Year: 2016

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Virginia BEST Job Site Safety Initiative Collaboratively Created by AGCVA and VOSH

The Virginia BEST (Building Excellence in Safety, Health, and Training) is a volunteer safety initiative developed collaboratively between the Associated General Contractors of Virginia and the Virginia Department of Occupational Safety and Health.

According to AGC Chairman, Mike Cagle, the Virginia BEST program is “designed to reduce employee injuries, improve employee morale and position AGCVA members to be more competitive by becoming the best in class construction companies.” The program includes management and employee involvement, worksite analysis, hazard prevention control, and safety and health training; with three levels of participation from basic to highest achievement.

Of particular note, one of the tangible benefits of program participation is that companies reaching the highest level will be given exemptions from planned construction inspections by the VOSH program.

More information regarding the Virginia BEST program is available on the AGCVA website, on last access linked below:

http://agcva.org/virginia-best/

NAVIGATING THE UNITED STATES’ AND THE IMO’S BALLAST WATER MANAGEMENT RULES

Ballast water management has attracted the attention of regulators both in the United States and internationally recently.  If not properly managed, ballast water may introduce invasive species into an ecosystem.  This danger occurs when a vessel collects ballast water, including the organisms in that water, into its tanks in one port and then releases that ballast water and those organisms into a different ecosystem when it arrives at a different port.  Despite that there is agreement between American regulators and the International Maritime Organization about the need to address this issue, they have established different ballast water management standards.

The United States Coast Guard adopted Ballast Water Management regulations for all non-recreational vessels operating in American waters which were not merely traversing American waters that became effective on June 21, 2012.  33 C.F.R. § 151.2000 et seq.  The USCG regulations provide five options for compliance: (1) do not release any ballast water into American waters; (2) install a USCG approved ballast water management system that causes ballast water to contain quantities of organisms below certain levels; (3) use only ballast water from an American public water source; (4) perform a complete ballast water exchange at least 200 miles from any shore before discharging ballast water; or (5) release the ballast waters to a treatment facility onshore or on a different vessel.  In the event of noncompliance, the USCG may (1) levy a civil penalty of up to $35,000 per person; (2) hold a vessel operating in violation of the regulations liable in rem; and/or (3) charge a person who knowingly violates the rules with a class C felony.

The International Maritime Organization’s Ballast Water Management Convention, adopted on February 16, 2004, recently was ratified by Finland, putting it over the threshold to become effective.   At this point the ratifying countries represent more than 35% of global shipping tonnage by flag state.  The Convention’s ballast water management rules will go into effect on September 8, 2017.  Under these standards, vessels sailing internationally that have the capability to carry ballast water must have a Ballast Water and Sediments Management Plan approved by the nation under which the vessel is operating and a recordkeeping system to document any operations concerning ballast water.

The Convention provides that vessels shall either complete a ballast water exchange at least 200 miles from shore with at least 95% exchange in volume, or employ a ballast water management system that satisfies rules regarding the concentration of organisms allowed to be in discharged ballast water and that is approved by the nation under which the vessel is operating.  The Convention states that violators shall be punished pursuant to the law of the nation under which the vessel is operating.

Operators should pay close attention to the ballast water management standards in the relevant jurisdiction to avoid noncompliance and potential penalties.   They should also pay close attention to potential differences in ballast water management rules.  For example, the USCG’s requirements for approval of a ballast water management system are particularly strict and may be higher than those required pursuant to the IMO’s standards.  Thus, a ballast water management system that complies with the IMO rules may not necessarily satisfy the USCG standards and could be wholly insufficient or acceptable only on a short term for those operating in American waters.  To ensure compliance, operators should read the rules closely and consult legal counsel when developing their ballast water management policies.

THE FALSE CLAIM ACT: THE GOVERNMENT’S SLEDGEHAMMER JUST GOT BIGGER

The False Claims Act (FCA) has long been the United States Government most effective tool for dealing with fraud in government contracting, and that tool is now more powerful than ever.  Originally enacted during the Civil War to combat war profiteers, it allows the government to seek criminal and civil penalties. As a reward to those who report fraud, it allows relators to recover between 15 and 30% of the amount recovered on behalf of the government, plus their attorney’s fees. A claim subject to the FCA is broadly interpreted to include just about any statement submitted to the government in order to obtain payment. Each false FCA violation is punishable with up to five years in prison, and 10 years if it involves a conspiracy.  In addition, each violation is subject to civil penalties of treble damages, plus a fine.  In each of the last four years, the Department of Justice recovered more than $3.5 Billion from FCA cases.[1]

