A Five-Ingredient Formula - Blank Rome · 2012-10-10 · • Injunctive reliefInjunctive relief—both preliminary and permanentboth preliminary and permanent – Early options: temporary
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4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
• Protect investments in research and development, marketing efforts, and strategic planning
• Protect information that may not be protected by patents, trademarks, or copyrights
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• Provide powerful litigation tools and tactics
How are trade secrets protected by law?
• Uniform Trade Secrets Act (UTSA)
– Most states, including PA and (recently) NJ
– But: MA, NY, & TX continue to follow common law or Restatement
• Even so, some residual common law torts remain (e.g., unfair competition and tortious interference with contract)
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unfair competition and tortious interference with contract)
– “Inevitable disclosure” doctrine (e.g., Bimbo Bakeries USA, Inc. v. Botticella and the secret formula for “nooks and crannies “in Thomas’ Original English Muffins)
4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
• Appropriate and consistent use of litigation and enforcement tools
• Protection of trade secrets integrated into company’s
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Protection of trade secrets integrated into company s culture and values
Who is responsible for protecting the company’s trade secrets?
• Everyone!
– Key personnel: Legal, IT, HR, and management working together
• Explain and Warn?
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• Consider value of key personnel’s training employees not only on the importance of trade secrets, but also on the company’s efforts to protect its trade secrets and to monitor and police against theft of trade secrets
4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
How does the company determine if its trade secrets have been taken?
• Close relationship between legal and HR
• Keystroke/mass-downloading software
• Preservation of exiting employees’ computer images
• Regular monitoring, especially in sensitive areas
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• Unfortunately, theft usually occurs from within—good HR policies and managers can serve as a check
What if there is a suspicion that someone has stolen trade secrets?
• Investigation and review of email traffic and downloading
• Forensic examination of relevant computers/servers
– Made easier when devices are company-owned and by policies preserving computer images from the get-go
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• Consider immediate injunctive relief to secure information and/or stop threatened misappropriation, coupled with contemporaneous preservation notices to relevant parties
4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
• Opposition to Marcellus Shale development focusing on bottlenecking supply by opposing pipelinesPipelines extend beyond the Marcellus producing
Evolving Opposition Strategy
• Pipelines extend beyond the Marcellus producing areas where residents have a financial stake in development; sympathetic audience for opposition groups
• Well organized and well funded opposition• Adept at organizing local opposition to pressure local
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p g g pp pofficials—NIMBY on steroids
• Delay and increase to cost of pipelines and compressor stations
• “Clean Air Council has provided education, outreach
Some Examples
and training to residents of Luzerne County, who then… organized and turned out to multiple meetings, strategy sessions and public hearings to… pressure the local Zoning Hearing Board to deny a…permit required to build [a] compressor station”
“E thj ti fi ht MARC I i li i l di l
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• “Earthjustice fights MARC I pipeline including appeal of FERC approval”
4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
• Multiple permits: DEP construction permits; air permits for compressors; local land use permits; FERC fili A C f E i PUC(?)
Why Attack Pipes and Compressors?
FERC filing; Army Corp of Engineers; PUC(?)
• Multiple public forums and places to influence outcomes
• The more local the decision point (the more remote from production) the greater the affect of negative
d bli it ff t th t
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press and publicity affects the outcome
• Courts are last resort but this slows development and increases cost
• Midstream development becoming a critical path item; will be magnified if gas prices rise
Outlook
• Costs to build pipelines are increasing significantly; Williams Pipeline report that regulatory delays add significant cost to Springville line in Northeast PA-total cost over $4 million/mile
• The challenges will increase as opponents i d l i d ddi t t
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experience success delaying and adding cost to projects
4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
• Follow the lead of the Marcellus Shale Coalition and increase outreach and education efforts
What do we do?
• Work with State regulators (DEP) to streamline approval process if conditions are met such as local energy corridors developed by industry, producers, local planning officials. State regulators
• Other thoughts?
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BLANK ROME’S 4TH ANNUALSIGNFICANT LEGAL DEVELOPMENTS AFFECTING THE
CHEMICAL, OIL AND GAS INDUSTRIESPHILADELPHIA PAPHILADELPHIA, PA
OCTOBER 10, 2012HULL & ASSOCIATES, INC.| CRAIG KAPSER, CEO
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4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
• Order to issue, deny or modify a permit to drill a horizontal well is not subject to Ohio’s Administrative Act
• Removes public comment and timeframes associated with
Nonapplicability of Administrative Procedures Act
• Removes public comment and timeframes associated with the Act
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• Copy of an executed Road Use Management Agreement (RUMA)
• Identification all sources of
Application Requirements for Drilling Permits
Identification all sources of groundwater and surface water and volume of recycled water
• Site site-specific terms for wells located in the 100-year floodplain or within the 5-year time of travel from a public drinking supply wellC i d ti d t il
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• Casing and cementing details• All other information as required before
September 10, 2012 (effective date of SB 315)
4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
• Submitted within 60 days after well is completed• Drilling fluids
Through the surface
Well Completion Record and Disclosure
– Through the surface casing
– Doesn’t include cementand additives
• Simulation• Provide CAS and MSDS• Applies to refracturing
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• Applies to refracturingor restimulatoin
• FracFocus or ODNR• Keep records for 2 years
• Trade secrets– An Owner may designate materials as a trade secret and prohibits
ODNR from disclosing the information
Well Completion Record
ODNR from disclosing the information
– Requires the Owner to disclose information regarding the trade secret to a medical professional for the purposes of diagnosing or treating an individual who was affected by an incident associated with the production operations of the well
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– May also be disclosed under a civil suit
4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
A gathering line not regulated by the Natural Gas Pipeline Safety Act and resultant federal rules and specifies it includes a pipeline used to collect and transport raw natural gas or transmission quality gas transport raw natural gas or transmission quality gas to the inlet of a gas processing plant, the inlet of a distribution system, or to a transmission line .
