DC Metropolitan Business Law Alert

DC Metropolitan Business Law Alert

Recent Maryland Tax Decision Exposes Out-of-State Patent Holding Companies to Income Tax Liability

Posted in Maryland Law, Tax

Frequently, companies with significant patent portfolio or other intellectual property assets create a subsidiary or affiliated holding company to manage and enforce those assets. In many instances, these holding companies are formed to achieve some income tax benefit for the parent corporation or other related subsidiaries by providing a state-level deduction for royalty payments made to the holding company in exchange for licenses to use its intellectual property.

Last week, the Maryland Court of Appeals issued a much anticipated tax decision, ruling the state may tax a Delaware patent holding company on royalties received from licenses of its patent portfolio to a related company doing business in Maryland. The decision, Gore Enterprise Holdings, Inc. v. Comptroller of the Treasury; Future Value, Inc. v. Comptroller of the Treasury, No. 36, September Term, 2013 (Md. March 24, 2014), could have a significant impact on any out-of-state patent holding company whose sole business is licensing its intellectual property to a parent or related company doing business in Maryland.

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Wynne Decision: Update on Maryland Out-of-State Tax Credit Against County Income Tax

Posted in Maryland Law, Tax

As we previously reported, on January 28, 2013, in Maryland State Comptroller of the Treasury v. Wynne, the Maryland Court of Appeals held that Maryland must permit Maryland resident taxpayers with pass-through income from other states to claim a credit for out-of-state income taxes paid against not only their Maryland state income taxes but also their Maryland county income taxes.  The court determined that the failure to allow the credit against the county income tax is unconstitutional under the dormant Commerce Clause of the United States Constitution.

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Three Key Ways to Reduce Your Costs in Negotiating a Tenant-Friendly Commercial Lease

Posted in Real Estate

As a real estate attorney, I am often asked by tenant-clients, “What can I do to lower costs in negotiating my lease?”  While the commercial leasing playing field is often wildly skewed in favor of the landlord, here are a few pro-active ideas to return some balance to the relationship.

First, invest some time and energy in selecting your broker.

A broker often sets the tenor of the leasing process – for better or worse.  An enthusiastic, knowledgeable broker who is available when you call is an essential part of your leasing team.  There is some potential for a divergence of interests:  a broker is usually paid by the landlord and a disreputable broker may push for unnecessary tenant concessions simply to get the deal done (so that commission comes in).  However, a tenant-protective broker can provide market-area and general knowledge that will lend credibility to a tenant’s positions in the lease negotiations.

Next, do the best you can to have a detailed and customized letter of intent (LOI).

A detailed LOI is by far the best tool a tenant has to initiate a beneficial negotiation process with the landlord.  In negotiating the LOI,  both sides will then be clear about basic lease terms.  The LOI negotiations may possibly expose differences in positions regarding crucial aspects that otherwise could be deal-breakers later.  Even more importantly, you will have an excellent gauge of the landlord’s positions and cooperation (or lack thereof)  very early in the process.  A strong LOI will mitigate having to assume the landlord understands your business’s special sensitivities and is committed  to fostering a working relationship as lease negotiations proceed.

Finally, you should review a draft lease before your legal counsel.

Your initial review of a draft lease should include your liberal comments about issues, discrepancies, and comments important to you and the use of the space.  You should also have your broker, IT staff, insurance broker and space planner/architect, as needed, review the draft lease.  Your broker is well positioned to champion tenant advantages concerning market-area issues such as tenant concessions on renewals and area-specific treatment of certain leasing aspects like assignment/subleasing.  And, your insurance broker, architect and IT staff will further fine tune the lease before you spend a single legal dollar on the lease review process. This initial review will give your attorney valuable input regarding the particular needs of your business for the leased space. Your attorney’s expertise about the legal ramifications of the draft lease then will add value to an already improved lease.  The result — a more comprehensive and customized lease at a lower legal cost.

New Prince George’s County Right of First Refusal Imposes Restrictions on the Sale of Apartment Complexes in Certain Areas of the County.

