted in a number of other regions of the country and the world.
Foreign trade continues to flow through Houston, with exports in 2011 increasing 26.7% over 2010 levels.
Houston’s population continues to grow, currently at the rate of approximately 110,000 people per year. Over half of this growth is natural growth, as Houston experiences 65,000 more births than deaths each year. In-migration from other parts of the country and the world should continue as well, based on projected job growth for 2012.

Overall, Jankowski painted an optimistic picture of Houston’s economy and its continuing staying power in challenging economic times. We agree with him and that's what we're telling our clients.

NLRB Notice - Posting Rule Declared Unconstitutional

Joseph "Trey" L. Wood, III — 2012-05-13T00:00:00

NLRB Notice — Posting Rule Declared Unconstitutional
by Joseph "Trey" L. Wood, III
May 15, 2012

On April 13, a federal district court in South Carolina ruled that the National Labor Relations Board did not have authority to issue its notice-posting rule. This is in contrast to a ruling by a federal district court in Washington D.C. which held the rule was valid. Unfortunately, the South Carolina court did not prevent enforcement of the rule with an injunction, which means that, technically, the rule still takes effect on April 30, 2012.

While the case arising out of the Washington D.C. federal court is currently on appeal, it is virtually certain that the NLRB will appeal the South Carolina ruling. However, there has been no indication as to whether the Board will once again postpone the implementation of the rule at the end of the month. Accordingly, employers would be well advised to discuss the risks associated with a decision not to post the notice. Finally, since posting the notice will likely lead to questions being raised by employees, employers should train supervisors on the new rule and what can legally be said with respect to the company’s position on unions.

Jury Waivers: An Alternative to Arbitration

Joseph "Trey" L. Wood, III — 2012-05-17T00:00:00

Jury Waivers: An Alternative to Arbitration
by Joseph "Trey" L. Wood, III
May 17, 2012

The practice of requiring employees to sign mandatory arbitration agreements has become more widespread, and the enforceability of those agreements are routinely accepted by the courts. The pros and cons that are typically associated with arbitration include the following:

Avoidance of Juries: Conventional wisdom is that arbitrators tend to be both more predictable in decision making and reasonable in awarding damages. However, others argue that arbitrators tend to “split the baby.”
Less expensive? Some say yes, some say no. Attorneys’ fees may be reduced, but the costs shouldered by the employer for administering a private dispute resolution system may increase.
Private
Speed
Informality
Finality: No route to appeal absent exigent circumstances.
Potential Increase in Claims: Some employers have a concern that employees may pursue more claims if they can do so easily and relatively cheaply through arbitration.
More cases are decided on the merits than in traditional litigation. More cases settle through traditional litigation than go to trial.
Use of screening mechanisms such as pretrial motions are done away with.

However, lately, employers have been trying something different to get the best of both arbitration and the judicial system: Jury waivers. Dispute resolution with employees may return to a judicial forum without the uncertainty of a jury, and without having to shoulder the financial burdens imposed on employers for administering arbitration. Recently, the Texas Supreme Court ruled that an employer may make initial or continued employment conditional on an employee’s waiver of the right to a trial by jury. In In re Frank Motor Co., the Court found “There is no reason to treat the effect of the at-will relationship on a waiver of jury trial differently from its effect on an arbitration agreement. Arbitration removes the case from the court system almost altogether, and is every bit as much a surrender of the right to a jury trail as a contractual jury waiver.”

What This Means For You
If you currently require your employees to execute a binding arbitration agreement as a condition of continued employment, or you have been considering that alternative, you may wish to reconsider your practice and implement mandatory jury waivers. It could provide the best of both worlds.