Processing Gas Plant Stub Line
A gas pipeline that transports transmission quality gas from the tailgate of a gas processing plant to the inlet of an interstate or intrastate transmission line and that is considered an extension of the gas processing plant and is not for public use.
Operator
For purposes of the gas gathering pipeline and processing plant gas stub pipeline safety standards,
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Operatoras any person that owns, operates, manages, controls, or leases either type of pipeline.
GasNatural gas, flammable gas, or gas that is toxic or corrosive.
Natural Gas Liquids Finished Product Pipeline
A pipeline that carries finished product natural gas liquids to the inlet of an interstate or intrastate finished product natural gas liquid transmission pipeline, rail loading facility, or other petrochemical or refinery facility.
4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
Natural Gas Liquids Fractionation PlantA facility that takes a feed of raw natural gas liquids and produces finished product natural gas liquids.
Hydrocarbons that are produced in a gaseous state from gas wells and that generally include methane ethane propane
Definitions Under The PUCO & OPSB
Raw Natural Gaswells and that generally include methane, ethane, propane, butanes, pentanes, hexanes, heptanes, octanes, nonanes, and decanes, plus other naturally occurring impurities like water, carbon dioxide, hydrogen sulfide, nitrogen, oxygen, and helium.
Raw Natural Gas Liquids
Naturally occurring hydrocarbons contained in raw natural gas that are extracted in a gas processing plant and liquefied and generally include mixtures of ethane, propane, butanes, and natural gasoline.
Finished Product Natural Gas Liquids
An individual finished product produced by a natural gas liquids fractionation plant as a liquid that meets the specifications for commercial products as defined by the Gas Processors A i i Th d i l d h i b
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Association. Those products include ethane, propane, iso-butane, normal butane, and natural gasoline.
Gas Processing Plant
A plant that processes raw natural gas into merchantable products, including transmission quality gas or natural gas liquids and also may include a plant that treats raw natural gas to remove impurities such as carbon dioxide, helium, nitrogen, or water.
Transmission Quality Gas
Gas consisting predominantly of methane that meets all downstream specifications for transportation in an intrastate or interstate transmission pipeline and that is suitable for use by public consumers.
• Excludes from PSB certification requirements gathering lines, gas gathering pipelines, and processing plant gas stub pipelines and associated f
Ohio Power Board Certification Authority
facilities; any gas processing plant; natural gas liquids finished product pipelines; pipelines from gas processing plants to an interstate or intrastate gas pipeline or to a natural gas liquids fractionation plant; any natural gas liquids fractionation plant; an oil, gas, or other production operation regulated by the state including pipelines upstream of any gathering lines; and certain compressor stations
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gathering lines; and certain compressor stations.
4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
• Exempts from regulation as a public utilityan entity engaged in the business of the transport associated with gathering lines, raw natural gas liquids or finished product natural
PUCO Authority
natural gas liquids, or finished product natural gas liquids.
• Exempts from regulation as a public utility certain natural gas gatherers and producers engaged in the business of supplying natural gas for lighting, power, or heating purposes to Ohio consumers, and that deliver or sell Ohio-produced raw natural gas liquids.Exempts from Ohio's pipeline safety law
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• Exempts from Ohio's pipeline safety law (specifically requirements on "operators") an entity engaged in the business of the transport associated with gathering lines, raw natural gas liquids, or finished product natural gas liquids.
• GAS GATHERING LINES & PROCESSING PLANT GAS STUB PIPELINES– Requires compliance with the applicable
pipe design requirements under the
Pipeline Safety Standards
pipe design requirements under the minimum federal safety standards (CFR Part 192, Subpart C).
– Requires operators to engage in various other activities
• Designing, constructing, inspecting, and testing
• Controlling corrosion• Carrying out a damage prevention and
bli d ti
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public education program• Establishing the maximum allowable
operating pressure• Installing and maintaining pipeline markers• Performing and maintaining records of leakage
surveys.• Pre and post construction submittals
4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
• Insider trading risks when company stock is pledged.
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• Background – Federal Securities Law– Very broadly speaking, the federal Securities Act of 1933
hibit l f iti l i t d ith th
New Capital Raising Options Under the JOBS Act
prohibits any sale of securities unless registered with the SEC or exempt from registration.
– Registration of a securities offering is a long, expensive, and burdensome process.
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– It is often advantageous for both small and large companies to sell securities pursuant to an exemption, rather than pursuing registration with the SEC.
