SML Perspectives | Matters of Law as They Relate to You | December 2010

LABOR & EMPLOYMENT:

When to Talk to Your Employment Lawyer Instead of Your HR Consultant

p.22

INTELLECTUAL PROPERTY:

False Patent Markings Could Cost You: The New Frontier in Intellectual Property Litigation p.24

COMMERCIAL REAL ESTATE:

Searching for Signs of Recovery in the Rezoning Chambers of N.C. City Halls

p.34

perspectives SML

DECEMBER 2010

A Smith Moore Leatherwood Publication

Matters of Law as They Relate to You CORPORATE | COMMERCIAL REAL ESTATE | HEALTH CARE LABOR & EMPLOYMENT | LITIGATION

New Tech & The Law

Why Can’t We Be Friends?

Online Interactions Between Patients and Health Care Providers

A Snapshot of Patient Privacy: Why New Camera Technologies Present a Challenge for Health Care Facilities

Distracted Driving and the Mobile Workforce Navigating the Social Networking Minefield

We all want to be recognized as super Smith Moore Leatherwood’s attorneys named to the 2010 North Carolina, South Carolina, and Georgia Super Lawyers and Rising Stars lists.

Appellate

Environmental

Bankruptcy & Creditor/Debtor Rights

Environmental Litigation

James G. Exum, Jr. - N.C. Elizabeth Brooks Scherer* - N.C.

F. Marion Hughes - S.C.

Business/Corporate E. Kent Auberry - N.C.

Business Litigation

Jon A. Berkelhammer - N.C. Alan W. Duncan - N.C. Steven E. Farrar - S.C. Mark A. Finkelstein - N.C. James L. Gale - N.C. Michael J. Giese - S.C. F. Marion Hughes - S.C. Robert R. Marcus - N.C. Larry B. Sitton - N.C.

Construction Litigation Bruce P. Ashley - N.C.

Employment & Labor Martin N. Erwin - N.C. Alexander L. Maultsby - N.C. George J. (Jerry) Oliver - N.C. Julianna C. Theall - N.C.

Stephen W. Earp - N.C. Thomas E. Terrell, Jr. - N.C. Mark A. Finkelstein - N.C.

Estate Planning & Probate William L. Dennis - S.C. J. Tod Hyche - S.C. Tanya N. Oesterreich* - N.C. Jill L. Raspet* - N.C.

General Litigation

D. Erik Albright - N.C. L. Cooper Harrell* - N.C. Allison O. Van Laningham - N.C.

Health Care

William H. Boling, Jr. - Ga Terrill J. Harris - N.C. Erin E. Jochum* - N.C. Maureen Demarest Murray - N.C. Jennifer Pritzker Sender* - Ga Samuel O. Southern - N.C. Tobin N. Watt - Ga Robert L. Wilson, Jr. - N.C.

Immigration

Laura D. Burton* - N.C.

Insurance Coverage Steven E. Farrar - S.C.

Land Use/Zoning

Elizabeth C. Trahos* - N.C.

Personal Injury Defense: Medical D. Clark Smith, Jr. - N.C.

Professional Liability Defense Steven E. Farrar - S.C.

Real Estate

Brian W. Byrd* - N.C. Michael V. Lee - N.C. Charles E. Melvin, Jr. - N.C. David J. Neill* - N.C. E. Garrett Walker - N.C.

Tax

William L. Dennis - S.C. J. Tod Hyche - S.C.

Transportation/Maritime Kurt M. Rozelsky - S.C.

Workers’ Compensation Jeri L. Whitfield - N.C.

*Rising Stars lists

Employee Benefits/ERISA H. Sanders Carter, Jr. - Ga William L. Dennis - S.C. Aaron E. Pohlmann* - Ga

®

Attorneys at Law

ATLANTA 404.962.1000

CHARLOTTE 704.384.2600

GREENSBORO 336.378.5200

GREENVILLE 864.242.6440

RALEIGH 919.755.8700

WILMINGTON 910.815.7100

Smith Moore Leatherwood LLP | Attorneys at Law | www.smithmoorelaw.com Rob Marcus, Firm Chairman, Charlotte, N.C.

From the Chairman

33

Rob Marcus is Smith Moore Leatherwood’s Chairman.

The focus of his legal practice is on complex commercial and appellate litigation. He has represented numerous corporations and financial institutions in high profile and complex litigation matters throughout the state and federal courts in North Carolina and elsewhere. He is also wellversed in alternative dispute resolution, including mediation and arbitration.

Rob has been selected by Law & Politics Magazine for inclusion in North Carolina Super Lawyers for Business Litigation and is listed in Woodward/White’s Best Lawyers in America for Business Litigation, and Mass Tort Litigation. rob.marcus@ smithmoorelaw.com 704.384.2630

We live in a time of rapid and profound change. Technology continues to revolutionize business, culture, and the fundamental ways we relate to one another. The speed at which we are advancing is exponential.

It’s an exciting time for our clients.

That said, most of our common law was developed long before the digital revolution. Law is typically slow to change, and with technologies evolving at staggering speed, the law does not always keep pace with the novel and cutting-edge issues faced by businesses and individuals everyday. This dichotomy can pose unique challenges to attorneys, and the clients they protect.

In this inaugural issue of SML Perspectives, we are pleased to offer a selection of outstanding articles from some of our most experienced lawyers. We hope to provide insight into a few of the unforeseen legal consequences created by new technology across a handful of industries. Also included are feature articles on current matters of law as they relate to you.

We encourage you to voice your thoughts, concerns and ideas about the issues raised in this publication and about how our firm might continue to serve your legal needs. As always, we’re listening.

perspectives SML

A Smith Moore Leatherwood Publication

P.11

4

CON

New Tech & the Law P.12

Why Can’t We Be “Friends”?

P.14

A Snapshot of Patient Privacy

P.16

Navigating the Social Networking Minefield

P.18

Distracted Driving and the Mobile Workforce

Online Interactions Between Patients and Health Care Providers Why New Camera Technologies Present a Challenge for Health Care Facilities

Departments

P.03 From the Chairman

A letter from Smith Moore Leatherwood’s Chairman

P.08 Perspectives

Three unique takes on three aspects of new tech and the law

P.20 Profile

Attorney, Lisa Shortt

P.26 Legal News You Can Use Health Care websites every provider should know about

NTENTS DECEMBER 2010

FEATURES P.22

Who Ya Gonna Call?

When to Talk to Your Employment Lawyer Instead of Your HR Consultant

When HR consultants cross the line between giving HR advice and giving legal advice, the consequences to an employer can be dire.

P.24

False Patent Markings Could Cost You:

The New Frontier in Intellectual Property Litigation

About 250 lawsuits have been recently filed challenging statements on products claiming coverage by certain listed U.S. patents.

P.28

After All These Years: Sexual Harassment Claims Persist

P.32

The Return of the Estate Tax

P.34

Predicting Our Economic Future

A new awareness about the dangers of sexual harassment has permeated our workplaces, but that hasn’t exactly translated into a major decline in charges with the Equal Employment Opportunity Commission.

Congress must act before the new year in order to prevent a levy of up to 55 percent on estates valued at more than $1 million, one of the largest tax hikes in history.

Searching for Signs of Recovery in the Rezoning Chambers of N.C. City Halls

Early warning signs of economic collapse and rejuvenation can be found in more places than the jobless rate, the prime lending rate and the list of housing starts.

P.37

Creating Diverse Classrooms A Case Study in the “Busing Versus Diverse Neighborhoods” Debate

Should classroom diversity goals be emphasized at the cost of subjecting children to prolonged school days and long bus rides, or should neighborhood schools be promoted in hopes of increasing parental involvement in the education process?

