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By Michael D. Lowe

Last week, thousands of employees throughout the county skipped work as part of “a day without immigrants” demonstration. The employees were protesting the Trump administration’s recent actions regarding immigration. The stated intent was to negatively impact the nation’s economy in an effort to highlight the contributions of immigrant labor. Restaurants were the primary target. Businesses from New York to San Francisco were forced to temporarily close as employees either failed to report to work or “walked out.” In many cases, the protesting employees included both immigrants and their co-workers.

Several employers embraced the protests and promised not to discipline the participating employees. However, many employers took the opposite approach. According to various media reports, hundreds of employees in a number of different cities were terminated after they refused to report to work. With reports that additional demonstrations are likely, employers should prepare for the possibility that one or more employees might choose to participate.

As an initial matter, an employer should communicate its expectations to its employees in advance of any demonstration. If possible, this communication should be documented by internal memo, email, or even text message. Employees should also be reminded of any applicable attendance policies.

While the refusal to report to work is a legitimate non-discriminatory basis to terminate an employee, an employer must be consistent in its response. An employer that terminates some employees, while excusing the absences of others, may face a claim of disparate treatment. Those employers with a unionized workforce should consult labor counsel with regard to any collectively bargained rights.

Finally, affected employers should prepare for media coverage and press inquiries. The demonstrations have already garnered international attention as the debate regarding the Trump administration’s immigration policies shows no signs of slowing down. Employers should clearly define who within its organization may respond to media inquiries and what information will be shared. Any comments made following an employee’s termination will almost certainly be used in any resulting legal action.

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By Jill Gautreaux

The City of New Orleans (“the City”) has amended and re-enacted a gallonage tax on alcoholic beverages of low and high alcoholic content. A “gallonage tax” is a tax on alcoholic beverages based upon the amount, calculated in gallons, of alcoholic beverages sold. The current ordinance became effective on January 1, 2017, but industry members have sought to enjoin the implementation of this “new” tax. The ordinance closely follows the wording of the State gallonage tax statutes, which causes the tax to apply to wholesalers or Louisiana manufacturers because they are the first parties to come into possession of the alcoholic beverages in the State of Louisiana. The City ordinance does not have the effect that it apparently intended, and is worded as follows:

Section 10-511 – Who is liable for tax.

The taxes levied in sections 10-501 and 10-502 of this division shall be collected, as far as practicable, from the dealer who first handles the alcoholic beverages in the city. If for any reason the dealer who first handled the taxable alcoholic beverages has escaped payment of the taxes, those taxes shall be collected from any dealer in whose hands the taxable beverages are found.

On February 9, 2017, the City Council introduced an ordinance to amend Section 10-511, which qualified the word “dealer” in the first sentence and the first phrase of the second sentence with “wholesale”. Nevertheless, according to the current wording of the ordinance, if the wholesale dealer has “escaped” the tax, the retailer will be responsible for paying the tax to the City.

There is a strong likelihood that New Orleans alcoholic beverage retailers will end up having to pay some of this tax if the ordinance is enacted and enforced as currently written. Several large wholesale companies, including Southern Glazers, Southern Eagle, and Republic, do not have any physical presence within the City of New Orleans, and therefore should not be subject to the tax.

A few trade organizations have challenged the enforceability of the ordinance in Orleans Parish Civil District Court. The plaintiffs were successful in obtaining a temporary restraining order, but were denied a preliminary injunction. The temporary restraining order has lapsed, but, as of this date, the City has indicated that it will not collect the tax until the litigation has concluded. One City official has suggested that if the City prevails, that the tax due will be retroactive to January 1, 2017.

 

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By Stephen C. Hanemann and Edward H. Warner

On Wednesday, February 24, 2016, President Obama signed H.R. 644, known as the Trade Facilitation and Trade Enforcement Act (“Customs Bill”). For Louisiana’s vast number of companies operating in the agribusiness, seafood processing, and related industries, the signing of the bill is a significant milestone. The Customs Bill sets forth principal objectives concerning: (1) general trade policy efficiency; (2) trade protection (leveling the playing field for local workers dealing with foreign competitors); and (3) strengthening of the Trade Promotion Authority Statute. The following represents Customs Bill considerations that Louisiana businesses will find pertinent.

What are the major components of the Customs Bill that Louisiana businesses must know?

