Friday, June 24, 2016

Alan P. Christenson Featured in FSR Magazine



Jennings, Strouss & Salmon attorney, Alan P. Christenson, is featured in FSR Magazine's column, The Kitchen Sink (online).

Read the full article: Tips for Negotiating an Exclusive Use Provision

Thursday, June 23, 2016

John J. Egbert Featured in AZ Central's Ask the Experts

 

Jennings, Strouss & Salmon attorney, John J. Egbert, is featured in AZ Central's Ask the Experts column.

Read the full article: Job Hunt Wise During Long Suspension

Wednesday, June 1, 2016

Doubling Down on Employee Salaries: The U.S. Department of Labor More Than Doubles the Mandatory Minimum Salary Requirement for Most Exempt Employees


By: Chris Mason

Beginning December 1, 2016, the minimum salaries for most exempt jobs will more than double to $47,476 from the existing $23,660 required. On May 18, the U.S. Department of Labor ("DOL") dealt its long-anticipated regulatory amendments for "white collar" overtime exemptions under the Fair Labor Standards Act ("FLSA"), which included increases to the mandatory base salary requirement.

The challenge for employers and employees alike will be the determination whether certain jobs will continue as exempt positions, or whether they will be converted to non-exempt positions entitled to overtime pay.  Some jobs may end entirely.  While other options remain, and a variety of jobs will remain unaffected, early estimates anticipate that approximately 5 million workers will be directly affected, for good or for bad, by the recent changes.

The White Collar Exemptions

Despite common misperception, an employee is not exempt from overtime pay simply because he or she receives a salary.  Employees must meet very specific exemptions to qualify.  Most of those exempt from overtime pay under the FLSA fall within one of several exemptions referred to as the “white collar” exemptions.  To qualify for one of these exemptions, an employee must meet the specific job duty requirements for the professional, administrative, or executive categories and, in addition, they must be paid a minimum annual salary of $23,660.   This minimum annual salary for these exemptions will bump to $47,476, or $913 per week.

A similar exemption, which also will be affected by the upcoming changes, applies to highly-compensated employees.  The duty responsibilities are relaxed for highly-compensated employees to qualify for exempt status, so long as their annual salaries are set no lower than $100,000.  This amount will increase to $134,004 effective December 1.

One of the upcoming additional changes will slightly improve an employer’s ability to satisfy these minimum pay requirements.  Employers may apply non-discretionary bonuses and incentive pay (such as commissions) towards up to ten percent of the salary requirement.  These additional forms of compensation were previously inapplicable to the minimum salary requirement.  For highly-compensated employees, all non-discretionary compensation can be used to satisfy the $134,004 requirement above a minimum of $47,476 in salary.

The Continued Payout

The new increases have an even greater impact than may appear at first blush.  For instance, with the amendments, the DOL has shuffled the deck with a new system that provides for automatic increases in the base salary requirement every three years.  The increase will be based on wage data from the bureau of labor statistics, which is expected to warrant an increase in the minimum salary to over $50,000 by 2020.

Employers evaluating whether to increase the minimum salaries for exempt employees will likely also evaluate its overall salary scale.  Employees who have progressed to higher salaries may also expect an increase as their less-senior cohorts face mandatory increases effective December 1.  While this is not mandated by regulation, employers should be prepared for it.

This, and similar considerations, represents perhaps the greatest gamble with the new regulatory requirements.  The dramatic salary increase may prove too costly for many currently-exempt positions, which may either be too costly alone or may not fit in existing salary scales.  Employers will need to evaluate whether to increase salaries, or transition currently-exempt employees to non-exempt status.  Some positions may face consolidation, and others may be eliminated.  For those who lose their salary status, they may face a change in pay that is tantamount to a pay rate reduction, and may face stricter scrutiny by their employer when seeking overtime work.

Splitting the Odds

Either way, whether employers increase salary for lower-paid exempt employees or transition them to hourly positions with overtime entitlement, employers must make changes.  If they opt to increase employee salaries to continue a white-collar exemption, they must ensure that the affected exempt employees are paid the minimum $47,476 required, unless the employees qualify for exempt status under a variety of other exemptions.  This too should be evaluated.  For employers increasing salary, now also is a good time for them to evaluate exempt employee duties.  As previously mentioned, not all salaried employees are exempt from overtime.  They must meet certain duty requirements to qualify for white collar exemptions.  These duty requirements create a significant challenge for employers on a regular basis, and now is a good time to evaluate which employees qualify.

