Pittsburgh Technology Council
(by Kevin Douglass, Carla Castello and Stephen Antonelli)
Today’s businesses are subject to increasing workplace scrutiny concerning possible misconduct of their owners, officers, management, and personnel. When faced with an allegation that can potentially expose the company to legal, financial and reputational harm, it is critical that the company promptly investigate the facts and assess the business risk in order to make an informed decision on the best course of action.
Is an Internal Company Investigation Warranted?
Employee complaints, or even allegations from third parties, concerning improper workplace conduct should always be taken seriously. Whether the claims involve an entry level employee, a manager, a corporate officer, or anyone in between, the company should assess whether the allegations, if true, would constitute violations of law or company policies, or otherwise materially impact the company’s finances, culture, reputation, or workforce.
Workplace investigations are often sensitive. Employees may be reluctant to step forward and become the center of an investigation. They may also fear backlash from the individual(s) being investigated, particularly if they carry significant clout within the company. The company can assuage those concerns by reminding employees involved in the investigation of the company’s obligation to comply with applicable anti-retaliation laws and company policies. The company should also explain that it will perform the investigation with impartiality and (as much as possible) confidentiality, and that it will comply with the organization’s policies and procedures while minimizing business disruption.
Planning for and Conducting the Investigation
At the outset, the company must define the scope and purpose of the investigation (i.e. identify the allegations and the reasons for undertaking the investigation), select an investigation team, and determine a timeline for the investigation. It is important to recognize that the scope may shift as the investigation progresses and information is gathered. The team needs to implement measures designed to protect the attorney-client privilege and the attorney work product doctrine, including defining the roles of both internal and/or external attorneys and determining whether counsel will lead the investigation. The company should also identify the employees who will serve as the points of contact with the investigation team and the frequency and manner in which they will be kept informed of the investigation’s progress.
Another critical consideration is the preservation, collection, and review of key documents, including e-mails and text messages. In that regard, the organization’s document retention policy must be reviewed, and a notice issued to ensure the preservation of relevant communications and other documents that could become evidence in potential subsequent litigation. The team should also evaluate whether to engage a third-party to collect documents in a forensically sound manner from company-issued electronic devices. It is helpful to compile at the outset a list of potential people to be interviewed, including current and former employees, consultants, and any other individuals with pertinent information, including the person(s) who is the target of the investigation. Typically, the target of the investigation will be interviewed near the conclusion of the other interviews.
When planning for interviews, the investigation must balance the need for a thorough investigation while maintaining confidentiality and meeting timelines. How many interviews should be conducted and which interviews are critical to the investigation? It is recommended that the investigation team explain during the interviews the importance of confidentiality and, if counsel is conducting the interview, also emphasize that counsel represents the company, not the individual being interviewed. It is critical to exercise care concerning the manner in which the records witness statements or facts in interview notes, as those notes may become discoverable in potential subsequent litigation. Moreover, attorneys’ impressions or communications of the interviews should be separately recorded and protected.
Concluding the Investigation
As the investigation proceeds, the company should determine whether to prepare a written or verbal report, or materials for a presentation. If issuing a written report, the company should take appropriate steps to ensure confidentiality and privilege where appropriate. The company must then decide whether the investigation team will simply report its findings or take the additional step of recommending a course of action, up to and including disciplinary measures. Ultimately, management, the board of directors, or other decision makers must act in the best interests of the organization and decide what, if any, action is necessary to address the allegations that led to the investigation. At the investigation’s conclusion, the company should inform the complaining employee(s) as well as the target(s) of the outcome while reminding them of the company’s interest in maintaining confidentiality.
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Babst Calland has been recognized in the 2025 edition of Best Law Firms®, ranked by Best Lawyers®, nationally in 8 practice areas and regionally in 38 practice areas:
- National Tier 2
- Environmental Law
- Land Use and Zoning Law
- Litigation – Construction
- Litigation – Environmental
- National Tier 3
- Energy Law
- Mining Law
- Natural Resources Law
- Oil and Gas Law
- Regional Tier 1
- Pittsburgh
- Bet-the-Company Litigation
- Commercial Litigation
- Construction Law
- Corporate Law
- Energy Law
- Environmental Law
- Land Use and Zoning Law
- Litigation – Construction
- Litigation – Environmental
- Litigation – Land Use and Zoning
- Municipal Law
- Natural Resources Law
- Water Law
- Charleston-WV
- Business Organizations (including LLCs and Partnerships)
- Commercial Litigation
- Energy Law
- Environmental Law
- Litigation – Environmental
- Oil and Gas Law
- Regional Tier 2
- Pittsburgh
- Information Technology Law
- Labor Law – Management
- Real Estate Law
- Charleston-WV
- Arbitration
- Banking and Finance Law
- Commercial Transactions / UCC Law
- Corporate Law
- Mining Law
- Natural Resources Law
- Washington, D.C.
- Energy Law
- Environmental Law
- Litigation – Environmental
- Oil and Gas Law
- Regional Tier 3
- Pittsburgh
- Litigation – Labor and Employment
- Charleston-WV
- Bankruptcy and Creditor Debtor Rights / Insolvency and Reorganization Law
- Bet-the-Company Litigation
- Litigation – ERISA
- Mergers and Acquisitions Law
- Real Estate Law
Firms included in the 2025 Best Law Firms® list are recognized for professional excellence with impressive ratings from clients and peers. To be considered for this milestone achievement, at least one lawyer in the law firm must be recognized in the 2025 edition of The Best Lawyers in America®.
Achieving a ranking in Best Law Firms signifies high-quality legal practice and a depth of legal proficiency. Recognized firms, categorized into three tiers, receive acclaim on both national and metropolitan levels, reflecting the extent of their practice and geographic reach. Receiving a tier designation represents an elite status, reflecting the integrity and reputation earned by law firms.
Receiving a tier designation represents an elite status, integrity and reputation that law firms earn among other leading firms and lawyers. The 2025 edition of Best Law Firms® includes rankings in 75 national practice areas and 127 metropolitan-based practice areas. Additionally, one “Law Firm of the Year” was named in each nationally ranked practice area.
Click here to view the Best Law Firms® profile.
Employment and Labor Alert
(by Janet Meub)
In case you haven’t noticed the yard signs popping up like mushrooms, the constant barrage of television and radio advertisements, or the unsolicited text messages from unknown numbers, we are in the homestretch of election season. For those employers with questions on how to handle political speech in the workplace, especially during the last few days before (and hopefully not much beyond) Election Day, here is a refresher on the basics for private employers.
The First Amendment to the U.S. Constitution prevents the government from enacting laws to prohibit the free exercise of speech and assembly, among other liberties. It does not apply to private employers. Where there is no state action involved, there is no unfettered right to free speech in a private place of employment. Quite simply, a private employer can enact rules to keep political expression from its workplace. Some employers prohibit political speech in the workplace to avoid potential disruptions to business operations, customer relations, or employee morale.
If an employer adopts a policy concerning political expression and messaging, it must do so fairly and consistently, and it should be inclusive and consistent to avoid the perception of favoritism or discrimination. In other words, if an employer requires Meghan to remove her Kamala button, it should also direct Dennis not to wear his Trump t-shirt. Remote workers are still “in the workplace” when they participate in virtual meetings, so there are no separate rules for them.
When enacting rules about political expression and messaging in the workplace, private employers should of course remain aware of the National Labor Relations Act (NLRA), which applies to both union and non-union settings, and among other things protects employees’ ability to engage in concerted activity or to discuss the terms and conditions of their employment. Therefore, private employers must be mindful of a potential nexus or overlap between employees’ political speech and discussion of working conditions. Under the NLRA, for instance, employees may distribute information during non-working time about a candidate’s stance on a particular issue that may also constitute a complaint about the employees’ working conditions.