The Customs Bill creates a coordinated effort for trade facilitation. The primary agency funded under the Customs Bill is the United States Customs and Border Protection (“CBP”). The bill modernizes the CBP’s Automated Commercial Environment (“ACE”) which will be used to track and process imports and exports.  The International Trade Data System (“ITDS”), also known as the “single window,” will eventually be used to submit all trade documentation. Cooperative efforts among trade enforcement agencies and the efficient-electronic filing of trade documents are both important goals of the Customs Bill.

The Customs Bill also strengthens the enforcement of U.S. international-trade laws. The bill expands requirements on imports to ensure health, safety, and the protection of intellectual property rights. The bill includes provisions, which prevent dumping and currency manipulation. The bill also includes “miscellaneous” provisions pertaining to expansions on the requirements for the United States Trade Representative to resolve foreign country practices that create barriers to U.S. goods and services. A portion of the bill also encourages more Americans to engage in global commerce through the internet by availing themselves of an internet tax moratorium.

How does the Customs Bill specifically help Louisiana’s local businesses?

The Customs Bill enforces U.S. trade laws which directly impact Louisiana’s local businesses. For example, “dumping,” a method of predatory pricing used by foreign companies to undercut local markets and drive away competition, has hurt critical Louisiana industries in the past. The Customs Bill requires CBP to investigate evasion of antidumping or countervailing duties. The bill also contains the legislative language of the PROTECT Act which would require annual reporting on CBP policies regarding antidumping evasion.  The Customs Bill’s antidumping provisions are particularly important for protecting Louisiana’s seafood, agriculture, and food-processing businesses.  Louisiana’s manufacturing sector also serves to benefit as that sector is often most impacted by unfair trade practices.

Louisiana’s seafood industry will also benefit from other measures in the bill.  The bill requires the CBP to train personnel for the detection and seizure of illicit fish and wildlife being imported into the U.S.

Finally, the Customs Bill should improve health and safety at Louisiana’s ports, and enhance port-related infrastructure.  Louisiana’s shallow-draft-inland ports are largely cargo and industrially focused, while the coastal ports serve as support sites for offshore-related industries. The Customs Bill requires CBP to coordinate federal responses to cargo entering the United States that pose a threat to the health and safety of U.S. consumers. CBP will also be required to provide effective training to its personnel assigned to U.S. ports of entry to ensure the safe and expeditious entry of merchandise into the United States. Each of these measures should ultimately help improve the safety of Louisiana ports, related-supporting businesses, and essential personnel.

What are the legal implications of the Customs Bill moving forward?

The Customs Bill is one of a number of bills which represents comprehensive U.S. trade reform in connection with the Trans-Pacific Partnership (“TPP”).[1]  The Customs Bill should improve the nation’s enforcement of trade laws which is integral to Congress passing the TPP.  The bill should also increase transparency, accountability, and coordination among U.S. agencies working in trade enforcement. The signing of the Customs Bill may be a step in the right direction in protecting certain of America’s target industries and ensuring the benefits of international trade in the 21st century.

[1] The Trans-Pacific Partnership (TPP) is a trade agreement involving twelve Pacific Rim countries signed on February 4, 2016 in Auckland, New Zealand after seven years of negotiations. It is not yet in effect.

Business Briefing Breakfast
Kean Miller partners Linda Perez Clark and Eric Lockridge will present our final Business Briefing Breakfast of 2015 on Friday, November 20th at Juban’s Restaurant in Baton Rouge.  Linda and Eric will provide tips and techniques for purchasing distressed businesses.   There is no fee to attend, and one hour of CPE credit is available.  RSVP to 225-389-3573 or rsvp@keanmiller.com

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By Jessica Engler 

On March 2, 2015, new federal regulations went into effect which seek to strengthen the protections against human trafficking. A large part of these new regulations, which are updates to the Federal Acquisition Regulation (“FAR”), provide a stronger framework to discourage federal contractor employers from trafficking workers into the country illegally. Since a significant number of federal government contracts are for construction projects, it is imperative that contractors who bid on and win federal contracts be aware of these new regulations.

