A Five-Ingredient Formula - Blank Rome · 2012-10-10 · • Injunctive reliefInjunctive...

4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries

© Blank Rome LLP 2012. All Rights Reserved1

Securing Your Trade Secrets:

PRESENTED BY

Securing Your Trade Secrets:

A Five-Ingredient Formula

Michael P. Broadhurst, Blank Rome LLPJoseph G. Poluka, Blank Rome LLPL i h A B i k Bl k R LLP

5

Leigh Ann Buziak, Blank Rome LLPKevin M. Passerini, Blank Rome LLPFrederick J. Salek, Heraeus Incorporated

The Formula: Five Active Ingredients

1. Defining Trade Secrets

2. Developing Measures to2. Developing Measures to Secure Trade Secrets

3. Identifying & Responding to Theft

4. Considering Criminal Referrals

6

5. Protecting Trade Secrets In the Context of Civil Litigation & Regulatory Reporting



1st Ingredient: Defining Trade Secrets

7

What are trade secrets?• Information for which a company strives to maintain confidentiality and

which is competitively valuable

• Includes technical information (e.g., chemical processes)• E.I. du Pont de Nemours and Co. v. Kolon Ind., Inc.:

– Theft of confidential information concerning production and marketing of Kevlar ($991M jury verdict)

8

http://www.prweb.com/releases/DuPont/Cooper_River_Kevlar/prweb8856354.htm



What are trade secrets?

• Includes business information (e.g., customer lists and marketing strategies)

• MGA Entertainment Inc. v. Mattel Inc.:

– Theft of business and marketing plans for Bratz dolls ($85M jury verdict on liability; $85M exemplary

9

liability; $85M exemplary damages award; $2.52M attorney fee award)

© Jeff Harris, 2012http://gallery.macleans.ca/gallerypopbanner.asp?gallery=barbie

How and when are trade secrets created?

• By employees, consultants, or other third parties

• Through agreements, which are often important to establishing ownership of the trade secrets

10

• Everyday business operations



Why are trade secrets important assets?

• Protect investments in research and development, marketing efforts, and strategic planning

• Protect information that may not be protected by patents, trademarks, or copyrights

11

• Provide powerful litigation tools and tactics

How are trade secrets protected by law?

• Uniform Trade Secrets Act (UTSA)

– Most states, including PA and (recently) NJ

– But: MA, NY, & TX continue to follow common law or Restatement

• Even so, some residual common law torts remain (e.g., unfair competition and tortious interference with contract)

12

unfair competition and tortious interference with contract)

– “Inevitable disclosure” doctrine (e.g., Bimbo Bakeries USA, Inc. v. Botticella and the secret formula for “nooks and crannies “in Thomas’ Original English Muffins)



How are trade secrets protected by law?

• Federal and state criminal statutes (and some with private causes of action)

– Oldies but goodies• Federal

– Economic Espionage Act (foreign entanglement component)– Computer Fraud and Abuse Act

» United States v. Aleynikov, 676 F.3d 71 (2d Cir. 2012)

13

• State—Aleynikov II?

– Newbies—currently a potpourri of legislation in Congress• “Protecting American Trade Secrets and Innovation Act of 2012”

2nd Ingredient: Developing Measures to g p gSecure Trade Secrets

14



How to maintain the confidential nature of trade secrets?

• Agreements (employees and third parties)

• Physical limitations on access and downloading

• Electronic limitations on access and downloading

• Ownership of all electronic devices

• Legends and labels

15

Legends and labels

• Policies and procedures

• Exit interviews and check-out procedures

Where does the company keep its trade secrets?

• Under lock and key (perhaps literally)

• Physical vs. Electronic/Tangible vs. Intangible

– Bad news: electronic information can be easily manipulated and taken

16

– Good news: electronic information easier to track than paper because it often leaves behind an electronic fingerprint



Corporate Mentality Matters, Too

• Commitment/buy-in from business people

• Treat trade secrets as trade secrets

• Publicity and marketing efforts

• Appropriate and consistent use of litigation and enforcement tools

• Protection of trade secrets integrated into company’s

17

Protection of trade secrets integrated into company s culture and values

Who is responsible for protecting the company’s trade secrets?

• Everyone!

– Key personnel: Legal, IT, HR, and management working together

• Explain and Warn?

18

• Consider value of key personnel’s training employees not only on the importance of trade secrets, but also on the company’s efforts to protect its trade secrets and to monitor and police against theft of trade secrets



Flip side: How does the company avoid accusations for misappropriating

its competitors’ trade secrets?

• Policies and procedures• Clear written instructions and contracts with new

employees coming from competitors and with third parties who may have had access to competitors’ trade secret information

19

t ade sec et o at o• Ask about post-employment obligations during

interviews and explain company’s position• Again, training

3rd Ingredient: Identifying & Responding g y g p gto Theft

20



How does the company determine if its trade secrets have been taken?

• Close relationship between legal and HR

• Keystroke/mass-downloading software

• Preservation of exiting employees’ computer images

• Regular monitoring, especially in sensitive areas

21

• Unfortunately, theft usually occurs from within—good HR policies and managers can serve as a check

What if there is a suspicion that someone has stolen trade secrets?

• Investigation and review of email traffic and downloading

• Forensic examination of relevant computers/servers

– Made easier when devices are company-owned and by policies preserving computer images from the get-go

22

• Consider immediate injunctive relief to secure information and/or stop threatened misappropriation, coupled with contemporaneous preservation notices to relevant parties



What are the typical remedies?

Injunctive relief both preliminary and permanent• Injunctive relief—both preliminary and permanent

– Early options: temporary restraining order versus preliminary injunction

– Value of expedited discovery to securing better relief up front

23

• Damages—lost profits, disgorgement/constructive trust, reasonable royalties, attorneys’ fees, and punitive/exemplary damages

Considerations Before & During Litigation

• Make sure you have the goods—either actual or threatened misappropriation of legitimate trade secrets– Do you need discovery to obtain relief?

• Attorneys’ fees available for bad faith maintenance of trade secret litigation– Eaton Corp. v. Frisby

• Developing case law involving unfair competition as a result of

24

malicious litigation– American Chem. Society v. Leadscope, Inc.

• Policy of declining to comment on litigation



4th Ingredient: Considering Criminal g gReferrals

25

• Parallel proceedings

What is the relationship between criminal and civil protection of trade secrets?

– Potential stay of civil litigation

• Overlap between civil and criminal theft statutes

– Economic espionage and theft of trade secrets codified at

26

p g18 U.S.C. §§ 1821–39

– Not just “criminal”: some criminal statutes have civil remedies and even private causes of action



When should the company authorize an internal investigation?

• What is the source of the complaint?

• What is the mission?

• What is the scope?

27

What are the considerations before referring the matter to the authorities?

• Are you the victim or the alleged perpetrator, and how may you be perceived?

• How serious is the theft and the subject matter of the trade secret?

• Does the company have “clean hands”?

• Has the company established adequate protective measures and practices?

28

• Is civil litigation pending or planned?– Statutes of limitation, risk of stay, and risk of perceived overreaching by

referral during litigation



5th Ingredient: Protecting Trade Secrets In the Context of Civil Litigation & gRegulatory Reporting

29

Can companies avoid disclosing trade secrets in litigation?

• Opposing counsel view discovery of a company’s trade secrets as a pressure point in ordinary litigation

• Ensure that confidentiality agreements are in place– Compare with protective order—tough standard in many jurisdictions and risk of

contempt

• Redactions and filing under seal (check local rules)

• Provisions limiting the use of information and measures to protect from disclosure and to secure the return of information after the litigation

30

disclosure and to secure the return of information after the litigation

• Enforce where necessary and if improperly used by adversary—breach of contract versus civil contempt



Questions?

32



Geographic Differences inPR Challenges and

PRESENTED BY

PR Challenges and Crisis Management Strategies

Laurie A. Salita, Blank Rome LLPSteve Forde, Marcellus Shale CoalitionJ h K h E I D th

33

John Krohn, Energy In Depth

Geographic Differences in PR Challenges and Crisis Management Strategies

“If liberty means anything at all, it means the right to tell people what they do not want to hear…”

34

George Orwell



Offense v. Defense


OFFENSE DEFENSE

Building and protecting a brand

Engendering good will

StrategiesInternetMedia

Intelligence gathering

Heading off at the pass

Rapidly responding to crisis‐beat the press

35

OptimizationOther

Preparing a Plan of Action

Working through the “Plan”

Repairing your brand


You’re not in Texas anymore!

36




37


OFFENSE!OFFENSE!

38



What are we doing???


Marcellus Shale Coalition

Southeastern PA

Energy In Depth

39

Energy In Depth

What offensive PR strategies employed by others have you found particularly successful?


DEFENSE!!!

40



A crisis is…


a turning point, a decisive event or crucial situation whose outcome determines whether bad consequences will follow.

41

Marie Yossava, Director of Grapevine Communications


• NGD Energy and their subcontractors are involved in hydraulic fracturing operations f th t l d ti f

• Fracturing fluids and contents from tanks containing hazardous materials arefor the eventual production of

shale gas in Forest Springs, Pennsylvania.

• At 11:06pm on October 12, 2012 a catastrophic gas explosion occurs at the well pad 12 workers are injured

hazardous materials are discharged into a nearby stream which feeds into the Susquehanna River.

• 49 respiratory complaints are reported at local hospitals.

42

pad. 12 workers are injured.