5

Contributors Matt Creech

Associate, Greensboro, N.C. Labor & Employment/ ERISA matt.creech@ 336.378.5552

Bill Dennis

Partner, Greenville, S.C. Tax and Wealth Transfer Planning Team Leader bill.dennis@ 864.240.2406

Barry Herrin

Partner, Atlanta, GA Health Care barry.herrin@ 404.962.1027

6

Clyde Holt III

All email extensions @smithmoorelaw.com

Phil McCann

Partner, Greensboro, N.C. Intellectual Property Team Leader phil.mccann@ 336.378.5302

Tami McKnew

Partner, Greenville, S.C. Intellectual Property and Business Litigation tami.mcknew@ 864.240.2408

Jason Nutzman

Associate, Greenville, S.C. Labor & Employment jason.nutzman@ 864.240.2430

Patti West Ramseur

Partner, Raleigh, N.C. Real Estate/ Governmental Regulation clyde.holt@ 919.755.8728

Partner, Charlotte/ Greensboro, N.C. Labor & Employment Team Leader patti.ramseur@ 336.378.5304

Dave Krasnow

Kurt Rozelsky

Partner, Raleigh, N.C. Intellectual Property dave.krasnow@ 919.755.8741

Michael Lee

Partner, Wilmington, N.C. Commercial Real Estate, Land Use/Zoning michael.lee@ 910.815.7121

Trish Markus

Partner, Raleigh, N.C. Health Care trish.markus@ 919.755.8850

Alex Maultsby

Partner, Greensboro, N.C. Labor & Employment alex.maultsby@ 336.378.5331

Partner, Greenville, S.C. Transportation/Litigation kurt.rozelsky@ 864.240.2424

Peter Rutledge

Partner, Greenville, S.C. Labor & Employment peter.rutledge@ 864.240.2410

Tom Terrell

Partner, Greensboro, N.C. Land Use/Zoning tom.terrell@ 336.378.5412

Julie Theall

Partner, Greensboro, N.C. Labor & Employment julie.theall@ 336.378.5256

perspectives SML

A Smith Moore Leatherwood Publication

Editor-in-Chief: Michael Lee michael.lee@smithmoorelaw.com Managing Editor Brenda Stewart brenda.stewart@smithmoorelaw.com Executive Editor Jess Robertson jessica.robertson@smithmoorelaw.com Creative Director Jess Robertson jessica.robertson@smithmoorelaw.com Copy Editors Kathy Bagwell kathy.bagwell@smithmoorelaw.com Gayle McCall gayle.mccall@smithmoorelaw.com Circulation/Subscriptions Lisa Amos lisa.amos@smithmoorelaw.com Web Development George Nelson george.nelson@smithmoorelaw.com

QUESTIONS, COMMENTS OR LETTERS TO THE EDITOR: Brenda Stewart, Managing Editor brenda.stewart@smithmoorelaw.com Smith Moore Leatherwood LLP Attorneys at Law 300 East McBee Avenue, Suite 500 Greenville, SC 29601 864.242.6440 www.smithmoorelaw.com

All contents Š COPYRIGHT 2010 Smith Moore Leatherwood LLP. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without written permission from Smith Moore Leatherwood LLP. The information contained herein should not be interpreted as legal advice with respect to speciďŹ c situations.

THE GOLDEN RATIO: A NUMBER OFTEN ENCOUNTERED WHEN TAKING THE RATIOS OF DISTANCES IN SIMPLE GEOMETRIC FIGURES.

Our IP Attorneys are Golden Smith Moore Leatherwood’s Intellectual Property attorneys have global experience in transactional, counseling, and litigation services across a variety of industries, including the computer, pharmaceutical, chemical, medical, and manufacturing sectors. If you are in need of intellectual property services involving patents, trademarks, licensing, copyrights, or trade secrets, rely on attorneys with the technical knowledge and experience to get the job done.

®

Attorneys at Law

ATLANTA 404.962.1000

CHARLOTTE 704.384.2600

GREENSBORO 336.378.5200

GREENVILLE 864.242.6440

RALEIGH 919.755.8700

WILMINGTON 910.815.7100

Phil McCann, Intellectual Property Team Leader | Greensboro, N.C. Smith Moore Leatherwood LLP | Attorneys at Law | www.smithmoorelaw.com

perspectives perspec tives SML

on New Tech and the Law

88

Clinical Trials

Patents

Employee Emails

Molly Huggins

Dave Krasnow

Patti Ramseur

Altanta, Ga | Raleigh, N.C.

Raleigh, N.C.

Charlotte, N.C. | Greensboro, N.C.

Clinical trials yield scientific discovery and enable new technologies to come to market.

But with these developments come a complex web of legal obligations and potential liabilities requiring well-drafted and negotiated contracts between a large number of players.

Intellectual property protection is becoming more creative by necessity: the life cycles of many new technologies are such that they will have burgeoned and become obsolete before the patent process can be completed.

It’s now more common for employers to monitor employees’ work email accounts. We routinely advise clients, however, not to access employees’ personal email accounts without written consent, even if those accounts are occasionally used to conduct company business.

Of Counsel

Continued robust innovation is in many ways, dependent upon fairly-allocated risks among clinical trials sponsors, sites, and investigators. The challenges are many in such a heavily regulated industry, but it’s very fulfilling to play a central role in the advancement of medical discovery.

Molly Huggins counsels health care clients, including sponsors of clinical research and academic medical centers, on a wide range of regulatory and operational matters involving clinical research issues. molly.huggins@smithmoorelaw.com Atlanta: 404.962.1002 Raleigh: 919.755.8792

Partner

As a result, it is more important than ever to engage an experienced patent attorney to craft the patent claims that have the best chance of being allowed expeditiously, while standing the legal test of time if challenged during their term.

Since under U.S. Patent Law, patents confer no affirmative right to practice the claimed invention (patents merely confer the right to exclude others from making, using, selling, offering for sale or importing the claimed invention), it is extremely important to engage highly experienced patent counsel to conduct clearance and non-infringement opinions before a patented invention is commercialized.

Dave Krasnow was recently named to Business North Carolina’s Legal Elite, Intellectual Property, 2010 dave.krasnow@smithmoorelaw.com 919.755.8741

Partner

A U.S. Court of Appeals decision in 2009 held that an employee can recover statutory damages of $1,000 per violation of the Stored Communications Act and possibly punitive damages, attorneys’ fees, and costs for accessing, without authorization, private emails or other stored communications.

Patti Ramseur routinely counsels businesses on labor and employment matters. She was recently named one of Business North Carolina’s Legal Elite’s Young Guns for 2010. patti.ramseur@smithmoorelaw.com Charlotte: 704.384.2654 Greensboro: 336.378.5304

9

A Team of Experienced Appellate Practitioners Litigating in the appellate courts presents unique challenges for lawyers and their clients. Appellate courts require strict adherence to complex rules of procedure and practice. Litigants suffer if those rules are not followed. To smoothly navigate the appellate path, you need the guidance and knowledge of experienced appellate practitioners. Put our team to work for you.

•

Led by Jim Exum, retired Chief Justice of the N.C. Supreme Court, and Sid Eagles, retired Chief Judge of the N.C. Court of Appeals

•

Our team includes three members of the N.C. Bar Association’s Appellate Rules Committee, four former law clerks on state and federal appellate courts, and contributors to the N.C. Appellate Style Manual

•

Selected as the Top Rated firm in North Carolina in appellate law in The Best Lawyers in America ®2011 (Copyright 2010 by Woodward/White, Inc., of Aiken, S.C.)

Jim Exum | 336.378.5385 jim.exum@smithmoorelaw.com Allison Van Laningham | 336.378.5520 allison.vanlaningham@smithmoorelaw.com

Sid Eagles | 919.755.8771 sid.eagles@smithmoorelaw.com Beth Scherer | 919.755.8790 beth.scherer@smithmoorelaw.com

Georgia | North Carolina | South Carolina Smith Moore Leatherwood LLP | Attorneys at Law | www.smithmoorelaw.com

®

Attorneys at Law

NEW TECH & THE LAW

by Michael Lee

A

lmost everyday we hear or read about another technological or scientific advance.

It is quite clear that our scientific and technological knowledge is expanding at a pace faster than ever before. Remember your first computer with a 5 1/4 inch floppy disk?

Futurist Ray Kurzweil is an author who offers mindbending predictions for the future of technology, and he confirms what appears very obvious to us all.

Kurzweil will tell you that our technological advances are occurring not in a linear fashion, but exponentially.

Our knowledge continues to compound upon itself, meaning we won’t experience 100 years of progress in the 21st century; we will experience something closer to 20,000 years of progress (at today’s rate).

While life-changing technologies continue to impact us everyday, we are only beginning to see the emergence of a new field of legal study: how technologies are or should be regulated. Inevitably, there are unintended legal consequences of our new inventions that seem to escape us when we are caught up in the exciting vortex of change and discovery. These ramifications keep lawyers up at night.

Texting legislation, privacy concerns over social media and medical records, bioethics, cybercrime, robotics,

genetic engineering, and nanotechnology are just a handful of topics that routinely make the news, but there are virtually no areas of our lives left unaffected by the convergence of technology and the law.

The articles that follow offer a glimpse into some of the unforeseen legal consequences brought about by new tech in various forms. As technology blazes forward, there are those of us in the legal profession who are equally intrigued by the latest inventions, and wary of the impact they will have on our clients. The application of law on these emerging issues is not meant to impede progress, but to protect the fundamental rights of individuals and businesses. Even if we see 20,000 years of technological progress this century, the protections afforded by the judiciary can’t be undervalued, and our desire for those protections is not likely to change.

Michael Lee is the managing partner of Smith Moore Leatherwood’s Wilmington, N.C. office and the Editorin-Chief of SML Perpsectives. michael.lee@smithmoorelaw.com 910.815.7121

11

Why Can’t We Be “Friends”?

