Do You Need Help with Affordable Care Act Reporting?

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Canyoneering in Southern Utah

Reporting on offers of health insurance coverage by Utah employers under section 6056 of the Affordable Care Act (ACA) is first required in early 2016 with respect to calendar year 2015. If you find yourself in this situation, my partner, Chris Droubay, has experience and expertise in this area. I am confident he can provide valuable assistance to you. Feel free to call him and tell him I sent you.

If you want to research it yourself and take a shot at getting it right on your own, the IRS has some online guidance, for whatever it’s worth, for completing the Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, and Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, at the Employer Information Reporting FAQs for Forms 1094-C and 1095-C on IRS.gov. If you are a large employer per IRS guidelines, the IRS has information available on its large employers page. Good luck!

ACA reporting is one of those areas that I simply have no expertise. Fortunately, I have partners who have the expertise. As with all legal issues, if you have questions, you should get specific legal advice. If you would like to talk to me about this or any legal matter, contact me, Utah attorney Ken Reich directly. I will likely ultimately involve a partner in the matter but I would love the opportunity to help out where I can. I have represented both companies and individuals in numerous business matters and disputes since 1999. Using my many years of experience and backed by a firm of legal specialists in nearly every legal field, I can help you evaluate your situation and help you make smart decisions about your business and your life that will best fit your circumstances. Cheers!

Do Your Contract or Settlement Negotiations Amount to Fraud?

IMG_1215Your initial response to the title question should certainly be ‘No’. In light of a recent case pending in the U.S. Court of Appeals, however, you may want to reevaluate your representations made in contract or settlement negotiations. A bank VP was convicted of fraud based on representations he made in a deal he made with his bank employer, even when the bank acknowledged and waived the obvious conflict of interest. Makes me think any amount of ‘puffing’ in contract or settlement negotiations could turn to a fraud indictment.

Set Up

Let me set up the facts. Be patient, the complex setup is worth the payoff pitch:

In the U.S. v. Weimert case, Weimert was convicted of wire fraud in a negotiated transaction. Weimert was a bank senior vice president and president of a bank subsidiary, IDI. IDI was a 50% minority owner in CCLP, LLC. The majority owner of CCLP, Burkes, held a right of first refusal on IDI’s shares in CCLP. As the real estate market was crashing in 2008, the bank accepted Troubled Asset Relief Program (TARP) funds from the US government.

In order to gain liquidity and avoid bankruptcy, the bank told Weimert to sell assets to make interest payments. Weimert found a legitimate buyer, Kalka, to make a ‘stalking horse’ offer on the CCLP shares held by IDI. Kalka’s letter of intent included a provision that gave Weimert, personally, a commission on the deal and a buy-in interest of 4 7/8%  in CCLP. Weimert took that LOI to Burkes, as he was required to do, and convinced Burkes to match the offer. Burkes matched it (almost, but that’s not an issue in the case).

Weimert then took Burkes’ offer to the bank board of directors. Weimert represented to the board that the buyer would not purchase the asset unless Weimert received the commission and the stake in CCLP. This was factually not true; the buyer made no such requirements to consummate the deal. Weimert’s conflict of interest was acknowledged and signed off by the bank’s attorneys. The bank waived the conflict and approved the sale but was ignorant of Weimert’s misrepresentation about the buyer’s alleged stipulation that he obtain a commission and interest in CCLP.

TARP inspectors investigated the transaction and brought wire fraud claims against Weimert since his negotiations on the deal were communicated across state lines. A jury convicted him on 5 of 6 fraud counts. The jury found that Weimert defrauded the bank by inserting himself in the transaction based on the misrepresentation that the buyer would only buy the CCLP shares if he obtained a commission and interest in it.

Weimert’s case is now on appeal. At oral argument, the judges raised issues of prosecutorial judgment and whether this claim should have ever been brought.

One judge commented: “I’m very troubled by the application of federal wire fraud to statements about parties’ negotiating positions. That is, what terms are important in this deal to whom.” He also noted, “I have not found any case law treating those sorts of representations by anybody under any circumstances as material for purposes of federal fraud statutes.”

Apparently, the judge questioned whether Weimert’s representations about the deal were anything but ‘puffing’ or negotiation tactics. This position appears to make the assumption that the bank could no longer rely on Weimert’s impartiality when it waived the known conflict that Weimert was now personally interested in the deal and whether the reason for his personal interest was because the buyer required it or because he wanted a slice of the pie does not give rise to a claim under the wire fraud statutes.

He’s bluffing, sure. This happens in deals. These are capitalist acts among consenting adults.

