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Terminating Corporate Life in Louisiana

Posted in Business and Corporate, Louisiana In General

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By Ben Jumonville and Ahmed Mohamed

The Louisiana Business Corporation Act (“LBCA”) became effective on January 1, 2015.  The changes to Louisiana corporation law embodied in the LBCA are extensive, especially in the areas of dissolution and termination of a corporation.

Simplified Termination

The LBCA allows corporations to terminate by simplified articles of termination if the corporation:  (1) does not owe any debts; (2) does not own any immovable property; and (3) has not issued shares or is not doing business.  Under the old law, “dissolution by affidavit” provided a similar option, but after dissolution, the shareholders became personally liable for any debts or claims against the corporation.   Under the LBCA’s simplified termination procedure, no such liability attaches to the shareholders.  Corporations which undergo a simplified termination may take advantage of reinstatement, but they are not entitled to the claim peremption benefits that arise from formal dissolution.

Formal Dissolution

Initially, it should be noted that the LBCA has made an important change in terminology.  Unlike the old law, dissolution under the LBCA does not terminate the existence of the corporation, nor does it change who has authority to act on behalf of the corporation.  Rather, the effect of dissolution is to change the official purpose of the corporation from the carrying on of business to the winding up of its affairs.  Formal dissolution under the new law begins by filing articles of dissolution with the Secretary of State.  After the corporation has been liquidated, the existence of the corporation is terminated by filing articles of termination with the Secretary of State.

An important tool now available to a dissolved corporation is the ability to dispose of both known and unknown claims.  When a dissolved corporation knows of possible claims against it, the corporation may send a written notice of its dissolution to the claimants stating that they have 120 days by which to submit a claim to the corporation. Claims that are not submitted to the corporation before the deadline are extinguished by peremption.  Timely but rejected claims are perempted unless the claimant commences a proceeding to enforce the claim by the deadline in the rejection notice, which may not be fewer than 90 days.  With respect to unknown claims, a dissolved corporation may establish a three-year (3) peremptive period by publishing a notification of its dissolution in a newspaper in the parish of its principal office or, if none, its registered office.  Through this method, a claim is perempted unless the claimant commences a proceeding to enforce the claim within three years of the publication. Corporations which are likely to have outstanding claims at the time of dissolution should take advantage of these claim peremption mechanisms under the new law.

Another newly-added feature allows a corporation to satisfy any claims that are contingent, unknown to the corporation, or are otherwise expected to arise after the effective date of dissolution by posting security in the amount and form ordered by a court after a hearing. As a result, these claims may not be enforced against shareholders who received assets in liquidation.

Claims that are not perempted or otherwise disposed of by any of the methods above are enforceable against the undistributed assets of the corporation and shareholders who received assets in liquidation. Importantly, a shareholder’s total liability for all claims may not exceed the total amount of assets distributed to the shareholder.

After the articles of termination have been filed, a corporation is deemed to no longer exist except for the limited purpose of dealing with any unresolved corporate assets or debts. Of course, placing an otherwise non-existent corporation in control of unresolved assets or debts presents the problem of finding a person with authority to act on behalf of the terminated corporation. The new law addresses this issue in two ways. First, the former shareholders of the terminated corporation can elect to have the corporation retroactively reinstated within a period of 3 years from its termination. Second, if reinstatement is not an option, then any interested party can apply to have a liquidator appointed on behalf of the corporation.

Administrative Termination

Finally, a corporation may also be terminated through an “administrative termination” by the Secretary of State. This form of termination replaces charter revocation under the old law, but corporate officers should be aware of the new filing deadlines. Whereas the old law effectively gave corporations three years to file annual reports, administrative termination now takes place after only 90 days from the annual report filing deadline.  The Secretary of State must provide at least 30 days’ written notice before termination.  Corporations that are administratively terminated have the option of retroactive reinstatement, which is available for 3 years.

The LBCA’s changes in the areas of dissolution and termination provide corporations with different options, each carrying different benefits.  Consider your options before you terminate your corporate life.

Low Energy Prices, Low Interest Rates, Rise in Federal Estate Tax Make Estate Freeze Transactions Attractive

Posted in Business and Corporate, Energy, Estate Planning, Tax, and Probate Law, Louisiana In General, Real Estate

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By Kyle C. McInnis

The recent downturn in energy prices has given consumers a welcomed break at the gasoline pump. The people producing the energy, however, from landowners, to oil companies, to oil field service providers, have felt the full negative effects of the steep price decline. Those producers are seeing price pressure at every turn, reducing their net incomes and eroding their enterprise valuations. Things aren’t always as bad as they seem though. Today’s mix of low energy prices, low interest rates, and the recent rise in the federal estate tax rate make estate freeze transactions particularly attractive to those people in the oil and gas industry.

While this significant price drop is painful for those in the oil and gas industry, it presents a significant estate planning opportunity. For people lucky enough to be concerned about federal estate taxes (those with a net worth in excess of $5.45 million dollars individually or $10.9 million for a married couple) the 40% tax rate presents a significant threat to their family wealth. Therefore, these taxpayers try to minimize the value of their taxable estate, thereby minimizing their exposure to the federal estate tax. Taxpayers often use discount entities and other tax strategies to reduce the taxable value of their estates.