4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
– Far more capital is raised through exempt transactions. For 2011, some estimate that companies raised nearly $900 billion in Rule 506 exempt transactions, while only approximately $40 billion was raised in IPOs in the United States.
– JOBS Act became law in April 2012 and provides for new ways to raise capital without registering with the SEC
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ways to raise capital without registering with the SEC.
• State securities laws:
– Often referred to as “Blue Sky” laws.
St t h i il i t ti / ti i t– States have similar registration/exemption requirements.
– Federal “covered securities” are exempt from state securities registration requirements. However, certain other state requirements may continue to apply.
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4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
– Raising relatively small amounts of money from a relatively large group, typically comprised mostly of individuals. Usually, although not exclusively, conducted through social media.
– Example – 200 people each donate $100 for an aggregate
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p p p gg gof $20,000 to fund construction of a playground in a disadvantaged neighborhood.
• Various types of crowdfunding:
– Charitable – not regulated by the SEC.
– Premium/reward based – Pledge $20 to help a new marshmallow maker get started and receive a dozen handmade marshmallows. Not regulated by the SEC.
– Debt – May or may not be regulated by the SEC. Generally, regulated if there is a profit motive (interest charged and paid to lenders), and not regulated by the SEC if no profit motive
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SEC if no profit motive.
– Investments in securities – Can be either debt or equity. Regulated by the SEC.
4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
• JOBS Act permits the use of crowdfunding techniques to sell securities without registration.
– Revolutionary concept in the world of US securities law.
– Crowdfunding cannot be used to sell securities until the SEC issues rules.
• JOBS Act requires the SEC to issue rules no later than January 2013 SEC may or may not meet this
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than January 2013. SEC may or may not meet this deadline.
• The JOBS Act provides a detailed set of requirements and limitations. The more significant requirements and limitations include:
Investor Limitations
– Limit on the total amount raised – Cannot sell more than $1,000,000 of securities to investors under the crowdfunding exemption in any 12 month period.
– Limitation on amount a company may sell to any single investor:
• For investors with annual income or net worth of under $100,000, the maximum is the greater of $2 000 or 5% of the investor’s annual
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maximum is the greater of $2,000 or 5% of the investor s annual income or net worth.
• For investors with annual income or net worth of $100,000 or more, 10% of the investor’s annual income or net worth, with a cap of $100,000.
4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
– No limit on the number or sophistication of the investors.
– May resell crowdfund securities in only very limitedMay resell crowdfund securities in only very limited circumstances for first 12 months after purchase.
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• Company must file with the SEC and provide to investors and the intermediary and make available to potential investors basic information about the
Information Requirements
potential investors basic information about the company, its business, capital structure, officers, directors and significant stockholders.
• The price of the securities and the method used to determine the price.
• The risks to purchasers relating to minority
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ownership in the company, risks associated with corporate actions, including dilution from the issuance of additional shares, related party transactions, and asset sales.
4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
• For offerings that have a target amount of $100,000 or less, the company’s most recent tax return (if any) and financial statements certified by the company’s
Financial Information
and financial statements certified by the company s principal executive officer.
• For offerings with a target of more than $100,000, but not more than $500,000, the company’s financial statements reviewed by a CPA.
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• For offerings with a target in excess of $500,000 (or such other amount as established by the SEC), audited financial statements.
• Continuing obligation to file financial statements -After the offering is consummated, the company is required to file not less than annually with the SECrequired to file not less than annually with the SEC and provide to investors financial statements.
• SEC by rule may require that additional disclosures be provided.
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4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
• Cannot just launch a website asking for investments.
Must Use an Intermediary
• An intermediary is:
– A registered broker, or
– A registered “funding portal” - a new type of service
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provider to be defined by SEC rules.
– Intermediaries must:
• Register with the SEC and with a self-regulatory organization as a broker or a funding portal
Requirements for Intermediaries
organization as a broker or a funding portal.
• Ensure that each investor affirms that she understands the risks associated with investing in general, and investing in start-ups in particular.
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• Take steps to reduce risk of fraud, including obtaining background checks for each officer, director, and holder of 20% or more the company’s equity.
4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
• Under new Rule 506(c), a company would be permitted to offer securities using general solicitation and advertising if:– The company takes reasonable steps to verify that the purchasers are
accredited investors. – All purchasers are accredited investors because:
• Investors actually come within one of the categories of persons defined as accredited investors, or
• The company reasonably believes the investor comes within one of the categories.
– Accredited investors, generally, are:• Individuals with a net (or a joint net worth with spouse) in excess of
$1,000,000 (primary residence excluded), • Individuals with income in excess of $200,000 in the past two years
or joint income with spouse in excess of $300,000 and a reasonable expectation of reaching the same income level in the current year,
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• Banks, large charitable organizations, • Directors and executive officers of the company issuing securities,• Companies and other business entities with more than $5,000,000
of assets, and• Entities in which all equity owners are accredited investors.
• Purpose of the verification requirement is to address concerns, and reduce the risk, that the use of general
li it ti ill lt i l t i t h
Reasonable Steps to Verify
solicitation will result in sales to investors who are not, in fact, accredited investors.
