Recent Articles in Corporate & Commercial Litigation from LexMonitor

TortsProf Law Blog

bbass@branhamday.com (Brandon Bass) — Sun, 18 Apr 2010 06:57:58 GMT

Waiting On The Supreme Court

the10bdaily@hotmail.com (Lyle Roberts) — Sat, 13 Mar 2010 02:42:54 GMT

(1) The "group pleading" doctrine allows plaintiffs to rely on a presumption that statements in corporate documents are the collective work of individuals with direct involvement in the everyday business of the company. In its Tellabs decision, the U.S. Supreme...

DePuy Orthopaedics/Johnson & Johnson ASR Hip Implant Defect

Fri, 12 Mar 2010 23:52:13 GMT

DePuy, a division of Johnson & Johnson, warned doctors about the ASR implant in a March 6, 2010 letter. Apparently, the device has a higher than expected failure rate in some patients. The ASR was failing in many patients just a few years after implant, causing expensive and painful replacement operations.

This action was taken over two years after reports that the ASR was failing. Although the ASR is not widely used in the U.S., it has been implanted in thousands of patients worldwide.

The March 6 letter stated that the ASR has a higher-than-expected failure rate when used in traditional hip replacement on certain type of patients, with the risk being highest for patients of smaller stature - generally meaning women, and patients with weak bones.

When a report asked why the company was just now issuing the advisory, DePuy issued a statement that "this is new and important information surgeons who continue to use ASR should have to inform their clinical decision making." The ASR is only one of many hip models sold by DePuy, and is in a category called metal-on-metal implants. These implants can generate metallic debris as they wear, causing inflammation in some patients, damage of muscles and other soft tissues and subsequent operations to replace the device soon after implant. Most artificial hips should last 15 years or more.

It is interesting that this announcement comes at a time when the company was phasing out the product anyway, rather than when the reports of failure began pouring in. But hey, what else is new? No surprises here when it comes to Big Pharma.

New York Advertising Rules Held Unconstitutional

Fri, 12 Mar 2010 23:37:55 GMT

Today the Second Circuit announced it is upholding the N.D.N.Y. ruling that New York’s lawyer advertising rules are unconstitutional (with two exceptions — fictitious law firms and the thirty day moratorium on lawyers contacting accident victims). Circuit Judge Guido Calabresi (possibly my new favorite judge’s name) wrote the opinion. The Buffalo lawyer was represented by Public Citizen.

The opinion is available from the New York Law Journal – http://www.law.com/jsp/nylj/PubArticleFriendlyNY.jsp?id=1202446174823 and at http://www.law.com/jsp/nylj/PubArticleNY.jsp?id=1202446174823. The Complaint, Memoranda filed by the parties and amici, the District Court opinion and appellate briefs are available from Public Citizen – http://www.citizen.org/litigation/forms/cases/getlinkforcase.cfm?cID=358

Quoting from the opinion:

“New York’s Appellate Division adopted new rules prohibiting certain types of attorney advertising and solicitation, which were to take effect February 1, 2007. The new rules barred, inter alia, testimonials from clients relating to pending matters, portrayals of judges or fictitious law firms, attention-getting techniques unrelated to attorney competence, and trade names or nicknames that imply an ability to get results. The amendments also established a thirty-day moratorium for targeted solicitation following a specific incident, including targeted ads on television or in other media. Plaintiffs, a New York attorney, along with his law firm and a not-for-profit public interest organization, challenged these provisions as violating the First Amendment. The District Court agreed in part—it declared most of the content-based rules unconstitutional, while upholding the thirty-day moratorium. Both Plaintiffs and Defendants timely appealed from portions of the District Court’s decision adverse to them. For the reasons that follow, we conclude that the District Court properly granted summary judgment to Plaintiffs with respect to the content-based advertising restrictions, with the exception of the prohibition on portrayals of fictitious law firms. We likewise conclude that the District Court properly granted summary judgment to Defendants with respect to the thirty-day moratorium.”

So let’s recap: William Shatner in a judge’s robe? Allowed. Fifty foot lawyers terrorizing Midtown Manhattan? Allowed.

Jim “The Hammer” Shapiro apologizing that he cannot “rip out the hearts of those of have hurt you”? Ok that last one was a trick — already allowed: http://www.youtube.com/watch?v=Q5hn8bhEpMY – but good idea? Maybe that is the better question.

New Regulatory Approaches to Short Selling in the U.S. and the EU

Fri, 12 Mar 2010 22:05:51 GMT

By: Kay A. Gordon, Dr. Wilhelm Hartung, Cary J. Meer, Philip J. Morgan, Mark D. Perlow, Neil Nick Robson, Richard Guidice, Jr

Changes in the regulatory approach to the short selling of listed securities have recently been announced in both the United States (U.S.) and the European Union (EU). In the U.S., rule amendments were recently adopted by the Securities and Exchange Commission that generally restrict market participants' ability to sell short listed securities whose price has dropped by at least 10% in a single day. In the EU, a new regulatory proposal would (to the extent adopted by the EU member states) require private disclosure of net short positions above a 0.2% threshold to the applicable regulator, and public disclosure to the market of such positions above a 0.5% threshold. We summarize in this alert what these changes entail and what each will mean for market participants.

To view the complete alert online, click here.