The recent energy price dip, however, has done much of the work of minimizing asset values already. The taxpayer’s current goal is freezing the current low values of their oil and gas assets in anticipation of a recovery in energy prices later. Several estate planning strategies can effectively freeze the current value of assets in a taxpayer’s estate. When energy prices eventually recover, the value of the taxpayer’s taxable estate is frozen at today’s values, being a function of today’s lower prices. The value of the assets grows with the subsequent increase in energy prices, but outside of the taxpayer’s taxable estate.

An example will illustrate the point. Assume Martin, a single man, has oil and gas holdings currently worth $10 million when the price of crude is $30 a barrel. Martin engages in an estate freeze transaction at current prices. Two years later, Martin dies. At that time, oil prices are at $60 a barrel and Martin’s former holdings are worth $20 million. The $10 million increase in value from the price jump is excluded from Martin’s taxable estate because Martin engaged in an estate freeze transaction when oil was at $30 a barrel. For federal estate tax purposes, Martin only has his $10 million frozen estate. The freeze transaction has avoided inclusion of the additional $10 million in Martin’s taxable estate and saved Martin’s estate $4 million in additional federal estate taxes!

Freeze transactions take a variety of forms. They include grantor retained annuity trusts or unitrusts in which the taxpayer transfers assets to a trust in return for a stream of payments that the trust promises to pay the taxpayer over time. Some taxpayers prefer a sale to a special type of trust called an “intentionally defective grantor trust.” Certain of these transactions allow for a freeze in estate tax values, but still allow the taxpayer to share in the appreciation of the sold asset through variable repayments that can increase as the value of the assets sold increase.

These transactions work best when interest rates are low. Historically, we are still in a low interest rate environment, a further incentive to consider a freeze transaction.

The attractiveness of these transactions won’t last forever. Oil prices will eventually recovery. Additionally, interest rates were hiked by the Federal Reserve last year and are forecasted to rise again in the near future.

For those in the oil and gas industry, today is a challenging business environment. But, this environment presents an exceptionally good opportunity to implement an effective estate planning strategy to save future federal estate tax liabilities.

Kyle McInnis is a partner in the Shreveport office of Kean Miller and practices in the estate planning, tax, and business and corporate practice groups. He represents business clients in entity formations, corporate acquisitions and dispositions, and all matters pertaining to closely held businesses. He represents individuals and families in all aspects of the estate planning process, including devising and implementing transfer tax minimization strategies. Kyle is a Tax Law Specialist and an Estate Planning and Administration Specialist certified under the Louisiana Board of Legal Specialization. He was named the Best Lawyers’ 2013 and 2015 Shreveport Trusts and Estates “Lawyer of the Year” and the 2016 Shreveport Tax “Lawyer of the Year.”

 

Court Rules Clean Power Plan Implementation Can Continue

Posted in Climate Change / GHG, Energy, Environmental Litigation and Regulation, Louisiana Electric Utility Regulation, Louisiana In General, Utilities Regulation

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By Michelle Purchner Cumberland

President Obama’s centerpiece of his climate policy agenda, the “Clean Power Plan,” has become one of the most heavily litigated environmental regulations ever. Twenty-seven states and numerous industry groups have filed more than fifteen separate lawsuits challenging the Environmental Protection Agency’s (“EPA”) statutory authority to promulgate the regulations.   Seventeen states, the District of Columbia, the cities of New York, Boulder, Chicago, Philadelphia, and South Miami, as well as Broward County, Florida and a number of public interest groups have intervened to support EPA.

The final rule[1] was published in Federal Register on October 23, 2015 titled “Standards of Performance for Greenhouse Gas Emission from New, Modified, and Reconstructed Stationary Sources: Electric Utility Generating Units”.[2] The rule sets carbon dioxide emissions performance rates for affected power plants that reflect the “best system of emission reduction” (BSER), and requires each states to develop its own plan that will achieve those rates. However, if states do not submit approvable plans, EPA will substitute its own plan. Compliance is not required until 2030, although there are interim goals that must be met at 3 interim periods.

The Environmental Protection Agency refers to this regulation package as the “Clean Power Plan” and states that it is a “commonsense approach to cut carbon pollution from power plants.”[3] And that the “Clean Power Plan for Existing Power Plants and the Carbon Pollution Standards for New Power Plants” will maintain an affordable, reliable energy system, while cutting pollution and protecting our health and environment now and for future generations.”[4] However, many dispute whether the Clean Power Plan will have such positive effects, arguing instead concerns of economic feasibility with currently available technology, conflicting provisions, assumptions about renewable energy production that does not currently exist and potential for large loss of employment. “Every company that depends on electricity will be affected by this rule. It is fair to say that every American industry will be affected by this rule.” Karen Harbert of the U.S. Chamber of Commerce stated. The Clean Power Plan poses significant challenges for coal-fired power plants in particular, and the majority of states challenging the rule are coal producing states or rely heavily on coal-fired power plants.

The State of Louisiana and the Louisiana Department of Environmental Quality, are among the challengers to the rule. Petitioners argue that the final rule is in excess of the EPA statutory authority and otherwise is arbitrary, capricious, and abuse of discretion and not in accordance with the law. Among the primary arguments is that the rule may require states to mandate energy efficiency measures in addition to or in lieu of regulation of actual emissions limits. Other challenges include whether the rule will affect stability of the electrical grid.

The most recent notable ruling in the pending litigation is the recent Order denying the Motion for a Stay of the rule filed by several states, requesting that the Court halt the implementation of the Clean Power Plan until the pending litigation on the review of the final rule has concluded. On January 21, 2016 a three judge panel of the US Court of Appeals for the District of Columbia Circuit denied the motions to stay the implementation of the rule. The ruling is a victory for the EPA, which sought to begin implementation of the federal carbon regulations while they are under review in the courts. All U.S. states will now have until September 6, 2016[5] to submit preliminary strategies on cutting carbon emissions from their electrical power systems by thirty-two percent on average below 2005 levels – essentially mandating a massive conversion from coal-fired power generation to lower emitting natural gas and renewable energy sources as well as mandating some energy efficiency measures. EPA has published for comment, model state plans to assist the states, as well as versions of a proposed federal plan that will be implemented if states do not submit approvable measures.

The three judge panel that recently denied the request for a stay of the final rule includes the honorable Sri Srinivasan, Judith Roberts, and Karen Henderson, appointed by Presidents Obama, Clinton and Bush, respectively. The panel further ordered expedited review of the case, setting the matter for oral argument on June 2, 2016 at 9:30a.m. June 3, 2016 has also been reserved by the Court should oral arguments extend into the next day. The deadline for briefing is April 15, 2016 for initial briefs and final briefs to be filed by April 22, 2016.

Due to the complexity of the cases and the hundreds of parties involved, attorneys participating in the litigation do not expect a ruling on the merits until late 2016 or even 2017. Regardless of when the D.C. Circuit rules, observers widely expect that the case eventually will reach the Supreme Court. The high court may not rule until 2018. This is also complicated by the upcoming presidential election. Should a Republican take the White House, the new administration may direct the EPA to rescind the Clean Power Plan.

[1] 40 CFR Parts 60, 70, 71 and 98.

[2] Federal Register at 80 Fed. Reg. 64,510 (October 23, 2015). https://www.gpo.gov/fdsys/pkg/FR-2015-10-23/pdf/2015-22837.pdf.

[3] http://www.epa.gov/cleanpowerplan/fact-sheet-clean-power-plan-carbon-pollution-standards-key-dates.

[4] http://www.epa.gov/cleanpowerplan/fact-sheet-clean-power-plan-carbon-pollution-standards-key-dates.

[5] http://www3.epa.gov/airquality/cpptoolbox/technical-summary-for-states.pdf.

 

2016: Resolve to Consider Joint Employment Issues… the Department of Labor Has Already Done So!

Posted in Labor and Employment Law

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By Erin L. Kilgore and A. Edward Hardin, Jr.

This New Year, many employers have resolved to examine their employment relationships to determine if any joint employment relationships are lurking.   On January 20, 2016, the United States Department of Labor issued an administrator’s interpretation on joint employment and confirmed that the DOL has resolved to continue its program of pursuing issues related to joint employment.

As explained in the DOL’s blog post, the DOL’s guidance on joint employment is consistent with its commitment to “engage with and educate employers so they know about their responsibilities and can operate in compliance with the laws that we are tasked to uphold.”  In this vein, the administrator’s interpretation:

(a) addresses the question of “who is an employer;”

(b) identifies common scenarios in which two or more employers jointly employ an employee and, therefore, are jointly liable for compliance; and

(c) compiles relevant statutory provisions, regulations, and case law to provide comprehensive guidance on joint employment under the FLSA.

The Department of Labor is just one of many federal agencies that have made joint employment issues a primary consideration.  Employers should examine their relationships, policies, and contracts, to determine if there may be issues related to joint employment, particularly in light of the DOL’s new guidance.

 

The Louisiana Supreme Court Issues Strong Guidance about Manifest Error Standard: Hayes Fund for the First United Methodist Church of Welsh, LLC v. Kerr McGee Rocky Mountain, LLC

Posted in Energy, Environmental Litigation and Regulation, Legacy Oil Field Sites, Louisiana In General

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By Gibbons Addison

On December 8, 2015 the Louisiana Supreme Court attempted to clarify the manifest error appellate review standard. Hayes Fund for the First United Methodist Church of Welsh, LLC v. Kerr McGee Rocky Mountain, LLC, 2014-2592 (La. 12/8/15); — So. 3d –, pitted plaintiff mineral royalty owners against mineral lessee and working interest owner defendants in a dispute over whether the defendants mismanaged and improperly operated two oil and gas wells, causing the plaintiffs lost royalties. The case centered on the testimony and opinions of the experts, with the plaintiffs presenting a single expert to prove that defendants’ actions in drilling and operating the two wells prematurely caused production of water, rather than oil and gas, and therefore resulted in millions of dollars in lost royalties. The defendants called nine witnesses, including five experts, to establish that the water production was not the result of unreasonable or imprudent practices. The district court, after hearing twenty-five days of testimony and receiving hundreds of pages of post-trial memoranda, ruled in favor of the defendants. The district court relied on defendants’ experts in concluding that the plaintiffs failed to prove the defendants’ actions caused diminished oil and gas production.

Whether the defendants’ actions caused the plaintiffs damages is a question of fact, only to be reversed in the event of manifest error. The Louisiana Third Circuit Court of Appeal found such error, reversed the district court’s judgment, and rendered a judgment of $13,437,895 for plaintiffs. The Supreme Court reversed the Third Circuit, and exhaustively explained in a sixty-eight page decision why the manifest error standard was not met. The main takeaways from the Supreme Court opinion are as follows: the manifest error standard precludes setting aside a trial court’s finding of fact unless the finding is clearly wrong in light of the record reviewed in its entirety. Accordingly, a reviewing court’s decision is not to be based on whether it merely would have found the facts differently. The question is whether the fact-finding conclusion was reasonable, not whether the trial judge or jury was right or wrong. When two permissible views exist, the fact-finder’s selection between them is not clearly wrong or manifestly erroneous.

The Supreme Court undertook an extensive review of the trial court record to determine whether it reasonably supported the district court’s factual findings and the determination that plaintiffs failed to prove their case. The record reasonably supported the district court’s conclusion, and the record did not show clear error in the district court’s choice of defendants’ experts as more credible than plaintiffs’ expert. The function of the court of appeal is to correct errors, not to pick one of many permissible views of the evidence. By making its choice of evidence, the Third Circuit wrongly applied the manifest error standard.

Through its Hayes Fund opinion, the Supreme Court invited the intermediate appellate courts and litigators to properly apply the manifest error standard. Satisfaction of Hayes Fund’s precepts will be crucial to success in appealing and defending trial court fact determinations going forward.

 

Proper Form and Content of a Louisiana Private Works Act Lien

Posted in Construction Law, Louisiana In General

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By Josh Coleman

Louisiana’s Private Works Act [1] allows an unpaid contractor, subcontractor, or material supplier to file a “statement of claim or privilege” (i.e., lien) upon the property improved by their work or materials. A properly filed lien in the amount of the unpaid balance can then form the basis for a lawsuit against the owner or upstream contractor, where otherwise no such basis would exist under the law.

So what exact information must the claimant include in a Private Works Act lien, and in what form? The Act lists those requirements in subsection 9:4822(G)(1)-(4). Recent decisions from Louisiana appellate courts have clarified their meaning.

Before addressing those requirements, it is worth noting why they matter at all. A lawsuit seeking an unpaid amount for services rendered would normally style itself as an action for breach of contract. Such an action requires contractual privity, meaning the existence of a valid contract to which both plaintiff and defendant are parties. The lien system of the Private Works Act creates a large carve-out to this principle by allowing a subcontractor to sue a property owner directly for unpaid balances despite the fact that the two parties never contracted with one another.

Because this lien system is sui generis (i.e., an exception to general contract law), Louisiana courts have long followed the principle that the Private Works Act should be “strictly construed” against the lien claimant. Under this approach, a failure of the claimant to follow the Act’s technical requirements can result in an order from the district court that the lien be cancelled and removed from the mortgage records. A cancelled lien can then no longer sustain a lawsuit under the Private Works Act, which in all likelihood is the subcontractor’s sole remedy against an owner.

Following the Act’s form requirements is therefore critical to the lien claimant, who risks losing his entire claim if the lien is deemed improper by a reviewing court. Knowledge of these requirements is also important to the defending contractor or property owner, who can possibly avoid liability by identifying an impropriety in the lien that the court agrees is significant. Although courts can be hesitant to reject a lien on a purely technical basis,[2] the fact remains that a lien claimant must strictly adhere to the four form and content requirements set forth in La. R.S. § 9:4822(G), which states that a proper statement of claim:

(1) shall be in writing;

(2) shall be signed by the person asserting the same or his representative;

(3) shall reasonably identify the immovable with respect to which the work was performed or movables or services were supplied or rendered and the owner thereof;

(4) shall set forth the amount and nature of the obligation giving rise to the claim or privilege and reasonably itemize the elements comprising it including the person for whom or to whom the contract was performed, material supplied, or services rendered. The provisions of this Paragraph shall not require a claimant to attach copies of unpaid invoices unless the statement of claim or privilege specifically states that the invoices are attached.

The first two requirements—that the lien must be written and signed—are self-explanatory and have not been meaningfully litigated in the courts. The third and fourth requirements, however, are those which realistically can result in cancellation of the lien and therefore deserve special attention.

La. R.S. § 9:4822(G)(3): Lien Must “Reasonably Identify the Immovable”

A proper lien must “reasonably identify” the property upon which the claimant performed work and/or provided the building materials which form the basis for the lien.[3] The property description must be “sufficient to clearly and permanently identify the property.”[4] The purpose of this requirement is to accurately put on notice all third parties who may have an interest in the property subject to the privilege.

Liens often include “legal” property descriptions lifted from a filed deed or title policy. These legal descriptions are typically generated by a land surveyor and can include specific distances, boundary angles, and/or references to monuments. As to the required level of detail, the Act expressly states that a property description “which includes the lot and/or square and/or subdivision or township and range”[5] shall suffice. In a relatively recent decision interpreting that provision,[6] Louisiana’s Fifth Circuit Court of Appeals found the following property description within a lien to be adequately detailed:

Lots 7, 8, 9, 10, 11, 12 and 13, Square 53, Harlem Parkway Subdivision, Parish of Jefferson, State of Louisiana otherwise known as Pontchartrain Caye Condominiums, 3901 Ridgelake Drive, Metairie, Louisiana.

The specific references to lot number, square, and subdivision (which could be tied to plat maps on file with the parish) clearly satisfied the Fifth Circuit that the lien had “reasonably identified” the subject property. The Court even excused the fact that the lot numbers were not technically correct after a recent resubdivision of the property.

Importantly, the Private Works Act explicitly states that a property is not “reasonably identified” where the lien identifies the property location only by municipal address or mailing address.[7] Numerous courts have enforced this requirement to invalidate liens that list only the municipal address of the subject property with nothing more.[8]

La. R.S. § 9:4822(G)(4): Lien Must Describe The “Amount and Nature of the Obligation”

A proper lien under the Private Works Act must include both the specific amount outstanding and a “reasonable itemiz[ation] of the elements comprising” that amount.[9]

As to the level of detail that is required, in recent years the Third and Fourth Circuit Courts of Appeal have agreed with their district courts in that the following general descriptions of the debt included in the lien were not sufficiently itemized:

  • $180,762.59 for “Materials Supplied”[10]
  • “an unpaid balance” of $195,280.14 “for services rendered.”[11]
  • “certain materials consisting of but not limited to trim, millwork, etc.” in the amount of $37,623.98[12]

However, in a 2013 decision, the Fifth Circuit held that a series of separate subcontractors’ liens were each sufficiently itemized where the individual liens merely stated the basic nature of each subcontractor’s scope of work.[13] For example, the painter subcontractor’s lien was deemed valid where it described the nature of the debt as only for “wall preparation and general painting work,” and the HVAC subcontractor’s lien was deemed valid where it described the nature of the debt as only for “air conditioning and ventilation work.”

Although the Simms Hardin decision suggests that a brief description of scope of work may be acceptable, a cautious lien claimant should provide more detail as to the components of the amount outstanding. To that end, liens often attach and reference a series of unpaid itemized invoices representing the debt. The Act specifically states that this is not a requirement unless the lien specifically states that the invoices are attached. The State Legislature added that particular clause to the Private Works Act in 2013 in response to the Fourth Circuit’s ruling in Jefferson Door.[14]

*         *         *         *

The author thanks Trippe Hawthorne for his research and guidance in the writing of this article.

[1] La. R.S. §9:4801 et seq.

[2] See, e.g. Authement’s Ornamental Iron Works, Inc. v. Reisfeld, 376 So. 2d 1061, 1064 (La. Ct. App. 1979) writ denied, 378 So. 2d 1390 (La. 1980) (“strict construction cannot be so interpreted as to permit purely technical objections to defeat the real intent of the statute,” which is “to protect materialmen, laborers and subcontractors who engage in construction and repair projects.”)

[3] La. R.S. §9:4822(G)(3).

[4] La. R.S. §9:4831(C).

[5] La. R.S. §9:4831(C).

[6] Simms Hardin Co., LLC v. 3901 Ridgelake Drive, L.L.C., 12-469 (La. App. 5 Cir. 5/16/13), 119 So. 3d 58, 67, writ denied, 2013-1423 (La. 9/27/13), 123 So. 3d 726.

[7] La. R.S. §9:4831(C)(“Naming the street or mailing address without more shall not be sufficient to meet the requirements of this Subsection”).

[8] Tee It Up Golf, Inc. v. Bayou State Const., L.L.C., 2009-855 (La. App. 3 Cir. 2/10/10), 30 So. 3d 1159, 1162; Norman H. Voelkel Construction, Inc. v. Recorder of Mortgages for East Baton Rouge Parish, 2002–1153, (La.App. 1 Cir. 6/27/03), 859 So.2d 9, 11, writ denied, 2003–1962 (La.10/31/03), 857 So.2d 486; see also Boes Iron–Works v. Spartan Building Corp., 1994–519 (La.App. 4 Cir. 12/15/94), 648 So.2d 24, 25, writ denied, 95–103 (La.3/10/95), 650 So.2d 1184.

[9] La. R.S. §9:4822(G)(4).

[10] Tee It Up Golf, Inc. v. Bayou State Const., L.L.C., 2009-855 (La. App. 3 Cir. 2/10/10), 30 So. 3d 1159, 1162. In addition to rejecting the short debt description itself, the Third Circuit also faulted the claimant for listing the same lump sum ($180,762.59) on two separate liens filed against two of the owners’ separate immovable properties.

[11] Bradley Elec. Servs., Inc. v. 2601, L.L.C., 2011-0627 (La. App. 4 Cir. 12/14/11), 82 So. 3d 1242, 1244. Notably, the Fourth Circuit also found that the owner’s actual knowledge of the basis for the lien was irrelevant.

[12] Jefferson Door Co. v. Cragmar Const., L.L.C., 2011-1122 (La. App. 4 Cir. 1/25/12), 81 So. 3d 1001, 1005, writ denied, 2012-0454 (La. 4/13/12), 85 So. 3d 1250.

[13] Simms Hardin Co., LLC v. 3901 Ridgelake Drive, L.L.C., 12-469 (La. App. 5 Cir. 5/16/13), 119 So. 3d 58, 68, writ denied, 2013-1423 (La. 9/27/13), 123 So. 3d 726.

[14] Act 277 of 2013, amending La. R.S. 4822(G)(4); Jefferson Door Co. v. Cragmar Const., L.L.C., 2011-1122 (La. App. 4 Cir. 1/25/12), 81 So. 3d 1001, 1005, writ denied, 2012-0454 (La. 4/13/12), 85 So. 3d 1250 (lien failed “itemization” requirement in part because of failure to attach invoices despite stating that invoices were attached).

A More Streamlined, Cost-Effective, Tightly Managed Arbitration Procedure? The 2015 Amendments to the AAA Construction Arbitration Rules

Posted in Construction Law

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By Mallory McKnight Fuller

Parties to a construction contract often expressly agree that any disputes shall be resolved through arbitration. Traditionally, construction entities have placed these “arbitration clauses” into their contract under the belief that arbitration would lead to the resolution of a dispute in a manner quicker and cheaper than a state or federal lawsuit. In recent years, however, critics have noted that arbitrations can often get “out of control” in the same manner as lawsuits, with blown deadlines, overbroad discovery, and other unpredicted twists and turns that ultimately add to the costs and timeline required to reach a final resolution.

Perhaps in response to this criticism, effective July 1, 2015, the American Arbitration Association (“AAA”) significantly amended its Construction Industry Arbitration Rules and Mediation Procedures (“Construction Rules”) for the first time since October 2009. The amendments are an effort by the AAA to bring the Construction Rules more in line with construction industry contracts and to facilitate a more streamlined, cost-effective and tightly managed procedure. The amendments are a result of input received from all industry sectors, through focus groups held throughout the country and the AAA’s National Construction Dispute Resolution Committee.

While the new changes do not drastically alter the course of the arbitration procedure, construction entities and practitioners should note the newly increased power provided to arbitrators and certain other changes summarized below.

Expanding the Arbitrator’s Authority

A primary focus of the 2015 amendments to the Construction Rules (the “Amendments”) was to provide arbitrators additional tools and authority to better manage the arbitration process. To that end, the AAA amended and/or added the following Rules:

Preliminary Management Hearing: In order to get the arbitration process started off on the right track with more structure and organization, amended Rule R-23 now gives discretion to the arbitrator, depending upon the size and complexity of the matter involved, to schedule the preliminary management hearing as soon as practicable after the arbitrator’s appointment. Rule R-23 further provides a detailed checklist of what the AAA proposes should be addressed during the preliminary hearing.

Pre-Hearing Exchange and Production of Information: Amended Rule R-24 gives the arbitrator greater control over the exchange of information between the parties in order to achieve a balance between an economical resolution and the ability of each party to fully present its case.

Enforcement Power of the Arbitrator: New Rule R-25 gives specific enforcement authority to arbitrators, who now have the power to issues orders they find necessary to accomplish a fair and efficient arbitration process. Under the new rule, arbitrators now can: issue orders related to confidentiality, impose reasonable search parameters when parties cannot reach an agreement, allocate costs of document production, and take certain actions when there is willful non-compliance with an order of the arbitrator.

Sanctions: New Rule R-60 increases the authority of the arbitrator to take action against objectionable/abusive conduct. The arbitrator now has the authority, upon a party’s request, to order sanctions (i.e. a fine or other penalty) against a party who fails to comply with either the AAA Rules or an order by the arbitrator. The requesting party can provide evidence and legal argument, and the party subject to the sanction is given the right to respond to the allegations before the arbitrator determines whether to impose the sanction or not.

Other Changes to the Construction Rules

In addition to the significant expansion of the arbitrator’s powers, other noteworthy changes made by the Amendments are focused on a more cost-effective and streamlined arbitration process.

Mandatory Mediation: New Rule R-10 provides that, upon the AAA’s administration of the arbitration or at any time while the arbitration is pending, the parties shall mediate the dispute in all cases where a claim or counterclaim exceeds $100,000. However, unless the agreement between the parties requires mandatory mediation, either party can unilaterally opt out of Rule R-10.

Consolidation and Joinder: Amended Rule R-7 now has additional time frames and filing requirements to help streamline the increasingly complex consolidation and joinder issues.

Dispositive Motions: New Rule R-34 was added to address dispositive motions in arbitration and under which circumstances such motions would be considered. Under Rule R-34, the arbitrator can permit motions disposing of all or part of a claim upon prior written application.

Emergency Measures of Protection: New Rule R-39 enables parties to apply for emergency interim relief if the contract was entered into on or after July 1, 2015. Once a party seeks emergency interim relief by providing notice to the AAA and the other parties to the arbitration, an emergency arbitrator is quickly appointed by the AAA to establish a schedule for consideration of the emergency relief sought.

The Amendments made various other, less significant, changes to the Construction Rules, as follows:

Conflicts Disclosure: Amended Rule R-19 now provides that a party or representative’s failure to disclose potential conflicts can result in a waiver of the party’s right to object to an arbitrator.

Arbitration in the Absence of a Party or Representative: Amended Rule R-32 clarifies the authority of the arbitrator related to how the hearing is conducted in the absence of a party or a party’s representative.

Evidence by Affidavit and Post-Hearing Filing of Documents or Other Evidence: Amended Rule R-36 grants additional authority to the arbitrator with regards to the examination of witnesses unable or unwilling to testify at the hearing.

Majority Decision: Amended Rule R-45 allows the chairperson of the panel to delegate another member of the arbitration panel to resolve procedural/exchange of information disputes without consulting the full panel, in an effort to streamline decisions related to discovery issues.

Fast Track Procedures: Amended Rule F-1 increased the applicability of the Fast Track Procedures from $75,000 to $100,000 and increased the presumption of a documents-only hearing from $10,000 to $25,000. Amended Rule F-12 gives the arbitrator the authority to extend time frames in the interest of justice, under extraordinary circumstances.

According to the AAA, the newly amended AAA Construction Rules will provide better control of the high expense of litigation in construction industry disputes by producing a more streamlined, cost-effective and tightly managed arbitration process. Is such an improved arbitration process still a distant reality, or will the grant of additional authority to the arbitrators be the answer the construction industry has been asking for?

Attention Louisiana Physicians: State Board of Medical Examiners Issues Final Rules on the Complaint and Investigation Process

Posted in Health Law, Louisiana In General, Medical Malpractice

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By Jennifer J. Thomas

On December 20, 2015, the Louisiana State Board of Medical Examiners’ (“LSBME”) published in the Louisiana Register the final rules for processing complaints against physicians and investigations regarding the practice of medicine.   The new rules are contained in Chapter 97 of LAC 46:XLV and are a result of Act 441 of the 2015 Legislative session, which amended  the Louisiana Medical Practice Act, La. R.S.  37:1261-1292.   The amendments required, in part, for the LSBME to promulgate rules for the investigation of complaints, notification to the physician being investigated, time limits for the investigation, and limiting the role of the LSBME executive director in the investigation.

When a complaint is submitted to the LSBME, it will be investigated by LSBME staff.  In accordance with the amendment to La. R.S. 37:1285.2(A), the executive director may not act as the lead investigator on any investigation regarding a physician.   The executive director does have the authority to issue subpoenas to obtain documentary evidence or require the appearance of witnesses.  A complaint can be anonymous and the identity of any complainant will be kept confidential unless the complainant waives confidentiality or the complainant is called as a witness at a formal LSBME administrative hearing.

The complaint process is divided into the preliminary review and formal investigation.  During the preliminary review, a determination is made as to whether sufficient cause exists to warrant a formal investigation.  The licensee may be provided the opportunity to respond to the complaint and has the right, at his/her own expense, to retain legal counsel to assist in responding to the complaint.   The preliminary review of the complaint is to be completed within one-hundred and eighty (180) days of receipt of the complaint; however, the LSBME can increase the preliminary review period for “satisfactory cause.”  The 180 day timeline does not apply to information received from local, state, or federal agencies relative to on-going criminal, civil or administrative investigations or proceedings.   After the preliminary review is concluded, a decision is made as to the whether there is sufficient cause for a formal investigation.  A complaint can be closed upon submission of a report and recommendation to the board.  If a compliant is closed after preliminary review, it is not considered an “investigation” and a licensee is not required to report the preliminary review as an investigation on LSBME renewal applications.

If there is sufficient cause, the board staff will submit a report and recommendation to the board to commence a formal investigation.  Within five (5) business days after the initiation of the formal investigation, written notice is to be sent to the licensee by registered, return-receipt-requested mail or by personal delivery.  The notice will contain a summary of the complaint and notice that the licensee can retain legal counsel.  The purpose of the investigation is to determine whether or not there is evidence to indicate that the law has been violated.  The LSBME can consider past complaints and investigations for the purpose of determining if there is a pattern of practicing or recurring conduct that is contrary to the accepted standards of the medical practice in Louisiana.  If the complaint involves medical competency, the board may, as part of the investigation, order the licensee to undergo an evaluation at an approved center.  Formal investigations are to be completed within thirty-six (36) months, but the time period can be increased for “satisfactory cause.”  The 36 month time period does not apply to any investigation already pending as of July 1, 2015.

If the investigation results in sufficient evidence to indicate that a violation of law has occurred, an administrative complaint may be filed with the board.  However, prior to filing the complaint, a draft administrative complaint must be mailed to the licensee along with a letter providing the licensee an opportunity for a conference to show compliance with all requirements to retain his/her license or to show that the complaint is unfounded.  If the licensee does not respond to the complaint or if the licensee does not satisfactorily demonstrate compliance with the law, the administrative complaint may be filed.  In emergency situations involving public health, safety and welfare, the administrative complaint can be filed with the board without prior notice to the licensee.  Once the administrative complaint is filed, the parties can engage in discovery including the identification of witnesses and exhibits.  The licensee can request the issuance of subpoenas by the LSBME for documentation, information, and the appearance of witnesses at the hearing.  At the administrative hearing, both parties will make opening and closing statements, examine witnesses and present evidence.  The burden of proof is by the preponderance of evidence.

The final rules provide for the opportunity for an informal resolution at any time during the complaint and investigation process upon the recommendation of the lead investigator and a majority vote of the board members.  Informal dispositions can be non-disciplinary in the form of an informal conference and letter of concern and are not considered disciplinary action and not a public record.  Whereas, formal disciplinary dispositions include consent orders and voluntary surrenders of licenses and are considered disciplinary action and public record.  The board is not required to offer an informal disposition prior to an administrative hearing.

With the adoption of the LSBME’s final rules, physicians should become familiar with the LSBME’s complaint and investigation process.  Because one day, despite all efforts to practice medicine in accordance with the law, a physician could be on the receiving end of a LSBME complaint and is entitled to due process throughout the complaint and investigation process.

 

Happy New Year! ACA Reporting Deadlines Extended

Posted in Health Law, Insurance, Labor and Employment Law, Louisiana In General

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By Brian Carnie

On December 28, 2015, the IRS announced an automatic extension of the Affordable Care Act reporting deadlines for distributing and/or filing the 1094-B/1095-B and 1094-C/1095-C forms. This relief only applies for the 2015 calendar year.