• Vapors and particulate matter from the explosion are emitted into the air.

• Property damage on neighboring farms is evident.




WHAT DO WE DO? Issue planned statement

i di t l b t thimmediately-beat the presses;

Follow Pre-Developed Plan:

• Notify

• Cooperate

43

p

• Manage

Repair

• Had this crisis occurred in Ohio, West Virginia or New York, how would your crisis management strategy have changed, if at all?

44




“In the 21st Century, a social media savant can do more harm than a

trial attorney.”

45

Jonathan Bernstein, Bernstein Crisis Management.

Questions?

46



PRESENTED BY

Shale Oil and Gas Forum

Margaret A. Hill, Blank Rome LLPScott Coburn, Pennsylvania State Association of

Township Supervisors

48

Township SupervisorsCraig A. Kasper, PE, Hull & Associates, Inc.Peter Terranova, UGI Energy Services, Inc.

Northeast PA Production and Major Pipe Activity

49



• Opposition to Marcellus Shale development focusing on bottlenecking supply by opposing pipelinesPipelines extend beyond the Marcellus producing

Evolving Opposition Strategy

• Pipelines extend beyond the Marcellus producing areas where residents have a financial stake in development; sympathetic audience for opposition groups

• Well organized and well funded opposition• Adept at organizing local opposition to pressure local

50

p g g pp pofficials—NIMBY on steroids

• Delay and increase to cost of pipelines and compressor stations

• “Clean Air Council has provided education, outreach

Some Examples

and training to residents of Luzerne County, who then… organized and turned out to multiple meetings, strategy sessions and public hearings to… pressure the local Zoning Hearing Board to deny a…permit required to build [a] compressor station”

“E thj ti fi ht MARC I i li i l di l

51

• “Earthjustice fights MARC I pipeline including appeal of FERC approval”



• Multiple permits: DEP construction permits; air permits for compressors; local land use permits; FERC fili A C f E i PUC(?)

Why Attack Pipes and Compressors?

FERC filing; Army Corp of Engineers; PUC(?)

• Multiple public forums and places to influence outcomes

• The more local the decision point (the more remote from production) the greater the affect of negative

d bli it ff t th t

52

press and publicity affects the outcome

• Courts are last resort but this slows development and increases cost

• Midstream development becoming a critical path item; will be magnified if gas prices rise

Outlook

• Costs to build pipelines are increasing significantly; Williams Pipeline report that regulatory delays add significant cost to Springville line in Northeast PA-total cost over $4 million/mile

• The challenges will increase as opponents i d l i d ddi t t

53

experience success delaying and adding cost to projects



• Follow the lead of the Marcellus Shale Coalition and increase outreach and education efforts

What do we do?

• Work with State regulators (DEP) to streamline approval process if conditions are met such as local energy corridors developed by industry, producers, local planning officials. State regulators

• Other thoughts?

54

BLANK ROME’S 4TH ANNUALSIGNFICANT LEGAL DEVELOPMENTS AFFECTING THE

CHEMICAL, OIL AND GAS INDUSTRIESPHILADELPHIA PAPHILADELPHIA, PA

OCTOBER 10, 2012HULL & ASSOCIATES, INC.| CRAIG KAPSER, CEO

55



What is the Utica?

56

Ohio and Pennsylvania: A Strong Oil and Gas History and a Strong FutureOHIO• 1860 – Washington Co.

> 270 000 wells in 76/88

PENNSYLVANIA• 1859 – Drake Well

> 350 000 wells in 33/67• > 270,000 wells in 76/88 counties

• ~ 65,000 in production• Unconventional - Utica

– ~ 382permits issued– ~ 144 wells drilled

• > 350,000 wells in 33/67 counties

• ~ 70,000 in production• Unconventional

– ~11,000 permits issued– ~5,000 wells drilled

57



The “Supply Chain”

PRODUCEPRODUCE USEUSEUSEUSEUSEUSE

58

PROCESSPROCESSPROCESSPROCESSPROCESSPROCESS

Agencies That Regulate in Ohio• Ohio Department of Natural

Resources (ODNR)

• Ohio Environmental Protection• Ohio Environmental Protection Agency (Ohio EPA)

• Department of Commerce

• Public Utilities Commission of Ohio (PUCO)

59



History of Ohio Requirements and Rulemaking• HB 165 effective June 30, 2010

– Didn’t focus on horizontal wells and midstream infrastructuremidstream infrastructure

• SB 315 effective September 10, 2012– Rules and Best Management Practices

– Governor’s Executive Order 2012-09K

• Emergency rule regulating underground injection wells

60

and brine transportation

• Effective July 11, 2012

• Horizontal well - a well that is drilled for the production of oil or gas in which the wellbore reaches a horizontal or near horizontal

New Definitions

position in the Point Pleasant, Utica, or Marcellus formation and the well is stimulated

• Well pad - means the area that is cleared or prepared for the drilling of one or more horizontal wells.

• Condensate – adds liquid hydrocarbons separated at or near well head or along

61

gathering system prior to gas processing. Former definition included liquid hydrocarbons originally in the gaseous phase.

• Several new definitions for midstream components



• Order to issue, deny or modify a permit to drill a horizontal well is not subject to Ohio’s Administrative Act

• Removes public comment and timeframes associated with

Nonapplicability of Administrative Procedures Act

• Removes public comment and timeframes associated with the Act

62

• Copy of an executed Road Use Management Agreement (RUMA)

• Identification all sources of

Application Requirements for Drilling Permits

Identification all sources of groundwater and surface water and volume of recycled water

• Site site-specific terms for wells located in the 100-year floodplain or within the 5-year time of travel from a public drinking supply wellC i d ti d t il

63

• Casing and cementing details• All other information as required before

September 10, 2012 (effective date of SB 315)



• Pre-drill sampling– Results have to be posted “prior to” drilling but do not have

t b i l d d th i iti l li ti

Pre-Drill and Notification Requirements

to be included on the initial applications

– 300 feet radius in urban areas, 1,500 feet radius in non-urban areas

– Sampling in accordance with the current “Best Management Practices for Pre-drilling Water Sampling” including “trained samplers”

64

• Notifications and well site review– Prior to issuing a permit

– Prior to well pad construction

Disclosure and Trade Secrets

65



• Submitted within 60 days after well is completed• Drilling fluids

Through the surface

Well Completion Record and Disclosure

– Through the surface casing

– Doesn’t include cementand additives

• Simulation• Provide CAS and MSDS• Applies to refracturing

66

• Applies to refracturingor restimulatoin

• FracFocus or ODNR• Keep records for 2 years

• Trade secrets– An Owner may designate materials as a trade secret and prohibits

ODNR from disclosing the information

Well Completion Record

ODNR from disclosing the information

– Requires the Owner to disclose information regarding the trade secret to a medical professional for the purposes of diagnosing or treating an individual who was affected by an incident associated with the production operations of the well

67

– May also be disclosed under a civil suit



“Importer” of Brine

• Ohio has been an injection state for over 50 years -required by law

• Approximately 180 i j ti ll ith

68

injection wells with many more to come

• Executive Order 2012-09K subjects disposal wells and haulers to comply with additional regulations

• ODNR has sole authority over oil and gas in Ohio• Authorizes ODNR to enter in to cooperative agreements

with other state agencies for advice and consultation

Cooperative Agreements

with other state agencies for advice and consultation.– For example, the State Fire Marshall will inspect fire suppression

systems and report back to ODNR

• ODNR maintains authorization to regulate Oil and Gas industry.

• Requires Ohio EPA, ODNR and other agencies to evaluate emerging wastewater treatment/recycling

69

evaluate emerging wastewater treatment/recycling technologies that can be used in lieu of injection.

• Requires ODNR and ODOT to issue a report in 18 months evaluating the effectiveness of the RUMA on maintenance and safety issues.



70

MIDSTREAMMIDSTREAM

Definitions Under The PUCO & OPSBTerm Definition

Gas Gathering Pipeline

A gathering line not regulated by the Natural Gas Pipeline Safety Act and resultant federal rules and specifies it includes a pipeline used to collect and transport raw natural gas or transmission quality gas transport raw natural gas or transmission quality gas to the inlet of a gas processing plant, the inlet of a distribution system, or to a transmission line .

Processing Gas Plant Stub Line

A gas pipeline that transports transmission quality gas from the tailgate of a gas processing plant to the inlet of an interstate or intrastate transmission line and that is considered an extension of the gas processing plant and is not for public use.

Operator

For purposes of the gas gathering pipeline and processing plant gas stub pipeline safety standards,

71

Operatoras any person that owns, operates, manages, controls, or leases either type of pipeline.

GasNatural gas, flammable gas, or gas that is toxic or corrosive.

Natural Gas Liquids Finished Product Pipeline

A pipeline that carries finished product natural gas liquids to the inlet of an interstate or intrastate finished product natural gas liquid transmission pipeline, rail loading facility, or other petrochemical or refinery facility.



Term Definition

Natural Gas Liquids Fractionation PlantA facility that takes a feed of raw natural gas liquids and produces finished product natural gas liquids.

Hydrocarbons that are produced in a gaseous state from gas wells and that generally include methane ethane propane

Definitions Under The PUCO & OPSB

Raw Natural Gaswells and that generally include methane, ethane, propane, butanes, pentanes, hexanes, heptanes, octanes, nonanes, and decanes, plus other naturally occurring impurities like water, carbon dioxide, hydrogen sulfide, nitrogen, oxygen, and helium.