The Government’s recovery under the FCA is sure to rise as this summer, the Department of Justice published an interim rule effective August 1, 2016 nearly doubling the fine applicable for each false statement.[2]  This rule adjusts the minimum per-claim penalty from $5,500 to $10,781, and the maximum per-claim penalty from $11,000 to $21,563.  Anyone doing business with the Government is likely to make repeated statements to the government subject to the FCA during the course of a contract, making this increase a huge liability exposure for potential violators.  While these increased fines may open the door to an argument that they violate the United States Constitution’s Eighth Amendment prohibition on excessive fines, in most situations it will give government investigators and private relators increased leverage in costly settlements discussions and criminal prosecutions.

This summer, the United States Supreme Court also weighed in on the expansive scope of the False Claims Act.  In Universal Health Services, Inc. v. United States,[3] a healthcare provider billed the government through the Medicaid program for providing specific mental health professional services. However, many of the individuals providing these services were not properly licensed.  While the healthcare provider did not make an express statement to the government about the licensure of these individuals, the Supreme Court found under the “implied false certification theory” that the bills can be a basis for a violation under the FCA.  A violation exists if a “claim” makes a specific representation about the goods or services provided, and the company fails to disclose noncompliance with material statutory, regulatory or contractual requirements. In other words, material omissions or half-truths can trigger FCA liability just as much as an affirmative false statement.  Now that the Supreme Court has approved of the “implied false certification theory,” the Government has broadened powers to enforce the FCA in many situations involving government contracting.

If increased fines and stricter interpretation is not enough to make companies take notice of the FCA, then increased enforcement activities should certainly get their attention.  Contractors fraudulently using Disadvantaged Business Enterprise (DBE) programs have been the subject of numerous investigations and settlements over the last year.  Contractors have been suspended, debarred, and convicted for using a DBE entity as a pass through scheme to flow money from government contracts to non-DBE entities.  Granite Construction, Inc. will pay over $8.25 Million in fines and forfeitures where Granite conspired to make it look like a DBE company was performing work, when it was providing no commercially useful function.[4]  Ahern Painting Contractors, Inc. was suspended by the U.S. Department of Transportation for using a DBE to pass through materials from a non-DBE supplier for a bridge maintenance, repair and painting contract in New York.[5] Sound Solutions Windows & Doors LLC was fined $5.8 million under the FCA and FCJ Real Estate Development Company was debarred for 3 years for using a pass-through entity “to obtain the appearance of DBE participation” on an FAA funded contract at Chicago’s O’Hare International Airport.[6]  Also in Chicago, Elizabeth Perino was convicted in a DBE pass-through fraud scheme where she falsified certain documents to disguise that her company did not meet DBE requirements and conspired to make it appear that it had performed work really performed by the prime contractor.[7] In March, Philadelphia based contractor, Markias, Inc. was suspended for an alleged pass-through conspiracy on two federal funded bridge renovation projects.[8] In July, a DBE owner plead guilty to using her company to obtain kickbacks for herself, while not providing any services on a bridge project.[9] In Idaho, Elaine Martin was recently sentenced to 84 months in prison and her companies debarred for submitting false applications to participate in DBE programs.[10] Finally, The Department of Justice is now suing the CEO and CFO of a company that already paid a $50.6 million fine under the FCA for overbilling services on reconstruction contracts in Afghanistan, Iraq and other countries.[11]

The False Claims Act is the Government’s most powerful tool used to combat fraud and abuse in contracting with the government. Contractors should beware that increased penalties, broad interpretation by courts and increased investigations have made the FCA even more powerful and a fearsome weapon to combat fraud that must be respected.


[2] Federal Register, Vol. 81, No. 126, 42491, June 30, 2016.

[3] Universal Health Services, Inc. v. United States, 136 S. Ct. 1989 (2016).

[4] U.S. Dep’t Labor, Office of Inspector General, OIG Investigations Newsletter, Vol. I, Nov. 30, 2015, p.3.

[10] https://www.oig.dot.gov/library-item/33626, August 16, 2016 (MarCon, Inc., MarCon Precast, Inc. and Elaine Martin)

TENANTS RIGHTS IN FORECLOSURE UNDER VIRGINIA LAW

Often when residential properties undergo foreclosure, they have tenants residing in them.  In those circumstances, the Code of Virginia requires the landlord to provide notice to the tenant that foreclosure is pending.  The Code of Virginia also allows a tenant to remain in the property after foreclosure, subject to the requirements of the federal Protecting Tenants at Foreclosure Act (PTFA) and provided that the tenant complies with the lease, including by continuing to pay rent.  If these requirements are met, the tenant can remain in the property until the lease expires.

The PTFA also includes provisions that benefit lenders after foreclosure.  Most importantly, a tenant can remain in possession of the property under the PTFA only pursuant to a “bona fide” lease.  For a lease to be considered “bona fide,” it must require the tenant to pay fair market rent and the tenant cannot be the child, spouse or parent of the foreclosed owner of the property.  This prevents a relative of the original owner from trying to remain in the foreclosed property pursuant to a lifetime, rent-free lease, which – believe it or not – has happened.

PTFA also included a “sunset” provision that repealed the statute as of December 31, 2012, which created uncertainty as to whether the PTFA still applied to foreclosures in Virginia.  A recent federal court decision, however, found that the terms of the federal statute still apply in Virginia, because Virginia’s statute incorporating the PTFA only incorporated the substantive sections of the federal act and not the “sunset” provision.  This is good news for banks and lending institutions who do business in Virginia, because they can continue to sell properties after foreclosure subject to the remaining term of any “bona fide” lease.  They also can collect fair market rent for the property and evict tenants who fail to pay rent.

LEGAL ALERT: FLSA Salary Increase Halted

A federal court has enjoined the Fair Labor Standards Act (FLSA) salary increase. The court’s order, entered on November 22, 2016, is a nationwide preliminary injunction. As a result, employers do not have to comply with the new FLSA salary threshold on December 1, 2016.

The U.S. Department of Labor (DOL) issued a final rule on May 17, 2016, increasing the FLSA’s salary threshold. The final rule, which was to go into effect on December 1, 2016, would have increased the salary threshold for the FLSA white collar exemptions from $23,660 per year to $47,476 per year, and the annual compensation threshold for the “highly compensated” exemption from $100,000 per year to $134,004 per year. Had the new rule gone into effect, any employee paid less than $47,476 per year would have been eligible for overtime pay. The DOL’s final rule also provided for automatic adjustments to the salary and highly compensated threshold every three years. Employers who have been grappling with whether to give raises to employees paid less than $47,476, or budget for increased overtime costs, or hire additional personnel to reduce overtime hours, may now lay their concerns aside. The FLSA is not changing on December 1, 2016, after all.

Twenty-one states and over fifty business organizations filed suit to stop the DOL’s final rule. Their suits were consolidated in the United States District ­­Court for the Eastern District of Texas. In its preliminary injunction, that Court ruled that the DOL exceeded its authority by raising the salary threshold level so high that it supplanted the “duties tests” for the FLSA white collar exemptions. The court stated that the DOL “create[d] essentially a de facto salary-only test,” thus subverting the importance of the FLSA exemptions’ duties tests. The Court also found that the DOL did not have authority to create an automatic adjustment to the salary threshold.

The injunction is preliminary, but it signals that the Court is likely to issue a permanent injunction later. The Court’s decision is the second recent defeat for President Obama’s agenda: just last month, the same federal Court in Texas issued a preliminary injunction blocking the federal contractor “blacklisting” regulations. See Vandeventer Black’s Legal Alert on that topic here.

If you would like assistance in reviewing your business’s FLSA compliance, please contact us to set up a meeting with our labor and employment law team.

Anne G. Bibeau

757-446-8517

abibeau@vanblacklaw.com

Dean T. Buckius

757-446-8620

dbuckius@vanblacklaw.com

Arlene F. Klinedinst

757-446-8504

aklinedinst@vanblacklaw.com

Situs of Injury under the Longshore Act

Under the Longshore and Harbor Workers Compensation Act (“LHWCA”), a worker injured over water clearly falls under the Act, no matter his occupation. If the individual is injured on land, he is covered only if his occupation is “maritime” in nature and does not work too far away from the water to qualify for LHWCA coverage.

The most litigated and ambiguous issue of the LHWCA is in the situs section, with particular emphasis on the catch-all “other adjoining area customarily used by an employer in loading, unloading, repairing, dismantling, or building a vessel” language, as it could have many potential meanings. The Supreme Court has never enunciated what an “other adjoining area” is under the LHWCA. Two different tests arose, one under the 9th (West Coast) and 5th Circuits (Gulf Coast), and the other under the 4th Circuit (Atlantic Coast), to determine if an injury occurring outside the easily defined boundaries of a terminal or shipyard would be covered.

The first inquiry, originally adopted by the 9th and 5th Circuits, was known as the “functional relationship” or “totality of the circumstances approach,” with its specific inquiries as to the purpose and suitability for maritime use, focused on the function, not the physical location, of the area in question.

The 4th Circuit, in Sidwell v. Express Container Service, declined to follow that approach, as neither, in its opinion, followed the language of the statute.  The Sidwell decision held that an area is “adjoining” navigable waters only if it actually “adjoins” navigable waters; that is, if it is “contiguous with” or otherwise “touches” such waters.  If there are other areas between the navigable waters and the area in question, the latter area simply is not “adjoining” the waters under any reasonable definition of that term.  Therefore, an “other adjoining area” as to which coverage extends must be like a pier, wharf, dry dock, terminal, building way, or marine railway, that is, a “discrete shore side structure or facility.”  Finally, the asserted area must be customarily used by an employer in loading, unloading, repairing, dismantling, or building a vessel, as the statute provides.

The 4th Circuit’s delineation of the zone of coverage is clearly more restrictive in that it requires virtually a direct connection between the water and the place of employment and injury while the 5th and 9th Circuits only required that the area be used in maritime employment, no matter where it actually was.   Because of the difference in applicable tests a court will follow depending on the state/jurisdiction you are in, it is important for an employer to know of these unique differences.

If you would like to receive more information regarding this article, please contact the authoring Attorneys: F. Nash Bilisoly and Spencer Guld, nbilisoly@vanblacklaw.com and sguld@vanblacklaw.com

GETTING PAID: Government Contracts

Authored by Attorney Neil Lowenstein, nlowenstein@vanblacklaw.com

While we have discussed payment mechanisms for government projects previously, we thought a short refresher might be of interest. Typically, government construction projects, whether federal, state or local, have payment bonds to protect contractors who provide labor or materials for the project. But, Refresher Point #1 is that is not always the case. Generally speaking, construction bonds are only required for federal construction projects over $100,000, while in Virginia the threshold is a higher $500,000 ($350,000 for road or transportation projects). So, step one to getting paid is confirming whether there is a payment bond or not.

Refresher Point #2 is that if there is a payment bond, you may be required to give notice before you can bring action to recover against the payment bond. The notice requirements are similar for federal and Virginia government projects; but not the same. Notice is not required for either if you have a direct subcontract or purchase order with the prime contractor. If not, both require written notice to be given to (actually received by) the prime contractor within 90 days of when you last furnished or supplied labor or materials.

Notices for both must state with substantial accuracy the amount claimed and the name of the person for whom the work or materials were performed or furnished. Federal project notices. For federal projects the notice can be delivered by any means that provides written verification of delivery or by any means by which the United States Marshal’s office can serve summonses. However, for Virginia projects the notice must be served by registered or certified mail, postage prepaid, in an envelope addressed to the prime contractor at any place the prime contractor regularly maintains for transacting business.

Refresher Point #3 is that not all persons that furnish work or supply materials for a bonded project can recover under the bond. Besides the notice precondition, third-tier subcontractors or suppliers who do not have direct contracts with the general contractor or a second-tier subcontractor are not covered by the payment bonds for federal projects. The Virginia courts have not ruled on whether these lower tier subcontractors and suppliers would have a claim against a payment bond on a government contract, although the terms of the payment bond itself may provide more coverage than required by the statute.

Refresher Point #4 is that under both statutory schemes an action to enforce a payment bond claim must be filed in an appropriate court with jurisdiction (for federal projects, the federal district court where the project is located; and for Virginia projects, the circuit court where the project or the general contractor is located). That deadline is not flexible, and includes retainage claims as well.

If you would like to receive more information regarding this article, please contact the authoring Attorney.

EMPLOYERS BEWARE: Unpaid Officers and Directors may count as employees under the Virginia Workers’ Compensation Act

The Virginia Workers’ Compensation Commission (the “Commission”) has consistently held that the members of a board of directors of a corporation are counted as employees under the Virginia Workers’ Compensation Act (the “Act”) whether they are salaried or not.1 The treatment of unpaid directors as employees is important to note because the Act generally applies to employers with three or more employees regularly in service. One may assume that an “employee” is someone that receives some form of compensation for services rendered, but the Commission has not defined the term so narrowly. Although executive officers have the option of exempting themselves from the Act, this requires the filing of a formal notice with the Commission. Simply ignoring the requirements of the Act may lead to consequences.  If the Commission determines that the employer is covered under the Act, the Commission can issue a show cause order to determine if the employer should be fined for failing to carry workers’ compensation insurance. An employer’s understanding of the number of its employees therefore is of significant importance. The Act does provide certain exceptions to this rule including certain provisions related to 501(c)(3) organizations. Ultimately, a close reading of the Act coupled with a legal analysis of an employer’s circumstances is important to assessing the applicability of the Act and its insurance requirements to a particular employer.

1 See, e.g., Aguilar v. Sary Inc., 2015 WL 5462051, at *2 (Va. Workers’ Comp. Comm’n Sept. 11, 2015).

Loaning money to your own business

It happens to all entrepreneurs.  A payday arrives, a critical vendor demands immediate payment, or a great purchasing opportunity arrives at a time when there isn’t enough money in the company bank account.  Suddenly you’re reaching into your own pocket and loaning money to your business.  Although sometimes the company can pay you back within a few days, not infrequently another crisis or opportunity arrives and you’re increasing the amount loaned to your company.

Although no business owner likes to think about it, there is always a chance that a business can fail.  Perhaps an employee does something wrong—for which your insurance company claims there is no coverage—resulting in a big judgment against the company.  Perhaps the demand for your goods or services dries up.  Perhaps a competitor steals your key employees.  But, for whatever reason, you find yourself facing a bankruptcy.  If that isn’t bad enough, like most other general creditors of your company, you now face the prospect of getting only pennies for each dollar that you loaned to your company.

There is, however, a way to avoid this nightmare scenario and to put yourself first in line—or at least second in line-behind your banker.  You simply need to be a secured lender, rather than an unsecured lender, to your company.  The two primary steps in the process are (1) getting your company to sign a security agreement, granting you a security interest in the company’s accounts receivable, inventory, and other specified assets and (2) perfecting that security interest—usually by filing a UCC-1 financing statement with the proper state authority for a minimal fee.  A UCC-1 lasts for 5 years and, after it has been on file for four and a half years, you can renew it for an additional five years past the original expiration date.  Of course, it would be best to document all loans with promissory notes.  However, if you choose to document your advances as an account payable of the business, the perfected security interest will still protect you.

When your company reaches the point where it needs a term loan or line of credit, your banker will want the company to grant the bank a security interest in all of your company’s assets and to perfect that security interest—usually by filing a UCC-1.  Prior to granting the loan to your company, your banker will perform a UCC search and will discover (or, if you have told your banker about it—as you should—confirm) your security interest.  Since your banker will want a first priority security interest in your company’s assets, the banker may ask you to terminate your own financing statement.  Don’t do it.  A simple subordination agreement can rearrange the priorities so that even though the bank’s financing statement was filed second, it still gets first dibs on your company’s assets in the event of a default or bankruptcy.

While some business owners think that it’s bad karma to even think about the potential failure of their company, having your company grant you a perfected security interest is prudent insurance—just like your fire or liability insurance.  Like those insurances, you hope that you never need the coverage; however, if you do, those insurance policies are financial life savers.  Just like a perfected security interest.

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Thomas Chappell Joins Vandeventer Black’s Maritime Law Department

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Vandeventer Black LLP is pleased to announce the addition of W. Thomas Chappell to the firm’s Maritime & Admiralty Law department as an associate attorney. Chappell will focus on maritime-related services, contracts and matters. He will work principally in the firm’s Norfolk office.

“Thomas is a great addition to the firm, and we are pleased he chose to continue his career at Vandeventer Black,” said Mark Coberly, Partner and Maritime Department Manager. “He’s a highly-skilled attorney who will be a great benefit to the clients we work with.”

Before joining Vandeventer Black LLP, Chappell served as a Law Clerk with the office of the Honorable S. Bernard Goodwyn, Supreme Court of Virginia. He graduated magna cum laude from the University of Richmond School of Law in 2014 and received various honors and awards for his academic excellence.

Throughout his academic career, Chappell served as a Clinical Placement Extern for the Honorable Roger Gregory, United States Court of Appeals for the Fourth Circuit in Richmond and as the American Bar Association Janet D. Steiger Fellow with the Office of the Attorney General of Virginia (Consumer Protection Section), also in Richmond. He was also a Governor’s Fellow in Governor Robert F. McDonnell’s office.

Chappell is an active member of the Virginia State Bar (VSB No. 87389) and serves on the board of the College of William & Mary Alumni Association, South Hampton Roads Chapter.

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