For employers who were considered applicable large employer members (“ALE members”) in 2015, the new deadline for furnishing your full-time employees the 1095-C forms is extended from February 1, 2016 to March 31, 2016. March 31, 2016 is also the new deadline for non-ALE members who sponsored self-insured group health coverage to distribute the 1095-B forms to employees who enrolled and were eligible for benefits for one or more months in 2015.

The deadline for filing these with the IRS by paper (along with the applicable 1094 form) is extended from February 29, 2016 to May 31, 2016. If you choose or are required to electronically file these forms (i.e., you are filing 250 or more 1095 forms for 2015), the filing deadline is extended from March 31, 2016 to June 30, 2016.

While the extensions give employers more time to complete the required forms, we recommend distributing the 1095 forms to employees by February 1, 2016 to the extent possible so employees can provide accurate data to the IRS when they file their individual income tax returns. The IRS announced that individuals need not wait to receive the 1095 forms before filing their individual income tax returns. However, by doing so, there is a heightened risk that employees may report inaccurate information about their coverage or eligibility for a premium tax credit and the IRS is likely to put the burden on the employer to explain any discrepancies. If you don’t think you will be able to distribute the 1095 forms by the end of January, you might consider sending employees who were eligible for and/or who enrolled in coverage a separate informational notice about their coverage so they can accurately complete their tax returns by the April 15th deadline.

 

Comar Marine, Corp. v. Raider Marine Logistics LLC – A Reminder of the Creation of Maritime Liens

Posted in Admiralty and Maritime

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By Zoe Vermeulen

The U.S. Fifth Circuit recently held that a vessel management company did not have a valid maritime lien on the vessels it managed despite its attempt to create such a lien by the language in its management agreement. Comar Marine, Corp. v. Raider Marine Logistics, L.L.C., 2015 WL 4079541 (5th Cir. 2015) should serve as a helpful reminder to vessel management companies (and their lawyers) that just because the parties try to create a maritime lien by contract does not mean that a court will recognize such attempt as valid under law.

Comar Marine, LLC (“Comar”) sold four vessels to various vessel specific LLC’s ultimately owned by two members. The LLCs entered into a management agreement for each vessel with Comar whereby Comar would market, manage, and operate the vessels and the owners would pay Comar a monthly management fee equal to the greater of $3,000 or 10% of the gross income from each vessel that month. JP Morgan financed the purchase of three of the vessels and Allegiance financed the purchase of the fourth vessel. The banks secured their loans with preferred ship mortgages. When the Gulf of Mexico charter market deteriorated, the owners of the vessels notified Comar that they were terminating the management agreement with Comar and had executed a management agreement with another company. Soon thereafter, Comar filed an in personam action against the individual members, and the various LLCs, and in rem actions against the four vessels asserting breach of contract. Comar secured arrests of the four vessels on the grounds that its claims for necessaries and termination fees under the management agreements gave rise to maritime liens. The owners filed counterclaims against Comar asserting wrongful arrest of the vessels, and the banks intervened to defend their rights as preferred mortgagees.

Although the District Court, and ultimately the 5th Circuit, resolved all the issues before it including the penal nature of the termination fee imposed by the management agreement and the wrongful arrest of the vessels, the Circuit Court’s treatment of Comar’s arguments regarding the creation of a maritime lien through the management agreement is particularly informative and interesting.

Comar argued that the management agreements were the type of maritime contracts that gave rise to a maritime lien. Analogizing the management agreements as the functional equivalent of a bareboat charter, which is sufficient to confer a maritime lien, Comar argued that the management agreements should also confer a maritime lien. However, the Court was not persuaded by this analogy argument and declined Comar’s invitation to expand maritime liens to vessel management contracts similar to those at issue. The Court highlighted differences between the management agreement and a bareboat charter. For example, under the management agreement Comar did not pay for the vessels expenses (including insurance), and Comar did not owe the owners a periodic payment independent of whether the vessels were used. Although the Court highlighted the 9th Circuit’s holdings and this Circuit Court’s intimation “that a contract may give rise to a maritime lien if it imposes practically identical rights and responsibilities as historically recognized contracts, such as a subcharter”, the Court explained that the management agreements in the present case do not impose practically identical responsibilities as charters.

Further quashing Comar’s arguments, the Court addressed as irrelevant the parties attempt to create a maritime lien by contract. The management agreement between Comar and the owners stated that Comar “is relying on the credit of the Vessel[s] to secure payment of [the management fees and advanced sums for expenses] and shall have a maritime lien on the Vessel[s].” Despite this language and the parties to the management agreements’ intent, the Court reminded the parties and the creation of maritime liens is not so easy. The Court quoted the Supreme Court in Newell v Norton, 70 U.S. 257, 262 (1865), which stated:

[m]aritime liens are not established by the agreement of the parties, except in hypothecations of vessels, but they result from the nature and object of the contract. They are consequences attached by law to certain contracts, and are independent of any agreement between the parties that such liens shall exist. They, too, are stricti juris.”

 Despite Comar’s attempts to expand the definition of maritime liens to management contracts, the 5th Circuit found, at least under the instant facts, that such a contract does not impose practically identical rights and responsibilities as historically recognized contracts that give rise to maritime liens.

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