Raw Natural Gas Liquids

Naturally occurring hydrocarbons contained in raw natural gas that are extracted in a gas processing plant and liquefied and generally include mixtures of ethane, propane, butanes, and natural gasoline.

Finished Product Natural Gas Liquids

An individual finished product produced by a natural gas liquids fractionation plant as a liquid that meets the specifications for commercial products as defined by the Gas Processors A i i Th d i l d h i b

72

Association. Those products include ethane, propane, iso-butane, normal butane, and natural gasoline.

Gas Processing Plant

A plant that processes raw natural gas into merchantable products, including transmission quality gas or natural gas liquids and also may include a plant that treats raw natural gas to remove impurities such as carbon dioxide, helium, nitrogen, or water.

Transmission Quality Gas

Gas consisting predominantly of methane that meets all downstream specifications for transportation in an intrastate or interstate transmission pipeline and that is suitable for use by public consumers.

• Excludes from PSB certification requirements gathering lines, gas gathering pipelines, and processing plant gas stub pipelines and associated f

Ohio Power Board Certification Authority

facilities; any gas processing plant; natural gas liquids finished product pipelines; pipelines from gas processing plants to an interstate or intrastate gas pipeline or to a natural gas liquids fractionation plant; any natural gas liquids fractionation plant; an oil, gas, or other production operation regulated by the state including pipelines upstream of any gathering lines; and certain compressor stations

73

gathering lines; and certain compressor stations.



• Exempts from regulation as a public utilityan entity engaged in the business of the transport associated with gathering lines, raw natural gas liquids or finished product natural

PUCO Authority

natural gas liquids, or finished product natural gas liquids.

• Exempts from regulation as a public utility certain natural gas gatherers and producers engaged in the business of supplying natural gas for lighting, power, or heating purposes to Ohio consumers, and that deliver or sell Ohio-produced raw natural gas liquids.Exempts from Ohio's pipeline safety law

74

• Exempts from Ohio's pipeline safety law (specifically requirements on "operators") an entity engaged in the business of the transport associated with gathering lines, raw natural gas liquids, or finished product natural gas liquids.

• GAS GATHERING LINES & PROCESSING PLANT GAS STUB PIPELINES– Requires compliance with the applicable

pipe design requirements under the

Pipeline Safety Standards

pipe design requirements under the minimum federal safety standards (CFR Part 192, Subpart C).

– Requires operators to engage in various other activities

• Designing, constructing, inspecting, and testing

• Controlling corrosion• Carrying out a damage prevention and

bli d ti

75

public education program• Establishing the maximum allowable

operating pressure• Installing and maintaining pipeline markers• Performing and maintaining records of leakage

surveys.• Pre and post construction submittals



• Water withdrawal, HB Bill 473 and the Great Lakes Compact

Other Ohio Conserations

• Ohio EPA 401 water quality certification and isolated wetlands

• Beneficial reuse initiatives

• AIR

• Unitization and Pooling

76

g

• Preemption

• Severance Tax

What's On The Horizon – Severance Tax?Product Current Law Proposed Law

Horizontal WellsDry Gas $.03/mcf 1% of market value

Natural Gas Liquids $.03/mcf4% of market value with 1.5% i iti ll f th fi t 2

q $initially for the first 2 years

Oil and condensates $.20/barrel4% of market value with 1.5% initially for the first 2 years

Other Wells

Gas $.03/mcf

Lesser of $.03 per mcf or 1% of market value with exemption for wells producing less than 10 mcf/day

77

mcf/dayOil $.20/barrel $.20/barrel

Notes

Current Law taxes include severance taxes plus cost recovery assessments

Dry gas is defined in the proposed law a s "pipeline quality gas"MCS if 1,000 cubic feet of natural gas

"Analysis of Ohio Severance Tax Provisions of H.B. 487 by Ernst & Young May 15, 2012



How Good Can It Get?

78

• Ohio Shale Coalition Study– $18B and 65K jobs

What’s The Investment –Depends on Who You Ask

– Only considers upstream and midstream

• Ohio Oil & Gas Energy Education Association– $34B and 200K jobs

M k t i till t i d

79

• Market is still maturing and developing cautiously



SO WHAT’S TO WORRY ABOUT?

80

Just a Few Considerations?• It’s a safe industry – need strong

public outreach to understand the issuesissues

• Job training and a sufficient qualified work force

• Natural resource sustainability and management

• Supply and demand – good old f hi d i

81

fashioned economics

• Need to wait and see how good it can get!



Definitely a Game Changer!

82

Craig [email protected]

83



PRESENTED BY

Act 13 Update

Scott Coburn, Pennsylvania State Association of Township Supervisors

84

• Impact Fees– Over $200 million in 2012

Act 13 Overview

– Split 60/40 between counties/municipalities and state

• Environmental Restrictions– Updates Oil and Gas Act

• Zoning Preemption

85



• Seven municipalities, environmental group and doctor challenged constitutionality of Act 13

Constitutional Challenge

• Numerous claims– Violation of due process

– Special law

– Non-delegation doctrine

– Separation of powers

86

– Others

• Commonwealth’s arguments– Municipalities are creatures of state; state can take power

Constitutional Challenge (cont’d)

away

– Law is rationally related to exercise of police power (development of oil and gas resources)

– Political question doctrine

– Standing

87



• July 26 – en banc court rules Section 3304 unconstitutional:

Commonwealth Court Ruling

– Violates substantive due process

• Balance landowners’ rights vs. public interest

– Requires incompatible uses in certain zoning districts

• “Pig in the parlor instead of the barnyard”

88

• Section 3215 unconstitutional– Insufficient guidance to DEP on when to grant waivers from

di t tb k

Commonwealth Court Ruling (cont’d)

distance setbacks

• No standing for environmental group/doctor

• Dissent:– This “pig” only operates where “slop can be found”

89

– Incorrect application of substantive due process



• Supreme Court– Oral argument – October 17 in Pittsburgh

Act 13 – What’s Next?

– Impact of Justice Melvin’s absence?

• Public Utility Commission– Parties can challenge local ordinances before PUC

– If successful, municipalities lose share of impact fees

– So far: at least 4-5 formal challenges

90

• Pipelines– Governor’s Energy Executive to issue report by Feb. 2013

Act 13 – What’s Next?

– Report to address placement of gathering lines

• Balancing of getting gas to market vs. future development plans

• Colocation?

• Gas in other areasS th N k B i

91

– South Newark Basin

– Gettysburg Basin



Questions?

92



Significant Legal Developments Affecting Public Companies: New Capital Raising Options Under the JOBS A t SEC C t L tt T d I id T di

PRESENTED BY

Act; SEC Comment Letter Trends; Insider Trading Risks When Company Shares Are Pledged

Francis E. Dehel, Blank Rome LLPMichael E. Plunkett, Blank Rome LLPMi h l Silb FMC C ti

94

Michael Silberman, FMC Corporation

New Capital Raising Options Under the JOBS Act

Significant Legal Developments Affecting Public Companies

SEC Comment Letter Trends

Insider Trading Risks When Company Stockis Pledged

95

is Pledged



• Crowdfunding.

New Ways to Raise Capital Under the JOBS Act

• General solicitations and advertising for certain private placements.

• Regulation A+.

96

C f h Offi f Gl b l S i Ri k

Trends in SEC Comment Letters

• Comments from the Office of Global Security Risk.

• Continuing questions from the SEC about hydraulic fracturing.

97



I id di i k h k i l d d

Insider Trading

• Insider trading risks when company stock is pledged.

98

• Background – Federal Securities Law– Very broadly speaking, the federal Securities Act of 1933

hibit l f iti l i t d ith th

New Capital Raising Options Under the JOBS Act

prohibits any sale of securities unless registered with the SEC or exempt from registration.

– Registration of a securities offering is a long, expensive, and burdensome process.

99

– It is often advantageous for both small and large companies to sell securities pursuant to an exemption, rather than pursuing registration with the SEC.



– Far more capital is raised through exempt transactions. For 2011, some estimate that companies raised nearly $900 billion in Rule 506 exempt transactions, while only approximately $40 billion was raised in IPOs in the United States.

– JOBS Act became law in April 2012 and provides for new ways to raise capital without registering with the SEC

100

ways to raise capital without registering with the SEC.

• State securities laws:

– Often referred to as “Blue Sky” laws.

St t h i il i t ti / ti i t– States have similar registration/exemption requirements.

– Federal “covered securities” are exempt from state securities registration requirements. However, certain other state requirements may continue to apply.

101



• What is crowdfunding?

Crowdfunding

– Raising relatively small amounts of money from a relatively large group, typically comprised mostly of individuals. Usually, although not exclusively, conducted through social media.

– Example – 200 people each donate $100 for an aggregate

102

p p p gg gof $20,000 to fund construction of a playground in a disadvantaged neighborhood.

• Various types of crowdfunding:

– Charitable – not regulated by the SEC.

– Premium/reward based – Pledge $20 to help a new marshmallow maker get started and receive a dozen handmade marshmallows. Not regulated by the SEC.

– Debt – May or may not be regulated by the SEC. Generally, regulated if there is a profit motive (interest charged and paid to lenders), and not regulated by the SEC if no profit motive

103

SEC if no profit motive.

– Investments in securities – Can be either debt or equity. Regulated by the SEC.



• JOBS Act permits the use of crowdfunding techniques to sell securities without registration.

– Revolutionary concept in the world of US securities law.

– Crowdfunding cannot be used to sell securities until the SEC issues rules.

