Thursday, April 26, 2018

What employers are doing about #RedForEd teacher walkout in Phoenix

Jennings Strouss attorney John J. Balitis is quoted in the Phoenix Business Journal article, "What employers are doing about #RedForEd teacher walkout in Phoenix. "He discusses the  laws employers need to consider for employees who have requested leave as a result of the teacher walk-out, particularly for parents of children with special needs and health conditions. 

Mr. Balitis counsels private sector clients as well as government agencies, including the Arizona legislature, on a broad range of employment law and labor relations matters. Over his 30 years of practice, he has represented clients in administrative proceedings before the Equal Employment Opportunity Commission, U.S. Department of Labor, National Labor Relations Board, Arizona Civil Rights Division, Arizona Industrial Commission, Arizona Department of Occupational Safety and Health, and the Arizona Department of Economic Security. Recognizing that some issues need to be resolved at the legislative level, Mr. Balitis has participated in drafting and testifying on Arizona employment-related legislation.

In addition to the administrative and transactional aspects of his practice, Mr. Balitis litigates employment-related disputes in federal and state courts, where he has both bench and jury trial experience, and has appeared and argued before the Arizona Court of Appeals. He has considerable experience prosecuting and defending employment claims in preliminary injunction proceedings, and representing union employers in labor arbitrations involving disputes under collective bargaining agreements.  Mr. Balitis also is experienced in training, investigating, writing, speaking, publishing, and interacting with the media on employment-related topics and developments.

Mr. Balitis can be reached at 602.262.5928 or

Monday, April 23, 2018

FERC Initiates Review of Its Long-Standing Pipeline Certificate Policy Statement

Last Thursday, the Federal Energy Regulatory Commission (“FERC” or “Commission”) issued a Notice of Inquiry (“NOI”) seeking comment on possible changes needed to its 1999 Policy Statement 
on certification of new interstate pipelines. The NOI notes the almost two decades since the 1999 Policy Statement was approved and acknowledges that the Commission may have to reconsider how it balances project benefits against adverse consequences in light of the shale gas revolution, technological changes, global warming, and other environmental concerns, as well as increasing concerns raised by land owners and communities affected by the projects.

While all five commissioners welcomed an in-depth review of the Policy Statement, Chairman McIntyre cautioned that the Commission’s issuance of the NOI does not mean FERC will ultimately change its current procedures. The Commission will consider only generic issues and will not consider any comments that refer to open, contested proceedings currently before FERC.

The NOI identified four general areas of examination: (1) potential adjustments to the Commission’s determination of need; (2) the potential exercise of eminent domain and landowner interests; (3) the Commission’s evaluation of alternatives and environmental effects under the National Environmental Policy Act and the Natural Gas Act; and (4) the efficiency and effectiveness of the Commission’s certificate processes. These four areas will frame a debate over whether and how the Commission should take into account new environmental and social considerations – such as evaluating greenhouse gas impacts of new pipelines or requiring that applicants work with landowners and communities affected by proposed projects – while at the same time expediting pipeline approvals in response to President Trump’s Executive Order #13807.

Currently, the Commission does not look “behind” or “beyond” precedent agreements when making a determination about the need for new projects or the needs of the individual shippers. The Commission appears willing to consider changes in how it determines whether there is a public need for a proposed project. The NOI seeks comments as to the types of additional or alternative evidence that the Commission should examine to determine project need as well as the litigation risk that may arise in considering such new evidence. The Commission further questions whether evidence of need, in general, should be examined on a regional basis, particularly where there are multiple pipeline applications in the same geographic area. With respect to the precedent agreements themselves, the NOI seeks comments about additional factors that may need to be taken into account when considering these agreements, such as the counterparty to the precedent agreement (affiliates or non-affiliates), the duration of the precedent agreement, or the need for state approval of the precedent agreement.