The same judge then questioned the prosecutor about his concern that this was just negotiation rhetoric and not fraud. The prosecutor countered with an argument that there was a conflict of interest. The judge responded that “[Weimert] has disclosed the conflict of interest. It is out there for everybody to see. The board brings in its lawyer and says, in essence, eyes wide open. We need to do this deal.” The judge clarified: “Let me be very frank about what concerns me about this … it seems to me that … this case comes very close to making negotiations subject to federal criminal prosecutions at the discretion of the U.S. attorney and the grand jury.”

The judge drilled down on what makes this case fraud when other deal negotiations are dismissed as puffing and rhetoric. The prosecutor responded that this case is different because Weimert “induce[d] [the board] to waive the conflict of interest by misrepresentation” and “inserted [him]self in the deal” by representing to the board that Burkes required it. The judge’s response: “He’s bluffing, sure. This happens in deals. These are capitalist acts among consenting adults” and commented that “[t]his case seems to me to break very new ground.”

If you are really interested, you can search the Seventh Circuit’s oral arguments here.

The Take-Away

Negotiating is an art. Parties constantly make representations based on their position and outcome goals. There are fine lines between ‘puffing’ and fraud. Weimert crossed over. Let me see if I can help clarify some of the gray areas.

In negotiations, you will find yourself in differing situations. For example, Weimert was in a position of trust as an employee and senior vice president. Even though his personal interest was disclosed to his employer, the bank, he was not free to lie about the essential facts underlying the transaction. He was still the only person reporting or presenting the deal to the board. Certainly there is still some ‘shame on you’ to be shared with the board. Under the circumstances, if the board had any concerns, it should have assigned another employee to oversee the transaction since Weimert was clearly conflicted.

You need to examine your position in the deal. Do you owe any duty to the other side in the deal? Are you related by blood, employment, or contract? Is the other party relying on your opinion, investigation, or valuation that is not otherwise disclaimed in the written agreement? Are you in a position of trust in relation to the other party? Do you exert control over the other party?

Likewise, the amount of scrutiny a deal will receive is a function of the amount at stake and the parties involved. The bigger the numbers, the more scrutiny, usually. If government funds are involved, such as the TARP funds involved in Weimert, you can expect a certain amount of additional oversight. The IRS also likes to look at big deals to make sure they get their cut. If you are crafting a deal to avoid taxes and your express negotiations are key to entitlement to a preferred tax treatment, be careful. Likewise for family transactions. You may find a sweet deal from your elderly uncle but you have to know that your cousins and siblings are going to look at it very closely and blame you if it goes south or you took advantage. Also, with elderly people, you need to make sure that competency is not an issue. Appearance of fraud is sometimes as powerful as actual fraud. Think about how it would look in front of a jury. Put it in writing and disclose anything you think might make a difference to someone in an armchair quarterback role a year from now.

Another note: you should not rely on your attorney to sanitize your misrepresentations. Attorneys are your agent and you are bound by what they say or agree to on your behalf. Also, take a look at the lawyer rules about representations:

Rule 4.1 of the Utah Rules of Professional Conduct provides:
In the course of representing a client a lawyer shall
not knowingly:
(a) Make a false statement of material fact or
law to a third person; or
(b) Fail to disclose a material fact, when disclosure
is necessary to avoid assisting a criminal or
fraudulent act by a client, unless disclosure is
prohibited by Rule 1.6.

The comments to this rule help clarify some of the question about representations in negotiations:

Whether a particular statement should be regarded as one of fact can depend on the circumstances. Under generally accepted conventions in negotiation, certain types of statements ordinarily are not taken as statements of material fact. Estimates of price or value placed on the subject of a transaction and a party’s intentions as to an acceptable settlement of a claim are ordinarily in this category

(Emphasis added). My partner, Keith Call, recently addressed the subject in the Utah Bar Journal article “Is it Ethical to Be Dishonest in Negotiations?” (see page 40). His article is addressed specifically to lawyers but you may find it interesting.

There are issues and nuances for negotiations that certainly cannot all be addressed here. If you have questions, you should get specific legal advice. If you would like more information about negotiations or how to stay out of trouble, contact me, Utah attorney Ken Reich directly. I have represented both companies and individuals in numerous business matters and disputes since 1999. Using my many years of experience and backed by a firm of legal specialists in nearly every legal field, I can help you evaluate your situation and help you make smart decisions about your business and your life that will best fit your circumstances.

