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Equity Incentive Plans targeted by Plaintiffs’ New Theory on Section 16 Short-Swing Profit Liability

September 19, 2017

Authors

Steve Evans

Equity Incentive Plans targeted by Plaintiffs’ New Theory on Section 16 Short-Swing Profit Liability

September 19, 2017

by: Steve Evans

Securities and executive benefits attorneys and public companies that maintain equity incentive plans should be aware of a new theory of recovery under the “short-swing profit rule.” Plaintiffs’ attorneys have recently asserted a new form of claim alleging liability under the short-swing profit rule when shares are withheld to satisfy applicable taxes upon the vesting of awards.

Overview of the Short-Swing Profit Rule

The short-swing profit rule generally provides for strict liability of Section 16 insiders (i.e. an executive officer, director or 10% or more shareholder) if they engage in purchases and sales, or sales and purchases, of issuer equity securities within a six-month period that are not exempt under Section 16. Pursuant to Section 16 of the Exchange Act, a suit to recover short-swing profits may be instituted by the issuer or a shareholder in the name and on behalf of the issuer if the issuer fails or

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The Moench Presumption is Dead – Long Live the Dudenhoeffer Presumption

July 17, 2014

Authors

Brian Berglund and Jeffrey Russell

The Moench Presumption is Dead – Long Live the Dudenhoeffer Presumption

July 17, 2014

by: Brian Berglund and Jeffrey Russell

On June 25, 2014, a unanimous United States Supreme Court weighed in on the legal standards applicable in stock drop cases in Fifth Third Bancorp v. Dudenhoeffer.

Facts. Beginning in 2007, Fifth Third Bank began experiencing a large number of mishaps, most of them associated with borrowers not repaying their loans when due. As a result, Fifth Third’s stock price suffered the same phenomenon as that of virtually every other publicly traded financial institution in the world during the great recession: it dropped precipitously, falling 74% from July 2007 to September 2009. With the benefit of hindsight, plaintiffs brought a class action lawsuit against the fiduciaries of the Fifth Third 401(k) Plan, alleging that all of this should have been patently obvious based on public and nonpublic information allegedly possessed by the fiduciaries. The plaintiffs asserted that the fiduciaries should have taken one or more of

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Hobby Lobby & the Religious Freedom Restoration Act of 1993

July 7, 2014

Authors

benefitsbclp

Hobby Lobby & the Religious Freedom Restoration Act of 1993

July 7, 2014

by: benefitsbclp

SCOTUSYou’ve seen all the headlines…  Supreme Court issued its decision in the Hobby Lobby case on the last day of its 2013-2014 term.  Sure, maybe it wasn’t as closely watched and groundbreaking as the Court’s -2012 decision upholding key provisions of the Patient Protection and Affordable Care Act (“ACA”), but it is a very big deal for certain employers.  Which ones?

Well, as discussed in our post following the Hobby Lobby oral arguments, the owners of certain closely-held for-profit organizations (namely Conestoga, Hobby Lobby, and Mardel) challenged the ACA’s preventive care requirement mandating coverage of all FDA-approved contraceptive drugs, devices, and related services.

While these companies do not object to most contraceptives now required to be provided by ACA’s market reforms, they oppose certain forms of emergency contraception (which they

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Hobby Lobby, Religious Freedom, ACA, and Contraception

April 18, 2014

Authors

Lisa Van Fleet

Hobby Lobby, Religious Freedom, ACA, and Contraception

April 18, 2014

by: Lisa Van Fleet

Last month, the Supreme Court heard oral arguments in Sebelius v. Hobby Lobby Stores, Inc., and Conestoga Wood Specialties Corp., two highly anticipated cases that deal with the Affordable Care Act (“ACA”), religious freedom, and women’s access to contraception.

Hobby Lobby and Conestoga, each a closely-held family-owned corporation, have challenged the ACA’s preventive care requirement mandating coverage of all FDA-approved contraceptive drugs, devices, and related services.  Although the companies’ owners do not object to most contraceptives, they oppose emergency contraception and certain devices on religious grounds.  They contend that the required coverage of certain contraceptives violates their rights under the Religious Freedom Restoration Act (“RFRA”) and the Free Exercise Clause of the First Amendment. Generally, the RFRA is aimed at providing exceptions to laws that substantially burden a person’s free exercise of his or her religion. The question before the Court was whether secular for-profit companies

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Don’t Miss the April 15th Deadline to File a Protective Refund Claim for 2010 FICA Tax!

January 30, 2014

Authors

Denise Erwin and Serena Yee

Don’t Miss the April 15th Deadline to File a Protective Refund Claim for 2010 FICA Tax!

January 30, 2014

by: Denise Erwin and Serena Yee

As you may recall from our earlier post, the 6th Circuit held in U.S. v. Quality Stores, that severance payments made to employees in connection with an involuntary reduction in force were not “wages” subject to FICA taxes. This decision was contrary to published IRS guidance and created a split in the courts. In October of last year, the United States Supreme Court agreed to review the case and on January 14th, it heard oral arguments. The Supreme Court is expected to issue a ruling by the end of June.