• Neither the JOBS Act nor the SEC’s proposed rule mandated any particular steps that companies must take to satisfy the requirement.
Wh th th t bl ill b
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• Whether the steps are reasonable will be an objective test based on the particular facts and circumstances of each transaction.
4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
• SEC provided examples of factors companies may consider:– The nature of the purchaser and the type of accredited
investor the purchaser claims to be.
– The amount and type of information the company has about the purchaser.
– Nature of the offering, such as the manner in which the offering was conducted and the minimum investment.
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– Generally, an investor merely “checking the box” or signing a verification of accredited investor status likely will not be sufficient.
• Companies can use either the existing Rule 506 exemption or, once the new rules become effective, the new Rule 506(c)
Existing Rule 506 v. New 506(c)
the new Rule 506(c).
• Under the existing rule, a company only need “reasonably believe” that an investor is an accredited investor. No specific requirement to take reasonable steps to verify.
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• Under the existing rule, up to 35 non-accredited investors can be included.
4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
• Legal issue – companies must strictly comply with Rule 506(c) as there is no available backup exemption
What to Expect
exemption.
• An increase in the use of Rule 506 by smaller companies.
• An increase in the pool of potential investors and a
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An increase in the pool of potential investors and a potential decrease in the cost of raising capital. Companies may be able to avoid engaging an investment banker.
• Established companies will still likely rely upon the “old” Rule 506.
• For large private placements, Rule 506(c) is not likely to be used.
• Could be a potential source for less established competitors to raise significant amounts of capital.
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• Unintended consequences.
4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
• Current Regulation A – Allows companies to sell up to $5 million of securities in
12 th i d ith t “f ll bl ” i t ti ith
Regulation A+
any 12 month period without “full-blown” registration with the SEC.
– While “full-blown” registration is not required, companies are required to file a “mini-registration statement” with the SEC. Generally, no on-going filing obligations.
– Securities sold are not “covered securities.”
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– Little used exemption because the costs of complying with the securities laws of 50 states and the “mini-registration statement” process, combined with a $5 million maximum, outweigh the benefits of the exemption.
• Title IV of the JOBS Act directs the SEC to implement rules providing for a new exemption from Securities Act registration.– Company may sell up to $50 million of securities in a 12-
month period.Th iti b ff d d ld bli l– The securities may be offered and sold publicly; no limitation on general solicitation or advertising.
– The securities will not be “restricted securities”, meaning they can be resold immediately (other than if held by affiliates).
– The securities will be considered “covered securities” if:• The securities are offered and sold on a national
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• The securities are offered and sold on a national securities exchange (e.g., NYSE); or
• The securities are offered and sold through a broker-dealer to “qualified purchasers”.
4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
• To be defined by SEC rule; JOBS Act provides no direct guidance.
Qualified Purchasers
• The usefulness of the rule will hinge on the definition of qualified purchaser.
• If qualified purchaser is the equivalent of accredited investor, companies will likely just use Rule 506(c).
• If the thresholds for qualified purchasers are set too
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low, it may expose too many to investment losses they cannot afford and/or expose too many unsophisticated investors to potential fraud.
• File audited financial statements with the SEC annually. • SEC may impose other terms, conditions and
requirements including that companies prepare file with
Filing Requirements
requirements, including that companies prepare, file with the SEC and distribute to prospective investors an offering statement, including audited financial statements, use of proceeds and a description of the company’s business.
• SEC may also require other additional periodic filings and disclosures.
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disclosures. • An offering under Regulation A+, without more, will not
result in the company becoming subject to general SEC filing obligations (other than the obligation to file annual financial statements).
4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
• May prove to be useful to smaller, private companies seeking growth capital. The advantages of Regulation A+ include:– The ability to raise greater amounts of capital (up to $50 million) than
afforded by Regulation A ($5 million)
What to Expect
afforded by Regulation A ($5 million).– The ability to raise funds in a public offering. – As the offering is exempt from the registration requirements of the
Securities Act of 1933, the company will not automatically become subject to the SEC periodic reporting requirements.
• It is unlikely that the SEC will issue implementing regulations any time soon.
• When the SEC does issue the regulations, expect that an offering statement similar to what is currently required under Regulation A
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statement similar to what is currently required under Regulation A will be required under Regulation A+.
• Expect that the definition of “qualified investor” is less stringent than the definition of “accredited investor.”
• Unless the definition of “qualified investor” is fairly broad, Regulation A+ may remain a little-used option.
• What is a comment letter?
Comment Letter Trends
– SEC staff reviews companies’ filings with the SEC and will often issue a letter to the filing company requesting additional information, requesting that the company revise its filing or provide additional or different disclosure in a future filing with the SEC.
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– Comment letters and companies’ responses are made publicly available via the web, no sooner than 20 days after the completion of the review by the SEC.
4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
• Housed within the SEC’s Division of Corporate Finance, the division that monitors companies’ SEC filings.
• Created in 2004 in response to language in a Congressional Committee Report
Office of Global Security Risk
Committee Report. • The Committee believed “that a company’s association with
sponsors of terrorism and human rights abuses, no matter how large or small, can have a material adverse effect on a public company’s operations, financial condition . . . .”