Regardless of whether a private employer takes steps to keep political speech from the workplace, they should always promote an atmosphere of civility and respect in the workplace. If you have questions about managing political speech in your workplace, please contact Janet Meub at (412) 394-6506 or jmeub@babstcalland.com or any of our other employment and labor attorneys.
The Legal Intelligencer
(by Janet Meub)
Clients come and go. There is no guarantee that you will keep the work. This is true for many reasons. You can win every trial and cost-effectively resolve every case for a client who will transfer the work to another firm or attorney willing to charge a lower billable rate. The claims examiner who directly assigns you cases leaves the insurance company or is replaced. The company’s new general counsel chooses to use her law school classmate for the transactional work you provided for years. Perhaps you do not reciprocate the inappropriate crush the assignor of work has on you (yes, this can happen to women in the law). The court rules in your client’s favor, eliminating 20 cases nationwide. A corporate client is sold or goes bankrupt. Or maybe the work stays (and stays…), and you want to leave! You will land new clients or land on your feet in a more supportive environment if you embrace the unfamiliar by saying “yes” to new work, experiences and opportunities.
******
I graduated from law school in 2001 and began working at a 15-attorney general practice firm in Youngstown, Ohio. My first “litigation” experience occurred the day after my swearing-in ceremony. A partner sent me to the Mahoning County Courthouse to take a debtor’s exam. I was nervous about my lack of experience, afraid to appear “green,” and uncomfortable asking the 60-some year-old debtor probing questions about his obviously precarious financial situation. Despite being asked out by the debtor and my pen leaking ink all over my face and new suit, I walked back to my office with confidence. However, my anxiety and discomfort in the face of new professional opportunities has never fully dissipated, and that’s okay.
During my first two years of practice, my assignments were varied – from attending workers compensation hearings on behalf of employers to assisting a university client on real estate and land bank transactions, filing residential foreclosures, and fighting traffic tickets in municipal court (for the managing partner because “it was good courtroom experience”) to attending bankruptcy hearings on behalf of creditors, and more. With the bottom name on the firm letterhead, it was my responsibility to answer the cold calls from people “looking for an attorney to do X, Y and Z.” Feeling the pressure to bring in my own work and demonstrate my value to the firm, I took on a child custody case and a dispute with a mortgage company from these calls. I was frantically researching different areas of the law to find the answer to that day’s dilemma. I was, as they say, a jack of all trades, master of none. I longed to be an expert on one topic.
A law school classmate tipped me off about a job at a firm in Pittsburgh where I could increase my salary and perhaps hone my skills in one practice area. I moved to Pittsburgh in 2003 to start anew. This would be my niche. For the next 15 years, I defended physicians, podiatrists, counselors, psychiatrists, dentists, nurses, and chiropractors in negligence cases. While every case required mastering some new (to me) aspect of medicine, the procedural course (preliminary objections, discovery, depositions, expert review, summary judgment, trial) and the legal theories remained the same. I made partner. And, as I had hoped, I was able to navigate my clients through the legal process and manage the emotional trauma of having their professional reputations publicly questioned. I will not say that it was without its challenges, but my practice became routine. I knew what to do and when. I knew what experts to engage depending on my clients’ specialties or the medical issues involved.
For whatever reason, at every one of my firms, I am the attorney that coworkers seek when a friend or family member needs help. A partner at one of my first firms bought me a Lucy from Peanuts “Psychiatric Help 5 ₵/The Doctor is In” sign to hang on my office door, commenting that there was always a line to see me. Save for a few times when the matter was too complicated or required special experience (taxes!), I have generally said “yes” when asked to assist. While helping people makes me feel good, the pressure I place on myself (to do a good job, to not disappoint, to get up to speed while juggling a full caseload) and the scary uncertainty when tackling something new is intense. All of these exercises outside of my comfort zone were confidence-building and exposed me to new people and new challenges. In the long run, saying “yes” has paid off.
Through my med mal defense work, I became friendly with an experienced plaintiff’s attorney. He called me one day and asked me if he could recommend me to a non-profit to review its vendor contracts and provide general legal advice from time to time. He knew I was not a transactional attorney as we had tried two cases against each other in court, but he said that he knew the client would like me. He was sure about me, even if I was not sure about myself. What began as an occasional contract review led to more employment and professional liability work. I have done legal work for that same non-profit for the past eight years. It followed me to my current firm.
Another time, one of my partners asked me if I might handle the labor negotiations for a successor collective bargaining agreement for one of his clients. He was nearing retirement, wanted to transition out of the labor practice, but he also wanted to keep the work at the firm. He promised the client that he would stay involved “while training someone younger.” Then, at not the ideal time for me, dealing with two sudden family emergencies, I was asked to take on labor negotiations for a client two hours away (pre-pandemic, pre-Zoom). But, I said, “Yes, and I loved the work. Ultimately, this led to assisting another colleague with labor negotiations and helping with his employment caseload. I said to a friend who wanted to submit my resume for an employment litigation position, “Why not,” and here I am.
I have listened to attorney friends bemoan their circumstances at lunches and happy hours for more than two decades. A law school classmate asked me years ago if she should leave her firm because she felt that she was not getting the trial experience she wanted. My friend worked for a partner who never let her sign the pleadings she drafted or contact the client directly. She agonized over her situation, but she stayed at her firm making partner on schedule. However, it was 15 years before she finally tried a case on her own! Another friend was hired to work in a practice group that left three months after his joining the firm, but he has remained there for years doing “mind-numbing” work and is paralyzed at the thought of starting over.
You may have your own fears and insecurities. You may have achieved a status you are unwilling to lose. You may truly be stuck in your current position because of age or finances. However, it is possible to improve your work situation without uprooting yourself. For example, saying yes to taking on new work or a pro bono or a best interest case, handling a landlord-tenant dispute, serving as a guardian ad litem, or representing an indigent client may provide new experiences, and also, you may discover a new “you” after all.
Janet Meub is senior counsel in the Litigation and Employment and Labor groups of Babst Calland. She has significant experience in the areas of employment and labor law, professional liability defense, insurance coverage and bad faith litigation, toxic tort litigation, nursing home negligence, and medical malpractice defense. She has a diversified practice that includes defending employers, healthcare providers, law enforcement and other professionals, and non-profits, at all levels of civil litigation through trial. She may be contacted at jmeub@babstcalland.com or 412-394-6506.
To view the full article, click here.
Reprinted with permission from the October 18, 2024 edition of The Legal Intelligencer© 2024 ALM Media Properties, LLC. All rights reserved.
Latest Developments In Policies, Laws and Regulations Shaping the Future of Business and Industry
On October 16, 2024, Babst Calland hosted its inaugural Client CLE Day at Acrisure Stadium. This full-day continuing legal education (CLE) program addressed the latest developments in policies, laws, and regulations shaping the future of business and industry. Topics included challenges facing in-house counsel, climate change litigation, the politics of energy law, ethical considerations for internal investigations, the end of the modern administrative state, and much more. In addition to offering high-quality CLE programming, the event featured tours of Acrisure Stadium and a tailgate-themed networking reception.
Below are the topics discussed in the various sessions throughout the day representing the legal and regulatory perspectives of Babst Calland attorneys across a wide spectrum of legal practice areas:
- Appalachia Appeal: Pennsylvania and West Virginia Appellate Roundup
This CLE presented by attorneys Casey Coyle, Michael Libuser, and Robert Stonestreet provided a survey of important, headline-grabbing Pennsylvania and West Virginia civil appellate cases decided within the last two years or currently pending before an appellate court in either state. The topics of the appeals included nuclear verdicts, jurisdiction, venue, forum non conveniens, arbitration, environmental law, liability, royalty, and damages.