Conversely, employees who are transitioned to hourly positions should be prepared to properly track and account for their work hours.  Many have developed practices consistent with receiving a salary, and may work flexible schedules.  This may change as employers impose time clock or time sheet tracking systems on these employees. 

Finally, employers should not focus exclusively on these changes to federal law, as state law may impose stricter requirements.  While an employee may qualify as exempt under federal requirements, the employee may still be entitled to overtime pay under applicable state law.

Stepping Away from the Table

While the changes may seem daunting, all is not lost.  Other exemptions and alternative pay structures may provide employers and employees with some relief and should be evaluated.  Furthermore, the duty requirements that were previously in place for the white collar exemptions remain the same under the new rules, minimizing the disruption.  Regardless of their chosen alternative, employers must plan and prepare for the change, rather than face investigation, fines, and possible lawsuits for failed or incomplete implementation. 


Footer:  When the Fair Labor Standards Act was passed in 1938, the original minimum wage was a mere $.25 per hour, and overtime only applied after the first 44 hours in a workweek.


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Chris Mason is a labor and employment law attorney at Jennings, Strouss & Salmon, P.L.C. He counsels employers and management on all aspects of labor and employment law, including traditional labor matters, such as collective bargaining and union organizing; restrictive covenants; employment discrimination; sexual harassment; whistleblowing; retaliation; wrongful termination; personal policies; reductions in force; trade secrets; restrictive covenants; duty of loyalty; drug and alcohol testing; and other state and federal laws, rules, and regulations. He is also an experienced litigator, representing clients in Arizona, federal, and appellate courts, as well as before administrative agencies, including the National Labor Relations Board, the Department of Labor, the Equal Employment Opportunity Commission, the Arizona Civil Rights Division, and the Department of Economic Security.

Monday, May 23, 2016

Arizona Surety Claims: Surety Bad Faith Revisited in Recent Decisions


Co-Authored By: Jay M. Mann and Patrick F. Welch



Over the last twenty-six years, Arizona has been the epicenter of the national surety bad faith discussion.  In 1989, the Arizona Supreme Court issued probably the leading surety bad faith case in the county – Dodge v. Fid. And Dep. Co. of Md., 778 P.2d 1240, 161 Ariz. 344 (1989).   In Dodge, plaintiffs-homeowners contracted with a residential construction company to build a residence for them.  The contract required the contractor to obtain a performance bond, which the defendant-surety provided.  After the contractor defaulted under the contract, the plaintiffs sued the contractor and surety.  The plaintiffs sued the surety under the performance bond and bad faith.  The surety prevailed on the bad faith claim before the trial court and on appeal before the Court of Appeals.  The plaintiffs appealed. 

The Arizona Supreme Court reversed and held that a performance bond obligee may sue a surety for bad faith.  This was the first reported surety bad faith case ever decided.  Despite the fundamental differences between suretyship and insurance, the Dodge court held that sureties are insurers for purposes of Arizona’s insurance statutes.  Based upon this reasoning, the Dodge court applied the “special relationship” analysis, typically reserved for insurance contracts, to the surety context.  Concluding that sureties are insurers under the insurance statutes, the Dodge court further held that sureties have the same duty to act in good faith as insurers, and observed that the tort of bad faith arises when the surety intentionally denies, fails to process or pay a claim without a reasonable basis for such action.  

In the 37 years since the Dodge decision, a majority of courts around the country have rejected claims against sureties for surety bad faith, recognizing that there are fundamental differences between suretyship and insurance.  See, e.g. Cates Constr. v. Talbot Partners, 21 Cal.4th 28, 980 P.2d 407 (1999); Great Am. Ins. Co. v. N. Austin Muni. Util. Dist. No. 1, 908 S.W. 2d 415, 420 (Tex. 1995); Cincinnati Ins. Co. v. Centech Bldg. Corp., 286 F. Supp. 2d 669, 691 (M.D.N.C. 2003; Boldt Co. v. Thomason Elec. & Am. Contractors Indem. Co., 820 F. Supp. 2d 703, 705-06 (D.S.C. 2007); Inst. of Mission Helpers of Baltimore City v. Reliance Ins. Co., 812 F. Supp. 72, 74 (D. Md. 1992); Bell BCI Co. v. HRGM Corp., 276 F. Supp. 2d 462, 463 (D. Md. 2003); Toltest v. Purcell P&C, LLC, 2013 WL 1571714 at *5-6 (N.D. Ohio April 12, 2013); see also Resolution Trust Corp. v. Fid. & Deposit Co. of Maryland, 885 F. Supp. 228, 230-31 (D. Kan. 1995); In re Commercial Money Ctr., Inc., Equip. Lease Litig., 603 F. Supp. 2d 1095, 1124 (N.D. Ohio 2009)

