Sometimes It’s Good to Have the DTs (That Is, Decision-Tree Analyses)

In my Med-Arb Memo of August 2010, I pointed out that a formal mediation session actually should be considered as just one part of a possible multi-part process.

I just read an interesting article suggesting that disputing parties each hire a (separate) consultant to perform decision-tree (DT) analyses when entering into negotiation or mediation.[1] The article argues, and cites instances in which, the hiring of neutral consultants by both parties to dispute to perform DT analyses led to a greater number of resolutions of those disputes.[2] For many disputes, particularly high-dollar disputes, this is an excellent idea.

But use of DT and other risk analyses and probability assessments in mediation should not be restricted to use of expensive analytic consultants. The parties and the mediator should consider using them without consultants, with much less expense.

DT analysis in litigation is not rocket science. It simply calls on each party (or counsel) to (honestly) analyze and decide the following: the ultimate issues (those whose outcomes individually or in combination would be dispositive of the case with respect to liability, plus those comprising the major components of damages) on issues which each party must prevail in the case in its entirety; and finally, to assess (again, honestly) the percentage likelihood of prevailing on each such issue. At each step in the analyses, of course, the likelihood of success on each issue being less than 100%, the likelihood of total success is discounted. Continue reading »

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

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

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

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

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

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

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

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

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

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

Whither the Joint Session

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

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

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

Negatives of the Joint Session

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

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Quick! . . . Mediate That Business Divorce!

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

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

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

Advantages of Mediation

Some advantages of mediation are:

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

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

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Crowdfunding – Good and Not So Good

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

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

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

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

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

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

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

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

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

Two Scenarios

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

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

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

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

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

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

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

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

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

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

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

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The New “Red Flags” Rule for Healthcare Providers

NOTE: After numerous postponements of implementation of the FTC Red Flags Rule, President Obama signed the Red Flags Program Clarification Act of 2010 (“Act”) on December 18, 2010, which was effective January 1, 2011. This Act limits the scope of the Red Flags Rule by narrowing the definition of a “creditor”, which the Federal Trade Commission had previously broadly interpreted to include all health care providers, among other service professionals.

The Act amends the definition of a creditor to mean any creditor that (i) in the ordinary course of business obtains or uses credit reports in connection with a credit transaction, (ii) furnishes information to a credit reporting agency in connection with a credit transaction, or (iii) advances funds to a person on the obligation of repayment. Under this new definition, typically physicians and attorneys will not be considered creditors for purposes of the Red Flags Rule.

Certain healthcare providers, however, that use or obtain consumer reports routinely in connection with credit transactions or that furnish information to consumer reporting agencies may still meet the definition and thus be subject to the Red Flags Rule. This potentially means that hospitals or physician groups that routinely submit information about non-paying patients to collection agencies, which in turn submit such information to credit reporting agencies, will need to be in compliance with the Red Flags Rule.

In the end, the underlying reason for implementing an identity theft program, such as the one required under the Red Flags Rule, is to help prevent identity theft. Therefore, whether or not a health care provider is directly affected by the Red Flags Rule by falling within the definition of creditor, providers should still be encouraged to implement an Identity Theft Prevention Program to detect warning signs, or “red flags”, that could indicate identity theft.

Identity theft is rampant in today’s society. As many as ten million individuals per year become victims of identity theft and the number of medical identity theft cases are on the rise. In response to this growing problem, several federal agencies jointly promulgated regulations that require certain entities to implement a plan to detect, prevent, and correct identity theft. The “Red Flags Rule” applies to various types of entities, including most healthcare providers. Thus, entities ranging from a small doctor’s office to a hospital must be in compliance with the new Red Flags Rule by the date on which the Federal Trade Commission (“FTC”) will begin enforcing the Rule.   After that date, an entity may be penalized up to $3,500 per violation. Thus, healthcare providers need to take steps to comply, including creating an Identity Theft Prevention Program.

Before understanding the Rule, a healthcare provider must determine whether it is subject to the Rule in the first place. Under the Red Flags Rule, any “creditor” that offers or maintains one or more “covered accounts” is required to develop and implement a written Identity Theft Prevention Program. A “creditor” is defined as any person who regularly extends, renews, or continues credit. Healthcare providers will be considered a “creditor” if they regularly bill patients after the completion of services, allow payment plans after services have been rendered, or aid patients in obtaining credit from other sources (see note).

Under the Rule, a “covered account” is defined as (1) an account a creditor offers or maintains that involves or is designed to permit multiple payments or transactions, and (2) any other account the creditor offers or maintains for which there is a reasonably foreseeable risk of identity theft. The second portion of the definition is very broad and may include records that an entity may not recognize as a “covered account.” For healthcare providers, this definition of “covered account” generally encompasses patient and employee records. Thus, the vast majority of healthcare providers are subject to the Red Flags Rule and must comply.

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