Maryland’s New “Rain Tax” – Believe It Or Not, Here It Comes

On July 1st, ten of Maryland’s largest counties will impose a new “rain tax.”  Dubbed a “storm management fee,” residents and businesses will be forced to pay a new tax based on the amount of property surface area that does not absorb water, multiplied by the amount of rainfall causing “runoff” into the Chesapeake Bay.  The source of this controversial fee began when the Obama Administration’s EPA ordered Maryland to reduce levels of nitrogen and phosphorus in the Bay.  Maryland Governor O’Malley signed into law the directive that these costs are pushed down to counties, with a tax on so-called “impervious surfaces” causing water run-off.  In short, the EPA issued an unfunded $14.8 billion directive, and now Maryland’s ten largest counties are forced to foot the bill when it rains.

The method for calculating the rain tax has several flaws.  First, only the largest county residents and businesses get hit with this tax, which appears arbitrary.  Second, “impervious surfaces” will be measured by satellite, which will not be precise and cannot measure all differences between shared spaces.  Third, there is no method for exactly measuring differences in actual rainfall amounts between counties.  Fourth, there is no accounting for the fact that Counties closer to the Chesapeake Bay may contribute more runoff than other regions.  Fifth, the tax levies will not take into account harm to the economy – for example, shopping malls with large parking lots will be hit with larger tax increases, which will be passed on to tenants, who will be forced to raise prices on consumers.

The legislation does not even demonstrate how these new revenues will actually cause differences in nitrogen and phosphorus levels.  In fact, much of the money will go to paying for additional government employees, who will engage in new activities such as “mapping, assessment, monitoring, inspection, and enforcement.”  According to the Maryland government website, the funds “may be used for public education and outreach relating to stormwater management and stream restoration.”  In these difficult times, Maryland residents will not be pleased to shoulder a heavier tax burden to fund new ‘education.’

Aside from the absurdity of taxing rain (what is next, taxing air because exhaling carbon dioxide has a bad environmental impact?), the law poses several legal problems.  Opponents of this law could argue that it exceeds the state's taxing authority, and is applied in a manner that is arbitrary and capricious.  There could also be a Constitutional challenge, as well as claims that it violates Maryland’s Administrative Procedure Act.  While it is unclear if anyone will challenge this new law, the rest of the nation will watch with curiosity while Maryland residents ask themselves – “Is this really happening?”

Seth Berenzweig is a managing partner at the Washington, DC business law firm, Berenzweig Leonard, LLP.   He can be reached at sberenzweig@berenzweiglaw.com.

Can a nurse refuse CPR to follow "company policy" while a woman dies?

The nation is abuzz about an incredible situation at a California assisted living facility.  A video clip with the discussion of this breaking news is attached below.





A nurse at the facility called 911 for medical assistance when a female resident had difficulty breathing.  The dispatcher on the 911 tape pleaded with the nurse to administer CPR, but the nurse refused saying it was against company policy.  In a tragic twist of irony, the facility’s policy required medical personnel to arrive at the scene to provide medical assistance.  It is unclear why the nurse did not fall under the description of “medical personnel.”  The female resident’s medical condition worsened while waiting for medical personnel to arrive and she died.  The facility issued a statement following her death that supported the nurse’s actions.

This tragedy raises troubling issues which have legal and ethical implications.  Employers have broad latitude to create and implement company policies, but cannot abandon common sense and place customers in danger.  In this case, both the assisted living facility and nurse face possible legal action.  A jury could have a hard time supporting the facility’s decision to hide behind a procedural policy to meet their required standard of care.  Company policies need to factor in real-life situations that take into account foreseen circumstances, and apply procedures that protect their customers rather than standing on ceremony if tragedy strikes.  This may be a wake-up call to employers to update their policies and train employees to act in a safe and reasonable manner.

Seth Berenzweig is the Managing Partner at the Washington, DC business law firm, Berenzweig Leonard. Seth can be reached at sberenzweig@berenzweiglaw.com.

Can’t Always Pick Employees Based On The Interview

Can a company give a job to a less qualified male candidate just because he did better in the job interview than the female candidate?  That was the issue facing a federal judge in Virginia recently.

On paper, the female candidate was far superior to the male candidate.  The posting stated a preference for a college degree, which the female candidate had but the male candidate did not.  The female candidate had nearly twenty years of relevant management experience, compared to the male candidate’s four years.  But when the two candidates were brought in for in-person interviews, the company found that the male candidate’s responses were much better than those given by the female candidate.  A panel of eight people from the company conducted the interviews, and their decision to give the job to the male candidate was unanimous.

The female applicant sued the company for gender discrimination.  The company moved to dismiss the case by arguing that performance in a job interview was a big component of the selection process, and it should be free to rely on the interviews in deciding whom to hire for the job even if another applicant looks better on paper.

The judge ruled against the company and refused to dismiss the female applicant’s gender discrimination case.  The judge called the company’s justification for hiring the male candidate over the female “meager” given the disparity in qualifications, and he was not persuaded by the company’s “subjective explanation” that the male did better in the interview.  The judge warned that allowing company’s to ignore qualifications in favor of the subjective interview process would “allow employers unchallengeable authority to explain away employment decisions.”  The judge noted that it is almost impossible to evaluate the “truthfulness” of how a company rates candidates during the interview process.

This case is a wake-up call for employers who think they are free to do whatever they want in making hiring decisions.  Companies should pay particular attention to what they include in job postings, to make sure that the qualifications listed are those that will actually be determinant in the job selection.  And from this case, companies may want to include a statement in the job posting stressing the importance of the interview process.

Declan Leonard is managing partner of the Washington, DC regional business law firm Berenzweig Leonard, LLP. He can be reached at DLeonard@BerenzweigLaw.com.

The Implied Duty of Good Faith and Fair Dealing: What Does it Mean for Virginia’s Businesses?

The duty of good faith and fair dealing has its roots in the Uniform Commercial Code (“UCC”), which applies to sales and other commercial transactions, and is now recognized at common law in some form in most jurisdictions. Numerous Virginia state and federal courts have held that the implied duty governs all contracts at common law. However, as the common law continues to evolve, it appears that Virginia courts have described and applied the implied duty in a seemingly contradictory fashion. As a result, what protection the implied duty offers in a contract remains unclear. Nevertheless, the implied duty continues to impact business litigation in Virginia and has altered the outcome of several cases. See Sun Trust Mortg., Inc. v. United Guar. Residential Ins. Co. of North Carolina, 806 F. Supp. 2d 872 (E.D. Va. 2011); Wachovia Bank NA v. Ranson Tyler Chevrolet, LLC, 73 Va. Cir. 143 (Roanoke 2007).

Some Virginia courts have held that breach of the implied duty is an independent cause of action, while others have held that it is merely a factor to be considered as to whether a breach of an express contract term should be further considered a material breach. Historic Green Springs, Inc. v. Brandy Farm, Ltd., 32 Va. Cir. 98 (Louisa County 1993) and Virginia Vermiculite, Ltd. v. W.R. Grace & Co. Connecticut, 156 F.3d 535 (4th Cir. 1998); but see RW Power Partners, L.P. v. Virginia Elec. & Power Co., 899 F. Supp. 1490 (E.D. Va. 1995). Moreover, some courts have held that a party may not exercise contractual discretion in bad faith, even when such discretion is vested solely in that party. Historic Green Springs Inc., 32 Va. Cir. 98; Virginia Vermiculite Ltd., 156 F.3d 535.

Often the express contract either does not address the particular dispute at hand, or applying the contract’s express language seems to give rise to an unfair result, which, the affected party will argue, was not anticipated when the contract was made and that the party seeking to take advantage of the omission or unanticipated application of the contract terms is not acting in good faith. Without such an implied duty, parties may defeat the purpose of a contract without breaching the express terms and suffer no consequences. However, the Virginia Supreme Court has cautioned that the implied duty cannot be the vehicle for rewriting an unambiguous contract in order to create duties that do not otherwise exist. Ward’s Equipment v. New Holland North America, 254 Va. 379 (1997). That is, an implied duty of good faith must yield to the express terms of the contract if the two are inconsistent.  

Virginia courts will likely continue to clarify the role of the implied duty of good faith and fair dealing in contract disputes. In the meantime, businesses should continue to be on their best behavior, and litigants and lawyers can look to the implied duty to help protect the legitimate expectations of the parties to a contract and mitigate the often harsh results of classic contract interpretation.

The author, Sara Dajani is an associate attorney at DC region business law firm, Berenzweig Leonard.  Sara can be reached at sdajani@BerenzweigLaw.com.

Can Employers Refuse to Hire Someone Because They Are Unemployed?

In this challenging economy, unemployed individuals are looking for any way to find suitable employment. However, in a recent article posted on AOL Jobs, employers across the country explained that they tend to stray away from hiring the unemployed citing reasons such as not knowing why an unemployed worker lost his or her job.  Even though employers may have a preference to avoid hiring the unemployed, the question arises, is it legal to discriminate against someone because they are unemployed?

There is no federal law prohibiting hiring decisions based on unemployed status. That being said, several states have recently taken it upon themselves to implement laws prohibiting this type of hiring discrimination, notably, the District of Columbia. In 2012, the District of Columbia passed a law which prohibits DC employers from failing or refusing to consider for employment, or failing or refusing to hire, an individual as an employee because of his or her unemployed status. DC employers should pay careful attention to this law as it essentially adds unemployed status as a protected category of discrimination. Presently, Virginia and Maryland do not have unemployed status as a protected category.

Though the federal discrimination laws have never applied to unemployed status, there is a movement through a new federal law that has been proposed to prohibit discrimination based on unemployment status nationwide. The proposed American Jobs Act would in essence provide the equally broad coverage of Title VII of the Civil Rights Act of 1964 to the unemployed. Essentially, if enacted, the American Jobs Act would prohibit unemployment discrimination in all facets of employment, notably hiring, to employers with 15 or more employees.

Congress has not yet approved this law; however, employers nationwide should pay careful attention to the proposed Act as it could significantly alter the hiring process.  Even if not passed, employers should be aware of the growing trend from state legislatures to pass state specific laws prohibiting this type of discrimination. It is glowingly apparent that the hiring process has received much greater legislative attention, likely due to the increased unemployment and fewer hiring opportunities. Employers should regularly consult with their attorney to ensure whether or not their state prohibits this type of discrimination and update their employee handbook and hiring practices to be compliant with state and federal law.

The author, Nick Johnson, is an Associate Attorney with the DC region business law firm of Berenzweig Leonard, LLP.  Nick can be reached at NJohnson@BerenzweigLaw.com.

Virginia Court Dissolution of $200 Million Dollar Business is Landmark Victory for Minority Shareholders

There is usually little or no secondary securities market on which to sell or buy close corporation stock, making investments in close corporations difficult to liquidate. Consequently, minority shareholders can find themselves in a vulnerable position. Many jurisdictions, including Virginia, have developed standards by which to identify minority shareholder oppression and afford mistreated shareholders a remedy. The Virginia Stock Corporation Act, however, allows for frequent deference to the business judgment rule, which protects directors from individual liability for decisions made on behalf of the corporation, and courts frequently rely on it in corporate litigation. Nonetheless, the recent decision in Colgate, et al v. The Disthene Group, Inc. demonstrates that at least in cases of extreme minority shareholder oppression, Virginia courts might be willing to limit the application of the business judgment rule and even order the “drastic” remedy of dissolution.

In Colgate, the Circuit Court held for plaintiff minority shareholders and ordered the dissolution of the Disthene Group, Inc., a $200 million dollar closely-held Virginia corporation which includes the Kyanite Mining Corporation, Blue Rock Resources LLC, and the Cavalier Hotel. Plaintiffs own 42% of the outstanding shares, Class B non-voting shares. Gene Dixon, Jr. and his son Guy Dixon (“Defendants”), own all of the Class A voting shares, and over 45% of the Class B non-voting shares, amounting to slightly fewer than 51% of the outstanding shares. The Court found that Defendants engaged in dividend suppression and unfair share redemptions, meanwhile paying themselves excessive compensation, favoring the interests of their immediate family members, and misusing corporate funds for non-business purposes. The Court rejected Defendants’ argument that their actions are protected by the business judgment rule, and found instead that the Board of Directors was rarely involved in decision making and that it “merely bent to Gene’s ironhanded will and rubberstamped his decisions.” It  reasoned that Defendants did not exercise their good faith business judgments in their dealings with the Plaintiffs and other minority shareholders, and were motivated by their personal best interests rather than those of the corporation.

While the Court recognized that dissolution is a “drastic” remedy, it found that it was necessary given that “the corporation is controlled by a domineering shareholder who is unlikely ever to treat the minority shareholders fairly" and the fact that the minority shareholders “are inherently disadvantaged” by their nonvoting, minority status in the company and have "no market for their shares should they decide to sell.” Pending the outcome of the appeal, this decision could mark a shift in the way Virginia courts approach the rights and protections of minority shareholders, and perhaps even encourage minority shareholder investment in Virginia companies.

The author, Sara Dajani is an Associate Attorney with the DC region business law firm of Berenzweig Leonard, LLP. She can be reached at SDajani@BerenzweigLaw.com.

Handling of Trade Secrets

Businesses often store proprietary information in automated systems, and it is much easier to pilfer proprietary information.  It can be done with a few keystrokes.  In a commendable burst of foresight, in 1986 Congress saw this problem looming on the horizon and enacted the Computer Fraud and Abuse Act (“CFAA”), 18 USC §1030.  The CFAA was designed principally to prevent outsiders from hacking into computer systems and not to prevent theft by employees.  However, depending on the circumstances, the CFAA can also cover theft by corporate employees.  The statue makes it a crime to intentionally access a computer “without authorization” or to “exceed authorized access” to obtain information on the computer.  The CFAA is a criminal law, and, although the general rule is that criminal laws do not create private causes of action, in the CFAA Congress expressly created a private cause of action, allowing a private party to obtain compensatory damages and injunctive relief.

Recently, the U.S. Court of Appeals for the 4th Circuit decided a case applying the CFAA in a civil action involving an employee’s alleged theft of trade secrets. WEC Carolina Energy Solutions, LLC v. Miller, et al., 4th Cir. No. 11-1201 (26 July 2012).  The defendant, Miller, was an employee of the plaintiff, WEC, and WEC authorized Miller to access WEC’s computers.  WEC alleged that Miller transferred the company’s trade secrets from the company’s computers to a competitor.  WEC alleged, inter alia, that Miller violated the CFAA.  The case presented the following issue: If a company authorizes an employee to access the company’s computers and to access the information on the computers, and if the employee, acting within the scope of his authorization, transfers information to a competitor, does the employee violate the CFAA?  The Court acknowledged that there are two conflicting decisions in other courts reaching opposite conclusions. Int’l Airport Ctrs., LLC v. Citrin, 440 F.3d 418 (7th Cir. 2006); United States v. Nosal, 676 F.3d 854 (9th Cir. 2012)(en banc).  

In WEC, the Fourth Circuit Court focused on the “plain language of the statute, seeking first and foremost to implement congressional intent,” saying that the words of the statute should be given their ordinary, contemporary and common meaning.  The Court noted that because the statute has criminal penalties the Court must strictly construe the statue applying the so-called “rule of lenity,” rejecting interpretations not strictly warranted by the text.  The Court concluded that based on the ordinary and common meaning of “authorization,” an employee is authorized access to a computer when the employer approves his admission to that computer.  Thus, an employee accesses a computer without authorization only if he gains admission to that computer without the employer’s approval.  Similarly, the Court concluded that an employee “exceeds authorized access” when he has approval to access the computer, but uses his access to obtain or alter information that falls outside the bounds of his approved access.  For example, if the employee accesses files that are outside the scope of his authorization.  According to the Fourth Circuit, the CFAA does not reach the improper use of information validly accessed.  For example if the employer authorizes the employee to access the information, and the employee then improperly uses the information by transferring the information to a competitor, the employee has not violated the CFAA.

The WEC decision does not leave employers without remedies for the theft of trade secrets.  Employers can still sue for violation of state trade secrets laws, breach of fiduciary duty, and, depending on the facts, fraud.  However, in cases like the WEC case, employers cannot sue for violation of the CFAA.

Author John Polk is Special Counsel at the D.C. regional business law firm of Berenzweig Leonard, LLP.  He can be reached at jpolk@berenzweiglaw.com.