To address increasing concerns expressed by landowners and affected communities in recent cases, the NOI seeks comments about ways to improve the current certificate process to adequately take into account landowner interests and encourage landowner participation in the certificate process. Among other things, the Commission inquires whether: (1) the use of eminent domain should be considered in reviewing each application against the need for the project; (2) the Commission should take additional measures to minimize the use of eminent domain; and (3) there is a need to evaluate alternatives beyond those currently evaluated (i.e. no-action alternative, system alternatives, design alternatives, and route alternatives).

Environmental assessment is a key issue in the NOI. One of the main questions is whether the Commission should take into account the cumulative environmental impacts at the regional level instead of on a project-to-project basis and, if so, how to define the relevant region. New types of environmental impacts — such as the social cost of carbon — are also addressed in the NOI. The Commission seeks comments as to how to quantify, monetize, and assess these impacts against the need for the project.

Finally, the NOI seeks to streamline the Commission’s certification process in compliance with Executive Order #13807, which encourages agencies to make timely decisions with the goal of completing all federal environmental reviews and authorization decisions for major infrastructure projects within 2 years. To that end, the NOI inquires whether certain aspects of the Commission’s application review process (i.e., pre-filing, post-filing, and post-order-issuance) should be shortened, performed concurrently with other activities, or eliminated to make the overall process more efficient. And, to the extent that the process is streamlined, the Commission inquires as to how it can ensure that interested stakeholders have an adequate opportunity to participate in the evaluation process, and whether efficiency gains can be achieved by improving the Commission’s interactions with other federal agencies and the states.

Overall, the NOI signals a consensus that the 1999 Policy Statement may be outdated. However, with four new Commissioners, it is difficult to gauge the direction any review might take. Comments on the NOI are due 60 days after its publication in the Federal Register. (FERC Docket No. PL-1-000.)

For more information about the issues discussed in this post, please contact us.

Thursday, April 5, 2018

Deducting Attorneys’ Fees Under the Tax Cuts and Jobs Act of 2017

By Otto S. Shill, III, Member, Jennings, Strouss & Salmon, P.L.C.

The Tax Cuts and Jobs Act of 2017 (the “2017 Act”) purports to bring broadly lower tax rates to most U.S. individuals and companies; however, it does so at the expense of clear tax policy objectives in many areas. That lack of a comprehensive, policy-based approach will now have consequences related to the deductibility of costs associated with controversies for both businesses and individuals. Business defendants in sexual harassment suits will not be allowed to deduct the cost of settlements that contain confidentiality requirements, potentially making settlement a less attractive option. Individual plaintiffs in cases that are not related to unlawful discrimination or whistle blowing will not be permitted to deduct attorneys’ fees, making such lawsuits potentially less attractive. Also due to ambiguity in the statutory language prohibiting non-disclosure agreements, individual plaintiffs in sexual harassment cases now face greater uncertainty concerning the deductibility of their litigation costs.

Deductibility for Businesses
Litigation has become an all too common part of doing business in the United States. In most cases, expenditures for business-related litigation are deductible under section 162 of the Internal Revenue Code of 1986, as amended (the “Code”). Section 162 generally governs which expenses may be deducted as ordinary and necessary expenses of operating a trade or business. The 2017 Act added new section 162(q) to the Code, which provides that, “no deduction shall be allowed for any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a non-disclosure agreement; or attorneys’ fees related to such a settlement or payment.” Thus, a trade or business that includes confidentiality obligations as a condition of settlement of sexual harassment cases will be denied a deduction both for any settlement payment and for related attorneys’ fees. In addition, the new provision does not address the deductibility of expenditures where sexual harassment or abuse is only one of several claims. Because the new statutory language references “settlement or payment,” it is possible that a deduction could be denied for all costs of litigation when a case, which contains an allegation of sexual harassment or sexual abuse, ends in a resolution other than a final judgment. Apparently intended as a response to the current social reaction to recently-publicized cases in which people were paid for silence concerning sexual relationships with, or sexual harassment by, high-profile figures, this statute may now give employers less incentive to settle cases where liability is questionable. This means the impact of the new law may be very different from what its drafters intended.