• JOBS Act requires the SEC to issue rules no later than January 2013 SEC may or may not meet this

104

than January 2013. SEC may or may not meet this deadline.

• The JOBS Act provides a detailed set of requirements and limitations. The more significant requirements and limitations include:

Investor Limitations

– Limit on the total amount raised – Cannot sell more than $1,000,000 of securities to investors under the crowdfunding exemption in any 12 month period.

– Limitation on amount a company may sell to any single investor:

• For investors with annual income or net worth of under $100,000, the maximum is the greater of $2 000 or 5% of the investor’s annual

105

maximum is the greater of $2,000 or 5% of the investor s annual income or net worth.

• For investors with annual income or net worth of $100,000 or more, 10% of the investor’s annual income or net worth, with a cap of $100,000.



– No limit on the number or sophistication of the investors.

– May resell crowdfund securities in only very limitedMay resell crowdfund securities in only very limited circumstances for first 12 months after purchase.

106

• Company must file with the SEC and provide to investors and the intermediary and make available to potential investors basic information about the

Information Requirements

potential investors basic information about the company, its business, capital structure, officers, directors and significant stockholders.

• The price of the securities and the method used to determine the price.

• The risks to purchasers relating to minority

107

ownership in the company, risks associated with corporate actions, including dilution from the issuance of additional shares, related party transactions, and asset sales.



• For offerings that have a target amount of $100,000 or less, the company’s most recent tax return (if any) and financial statements certified by the company’s

Financial Information

and financial statements certified by the company s principal executive officer.

• For offerings with a target of more than $100,000, but not more than $500,000, the company’s financial statements reviewed by a CPA.

108

• For offerings with a target in excess of $500,000 (or such other amount as established by the SEC), audited financial statements.

• Continuing obligation to file financial statements -After the offering is consummated, the company is required to file not less than annually with the SECrequired to file not less than annually with the SEC and provide to investors financial statements.

• SEC by rule may require that additional disclosures be provided.

109



• Cannot just launch a website asking for investments.

Must Use an Intermediary

• An intermediary is:

– A registered broker, or

– A registered “funding portal” - a new type of service

110

provider to be defined by SEC rules.

– Intermediaries must:

• Register with the SEC and with a self-regulatory organization as a broker or a funding portal

Requirements for Intermediaries

organization as a broker or a funding portal.

• Ensure that each investor affirms that she understands the risks associated with investing in general, and investing in start-ups in particular.

111

• Take steps to reduce risk of fraud, including obtaining background checks for each officer, director, and holder of 20% or more the company’s equity.



• In addition, intermediaries must make efforts to enforce the individual investor investment limitations.

• Take steps as determined by SEC rules to protect the privacy of information collected from investors.

• Meet certain other requirements, including additional requirements and disclosure obligations as determined by SEC rule

112

by SEC rule.

• Securities sold via the crowdfunding exemption will

The Good News

be “federal covered securities” – no state registration requirements.

• Shareholders obtaining securities in a crowdfunding transaction do not count toward shareholder limits for

113

Securities Exchange Act registration and reporting requirements (2,000 persons or 500 persons who are not accredited investors).



• Has its advantages – no state registration requirements; not limited to accredited investors; and no federal registration requirements.

Will Crowdfunding be Viable?

registration requirements.• Can reach a wider audience of potential investors.• Requirements on both intermediaries and companies

very significant. • Administrative burdens will come with having many

shareholders.B siness models that allo intermediaries to be

114

• Business models that allow intermediaries to be profitable will have to be developed.

• Not viable for capital-intensive businesses because of the $1,000,000 cap.

• Increased litigation risk?

• How will later-round investors react?

115



• Rule 506 of Regulation D provides an exemption from the registration requirements of federal and t t iti l

Advertising for “Private Placements”

state securities laws. – Rule 506 is probably the most heavily relied upon

exemption from registration.

– Permitted to raise an unlimited amount.

– Investors must be “accredited investors”, plus up to 35 non-accredited investors.

116

accredited investors.

– Under the existing Rule, advertisement and any other form of general solicitation is not permitted.

• Section 201(a) of the JOBS Act directs the SEC to amend Rule 506 to permit general solicitation or

l d ti i i ff i d R l 506

New Rule 506(c)

general advertising in offerings under Rule 506 provided that all purchasers are accredited investors.

• Status – SEC proposed the Rule on August 29, 2012. – The comment period expired on October 5, 2012.

117

– Rule could be modified prior to final rule being adopted.

– Timing of finalization of the Rule is difficult to predict.



• Under new Rule 506(c), a company would be permitted to offer securities using general solicitation and advertising if:– The company takes reasonable steps to verify that the purchasers are

accredited investors. – All purchasers are accredited investors because:

• Investors actually come within one of the categories of persons defined as accredited investors, or

• The company reasonably believes the investor comes within one of the categories.

– Accredited investors, generally, are:• Individuals with a net (or a joint net worth with spouse) in excess of

$1,000,000 (primary residence excluded), • Individuals with income in excess of $200,000 in the past two years

or joint income with spouse in excess of $300,000 and a reasonable expectation of reaching the same income level in the current year,

118

• Banks, large charitable organizations, • Directors and executive officers of the company issuing securities,• Companies and other business entities with more than $5,000,000

of assets, and• Entities in which all equity owners are accredited investors.

• Purpose of the verification requirement is to address concerns, and reduce the risk, that the use of general

li it ti ill lt i l t i t h

Reasonable Steps to Verify

solicitation will result in sales to investors who are not, in fact, accredited investors.

• Neither the JOBS Act nor the SEC’s proposed rule mandated any particular steps that companies must take to satisfy the requirement.

Wh th th t bl ill b

119

• Whether the steps are reasonable will be an objective test based on the particular facts and circumstances of each transaction.



• SEC provided examples of factors companies may consider:– The nature of the purchaser and the type of accredited

investor the purchaser claims to be.

– The amount and type of information the company has about the purchaser.

– Nature of the offering, such as the manner in which the offering was conducted and the minimum investment.

120

– Generally, an investor merely “checking the box” or signing a verification of accredited investor status likely will not be sufficient.

• Companies can use either the existing Rule 506 exemption or, once the new rules become effective, the new Rule 506(c)

Existing Rule 506 v. New 506(c)

the new Rule 506(c).

• Under the existing rule, a company only need “reasonably believe” that an investor is an accredited investor. No specific requirement to take reasonable steps to verify.

121

• Under the existing rule, up to 35 non-accredited investors can be included.



• Legal issue – companies must strictly comply with Rule 506(c) as there is no available backup exemption

What to Expect

exemption.

• An increase in the use of Rule 506 by smaller companies.

• An increase in the pool of potential investors and a

122

An increase in the pool of potential investors and a potential decrease in the cost of raising capital. Companies may be able to avoid engaging an investment banker.

• Established companies will still likely rely upon the “old” Rule 506.

• For large private placements, Rule 506(c) is not likely to be used.

• Could be a potential source for less established competitors to raise significant amounts of capital.

123

• Unintended consequences.



• Current Regulation A – Allows companies to sell up to $5 million of securities in

12 th i d ith t “f ll bl ” i t ti ith

Regulation A+

any 12 month period without “full-blown” registration with the SEC.

– While “full-blown” registration is not required, companies are required to file a “mini-registration statement” with the SEC. Generally, no on-going filing obligations.

– Securities sold are not “covered securities.”

124

– Little used exemption because the costs of complying with the securities laws of 50 states and the “mini-registration statement” process, combined with a $5 million maximum, outweigh the benefits of the exemption.

• Title IV of the JOBS Act directs the SEC to implement rules providing for a new exemption from Securities Act registration.– Company may sell up to $50 million of securities in a 12-

month period.Th iti b ff d d ld bli l– The securities may be offered and sold publicly; no limitation on general solicitation or advertising.

– The securities will not be “restricted securities”, meaning they can be resold immediately (other than if held by affiliates).

– The securities will be considered “covered securities” if:• The securities are offered and sold on a national

125

• The securities are offered and sold on a national securities exchange (e.g., NYSE); or

• The securities are offered and sold through a broker-dealer to “qualified purchasers”.



• To be defined by SEC rule; JOBS Act provides no direct guidance.

Qualified Purchasers

• The usefulness of the rule will hinge on the definition of qualified purchaser.

• If qualified purchaser is the equivalent of accredited investor, companies will likely just use Rule 506(c).

• If the thresholds for qualified purchasers are set too

126

low, it may expose too many to investment losses they cannot afford and/or expose too many unsophisticated investors to potential fraud.

• File audited financial statements with the SEC annually. • SEC may impose other terms, conditions and

requirements including that companies prepare file with

Filing Requirements

requirements, including that companies prepare, file with the SEC and distribute to prospective investors an offering statement, including audited financial statements, use of proceeds and a description of the company’s business.

• SEC may also require other additional periodic filings and disclosures.

127

disclosures. • An offering under Regulation A+, without more, will not

result in the company becoming subject to general SEC filing obligations (other than the obligation to file annual financial statements).



• May prove to be useful to smaller, private companies seeking growth capital. The advantages of Regulation A+ include:– The ability to raise greater amounts of capital (up to $50 million) than

afforded by Regulation A ($5 million)

What to Expect

afforded by Regulation A ($5 million).– The ability to raise funds in a public offering. – As the offering is exempt from the registration requirements of the

Securities Act of 1933, the company will not automatically become subject to the SEC periodic reporting requirements.