Online Interactions Between Patients and Health Care Providers

12

by Barry Herrin

Health care providers don’t want to be known for having poor bedside manners, but appropriate, in-person social pleasantries with patients and their families should not be extending into the online world of social media if these providers want to avoid inadvertent and inappropriate disclosure of a patient’s protected health information (PHI).

W

e are using our grandchildren’s technology within our grandparent’s’ legal system.

Online social media have created a host of new legal issues for which the judiciary must interpret and apply law that predates the networked world. It is of paramount importance that health care providers understand the consequences of their—and their employees’—online interactions and take appropriate precautions to ensure that they and their staff do not violate the privacy rights of their patients.

When a health care provider creates a social media profile either as a corporation or as an individual professional on Facebook or MySpace, the provider and patient are encouraged to “friend” one another through this platform. Although registering with a social networking site and agreeing to be a patient’s “friend” may appear to be within the societal norm, one potential pitfall for providers who have “friended” a patient is that (depending somewhat on the platform, the individual profile, and privacy settings) the public at-large will be able to determine the identities of online friends. In this regard, it is possible for other users of that social networking site (who may be unknown by and not connected to the patient) to assume that the patient is in fact a patient of the provider.

This assumption alone might create a violation of a patient’s privacy rights, as the mere existence of a physician/patient relationship in some situations can be considered PHI. At a minimum, providers should prevent this problem from arising by requiring potential online friends to agree to a written statement or indicate that they have read an online disclosure before an online “friendship” with the provider can be established.

There is also a significant amount of detailed, intimate information that is now commonly self-reported (self-posted) online by bloggers, despite the private nature of such information.

A scroll through modern blogs often reveals extraordinarily personal information about a person or that person’s associates which previously might have been found only in a locked diary or secret desk compartment.

It is no longer uncommon to find patients blogging about the details of their medical conditions and treatments received.

A naïve health care provider using online social media might assume that a blogger, by posting such information online, is somehow waiving his or her right to have the provider continue to safeguard the privacy of the blogger’s PHI. The provider might then imprudently post an online reply to the blogger discussing the procedure or the nature of the recovery or the blogger’s condition. Alternatively, the provider might post an unsolicited comment on the patient’s webpage discussing her PHI, thinking that the provider’s open discussion of the patient’s PHI is acceptable to, and has been implicitly authorized by, the blogging patient. Providers should not, under any circumstances, make such assumptions, because such online responses violate the patient’s privacy rights under HIPAA. Health care providers have a continuing obligation to protect PHI following treatment of a patient, and this obligation is not destroyed by a patient’s self-disclosure of the PHI to an

“

Providers should be careful not to comment online about a patient, either intentionally or inadvertently, without the patient’s express written authorization to do so.

”

online audience. A provider who discloses PHI obtained or created in treating the patient without the patient’s specific authorization to do so violates HIPAA, even if the patient has publicly discussed the same or similar information with numerous others. Although a patient’s self-disclosure of PHI might affect a claim for damages against the provider based on the provider’s privacy violation, it does not nullify the violation. Providers should be careful not to comment online about a patient, either intentionally or inadvertently, without the patient’s express written authorization to do so.

Within the last few years, and with growing frequency, we have seen social media addressed in criminal trials, judicial ethics scandals, and various employment contexts. One area that certainly appears ready to make an appearance is the disclosure of PHI through online social media. Even though recent studies indicate that provider-patient collaboration using social networking can improve outcomes, HIPAA violations are inevitable unless health care providers implement and enforce detailed social-networking policies, manage patient privacy expectations, and integrate those policies with their human resources disciplinary policies.

Barry Herrin is a partner in Smith Moore Leatherwood’s Atlanta, Ga office. He is also a Fellow of the American College of Healthcare Executives, a professional credential held by hospital CEOs and administrators. barry.herrin@smithmoorelaw.com 404.962.1027

13

A Snapshot of Patient Privacy Why New Camera Technologies Present a Challenge for Health Care Facilities

by Trish Markus and Barry Herrin

14

T

he ease and popularity of uploading and viewing photos online has fostered an environment in which protection of individual privacy is hardly given a second thought, and it is rare that someone questions whether it is acceptable to post a photo for the online world to see. However, health care facilities and providers must guard against online posting of photos of patients, particularly where those photos depict patients inside a health care facility or receiving treatment. Photos such as these could constitute an invasion of patient privacy, and could even be protected health information (PHI) under HIPAA. Given the strict regulatory environment under which health care organizations operate, it is vital that written policies regarding the use of all types of cameras — but especially cell phone and PDA cameras — by staff, practitioners, and visitors are adopted and enforced to avoid potential liability.

Consider the following illustration: a hospital nurse, who has treated a patient for an extended period of time and developed a friendly relationship with the patient, has her picture taken with the patient. Thereafter, the patient passes away. Grieved

“

There have been several incidents in hospitals over the past several years that have led to employee suspensions or firings over the inappropriate and unauthorized dissemination of patient photographs.

”

by the loss, the nurse posts the picture online through one or more of her social media accounts, and perhaps updates her “status”­­ — indicating that she is saddened by the passing of her “favorite patient” that day. Although the nurse’s action might be the online norm for a purely personal relationship, it is entirely inappropriate in the context of a professional relationship

involving a patient and a provider. In addition, the post could constitute a violation of HIPAA (even if the patient’s name is not used) if the nurse’s unauthorized disclosure includes other PHI (such as the patient’s date of death, cause of death, the fact or nature of treatment, etc.).

There have been several incidents in hospitals over the past several years that have led to employee suspensions or firings over the inappropriate and unauthorized dissemination of patient photographs. One such example involved a chief resident of general surgery at Mayo Clinic’s Phoenix Hospital, who resigned or was asked to leave following his use of his cell phone to take an inappropriate photo of a patient under anesthesia, which he then showed to his colleagues.

Even more problematic are photos that are taken by patients and visitors that infringe on the privacy rights of other patients. At the University of California at Los Angeles’ Resnick Neuropsychiatric Hospital (Resnick), a patient did just that when he posted photographs taken during a group therapy session to a social networking website. The patient who posted the photos claimed that he had the other patients’ consent, but hospital administrators rejected that claim, expressing their concern that some of the individual patients involved may not have been fully competent to give their consent.

What are facilities to do? After the incident, Resnick completely banned the use of any cell phones or laptops within the facility, regardless of whether they contained a camera or not. Hospital officials took this measure instead of requiring staff to check whether cell phones or laptops contained cameras. Protective measures employed by other health care facilities have included the completion of forms stating that admitted patients (or his or her responsible party) have been informed that they may only photograph their own family members while inside the facility, and that the use of cell phones and cell phone cameras is prohibited or severely limited.

Whatever policy a health care facility adopts, signs should be conspicuously posted that clearly state the nature and extent of the ban on cell phone or cell phone camera usage within the facility so that volunteers, visitors, employees, and practitioners all understand what is permitted. Facilities should consider training staff to require any patient, visitor, employee, or any other individual inside the facility who is observed taking photographs with a cell phone to immediately erase the photographs from the phone.

As technology advances and wireless handheld devices, PDAs, phones, cameras, and computers become ever smaller and more

“

Even more problematic are photos taken by patients and visitors that infringe on the privacy rights of other patients.

” inconspicuous, health care facilities need to proactively respond to the potential privacy violations that the use of such devices presents. The inconvenience of doing so is quite real, but so are the potential costs of violations. Patients may file complaints about privacy violations with the Office for Civil Rights within the Department of Health and Human Services. Such complaints result in an investigation into the incident, and a potential fine of $25,000 for each patient whose medical information may have been accessed or disclosed unlawfully if the facility does not take appropriate steps to resolve the incident and prevent future similar occurrences.

Trish Markus is a partner in Smith Moore Leatherwood’s Raleigh, N.C. office. She was selected by her peers for inclusion in Best Lawyers in America® 2011 (Copyright 2010 by Woodward/ White, Inc., of Aiken, S.C.), Health Care Law, 2009-2011. trish.markus@smithmoorelaw.com 919.755.8850 Barry Herrin is a partner in Smith Moore Leatherwood’s Atlanta, GA office. He is also a Fellow of the American College of Healthcare Executives, the professional credential held by hospital CEOs and administrators. barry.herrin@smithmoorelaw.com 404.962.1027

15

Navigating the Social Networking Minefield

by Patti Ramseur and Matt Creech

16

Definition of “social networking”

A

lthough the term “social network” was coined more than five decades ago, it has only recently gained widespread usage with the advent of social networking websites such as Facebook and LinkedIn which allow people to connect and interact with others who share personal and professional interests. The popularity and usage of social networking websites has increased significantly over the last several years, and that trend is expected to continue. A recent study estimates that nearly 25 percent of all internet usage in the United States is devoted to online social networks, which is a 43 percent increase from the previous year’s estimate.