Taxpayers may be entitled to a FICA tax refund if the decision is upheld by the Supreme Court on appeal. In order to preserve the right to a refund, taxpayers must file a protective claim before the applicable statute of limitations runs. As we previously reported in a post last year, the deadline to

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Supreme Court Clarifies Effect of Motions for Attorney’s Fees on Finality

January 29, 2014

Authors

benefitsbclp

Supreme Court Clarifies Effect of Motions for Attorney’s Fees on Finality

January 29, 2014

by: benefitsbclp

In a decision issued on January 15, the Supreme Court clarified that a pending motion for attorney’s fees does not prevent a judgment on the merits from becoming final for appellate purposes under 28 U.S.C. §1291, even when those fees are contractually provided for.

Ray Haluch Gravel Co. v. Central Pension Fund of the International Union of Operating Engineers & Participating Employers involved the timeliness of an appeal of a judgment against an employer in an ERISA case. The employer was sued by a union for failing to make contributions, required under a collective bargaining agreement, to various benefit funds. The agreement included a provision requiring the employer to pay any attorney’s fees incurred by the union in collecting payments owed to the benefit funds.

The district court entered judgment on the merits, awarding the union far less than it had requested, and more than a

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Piercing the Veil: Private Equity Fund Found to be “Trade or Business” Under MPPAA

August 6, 2013

Authors

benefitsbclp

Piercing the Veil: Private Equity Fund Found to be “Trade or Business” Under MPPAA

August 6, 2013

by: benefitsbclp

On July 24, 2013, in a case of first impression (Sun Capital Partners III LP vs. New England Teamsters & Trucking Indus. Pension Fund, No.12-2312), the First Circuit held that a private equity fund was a “trade or business” under ERISA as amended by the Multiemployer Pension Plan Amendment Act (“MPPAA”), and thus potentially liable for withdrawal liability incurred by its portfolio company if that company was under common control with the fund.* The court applied an “investment plus” test and found that the private equity fund was not merely a “passive investor” but had sufficient management and operational involvement with its portfolio company so as to make it a trade or business.

Sun Fund IV and Sun Fund III (collectively, the “Sun Funds”) are two funds held by private equity firm Sun Capital Advisors, Inc. Together, the Sun Funds held 100% of the

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Collective Bargaining Agreements: Creating Vested Retiree Medical Benefits

May 8, 2013

Authors

Serena Yee and Jeffrey Russell

Collective Bargaining Agreements: Creating Vested Retiree Medical Benefits

May 8, 2013

by: Serena Yee and Jeffrey Russell

Following its December 22, 2011, ruling we discussed previously that retired Kelsey-Hayes (“Company”) union members must arbitrate their claims for fully-paid lifetime retiree medical benefits, the Eastern District of Michigan handed a victory to different class of union retirees facing similar changes to their healthcare coverages.  United Steelworkers of America v. Kelsey-Hayes Co.

Plaintiffs worked at the now closed automobile parts manufacturing plant in Jackson, Michigan. Under the collective bargaining agreements (“CBAs”) with the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union, the Company was required to establish healthcare coverage for retirees and their dependents and surviving spouses and to contribute the full premium for such coverages.  Before and after the plant closing in 2006, the Company paid all retirees’ healthcare coverage costs.  In September 2011, the Company announced plans to replace the retiree medical plan with individual health

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Reminder: Hurry! Opportunity for Possible Refund of FICA Taxes Ends Soon!

April 10, 2013

Authors

Brian Berglund and Steven Schaffer

Reminder: Hurry! Opportunity for Possible Refund of FICA Taxes Ends Soon!

April 10, 2013

by: Brian Berglund and Steven Schaffer

As noted in our blog entry on October 16, 2012, under the Sixth Circuit’s discussion in U.S. v. Quality Stores, severance payments made because of an employee’s involuntary separation resulting from a reduction-in-force or discontinuance of a plant or operation are not subject to FICA taxes.  This holding is contrary to a prior decision of the Federal Circuit Court of Appeals and published IRS guidance.  The government has until May 3 to appeal the case to the Supreme Court.  Until a final decision in this case has been rendered, taxpayers that have made severance payments in 2009 should file a protective claim for a FICA tax refund no later than April 15, 2013.  This protective claim will preserve the taxpayer’s right to a refund should the IRS not appeal the decision or should the decision be upheld on appeal.

 

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Litigation Update: ACA Contraceptive Mandate

March 25, 2013

Authors

benefitsbclp

Litigation Update: ACA Contraceptive Mandate

March 25, 2013

by: benefitsbclp

Courts have recently seen a flurry of activity from for-profit corporations challenging the Affordable Care Act’s contraceptive mandate, which became effective January 1. These employers claim providing female employees with certain types of FDA-approved contraceptives violates the owners’ right to free exercise of religion.

Do for-profit corporations have a right to free exercise of religion, at least with respect to providing controversial contraceptives to employees? While we’re waiting for that issue to make its way to the Supreme Court, which it most certainly will, federal circuit courts are divided with respect to issuing temporary injunctions until the substantive issues are decided. The Supreme Court weighed in on the Hobby-Lobby case in December 2012, denying its request for an injunction while the company’s general challenge was pending, but it did not address the underlying, controversial issues, such as whether a corporation can even exercise religion in the first place.

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