• It is unlikely that the SEC will issue implementing regulations any time soon.

• When the SEC does issue the regulations, expect that an offering statement similar to what is currently required under Regulation A

128

statement similar to what is currently required under Regulation A will be required under Regulation A+.

• Expect that the definition of “qualified investor” is less stringent than the definition of “accredited investor.”

• Unless the definition of “qualified investor” is fairly broad, Regulation A+ may remain a little-used option.

• What is a comment letter?

Comment Letter Trends

– SEC staff reviews companies’ filings with the SEC and will often issue a letter to the filing company requesting additional information, requesting that the company revise its filing or provide additional or different disclosure in a future filing with the SEC.

129

– Comment letters and companies’ responses are made publicly available via the web, no sooner than 20 days after the completion of the review by the SEC.



• Housed within the SEC’s Division of Corporate Finance, the division that monitors companies’ SEC filings.

• Created in 2004 in response to language in a Congressional Committee Report

Office of Global Security Risk

Committee Report. • The Committee believed “that a company’s association with

sponsors of terrorism and human rights abuses, no matter how large or small, can have a material adverse effect on a public company’s operations, financial condition . . . .”

• Among other things, the OGSR was directed to ensure that companies traded on U.S. exchanges operating in terrorist states disclose such activities to investors and the nature of the risk to corporate share value and reputation stemming from business

130

corporate share value and reputation stemming from business interests in countries designated as a State Sponsor of Terrorism.

• OGSR monitors SEC filings and other sources regarding business activities in or associated with Department of State designed State Sponsors of Terrorism (Cuba, Iran, Sudan and Syria).

• We also are aware of a January 2007 article reporting that your contract for representation by a law firm

OGSR Comment Letters

y p yprovides for it to engage local counsel in 27 jurisdictions where it does not have a presence, including Iran, and a LinkedIn entry for a person in Iran who lists his occupation as a Manager at your company.

• We note that your website enables visitors to book flights to and from Iran Sudan and Syria

131

to and from Iran, Sudan, and Syria.

• The OGSR may question even business activities that appear to be financially immaterial.



• If your company has any international operations, it likely already has in place a robust compliance program

What does this mean for your company?

program. • Consider risk factor disclosure. • Consider whether your disclosure controls and

procedures adequately capture all necessary information regarding contacts with SSTs.

• Comment letters from OGSR and responses are

132

ppublicly available, unless accorded confidential treatment by the SEC.

• Comment letters and the responses can be a source of competitive intelligence.

• The SEC, apparently taking notice of the concerns being raised about hydraulic fracturing, began

ki dditi l di l f il d

SEC Staff Continues to Question Hydraulic Fracturing

seeking additional disclosure from oil and gas companies regarding their hydraulic fracturing activities.

• Informal search of SEC comment letters reveals: – Approximately 175 mentioning hydraulic fracturing.

E li t ti f h d li f t i i i 2006 i

133

– Earliest mention of hydraulic fracturing is in 2006 in response to an SEC question about well productivity.

– Comments seeking additional disclosure started in earnest in early 2010.



• SEC Comments have included:– Please tell us which chemicals are being injected in

connection with hydraulic fracturing operations on your properties.

– In light of the public concern over the risks related to hydraulic fracturing, please review your disclosures to ensure that you have disclosed all material information regarding your potential liability. . . .

You indicate that hydraulic fracturing involves the “injection

134

– You indicate that hydraulic fracturing involves the injection of water, sand and chemical additives.” Please revise this risk factor to specifically address the financial and operational risks associated with hydraulic fracturing . . . .

• It is not always necessary to revise your disclosure.

– SEC comment: Please revise to address specifically, the financial and operational risks associated with hydraulic fracturing . . . .g

– Response: The company does not believe that any additional material financial or operational risks exist that warrant further disclosure . . . .

135



• Do not automatically assume that you will have to modify your disclosures. Work with your advisors to d t i h th difi ti i i t

What should you do?

determine whether modification is appropriate.

•

• Review comment letters and responses from your competitors to determine what disclosures the SEC is requiring.

136

• Comments letters can also provide competitive intelligence.

• Background

Risks when Company Stock is Pledged

– Officers, directors and certain other individuals owing the company a duty of confidentiality may not trade in company stock on the basis of material, non-public information. This is often what people think of when they hear the term “insider trading.”

137

– Section 16 of the Securities Exchange Act of 1934 prohibits certain company insiders (officers, directors and 10%+ shareholders) from profiting from short-swing trading.



• Pledging or putting securities in a margin account may be viewed as sales under the securities laws.

Insider Trading Issues

• If the insider fails to meet a margin call or defaults on a loan collateralized by a stock pledge, the stock may be sold at a time when the insider is in possession of material, non-public information.

• Any such sale may be “charged” to the insider ibl lti i i l ti f i id t di

138

possibly resulting in a violation of insider trading laws.

• The insider may not be able to control the sale of the securities held in the margin account or pledged.

• Generally, pledging stock or depositing it in a margin account is not a “sale” for Section 16 purposes and is

t t bl d S ti 16

Section 16 Issues

not reportable under Section 16.

• However, any sale of the stock is viewed as a sale by the insider and is reportable within two business days on a Form 4. The insider is also liable for any profit

d S ti 16 if th l i ithi 6 th f

139

under Section 16 if the sale is within 6 months of any matchable purchase.



• Companies must disclose in their proxy statements filed with the SEC the amount of shares pledged by

ti ffi d di t

Other Issues

executive officers and directors.

• If the insider is required to file a Schedule 13D, pledges are required to be reported.

• Under extreme circumstances, if the sale triggers a change of control, a Current Report on Form 8-K is

i d t b fil d

140

required to be filed.

• Reputational risk.

• Review your company’s insider trading policy. • A recent survey by The Corporate Counsel found that

less than 40% of insider trading policies prohibit

Recommendations

less than 40% of insider trading policies prohibit pledges of company securities.

• Best practices suggest that: – Insider trading policies should generally prohibit holding

company securities in a margin account or pledging company securities as collateral. E ti t th li h ld l b i d th

141

– Exceptions to the policy should rarely be given and then only if the insider is able to provide reasonable assurance that he or she has sufficient financial resources to repay any margin loan or loan collateralized by company securities without having to sell those securities.



Questions?

142



Toxic Tort Litigation Trends

PRESENTED BY

Toxic Tort Litigation Trends and Developments

Jeffrey S. Moller, Blank Rome LLPEarl M. Forte, Blank Rome LLPT M H Bl k R LLP

143

Terry M. Henry, Blank Rome LLP

Developments in Toxic Tort Litigation:

Recovery in Excess of

PRESENTED BY

Recovery in Excess ofActual Past Medical Costs

Jeffrey S. Moller, Blank Rome LLP

144



Past Medical Costs as Damages • An important element of consequential damages.

• Potentially large due to diseases and illness (cancer, asbestosis) which may require costly and lengthy treatment.

145

The Actual Payor• Injured plaintiffs rarely pay out

of pocket.

• Most are insured or are Medicare/Medicaid beneficiaries.

• Insurance benefits procured by the plaintiff are not a credit for th t tf th C ll t l

146

the tortfeasor per the Collateral Source rule.



Healthcare Market Forces• The amount actually paid is often far less than the

amount initially charged by the medical provider.

• In most cases, the medical provider cannot (as a contractual matter) seek to recover the differential from the patient.

147

• Which of the two alternative amounts should a plaintiff be entitled to recover as past medical d f t tf th f ll “ h d” tdamages from a tortfeasor: the full “charged” amount or the amount that is actually paid?

• Should the jury see the amounts charged if only the amounts paid are relevant?

148



Past Medical Damages Drastically Cut• The difference between the amount charged and the

amount actually paid can be quite substantial and lt i h d ti f th bill d tcan result in a huge reduction of the billed amount.

149

Ripple Effect• Pain and Suffering

– Traditional (mythical?) “ lti li ” f l“multiplier” formula

– The total amount of medical expenses seen by juries as indicator

• Punitive Damages

150

Punitive Damages– Multiple or cap per

statute or decision



Does limiting a plaintiff’srecovery of medical damages

Collateral Source Rule:

recovery of medical damagesto those amounts

that are actually paid, whether by plaintiff or insurance, i l t th C ll t l S R l ?

151

violate the Collateral Source Rule?

• A plaintiff’s right to damages for past medical expenses cannot be diminished merely because a

ll t l id f l i t' di l

The Collateral Source Rule

collateral source paid for claimant's medical expenses. A tortfeasor cannot benefit from a plaintiff’s foresight in purchasing insurance.

• The question is whether or not the reduction in the h d t ti t d ith d i b th

152

charged amount negotiated with and given by the medical provider is considered a “benefit” procured by the Plaintiff.



Opinions/Interpretations:3 Schools of Thought

153

School #1• A function of statute or evidentiary rule:

Only those amounts th t t ll idthat are actually paid (either by plaintiff or insurance) are recoverable.Evidence of amounts billedis irrelevant and inadmissible

154

inadmissible.



• Tex. Civ. Prac & Rem Code § 41.0105 - “Evidence Relating to Amount of Economic Damages.” – In 2003, the Texas state legislature passed House Bill 4,

comprehensive tort reform

– Section 41.015: “In addition to any other limitation under law, recovery of medical or health care expenses incurred is limited to the amount actually paid or incurred by or on behalf of the claimant.”