As social networking websites continue to grow in both popularity and usage, employers should be aware of the potential legal issues created by their employees’ participation on such sites. The use of online social networks by employees raises more than just productivity concerns. Improper or careless use of these sites could harm the company’s reputation, reveal confidential or trade secret information, or form the basis of a claim for harassment or discrimination.

To reduce the risks associated with online social networking, employers should adopt a social networking policy that addresses employee usage of such websites. Although policies will vary depending on a company’s business and philosophy, the following are some areas that should be addressed in such a policy.

A social networking policy should clearly define what types of sites are covered and exactly what types of activities are prohibited, while being general enough to adapt to emerging media forms and social networking trends.

Productivity If employees are engaging in excessive “social notworking” during work hours, it can no doubt have an immediate and tangible impact on the company’s operations. As such, the policy should make clear that company computers are generally intended for work, not personal use. An employer may decide, however, that a complete ban may not be feasible to enforce (without a company firewall), necessary to ensure productivity, or in the employer’s overall best interest, in light of the potential effect on employee morale. At a minimum, the policy should contain a simple statement that employees must limit their online social networking activities so as to not interfere with their job duties and performance.

No right to privacy and monitoring The policy should state that employees have no right to privacy with regard to information written, sent, received, or viewed on the company’s computer system. The policy should also make clear that employees’ computer activity may be monitored or viewed by the company without their consent. The mere threat of monitoring may discourage over or improper usage of social networking websites.

“

Identity of user and disclaimers Through the policy, remind employees that they are personally responsible for their social networking activity, even when it is conducted through the company’s computer system.

When participating in online social networks, employees should always make clear that comments made and opinions expressed are their own and not that of the company. Regardless of such disclaimers, when employees identify themselves as representatives of a certain company, there is a potential for posts that will negatively reflect on the company, so remind employees to use good judgment. Further, the policy should prohibit use of the company’s logos, trademarks, or other intellectual property without prior written consent.

The use of online social networks by employees raises more than just productivity concerns. Improper or careless use of these sites could harm a company’s reputation, reveal confidential or trade secret information, or form the basis of a claim for harassment or discrimination.

Confidentiality The policy should remind employees that they must comply with all company policies concerning confidential information and trade secrets and that even private messages between individuals may not be secure from third parties. In the event of disclosure, employers should be prepared to take appropriate action to ensure they are not later found to have waived protection afforded to such information by failing to reasonably protect it.

Harassment / Discrimination The social networking policy should reinforce the employer’s policies concerning harassment and discrimination and make clear that those policies extend to cyberspace. Employees must understand that they are prohibited from using online social networks to harass, disparage, libel, or discriminate against others in the workplace. Employers should also consider addressing online social network interaction between managers and their subordinates.

Recommendations The policy should prohibit employees from providing recommendations relating to other employees or former employees unless specifically authorized to do so. Unauthorized recommendations could be attributable to the company and inconsistent with the company’s legal position should litigation later arise concerning the recommended employee or former employee.

Social networking outside of work Although employees enjoy more freedom when they use their own time and equipment, the policy should address the employer’s expectations regarding off-the-clock social networking. It should be reiterated that disclosure of confidential information or trade secrets, harassing or discriminating behavior, and unauthorized use of the employer’s intellectual property is strictly prohibited, regardless of when or where such conduct occurs.

Discipline

”

Make sure the policy has some teeth and is consistently enforced.

The policy should make clear that employees will be subject to discipline, up to and including termination, for violation of this policy. Employers should, as with all policies, uniformly apply and enforce the social networking policy.

Employer Usage Finally, employers, like employees, should be careful about usage of social networking websites, particularly if they utilize such sites in making hiring or other employment decisions. In this information age, it is tempting to try to learn more information about existing employees or applicants by accessing their social network profiles. In doing so, however, employers may learn information that they are not legally allowed to consider in making an employment decision — thereby creating unnecessary legal exposure.

Patti Ramseur is a partner is Smith Moore Leatherwood’s Greensboro and Charlotte, N.C. offices. She is the Labor & Employment team leader, and routinely counsels businesses and litigates employment matters. She was recently named one of Business North Carolina’s Legal Elite’s, Young Guns for 2010. patti.ramseur@smithmoorelaw.com Charlotte: 704.384.2654 Greensboro: 336.378.5304 Matt Creech is an associate in the Greensboro, N.C. office of Smith Moore Leatherwood where he focuses his practice on employment counseling and litigation; ERISA and life, health and disability insurance litigation; and commercial litigation. matt.creech@smithmoorelaw.com 336.378.5552

17

Distracted Driving & the Mobile Workforce

by Kurt Rozelsky

18

B

lackberrys, iPhones and other mobile devices continue to revolutionize the way we do business. According to CTIA - The Wireless Association, (originally known as the Cellular Telephone Industries Association), “Estimates of productivity gains from wireless broadband services are greater than $860 billion from 2005-2016.”

As the frequency of our business mobile communications increases, more and more states are enacting laws to address the problem of driver phone use and traffic safety. Legislation runs the gamut from banning texting while driving, to allowing hands-free devices only, to banning cell phone use altogether.

With this increase in legislation has come an increase in lawsuits. Plaintiffs’ attorneys are targeting companies whose employees are involved in traffic accidents while using cell

I’m not paying attention to the road...

phones during the course of their normal workday. In order to attach liability to the employer, these lawsuits allege employers know or require that employees use cell phones while driving, often to facilitate internal communication or to encourage availability to clients.

In October 2009, the Virginia Tech Transportation Institute (VTTI) conducted a study of 200 commercial truck drivers and three million miles of data to determine the prevalence of driver distraction in crashes, near-crashes, and lane departures involving commercial vehicles. Their dataset was obtained by placing monitoring instruments on vehicles and recording the behavior of drivers conducting real-world revenueproducing operations.

“

Plaintiffs’ attorneys are targeting companies whose employees are involved in traffic accidents while using cell phones.

”

“ ”

Drivers who were text messaging were 23.2 times more likely to be involved in a safety-critical event.

The results were staggering. They found that drivers were engaged in non-driving tasks in 71 percent of crashes; 46 percent of near-crashes; and 60 percent of all safety critical events.

The VTTI study showed that drivers who were text messaging were 23.2 times more likely to be involved in a safety-critical event. Drivers who were texting took their eyes off of the forward roadway for an average of 4.6 seconds during the 6 second interval surrounding the safety-critical event. If they were driving at 55 mph, that meant they traveled a distance of 371 feet (slightly longer than the length of a football field) without watching the road.

Texting and cell phone use has become an integral part of discovery during the litigation process. Plaintiffs’ counsel routinely includes cell/text records in their document retention letters and written discovery requests. Records showing that drivers were sending text messages during or immediately preceding an accident rarely help a case, particularly when “experts” are ready and waiting to testify that “overall patterns of texting and phone use” make it more likely than not that a driver was texting at the time of an accident.

If you employ commercial drivers, or if members of your workforce use cell phones while driving, then the implementation of a Distracted Driving Policy may afford some measure of protection against liability in the event of a lawsuit. A well drafted policy should include the following:

•

Prohibiting cell phone use while driving (if your state has enacted legislation banning the use of cell phones while driving)

•

Requiring employees to use a handsfree device while driving (if your state permits hands-free cell phone use)

•

Requiring employees to pull over to use their cell phone

•

Requiring employees to avoid or terminate the use of cell phones when involved in stressful driving situations, such as adverse weather and high-traffic areas

•

Redefining job descriptions to make clear that certain positions do not require the employee to use their cell phone while driving

The real challenge to be aware of before adopting a Distracted Driving Policy, however, is enforcement. A written policy that is not enforced will afford little protection and, more likely, will be used as a sword against you in litigation. Routine monitoring of company cell phone use and real consequences for policy violators would need to be demonstrable to a jury; otherwise, your policy could actually be used against you, showing that your company was aware of the hazard posed by distracted driving, but failed to take action necessary to curb the behavior. Businesses must individually decide whether the time and cost of such defensive measures outweigh the benefits. If the predominance of your workforce travels the highway, it may just be a necessity.

Kurt Rozelsky is a partner in the Greenville, S.C. office of Smith Moore Leatherwood.