Posted in Maryland Law, Real Estate

The Prince George’s County Council recently enacted legislation that will affect the transfer of any multifamily rental facility having 20 or more units that is located in a designated area of the County (“MRF”).  The legislation is not yet fully implemented and no areas have been designated, but certain notice requirements are in effect now.  A December 2, 2013, Right of First Refusal Interim Advisory Notice (“Interim Advisory Notice”) provides that the Director of the Prince George’s County Department of Housing and Community Development (“DHCD”) will promulgate implementing regulations by January 1, 2014, and will offer a list of proposed designated areas to the Council by July 1, 2014.  As of January 2, 2014, the implementing regulations have not been released; however, DHCD has confirmed that they are in the final stages of review.

When fully implemented, the owner of a MRF will have an obligation to grant the County an assignable right of first refusal to purchase the MRF (“ROFR”) soon after the owner has entered into a qualifying sale of the MRF (as described below).  There are statutory exceptions to the ROFR.  Among them is a written agreement with the purchaser, approved by DHCD, affirming that the MRF will remain rental housing, and will not be converted to a condominium or a non-residential use for a period of at least 3 years after the sale.  The County may assign its ROFR rights to a non-profit, governmental agency, tenant organization, or other third-party entity.  

For purposes of the ROFR, a qualifying “Sale” occurs when (1) the owner enters into a bona fide contract to sell the MRF to a third party; (2) there is a transfer of a majority interest in the owner in a 12 month period; or (3) the owner leases the MRF for a term of more than 7 years.  Within 5 days of entering into a contract for the sale of a MRF, the owner must give DHCD a written offer to purchase the MRF on substantially the same terms and conditions as those given to the third party.  Within 7 business days after its receipt of the offer, DHCD must notify the owner if it elects to exercise the ROFR, and DHCD must close on the purchase within 180 days.  Additionally, within 5 days of entering into a contract for the sale of a MRF, the owner must (1)  provide written notice of the sale to each tenant by hand or certified mail, return receipt requested; (2) post notice of the sale in public areas of the MRF; and (3) provide written notice of the sale to DHCD by certified mail, return receipt requested.  The notice to DHCD must be in the form of a Notice of Sale Affidavit supplied by the County which must include  copies of the sales contract, the notices that were served to tenants, and the rent roll of the MRF.  If DHCD is satisfied with the owner’s submissions, within 7 days following submission of the information DHCD will issue a certificate of compliance, in recordable form to the owner, the purchaser or any other interested party establishing compliance with the legislation.  

According to the Interim Advisory Notice, until full implementation of the law, the County will not enforce the offer requirement of the ROFR; but, owners must comply with the notice requirements of the ROFR, as set forth above.  Thus, because the County has not yet designated the areas to which the law will apply, an owner who is entering into a contract for the sale of a MRF that is located anywhere within the County must follow the notice requirements.  Failure to comply could result in a penalty of $100 per unit, per day for each violation.

The Council enacted the ROFR with the aim of  preserving rental housing for low to moderate income residents by preventing the conversion of rental housing to condominiums or non-residential uses, and giving the County the ability to purchase and rehabilitate rental housing in areas of the County as a means of revitalization.  However, the law itself does not establish such conversions as a trigger for the ROFR obligation.  Rather, all sales of rental housing are subject to the ROFR. 

We will continue to monitor the implementation of this law.   

  

Proposed Bill May Increase Public Access to Documents Filed with the Virginia State Corporation Commission

Posted in Virginia Law

If your company is doing business in Virginia, then you should be aware of a proposed bill in the Virginia General Assembly that may increase public access to documents your company files with the Virginia State Corporation Commission (“SCC”). The proposed bill would amend the Virginia Freedom of Information Act (“Virginia FOIA”) to make the SCC subject to its terms, legislatively overturning a 2011 decision of the Supreme Court of Virginia which held that the Virginia FOIA does not apply to the SCC.

If passed, the SCC would be required to respond to FOIA requests from the public in the same manner as other Virginia governmental agencies. The bill would also give requesters who are dissatisfied with the SCC’s response the right to file suit against it in the Supreme Court of Virginia for a review of the SCC’s decision to withhold requested information.