The United States has long had policies prohibiting government employees and government contractors from engaging in trafficking of persons, and the recent Executive Order, titled “Strengthening Protections Against Trafficking in Persons in Federal Contracts”, and Title XVII of the National Defense Authorization Act for Fiscal Year 2013 have served to heighten the requirements on federal contractors to comply with federal rules against human trafficking. Prior to the implementation of these new rules, federal law prohibited government employees and contractors from participating in trafficking activities including “severe forms of trafficking in persons.” Severe forms of trafficking in persons is defined by section 103 of the Trafficking Victims Protection Act of 2000 to include the recruitment, harboring, transportation, provision, or obtaining of a person for labor or services, through the use of force, fraud, or coercion for the purpose of subjection to involuntary servitude.

Under the new regulations, all contractors and subcontractors (not just those contracting with the federal government) are expressly prohibited from engaging in the following trafficking-related activities:

  • Destroying, concealing, removing, confiscating, or otherwise denying access to an employee’s identity or immigration documents;
  • Failing to provide return transportation for an employee from a foreign country to the country from which the employee was recruited, unless the contractor is exempted or the employee is a victim of trafficking that is seeking redress in his country of employment or is a witness to human trafficking;
  • Solicitation of a person for employment, or offering employment, through materially false or fraudulent pretenses, falsehoods, or promises about that employment. This includes misrepresentations concerning key aspects of employment such as wage payments, fringe benefits, location, and conditions of employment;
  • Use of recruiters who do not comply with local labor laws and charging “recruitment fees” to employees;
  • Providing or arranging housing that fails to meet applicable housing and safety standards; and
  • If required by law or contract, failing to provide an employment contract, recruitment contract, or other required paperwork in writing, in the employee’s native language, prior to departure from the employee’s country of origin.

The regulations impose several additional obligations on federal contractors. For example, these new regulations mandate that such contractors (1) inform their employees and agents of the federal government’s anti-trafficking policies and the penalties for non-compliance, which include removal from contract, reduction in benefits, and termination of employment; and (2) fully cooperate with the federal agencies that are responsible for audits, investigations, or corrective actions related to human trafficking.

Additional rules apply to contractors performing work outside of the United States under a contract valued over $500,000, who must:

  • Create and implement a compliance plan to prevent any prohibited trafficking in persons and implement procedures to prevent any such activities, which must be appropriately designed with regard to the size and complexity of the project, and submitted upon award of the contract and annually thereafter, and published at the contractor’s workplace and website by the start of the contract performance;
  • Certify that, after performing the appropriate due diligence, to the best of the contractor’s knowledge and belief: (1) none of the contractor’s agents, subcontractors, or their agents are engaged in trafficking activities; and (2) if abuses have been found, the contractor has taken the appropriate remedial and referral actions.

Should a violation occur, the contracting officer will consider the compliance plan as a mitigating factor when determining the penalties for the violation.

As stated above, these new requirements apply to all new bids, contracts, and solicitations for federal contracts dated March 2, 2015 onward. Given the heightened new requirements for federal contracts, contractors considering such projects may want to review their current policies and procedures to ensure compliance with the new requirements. Contractors may also consider revising their employee handbooks in light of the new requirements. Consulting a labor and employment or construction attorney may be beneficial in assessing changes to contract labor policies and compliance plans.

 

 

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By Edwin R. Noland, III

Each year, as the calendar changes, the tax collecting divisions of political subdivisions (Parish, City, etc.) gear up for the increased workload that comes along with preparing for tax sales.  In the State of Louisiana, owners of immovable property (real estate) are required to pay property taxes to the parish and/or the city.  In certain instances, some or all of the property tax may be exempt (either due to non-profit status or a homestead exemption).  However, for many residents, at least a portion of the property taxes remain due.  When the property taxes are not paid, the property is subject to a tax sale.

If property is sold at a tax sale, the former assessed owners (tax debtors) have a period of time when they may redeem the property from the tax sale purchaser by paying the delinquent amounts paid by the tax sale purchaser along with applicable penalties, fees, and interest.  Previously, that redemption period was three years for all properties (excluding property in New Orleans).  However, in 2014, Constitutional Amendment Number 10 (Act 436 – HB 256) was proposed to reduce the tax sale redemption period from three years to eighteen months on properties that were considered blighted, hazardous, uninhabitable, or abandoned.  On the November 4, 2014 ballot, the proposed Constitutional Amendment was approved by 54.32% of the voting public.[1]  Louisiana Constitution Article 7, Section 25 (B)(3) now states, in part, “…when such property sold is vacant residential or commercial property which has been declared blighted … or abandoned … it shall be redeemable for eighteen months after the date of recordation of the tax sale …”