He is also the Chair of the Trucking Law Committee for the Defense Research Institute. kurt.rozelsky@smithmoorelaw.com 864.240.2424

19

®

Attorneys at Law

Transportation Team Rob Moseley, Team Leader Greenville, SC | 864.242.6440

Smith Moore Leatherwood LLP Attorneys at Law | www.smithmoorelaw.com GEORGIA | NORTH CAROLINA SOUTH CAROLINA

Profile

Daunting Regulation Compliance Made Simple

by Tech Savvy Attorney

L

isa Shortt recognized an oncoming challenge for her clients when she learned about the new reporting requirements being imposed pursuant to Section 111 of the Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA). These reporting requirements, which take effect on January 1, 2011, impose a significant burden on all self– insured entities, liability insurers, No-Fault insurers, and Workers’ Compensation insurers to report payments made on behalf of or to Medicare beneficiaries.

20

Lisa created a database-driven software solution that makes compliance with Section 111 simple. Thus, S.1.M.P.L.E. (Section 111 Medical Payments by Liability Entities) Reporting Software was born of Lisa’s combination of technical acuity and legal experience.

To comply with this new law, information regarding any settlements, judgments, or awards that are made on or after October 1, 2010, or any acceptance of medical payment responsibility on or after January 1, 2010, on behalf of a Medicare beneficiary must be reported in a very specific form and format. The potential for entering the data in a non-compliant manner is significant. In fact, the file that CMS (Centers for Medicare and Medicaid Services) returns in response to a misfiling has space for 10 out of more than 200 error codes to identify what has been done wrong in the report.

Each of these types of errors results in the record being rejected.

S.1.M.P.L.E. Reporting Software drives proper data entry by restricting field inputs, identifying errors with error reports, formatting fields to the required specifications, and automatically creating the reports specified by Medicare. It also imports Medicare’s Response file and generates a report.

Equally important is the fact that this fully portable software allows users to have possession and control of their data. Lisa knew it would be important to allow reporting entities to decide if they want to report directly to Medicare or assign their reporting responsibilities to an agent.

Anticipating the needs of reporting entities came naturally for Lisa, in large part due to her work assisting clients in responding to and/ or challenging Department of Justice and intermediary audits into Medicare and Medicaid billing. When she isn’t inventing new software, Lisa also assists her clients in handling Medicare billing issues and challenges.

In the realm of Medicare and regulatory compliance, it is refreshing to hear that there is an advocate for practical, simple solutions to the ever-evolving, increasingly complex Medicare reporting requirements.

Lisa Shortt can be reached at 336.378.5535 or lisa.shortt@smithmoorelaw.com.

Medicare Section 111 Reporting can be frustrating and complicated... ...or surprisingly simple.

Section 111 Medical Payments by Liability Entities

SML Compliance Solutions LLC | www.smlcompliance.com | (336) 574-5099

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Bob Wilson, Health Care Practice Area Leader, Raleigh, N.C. Smith Moore Leatherwood LLP | Attorneys at Law | www.smithmoorelaw.com

21

Who Ya Gonna Call?

When to Talk to Your Employment Lawyer Instead of Your HR Consultant

by Alex Maultsby and Jason Nutzman

22

H

uman resources consultants are often a great option for companies wanting to outsource services like compensation analysis, performance evaluations, employee training, organizational surveys, and/or benefits administration. But when faced with a specific situation in the workplace that could result in legal liability for your company, consider whether your first telephone call should be to an experienced employment lawyer.

Both HR consultants and seasoned employment lawyers offer preventive services. Over the last several years—perhaps due to tough economic times—consultants have multiplied.

Many are good, experienced HR veterans from companies that have downsized. Services are offered at low rates, which is attractive in tight economic times. Certainly, employment lawyers are more expensive.

But look beyond the surface when comparing the value of the investment. An attorney-client relationship provides protections that do not exist when an HR consultant is your outside resource. If you become involved in litigation, communications with your lawyer are privileged; you can ask questions or offer comments that will not be disclosed to the employee and his attorney. On the other hand, what you ask a consultant and what a consultant says back will certainly be disclosed and may even become Exhibit A in an unhappy employee’s lawsuit. What your lawyer says to you is protected as legal advice; what your consultant says to you becomes commentary a plaintiff can use to prove his case.

Consider, for example, a simple phone call to a retained consultant asking for advice, and a reply email from him offering a few tips. From one brief act, a paper trail begins that labels an employee as a burden, reveals that the HR staff is not equipped to solve the matter alone, and outlines solutions that (perhaps) the employer did not fully implement. And those complications result from a wellwritten and thoughtful response—think of the harm from a comment that suggests an actual violation of an employee’s rights might have occurred.

Beyond offering safe communications, from the beginning of the engagement an experienced employment litigator can see through to the endgame: what happens if this employee becomes a plaintiff ? A good employment lawyer knows how to develop evidence that will stand up to a jury’s scrutiny; knows how to manage the documents to meet the expectations of a judge who might later be deciding whether to allow or to dismiss a lawsuit; knows how a shift supervisor can be cross-examined for hours in a deposition over a few ill-chosen words in a performance evaluation or an incident report. This knowledge—of how facts need to unfold with litigation in mind—should be part of your process from the very beginning.

Of course, the end-game of litigation often involves legal

“

What your lawyer says to you is protected as legal advice; what your consultant says to you becomes commentary a plaintiff can use to prove his case.

”

issues that are not yet visible on the horizon. For example, when an employee complains that a health concern gives her rights under the Americans with Disabilities Act, the real legal problem may be something else entirely. It may be the company’s practice of docking the employee’s salary when she misses a few hours for treatment, or the different response given last month to a younger employee with a health issue, or the potential retaliation claim based on the medical leave the employee took, to name a few examples.

And, by the way: •

What has the federal district court in this employee’s city recently said about the legal significance of job descriptions when evaluating ADA issues?

•

How does the state’s Industrial Commission view discharge if she has reached maximum medical improvement following her on-the-job injury but still cannot perform her essential job functions?

•

Is the Department of Labor likely to conduct an audit if it learns this one employee’s salary has been improperly docked?

•

What did the Court of Appeals conclude last week about how much of a lifting restriction must exist before her bad back is a disability?

•

What do the new FMLA regulations say about your ability to ask her doctor if she really needs to be out of work?

These are not questions answered by HR experience, or even by using good, sound judgment. They are questions answered by knowing the law and applying it to the important facts— what lawyers do every day.

Knowing precisely when to contact your attorney instead of your HR consultant makes all the difference when it comes to sound risk management. The costs associated with conferring with your employment attorney are far outweighed by the savings in litigation avoidance, something even good HR consultants are not trained to manage.

Alex Maultsby is a partner in Smith Moore Leatherwood’s Charlotte and Greensboro, N.C. offices. He is a member of the Labor and Employment team, and was selected by his peers for inclusion in The Best Lawyers in America®, Labor and Employment Law, 2009-2011. alex.maultsby@smithmoorelaw.com Charlotte: 704.384.2651 Greensboro: 336.378.5331 Jason Nutzman is an associate in Smith Moore Leatherwood’s Greenville, S.C. office and a member of the Labor and Employment team. He works with human resource managers and in-house counsel providing employment advice and litigation support to employers. jason.nutzman@smithmoorelaw.com 864.240.2430

23

False Patent Markings Could Cost You

The New Frontier in Intellectual Property Litigation

by Phil McCann, Tami McKnew and Dave Krasnow

24

The next time you order your Venti tripleshot hazelnut soy milk latte, you may notice a patent number on the cup or lid.

Patent markings inform the public that the marked item is protected by a U.S. patent.

But these markings are increasingly challenged, as 250 recently ďŹ led lawsuits attest.

The key question: Is the product properly or falsely marked?

U.S. law creates powerful incentives to patent owners to mark patent-protected products by marking or labeling them with the word “patent” and the applicable patent number. The public is thus given notice that U.S. patents cover the product and allows the patent owner to collect for damages for past infringement; conversely, failure to mark may deprive the patent owner of that opportunity. Patent marking thus protects patent rights in advance, ideally avoiding the significant costs and risks of enforcement by litigation.

However, U.S. patent laws prohibit intentional false marking of patent numbers on unpatented products. If a party marks an “unpatented” article with a patent number, and the marking was “for the purpose of deceiving the public,” a fine of “not more than $500 for every such offense” can be assessed. The patent law also permits “[a]ny person” to “sue for the penalty,” although half of any recovery must be given to the U.S. government.

How to calculate this penalty and what constitutes an “offense” is dangerously unclear, as recent case law suggests.

In the case of Forest Group Inc. v. Bon Tool Co., 590 F.3d 1295 (Fed. Cir. 2009) the District Court construed the law as providing for a fine of not more than $500 for each decision to falsely mark articles.

The Federal Court affirmed that false marking had occurred, but explained that the fine must be calculated per falselymarked article. The Forest Group was thus fined $180 per article, for a total of $6,840.

The Forest Group case opened the door to more lucrative false marking claims.