• Among other things, the OGSR was directed to ensure that companies traded on U.S. exchanges operating in terrorist states disclose such activities to investors and the nature of the risk to corporate share value and reputation stemming from business
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corporate share value and reputation stemming from business interests in countries designated as a State Sponsor of Terrorism.
• OGSR monitors SEC filings and other sources regarding business activities in or associated with Department of State designed State Sponsors of Terrorism (Cuba, Iran, Sudan and Syria).
• We also are aware of a January 2007 article reporting that your contract for representation by a law firm
OGSR Comment Letters
y p yprovides for it to engage local counsel in 27 jurisdictions where it does not have a presence, including Iran, and a LinkedIn entry for a person in Iran who lists his occupation as a Manager at your company.
• We note that your website enables visitors to book flights to and from Iran Sudan and Syria
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to and from Iran, Sudan, and Syria.
• The OGSR may question even business activities that appear to be financially immaterial.
4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
• SEC Comments have included:– Please tell us which chemicals are being injected in
connection with hydraulic fracturing operations on your properties.
– In light of the public concern over the risks related to hydraulic fracturing, please review your disclosures to ensure that you have disclosed all material information regarding your potential liability. . . .
You indicate that hydraulic fracturing involves the “injection
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– You indicate that hydraulic fracturing involves the injection of water, sand and chemical additives.” Please revise this risk factor to specifically address the financial and operational risks associated with hydraulic fracturing . . . .
• It is not always necessary to revise your disclosure.
– SEC comment: Please revise to address specifically, the financial and operational risks associated with hydraulic fracturing . . . .g
– Response: The company does not believe that any additional material financial or operational risks exist that warrant further disclosure . . . .
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4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
• Do not automatically assume that you will have to modify your disclosures. Work with your advisors to d t i h th difi ti i i t
What should you do?
determine whether modification is appropriate.
•
• Review comment letters and responses from your competitors to determine what disclosures the SEC is requiring.
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• Comments letters can also provide competitive intelligence.
• Background
Risks when Company Stock is Pledged
– Officers, directors and certain other individuals owing the company a duty of confidentiality may not trade in company stock on the basis of material, non-public information. This is often what people think of when they hear the term “insider trading.”
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– Section 16 of the Securities Exchange Act of 1934 prohibits certain company insiders (officers, directors and 10%+ shareholders) from profiting from short-swing trading.
4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
• Pledging or putting securities in a margin account may be viewed as sales under the securities laws.
Insider Trading Issues
• If the insider fails to meet a margin call or defaults on a loan collateralized by a stock pledge, the stock may be sold at a time when the insider is in possession of material, non-public information.
• Any such sale may be “charged” to the insider ibl lti i i l ti f i id t di
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possibly resulting in a violation of insider trading laws.
• The insider may not be able to control the sale of the securities held in the margin account or pledged.
• Generally, pledging stock or depositing it in a margin account is not a “sale” for Section 16 purposes and is
t t bl d S ti 16
Section 16 Issues
not reportable under Section 16.
• However, any sale of the stock is viewed as a sale by the insider and is reportable within two business days on a Form 4. The insider is also liable for any profit
d S ti 16 if th l i ithi 6 th f
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under Section 16 if the sale is within 6 months of any matchable purchase.
4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
• Companies must disclose in their proxy statements filed with the SEC the amount of shares pledged by
ti ffi d di t
Other Issues
executive officers and directors.
• If the insider is required to file a Schedule 13D, pledges are required to be reported.
• Under extreme circumstances, if the sale triggers a change of control, a Current Report on Form 8-K is
i d t b fil d
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required to be filed.
• Reputational risk.
• Review your company’s insider trading policy. • A recent survey by The Corporate Counsel found that
less than 40% of insider trading policies prohibit
Recommendations
less than 40% of insider trading policies prohibit pledges of company securities.
• Best practices suggest that: – Insider trading policies should generally prohibit holding
company securities in a margin account or pledging company securities as collateral. E ti t th li h ld l b i d th
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– Exceptions to the policy should rarely be given and then only if the insider is able to provide reasonable assurance that he or she has sufficient financial resources to repay any margin loan or loan collateralized by company securities without having to sell those securities.
4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
Healthcare Market Forces• The amount actually paid is often far less than the
amount initially charged by the medical provider.
• In most cases, the medical provider cannot (as a contractual matter) seek to recover the differential from the patient.
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• Which of the two alternative amounts should a plaintiff be entitled to recover as past medical d f t tf th f ll “ h d” tdamages from a tortfeasor: the full “charged” amount or the amount that is actually paid?
• Should the jury see the amounts charged if only the amounts paid are relevant?
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4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
School #1• A function of statute or evidentiary rule:
Only those amounts th t t ll idthat are actually paid (either by plaintiff or insurance) are recoverable.Evidence of amounts billedis irrelevant and inadmissible
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inadmissible.
4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
• Tex. Civ. Prac & Rem Code § 41.0105 - “Evidence Relating to Amount of Economic Damages.” – In 2003, the Texas state legislature passed House Bill 4,
comprehensive tort reform
– Section 41.015: “In addition to any other limitation under law, recovery of medical or health care expenses incurred is limited to the amount actually paid or incurred by or on behalf of the claimant.”