- Proactive Strategies to Prevent and Handle High-Stakes Environmental Litigation
This experienced panel, comprised of Babst Calland corporate attorney Ben Clapp, consultant Kurt Herman of Gradient, and Babst Calland litigators Jim Corbelli and Christina McKinley discussed the various considerations that inform environmental litigation concerns, from their inception (e.g., contractual negotiations and drafting) to their conclusion (e.g., through trial and appeals). The panel also discussed the implications of, and strategic calls presented by different fora, whether federal court or state tribunals. The discussion examined common and unique pitfalls in the process, as well as hypothetical scenarios.
- The Politics of Energy
A panel discussion about how upcoming elections on the national and local level may impact energy policy and development. The panel was moderated by Tim Miller, co-chair of Babst Calland’s Energy Litigation team, with analysis and commentary by Jim Curry, Managing Shareholder of the Washington, D.C. office of Babst Calland, and A. Moore Capito, recent candidate for Governor of West Virginia and former member of the West Virginia legislature.
- Breaking Down SCOTUS’ Recent Administrative Law Decisions: How (Loper) Bright Is the Future for Regulated Entities?
The final days of the Supreme Court’s October 2023 Term saw the issuance of major administrative law decisions that have the potential to reshape how the public and regulated entities interact with the federal government. Panelists Kevin Garber, Keith Coyle, and Stefanie Mekilo provided a comprehensive overview of that trio of decisions—Loper Bright v. Raimondo; Corner Post v. Board of Governors of the Federal Reserve System; and SEC v. Jarkesy—and explored the new opportunities they could bring for regulated entities with robust discussion of what these decisions did (and did not) say, as well as what they mean for agency authority, adjudications, and enforcement actions moving forward.
- Key Developments in U.S. Climate Change-Related Litigation, Regulation, and Legislation
Panelists Gary Steinbauer, Varun Shekhar, and Gina Falaschi Buchman covered key recent developments in climate change law in the United States. In addition to a discussion of pending and recently decided state and federal cases, the panel discussed newly enacted and proposed climate-change legislation, proposed and promulgated regulations, rule challenges, and climate-related financial disclosure laws and regulations.
- Legal Ethics in the Age of AI: What In-House Counsel Need to Know
This session explored the intersection of legal ethics and artificial intelligence (AI) and the evolving landscape of AI and its implications for legal professionals. Panelists Chris Farmakis, Susanna Bagdasarova, and Justine Kasznica discussed the ethical challenges and opportunities facing both in-house and outside counsel when leveraging AI tools. Attendees gained practical insights into developing internal AI use policies and best practices and understanding and addressing key risks associated with AI implementation by employees and third-party vendors, including bias, intellectual property, data privacy, and cybersecurity.
- Inside the Investigation: Ethical Challenges in Internal Inquiries
“Inside the Investigation: Ethical Challenges in Internal Inquiries” was a panel discussion that delves into the nuts and bolts of internal corporate investigations, offering a behind-the-scenes look at how these inquiries are conducted from start to finish. Panelists Steve Antonelli, Erin Hamilton, and Carla Castello broke down key phases such as planning, evidence collection, interviewing, and reporting, providing practical insights and exploring common pitfalls, best practices, and strategies for navigating confidentiality, conflicts of interest, and privilege issues while adhering to professional conduct standards. This session aimed to equip legal professionals with the knowledge to effectively navigate the complexities of internal inquiries with confidence and precision.
- Challenges Facing In-House Counsel
In-house legal counsel have a unique role as both lawyers and business partners with their internal clients. As a result, they must often act as both legal and business advisors in navigating the challenges faced by their businesses; often at the same time and while justifying their status as cost centers versus capital creators. This panel, led by Babst Calland’s Jim Chen, formerly VP of Public Policy and Chief Regulatory Counsel of Rivian, with panelist Sara Antol, Babst Calland corporate and commercial attorney and former General Counsel of Tollgrade Communications, and special guests Jim Miller, COO and General Counsel of Mongiovi & Son and Jessica Sharrow Thompson, Senior Counsel EHS & Sustainability of PPG, examined the unique role of in-house counsel, the challenges they face and some of the ways panelists have creatively stood up to those challenges in creating value for their companies and themselves.
As developments in policies, laws, and regulations shape the future of businesses and industries, Babst Calland’s multidisciplinary team of attorneys continues to stay abreast of the many legal and regulatory challenges. For questions about any of the topics discussed, please contact the attorneys listed above. For more information about Babst Calland and our practices, locations and attorneys, visit babstcalland.com.
Pretrial Practice & Discovery
American Bar Association Litigation Section
(by Alexandra Graf)
Prior to the recently decided U.S. Supreme Court case Coinbase, Inc. v. Bielski, 216 L.Ed.2d 671 (2023), there was a circuit split as to whether an interlocutory appeal of a denied motion to compel arbitration forces the district court to stay the underlying proceedings. Pursuant to the Federal Arbitration Act, 9 U.S.C. § 16(a), “when a district court denies a party’s motion to compel arbitration, that party may make an interlocutory appeal.” This is a statutory exception to the typical rule that parties may not appeal before a final judgment is rendered. In a 5–4 decision, the Court held that the district court must stay its pretrial and trial proceedings while the interlocutory appeal on arbitrability is ongoing. This ruling incentivizes parties to enforce their arbitration clauses because a motion to compel arbitration is not shielded from appeal as other pretrial orders are, and the underlying matter will now be stayed until resolution of the appeal.
The U.S. Court of Appeals for the Fifth and Ninth Circuits previously held that whether the underlying district-court proceedings were stayed during an interlocutory appeal of this nature was a decision for the district court judge to make at their discretion. In the remaining circuits, the underlying case was automatically stayed upon an interlocutory appeal of a denied motion to compel arbitration. In resolving this circuit split, the Court relied on the Griggs rule, which is a longstanding concept of procedure that states that an appeal, including an interlocutory appeal, “divests the district courts of its control over those aspects of the case involved in the appeal.” Griggs v. Provident Consumer Disc. Co., 459 U.S. 56, 58 (1982). The Court in Coinbase reasoned that to stay the underlying case is “common sense,” in part, because allowing a case to proceed simultaneously in the district court and the court of appeals wastes scarce judicial resources on a dispute that will “ultimately head to arbitration.”
Four justices dissented on the principle that district courts should have more discretion than the majority’s automatic-stay approach grants. The dissent argued that the majority’s approach “comes out of nowhere” and goes against the traditional approach that district-court judges may consider the facts and circumstances of the particular case when deciding whether to stay the underlying case upon an appeal of a denied motion to compel arbitration, which allows for “a balancing of all relevant interests.” The dissent also argued that the Griggs rule is a narrow principle that stands for the proposition that “two courts should avoid exercising control over the same order or judgment simultaneously.” Thus, it should not support the general stay rule that the majority has created because the interlocutory appeal of an order declining to compel arbitration is separate from the underlying district court case, which contains matters other than arbitrability.
Ultimately, the Court settled the circuit split by holding that an interlocutory appeal of the denial of a motion to compel arbitration stays the underlying district-court case. Those practicing in federal court should keep this in mind when litigating cases where an arbitration clause is involved. When deciding whether to appeal the denial of a motion to compel arbitration or to oppose a party seeking to compel arbitration, attorneys must weigh the factors of timing, cost, and overall strategy in advocating for the best interests of their client.