On June 10, 2010, the Federal Circuit handed down a decision in the “coffee cap” case Pequignot v. Solo Cup, —F.3d— (Fed. Cir. June 10, 2010). Mr. Pequignot, a patent attorney, alleged that Solo Cup falsely marked at least 21,757,893,672 articles, and sought an award of $500 per article.

Solo Cup, whose business is making disposable cups and other products, marked its patents on covered products by incorporating the patent numbers into the molds used to make those products. As early as 1988, Solo Cup sought the advice of its legal counsel to determine whether it had an obligation to remove the patent numbers from product molds immediately on expiration of a patent. Due to the cost and burden that undertaking would require, Solo Cup decided that only when mold cavities were in need of replacement would expired patent markings be removed. As Solo Cup’s patents expired, patent numbers thus continued to appear on Solo Cup’s

“

If you mark an “unpatented” article with a patent number, a fine of up to $500 for every offense can be assessed, and any person can sue for the penalty.

”

products until the old molds were replaced in the ordinary course of business.

In 2004, Solo Cup implemented an additional marking policy by adding a phrase to its external product packaging, “This product may be covered by one or more U.S. or foreign pending or issued patents. For details, contact www.solocup. com.” Following its counsel’s advice, Solo Cup intentionally chose the phrase “may be covered” because some of the packages contained unpatented articles.

False patent marking, combined with knowledge of the falsity, creates a rebuttable presumption of intent to deceive. To rebut the presumption, the defendant must

provide “credible evidence that a purpose other than deceiving the public motivated the mismarking.” Solo Cup successfully rebutted Mr. Pequignot’s false marking allegation because it relied in good faith on the advice of counsel and adopted the “as needed” mold replacement policy to reduce costs and business disruption.

Solo successfully defended, but false marking claims remain attractive to potential complainants, and the “proper penalty” remains unsettled. To minimize the risk of false marking claims in the wake of Pequignot v. Solo Cup, it may be appropriate to review the status of marking in the current patent portfolio; review company policies on marking; consider the benefits of marking (including notice of the patent); document the rationale for company decisions on patent marking; and conduct an annual review of product markings. ® Attorneys at Law

Phil McCann is a partner in the Greensboro, N.C. office of Smith Moore Leatherwood, and the leader of the Intellectual Property Team. He concentrates his practice on patent matters in fields including speciality chemicals and polymer chemistry. phil.mccann@smithmoorelaw.com 336.378.5302 Tami McKnew is a partner in the Greenville, S.C. office and the focus of her practice includes antitrust, franchising and dealerships, and intellectual property. tami.mcknew@smithmoorelaw.com 864.240.2408 Dave Krasnow is a partner in the Raleigh, N.C. office and has more than 20 years of experience in handling complex patent matters in fields including polymer chemistry, inorganic chemistry, optics, ocular science, pharmaceuticals, and industrial gases. dave.krasnow@smithmoorelaw.com 919.755.8741

25

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Health Care Resources Industry Insiders Need to Know

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Health Information Management News

legalhimformation.com

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Subscribing is free, but not required.

Regulatory Compliance and Industry News

healthcarelawnote.com

Health Care Law Note provides legal updates to health care providers. Articles from their archives include: “The Health Care Reform Act: What Is Imminent and Immediate for Health Care Providers;” “Finding Meaning in ‘Meaningful Use’: CMS Issues Proposed Rule;” and, “The HITECH Proposed Rule, Practically Speaking: Comments, Please?” Visit the website to subscribe or simply check out the current issue.

Long Term Care News

lookingatltc.com

Looking at Long Term Care is a monthly newsletter that provides “A Bird’s Eye View of Today’s Issues” facing long term care providers. Past editions have included such topics as: “Mandatory Sprinkler Installation: Is Your Facility Ready?” and “The Health Care Reform Bill: Impact on Long Term Care Providers.” Subscribing is free, but not required.

Environmental Law is a Complicated Field Our team of Environmental attorneys helps clients navigate the complex field of federal, state and local environmental laws in a way that makes business sense. We know and understand the intricacies and distinctions of the various laws that apply to permitting strategies, investigation and remediation, and compliance programs. Our lawyers maintain an active role in trade groups that work to protect the interests of the business community as new environmental laws and regulations are proposed. When you need to make the deal work, rely on attorneys with the knowledge and experience in environmental law to help protect you and your project.

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Ramona Cunningham O’Bryant, Environmental Team Leader, Greensboro, N.C. Smith Moore Leatherwood LLP | Attorneys at Law | www.smithmoorelaw.com

After All These Years...

Sexual Harassment Claims Persist

by Julie Theall and Peter Rutledge

28

The 1990s marked the start of a heightened awareness for sexual harassment claims in the United States.

A multitude of high-stakes, high-profile cases headlined the news, and accusers like Anita Hill and Monica Lewinsky became household names. The number of reported cases of sexual harassment increased, new legal precedents were established, and both victim and aggressor stereotypes were thrown out the window.

Over the past two decades, most employers have reacted appropriately to create policies prohibiting harassment and to implement sensitivity training for both supervisors and employees. A new understanding of the adverse effects of sexual harassment has permeated our workplaces and become evident in popular culture with such TV comedies as “The Office.” This widespread awareness, however, hasn’t translated into a decline in the cost to businesses from harassment charges filed with the Equal Employment Opportunity Commission (EEOC).

Fiscal Year

Charges of Sexual Harassment Received by EEOC

Amount Recovered in Monetary Benefits for Charging Parties and Other Aggrieved Individuals (not including monetary benefits obtained through litigation).

Percentage of Charges Filed by Males

1992

10,532

$12.7 million

9.1%

1994

15,618

$34.3 million

12.9%

1998

13,136

$37.1 million

15.1%

2009

12,696

$51.5 million

16.0%

And these are just the reported claims.

Many, if not most, grievances of this nature are resolved privately and go unreported.

The cost of these claims continues to burden employers of all sizes. In fact, the U.S. Department of Labor estimates that American businesses lose almost $1 billion annually from absenteeism, low morale, and new employee training replacement costs due to sexual harassment. (Moore & Bradley, 1997).

The high profile case involving Hewlett Packard and the resignation of CEO Mark Hurd following the investigation of alleged sexual harassment illustrates just how costly a claim can be — even if sexual harassment is not demonstrated.

In a written statement put forth in August 2010, HP said: Hurd’s decision [to resign] was made following an investigation by outside legal counsel and the General Counsel’s Office, overseen by the Board, of the facts and circumstances surrounding a claim of sexual harassment against Hurd and HP by a former contractor to HP. The investigation determined there was no violation of HP’s sexual harassment policy but did find violations of HP’s Standards of Business Conduct.

There are two main types of sexual harassment: Tangible Employment Actions (formerly quid pro quo), and Hostile Work Environments. Tangible Employment Actions include hiring, firing, failing to promote, reassigning to a position with significantly different responsibilities or making changes

in benefits based on inappropriate relationships (whether realized or attempted) between supervisors and their subordinates. Employers have very few defenses to liability for this type of harassment by renegade supervisors.

A Hostile Work Environment is created when severe or pervasive conduct — either verbal or physical — that creates an abusive environment is unwelcome and occurs because of a protected class, such as gender. An employer can attempt to avoid liability for a hostile environment claim by proving both (1) that it exercised reasonable care to prevent and promptly correct the harassing behavior and (2) that the victim unreasonably failed to avail him/herself of the reporting mechanism made available by the employer.

According to HP’s legal counsel, the situation involving Hurd, (which included a former marketing assistant who was not employed by HP and improper expense reports charged to the company), did not constitute either type of sexual harassment. Nevertheless, the cost to Mark Hurd and HP (even beyond the private monetary settlement reached with the former marketing assistant) was very real.

To make matters worse, defense litigators will tell you that many jurors have a hypersense of fairness; they will try to return a verdict for an employee who is unfairly treated even when no law has been broken. This fact underscores the importance of paying close attention to reported claims of harassment, even if they do not rise to the level of legal violations.

Understanding sexual harassment behaviors is complex and is deeply rooted in psychology and sociology. Personal problems at home, job insecurity, office politics, or workplace bullying can create intimate and intense relationships where common interests and physical closeness start to blur boundaries. Sexual harassment may be an old term now, but the risk it presents in the workplace is ever present. It is just as important now as it was in the days of Anita Hill and Paula Jones for employers to remain vigilant with policy enforcement and training updates to protect themselves against claims, meritorious or not. Sexual harassment is alive and well, and the cost of a claim continues to be surprising. ®

Attorneys at Law

Julie Theall is a partner in Smith Moore Leatherwood’s Charlotte and Greensboro, N.C. offices. She has been recognized by Chambers and Partners, USA, as one of North Carolina Leaders, in Employment Law from 2006-2010. julie.theall@smithmoorelaw.com Greensboro: 336.378.5256 Charlotte: 704.384.2656 Peter Rutledge is a partner in Smith Moore Leatherwood’s Greenville, S.C. office. In addition to employer counseling, he litigates business disputes, including claims for breach of contract, unfair competition, tortious interference with contract, and claims arising under the South Carolina Trade Secrets Act. peter.rutledge@smithmoorelaw.com 864.240.2410

29

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The attorneys of Smith Moore Leatherwood have a longstanding tradition of wealth transfer planning for clients and their families throughout the Southeast. We maintain a sophisticated practice that strives to accomplish the efficient transfer of wealth to future generations in a way that minimizes taxes and probate, helps to ensure privacy, and maximizes family harmony.