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• At what stage of the proceeding should this apply?– Does this rule limit the admissible evidence or merely
t li it t b li d b th j d bcreate a limit on recovery to be applied by the judge by molding a verdict?
• Haygood v. Escabedo, 356 S.W.3d 390 (Tex. 2011).
– Held:“Since a claimant is not entitled to recover medical charges that a provider is not entitled to be paid, evidence of such charges is irrelevant to the issue of damages …
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any relevance of such evidence is substantially outweighed by the confusion it is likely to generate, and therefore the evidence must be excluded.”
4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
School #2• Limits recovery to amounts paid based upon rule of
fairness under common law.C ll t l S R lCollateral Source Rulearguments unavailling.
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• Common law allows a plaintiff to recover the “reasonable value” of medical services. But the d fi iti f bl l h ld t it
Pennsylvania – Moorhead v. Crozer Chester Medical Center, 564 Pa. 156 (Pa. 2001) –“Reasonable Value”
definition of reasonable value should not permit an injured party to recover an amount greater than the amount actually paid or for which he/she incurred liability.
• Reliance upon Restatement (Second) of Torts, §911 Comment h (1977): “[N]ormally the amount recovered is the reasonable
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h (1977): [N]ormally the amount recovered is the reasonable value of the services rather than the amount paid or charged. If, however, the injured person paid less than the exchange rate, he can recover no more than the amount paid, except when the low rate was intended as a gift to him.”
4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
• Collateral source rule is inapplicable. The amount paid by the collateral sources (Medicare and Blue Cross) must be paid by the tortfeasor. “The collateral source rule does
Pennsylvania – Moorhead v. Crozer Chester Medical Center, 564 Pa. 156 (Pa. 2001) –“Reasonable Value”
be paid by the tortfeasor. The collateral source rule does not apply to the illusory charge of $96,500.01 since that amount was not paid by any collateral source.”
• Allowing the plaintiff to recover would be a windfall to the plaintiff “and would violate fundamental tenets of just compensation”:– remedies seek to put injured person in pre-tort position
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p j p p p– injured party cannot recover twice for same injury– unjust enrichment– injured person should be fairly compensated with the least
burden to the wrongdoer
• Recovery limited to those charges that are paid - “an injured plaintiff whose medical expenses are paid th h i t i i
California - Howell v. Hamilton, 52 Ca.4th 541 (Ca. 2011)
through private insurance may recover as economic damages no more than the amounts paid by the plaintiff or his or her insurer for the medical services received or still owing at the time of trial.”
• No recovery for written-off charges because “no such recovery is allowed for the simple reason that the
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recovery is allowed, for the simple reason that the injured plaintiff did not suffer any economic loss in that amount.” Citing Civ. Code §§ 3281, 3282 –defining compensatory relief
4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
• Collateral source rule not violated - “The negotiated rate differential is not a collateral payment or benefit
bj t t th ll t l l ”
California - Howell v. Hamilton, 52 Ca.4th 541 (Ca. 2011)
subject to the collateral source rule.”
• Evidentiary loophole – “[E]vidence of that full billed amount is not itself relevant on the issue of past medical expenses. We express no opinion as to its relevance or admissibility on other issues, such as noneconomic damages or future medical expenses ”
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noneconomic damages or future medical expenses.
• Several California appellate court opinions since Howell have allowed the full amount charged into evidence.
School #3• “Benefit of the bargain” – Award the full value of the
medical expenses, including t t l dj t tany contractual adjustments
or write-off amounts, where the plaintiff has paid some consideration for the benefit of the contractual adjustment.
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4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
• “[T]o the extent that the write-offs were procured through the payment of the premiums, they cannot properly be considered a windfall Rather the write-
Louisiana – Bozeman v. Louisiana, 879 So.2d 692 (La. 2004)
properly be considered a windfall. Rather, the write-off amount was viewed as a benefit to plaintiff's contractual bargain with her insurance provider.”
• Not allowing the recovery would violate the collateral source rule.
• However, Medicaid recipients are unable to recover
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any amounts adjusted or written-off.– “[W]here the plaintiff pays no enrollment fee, has no wages
deducted, and otherwise provides no consideration for the collateral source benefits he receives, we hold that the plaintiff is unable to recover the "write-off" amount.
• “We hold that Lopez was entitled to claim and recover the full amount of her reasonable medical expenses for which she was charged without any reduction for the
which she was charged, without any reduction for the amounts apparently written off by her healthcare providers pursuant to contractually agreed-upon rates with her medical insurance carriers.”
• Legislature’s job to abandon the collateral source rule in this area – “absent any such limiting statute or supreme
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court authority suggesting that the collateral source rule does not control in a situation such as that presented here, we join with the majority of courts in finding it applicable.”
4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
Practical Considerations• Arguments should be made even in
those states which have historically allowed recovery of the full billed yamount. Urge a change in the law.
• Look for statutes which may affect this type of recovery. More state legislatures are addressing these issues as tort reform.