For regulated industries, such as telecommunications, the bill may increase public access to information supplied to the SCC that the submitter considers to be proprietary and confidential. If passed, the bill will permit requesters, who previously did not have the ability to sue under the Virginia FOIA, to litigate whether submitted information was properly withheld under the statutory exemptions for confidential and proprietary information.

Originally proposed in January of 2013, the bill was recently endorsed by the Virginia Freedom of Information Advisory Council (“the FOIA Council”), a Virginia state agency that assists in resolving disputes over FOIA issues. Specifically, the FOIA Council voted to support negotiations between the General Assembly, the SCC and members of regulated industries to reach agreement on a compromise bill.

We will continue to track this bill’s progress and provide updates on its status.

5 Things for the Virginia Lawyer to Keep in Mind When Addressing Non-Compete Issues

Posted in Business Litigation

Special Counsel Joseph D. Wilson authored the VBA Journal article “5 Things for the Virginia Lawyer to Keep in Mind When Addressing Non-Compete Issues.” The article provides an overview of a non-compete, which is an agreement that restricts the party subject to it from engaging in certain activities that compete with the business of the beneficiary of the non-compete, and outlines several points for lawyers to consider when negotiating, drafting, or litigating disputes over non-competes. Mr. Wilson uses recent and noteworthy decisions to illustrate his suggestions, and concludes that lawyers who understand these five items will be equipped to tackle any non-compete issues that may arise.

5 Things for the Virginia Lawyer to Keep in Mind When Addressing Non-Compete Issues

Maryland’s New Lien for Unpaid Wages” Law – A Reasonable “Stick” or an Inequitable Bludgeon?

Posted in Employment & Labor

Unfortunately, some employers have failed to pay wages to employees, particularly those who receive low wages. To combat what is perceived as a growing trend of unscrupulous employers, several states, including Maryland, have enacted laws to assist employees to recover wages to which they are entitled. Thus, effective October 1, 2013, employees in Maryland now have a simple mechanism to enforce collection of unpaid wages from their employers by creating a lien on the employer’s assets. But, the new “Lien for Unpaid Wages” law [SB 758] raises many questions and some alarming possibilities for Maryland employers.

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“No Notice for You”: Rule Requiring Employers to Post Notice of Employee Rights Under the National Labor Relations Act Struck Down

Posted in Business Litigation, Corporations, Employment & Labor, Federal Courts

In Chamber of Commerce v. NLRB, the United States Court of Appeals for the Fourth Circuit recently upheld a district court’s decision striking down a rule promulgated by the National Labor Relations Board (“NLRB”) that required employers subject to the National Labor Relations Act (“NLRA”) to post notice informing employees of their rights under the NLRA. Specifically, the rule provided that “[a]ll employers subject to the NLRA must post notices to employees, in conspicuous places, informing them of their NLRA rights, together with [NLRB] contact information and information concerning basic enforcement procedures.” The text of the notice was as follows:

The [NLRA] guarantees the right of employees to organize and bargain collectively with their employers, and to engage in other protected concerted activity or to refrain from engaging in any of the above activity. Employees covered by the NLRA are protected from certain types of employer and union misconduct. This Notice gives you general information about your rights, and about the obligations of employers and unions under the NLRA. Contact the [NLRB], the Federal agency that investigates and resolves complaints under the NLRA, using the contact information supplied below, if you have any questions about specific rights that may apply in your particular workplace.

The rule went on to list employees’ rights under the NLRA and provide information as to how to “contact the NLRB promptly to protect your rights.” Any employer failing to post the notice was subject to: (1) a finding that it committed an unfair labor practice; (2) a tolling of statutes of limitation for charges of any other unfair labor practices; and (3) a finding of anti-union animus that would weigh against it in any proceedings before the NLRB.

The Chamber of Commerce of the United States and the South Carolina Chamber of Commerce filed suit in federal district court seeking to overturn the rule. The district court granted summary judgment in their favor and struck down the rule, holding that, in promulgating the rule, the NLRB “exceeded its authority, in violation of the Administrative Procedure Act.” Said the Court: “Looking to the plain language of the NLRA, its structure, its legislative history, and the notice provisions in other statutes, the court concluded that the [NLRA] does not provide the [NLRB] with the power to enact such a rule.”