To view the full article, click here.
© 2024. Discovery Disputes: Best Practices from the Bench, Pretrial Practice & Discovery, American Bar Association Litigation Section, July 27, 2024 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
PIOGA Press
(by Christian Farmakis, Susanna Bagdasarova, Kate Cooper, and Dane Fennell)
By now, you have likely heard about the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) Beneficial Ownership Information Reporting Rule (the “Rule”) from your accountant, attorney, or business colleagues. Promulgated under the Corporate Transparency Act (“CTA”), the Rule requires most business entities to disclose information to FinCEN about their ‘beneficial owners’: individuals who directly or indirectly own or control such entities.
Enacted as part of the Anti-Money Laundering Act in 2021, the CTA is intended to “prevent and combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activity.” The Rule aims to enhance transparency and support the mission of the CTA by requiring domestic and U.S. registered foreign entities to report information about their beneficial owners to FinCEN. Most entities in the U.S. will likely be required to comply with the Rule, and FinCEN estimates approximately 32 million business will be required to make a filing. The Rule exempts 23 types of entities from reporting requirements, primarily large or regulated entities already subject to various reporting requirements, such as banks, SEC-reporting companies, insurance companies, and ‘large operating companies’, as well as wholly owned subsidiaries of the foregoing. Entities formed before January 1, 2024, have until 2025 to comply, while entities formed in 2024 have a 90-day compliance period.
Under the Rule, reporting companies must provide detailed personal identifying information for each individual beneficial owner, including name, date of birth, residential street address, and unique identifying number (such as a passport or driver’s license number). A ‘beneficial owner’ is a natural person who directly or indirectly owns or controls at least 25% of the ownership interests of a reporting company or who exercises ‘substantial control’ over the reporting company. Both ‘substantial control’ and ‘ownership interests’ are defined broadly to prevent loopholes allowing corporate structures to obscure owners or decision-makers. Companies formed after January 1, 2025, must also provide this information for ‘company applicants’, the individuals who make or direct the filing of a reporting company’s formation or foreign registration documents. The Rule also requires supplemental filings to be made within 30 days of any change to any of the reported information, for example, a change in residential address. Businesses will need to monitor changes in ownership and management throughout the year for compliance purposes.
FinCEN is authorized to disclose the reported information upon request under specific circumstances to federal agencies engaged in national security, intelligence or law enforcement activities and to state local and tribal law enforcement agencies, as well as certain other limited entities. Failure to comply with the requirements may result in potential civil and criminal consequences, including civil penalties of up to $500 per day a violation has not been remedied and criminal penalties of $10,000 and/or up to two years in prison for willful noncompliance.
The future of enforcement is uncertain as the Rule is currently being challenged in the courts on constitutional grounds. Reporting requirements have been paused for certain entities following an injunction issued by the Northern District of Alabama on March 1, 2024, which ruled the CTA unconstitutional because it exceeds Congress’s enumerated powers. With this and other cases challenging the validity of the Rule making their way through the courts, what should companies do in the meantime? Given the uncertainty about the constitutionality of the Rule and future enforcement, we recommend the following:
- New entities formed or registered on or after January 1, 2024, and before January 1, 2025, should comply with the applicable reporting requirements and make their filings within 90 calendar days after formation or registration.
- Existing entities formed or registered prior to January 1, 2024, should begin their reporting analysis now to ensure compliance in advance of the New Year’s deadline.
Every entity organized under U.S. law or registered to do business in the U.S. will need to determine (i) whether it is exempt from reporting requirements and (ii) if not, what information it must report. Companies with simple management and ownership structures may be able to navigate the filing on their own. However, where complex management or ownership structures or uncertainty about determinations of beneficial ownership or substantial control exist, an attorney can help you avoid missteps.
To view the full article, click here.
Reprinted with permission from the October 2024 issue of The PIOGA Press. All rights reserved.
The Legal Intelligencer
(By Max Junker and Morgan Madden)
Ordinance enforcement is an essential function for a municipality to keep its residents and community functioning efficiently. Indeed, the goal of zoning enforcement is to “ensure compliance with [an] ordinance such that the community is protected. Borough of Bradford Woods v. Platts, 79 A.2d 984 (Pa.Cmwlth. 2002). The Pennsylvania Municipalities Planning Code (“MPC”) sets forth a straightforward mechanism to enforce a municipality’s zoning ordinance, but what happens when that enforcement process goes haywire? Small and seemingly innocuous departures from the specific requirements of the enforcement process and the provisions of the MPC can have significant and cascading consequences. Crossing and dotting the proverbial “t’s” and “i’s” at each step of the process will help to ensure the effective administration of a zoning ordinance.
An Effective Ordinance
Pursuant to the MPC, zoning ordinances may contain “provisions for the administration and enforcement” of such ordinance. 53 P.S. § 10603(c)(3). Despite the apparent optional nature to include such enforcement provisions in a municipality’s ordinance, inclusion of the same is fundamental to successful enforcement and must comply with the enforcement provisions in the MPC. An effective enforcement provision will put property owners on express notice of their rights and responsibilities relative to zoning ordinance compliance, and the enforcement procedures relative thereto. Effective ordinances clearly set forth policy goals for zoning ordinance compliance, establish expectations for compliance, and lay out the steps the municipality will take to enforce said expectations (i.e., its enforcement procedure and available remedies).
The Zoning Notice of Violation
The first official step in zoning enforcement for a municipality is the issuance of an enforcement notice. Section 616.1 of the MPC sets forth explicitly what must be included in a zoning notice of violation (“ZNOV”). A ZNOV must include: (1) the name of the owner of record and any other person against whom the municipality intends to take action; (2) the location of the property in violation; (3) a description of the specific violation and the requirements in the applicable ordinance sections that have not been met; (4) a specific timeline for compliance; (5) specific appeal entitlements; and (6) notice that failure to either remedy the violation or appeal constitutes a violation with possible sanctions clearly described. 53 P.S. § 10616.1.
Although the ZNOV requirements in the MPC are seemingly straightforward, it is not uncommon for an enforcement officer to inadvertently stray from those requirements and render the enforcement process ineffective. For instance, it is important to perform due diligence in identifying the owner, or owners, of record and each of those individuals must be named on the ZNOV. Failing to list all record owners on the ZNOV could render the ZNOV invalid or hinder further enforcement avenues. A simple assessment search can help avoid this issue. Once all owners are identified, best practice is to include the names of all owners on the ZNOV and mail a copy via certified mail to the registered address of each individual owner, even if they live at the same address, and to post the property with the ZNOV.
Another common ZNOV mishap is the failure to identify the violation with sufficient specificity. The Commonwealth Court has regularly held that failure to include a citation to a specific ordinance section alleged to have been violated will render a ZNOV invalid. See, Twp. of Maidencreek v. Stutzman, 642 A.2d 600 (Pa.Cmwlth. 1994) (stating that, “as used in [S]ection 616.1(3),” the term “cite” means a “specific numerical reference to the ordinance section which the township asserts the landowners have violated”). Simply alleging that the “zoning ordinance” or even a chapter thereof has been violated is insufficient.
Keeping in line with specificity requirements, direct references to the timeline for compliance and a property owner’s appeal rights are necessary in a valid ZNOV. It is strongly encouraged that ZNOV drafters avoid phrases like “in two weeks” or “by the end of the month,” and instead provide a property owner with a (reasonable) date by which to remedy the violation. Similarly, simply informing a property owner of an entitlement to an appeal of a ZNOV does not pass muster. The law requires that a property owner be informed of the right to appeal a ZNOV to the Zoning Hearing Board and the time period to do so. Such a notification should relate directly to the appeal procedure laid out in the municipality’s ordinance.