The tax sale process involves multiple steps.  The procedure begins by the distribution of tax bills informing the landowner of all amounts due.  In most parishes, including East Baton Rouge Parish, tax bills are sent to homeowners starting in late November or early December and are delinquent by January 1st the following year.  Louisiana law provides that “the tax collector shall seize, advertise, and sell tax sale title to the property or an undivided interest therein upon which delinquent taxes are due, on or before May 1st of the year following the year in which the taxes were assessed, or as soon thereafter as possible.”  LSA R.S. 47:2154

The tax collector must comply with multiple requirements in the tax sale process.  First, the tax collector must provide a delinquency notice in January or February to the tax debtor (and any other party requesting notice) by certified mail informing them of amounts owed.  Thereafter, if the tax bill remains unpaid, there is a mortgage and conveyance record search performed, and an additional notice is sent out.  Finally, the tax collector will publish a notice in the official journal of the political subdivision twice within thirty days and advertise for sale properties with delinquent statutory amounts owed.

After the notice and advertising requirements are met, the tax sale title to the property is sold at a public auction (either in person or online).  At the tax sale, potential purchasers bid on percentage interests in the tax sale title.  The lowest percentage bid will purchase that interest in the tax sale title in exchange for paying 100% of the past-due amounts.

Once the tax title to the property is sold, the tax debtor has either a three year or eighteen month redemption period, depending on the condition of the property.  The property is redeemed by paying the price given, including the amount paid by the tax sale purchaser, five percent penalty thereon, and interest at the rate of one percent per month until redemption.  LSA Const. Art. 7, Section 25 (B)(1)

The above referenced constitutional amendment reducing the redemption period for tax sales of properties which are considered blighted or abandoned became effective January 1, 2015.  It is easy to forget about the amendments and laws passed during different elections when those changes do not necessarily affect our daily lives.  However, property owners should be cognizant of this change to the redemption period for abandoned or blighted properties to avoid their properties being placed in potential jeopardy.  This constitutional amendment may also provide opportunities for investors to focus the properties that they target due to the opportunities afforded by the shortened redemption period.

[1] http://staticresults.sos.la.gov/11042014/11042014_Statewide.html

 

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By Tyler Moore Kostal

A federal judge dismissed the lawsuit that the New York Times referred to as “The Most Ambitious Environmental Lawsuit Ever” on February 13, 2015, with a finding that the plaintiffs did not state a viable claim for relief.

The Board of Commissioners of the Southeast Louisiana Flood Protection Authority-East (“SLFPA-E” or “Authority”) filed a lawsuit in the Civil District Court in Orleans Parish, Louisiana, against more than 90 oil and gas and pipeline companies on July 24, 2013.  The SLFPA-E filed the suit individually and as the Board governing the Orleans Levee District, the Lake Borgne Basin Levee District, and the East Jefferson Levee District, contending that it manages and is responsible for more than 150 miles of levees, 50 miles of floodwalls, and numerous drainage structures, pump stations, and floodgates in an area it described as the “Buffer Zone,” which includes coastal wetlands in eastern New Orleans, the Breton Sound Basin, and the Biloxi Marsh.  The SLFPA-E alleged that historical and current oil and gas and pipeline activities in the Buffer Zone, including the construction and use of oil and gas canals and pipeline canals, caused “direct land loss and increased erosion and submergence in the Buffer Zone, resulting in increased storm surge risk, attendant increased flood protection costs, and, thus, damages” to the Authority.

With this lawsuit, the SLFPA-E sought damages and injunctive relief “in the form of abatement and restoration of the coastal land loss” including backfilling and revegetating all canals, “wetlands creation, reef creation, land bridge construction, hydrologic restoration, shoreline protection, structural protection, bank stabilization, and ridge restoration.”

On August 13, 2013, the oil and gas defendants removed this case from state court to the United States District Court for the Eastern District of Louisiana.  On September 10, 2013, the SLFPA-E filed a motion to remand the matter to state court.  On June 27, 2014, the federal court denied the SLFPA-E’s motion to remand.  As a result, this matter continued in federal court, and the court considered a number of dispositive motions.