• Motion in Limine - to prevent Plaintiff putting into evidence his
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Plaintiff putting into evidence his medical or health care provider bills that reflect charges that have been either contractually adjusted or written-off. Do not be satisfied with “molded verdict” solution.
Environmental Claims Issues
PRESENTED BY
Environmental Claims Issuesin Bankruptcy
Earl M. Forte, Blank Rome LLP
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4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
• (1) When a company files for bankruptcy reorganization, do pre-bankruptcy environmental claims asserted against the company by governmental agencies become discharged or do
I. Two Areas Addressed
company by governmental agencies become discharged or do they continue after the reorganization?
• (2) If a company in bankruptcy is faced with substantial environmental lawsuits, do those lawsuits get resolved in the bankruptcy court or in the court where the lawsuits were originally filed?
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originally filed?
• Only “claims” are discharged in bankruptcy. In re Quigley Co., 383 B.R. 19, 25 (Bankr. S.D.N.Y. 2008. 11 U S C § 101(5) d fi “ l i ”
II. Only “claims” are dischargeable
11 U.S.C. § 101(5) defines a “claim” as:– “(A) right to payment, whether or not such right is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or
– (B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment fixed contingent matured
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equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured”.
4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
• Are environmental cleanup obligations dischargeable “claims” under § 101(5)(B)?
– Usually not, unless the agency has a right to seek payment for money damages under the statute it used to obtain the cleanup order. Mark IV Industries, Inc. v. New Mexico Environmental Department, etc., 11 Civ. 648 (SAS) (S.D.N.Y. September 28, 2011).
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• In Mark IV, the Debtor asked SDNY bankruptcy court to determine that New Mexico’s cleanup injunction
i t it f d t ll ti bt i d dagainst it for ground water pollution obtained under the state’s Clean Water Act, was a dischargeable “claim” because NM had the option to seek money damages under the Hazardous Waste Act and CERCLA.
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4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
• The district court in Mark IV rejected this argument by the Debtor and affirmed the bankruptcy court:
Citi I Ch t C ti 944 F 2d 997 (2 d Ci– Citing In re Chateaugay Corporation, 944 F. 2d 997 (2nd Cir. 1991) and other case law, the SDNY ruled in Mark IV that the fact NM had proceeded under the state Clean Water Act and not under another statute that allowed money damages, was irrelevant to whether or not the cleanup order was a dischargeable “claim” and to hold otherwise would make all environmental claims dischargeable which
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would make all environmental claims dischargeable, which is not what the law intended, especially with ongoing pollution.
• The district court in Marks IV that the correct focus is on the statute the agency actually used, not on what it could have used Marks IV at 29used. Marks IV at 29.
• The court in Marks IV also noted that In In re Chateaugay, the 2d Circuit had established a rule that most environmental claims are non-dischargeable. Id.
• “Ongoing” pollution at the site was a further reason for non-dischargeability. “Ongoing” pollution can be caused by pre-
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bankruptcy or post-bankruptcy activities. Mark IV involved a moving “plume” of ground pollution created pre-bankruptcy.
4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
• In Marks IV, the district court also concluded that was a material issue of fact raised by the parties’ experts about whether there was or was not “ongoing” pollution at the sitewhether there was or was not ongoing pollution at the site which precluded summary judgment. Mark IV at 38.
• The Debtor in Mark IV appealed to the Second Circuit, Mark IV Industries, Inc. v. The New Mexico Environmental Dept. et al., No. 11-4570 (2d Cir.), but the appeal was withdrawn by agreement of the parties in late 2011, so the district court decision in Marks IV stands
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decision in Marks IV stands.
• MDL defendant files for bankruptcy. Do claims against it get decided in the MDL court or in the b k t t?
IV. What Court Decides Environmental Claims?
bankruptcy court?
• 11 U.S.C. § 502(c), provides for claims to be estimated in the bankruptcy court. Or, withdraw reference/abstain, go to MDL court. Parties can agree. E.g. In re Pilgrim‘s Pride, etc., 2009 Bankr. LEXIS 2692 (Bankr N D Tex 2009)
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LEXIS 2692 (Bankr. N.D. Tex. 2009).
4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
Chemical Controls and the Toxic Substances Control Act
Margaret A. Hill, Blank Rome LLP
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• Reenacted in 1976; no amendments to date despite Congressional efforts
TSCA Debate
• EPA’s current position: TSCA does not provide EPA with a mandatory duty to evaluate safety of existing chemicals (so states are taking independent regulatory actions)
• Manufacturers do not have to generate health and f t d t
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safety data
• Question posed by EPA is: when to use its authority under Section 6 of TSCA
4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
• Section 6 of TSCA requires EPA to prove that it has substantial evidence that a chemical poses an
bl i k b f it b t i t t k
TSCA Debate
unreasonable risk before it can ban, restrict, or take other actions to manage that risk; requires EPA to use the least burdensome means to adequately protect against the unreasonable risk.
• Agency announced it will undertake risk assessments for 83 chemicals (March 5 2012) EPA will then
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for 83 chemicals (March 5, 2012). EPA will then issue risk management plans (agency has been issuing action plans since December 2009).