When Your Employee Manual May Hurt More than It Helps- a Fresh Utah Example

IMG_4161You have carefully crafted your employee handbook to expressly and explicitly disclaim any contractual relationship with your employees and keep them at-will and then- BOOM. You got cute with the fine print. You kept your important language buried in the minutia of the handbook while keeping all the employee-friendly terms front and center. This may have been good enough in the past but it is no longer. Let’s look at Reynolds v. Gentry Finance Corporation, 2016 UT App 35, a recent case from the Utah Court of Appeals on this issue.

“[A]n employee handbook distributed to an at-will employee may modify the at-will employment relationship.”

A company’s employee manual is a great opportunity to define its employment relationship with its employees. In fact, employers often expect and hope that employees refer to the employment manual to understand the terms of their employment– not every employee warrants an employment agreement. Here’s where the Gentry company went a bit awry.

Gentry wanted to keep the bundle of at-will employee ‘privileges’ intact while at the same time make the broad statement that “NO EMPLOYEE WILL BE TERMINATED OR HAVE ANY ADVERSE ACTION TAKEN AGAINST THEM FOR BRINGING A COMPLAINT TO THE ATTENTION OF THE HOME OFFICE.” (Capitalization, boldface, and italics in Gentry’s handbook).

“Utah law allows employers to disclaim any contractual relationship that might otherwise arise from employee manuals.” To do this, however, the employer must include in the employee handbook “a clear and conspicuous disclaimer of contractual liability.” This is where it gets sticky and you need to step carefully because 1) “[t]he prominence of the text, [2)]the placement of the disclaimer, and [3)] the language of the disclaimer are all relevant factors in determining whether a disclaimer is clear and conspicuous.”

What does this mean? Well, for example, in a Utah Supreme Court case, a disclaimer that was conspicuously located at the top of a employee handbook and prominently bolded and SET APART by a text box was good enough or “sufficiently prominent” to put employees on notice of its terms. Use your imagination. Look at the ALLCAPS, italicized, and bolded statement from Gentry’s handbook. It stands out. And, if it stands out to you, it is likely to stand out to your employees. If you have questions, talk to a lawyer. I’m getting ahead of myself. Let’s get back to Gentry.

Gentry got sideways with its employee handbook even though it had four separate disclaimers in it. Unlike the disclaimer case example above and Gentry’s statement that an employee would not be terminated or had adverse action taken against them, Gentry’s disclaimer was nearly invisible. The court found that the disclaimer had not been placed at the top of the relevant policy, was “not prominent, not bolded, and not set apart by a text box. It [was], in a word, inconspicuous.”

So what? Well, for Gentry it meant that its employee could avoid having its case dismissed and a jury would get to hear her case. Juries are a mixed bag. If your employee handbook is clean and clear and meets all the right requirements to keep your at-will rights intact, you punch your ticket out of the case early and cheaply. Gentry, however, now gets to pitch its story to a jury who may be sympathetic to an employee that the jury may feel has been wronged.

The takeaway from Reynolds: don’t get cute with your employee manual. Don’t put the important stuff in the fine print or make it inconspicuous. Bold it. Put it in ALLCAPS and italicize it. Make it a black box label that cannot be ignored.

There are issues and nuances for employee handbooks that certainly cannot all be addressed here. If you have questions, you should get specific legal advice. If you would like more information about employee manuals, employment agreements, protecting your rights, or rectifying wrongs committed against you, contact Utah attorney Ken Reich directly. Mr. Reich has represented both companies and individuals in business matters and disputes. Using his many years of experience and backed by a firm of legal specialists in nearly every legal field, Mr. Reich can help you evaluate your situation and help you make smart decisions about your business and your life that will best fit your circumstances.

Posting Bail in Utah: a Free Tip from the Royal Consulate of the Kingdom of Saudi Arabia

cash saudiThis is a cautionary tale for those who lend money for bail in Utah. You have to know that your money is at risk if you lend money to bail someone out of jail. It is apparently a profitable business but you should probably leave it to the professionals. So, when your buddy or brother-in-law calls you from jail and begs you to post his bail, remember the mistakes made by the Saudi Consulate and decline.

In a recent case from the Utah Supreme Court, Saudi Arabia v. Pullan, our good Judge Pullan got it right. A Saudi Arabian citizen, Al Shammari, was arrested in Orem on rape charges. The Royal Consulate of the Kingdom of Saudi Arabia posted his $100,000 bail in cash. Shammari immediately high-tailed it to the Tijuana border and tried to cross over to Mexico where he was arrested by the Customs and Border Patrol. When Shammari failed to appear at his next hearing, the bail was declared forfeit without providing notice to the Consulate.

