Month: October 2020

BOOOOO!

As a special Halloween Treat, we look at a recent Motion to Dismiss ruling by Judge Doumar.

The facts are colorful.  An unidentified SeaWorld employee, dressed as a clown, was working at the Howl-O-Scream event at Busch Gardens in 2018.  He intentionally startled Plaintiff while she was using a set of lockers to store her belongings.  The clown is described as “a fully costumed, make-up dressed, bald-head, angry-yet odd, smiling park employed clown.”  The Plaintiff hit her head when she was scared and was injured.

But Judge Doumar put an end to the suit.  After previously granting a Motion to Dismiss, the colorfully pled Amended Complaint was still not enough in his view.  He dismissed all claims.

As to assault, the claim failed because the Court found there was no “reasonable apprehension of bodily harm” as the Plaintiff had no more than a split-second in which she knew the clown was lurking.

The Court’s dismissal of the claim for negligence is more difficult to understand.  The opinion notes a possible misunderstanding between the Court and the parties regarding its previous ruling from the bench on the first motion to dismiss.  Regardless, the Court seems to conclude that because Plaintiff alleges that the clown’s actions were intentional, there cannot be a claim of negligence against Seaworld for respondeat superior.  Other Virginia courts have historically disagreed.  See, e.g. Rockingham Mut. Ins. Co. v. Davis, 58 Va. Cir. 466, 472 (Cir. Ct. 2002) (“It is clear that respondeat superior can make an employer liable for intentional torts, as well as negligent ones.”).  The dispute is usually whether the employee was acting within the scope of his duty.  Not so here, when it appears clear scaring the patrons seems to be exactly the nature of his employment.

It will be interesting to watch whether this one is subject to an appeal to the Fourth Circuit. Either way, we can all agree to beware of scary clowns.

 

COVID-19 and Retirement Plan Fiduciary Obligations

Under ERISA, the federal law that regulates retirement and 401(k) plans, plan fiduciaries are required to prudently administer the plan, select and monitor plan investments and sufficiently diversify plan assets to minimize the risk of large losses.  When third parties are retained to assist with these duties, they may become co-fiduciaries, but the employer retains fiduciary oversight responsibility to monitor the selection and performance of plan service providers and investment advisors. 

COVID-19 has presented many challenges, including market volatility and business disruptions, which have placed added pressures on plan fiduciaries to comply with their ongoing obligations to prudently administer plans and plan investments.  COVID-19 does not suspend or reduce fiduciary obligations; rather, given the uncertainties and concerns faced by employers and employees regarding the effects of the economic downturn and the security of their retirement plan savings, plan fiduciary responsibilities arguably are increased.  Since ERISA fiduciaries face potential personal liability for breaches of their responsibility, it is essential that they be able to demonstrate their compliance with fiduciary standards and best practices to successfully withstand any fiduciary duty challenges by participants, the Department of Labor or the IRS.

The following steps are provided to help employers and ERISA fiduciaries demonstrate prudence in plan operation and management and to mitigate their legal risk in response to the COVID-19 environment.

  1. Review plan investment menu and policy. Given the likelihood of continued market volatility, review the investment options to consider whether they remain prudent in the current financial environment.  Also, review the plan’s investment policy statement to make sure the plan’s investment guidelines remain appropriate and provide sufficient flexibility to revise them.  Consider if any of the investment funds are at a greater risk due to the financial market situation.  Document all pertinent discussions and decisions.
  2. Vigorously monitor plan performance. In an environment of continuing market volatility, it may be prudent to increase the frequency of plan investment reviews and request more frequent input from plan investment advisors to confirm the continued prudence of investment selections, benchmarks and request prompt notification of any concerns regarding the investment line-up.  The format of investment reviews may need to be changed to accommodate telephone, virtual meetings or other more flexible arrangements.
  3. Document fiduciary action and decisions. Continue to document all fiduciary decisions to continue or change the investment line-up and rationale for the decisions made.  Minutes of investment committee meetings should include key discussion points and actions taken. In fiduciary challenges, it is more important that the fiduciary engaged in a regular deliberative, reasoned and documented process rather than whether the ultimate decision was right or wrong.
  4. Communicate regularly with plan participants. In a time of market uncertainty and concerns about retirement asset security, it is important to have ongoing communication with plan participants.  Employers should send regular communications reminding participants to review their investment choices, noting the importance of diversification and the risk and reward characteristics of the plan’s investment options.  Engage the plan’s recordkeeper/investment advisor to provide participant targeted communications on these points.
  5. Address cybersecurity and data breach protections. With remote working and increased reliance on personal devices for work functions, coupled with increased plan-related participant activity (for example, increased requests for Cares Act distributions and 401(k) loans by participants) potentially exposing retirement plan accounts and personal information (Social Security numbers, etc.), the risk of data breach and fraud activity is substantially increased.  Although there currently is no specific guidance from the Department of Labor or IRS on plan cybersecurity, employers should consult with their plan recordkeepers to confirm that best practices are being applied to retirement account security, similar to protections in the financial services and health care industries.  Also encourage participants to regularly monitor their plan accounts for questionable transactions and frequently change their passwords.  This is an area to watch for future guidance.