Deductibility for Individuals
While businesses are allowed to deduct ordinary and necessary business-related expenses, individuals who are not engaged in a trade or business historically have been compelled to deduct personal litigation expenses, including attorneys’ fees, as miscellaneous itemized deductions. Now, the 2017 Act has suspended deductions for miscellaneous itemized deductions through December 31, 2025. Thus, most plaintiffs will no longer be able to deduct the costs and attorneys’ fees associated with non-business related litigation. However, plaintiffs engaged in litigation concerning whistle blowing or unlawful discrimination enjoy an exemption from this new rule. In 2004, Congress added section 62(a)(20) to the Code, which allows plaintiffs in cases involving unlawful discrimination to deduct fees and expenses directly against gross income in computing adjusted gross income, and not as miscellaneous itemized deductions. New Code section 62(a)(21) added the same protections for whistle blower plaintiffs. The 2017 Act did not make any changes to Code section 62(a)(20) and so, going forward, plaintiffs may continue to deduct litigation expenses related to unlawful discrimination. The 2017 Act expanded the deductibility of expenses related to whistleblower litigation to include (i) claims under section 21F of the Securities and Exchange Act of 1934, (ii) state false claims act statutes, including those with qui tam provisions, and (iii) claims under section 23 of the Commodity Exchange Act. Such deductions are limited to the amount of the overall award includible in a plaintiff’s gross income for the year in which the award is made, and may not be taken more than once. This deduction is expressly coordinated with the 20% deduction available to certain pass-through entities allowed under new section 199A of the Code.

Some commentators have speculated that the language of new Code section 162(q), which references “attorneys’ fees related to such settlements or payments,” may jeopardize this deduction for plaintiffs, as well as for defendants, because of the breadth of the statutory language. However, this result seems unlikely because, both before and under the 2017 Act, section 162 of the Code applies only to expenses of a trade or business. Individual plaintiffs who are not engaged in a trade or business generally cannot deduct expenses under section 162 of the Code. Prior to the 2017 Act, individuals could deduct a very limited range of expenses related to the production of income (such as unreimbursed expenses required for one’s employment) as miscellaneous itemized deductions. Under the 2017 Act, personal litigation expenses are deductible only if related to unlawful discrimination or the whistle blower type cases discussed above. Thus, although the new limitations on deductions under section 162(q) should not affect the non-business claims of individual claimants, the issue is not entirely clear at present.

The 2017 Act provisions regarding the deductibility of legal fees are likely to make certain types of litigation more expensive for both plaintiffs and defendants. Plaintiffs in cases involving unlawful discrimination may still deduct related attorneys’ fees and costs, but the defendants in those cases may be less willing to settle because of limitation on trade or business deductions for costs associated with settlements of sexual harassment cases involving confidentiality requirements. Plaintiffs with claims other than those related to unlawful discrimination or whistleblower claims will not be able to deduct fees and costs, which may discourage some plaintiffs from pursuing those claims. Only time will tell what financial impact the 2017 Act will truly have on individuals and businesses, particularly those involved in litigation.

For more than 30 years, Mr. Shill has helped businesses and business owners comply with government regulations, navigate government investigations, and build wealth through business transactions and long-term planning. He has significant experience in federal and state tax compliance and tax controversies; compensation, benefits, and employment regulation; and government contracting compliance and disputes.

Mr. Shill regularly represents clients before federal and state government agencies, including the Internal Revenue Service, the Equal Employment Opportunity Commission, U.S. Department of Labor (DOL), the National Labor Relations Board, Arizona Attorney General's office, Arizona Industrial Commission, Arizona Department of Revenue and other Arizona regulatory boards. Mr. Shill also drafts and lobbies for the passage of legislation to address client issues.