155

• At what stage of the proceeding should this apply?– Does this rule limit the admissible evidence or merely

t li it t b li d b th j d bcreate a limit on recovery to be applied by the judge by molding a verdict?

• Haygood v. Escabedo, 356 S.W.3d 390 (Tex. 2011).

– Held:“Since a claimant is not entitled to recover medical charges that a provider is not entitled to be paid, evidence of such charges is irrelevant to the issue of damages …

156

any relevance of such evidence is substantially outweighed by the confusion it is likely to generate, and therefore the evidence must be excluded.”



School #2• Limits recovery to amounts paid based upon rule of

fairness under common law.C ll t l S R lCollateral Source Rulearguments unavailling.

157

• Common law allows a plaintiff to recover the “reasonable value” of medical services. But the d fi iti f bl l h ld t it

Pennsylvania – Moorhead v. Crozer Chester Medical Center, 564 Pa. 156 (Pa. 2001) –“Reasonable Value”

definition of reasonable value should not permit an injured party to recover an amount greater than the amount actually paid or for which he/she incurred liability.

• Reliance upon Restatement (Second) of Torts, §911 Comment h (1977): “[N]ormally the amount recovered is the reasonable

158

h (1977): [N]ormally the amount recovered is the reasonable value of the services rather than the amount paid or charged. If, however, the injured person paid less than the exchange rate, he can recover no more than the amount paid, except when the low rate was intended as a gift to him.”



• Collateral source rule is inapplicable. The amount paid by the collateral sources (Medicare and Blue Cross) must be paid by the tortfeasor. “The collateral source rule does

Pennsylvania – Moorhead v. Crozer Chester Medical Center, 564 Pa. 156 (Pa. 2001) –“Reasonable Value”

be paid by the tortfeasor. The collateral source rule does not apply to the illusory charge of $96,500.01 since that amount was not paid by any collateral source.”

• Allowing the plaintiff to recover would be a windfall to the plaintiff “and would violate fundamental tenets of just compensation”:– remedies seek to put injured person in pre-tort position

159

p j p p p– injured party cannot recover twice for same injury– unjust enrichment– injured person should be fairly compensated with the least

burden to the wrongdoer

• Recovery limited to those charges that are paid - “an injured plaintiff whose medical expenses are paid th h i t i i

California - Howell v. Hamilton, 52 Ca.4th 541 (Ca. 2011)

through private insurance may recover as economic damages no more than the amounts paid by the plaintiff or his or her insurer for the medical services received or still owing at the time of trial.”

• No recovery for written-off charges because “no such recovery is allowed for the simple reason that the

160

recovery is allowed, for the simple reason that the injured plaintiff did not suffer any economic loss in that amount.” Citing Civ. Code §§ 3281, 3282 –defining compensatory relief



• Collateral source rule not violated - “The negotiated rate differential is not a collateral payment or benefit

bj t t th ll t l l ”

California - Howell v. Hamilton, 52 Ca.4th 541 (Ca. 2011)

subject to the collateral source rule.”

• Evidentiary loophole – “[E]vidence of that full billed amount is not itself relevant on the issue of past medical expenses. We express no opinion as to its relevance or admissibility on other issues, such as noneconomic damages or future medical expenses ”

161

noneconomic damages or future medical expenses.

• Several California appellate court opinions since Howell have allowed the full amount charged into evidence.

School #3• “Benefit of the bargain” – Award the full value of the

medical expenses, including t t l dj t tany contractual adjustments

or write-off amounts, where the plaintiff has paid some consideration for the benefit of the contractual adjustment.

162



• “[T]o the extent that the write-offs were procured through the payment of the premiums, they cannot properly be considered a windfall Rather the write-

Louisiana – Bozeman v. Louisiana, 879 So.2d 692 (La. 2004)

properly be considered a windfall. Rather, the write-off amount was viewed as a benefit to plaintiff's contractual bargain with her insurance provider.”

• Not allowing the recovery would violate the collateral source rule.

• However, Medicaid recipients are unable to recover

163

any amounts adjusted or written-off.– “[W]here the plaintiff pays no enrollment fee, has no wages

deducted, and otherwise provides no consideration for the collateral source benefits he receives, we hold that the plaintiff is unable to recover the "write-off" amount.

• “We hold that Lopez was entitled to claim and recover the full amount of her reasonable medical expenses for which she was charged without any reduction for the

Arizona - Lopez v. Safeway Stores, Inc., 129 P.3d 487 (Ariz. Ct. App. 2006)

which she was charged, without any reduction for the amounts apparently written off by her healthcare providers pursuant to contractually agreed-upon rates with her medical insurance carriers.”

• Legislature’s job to abandon the collateral source rule in this area – “absent any such limiting statute or supreme

164

court authority suggesting that the collateral source rule does not control in a situation such as that presented here, we join with the majority of courts in finding it applicable.”



Practical Considerations• Arguments should be made even in

those states which have historically allowed recovery of the full billed yamount. Urge a change in the law.

• Look for statutes which may affect this type of recovery. More state legislatures are addressing these issues as tort reform.

• Motion in Limine - to prevent Plaintiff putting into evidence his

165

Plaintiff putting into evidence his medical or health care provider bills that reflect charges that have been either contractually adjusted or written-off. Do not be satisfied with “molded verdict” solution.

Environmental Claims Issues

PRESENTED BY

Environmental Claims Issuesin Bankruptcy

Earl M. Forte, Blank Rome LLP

166



• (1) When a company files for bankruptcy reorganization, do pre-bankruptcy environmental claims asserted against the company by governmental agencies become discharged or do

I. Two Areas Addressed

company by governmental agencies become discharged or do they continue after the reorganization?

• (2) If a company in bankruptcy is faced with substantial environmental lawsuits, do those lawsuits get resolved in the bankruptcy court or in the court where the lawsuits were originally filed?

167

originally filed?

• Only “claims” are discharged in bankruptcy. In re Quigley Co., 383 B.R. 19, 25 (Bankr. S.D.N.Y. 2008. 11 U S C § 101(5) d fi “ l i ”

II. Only “claims” are dischargeable

11 U.S.C. § 101(5) defines a “claim” as:– “(A) right to payment, whether or not such right is reduced to judgment,

liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or

– (B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment fixed contingent matured

168

equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured”.



• Are environmental cleanup obligations dischargeable “claims” under § 101(5)(B)?

– Usually not, unless the agency has a right to seek payment for money damages under the statute it used to obtain the cleanup order. Mark IV Industries, Inc. v. New Mexico Environmental Department, etc., 11 Civ. 648 (SAS) (S.D.N.Y. September 28, 2011).

169

• In Mark IV, the Debtor asked SDNY bankruptcy court to determine that New Mexico’s cleanup injunction

i t it f d t ll ti bt i d dagainst it for ground water pollution obtained under the state’s Clean Water Act, was a dischargeable “claim” because NM had the option to seek money damages under the Hazardous Waste Act and CERCLA.

170



• The district court in Mark IV rejected this argument by the Debtor and affirmed the bankruptcy court:

Citi I Ch t C ti 944 F 2d 997 (2 d Ci– Citing In re Chateaugay Corporation, 944 F. 2d 997 (2nd Cir. 1991) and other case law, the SDNY ruled in Mark IV that the fact NM had proceeded under the state Clean Water Act and not under another statute that allowed money damages, was irrelevant to whether or not the cleanup order was a dischargeable “claim” and to hold otherwise would make all environmental claims dischargeable which

171

would make all environmental claims dischargeable, which is not what the law intended, especially with ongoing pollution.

• The district court in Marks IV that the correct focus is on the statute the agency actually used, not on what it could have used Marks IV at 29used. Marks IV at 29.

• The court in Marks IV also noted that In In re Chateaugay, the 2d Circuit had established a rule that most environmental claims are non-dischargeable. Id.

• “Ongoing” pollution at the site was a further reason for non-dischargeability. “Ongoing” pollution can be caused by pre-

172

bankruptcy or post-bankruptcy activities. Mark IV involved a moving “plume” of ground pollution created pre-bankruptcy.



• In Marks IV, the district court also concluded that was a material issue of fact raised by the parties’ experts about whether there was or was not “ongoing” pollution at the sitewhether there was or was not ongoing pollution at the site which precluded summary judgment. Mark IV at 38.

• The Debtor in Mark IV appealed to the Second Circuit, Mark IV Industries, Inc. v. The New Mexico Environmental Dept. et al., No. 11-4570 (2d Cir.), but the appeal was withdrawn by agreement of the parties in late 2011, so the district court decision in Marks IV stands

173

decision in Marks IV stands.

• MDL defendant files for bankruptcy. Do claims against it get decided in the MDL court or in the b k t t?

IV. What Court Decides Environmental Claims?

bankruptcy court?

• 11 U.S.C. § 502(c), provides for claims to be estimated in the bankruptcy court. Or, withdraw reference/abstain, go to MDL court. Parties can agree. E.g. In re Pilgrim‘s Pride, etc., 2009 Bankr. LEXIS 2692 (Bankr N D Tex 2009)

174

LEXIS 2692 (Bankr. N.D. Tex. 2009).



Toxic Tort Litigation:

PRESENTED BY

Toxic Tort Litigation:Trends and Developments

Terry M. Henry, Blank Rome LLP

175


The Component PartThe Component Part Doctrine

176

The Component Part Doctrine




Can plaintiffs reach beyond the finished product manufacturer to assign liability?