On February 13, 2015, the federal judge dismissed the wetlands damage lawsuit against 88 remaining oil and gas defendants.  At issue before the court was the defendants’ motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure.  Rule 12(b)(6) provides that an action may be dismissed “for failure to state a claim upon which relief can be granted.”  Therefore, for the Authority’s action to survive, its petition needed to contain sufficient factual matter to state a claim for relief that is plausible on its face.  A claim is considered facially plausible when the pleaded facts allow the court to draw a reasonable inference that the defendants are liable for the alleged misconduct.  All parties extensively briefed the issues, and the court heard oral argument.  The court then applied this legal standard to each of the causes of action brought by the SLFPA-E in its petition—(1) negligence, (2) strict liability, (3) natural servitude of drain, (4) public nuisance, (5) private nuisance, and (6) breach of contract as a third party beneficiary.

To state a claim for negligence, a plaintiff must establish five elements:  duty, breach, cause-in-fact, scope of liability, and damages.  The Authority failed to show the threshold element of a legal duty owed by defendants.  Finding no legal duty under state law, the court reiterated its prior finding that oil and gas companies do not have a duty under Louisiana law to protect members of the public from the results of coastal erosion allegedly caused by operators that were physically and proximately remote from the Authority or its property.  The court also found that the federal statutes on which the SLFPA-E relied to establish the requisite standard of care—namely the Rivers and Harbors Act, the Clean Water Act, and the Coastal Zone Management Act—were not intended to protect the Authority.  Because the Authority failed to demonstrate that defendants owe a specific duty to protect it from the results of coastal erosion allegedly caused by defendants’ oil and gas activities, the court concluded that the Authority did not state a viable claim for negligence.

A claim for strict liability also requires a showing of a legal duty owed to the plaintiff.  Because the court already determined that defendants do not owe a legal duty to the SLFPA-E to protect it from the results of coastal erosion, the court found that the Authority did not state a viable claim for strict liability.

A claim for natural servitude of drain involves the interference with the natural drainage of surface waters over property—i.e., from an estate situated above (dominant estate) to an estate situated below (servient estate).  The owner of the lower estate may not do anything to prevent the flow of the water, and the owner of the higher estate may not do anything to render the flow more burdensome.  The SLFPA-E alleged that defendants possessed temporary rights of ownership in the lands they dredged to create the canal network and that those lands constituted a dominant estate from which water flowed onto its servient estate.  However, the Authority failed to show that a natural servitude of drain may exist between nonadjacent estates with respect to coastal storm surge.  As such, the court concluded that the Authority did not state a viable claim for natural servitude of drain.

The parties and the court addressed the Authority’s public and private nuisance claims together.  The obligations of neighborhood are the source of nuisance actions in Louisiana.  Generally, the owner of immovable property has the right to use the property as he pleases, but the owner’s right may be limited if the use causes damage to neighbors.  A claim for nuisance requires a showing of (1) a landowner (2) who conducts work on his property (3) that causes damage to his neighbor.  The court determined that the Authority failed to show sufficiently that it is a “neighbor,” within any conventional sense of the word, to any property of defendants.  To recover, the SLFPA-E must have some interest in an immovable “near” the defendant landowners’ immovable property; yet, it did not allege physical proximity of the servient and dominant estates whatsoever.  Moreover, nuisance claims after 1996 require the additional showing of negligence, except for damages resulting from pile driving or blasting with explosives.  Because the Authority did not allege that defendants engaged in pile driving or blasting with explosives, and it failed to state a claim for negligence upon which relief may be granted, the court dismissed the Authority’s claims for public and private nuisance.

For its breach of contract claim, the SLFPA-E characterized some of the dredging permits at issue as “contracts” between defendants and the US Army Corps of Engineers to maintain and restore.  The Authority contended that it is a third party beneficiary of those contracts; however, the Authority failed to present any authority suggesting that a dredging permit issued by the federal government is a contract.  The court noted that neither a permit nor a license is a contract.  Therefore, the court concluded that because the dredging permits do not constitute contracts, the third party beneficiary doctrine is not applicable.  The court additionally found that even if the permits were construed as contracts, the Authority did not establish that it is an intended beneficiary under the terms of the permits.  To be a third party beneficiary to a government contract, a third party must be an intended, rather than an incidental, beneficiary.  As such, the court found that the Authority failed to state a claim upon which relief may be granted for breach of contract as a third party beneficiary.

Because the SLFPA-E did not state a viable claim for relief, the court granted defendants’ motion to dismiss and dismissed the Authority’s claims against all remaining defendants with prejudice.  The SLFPA-E filed an appeal from this ruling, and the court’s prior remand ruling, with the Fifth Circuit on February 20, 2015.