The mistakes by the Consulate were to post the bail on its own, post it in cash, and not bother to read the Utah Code. Bail bonding companies make money because they do everything they can to keep their money. They know the rules and follow them. If the Consulate had followed the rules it would have been entitled to notice before forfeiture.  Or, if it had posted bail through a bail bond company, the bonding company would have done it right and protected the $100,000.

In this appeal, the Consulate claimed it was a “surety” for purposes of the Utah Code and was entitled to notice before the bail was forfeited. Unfortunately for the Consulate, it did not meet any of the requirements to demonstrate it was a surety.

Bail in Utah can be made in one of two ways:  (1) filing with the court an undertaking tendered by an individual or entity that ordinarily will be accompanied by the posting of a bond (i.e., agreement to pay money supported by evidence of ability to pay); or (2) depositing into the court a bail by cash or an equivalent form of payment. The first method requires the court give notice to the person posting the bond and the second does not.

The Consulate argued that it should have been given notice because it loaned Shammari the cash bail money, making it like a bond. The Supreme Court clarified that the source of the funds is not relevant and does not make a deposit into a bond without following the Utah Code:

“The statutory scheme for bail does not concern itself with the manner in which the defendant obtains the funds for cash bail or the nature of the relationship between the defendant and another provider, if any, of the funds. The person posting the cash bail may be merely functioning as a courier for the defendant’s own funds, may be providing the funds out of friendship or familial loyalty, or may have extracted some agreement that may or may not be legally enforceable as a private contract.”

Be careful with your money- you worked hard to get it. If you have questions, ask them. If you would like more information about criminal law or bail bonds, contact me, Utah attorney Ken Reich. I am no expert on bail bonds or criminal law, but I have partners, friends, and colleagues who are. I would be happy to answer whatever questions you have and send you to people I trust for ones I cannot.

You Want to Appraise Real Property in Utah? Here Are Some Pointers

faceThe Utah courts of appeal recently are breaking out the creative stick. Here’s the most recent literary opening gambit: “The best-laid schemes o’ mice an’ men gang aft agley an lea’s us nought but grief an’ pain for promis’d joy.” Robert Burns, Tae a Moose, in The Best Laid Schemes: Selected Poetry & Prose of Robert Burns 48 (Robert Crawford & Christopher MacLachlan eds., 2009). The court used Burns to gild a rather dull decision, AmericanWest Bank v. Kellin, that gives us a few pointers about appraising, foreclosure valuation, and litigating in Utah.

Kellin and her partner bought two fancy Deer Valley condos for more than a million dollars each with plans to sell one-eighth shares in each. They sold one share of the sixteen. The real property market promptly collapsed. Hence, the “best laid plans of mice and men” quip. In an action to recover the difference between the bank’s loans and the now depressed value, the court provided these nuggets:

  • If you want to establish how much you are owed after foreclosing on real property, you, the lender, have the burden to establish 1) the amount you are owed and  2) the fair market value of the property at the time of the foreclosure. The difference is the ‘deficiency judgment’ you get from the debtor.
  • Your appraiser had better comply with the Uniform Standards of Professional Appraisal Practice (USPAP) standards. Utah has adopted the standards by statute. See Utah Code Ann. § 61-2g-403(1).
  • An appraisal in Utah cannot value “the whole [of a property] solely by adding together the individual values of its various estates or component parts.” (quoting USPAP Standards Rule 1-4(e) (2014–2015 ed.), http://www.uspap.org/#2. Kellin tried this and failed.
  • The lender has the burden to prove any offsets to fair market value. If the lender fails to prove entitlement to the offset, it is lost. AmWest Bank tried to prove an offset for the one 1/8th share that was sold but failed to do so. The failure led to the denial of an offset in an amount of around $77k.
  • Finally, if your contract includes attorney fees, the prevailing party will normally be awarded attorney fees and costs up through trial and then again on appeal. In many cases, attorney fees can turn into the tail that wags the dog. In small cases, attorney fees can quickly make an insubstantial case into a substantial one.

When you foreclose on property, get your ducks in a row and you will recover max value. It often takes careful planning and always requires good legal advice. If you have questions, you should ask them. If you would like more information about foreclosure and recovery of your assets, contact me, Utah attorney Ken Reich. I do not claim to be a foreclosure guru but I have fantastic partners who are. I regularly represent companies and the individuals and families that own them. My job is to know and understand my clients and their goals. Together with the right legal experts, I can help you get the result you want.