The Magistrate Action
If a (valid) ZNOV is issued and no appeal is timely lodged, the municipality may continue its enforcement efforts before a Magisterial District Judge (“MDJ”). Prior to 1988, municipalities could charge violating property owners with a criminal summary offense and zoning violations could be met with jail time for failure to pay fines. Following a 1988 amendment to the MPC, however, the available remedies for zoning violations were limited to civil penalties of $500 per day. Thus, if judicial intervention is necessary for a municipality to achieve compliance with its zoning ordinance, the proper avenue for doing so is via the initiation of a civil complaint.
Civil complaints filed with an MDJ should be completed using the state-wide civil complaint form. At first glance, the form requires straightforward information – names and addresses, the amount of the judgment sought, and a citation to the ordinance violated. It is not uncommon for zoning officers to simply fill out the “blanks” on the civil complaint form and submit it; however, engagement with the municipal solicitor is likely worth the effort (and fees) to produce a sound and comprehensive complaint. While unnecessary, a detailed narrative setting forth the enforcement proceedings to date and attaching copies of the subject ordinance sections, ZNOV(s), and other relevant documents not only provides the MDJ with a thorough picture of the circumstances surrounding the violation and enforcement efforts, but also helps to develop a record that may become valuable if further Court involvement becomes necessary.
For instance, in the event the MDJ issues a judgment against the property owner, and that property owner continues to flout the requirements of the zoning ordinance by failing to remedy the underlying violation, a municipality may want to seek injunctive or declaratory relief from a Court of Common Pleas. In those cases, having a well-established record, complete with documentary evidence of the municipality’s prior enforcement efforts, will pave a path to more likely success.
Appeal and/or Further Enforcement
If, on the other hand, a property owner does timely appeal a ZNOV, the matter will be heard by the municipality’s Zoning Hearing Board (“ZHB”). Often, particularly if a municipality’s administration is confident that a ZNOV will be upheld by the ZHB, it will send just one individual (likely the zoning officer) to the hearing. Simply put, that is almost always a mistake. ZHB hearings should be taken seriously and prepared for as if they were high-stake court cases because, well, they could ultimately become just that. Many landmark cases that drive how municipalities craft and manage their zoning ordinances originated from challenges heard before ZHBs.
Solicitor involvement in the preparation and litigation of ZHB matters is, again, not necessary but often worth the expense. The MPC requires the municipality to present its evidence first. Best practice is to prepare to present the most comprehensive case possible before the ZHB. This includes the preparation and presentation of demonstrative exhibits, including the ordinance sections at issue, copies of any correspondence with the property owners, the applicable ZNOV, photographs, etc. When considering how to present exhibits, it is also important to contemplate who would best serve as a witness. Most often, the zoning officer is most poised to walk through the pertinent exhibits, but not always. Sometimes a municipal manager or board member has a good grasp on why a particular ordinance section was adopted or the property standard it was intended to uphold, other times a neighbor may be able to comment on how the alleged violation is detrimental to the health and welfare of the municipality.
Like with matters that appear before an MDJ, the establishment of a robust record may seem tedious, but the implications of not taking the additional preparatory steps may ultimately lead to a harder row to hoe when compliance with the zoning ordinance is not achieved.
Zoning enforcement can be a straightforward process, but straightforward should not mean lax. Accurate and thorough documentation, including ZNOVs that comply with the requirements of the MPC, and complete records built before either the MDJ or ZHB, is the best way to avoid falling victim to the oft-repeated pitfalls in Pennsylvania zoning enforcement. Moreover, this procedure is specific to zoning ordinances and there is an entirely different procedure for enforcing other ordinances regulating property maintenance, grading, or stormwater. Our team of well-experienced attorneys regularly assists municipal and private clients in navigating all these processes.
Robert Max Junker is a shareholder in the public sector, energy and natural resources, and employment and labor groups of Babst Calland. Contact him at rjunker@babstcalland.com . Morgan M. Madden is an associate in Babst Calland’s Public Sector, Energy and Natural Resources, and Employment and Labor Groups and focuses her practice on land use, zoning, planning, labor and employment advice, and litigation. Contact her at mmadden@babstcalland.com.
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Reprinted with permission from the October 10, 2024 edition of The Legal Intelligencer© 2024 ALM Media Properties, LLC. All rights reserved.
The Wildcatter
(by Nikolas Tysiak)
All the cases of interest this time around are from Ohio’s 7th Circuit Court of appeals. Only a couple directly involve the Marketable Title Act and Dormant Mineral Act, so more to digest this time.
Hogue v. PP&G Oil Company, LLC, 2024-Ohio-2938 (7th Dist.), involved a dispute arising from operations under different depths associated with a single oil and gas lease following a leasehold depth severance. PP&G held 4 traditional, vertical oil and gas wells in Monroe County. PP&G assigned a 2.5% working interest in the wells and 20-acre squares around the units to the Hogues in 2007, “from the surface to the bottom of the deepest producing geological formation.” The wells bottomed out around 2,500 feet. In 2011, PP&G subleased various of its lands, including the lands affected by the above wells, to HG Energy LLC as to depths from the top of the Clinton formation to the basement. The sublease was later amended to exclude the land around certain wells, and eventually became vested in Gulfport Appalachia LLC. The Hogues allege that the assignment of working interests to them do not contain express depth restrictions, that they held rights to the land itself surrounding the several wells, and that the sublease of the deep rights under the lands therefore violated the Hogues’ property rights. The 7th District Court found that, at the time of the assignment to the Hogues, there was an inherent depth limitation to unitized vertical wells under Ohio law of 4000 feet. Consequently, the Hogues received no rights deeper than 4000 feet and had no inherent interest in any depths or wells subleased to Gulfport. The appeals court remanded the suit to the trial court for further proceedings accordingly.
Henderson v. Stalder, 2024-Ohio-3037 (7th Dist.). This is a case involving the Dormant Mineral Act (“DMA”). Specifically, the Henderson heirs, successors to the last known mineral owner before abandonment proceedings by the surface-owning Stalders, claimed that the Stalders search for the purposes of providing notice of the Henderson heirs rights to preserve, were insufficient. The Hendersons claim that key records were locatable via the internet at the time the surface owners’ title examiner undertook its search and should have utilized such records to perform additional research to locate the Henderson heirs. The Appeals Court disagreed with this argument, finding that notice by publication was the appropriate course of action in this instance. However, the Appeals Court also determined that the publication notice requirements under the DMA require reference to the name of a last known holder. Because the Stalders notice by publication did not include such a reference, the abandonment was not completed, and the court sustained the complaint of error by the Hendersons. As a natural outgrowth of this determination, the Appeals Court found that claims under the Marketable Title Act by the Hendersons that were avoided by the trial court now had to be subjected to trial, and so remanded the case accordingly.
Cardinal Minerals, LLC v. Miller, 2024-Ohio-3121 (7th Dist.). This case is directly connected to a similar case from earlier this year, addressed in the last update, but covers different lands owned or claimed by the same parties. Cardinal Minerals LLC brought suit claiming that a severed mineral interest had been preserved in contradiction to a Dormant Mineral Act claim by the surface owners, the Millers. Cardinal Minerals purchased the severed mineral interests from the Pfalzgrafs, heirs of the original severing parties, and claimed that the DMA action of the surface owners was improper for failing to serve notice on the Pfalzgraf heirs.
