Corporate Finance Lawyer & Attorney : Davis Wright Tremaine Law Firm

February 27, 2008

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By Greg K. Hitchcock

The U.S. Supreme Court ruled last week that a participant may sue for losses to his 401(k) account caused by the employer's failure to carry out investment instructions. Based on prior court rulings, many practitioners thought participants had no cash remedy for such breaches by plan fiduciaries and could only force fiduciaries to carry out the terms of the plan. The ruling in LaRue v. Dewolff, Boberg & Associates, Inc. clarifies that an individual participant may bring a claim for money damages for breach of fiduciary duty under the Employee Retirement Income Security Act of 1974 (ERISA), though several key questions remain unanswered.

In light of this ruling, employers should review investment plan procedures so they can be confident that employee investment instructions are well documented and properly handled. Summary plan descriptions and other investment information should be reviewed to determine if employees are obligated to review investment summaries to be sure their investment instructions have been implemented. In addition, fiduciaries for plans will want to review their fiduciary insurance and indemnification rights to be sure they are adequately covered for potential claims. Continue reading...

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February 25, 2008

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By Christopher R. Helm

Effective Dec. 26, 2007, employers are now required to use the revised Employment Eligibility Verification Form (I-9) for new employees or to re-verify an existing employee's identity and employment eligibility. Along with the I-9 form, USCIS has also revised the list of acceptable documents to show identity, employment authorization, or both. For more information, please see our prior advisory on this subject. In addition, you are advised to conduct periodic self-audits to ensure that your I-9 documentation is in good order. U.S. Immigration and Customs Enforcement (USICE) is expected to heighten its enforcement efforts, particularly against those employers it suspects of knowingly hiring workers with improper documents.  

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The IRS has issued guidance in the form of a revenue ruling (Rev. Rul. 2008-13) clarifying that for purposes of the performance pay exception under Section 162(m), which generally limits the deductibility of certain executive compensation to $1 million per year, if an executive would receive a performance payment upon termination without "cause" or if they quit for "good reason", or upon retirement, such payments do not qualify for the exception for performance based pay.

Under § 162(m)(4)(C) and § 1.162-27(e), compensation is not considered applicable employee remuneration, and thus is not subject to the $1,000,000 limit in § 162(m)(1), if it satisfies the requirements for “qualified performance-based compensation.” Among these requirements is that the compensation is payable “solely” on account of the attainment of one or more performance goals. Under § 1.162-27(e)(2)(v), compensation is not performance-based if the facts and circumstances indicate that the employee would receive all or part of the compensation regardless of whether the performance goal is attained. Section 1.162-27(e)(2)(v) provides further that compensation does not fail to be qualified performance-based compensation merely because the plan allows the compensation to be payable upon death, disability, or change of ownership or control.

The ruling is effective prospectively only.

Pursuant to § 7805(b)(8), the holdings in this revenue ruling will not be applied to disallow a deduction for any compensation that otherwise satisfies the requirements for qualified performance-based compensation under § 162(m)(4)(C) and § 1.162-27(e) and that is paid under a plan, agreement, or contract that has payment terms similar to the terms described in this revenue ruling if either (i) the performance period for such compensation begins on or before January 1, 2009 or (ii) the compensation is paid pursuant to the terms of an employment contract as in effect (without respect to future renewals or extensions, including renewals or extensions that occur automatically absent further action of one or more of the parties to the contract) on February 21, 2008.

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February 21, 2008

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By Stuart C. Campbell and Michele L. Buck-Romero

On Feb. 6, 2008, the Securities and Exchange Commission (SEC) issued a final rule adopting revisions to Form D effective Sept. 15, 2008, and requiring electronic filing of Form D as of March 16, 2009. Any company issuing securities pursuant to an exemption from registration under Regulation D should be aware of this new rule. The rule amendments are intended to ease the burdens of complying with Form D, facilitate electronic filing, improve and update Form D information requirements, and increase the public’s access to Form D information.

Under the Securities Act of 1933, an offer to sell securities must either be registered with the SEC or fall within an exemption from the registration requirements, such as the offering exemptions under Rules 504, 505 and 506 of Regulation D. A company relying upon a Regulation D exemption currently must file a Form D with the SEC in paper format no later than 15 days after the first sale of securities in the offering. Form D serves as the official notice of an exempt offering under Regulation D and includes basic information about the issuer and the offering. Continue reading...

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The U.S. Supreme Court has denied certiorari in Ford Motor Co. v. City of Seattle, a Washington State Supreme Court case which upheld the imposition by the cities of Seattle and Tacoma of wholesaling B&O tax on the Ford Motor Co. for its sales of vehicles to its dealers in Seattle. 

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In Determination No. 06-0230, 27 WTD 1 (2008), the Washington State Department of Revenue Appeals Division affirmed the assessment of services and other B&O tax on franchisor subsidies received by a franchisee as credits against royalty payments to promote the sale of selected products at prices set by the franchisor.

The B&O tax is imposed on gross income, which is broadly defined to include, among other things, all "emoluments however designated, all without any deduction on account of the cost of tangible property sold, the cost of materials used, labor costs, interest, discount, delivery costs, taxes, or any other expense whatsoever paid or accrued and without deduction on account of losses."  RCW 82.04.080.  The Department was unpersuaded by the taxpayer's argument that the subsidies were not taxable because the franchisee did not perform services in order to receive the subsidy.  Like it or not, the B&O tax is designed to capture as make income as possible.  Taxpayers situated similarly to the taxpayer in this ruling may want to determine whether they are acting in a manner consistent with this recent guidance.

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Hot off the press.  The SEC has issued a final rule mandating the electronic filing of Forms D.   

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By Kenneth Mitchell-Phillips

The Supreme Court, in what's considered to be the most important securities fraud case in years, has placed significant obstacles in the way of securities litigation plaintiffs attempting to hold third-party defendants liable for broad "scheme liability" for their tangential roles in corporate fraud. The decision came through the Stoneridge Investment Partners v. Scientific-Atlanta Inc. and Motorola Inc. case, in which investor groups sued the cable operator Charter Communications and its suppliers for a deceptive arrangement that gave the company's books the illusion of an additional $17 million in revenue.

By a 5-3 vote, the Court said that because investors victimized by Charter did not rely on any statements or omissions made by the vendors Scientific-Atlanta and Motorola, the vendors could not be held liable under Section 10(b) of the Securities Exchange Act of 1934. As a result of the decision, plaintiffs must be able to show that they relied, in making their decision to acquire or hold stock, on the deceptive behind-the-scenes behavior of these financial institutions, often called secondary actors. However, if their behavior that was never communicated to the marketplace, then the court will not hold that their actions induced reliance. According to Justice Anthony M. Kennedy, who wrote for the majority, "Without such a limitation on the concept of reliance, potential liability would reach the whole marketplace in which the issuing company does business."

The Courts decision is considered to be an end to the concept of "scheme liability" and a major victory for investment banks, accountants and vendors, and even lawyers who have become targets of class-action lawsuits accusing them of having engaged in a fraudulent scheme with a company that actually issued the stock.

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January 17, 2008

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By Kathleen Poole

Starting this year, the California Earned Income Tax Credit Information Act requires employers to notify all California employees that they may be eligible for the federal Earned Income Tax Credit (EITC). The purpose of the Act is to facilitate the ability of the working poor to claim EITCs—and, correspondingly, to increase the share of the federal money that California receives under the program. Continue reading...

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