O’Neil v. Crane Co., 266 P.3d 987 (Cal. Jan. 12, 2012)

Conner v. Alfa Laval, Inc., 842 F.Supp 2d 791 (EDPA Feb. 1, 2012)

Maxton v. Western States Metal, Ct of Appeal, 2d App. Dist. (Feb. 2, 2012

In re: Asbestos Lit Wolfe 2012 Del Super LEXIS 86 (Feb 28 2012)

177

In re: Asbestos Lit. Wolfe, 2012 Del. Super LEXIS 86, (Feb. 28, 2012)

In re: Asbestos Lit. Grich, 2012 Del. Super LEXIS 144, (Apr. 2, 2012)

Dummitt v. Chesterton, 2012 NY Mis. LEXIS 4057, (Aug 20, 2012)



Component parts

Finished Product Manufacturer

Wholesalers Retailer

178

DistributorsRetailer





Theories of Liability in a Product Liability Case:

• Design Defect

• Failure to Warn

• Manufacturing Defect


The manufacturer of a component part is not liable

f i j i d b th fi i h d d t i t

179


for injuries caused by the finished product into

which the component has been incorporated,

unless the component itself was defective and

caused harm


The USS Oriskany

The O’Neil Case

• Launched in 1945

180

• Launched in 1945• Asbestos components specified by Navy

• No acceptable alternative in 1945• Pumps/Valves did not require asbestos• Navy aware of danger, but did not warn





Key Facts

The original asbestos

O’Neil’s Theory

Pumps and valves

containing components in

the Crane valves and

Warren pumps had long

since been replaced

No evidence that Crane or

defectively designed to be

used with asbestos

Manufacturers had a duty

to warn of the dangers

associated with asbestos

181

Warren manufactured any

of the replacement asbestos

components

associated with asbestos

because the could foresee

that their products would

be used with asbestos



The Court’s Holding

•No liability outside a defective product’s chain ofNo liability outside a defective product s chain of distribution

•No liability for distinct products that a consumer can be expected to use with a non-defective product (foresee-ability is not enough)

N d t t f d f t i th f t ’

182

•No duty to warn of defects in another manufacturer’s product


Crane




In The Matter of NYC Asbestos Litigation:Ronald Dummitt v. Crane, et al. August 20, 2012

A manufacturer’s liability for

third party component parts

must be determined by the

degree to which injury from

The duty to warn arises

where a manufacturer

knows or should know that

its product would or ought to

183

the component part is

foreseeable to the

manufacturer

p g

be combined with inherently

defective material for its

intended useThe Component Part Doctrine


• Originally supplied asbestos gaskets with valves

S ld b t k t l t t

Key Findings of Fact

• Sold asbestos gaskets as replacement parts

• Knew that Navy drawings specified asbestos

• Knew asbestos would be used with its valves

• Knew asbestos was routinely used with valves

• Advertised its valves as easier to insulate

• Contributed to a 1946 Navy machinery manual

184

• Contributed to a 1946 Navy machinery manual specifying asbestos insulation

This evidence reflects a manufacturer who meant for its product to be used with a defective product





Factors that impact determination of liability betweencomponent part and finished product manufacturers:p p p

• Knowledge of how the component part will be used

• Knowledge of other products that may or must be used with the product / component part

• Responsibility for design of the component part

185

Responsibility for design of the component part

• Responsibility for selection of the component part

• Responsibility for integration of the component part



Additional Thoughts:

Raw Materials Suppliers:

• Maxton v. Western State Metal, Ct. of App., 2d App. Dist. (Feb 2, 2012)

Medical Device Suppliers:

186

• Biomaterials Access Assurance Act of 1998 (21 USC § 1601 et seq.

The Bare Metal Doctrine





Questions

187

Terry M. Henry

215-569-5644

[email protected]


Questions?

188



Toxic Substances Control Act: Regulatory and Legislative Issues

PRESENTED BY

Regulatory and Legislative Issues and Initiatives

Margaret A. Hill, Blank Rome LLPHeather L. Demirjian, Blank Rome LLPKi t L C l Bl k R LLP

190

Kierstan L. Carlson, Blank Rome LLPMichael P. Walls, American Chemistry Council, Inc.

Chemical Controls and the Toxic Substances Control Act:

PRESENTED BY

Toxic Substances Control Act: Legislative Initiatives

Michael P. Walls, American Chemistry Council, Inc.

191



• S. 847 introduced April, 2011 (Lautenberg)

• Environment and Public Works Committee hearings

Senate Legislative Action

in November 2011 and July 2012

• Substantial Manager’s amendment considered July 25, 2012

• Ordered reported on party-line vote

• 27 cosponsors as of October 1, 2012

192

p

• Floor action not scheduled at this time

• Safety standard

• Preemption

Major Legal Issues in S. 847

• Scope of EPA authority– Rule v. order authority

– New uses of existing chemicals

– Review of chemicals on basis of special characteristics

– Management of reimbursement and compensation for data

193

use

• Confidential Business Information

• Judicial review



• Existing TSCA: “unreasonable risk”

• S. 847: “reasonable certainty of no harm” taking into

Safety Standard

account aggregate (and where practicable, cumulative) exposures to a substance– Precedent in pesticide regulation

– Suggests zero risk in industrial chemical context

– Scientifically/technically difficult or impossible

194

• Better alternative: significant risk of material harm under intended conditions of use

• Existing TSCA: Conflict Preemption– Limited to direct conflict with EPA rules or orders

Preemption

– Limited judicial interpretation

– Rarely applied as a practical matter

• S. 847: State action preempted only to the extent compliance with both federal and state standard is impossible

195

• Does not address preemptive effect of an EPA safety decision



Chemical Controls and the

PRESENTED BY

Chemical Controls and the Toxic Substances Control Act

Margaret A. Hill, Blank Rome LLP

196

• Reenacted in 1976; no amendments to date despite Congressional efforts

TSCA Debate

• EPA’s current position: TSCA does not provide EPA with a mandatory duty to evaluate safety of existing chemicals (so states are taking independent regulatory actions)

• Manufacturers do not have to generate health and f t d t

197

safety data

• Question posed by EPA is: when to use its authority under Section 6 of TSCA



• Section 6 of TSCA requires EPA to prove that it has substantial evidence that a chemical poses an

bl i k b f it b t i t t k

TSCA Debate

unreasonable risk before it can ban, restrict, or take other actions to manage that risk; requires EPA to use the least burdensome means to adequately protect against the unreasonable risk.

• Agency announced it will undertake risk assessments for 83 chemicals (March 5 2012) EPA will then

198

for 83 chemicals (March 5, 2012). EPA will then issue risk management plans (agency has been issuing action plans since December 2009).

• Amends the TSCA Inventory Update Reporting Rule; increases the type and amount of information that cos Are required to report

Chemical Data Reporting Rule (August 2011)

cos. Are required to report

• Affects chemical substance manufacturers, importers, as well as users and processors who may manufacture a byproduct chemical substance

199

• Designed to address environmental groups and others’ concerns as to transparency and control over chemicals in the US given the lack of TSCA legislative amendments



• Entities must report if they manufacture (including as a Byproduct or import) for commercial purposes chemical substances listed on the TSCA Inventory and produced in volumes of 25 000 pounds or more during the principalvolumes of 25,000 pounds or more during the principal reporting year (which is Calendar Year 2011).

• 2012 Submission was scheduled to occur from February 1 to June 30.

• Information includes consumer and commercial product t i t d t t i l k

200

categories to demonstrate uses, commercial workers reasonably likely to be exposed; etc.

• Substantiation must be submitted for processing and use data claimed as “CBI”

• EPA plans to begin work in 2013 to identify chemicals for additional data collection and analysis and to b i th ti f i li f did tbegin the creation of a pipeline of candidate chemicals for future risk assessment and reduction.

• EPA plans to make addition CBI information available; looking for stakeholder input

201



• TSCA Petition for Rulemaking Concerning Chemical Substances and Mixtures Used in Oil and Gas E l ti P d ti (O i d St t )Exploration or Production (Overview and Status)

202

Chemical Regulation:

PRESENTED BY

Chemical Regulation:State Law Overview

Heather L. Demirjian, Blank Rome LLP

203



• Green Chemistry

• California Green Chemistry Initiative and Safer

Overview

Consumer Products Regulations– History

– Current Proposed Regulations

– Concerns and Potential Impacts

• Chemical Regulation in Other States

204

– Washington Children’s Safe Product Act

– Connecticut Act Concerning Child Product Safety

• Trends

• Design Of Chemicals Or Chemical Processes To

What is Green Chemistry?

Reduce Or Eliminate Negative Environmental Impact

• 12 Principles– Waste Prevention

– Design For Degradation

– Minimize Accident Potential

205

– Design Less Hazardous Chemical Synthesis



• Enacted September 29, 2008– SB 509 – Toxic Information Clearinghouse

AB 1879 Chemicals In

California Green Chemistry Initiative and Safer Consumer Products Regulations

– AB 1879 – Chemicals In Consumer Products

– Cal. Health & Saf. Code § 25251, et seq.