In March 2014, we wrote an article presented to the Arizona State Bar, Construction Law Section.  The article explored two important unanswered questions from Dodge, including: (1) whether a surety defending a performance bond claim may assert a “bona fide or genuine dispute defense to a bad faith claim?; and (2) whether a payment bond claimant may bring a bad faith claim against a surety issuing a payment bond?[1]  Over the last several months, Arizona courts have issued two important decisions addressing these questions.  The courts’ reasoning in both decisions signals a shift away from Dodge and an effort to curtail surety bad faith liability.  

In a recent case handled by our office, the Superior Court of Arizona issued an unreported opinion granting the surety’s summary judgment motion seeking dismissal of a municipality’s surety bad faith claim involving a “Little Miller Act” performance bond.  The Superior Court held that a surety may deny a performance bond claim and avoid liability for surety bad faith where there is a “bona fide or genuine” dispute between the bond principal and the bond obligee as to the bond principal’s liability.  The Superior Court noted that “[a]s in the insurance context, however, a surety does not breach to covenant of good faith and fair dealing if the owner’s [obligee] claim is fairly debatable.”  The Superior Court further observed that “a surety faced with a dispute between owner and contractor, and the owner’s demand that it perform under the bond, a performance bond surety is not required to perform an investigation sufficient to determine who is right.  It need only investigate sufficiently to decide if a bona fide dispute exists.  If it does this, and there is a bona fide dispute, then it has not committed the intentional tort of surety bad faith.”  
  
In another recent case not handled by our office, the Arizona Court of Appeals held that a surety on a payment bond issued under Arizona’s “Little Miller Act” may not be sued for surety bad faith.  S&S Paving and Constr., Inc. v. Berkley Regional Ins. Co., No. 1 CA-CV 15-0239 at p.2.  In reaching its decision, the Court of Appeals noted the breadth of liability under the Little Miller Act and “refused to graft a common law remedy onto a statutory scheme that includes within its ambit both the availability of complete relief and specific conditions precedent to recovery.”  Rather, the Court of Appeals recognized that “a common law bad faith remedy would be inconsistent with the legislature’s defined liability for Act sureties” and emphasized Arizona precedent holding that “‘[w]hen a corporate surety undertakes an obligation on a bond pursuant to a specific statutory requirement, its liabilities are measured by the terms of the statute.’” 

The Court of Appeals also rejected S&S’s reliance upon Dodge, noting two important distinctions, including (1) Dodge did not involve a statutory bond, “let alone a carefully crafted statutory scheme that seeks to balance the competing interests inherent in public works project;” (2) “unlike Dodge, where the court found that the surety lacked an incentive to address the homeowner’s claim, a surety under the Act has a strong pecuniary motive to pay valid claims without litigation” because sureties are required to pay attorneys’ fees and interest to prevailing claimants. 

Undoubtedly, S&S will appeal the Court of Appeal's decision to the Arizona Supreme Court. In the authors' opinion, the S&S case is an important decision which will have far reaching implications for Little Miller Act performance bonds, contractor license bonds, motor vehicle dealer bonds, and all other statutory bonds. Like the recent unpublished Superior Court opinion discussed above, the S&S opinion is more good news for sureties and an example of a growing trend rejecting or limiting surety bad faith liability in Arizona.    
        