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(From left to right) Zandra Johnson; Harriet Smalls; and Ted Edwards Look us up on LinkedIn or contact the group’s founder for more information: Ted Edwards, Raleigh, N.C. ted.edwards@smithmoorelaw.com | 919.755.8764 Smith Moore Leatherwood LLP | Attorneys at Law

The Return of the Estate Tax

by Bill Dennis

Over the past several years the burden of the federal estate tax (along with other taxes) has been reduced.

For the calendar year 2010 the estate tax has been repealed altogether. However, beginning January 1, 2011, the estate tax will once again apply to the estates of individuals who die after 2010 and, unless changed by legislation, the amount of property subject to the estate tax and the estate tax rates will increase substantially in comparison to recent years.

The Rules Through 2010 32

In 2001 the estate, gift, and generationskipping transfer (“GST”) tax laws were changed substantially by the Economic Growth and Tax Relief Reconciliation Act of 2001 (commonly known as “EGTRRA”). In 2001 the amount of property which was exempt from the estate tax was $675,000. This exemption was increased to $1,000,000 in 2002, $1,500,000 in 2004, $2,000,000 in 2006, and $3,500,000 in 2009. The GST tax exemption increased in a similar manner.

The maximum estate, gift, and GST tax rate in 2001 was 55 percent, with a 5 percent surtax on large estates and large cumulative gifts. This rate was gradually reduced to 45 percent by 2007. For 2010, EGTRRA provided that the estate and GST tax would be repealed in full; however, the gift tax remained with a 35 percent maximum rate and a $1,000,000 lifetime exemption. For 2010 EGTRRA also imposed a carryover basis regime for income tax purposes. This regime provided that an individual inheriting property from a decedent did not receive a new basis in the property equal to the property’s value at the time of the decedent’s death. Rather, the individual inheriting the property generally took the same basis in the property held by the decedent immediately prior to death, subject to certain adjustments made available to the individual.

The Existing Rules for 2011 and Thereafter Effective January 1, 2011, the provisions of EGTRRA expire, and the law generally returns to those rules which were in effect prior to EGTRRA. Generally, effective January 1, 2011, the rules will be as follows: The amount of property exempt from the estate tax will be only $1,000,000.

The gift tax exemption will be $1,000,000.

The top estate, gift, and GST tax rate will once again be 55 percent, with an additional 5 percent surtax for estates and cumulative gifts having a value in excess of $10,000,000 but not in excess of $17,184,000.

The exemption from the GST tax will be an inflation-adjusted amount of approximately $1,340,000.

The carryover basis rules will no longer apply, and once again an individual inheriting property generally will take a new basis equal to the property’s value at the time of the decedent’s death.

Planning for the Balance of 2010 and Thereafter Planning in the face of these new requirements, as well as for any changes in the law (if any) which may occur between now and the end of calendar year 2010, presents quite a challenge.

First, for the year 2010, it certainly is possible that Congress may attempt to re-impose the estate and GST tax on a retroactive basis. The likelihood that Congress will do this appears to be diminishing as time passes. Further, if retroactive legislation is enacted, it is questionable whether the ability to do this on a retroactive basis is Constitutional.

Second, for 2011 and thereafter, and assuming that the law is not changed, working with these new rules could be extremely difficult. It is easy to say that the EGTRRA provisions “expire” or are “repealed” effective January 1, 2011, but determining what that means in a given situation may be extremely difficult.

EGTRRA was enacted in haste. The general expiration of the EGTRRA rules, effective January 1, 2011, was included not as a well thought out plan but solely because the legislative process required

“

Planning in the face of these new requirements, as well as for any changes in the law (if any) which may occur before the end of calendar year 2010, presents quite a challenge.

” Current Legislative Proposals that EGTRRA not increase projected federal deficits after 2010. Although certain provisions of the Internal Revenue Code have expired in the past, we generally have not had this type of wholesale expiration in previous tax legislation to serve as a guide. The EGTRRA expiration provisions state that the EGTRRA estate, gift, and GST tax rules are not to apply to the estates of decedents dying, gifts made, or generation-skipping transfers, after 2010. However, the EGTRRA expiration provisions also state that after 2010 the tax laws will be applied and administered to years, estates, gifts and transfers “as if the provisions and amendments described [by EGTRRA] had never been enacted.”

Many provisions of the estate, gift, and GST tax laws have a cumulative effect.

To say that the EGTRRA provisions no longer apply after 2010 can mean one thing. To say that the laws are to be administered as if EGTRRA had never been enacted can mean something completely different.

Applying the EGTRRA expiration provisions will be quite a challenge in some situations.

In the face of this confusion, a number of proposals have been made to change the tax laws for 2011 and thereafter. Although there is no consensus whatsoever, and making an educated guess at this time relies less on the “educated” and more on the “guess,” there does appear to be some loose belief that the estate tax rules might be amended somewhat along the lines of legislation proposed by several Senators. This proposal would in part do the following: •

Continue the $3,500,000 exemption from estate taxes as it existed in 2009.

•

Institute progressive estate tax rates as follows:

Size of Estate

Estate Tax Rate

Estates over $3,500,000 but not over $10,000,000

45%

Estates over $10,000,000 but not over $50,000,000

50%

Estates over $50,000,000

55%

In addition to the rates described above, impose a 10 percent surtax on estates having a value over $500,000,000.

The Timeliness of a Review As is obvious from all of this, planning over the last few years, and particularly during 2010, has been extremely difficult.

It may be that order will be restored

by Congress at the end of 2010 or early in 2011, but it is also equally possible that we may simply revert to the preEGTRRA rules described above, which would result in a significant potential increase in the estate, gift, and GST tax and the continuation of a certain amount of confusion. All of this requires very careful consideration. For those who have been waiting to see what develops before undertaking a comprehensive review of their estate plans, hopefully we should know within the next several months what the rules will be so that a meaningful review can be undertaken. ® Attorneys at Law

Bill Dennis is a partner in Smith Moore Leatherwood’s Greenville, S.C. office.

He is the leader of the Tax and Wealth Transfer Planning Team and a Fellow in the American College of Trust and Estate Counsel. He is a certified specialist in estate planning and probate law, and tax law, and has been listed for more than 10 years in The Best Lawyers in America® (Copyright 2010 by Woodward/White, Inc., of Aiken, S.C.) in Employee Benefits Law, and Trusts and Estates. bill.dennis@smithmoorelaw.com 864.240.2406

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Predicting Our Economic Future Searching for Signs of Recovery in the Rezoning Chambers of N.C. City Halls

by Tom Terrell

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W

hen the economy collapsed the real estate sector was hit hardest. Professionals in the world of real estate are constantly asked when the economy will rebound.

in the morning market attendees arrived, how long they stayed before leaving for another area, how willing they were to park like sardines, and their readiness to pay my usurious rate rather than move to a distant and lower priced lot.

I’m not an economist. I do know, however, that the distant early warning signs of economic collapse and the signals of rejuvenation are found in more places than the jobless rate, the prime lending rate and the list of housing starts — all data from the macro economy. Sometimes “micro” data adds clarity to the crystal ball.

The real estate economy is no different. There are numerous telltale signs visible on the ground, but not at ten thousand feet where economists spend their time.

The home furnishings industry provides a good example of this point. When I was affiliated with a High Point law firm, I leased our downtown parking lot the weekend of each fall and spring furniture market and then subleased each space to some of the 75,000 market attendees. Demand for centrally-located parking was high and the supply was limited. Consequently, the price of spaces went up. I learned after a few markets that I could accurately predict the market’s later-reported success by how early

One of these economic signs is the planning board calendar. From reading these calendars it is possible to create a Planning Board Index, or “PBI.” The PBI uses the list of initiated rezonings to gain insight into business expansions, credit available for expansions, and confidence in the economy that it is a good time to expand rather than entrench.

The PBI right now is low. Very low. And low is bad. Compared to this time last year, the index is possibly inching up slightly in some places, but the real story is that it still indicates a moribund

real estate economy that still has not yet risen from the grave.