The dismissal of this lawsuit by the federal court may not be the final word on coastal erosion lawsuits in Louisiana.  As noted, the SLFPA-E has appealed the court’s dismissal to the U.S. Court of Appeals for the Fifth Circuit.  Further, local governmental bodies and private landowners have filed over 30 additional lawsuits against various oil and gas and pipeline entities for related claims.

 

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By Mallory McKnight

Under the “design-build” construction method, the property owner enters into one contract with a single entity that provides the owner with both design and construction services. The advantages of “design-build” include faster construction and delivery, slower cost and schedule growth, and the elimination of potential disputes between the designer and contractor. Due to these advantages, the design-build method is becoming increasingly more common on private construction projects.

However, with respect to state-owned public construction projects, the design-build construction method is heavily disfavored—if not completely prohibited—under Louisiana state law. Two recent Attorney General opinions serve to reiterate that the Louisiana Public Bid Law continues to be driven instead by the traditional “design-bid-build” project delivery method. “Design-bid-build” is the traditional method of project delivery whereby the public entity/owner enters into two separate contracts, one with the design professional and one with the contractor. (1)

Under the Louisiana Public Bid Law, construction contracts for “public works” (2) are generally awarded to the contractor who is the “lowest responsible and responsive bidder,” (3) while the design professional is selected “on the basis of competence and qualifications for a fair and reasonable price.” (4)  The purpose of competitive bidding in the public construction arena is to protect taxpaying citizens “against contracts of public officials entered into because of favoritism and involving exorbitant and extortionate prices.” (5) Contrary to the objective selection process involved in competitive bidding, the “design-build” method of project delivery allows for subjective considerations based on qualifications and/or performance.

The 2014 Louisiana Legislative Session passed a new statute providing for the “construction management at risk” (CMAR) project delivery method. (6)  The advantages of CMAR over the traditional “design-bid-build” are that the public entity/owner is able to select the contractor based on more than price and that the design professional and contractor are able to work together during the design phase to minimize design disputes. The benefits of CMAR are limited in nature because La. R.S. 38:2225.2.4 only applies to projects worth $25 million or more. More importantly, CMAR still does not provide all of the advantages of “design-build” because the public entity/owner is still required to enter into separate contracts with the design professional and contractor.

Two recent Louisiana Attorney General Opinions discuss the lack of authority of a public entity to enter a “design-build” contract for a public work under the Louisiana Public Bid Law. Specifically, the two Opinions discuss La. R.S. 38:2225.2, which states:

Neither the state nor any local entity, unless specifically authorized by law, may execute any agreement for the purchase of unimproved property which contains provisions related to the successful design and construction of a construction project prior to the transfer of title to the state or local entity.

In Louisiana Attorney General Opinion No. 13-0182 (Nov. 26, 2013), the Attorney General stated that the Houma-Terrebone Airport Commission (H-TAC) is a public entity subject to the Louisiana Public Bid Law, which requires the “design-bid-build” method for projects exceeding $150,000. The Attorney General interpreted La. R.S. 38:2225.2 as expressly providing that “unless specifically authorized by law, a public entity has no authority to enter into a design-build contract.” Therefore, the Attorney General’s opinion was that the H-TAC could not enter a design-build contract for the construction of its capital improvement project because it had no special statutory authorization.

In Louisiana Attorney General Opinion No. 14-0033 (Mar. 31, 2014), the Attorney General was asked to state his opinion on whether the Orleans Judicial District Court Building Commission (Commission) could enter a design-build contract for the construction of its new courthouse. The Commission, like the judiciary, is a “public entity” subject to the Louisiana Public Bid Law. As in Op. No. 13-0182, the Attorney General interpreted La. R.S. 38:2212 to provide that the Commission could not enter a design-build contract because it had no special statutory authority to do so. In addition, the Attorney General found that the Commission acted contrary to the Louisiana Public Bid Law by hiring a consultant pursuant to a Request for Qualifications, by which the consultant would be expected to provide additional services including architectural design and construction. Therefore, the Attorney General stated that the Commission must contract with separate entities to provide the design and construction services, pursuant to the Public Bid Law.