[1] Jay M. Mann and Patrick F. Welch, Surety Bad Faith Issues Still Unresolved Twenty-Six Years After Dodge v. Fidelity and Deposit Company of Maryland
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Jay M. Mann is Chair of the firm's Construction and Surety Department. He focuses his practice in the areas of construction, surety and business law. Mr. Mann represents clients in other commercial litigation cases and serves as an ADR neutral in arbitrations and meditations.
is Chair of the firm’s Construction and Surety Department. He focuses   his practice in the areas of construction, surety and business law. Mr. Mann represents clients in other commercial litigation cases and serves as an ADR neutral in arbitrations and mediations. - See more at: http://www.jsslaw.com/news_detail.aspx?id=485#sthash.Msfc8OEz.dpuf




Patrick F. Welch focuses his practice in the areas of general and complex commercial litigation, construction litigation, and fidelity and surety litigation. Mr. Welch is licensed in the States of Arizona and Nevada, and the Commonwealth of Massachusetts. Based in Arizona, Mr. Welch regularly assists surety and fidelity clients with all facets of Arizona and Nevada claim investigations, litigation, trial, arbitration, mediation and appeals.









 

Monday, May 16, 2016

New Federal Crowdfunding Rules


By: Chris Rogers


The new federal crowdfunding rules went into effect May 16, 2016.  Now startups and other growth-oriented companies can raise up to $1 million dollars per year from the general public, provided the company (the Issuer) follows the new rules adopted by the Securities and Exchange Commission (SEC).   In contrast to the donative-models of crowdfunding commonly associated with Kickstarter, Indiegogo, and GoFundMe (where participants may receive, for example, a T-Shirt or early release of a product in exchange for a donation), equity crowdfunding investors are like micro-venture capitalists who could enjoy a return on their investment if the business is successful.  

Known as “Regulation Crowdfunding”, the new federal rule provides another exemption from the default requirement that any offer or sale of a security must be registered under the Securities Act of 1933.  Because the process of registering a securities offering (commonly referred to as “going public”) is complicated and expensive, Issuers most often rely on the “all accredited investor” private placement exemption found in Regulation D.  That exemption, Rule 506, exempts offers and sales to accredited investors (e.g., individuals with net worth in excess of $1 million, and others).  

However, with Regulation Crowdfunding expanding permissible potential investors to virtually everyone in the United States, proponents hope that entrepreneurs can spend less time seeking out high net worth potential investors capable of writing large checks, and rely instead on the power of a compelling business idea or plan, modern technology, and small aggregate investments.  A successful crowdfunding campaign could allow entrepreneurs to invest more of their time on their core business, thus potentially increasing their likelihood of success. 

To comply with Regulation Crowdfunding, an Issuer must meet stringent requirements, including filing an offering statement on Form C (available here).  A completed Form C will include, among other items, the following:

  •  description of the Issuer’s company and business plan;

  •  identification of officers, directors, and principal existing stockholders or members,

  • provision of financial statements in US GAAP (in some cases must be reviewed by a public accountant),

  • disclosure of significant risks to the company and/or its business. 

In addition to the cap of raising $1 million in any 12-month period by any Issuer, Regulation Crowdfunding allows limits the amount any investor can invest across all crowdfunding Issuers in any 12-months. 

For example, an investor with income or net worth below $100,000 may invest only the greater of:
(i)                 $2,000, or
(ii)               5% of the lesser of his annual income or net worth. 

An investor with net worth and income greater than $100,000 may invest 10% of the lesser of her:
(i)                 annual income, or
(ii)               net worth. 

No individual may invest more than $100,000.  In addition to these requirements, an Issuer relying on Regulation Crowdfunding must use a registered broker-dealer or funding platform to facilitate the securities offering, and take reasonable steps to verify compliance with the limitations on the investment amounts.  As for ongoing reporting requirements, the Issuer must also file a crowdfunding-specific annual report (Form C-AR) each year that provides updated information including financial statements.

Any securities offering, including a crowdfunding, is a serious endeavor requiring planning and careful observance of the legal requirements (which are only summarized in part here).  Anyone considering using Regulation Crowdfunding should be mindful of anti-fraud Rule 10-b5.  That rule prohibits making untrue statements or withholding or omitting material information.  An investor is entitled to know all information about a potential investment that could reasonably be deemed important to a potential investor in making its investment decision.  A violation of anti-fraud rules impose joint and several liability for all members of the selling group (e.g., officers and directors). 

For that reason, it is important for any Issuer to thoughtfully analyze its business and the risks it faces and be prepared to provide detailed, written, disclosure that will mitigate issues in the future.  Successful Issuers often use that disclosure as a sales opportunity.  Properly crafted disclosures can encourage trust and confidence by demonstrating the Issuer’s command of the core of its business.  Furthermore, Regulation Crowdfunding is only one possible offering structure among several that could be available to an Issuer.  It is important to find the structure that best suits an Issuer’s needs.

The securities attorneys at Jennings Strouss work with Issuers every day in planning and structuring securities offerings tailored to individual needs.  For more information on Regulation Crowdfunding, Form C, state crowdfunding rules, Regulation D, or disclosures, or securities offerings generally, you can reach Chris Rogers at crogers@jsslaw.com (602) 262-5962).
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Chris Rogers focuses his practice primarily in the areas of general corporate law and private securities offerings. He regularly advises companies in connection with private placements of equity and debt instruments, and in preparation for initial public offerings, domestically and in Canada. Rogers has substantial experience representing individuals and investment funds in the purchase and sale of privately-held business interests.

Serial ADA Plaintiffs David Ritzenthaler and Santiago Abreu Have Sued More Than 450 Arizona Business in 2016


By: Lindsay Leavitt
In the past few months David Ritzenthaler, a Scottsdale resident, and Santiago Abreu, a Florida resident, have filed more than 450 lawsuits against Arizona businesses alleging an assortment of violations of the Americans with Disabilities Act (“ADA”). Read my earlier blogs about Mr. Ritzenthaler’s lawsuits here, here and here and Mr. Abreu’s lawsuits here.

Although not as prolific as Mr. Ritzenthaler, Santiago Abreu, a Florida resident, is targeting Arizona restaurants and bars with his lawsuits. He specifically focuses on ADA violations in the bathrooms—such as improper urinal heights and improper placement of mirrors, soap dispensers and grab bars. In the bar area, he alleges that the service counter is too high for—and thus discriminatory against—a wheelchair bound individual.

Mr. Ritzenthaler’s lawsuits only focus on a business’s handicapped parking spaces. Specifically, he looks at the location, dimensions and signage. I have personally defended more than 60 of these cases and, while I have been able to get a handful immediately dismissed because my clients were exempt under the ADA’s “safe harbor” provision, the reality is that very few parking lots in Arizona fully comply with the ADA.
 
Business owners should contact a knowledgeable ADA attorney or consultant to perform a quick onsite inspection. Doing so could end up saving their business thousands of dollars and help the business owner sleep better knowing that she won't be targeted by these two serial plaintiffs.


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Lindsay Leavitt is a business litigation and employment law attorney at Jennings, Strouss & Salmon, P.L.C. He regularly represents businesses in ADA compliance related disputes and provides advice on preventative measures.

Friday, May 13, 2016

Jennings, Strouss & Salmon Expands eDiscovery and Practice Support



PHOENIX, Ariz. (May 12, 2016) – Jennings, Strouss & Salmon, P.L.C., a leading Phoenix-based law firm, is pleased to announce that it has expanded its eDiscovery and Practice Support department and services.
“The services offered by the firm’s eDiscovery and Practice Support team goes beyond assisting with matters solely related to litigation,” stated Jennifer Brandon, Practice Support Manager. “We are leveraging innovative technology and developing solutions that will provide the highest level of support to all of the firm’s legal teams and client needs.”
Jennings Strouss has invested in three key areas to ensure the proper handling and security of the firm’s and its clients’ electronic data − qualified project managers and technical analysts, state-of-the-art technology, and effective processes. We are devoted to understanding and addressing the increasing demands related to Electronically Stored Information (ESI) and streamlining the eDiscovery process by utilizing best-in-breed software, including review platforms, data analytics, transcript management, and trial presentation. 

About Jennings, Strouss & Salmon, P.L.C.
Jennings, Strouss & Salmon, P.L.C., has been providing legal counsel for over 70 years through its offices in Phoenix and Peoria, Arizona; and Washington, D.C. The firm's primary areas of practice include agribusiness; automobile dealership law, bankruptcy, reorganization and creditors’ rights; commercial litigation; construction; corporate and securities; employee benefits and pensions; energy; estate planning and probate; family law and domestic relations; health care; intellectual property; labor and employment; legal ethics and professional liability defense; real estate; surety and fidelity; and tax. For additional information please visit www.jsslaw.com and follow us on LinkedIn, Facebook, and Twitter.

The firm’s affiliate, B3 Strategies, assists clients with lobbying and public policy strategy at the local, state, and federal levels. For more information please visit www.b3strategies.com.

~JSS~
Contact:  Dawn O. Anderson | danderson@jsslaw.com| 602.495.2806