• Purpose – Reduce Or Eliminate Chemical

Hazards In Consumer Products

206

Hazards In Consumer ProductsAnd The Environment

– Provides Mechanism For Review Of Approximately 80,000 Chemicals Sold, Used Or Distributed In California

– Products Are Benign By Design

• Draft Conceptual Flow Chart – February 23, 2010

• September 13, 2010 – Draft Proposed Safer Consumer Product Alternatives Regulations


g

• November 16, 2010 –Revised Draft Proposed Regulations

• August 12, 2011 –Notice of Decision Not to Proceed

• October 31 2011 –

207

October 31, 2011 Safer Consumer Products Informal Draft Regulations

– All Consumer Products

– Containing A Chemical of Concern

– Four Step Process



• July 23, 2012 - Safer Consumer Products Proposed Regulations

Broad Sweeping and Complex


– Broad, Sweeping and Complex– Applies to Any Manufacturer, Importer or Retailer of a

Consumer Product Sold in California– Four-Step Regulatory Process

• (1) DTSC Establishes List of “Chemicals of Concern”• (2) DTSC Identifies “Priority Products”

(3) R ibl E titi N tif DTSC d P

208

• (3) Responsible Entities Notify DTSC and Prepare Alternatives Analysis

• (4) DTSC Takes Regulatory Action to Limit or Prevent Public Health and/or Environmental Impacts

• Step 1 – DTSC Establishes List of Chemicals of Concern


– List of Approximately 1,200 Chemicals of Concern Within 30 Days of Effective Date

– Including Substances Already Identified as Exhibiting Hazard Trait , Environmental/Toxicological Endpoint, On Lists Developed by Other Agencies/Organizations

– Exemptions for Certain Types of Products and Products

209

p ypSolely for Use Out-of-State

– No Exemptions for Individual Chemicals



• Step 2 - DTSC Identifies “Priority Products”– Priority to Products that Contain COCs With Significant

Abilit t C Ad P bli H lth/E i t l


Ability to Cause Adverse Public Health/Environmental Impacts and Significant Ability for Exposure

– DTSC Evaluates Potential Adverse Health and Environmental Impacts Posed by COCs Based on Factors

• Adverse Impacts from Potential Exposure

• Extent of Information Available on Adverse Impacts

210

p

• Extent of Regulation Under Other Programs

– No Exemption for Products Regulated by Other Laws (Considered by DTSC During Product Prioritization)

• Step 3 - Responsible Entities Notify DTSC and Prepare Alternatives Analysis


– Manufacturer Notification to DTSC Within 60 Days

– Alternatives Analysis to Limit Exposures/Impacts

• Entire Lifecycle of Product

• Supply Chain Choices

• Environmental Consequences of Disposal

P bli R i

211

– Public Review



• Step 4 - DTSC Takes Regulatory Action to Limit or Prevent Public Health and/or Environmental Impacts


– Protection of Public Health and Environment While Maximizing Use of Alternatives of Least Concern That Are Technically and Economically Feasible

– Potential Regulatory Action

• No Response

• Product Information

212

Product Information

• Use Restrictions (COCs and Priority Products)

• Product Sales Prohibition

– DTSC May Re-Evaluate Selected Response at Any Time

• Concerns and Potential Impacts– Confidential Business Information/Trade Secrets

“Failure to Comply List”


– Failure to Comply List– Product Stewardship (End-of-Life)

Plan, Financial Guarantees, Funding of R&D Projects and Grants

– Dispute Resolution– Economic Impacts

• Potential Cost Per Product: $ 785 000 to $ 6 850 000

213

• Potential Cost Per Product: $ 785,000 to $ 6,850,000• Lawmakers Have Asked Governor to Delay

Implementation For More Thorough Analysis of Economic Impact



• Washington Children’s Safe Product Act– Chapter 70.240 RCW (2008)

T P t

Chemical Regulation - Other States

– Two Parts

• Limitations on Amount of Lead, Cadmium and Phthalates in Children’s Products After July 1, 1999 (Preempted by Consumer Product Safety Improvement Act)

• Dept. of Ecology Develops List of Chemicals that Manufacturers Must Report On

Reporting Obligations Phased In Beginning August 2012

214

– Reporting Obligations Phased-In Beginning August 2012

• DOE Guidance On Alternative Assessment but No Authority to Require Submission of Alternative Assessment

• Connecticut Act Concerning Child Product Safety– Conn. Gen. Stat. 21a-335, et seq. (2008, Amended 2009)

Chemical Regulation in Other States

– Overview

• Children’s Products Containing Lead Banned as Hazardous Substances

– Preempted by the Consumer Product Safety Improvement Act. Federal Lead Limits Enforced.

• Certificate of Disposition

215

Certificate of Disposition

• Commissioners of Public Health and Environment List of Toxic Substances



• California Department of Toxic Substances Control, Green Chemistry Initiative

http://www dtsc ca gov/pollutionprevention/greenchemistryi

Internet Resources

– http://www.dtsc.ca.gov/pollutionprevention/greenchemistryinitiative/index.cfm

• U.S. Environmental Protection Agency– www.epa.gov/greenchemistry – http://www.epa.gov/oppt/chemtest/pubs/sect21.html

• Washington Department of Ecology, Children’s Safer

216

Chemical Products Act– http://www.ecy.wa.gov/programs/swfa/cspa/

• Connecticut Department of Consumer Protection– http://www.ct.gov/dcp/cwp/view.asp?a=1625&q=430120

An Overview of REACH: The EU Chemical Registration

PRESENTED BY

The EU Chemical Registration Regime

Kierstan L. Carlson

217



What is REACH?

Registration, Evaluation, and Authorization of Chemicals Regulation (EC) No. 1907/2006

218

• The Law– Purpose is to manage risks to health and the environment

from chemical substances burden is on industry

REACH At-A-Glance

from chemical substances burden is on industry– Sets out procedures for collecting and assessing

information about chemicals – Administered by the European Chemicals Agency

(ECHA)– What’s required?

R i t ti b f t d i t

219

• Registration by manufacturers and importers • Data Sharing• Evaluation by ECHA• Authorization for certain hazardous materials



• Substances: Chemical elements or chemical compounds

• Substances of Very High Concern (SVHC): CMR, PBT, vPvB

Basic REACH Terminology

• Mixtures: Solutions composed of 2+ substances (e.g. paint, varnish, ink)

• Articles: Products where shape or design determines function to a greater degree than does chemical composition (e.g. toys, textiles, furniture)

• Manufacturer: produces or extracts substances in the natural state

• Formulator: makes or produces a mixture

220

• Producer: makes or assembles an article

• What Must Be Registered? – Substances only; 1 metric ton threshold – Some limited exemptions

Registration Overview

– Some limited exemptions

• Who Must Register?– EU manufacturers and importers of substances – EU producers and importers of articles– Non-EU manufacturers, formulators, and producers MAY

register through “Only Representative”

• What Does Registration Require?

221

What Does Registration Require?– Information requirements – collect all available existing

information from supply chain– Submit registration dossier – technical dossier and chemical

safety report



• “Phase-in” v. “Non Phase-in”– Phase-in substances were already being manufactured or placed on

EU market

Registration Regime

EU market

• Transitional Regime for Phase-in Substances– If pre-registered by December 2008, benefit from extended deadlines

– Late Pre-Registration permissible for first time producers/importers

– Non phase-in must submit “Inquiry” before registration

• Registration Deadlines

222

– All non-phase-in substances and phase-in substances not pre-registered by 2008 MUST be registered before they can be manufactured, imported, or placed on the market in the EU

– Phase-in substances MUST be registered by deadlines based on tonnage

Registration Regime (cont’d)

223



• Required Data Sharing– Purposes: streamline registration, reduce testing on animals

Data Sharing & Downstream Users

– Substance Information Exchange Forums (SIEF)

– Consortia

• Downstream Users– Entities within a registrant’s Supply Chain

– Must provide usage information to suppliers and communicate

224

– Must provide usage information to suppliers and communicate safety information to customers (e.g. safety data sheets)

• ECHA Evaluation– Examination of registration dossier and testing

Evaluation, Authorization, Restriction

– Further information could be required

• Authorization– Additional procedures apply to SVHC

– “Authorization List” limited, specific uses; other uses banned

R t i ti

225

• Restrictions– ECHA may restrict substance if it poses an unreasonable

risk to health and environment



• Provide Information to Customers– Safety Data Sheets if CMR, PBT, vPvB, or otherwise

l ifi d h d

Additional Duties of Registrants

classified as hazardous

– Information about authorization, any restrictions

– REACH registration information

• Update RegistrationL l tit h

226

– Legal entity change

– Changes to status based on ECHA determination

– Changes to chemical composition, different use

• Export Restrictions on Hazardous Chemicals– Recent revisions to law restricting exports of 110 substances/groups of

substances (EC No. 649/2012)

Related Regulations

– EU law requires (1) notify authority in country of export and (2) obtain consent from authority in country of import

• Does not apply to exports for research or analysis if small quantities • Some exceptions (e.g. proof that import was permitted in previous 5

years)

• Product Labeling Requirements (CLP)– Classification into categories specified in EU directive

227

g p– Labeling is required when substance is hazardous or mixture contains

one or more hazardous substances above certain thresholds– Packaging rules specify where label must be placed and when

pictograms are required to indicate hazards



• Determine REACH’s impact on your business– 2013 deadline is approaching

What’s Next?

• Do you need an Only Representative or would it improve your EU business by streamlining your supply chain?

• Do you or will you have a subsidiary that will need to register or late pre-register?

– Situations to consider:• Asset acquisition or transfer

Merger

228

• Merger

• “Spin-off”

Questions?

229

Date post:	23-Feb-2020
Category:	Documents
Upload:	others
View:	0 times
Download:	0 times

A Five-Ingredient Formula - Blank Rome · 2012-10-10 · • Injunctive reliefInjunctive...

Documents