The Court of Appeals sidestepped the claim of Cardinal Minerals that the notice requirement under the Dormant Mineral Act was not properly adhered to, instead determining that Cardinal Minerals unlawfully “purchased a lawsuit” under the Doctrine of Champerty (Champerty being defined as “assistance to a litigant by a nonparty, where the nonparty undertakes to further a party’s interest in a suit in exchange for a part of the litigated matter if a favorable result ensues . . .”). The court further stated that the assignment of rights to a lawsuit is void as champerty. For these reasons, Cardinal Minerals’ claims were denied; the Court of Appeals effectively ignored the question of whether the surface owners followed the Dormant Mineral Act requirements by providing notice to the known successors to a reserving title interest holder pursuant to wills and intestate succession. It appears that the 7th District is, once again, doubling down on reasons to validate DMA procedures of questionable value, so it is suspected that additional appeals will follow.
Myers v. Vandermark, 2024-Ohio-3205 (7th Dist.). Another Marketable Title Act case was decided in the 7th Circuit (MTA). Myers owns surface rights to a tract of land in Harrison County, Vandermark is the current holder of severed oil and gas rights under the same. Myes claimed that root of title was a deed dated November 19, 1953, and that for the 40-year period following root of title there was nothing that preserved Vandermark’s severed oil and gas interest, resulting in the same extinguishing to the benefit of Myers on November 18, 1993. According to representations by both parties, the same land and interests had been subject to a lawsuit determining that Myers had somehow failed to properly claim ownership of the minerals at issue through the Dormant Mineral Act (DMA) per a prior court order from 2017. In the prior case, Vandermark claimed ownership had been settled and the instant suit was barred under res judicata, and his title had been quieted, while Myers claimed that the prior suit had no bearing on the current, as the MTA issues had not been the subject of litigation. The doctrine of res judicata is broadly the concept that, once an issue has been determined by a court order, the same issue cannot be the subject of another suit based on the same facts. The trial court agreed with Vandermark and found that the new attack on Vandermark’s property interest was “without standing and lacks merit.” The Appeals court found the trial court’s determination to be erroneous – Myers had standing because he was a party with an interest or claim in the land at issue, so he had a real interest in the outcome of the case. The Appeals Court also found that res judicata MAY apply, but that such a determination had been made prematurely. It should have been done through a motion for summary judgment because it required information not then of the record. Instead, the case had been dismissed pursuant to a motion to dismiss, which is generally reserved for situations where, taking all the parties’ allegations as true, there is no actual issue to be resolved. The Appeals court remanded the case back to trial for further determinations along these lines.
EAP Ohio, LLC v. Sunnydale Farms LLC, 2024-Ohio-4522 (7th Dist.). Landowners brought suit against EAP Ohio, LLC, current leaseholder and operator of wells affecting the lands at issue, for improperly deducting costs from royalty payments. The trial court had made several determinations and then issued a summary judgment in favor of EAP, effectively allowing the deductions. The landowners appealed, making various arguments, including that deductions for trucking and fuel (related to trucking) were not specifically referenced in the lease as acceptable deductions, which only mentioned “compression, transportation, gathering, and dehydrating” as deductible costs. The Appeals Court determined that the trial court had improperly made factual determinations in its summary judgment order, which is supposed to include a decision based solely on issues of law, not issues of fact. The Appeals Court stated that the language at issue was ambiguous as to its meaning, requiring interpretation and possible reliance on extrinsic evidence as to the parties’ intent.
The Appeals Court further stated that, EAP Ohio LLC should not be allowed to rely on “custom and usage” as extrinsic evidence for its interpretation of the lease because “custom and usage” only applies within a trade or industry. Because the landowners were not part of the oil and gas trade or industry, custom and usage was not an appropriate type of extrinsic evidence to use for interpreting the lease. Additionally, the Appeals Court found that EAP should not be allowed to rely on statutory definitions as extrinsic evidence of the lease meaning because Ohio law has different definitions for seemingly similar concepts, which are context dependent. As such, reliance by the trial court for the definition of “gathering” or “transportation” found in a pipeline statues was inappropriate in the context of an oil and gas lease interpretation issue. Overall, the Appeals Court reversed the summary judgment in favor of EAP and remanded the case to the trial court.
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Reprinted with permission from the MLBC October 2024 issue of The Wildcatter. All rights reserved.
TEQ Hub
(by Christian Farmakis, Susanna Bagdasarova, Kate Cooper and Dane Fennell)
Reminder – Upcoming January 1, 2025 compliance deadline for the Financial Crimes Enforcement Network (FinCEN) Beneficial Ownership Information Reporting Rule (the “Rule”).
By now, you have likely heard about the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) Beneficial Ownership Information Reporting Rule (the “Rule”) from your accountant, attorney, or business colleagues. Promulgated under the Corporate Transparency Act (“CTA”), the Rule requires most business entities to disclose information to FinCEN about their ‘beneficial owners’: individuals who directly or indirectly own or control such entities.
Enacted as part of the Anti-Money Laundering Act in 2021, the CTA is intended to “prevent and combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activity.” The Rule aims to enhance transparency and support the mission of the CTA by requiring domestic and U.S. registered foreign entities to report information about their beneficial owners to FinCEN. Most entities in the U.S. will likely be required to comply with the Rule, and FinCEN estimates approximately 32 million business will be required to make a filing. The Rule exempts 23 types of entities from reporting requirements, primarily large or regulated entities already subject to various reporting requirements, such as banks, SEC-reporting companies, insurance companies, and ‘large operating companies’, as well as wholly owned subsidiaries of the foregoing. Entities formed before January 1, 2024, have until 2025 to comply, while entities formed in 2024 have a 90-day compliance period.
Under the Rule, reporting companies must provide detailed personal identifying information for each individual beneficial owner, including name, date of birth, residential street address, and unique identifying number (such as a passport or driver’s license number). A ‘beneficial owner’ is a natural person who directly or indirectly owns or controls at least 25% of the ownership interests of a reporting company or who exercises ‘substantial control’ over the reporting company. Both ‘substantial control’ and ‘ownership interests’ are defined broadly to prevent loopholes allowing corporate structures to obscure owners or decision-makers. Companies formed after January 1, 2025, must also provide this information for ‘company applicants’, the individuals who make or direct the filing of a reporting company’s formation or foreign registration documents. The Rule also requires supplemental filings to be made within 30 days of any change to any of the reported information, for example, a change in residential address. Businesses will need to monitor changes in ownership and management throughout the year for compliance purposes.
FinCEN is authorized to disclose the reported information upon request under specific circumstances to federal agencies engaged in national security, intelligence or law enforcement activities and to state local and tribal law enforcement agencies, as well as certain other limited entities. Failure to comply with the requirements may result in potential civil and criminal consequences, including civil penalties of up to $500 per day a violation has not been remedied and criminal penalties of $10,000 and/or up to two years in prison for willful noncompliance.
The future of enforcement is uncertain as the Rule is currently being challenged in the courts on constitutional grounds. Reporting requirements have been paused for certain entities following an injunction issued by the Northern District of Alabama on March 1, 2024, which ruled the CTA unconstitutional because it exceeds Congress’s enumerated powers. With this and other cases challenging the validity of the Rule making their way through the courts, what should companies do in the meantime? Given the uncertainty about the constitutionality of the Rule and future enforcement, we recommend the following:
- New entities formed or registered on or after January 1, 2024, and before January 1, 2025, should comply with the applicable reporting requirements and make their filings within 90 calendar days after formation or registration.
- Existing entities formed or registered prior to January 1, 2024, should begin their reporting analysis now to ensure compliance in advance of the New Year’s deadline.
Every entity organized under U.S. law or registered to do business in the U.S. will need to determine (i) whether it is exempt from reporting requirements and (ii) if not, what information it must report. Companies with simple management and ownership structures may be able to navigate the filing on their own. However, where complex management or ownership structures or uncertainty about determinations of beneficial ownership or substantial control exist, an attorney can help you avoid missteps.
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Pennsylvania Business Central
(by Kevin Douglass, Carla Castello, and Stephen Antonelli)
Today’s businesses are subject to increasing workplace scrutiny concerning possible misconduct of their owners, officers, management, and personnel. When faced with an allegation that can potentially expose the company to legal, financial and reputational harm, it is critical that the company promptly investigate the facts and assess the business risk in order to make an informed decision on the best course of action.
Is an Internal Company Investigation Warranted?
Employee complaints, or even allegations from third parties, concerning improper workplace conduct should always be taken seriously. Whether the claims involve an entry level employee, a manager, a corporate officer, or anyone in between, the company should assess whether the allegations, if true, would constitute violations of law or company policies, or otherwise materially impact the company’s finances, culture, reputation, or workforce.
Workplace investigations are often sensitive. Employees may be reluctant to step forward and become the center of an investigation. They may also fear backlash from the individual(s) being investigated, particularly if they carry significant clout within the company. The company can assuage those concerns by reminding employees involved in the investigation of the company’s obligation to comply with applicable anti-retaliation laws and company policies. The company should also explain that it will perform the investigation with impartiality and (as much as possible) confidentiality, and that it will comply with the organization’s policies and procedures while minimizing business disruption.
Planning for and Conducting the Investigation
At the outset, the company must define the scope and purpose of the investigation (i.e. identify the allegations and the reasons for undertaking the investigation), select an investigation team, and determine a timeline for the investigation. It is important to recognize that the scope may shift as the investigation progresses and information is gathered. The team needs to implement measures designed to protect the attorney-client privilege and the attorney work product doctrine, including defining the roles of both internal and/or external attorneys and determining whether counsel will lead the investigation. The company should also identify the employees who will serve as the points of contact with the investigation team and the frequency and manner in which they will be kept informed of the investigation’s progress.
Another critical consideration is the preservation, collection, and review of key documents, including e-mails and text messages. In that regard, the organization’s document retention policy must be reviewed, and a notice issued to ensure the preservation of relevant communications and other documents that could become evidence in potential subsequent litigation. The team should also evaluate whether to engage a third-party to collect documents in a forensically sound manner from company-issued electronic devices. It is helpful to compile at the outset a list of potential people to be interviewed, including current and former employees, consultants, and any other individuals with pertinent information, including the person(s) who is the target of the investigation. Typically, the target of the investigation will be interviewed near the conclusion of the other interviews.
When planning for interviews, the investigation must balance the need for a thorough investigation while maintaining confidentiality and meeting timelines. How many interviews should be conducted and which interviews are critical to the investigation? It is recommended that the investigation team explain during the interviews the importance of confidentiality and, if counsel is conducting the interview, also emphasize that counsel represents the company, not the individual being interviewed. It is critical to exercise care concerning the manner in which the records witness statements or facts in interview notes, as those notes may become discoverable in potential subsequent litigation. Moreover, attorneys’ impressions or communications of the interviews should be separately recorded and protected.
Concluding the Investigation
As the investigation proceeds, the company should determine whether to prepare a written or verbal report, or materials for a presentation. If issuing a written report, the company should take appropriate steps to ensure confidentiality and privilege where appropriate. The company must then decide whether the investigation team will simply report its findings or take the additional step of recommending a course of action, up to and including disciplinary measures. Ultimately, management, the board of directors, or other decision makers must act in the best interests of the organization and decide what, if any, action is necessary to address the allegations that led to the investigation. At the investigation’s conclusion, the company should inform the complaining employee(s) as well as the target(s) of the outcome while reminding them of the company’s interest in maintaining confidentiality.
Kevin Douglass is a shareholder in the Litigation, Energy and Natural Resources, and Emerging Technologies groups. He is a complex commercial litigator with significant trial and arbitration experience. He also provides counseling and litigation services to businesses, business owners, managers, directors and officers. On behalf of companies, he has managed confidential internal investigations concerning the conduct of officers and employees.
Carla Castello is a shareholder in the Litigation, Emerging Technologies, and Employment and Labor groups. She has a broad range of range of litigation experience in several areas including commercial, labor and employment, consumer protection, antitrust, energy, and toxic tort. She represents corporate clients in defending a variety of matters, including environmental and toxic tort disputes, commercial contract disputes and conflicts between shareholders in closely held businesses.
Stephen Antonelli is a shareholder in the Employment and Labor, Litigation, and Energy and Natural Resources groups. He represents employers of all sizes, from Fortune 500 companies and large healthcare organizations to non-profit organizations and family-owned businesses. His practice focuses on all phases of employment and labor law, from complex class and collective actions and fast-paced cases involving the interpretation of restrictive covenants, to single-plaintiff discrimination claims and day-to-day human resources counseling.
To view the full article, click here.
Published in the Pennsylvania Business Central on September 27, 2024.
TEQ
(by Kristen Petrina)
Artificial Intelligence (AI) is advancing at unprecedented speeds. AI relies on vast amounts of datasets for processing and model training, creating the challenge of balancing the benefits of AI, while protecting data privacy. As a result of improper data processing and usage, organizations are facing harsh penalties including AI usage prohibition, algorithm disgorgement, and multibillion dollar fines. When considering how to introduce AI into any organization, one of the first questions to consider is, “How can AI be utilized to drive innovation without violating privacy and misusing collected data?”
AI governance analysis should be under a privacy lens, as personal data is at the core of many opportunities that come with AI development. Privacy risks may result in societal and ethical impacts on individuals which speaks to the heart of responsible AI usage. Incorporating responsible AI practices is user specific to each organization and it is possible to protect privacy and drive innovation. In order to achieve both goals, organizations should consider data protection preventative measures before implementing AI into its processes.
- Data privacy should be addressed at the onset of AI implementation. Organizations should conduct risk assessments and consider data enablement through AI from the beginning before it becomes an issue. Generative AI in particular is self-learning, the more data fed into the model, the harder it will be to unwind or remove data if improperly used.
- AI and data privacy governance teams must work together from the beginning to address any risks that may arise. Organizations may consider forming an ethical AI committee engaging diversified team members to reduce potential bias in the development and design.
- Contemplate data inputs by asking questions such as what the existing and potential future data sources may be, what data will be collected, what are in the datasets, how to categorize the types of data, will the data modeling receive personal or sensitive data, should those things be included.
- Consider data outputs by asking questions such as what information will be displayed after processing, what is the impact of the processing, is there any potential for harm from the processing and results, what controls are needed at the data layer to mitigate the risks.
- Review regulatory and data privacy requirements that impact and influence AI to assess and address any privacy policy gaps as a result of the introduction of AI into the organization’s processes. Policies can include but are not limited to addressing transparency into training data origins, acceptable use policies, data quality, validation of algorithms to confirm the AI model meets the organization’s AI and data policies, and sharing or transfer of data with third parties.
- What consent did the data owner give, particularly what purpose did the owner agree to? When implementing AI, organizations can get ahead of consent issues by educating the data owner of the intended purpose and use of the data.
- Build privacy measures into the system’s architecture to guarantee alignment with purpose consent given by the data owner and careful treatment of the data.
- Is the value provided to the organization proportional to the data owners risk? If data is used, should it be minimized to strip identifying features, or is it essential to include information such as sensitive data to determine if the model is biased?
- Determine the permanence of the data, depending on how it is incorporated into the AI model, an enforcement action can result in the loss of years of data. Additionally, some states allow data owners to be forgotten. If data is not de-identified it is possible to remove it from the datasets, however, if the data is de-identified it will not be possible to determine how the data was used and for the data to be removed from the datasets, potentially requiring a retraining of the model.
- Implement data security and privacy controls for stored decommissioned AI systems and associated data.
Organizations must safeguard data and ensure privacy compliance within AI systems, however, that does not mean innovation cannot thrive. An organization that considers privacy from the onset of AI implementation can drive innovation while also protecting privacy and reducing the risk of future penalties.
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The Legal Intelligencer
(by Steve Antonelli and Alex Farone)
Changes in the world of non-competition agreements (“non-competes”) have been particularly prevalent in recent weeks, most notably including court activity barring the Federal Trade Commission’s new non-compete ban and Pennsylvania’s new law restricting the use of certain non-competes for healthcare practitioners.
In May of this year, the Federal Trade Commission (FTC) published a final rule that would ban nearly all new non-competes with employees, independent contractors, and volunteers nationwide, with the exception of non-competes entered into pursuant to certain business sales, on the basis that non-competes are an unfair method of competition and therefore a violation of Section 5 of the FTC Act.
The final rule would also void all pre-existing non-competes except (1) those made with senior executives earning more than $151,164 annually who are in a policy-making position, and (2) those that have been breached and for which a cause of action accrued prior to the final rule’s effective date of September 4, 2024.
The final rule would additionally require employers to provide “clear and conspicuous notice” to all current and former workers, other than senior executives, with existing non-competes by September 4 stating that the non-compete will not be, and cannot legally be, enforced. Immediately after the final rule was published, legal challenges to the ban were quickly filed in various federal courts across the country. As the September 4 deadline approached without a decisive ruling from any of these courts, employers wondered whether the non-compete ban would be ultimately enforceable and began to make strategic plans on whether to proactively change their non-compete practices.
Two weeks before the ban went into effect, on August 20, 2024, the U.S. District Court for the Northern District of Texas ruled against the FTC, finding that the non-compete ban exceeded the FTC’s statutory authority. In Ryan LLC, et al. v. Federal Trade Commission, the court determined that the creation of substantive rules like the non-compete ban stretched beyond the FTC’s power, and that the ban was unreasonably overbroad.
The Ryan decision sets aside the non-compete ban nationally, meaning the ban cannot be enforced or take effect on September 4. All requirements of the FTC rule—including banning the use of new non-competes and notifying workers and former workers with existing non-competes of the unenforceability of those agreements, with few exceptions—are no longer in effect. Employers may continue to utilize non-competes, in the manner prescribed by state statutes and case law. Despite being somewhat overshadowed by the FTC rule and the various legal challenges to it, on July 17, 2024, Governor Josh Shapiro signed one such Pennsylvania state statute into law.
Act 74, which is known as the Fair Contracting for Health Care Practitioners Act, takes effect on January 1, 2025. As of that date, most new non-competes between an employer and a health care practitioner shall be void and unenforceable as contrary to Pennsylvania public policy if the length of the agreement lasts longer than one year. If the time period of a non-compete entered after January 1, 2025 is one year or less, the non-compete will be enforceable, unless the employer dismisses the practitioner. The act will not impact existing non-competes entered before January 1, 2025, regardless of the length of the agreement. Additionally, employers may still enforce non-competes that are entered “as a direct result of” a sale or other transaction (such as a merger) of the health care practitioner’s ownership interest, or substantial ownership interest of, the assets of a business.
Non-competes covered by the act are agreements between an employer and a health care practitioner that prohibits the health care practitioner from treating patients or accepting new patients, whether independently or through the employment of a competitor after the term of the practitioner’s employment. The term “health care practitioner” is defined as medical doctors, doctors of osteopathy, certified registered nurse anesthetists, certified nurse practitioners, and physicians’ assistants, as those terms are defined by applicable laws.
Following the departure of a health care practitioner from their employer, the act also requires employers to take certain steps relative to patients who had been seen by the practitioner within the year before their departure (or two years for ongoing outpatient relationships). The employer must notify patients of: (1) the practitioner’s departure; (2) the manner in which the patient may transfer their health records to a different health care practitioner; and (3) the fact that the patient may be assigned to a new health care practitioner with the employer, if the patient chooses to continue receiving care from the employer.
Employers should continue to monitor the status of the now-barred FTC non-compete ban, as well as Pennsylvania’s newly enacted Fair Contracting for Health Care Practitioners Act. If you have questions about either, please contact Stephen A. Antonelli at 412-394-5668 or santonelli@babstcalland.com, or Alexandra G. Farone at (412) 394-6521 or afarone@babstcalland.com.
Stephen A. Antonelli is a shareholder in the Employment and Labor and Litigation groups of Babst Calland. His practice includes representing employers in all phases of labor and employment law, from complex class and collective actions and fast-paced cases involving the interpretation of restrictive covenants, to single-plaintiff discrimination claims and day-to-day human resources counseling.
Alexandra Farone is an associate in the Litigation and Employment and Labor groups of Babst Calland. Ms. Farone’s employment and labor practice involves representing corporate clients, municipalities, and individuals on all facets of employment law, including restrictive covenants, discrimination claims, human resources counseling, grievances, and labor contract negotiations.
To view the full article, click here.
Reprinted with permission from the September 17, 2024 edition of The Legal Intelligencer© 2024 ALM Media Properties, LLC. All rights reserved.
Firm Alert
UPDATE: Babst Calland Stands Ready to Advise All Clients on FinCEN Matters
(by Chris Farmakis, Susanna Bagdasarova, Kate Cooper, and Dane Fennell)
Following up on our May 2024 Alert, Babst Calland would like to remind you of the upcoming January 1, 2025 compliance deadline for the Financial Crimes Enforcement Network (FinCEN) Beneficial Ownership Information Reporting Rule (the “Rule”). Although it is currently being challenged in the courts, the compliance requirements and deadlines remain in effect for the majority of entities at this time.
The Rule requires most business entities to disclose personal information to FinCEN about their “beneficial owners”: individuals who directly or indirectly own or control such entities. Most entities in the U.S. will likely be required to comply with the Rule, and FinCEN estimates approximately 32 million businesses will be required to make a filing. The Rule exempts 23 types of entities from reporting requirements, primarily large or regulated entities already subject to various reporting requirements, such as banks, SEC-reporting companies, insurance companies, and ‘large operating companies’, as well as wholly owned subsidiaries of the foregoing. Every entity organized under U.S. law or registered to do business in the U.S. will need to determine (i) whether it is exempt from reporting requirements and (ii) if not, what information it must report.
Babst Calland is ready to help with all aspects of compliance, from legal analysis of your reporting obligations or exemption therefrom, through the report preparation and filing process using our firm’s secure technology platform. We recommend beginning the process of analysis and information gathering well in advance to ensure compliance by the below deadlines:
- January 1, 2025, for existing entities formed or registered prior to January 1, 2024
- Within 90 calendar days after formation or registration for new entities formed or registered on or after January 1, 2024, and before January 1, 2025
Babst Calland will continue to monitor regulatory and judicial updates and inform you of any significant changes affecting your compliance obligations. Please reach out to fincenassist@babstcalland.com or your Babst Calland client relationship lawyer if you would like Babst Calland to assist you with your company’s compliance obligations under the Rule.
To be clear, Babst Calland will only provide advice related to Rule compliance when explicitly requested to do so. We look forward to servicing your needs on this developing area of the law.
Thank you for your continued trust and partnership.
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