On July 29, 2013, the NLRB filed a petition for rehearing or rehearing en banc seeking to overturn the decision and reinstate its notice rule. The petition is still pending. As a result of the petition for rehearing, the mandate that formally closes the appeal has been stayed until the petition for rehearing is decided.

We will continue to track this case and provide updates.

Update

On Monday, the Fourth Circuit entered an order denying the NLRB’s petition for rehearing or rehearing en banc.  Under the Supreme Court’s rules, the NLRB has 90 days from the entry of judgment to petition for writ of certiorari.  If the NLRB does not file within that time, the Fourth Circuit decision striking down the NLRB’s notice rule can no longer be appealed and will become final.

 

Negligent Plaintiffs Still Out of Luck In Maryland

Posted in Damages, Maryland Law

Maryland’s highest state court issued an opinion this week upholding Maryland’s long-standing principle of contributory negligence, which precludes a plaintiff from recovering any damages if his own negligence contributed – even in just a small amount – to his injuries.

In Coleman v. Soccer Association of Columbia, the Maryland Court of Appeals refused the plaintiff’s request to overturn the state’s common law contributory negligence principle, which has been in place for over 165 years.  Although the court recognized its own authority to change this principle, it declined to do so, holding that the negligence standard involved matters of policy best left to the determination of the state legislature.  Thus, in Maryland, contributory negligence still reigns supreme.

Maryland is one of only 5 jurisdictions – which include Virginia and the District of Columbia – to retain a contributory negligence standard.  Most other states have adopted some form of comparative negligence, which reduces proportionally – but does not foreclose – a plaintiff’s damages based on his own share of fault.  Thus, under a comparative negligence scheme, a plaintiff that is 1% at fault for his injuries will be entitled to 99% of his damages from the defendant; under a contributory negligence scheme, a 1% negligent plaintiff is unable to recover any damages at all.

Although many (including Coleman’s dissent) have criticized contributory negligence as an antiquated and unfair principle, it remains beneficial to Maryland businesses and employers who may find themselves the target of various negligence actions. 

When An Employee Goes “Snowden:” State High Court To Decide If An Employer Can Be Liable For A Rogue Employee’s Disclosure of Confidential Information

Posted in Employment & Labor

Eric Snowden’s unauthorized disclosure of secret information while a member of the NSA workforce might seem like a situation far removed from the typical workplace. It isn’t. Employers can face similar situations – and potential liability – should an employee go “rogue” and disclose, not state secrets, but confidential third-party data stored by the employer, such as client medical or personally identifiable financial data, outside the course of the employee’s job duties to the employer.

The New York Court of Appeals has pending before it an appeal based on just such a situation. In John Doe v. Guthrie Clinic, Ltd., CTQ-2013-00002, the Court of Appeals faces the question whether, under New York common law, a medical corporation – the employer in the case – can be directly liable for breach of the fiduciary duty of confidentiality for the unauthorized disclosure of medical information even when the employee responsible for the breach is not a physician and acted outside the scope of her employment. This question was certified to the Court of Appeals by the U.S. Court of Appeals for the Second Circuit. See Doe v. Guthrie Clinic, No. 12–1045–cv

As the Second Circuit noted in its decision, “direct corporate liability generally rests on the doctrine of respondeat superior and is not implicated by the ultra vires acts of employees.” Generally speaking then, an employer would not be liable based on respondeat superior for the unauthorized disclosure of confidential third-party data by an employee acting outside the scope of his or her job duties. The New York Court of Appeals’ ruling in Guthrie Clinic will be important as it might change that traditional limitation and expand employer liability to reach unauthorized disclosures by employees acting outside the scope of their duties, at least under New York law and for disclosures of confidential medical information.

The briefs in the Guthrie Clinic appeal are due later this summer. This author intends to monitor developments in this appeal and to report those on this blog.