Please contact Vandeventer Black LLP if you have any questions or would like additional information on these issues.

Virtually Impossible: Eleventh Circuit’s Denial of Non-Parties Attending Arbitration Hearings Via Video or Telephone

In the age of COVID, it is a rarity for hearings, oral arguments, client meetings, or any other legal proceeding to be held in-person. Instead, lawyers, judges, arbitrators, and all other legal figures are relying on their computers and telephones to keep the dockets moving. With the relative ease of logging into a hearing or meeting online, it is important to verify whether certain matters are authorized by statute or caselaw to be conducted virtually.

For example, a few months before the national lockdown for COVID, the Eleventh Circuit held that non-parties can only be compelled to attend in-person, physical arbitration hearings and not by video. Managed Care Advisory Grp., LLC v. CIGNA Healthcare, Inc., 939 F.3d 1145 (11th Cir. 2019). The Eleventh Circuit’s holding was based on its narrow interpretation of Section 7 of the Federal Arbitration Act (“FAA”), which allows arbitrators to subpoena non-parties and their documents. According to the Eleventh Circuit, the ordinary meaning of Section 7 “does not authorize district courts to compel witnesses to appear in locations outside the physical presence of the arbitrator.” Id. at 1160. In its reasoning, the Eleventh Circuit relied heavily on the fact that Section 7 was passed in 1925 and, “[l]ooking to dictionaries from the time of Section 7’s enactment,” it is “clear that a court order compelling ‘attendance’ of a witness ‘ before’ the arbitrator meant compelling the witness to be in the physical presence of the arbitrator.” Id.

In the same opinion, the Eleventh Circuit also held that because the FAA does not allow non-parties to be compelled to appear by video, “the FAA implicitly withholds the power to compel documents from non-parties without summoning the non-party to testify.” Id. In other words, the FAA does not allow “pre-hearing” discovery whereby parties may summon non-parties to produce documents prior to the in-person hearing.

The Second, Third, Fourth, and Ninth Circuits have previously reached similar conclusions as the Eleventh Circuit “that Section 7 is unambiguous and does not provide arbitrators with the authority to order non-parties to provide documents outside the presence of the arbitrator.” Id. at 1159. However, other appellate courts have disagreed, including the Sixth and Eighth Circuits.

Although other circuits have reached similar conclusions regarding an arbitrator’s inability to compel non-parties to produce documents prior to a hearing, the Eleventh Circuit is the first circuit to explicitly rule that non-parties cannot be compelled to appear by video. Although it was not a possibility to virtually appear at an arbitration hearing in 1925, such a strict interpretation of Section 7 of the FAA may unnecessarily burden arbitration in Florida, Georgia, and Alabama during a time when traveling poses an unnecessary risk and in-person legal proceedings remain almost non-existent.

OYSTER FIGHT!

I spend a lot of time handling cases on or near the waterfront.  One recent opinion caught my eye.  Judge Jackson ruled on a Motion to Dismiss concerning an oyster farm and distribution business.  The individual defendants were the founders of the corporate defendant—Wharf Oyster Company, LLC.  The Plaintiff was an investor.  After a period of investment in the domestic business, Plaintiff was solicited to invest in an Indian subsidiary.  The investment in the Indian company was subject to a “Participation Form” outlining some of the specifics regarding the investment.  Shortly after the investment, one of the individual defendants was subject to “multiple serious felony offenses” and Plaintiff demanded return of the investment.

At issue was the old Virginia “Source of the Duty Rule” and how the Participation Form might limit tort claims against the Defendants.  The Court, at least on the allegations of the Complaint, concluded that the Participation Form was not a valid contract and was not intended to be binding.  Accordingly, the Court found it was no bar to claims for fraud or conversion.

But the Court dismissed the conversion claim on other grounds.  Finding that the voluntary investment, even if based on fraud, “relinquished [the] ownership interest and right of possession” of the invested funds, a claim for conversion could not continue because the Plaintiff could not meet the ownership prong of the conversion test.

Oysters have always been rumored to be an aphrodisiac, but these parties are making war, not love, over the oyster investment.

 

 

Gaela R. Normile Joins Vandeventer Black Litigation Practice Group

Vandeventer Black LLP is pleased to announce the addition of Gaela R. Normile as an associate for the firm. Normile will be a member of the firm’s litigation practice group.

“We are happy to welcome Gaela to our legal team,” said Michael L. Sterling, Managing Partner. “She is returning to Vandeventer Black after spending the summer of 2019 with us as a summer associate.”

Normile received her J.D. (magna cum laude) from Penn State Law. She served as the Executive Articles Editor for the Penn State Law Review and was a legal extern for Penn State University’s Student Legal Services. Normile is also a member of the Woolsack Honor Society.

Before attending law school, Normile earned her B.A. from the College of William & Mary, where she majored in Government and minored in Sociology. She was also a member of William and Mary’s women’s club soccer travel team during her four years.

Normile is a longtime Virginia resident born and raised in Virginia Beach and attended Kellam High School.

Vandeventer Black’s Hague Selected as Chair of VADA’s Professional Liability Section

Tracy Taylor Hague, an Of Counsel with Vandeventer Black LLP’s Richmond office, was selected as Chair of the Professional Liability Section for the Virginia Association of Defense Attorneys (VADA) for 2020-21. Ms. Hague has been a member of the VADA since 2002 and is actively involved in their Medical Malpractice and Professional Liability Sections.  In addition, she is a frequent lecturer at VADA meetings and has presented continuing legal education courses at the VADA Spring Seminar, the New Associates’ Bootcamp, and the Right Start Seminar.

“I am honored to have been selected as the new Chair of the Professional Liability Section of the VADA. I am looking forward to meeting some of our section members in the coming year and to sharing ideas and information to benefit our respective practices,” said Hague.

The VADA is a voluntary bar association comprised of over 850 attorneys focused on the defense of civil actions throughout Virginia. According to VADA’s website, the mission of the association “is to assist Virginia attorneys in the professional and ethical representation of their clients in civil litigation through education, communication, and fellowship.”   

Ms. Hague is a trial attorney who focuses her practice on the defense of professionals, including attorneys, realtors, insurance agents and brokers, physicians, psychologists, dentists, nurses, and various health care facilities such as hospitals and large academic medical centers. She also regularly defends a variety of personal injury cases, including cases involving catastrophic injuries and death.

COVID-19 and the CARES Act – Partial Termination Relief for Retirement Plans

Many employers have had to terminate or furlough employees in 2020 due to COVID-19.   Under IRS rules, a partial termination of a retirement or 401(k) plan may occur when there is a significant reduction (generally more than 20%) in plan participation due to employer-initiated terminations or layoffs during the plan year.  If a partial termination occurs, affected participants (those who are terminated) become 100% vested in their plan benefit, even if they have not yet satisfied the vesting schedule under the plan.  An employer’s failure to vest participants correctly can potentially disqualify the plan or subject the employer to additional claims from affected participants.

The Coronavirus Aid, Relief and Economic Security Act (CARES Act) was silent on the partial termination issue, which is a significant concern since many employers use the forfeitures of terminated participants to pay plan expenses or offset employer contributions. Also, if forfeitures are insufficient, employers may have to make additional contributions to fully vest terminated employees’ accounts. 

Fortunately for employers, the IRS has recently updated its CARES Act guidance to provide that employees who are terminated, laid-off or furloughed in 2020 due to a COVID-19 downturn do not have to be counted as terminated participants for partial termination purposes if they are rehired or called back before the end of this year. 

This should be welcome news for employers that have reduced their workforce and are planning to bring back workers by the end of 2020.  Employers may avoid a significant vesting expense if they rehire employees and can reduce the turnover rate to less than 20%. 

Please contact Vandeventer Black LLP if you have any questions or would like additional information on these issues.

Let Your Fingers Fly—At Least in North Carolina

As we discussed last summer, the North Carolina Court of Appeals issued a surprising decision that there was probable cause to pull over a driver in North Carolina after he makes “an up-and-down pumping motion with his middle finger extended.”  We thought the decision was wrong, and we praised the dissent by Judge Arrowood.

Justice has prevailed. The North Carolina Supreme Court overturned the decision on May 1, 2020.  The Court explained that there were not “facts known to Trooper Stevens which would lead a reasonable officer to suspect that defendant was engaged in disorderly conduct.”  And further explained that “the mere fact that defendant’s gesture changed from waving to ‘flipping the bird’ is insufficient to conclude defendant’s conduct was likely to cause a breach of the peace.”  A short, sweet, unanimous 7-page opinion that avoids any First Amendment issues in a footnote.

We still don’t advise flipping off a police officer—but at least in North Carolina, it appears it is not grounds for a traffic stop.  For now…

The Short Guide to Short-Term Rentals: Norfolk, VA Edition

Short-term rentals have become increasingly popular with Hampton Roads visitors and a big source of income for local property owners. Many guests in the Hampton Roads area are finding accommodations on websites like AirBnb.com, HomeAway.com, and Tripping.com, instead of staying in traditional hotels and resorts. In 2018, Airbnb hosts in the City of Norfolk alone generated 4.5 million dollars of revenue and hosted 31,000 guests. Unsurprisingly, in light of the prevalence of this type of lodging and, like many nearby Virginia localities, Norfolk has enacted local legislation governing properties that serve as short-term rentals.

To comply with Norfolk’s short-term rental regulatory structure, a host must:

1. Ensure that the number of guests occupying the short-term rental is limited to 2 guests per bedroom and 10 guests total.

2. Have a certain amount of off-street parking spots available, depending on the number of bedrooms available as short-term rentals and whether the property is considered a “homestay” or a “vacation rental.” If the property owner remains on the premises during the entire rental period, the rental property is a “homestay.” Homestays must provide one off-street parking space for every bedroom provided for rent, regardless of the location of the property. If the property owner doesn’t remain on the premises during the entire rental period, the property is considered a “vacation rental.” Vacation rentals must provide a certain amount of parking spaces per bedroom, depending on which “character district” the property is in:

Character District

Number of Required Parking Spaces
Downtown0.5 spaces per bedroom
Traditional0.67 spaces per bedroom
Suburban1 space per bedroom
Coastal1.2 spaces per bedroom

3. Register the property by completing an online registration application found on the City’s website. This registration process requires an owner to provide proof of liability insurance that covers injury to property guests of no less than $300,000 and a photograph of the off-street parking area provided with the rental. Once completed, it typically takes 5-10 business days for the registration application to be processed.

4. Obtain a Zoning Permit. Once the registration application is approved, the property must pass a fire safety inspection. When the City Planning staff receives proof of the fire inspection, the owner will receive a Zoning Permit. The Zoning Permit is valid for two years and must be renewed in order to operate the short-term rental within Norfolk city limits. Once the Zoning Permit is obtained, a zoning inspection must be scheduled and completed.

5. Obtain a business license. The host must have a separate business license for each rental property. The license costs between $50-$75 and must be renewed annually.

6. Collect an 8% transient occupancy tax and a $3 per night room tax during each rental. The taxes must be reported and paid to the Commissioner of Revenue on or before the 20th day of the month following the month of collection.

Notably, Norfolk neither limits the number of different rental contracts within a certain time period nor prohibits short-term renters from having a large gathering, event, or party at the property. There is also no special event permit required or limitation on how many large events can be held at the property per year. This means that short-term rentals in Norfolk can be used for weddings, receptions, or other events.

Comparatively, Norfolk’s short-term rental regulations are less stringent overall than those in neighboring localities. For example, in Virginia Beach, short-term landlords are required to obtain at least $1 million in liability insurance, post a summary of the applicable Code Sections in the home, and accept no more than 2 rental contracts every 7 days.

Simplified PPP Forgiveness Procedure for Loans of $50,000 or Less

NOTE:  This article updates the information in the following Articles previously published:


On Friday, October 9, 2020, the Small Business Administration (“SBA”) released guidelines for a simpler loan forgiveness process for Borrowers with Paycheck Protection Program loans of $50,000 or less[1], and a new and much streamlined PPP Loan Forgiveness Application (SBA FORM 3508S (10/20)).   The new SBA Form 3508S can be downloaded here, and instructions for SBA Form 3508S are located here

A Borrower with a PPP loan of $50,000 or less is now exempt from any reductions in the amount of the loan forgiven based on reductions in full-time equivalent employees and reductions in employee salaries and wages.  With this change, the new SBA Form 3508S has eliminated all worksheets and calculations, and thus is much simpler.  SBA Form 3508S requires only information identifying the Borrower, the amount of loan forgiveness requested and includes the same Borrower representations and certifications confirming the conditions for PPP Loan forgiveness required by the CARES Act, as on other variants of SBA Form 3508.  Even though the Borrower is still required to submit supporting documentation, such as documentation verifying the Payroll Costs paid during the Covered Period, less documentation is required.  The instructions for SBA Form 3508S list the supporting documentation that must be submitted with the completed application. 

Further the lender’s review of the application is also streamlined.  The lender need only confirm that the Loan Forgiveness Application is complete and is accompanied with the documentation the Borrower is required to submit verifying Payroll Costs and non-payroll costs.  The lender is authorized to rely on the borrower representations in the completed form and need not independently verify any of the reported information.

This simplified PPP Loan forgiveness procedure and exemption from the potential reductions in the amount of the loan forgiven are being implemented by the SBA recognizing that approximately 1.7 million PPP Loan Borrowers were to businesses with no employees or only an owner and one employee.  The SBA estimates that as many as 3.5 million PPP Loan Borrowers may be eligible to use SBA Form 3508S.


[1] Provided the total of all PPP loans to the Borrower and all of its affiliates is less than $2,000,000.

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