As interpreted by the Attorney General, La. R.S. 38:2225.2 expressly prohibits the use of “design-build” contracts for the construction of “public works” unless specifically authorized by statute. Currently, Louisiana provides specific statutory authorization for “design-build” contracts to the Department of Transportation and Development pursuant to La. R.S. 250.2, to Port Commissions pursuant to a pilot program established under La. R.S. 34:3523, and to certain New Orleans public entities pursuant to La. R.S. 38:2225.2.1 “in the construction or repair of any public building or structure which has been destroyed or damaged by Hurricane Katrina, Hurricane Rita, or both or any public building or structure to be constructed or repaired to meet a homeland security or criminal justice need pursuant to a hurricane recovery plan.” (7)  In conclusion, the majority of projects under the Louisiana Public Bid Law continue to be contracted under the traditional, competitive bidding process of “design-bid-build,” and the possibility of “design-build” seems to be a distant reality.

____________________

(1) DBIA: Design-Build Institute of America, What is Design-Build?, available at http://www.dbia.org/about/Pages/What-is-Design-Build.aspx.
(2) La. R.S. 38:2211(A)(12): “‘Public work’ means the erection, construction, alteration, improvement, or repair of any public facility or immovable property owned, used, or leased by a public entity.”
(3) La. R.S. 38:2212(A).
(4) La. R.S. 38:2318.1(A).
(5) La. Atty. Gen. Op. No. 13-0182 (Nov. 26, 2013), 2013 WL 6410534.
(6) La. R.S. 38:2225.2.4.

(7) La. R.S. 38:2225.2.1(A)(1).

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By Angela W. Adolph

Federal tax law generally provides that tax-exempt bonds can only be issued to finance property for governmental or public use. If the property to be financed with bonds would be privately used, i.e., in a trade or business, the interest generated from the bonds will be included as income for federal income tax purposes. However, there are a few exceptions for certain non-profit corporations and other facilities that, although privately owned and operated, provide enough of a public benefit to qualify for the exception. Small issue manufacturing bonds, also known as Industrial Development Bonds (IDBs), are such an exception.

Manufacturing facilities include any facility used in the manufacture or production of tangible personal property, including processing that results in a change in the condition of such property. It also includes facilities that are directly and ancillary to the core manufacturing facility if they are located on the same site and not more than 25% of net bond proceeds are used for such ancillary facilities, i.e., office facilities.

IDBs may be issued in two amounts:

(1) Up to $1 million. This limit includes the outstanding amount of prior small issues with the same principal user or related person. However, capital expenditures are not taken into account.

(2) Up to $10 million. This limit includes prior small issue bonds and capital expenditures paid or incurred during the six-year period surrounding the bond issue with the same principal user or related person. The capital expenditures limit is $20 million minus the amount of the proposed bonds. Capital expenditures include (a) any expenditure chargeable to the capital account of any person (except to replace property due to catastrophic loss), (b) moved equipment that is acquired within the six-year measurement period, and (c) certain governmental expenditures that solely benefit the principal user or related person. Leased equipment can be excluded if leased from a manufacturer or leasing company.

These issues are subject to an outstanding limit of $40 million, which includes all exempt facility bonds, other small issue bonds, and qualified redevelopment bonds that are issued for the same substantial user.

There are a number of rules that govern the issuance of such bonds:

(1) The bonds are subject to state volume cap and must be allocated to the project by the Governor’s office.

(2) 95% of the proceeds must be used to provide the facility.

(3) Not more than 2% of the proceeds may be used for costs of issuance.

(4) Costs to be reimbursed include expenditures paid within 60 days prior to the adoption of an official intent resolution to issue the bonds.

(5) All costs must be reimbursed not more than 18 months after the facility is placed in service or 3 years after the allocation of bond proceeds to the expenditure, whichever is earlier.

(6) The weighted average maturity of the bonds cannot exceed 120% of the average economic life of the facilities to be financed.

(7) Not more than 25% of the bond proceeds may be used to acquire land.

(8) There must be a TEFRA hearing for public comment.

(9) A substantial user or related party cannot purchase the bonds.

Bonds issued under this exception cannot be used to finance working capital or inventory and may only be used to finance property or items that are capital in nature, i.e., depreciable under Section 167. IDB bond proceeds may be used to finance existing facilities and used equipment if:

(1) For a structure other than a building, an amount equal to at least 100% of the acquisition price is spent on rehabilitation of the structure.

(2) For an integrated building with equipment, an amount equal to at least 15% of the acquisition price is used for rehabilitation.

There are a number of Louisiana statutes that address industrial development and create conduit issuers. La. R.S. 51:1151, et seq. authorizes the incorporation of industrial development boards as private corporations of municipalities or parishes. These boards are authorized to issue revenue bonds, which require approval by the State Bond Commission and the Department of Economic Development. La. R.S. 51:1157; La. R.S. 51:1157.1. La. R.S. 51:1789 authorizes the issuance of revenue bonds in enterprise zones for business or industry. La. R.S. 39:551.1 authorizes parishes and municipalities to issue bonds to encourage the location or expansion of industrial facilities. La. R.S. 39:551.2 authorizes the creation of industrial districts, and La. R.S. 39:551.3 authorizes the creation of industrial parks. La. R.S. 39:991 authorizes the issuance of bonds to acquire plant sites and industrial plant buildings.

The procedure to issue an IDB is fairly straightforward:

(1) Apply to conduit issuer to issue bonds for the project.

(2) Complete conduit issuer’s preliminary approval process.

(3) Apply to State Bond Commission (and Department of Economic Development, as applicable) for preliminary approval.

(4) Complete SBC’s preliminary approval process.

(5) Conduct public hearings.

(6) Obtain final approval from conduit issuer.

(7) Obtain final approval from SBC (and DED, as applicable).

(8) Price and issue bonds.

The process takes about 90 – 120 days to complete.

 

By Allison L. Reeves

We’ve all been there. You sit on the Board of a local non-profit organization as the token lawyer. Or, you volunteered to assist with your house of worship’s finance committee because you have some practice experience with banks. Inevitably the scenario comes up: “You’re a lawyer. Will you help us buy that little piece of property next to the parking lot? The parcel is so small. It won’t take up too much of your time…”

Before you volunteer your time (and the benefits of your professional license) consider the following:

  1. If you decide to take on a real estate project for a non-profit organization, require the entity to hire an abstractor to run a complete abstract of title. Many times even seasoned lawyers believe they can adequately search the public records to “see what’s out there,” and most times they come up short. Strongly urge your non-profit group to pay for a professional abstractor. This professional is well acquainted with the nuances of searching the public records, and the cost of an abstract should be considered a necessary expense. Not only will an abstractor provide information on the ownership of property, but an abstractor should also provide information about servitudes, rights or way or other encumbrances that might make property substantially less valuable than it appears!
  2. Don’t forget to check the organization’s documents or applicable laws to determine who has authority to act. Non-profits and houses of worship typically have organizational documents that set forth the precise procedure for buying, selling or encumbering property in the name of the organization. In the event that the organization’s documents are silent, each type of organization has procedures set forth in the applicable Revised Statutes. These proper steps are critical to successfully completing a transaction. In certain instances, authority for a specific entity requires unanimous approval by all members of the organization. It is never safe to assume that the Organization’s President or the Church’s Pastor has authority to sign documents in the name of the organization. 
  3. If your organization is buying property, consider having the entity purchase Title Insurance. Title insurance is a form of indemnity insurance which insures against financial loss from defects in the title to immovable property. It defends against a potential claim attacking the title or reimbursing the insured for monetary loss incurred, up to the dollar amount of the insurance provided by a policy. There is a one-time premium for title insurance and it will provide coverage so long as the purchaser has an insurable interest in the property. 
  4. There are no short cuts. Remind all parties involved (repeatedly, if necessary) that real estate work can take a long time. The conveyance of property will include, at the very least, obtaining the property authority, researching title issues, negotiating a transfer (including a purchase price and additional accessory obligations) and moving through a successful closing. If there are title defects or problems associated with a piece of property, it can take an extended period of time to resolve the issues. Even the easiest and fastest of real estate closings require substantial cooperation by all involved.
  5. When in doubt, call a professional! Fast/easy/simple/quick/etc. projects often snowball into enormous traps for your time and patience. If you feel a project spinning out of control or you encounter issues that you do not feel qualified to investigate and resolve, call a real estate attorney. Encourage your non-profit organization or house of worship to hire an attorney to represent their best interest. A professional versed in business or real estate law can likely efficiently resolve negotiation and title issues.

We all recognize that non-profit organizations would like to keep an eye on expenses associated with legal work. Despite the best intentions, organizations can quickly fall into a situation where they’ve inadvertently created more problems by trying to save money relying upon “volunteer” legal advice. Accept these sorts of projects with the above advice in mind, and remember to ask for help if a project exceeds expectations.