To create the PBI, I carefully selected seven N.C. cities and six N.C. counties that represent coastal, piedmont, and mountain regions as well as large and small metropolitan areas. I then collected planning board agendas from each city and county from October 2007 (near but slightly past the height of the market) and October 2010 (for current comparison). Counties selected were Brunswick, Wake, Guilford, Cabarrus, Catawba and Buncombe.

Cities selected were Wilmington, Wilson, Raleigh, High Point, Charlotte, Hickory and Asheville.

In December of 2009, there were practically no new rezonings across the state. Most activity involved churches, school systems or other government institutions using previously approved bond financing. Privately initiated rezonings (or requests for special use permits) were essentially nonexistent. No shopping centers anywhere. And no large subdivisions.

But a comparison of two different economies is necessary to create the index. Thus, 2010 compared to 2007 provides insight into the absence of growth activity.

The 2010 to 2007 comparisons are clear. The first number in the following combinations represents the number of rezonings and special use permits in that jurisdiction in October of 2007. The second number is the same but for 2010.

For counties: Brunswick 5/0; Buncombe 4/0; Catawba 2/0; Cabarrus 2/0; Guilford 1/3; Wake 1/1.

For cities: Asheville 1/1; Hickory 1/1; Charlotte 2/3; High Point 3/0; Raleigh 5/1; Wilson 4/1; Wilmington 1/3.

The uptick in Wilmington involved one rezoning for .15 acres and another for .17 acres, hardly large projects or expansions. Spot checks show that a vast majority of private rezonings in 2010 are initiated by small, family-owned businesses, not by developers.

The point is simple. There are few signs anywhere that projects are leaving the drawing boards and finding their way into the permitting and rezoning chambers of city hall.

“

There are numerous telltale signs visible on the ground, but not at ten thousand feet where economists spend their time.

”

Now that we’ve established that the patient still has no pulse, the question is how we shock its heart back into rhythm.

At some point in early 2009 one of my colleagues at the bank soon-to-be-formerly-known-as-Wachovia put it this way. “We ate lots of bad loans and business deals and it’s just going to take some time for them to be digested and pass through our financial intestines. Then we can make more loans.” I appreciated the analogy.

Real estate deals occur only when there is confidence in the market and money can flow freely through the system from lender to borrower, typically collateralized by the real estate itself. According to the tea leaves I’m reading, the PBI is almost as low now as it was last December. ®

Attorneys at Law

Tom Terrell is a partner in Smith Moore Leatherwood’s Greensboro, N.C. office. He regularly offers legal updates and commentary on his wordpress blog, NC Legal Landscapes, North Carolina’s first blog on zoning and land use. Tom was also selected by his peers for inclusion in The Best Lawyers in America® (Copyright 2010 by Woodward/White, Inc., of Aiken, S.C.), Land Use & Zoning Law, 2007-2011. tom.terrell@smithmoorelaw.com 336.378.5412

www.nclegallandscapes.wordpress.com

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Commercial Real Estate Ventures of Great Worth Come With Great Risk Smith Moore Leatherwood has a highly experienced team of attorneys who help commercial developers and builders navigate the complex maze of issues that they are likely to encounter. We regularly handle distressed real estate, property acquisitions, zoning, financing, regulatory compliance, leasing, covenants, liability, and more. If you have been putting your commercial real estate venture on hold, let us help you move forward.

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Creating Diverse Classrooms A Case Study in the “Busing Versus Diverse Neighborhoods” Debate

by Clyde Holt Should classroom diversity goals be emphasized at the cost of subjecting children to prolonged school days and long bus rides, or should neighborhood schools be promoted in hopes of increasing parental involvement in the education process?

This question was at the heart of a heated debate in Raleigh, North Carolina, where the Wake County School Board abandoned their award–winning, decades–old “busing for diversity policy.”

The school board opted instead to assign students to schools in their communities.

In the aftermath of the Wake County

debate, Raleigh continues to explore how to plan future neighborhoods so as to reduce housing segregation patterns and enhance classroom performance.

Traditionally, local governments have, through planning regulations, separated housing stocks into separate zones, each mandating a distinct lot size, which has led to standard home sizes and housing patterns in each neighborhood.

With standard lot and house size came standard prices. With standard prices came buyers with similar incomes, and similar abilities to borrow. Governmental zoning patterns also tended to segregate

and distance apartments and other multi-family housing stocks from the sacrosanct single family detached neighborhoods. Sixty years of this zoning process has contributed to neighborhoods segregated by socioeconomic class and often by age and race. Neighborhood school attendance districts will tend to be similarly segregated.

Governments’ sponsorship and/or subsidy of “affordable” housing projects with little regard to their impact, positive or negative, upon neighborhood diversity has also contributed to the School Board’s dilemma. A 2008 study by the Wake

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“

Governments’ sponsorship and/ or subsidy of “affordable” housing projects with little regard to their impact, positive or negative, upon neighborhood diversity has also contributed to the School Board’s dilemma.

“

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County Housing Authority revealed that government subsidized housing as a percentage of total housing stock ranged from highs of 9.4 percent and 11.66 percent in Wendell and Zebulon to lows of 0.0 percent (that’s right 0.0 percent), 1.0 percent and 1.1 percent in Morrisville, Apex and Cary. Yet, until recently, Wake County and the North Carolina Housing Finance Agency continued to fund affordable housing projects with minimal regard to their distance from places of employment, transit or their impact on school system diversity guidelines. Some government agencies that sponsor, and most private developers who profit from, such projects continue to cite land availability and lower land cost as the reason they favor the eastern half of Wake County over the west. But what happens to the “lower cost” justification when the long term financial and emotional expense of busing school children from one side of the county to the other due to the segregated housing patterns are factored into the equation?

HUD reports that transportation costs now represent most families’ second largest household expense — after housing — but before both food and health care!

Some change is on the horizon: the Wake County Commissioners have enacted a policy to promote affordable housing development all across the county by placing working families near places of employment, near transit lines and in municipalities where the percentage of

government subsidized housing is lower than the county average. Honoring this commitment may initially require a higher rate of public subsidy in high land price areas, but County officials are confident that the long term public benefits will make up for the difference.

On the land planning front, Raleigh’s new Comprehensive Plan applauds mixed use developments and mixed use neighborhoods containing a variety of housing types and styles in sustainable, walkable, transit-oriented communities.

Raleigh’s new zoning ordinance (being drafted with the help of highly paid, out-of-town consultants) will hopefully provide the tools to effectively implement

the Comprehensive Plan Goals. Still, all local planners can do under current North Carolina law to promote affordable housing within diverse neighborhoods is to offer developer incentives such as loan programs or bonus density. Due to recent appellate court decisions striking down adequate public facility ordinances and similar smart-growth schemes (see Union Land Owners Assoc. v. County of Union, 689 S.E.2d 504, N.C. App Dec. 8, 2009, and Amward Homes, et al. v. Town of Cary, N.C. App. Aug. 3, 2010), City Attorneys in North Carolina will continue to advise against mandatory inclusionary zoning (with a minimum percentage of new homes in any development designated

affordable) until and unless the North Carolina General Assembly legitimizes the practice. Currently, federal and state laws prohibit discrimination against protected classes in housing, but little specific authority exists for local governments to proactively mandate a diversified housing stock in new developments. In fact, a recent amendment to Raleigh’s zoning ordinance (TC-2-10, effective 9/1/10) prohibits developers from voluntarily committing to construct a minimum percentage of affordable housing units in a new community.

Real estate industry groups advise local officials to proceed cautiously if considering mandatory inclusionary zoning programs. The reality is that larger, more expensive homes yield higher profit margins than do smaller, less expensive homes. If government planners force private builders to produce dwellings at lower price points, developers and home builders argue this will either depress local land values, drive up the price of homes at the higher end (creating a shortage of mid-priced homes), require dramatically increased density yields (more apartments and small-lot homes), drive builders to outlying jurisdictions where land is cheaper and they build what they want — or all of the above. Economic theory supports, at least in part, all of these predictions; yet, as in the new Wake County policy regarding governmentsponsored affordable housing, should not the expenses of commuting to find suitable work, the misery of transportation gridlock, the trauma of busing school children to promote diversity, and the seemingly never ending debate over public school attendance zones be factored in?

Clyde Holt is a partner in the Raleigh, N.C. office of Smith Moore Leatherwood where he has concentrated his practice in government regulation, municipal zoning and environmental law for more than 30 years. Clyde was selected by his peers for inclusion in The Best Lawyers in America® 2011 (Copyright 2010 by Woodward/ White, Inc., of Aiken, S.C.), Land Use & Zoning Law, 2007-2011 clyde.holt@smithmoorelaw.com 919.755.8728

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