• Amends the TSCA Inventory Update Reporting Rule; increases the type and amount of information that cos Are required to report
Chemical Data Reporting Rule (August 2011)
cos. Are required to report
• Affects chemical substance manufacturers, importers, as well as users and processors who may manufacture a byproduct chemical substance
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• Designed to address environmental groups and others’ concerns as to transparency and control over chemicals in the US given the lack of TSCA legislative amendments
4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
• Entities must report if they manufacture (including as a Byproduct or import) for commercial purposes chemical substances listed on the TSCA Inventory and produced in volumes of 25 000 pounds or more during the principalvolumes of 25,000 pounds or more during the principal reporting year (which is Calendar Year 2011).
• 2012 Submission was scheduled to occur from February 1 to June 30.
• Information includes consumer and commercial product t i t d t t i l k
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categories to demonstrate uses, commercial workers reasonably likely to be exposed; etc.
• Substantiation must be submitted for processing and use data claimed as “CBI”
• EPA plans to begin work in 2013 to identify chemicals for additional data collection and analysis and to b i th ti f i li f did tbegin the creation of a pipeline of candidate chemicals for future risk assessment and reduction.
• EPA plans to make addition CBI information available; looking for stakeholder input
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4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
• TSCA Petition for Rulemaking Concerning Chemical Substances and Mixtures Used in Oil and Gas E l ti P d ti (O i d St t )Exploration or Production (Overview and Status)
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Chemical Regulation:
PRESENTED BY
Chemical Regulation:State Law Overview
Heather L. Demirjian, Blank Rome LLP
203
4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
• July 23, 2012 - Safer Consumer Products Proposed Regulations
Broad Sweeping and Complex
California Green Chemistry Initiative and Safer Consumer Products Regulations
– Broad, Sweeping and Complex– Applies to Any Manufacturer, Importer or Retailer of a
Consumer Product Sold in California– Four-Step Regulatory Process
• (1) DTSC Establishes List of “Chemicals of Concern”• (2) DTSC Identifies “Priority Products”
(3) R ibl E titi N tif DTSC d P
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• (3) Responsible Entities Notify DTSC and Prepare Alternatives Analysis
• (4) DTSC Takes Regulatory Action to Limit or Prevent Public Health and/or Environmental Impacts
• Step 1 – DTSC Establishes List of Chemicals of Concern
California Green Chemistry Initiative and Safer Consumer Products Regulations
– List of Approximately 1,200 Chemicals of Concern Within 30 Days of Effective Date
– Including Substances Already Identified as Exhibiting Hazard Trait , Environmental/Toxicological Endpoint, On Lists Developed by Other Agencies/Organizations
– Exemptions for Certain Types of Products and Products
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p ypSolely for Use Out-of-State
– No Exemptions for Individual Chemicals
4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
• Washington Children’s Safe Product Act– Chapter 70.240 RCW (2008)
T P t
Chemical Regulation - Other States
– Two Parts
• Limitations on Amount of Lead, Cadmium and Phthalates in Children’s Products After July 1, 1999 (Preempted by Consumer Product Safety Improvement Act)
• Dept. of Ecology Develops List of Chemicals that Manufacturers Must Report On
Reporting Obligations Phased In Beginning August 2012
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– Reporting Obligations Phased-In Beginning August 2012
• DOE Guidance On Alternative Assessment but No Authority to Require Submission of Alternative Assessment
• Connecticut Act Concerning Child Product Safety– Conn. Gen. Stat. 21a-335, et seq. (2008, Amended 2009)
Chemical Regulation in Other States
– Overview
• Children’s Products Containing Lead Banned as Hazardous Substances
– Preempted by the Consumer Product Safety Improvement Act. Federal Lead Limits Enforced.
• Certificate of Disposition
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Certificate of Disposition
• Commissioners of Public Health and Environment List of Toxic Substances
4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
• Articles: Products where shape or design determines function to a greater degree than does chemical composition (e.g. toys, textiles, furniture)
• Manufacturer: produces or extracts substances in the natural state
• Formulator: makes or produces a mixture
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• Producer: makes or assembles an article
• What Must Be Registered? – Substances only; 1 metric ton threshold – Some limited exemptions
Registration Overview
– Some limited exemptions
• Who Must Register?– EU manufacturers and importers of substances – EU producers and importers of articles– Non-EU manufacturers, formulators, and producers MAY
register through “Only Representative”
• What Does Registration Require?
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What Does Registration Require?– Information requirements – collect all available existing
information from supply chain– Submit registration dossier – technical dossier and chemical
safety report
4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries
• “Phase-in” v. “Non Phase-in”– Phase-in substances were already being manufactured or placed on
EU market
Registration Regime
EU market
• Transitional Regime for Phase-in Substances– If pre-registered by December 2008, benefit from extended deadlines
– Late Pre-Registration permissible for first time producers/importers
– Non phase-in must submit “Inquiry” before registration
• Registration Deadlines
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– All non-phase-in substances and phase-in substances not pre-registered by 2008 MUST be registered before they can be manufactured, imported, or placed on the market in the EU
– Phase-in substances MUST be registered by deadlines based on tonnage
Registration Regime (cont’d)
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4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries