The Business Law Brief
sm (August, 2002)
With great pleasure, I announce that I have become an Assistant Professor at Valdosta State University in
Valdosta, Georgia, and will be teaching business law to students in the College of Business Administration.
Of course, I will continue to write The Business Law Brief, and now that the move is over and the dust has settled,
the Brief should now be back on schedule. Your comments and suggestions are always welcome. We'd love to
hear from you.
- Repercussions I: SEC to Require Corporate Attorneys to
Report "Material Violation of Law"
The
Sarbanes-Oxley Act of 2002, otherwise known as the Corporate
Criminal and Fraud Accountability Act of 2002, the result of
the accounting irregularities and deceptions which caused the
collapse of Enron, World Com and Tyco, has now been signed into
law by President Bush. Among other provisions, of particular
concern to corporate attorneys is Section
307, "Rules of Professional Responsibility for Attorneys,"
which requires that the Securities and Exchange Commission (SEC)
establish rules for the corporate attorneys who practice before
the SEC,which would require them to report any "material"
violation of law by the corporation to the company's management,
and if appropriate action is not taken, to the Board of Directors.
The measure was opposed by the American
Bar Association, which says the new ethical guidelines may
conflict with various state ethical rules.
- Repercussions II: SEC Posts List of Companies Who Must
File Sworn Statements of the Accuracy of Current Financial Statements.
The SEC has now posted a
list of the 947 companies whose officers and accountants
must file sworn statements attesting to the accuracy of the company's
most recent quarterly and annual financial reports.
- Repercussions III: Employees Sue for Loss of 401(k) Retirement
Savings.
In a new
kind of shareholder class action suit, many of the current
and former employees of World Com and Tyco are suing to recover
the loss of their 401(k) retirement savings, consisting of stock
on their employer's company, because of alleged violations of
the Employee
Retirement Income Security Act (ERISA). The suits allege,
among other things, that the companies did not provide accurate
information to employees about the companies' financial condition,
and often prevented them from selling company stock.
- NCCUSL to Vote on UCITA Amendments,
But Will it Do Any Good?
As we go to press, the National
Conference of Commissioners on Uniform State Laws (NCCUSL)
is preparing
to vote at its annual meeting in Arizona on proposed amendments
to the Uniform Computer Information Transactions Act (UCITA),
the controversial proposal purporting to govern the ownership,
licensure and transfer of computer software and other digital
transactions. The amendments, drafted in part in response to
concerns raised by the American Bar Association (ABA),
have drawn objections by computer software manufacturers and
consumers groups alike, and if the amendments are passed, UCITA
will be even less likely to pass state legislatures. To date,
only Virginia and Maryland have adopted UCITA, and at least 25
other states have rejected the legislation.
- ERISA I: ERISA Does Not Nullify Claim for Bad
Faith Against Insurer.
For the first time, a Federal District
Court has ruled that a
state claim for bad faith against an insurer is not pre-empted
by ERISA, and that such a plaintiff may pursue a claim for
punitive damages. The senior Judge hearing the case ruled that
previous decisions assuming pre-emption must be re-examined in
light of a "new trend" in federal law, led by the U.S.
Supreme Court, which has in recent decisions modified the test
for assessing whether a state law qualifies for ERISA's "saving
clause," permitting the state law to take effect. Rosenbaum
v. UNUM Life Insurance Co., US
Dist. Ct., ED Pa. (Case not yet posted.)
- ERISA II: ERISA Pre-Empts Illinois' "Substantial
Compliance" Requirement for Modification of Insurance Beneficiary.
In spite of errors on the change
of beneficiary form, decedent's attempt to change the beneficiary
under his life insurance policy was effective, since under ERISA,
the federal doctrine of substantial compliance pre-empts the
Illinois doctrine of substantial compliance. Metro
Life Insurance Co. vs. Johnson, No. 01-3143 (July 17,
2002).
- Tax I: Excess Contribution to Benefit Plan Treated
as Constructive Dividends, Taxable to Individual Taxpayer.
Contributions by a professional
medical corporation to a voluntary benefit plan well in excess
of the cost of the term life insurance policies which were the
subject of the plan were not ordinary and necessary business
expenses, but rather were deemed to be constructive dividends,
taxable to the individual taxpayers. Neonatology
Associates, P.A. vs. Commissioner of Internal Revenue Service,
No. 01-2862, US Ct.App.3d Cir. (July 29,2002).
- Tax II: San Francisco May Tax Legal, Medical,
Accounting Partnerships.
Eying a new source of revenue,
the Finance Committee of the Board of Supervisors of the City
of San Francisco debated a proposal to place on the November
ballot a measure which would extend the city's controversial
1.5% payroll tax to the partnership distributions to lawyers,
doctors, accountants and other professionals based in the city.
The measure has been postponed for one week. See the story
at law.com.
- Revised Opinion: No Insurance Coverage for Corporate Officer
Who Failed to Give Notice of Possible Claim.
Last month, we reported this case,
in which insurance coverage was denied to a corporate officer,
but please see the revised opinion. National
Union Fire Insurance Co. of Pittsburgh, PA v. Willis (No.
01-20723, 5th Cir., (July 16, 2002).
- Computer Data is not "Tangible
Property" Under ISP's Insurance Policy. Computer data is not "tangible property"
the U.S. District Court for the Eastern District of Virginia
has ruled, and the insurer has no duty to defend, despite allegations
that AOL's subscribers suffered damage to their computers,computer
systems and data after installing AOL's software version 5.0.
America
Online Inc. v. St. Paul Mercury Insurance Co., E.D. Va.,
No. Civ.A. 01-1636-A., (June 20, 2002). Case not posted online.
- Corporate Officers Who Transferred
Assets of Bankrupt Corporation Not Individually Liable Under
Illinois Uniform Fraudulent Transfer Act.
Motion for Summary Judgment in
favor of individual defendants, formerly officers or shareholders
of bankrupt corporation was proper, although corporation transferred
substantial assets to third party just prior to declaring bankruptcy,
rendering it unable to repay loan, since individuals were not
signatories to loan agreement. APS
Sports Collectibles, Inc. v. Sports Time, Inc., No. 00-2260,
S.D. Ill. Aff'd. (July 22, 2002).
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