Courtroom View Network is streaming a wrongful death trial trial involving a Ford Explorer rollover accident

thecomplexlitigator@leviant.net (H. Scott Leviant) — Fri, 12 Mar 2010 22:01:15 GMT

Courtroom View Network, with over three years of experience Webcasting high-stakes civil litigation, is streaming the trial of Moreno v. Ford. This trial is part of the statewide coordinated judicial proceeding involving Firestone tire tread separation and Ford Explorer rollover related litigation, currently centralized in Los Angeles. Judge Anthony Mohr is presiding over the trial. Access to video and streaming is available here.

Courtroom View Network has covered multiple legal proceedings across the country, including such cases as “Jose Adolfo Tellez et al v. Dole Food Company Inc et al” and “Norman Turner v. Chevron Corporation” in Los Angeles Superior Court. Courtroom View Network’s target audience are members of the legal and financial community who require instant, comprehensive coverage of litigation that affects their business. Its Web site is at www.courtroomview.com.

4th Circuit Vacates Tortious Interference Judgment

Fri, 12 Mar 2010 20:06:08 GMT

The Fourth Circuit Court of Appeals recently reversed a large judgment in favor of a computer security solutions company headquartered in Virginia, which involved a claim of tortious interference with a business expectancy.

The dispute began between Worldwide Investigations & Research, Inc. (Worldwide) and BNX Systems Corporation (BNX) over the intellectual property rights to software BNX developed under a contract with Worldwide. While a Florida case over the issue was pending, BNX filed for bankruptcy protection in the Eastern District of Virginia, Alexandria Division and sought to liquidate its assets. Worldwide objected to the sale of assets that it claimed ownership over; however, such claim was rejected by the Bankruptcy Court.

Shortly thereafter, Worldwide filed a complaint seeking a determination of the ownership rights to some of BNX’s assets, and a separate objection to BNX’s motion to sell its assets. Moreover, the president of Worldwide asserted in a letter to the U.S. Department of Commerce that the sale would violate export restrictions. The latter action resulted in a government inquiry and caused a delay in the sale process.

As a result of Worldwide’s actions and court filings, BNX asserted a claim against it for abuse of process and tortious interference with business expectancy. In its counterclaim, BNX argued that Worldwide intentionally interfered with the sale of its assets by filing false claims. Most importantly, it claimed that Worldwide and its president filed false claims in order to delay the sale process in hopes that Worldwide would be able to purchase the assets at a reduced price. The bankruptcy court ruled in favor of BNX, awarding it over $300,000 in damages.

However, the Appeals Court vacated the entire award. The Court determined that BNX failed to prove the existence of a business expectancy – noting that a business expectancy must be “based upon something that is a concrete move in that direction.” BNX’s argument that it had a business expectancy in having an auction process free from the effects of improper filings was rejected by the Court.

Given the interests of competing companies in today’s marketplace, it is not surprising that tortious interference claims are routinely seen in courts. As this case illustrates, claims for tortious interference with business expectancy will be dismissed where the plaintiff merely alleges, in general terms, that a defendant has interfered with potential business opportunities. Virginia courts have also held that the following also do not satisfy this standard: sales to unidentified potential buyers; retroactive promotions; and continuing to do or remaining in business.

USF Contribution Factor - 15.3%

Fri, 12 Mar 2010 19:38:14 GMT

Today, the FCC released its proposed Universal Service contribution factor for the second quarter of 2010. As predicted, it is 15.3% The new rate will go into effect starting April 1, 2010.

Smart Grid Investment Grants Not Taxable

Fri, 12 Mar 2010 17:54:24 GMT

In a major smart grid development, the Internal Revenue Service yesterday released guidance (Rev. Proc. 2010-20) providing a safe harbor under which the $3.4 billion in Smart Grid Investment Grants (SGIGs) made pursuant to the American Recovery and Reinvestment Act (ARRA) will not be taxable to corporate recipients. After months of uncertainty, this determination will allow corporate recipients to finalize their grant agreements with the Department of Energy (DOE) and launch their investments without concern that they will be subject to federal taxation.

This guidance provides that the IRS will not challenge a corporation’s treatment of an SGIG as a nonshareholder contribution to the capital of the corporation so long as the corporation properly reduces the tax basis of the property it acquires with the grant (or other property owned by the corporation). Nonshareholder contributions to capital are not included in a corporation’s gross income for federal income tax purposes. This guidance is effective immediately and will allow DOE to begin finalizing grant agreements with the various utilities, private companies, manufacturers and others who have been authorized to receive these grants.

This guidance does not create a general federal tax exemption for all ARRA grants:

The guidance applies only to SGIGs made pursuant to 42 U.S.C. 17386 by DOE for qualifying investments under the $3.4 billion Smart Grid Investment Matching Grant Program as authorized by Section 1306 of the Energy Independence and Security Act of 2007 (Pub. L. 110-140), as amended by Section 405, Division A, of the ARRA (Pub. L. 111-5).
The guidance does not apply to Smart Grid Demonstration Grants made under 42 U.S.C. 17384.
The guidance does not apply to other ARRA grants, such as grants made under the $4.7 billion Broadband Technology Opportunities Program (administered by the Department of Commerce’s National Telecommunications and Information Administration) or the Broadband Initiatives Program (administered by the Department of Agriculture’s Rural Utilities Service). In a letter to Treasury Secretary Timothy Geithner earlier this month, the National Association of Regulatory Utility Commissioners requested guidance on the federal tax treatment of these broadband grants.
The guidance does not apply to any recipient that is not classified as a corporation for federal income tax purposes. Therefore, it does not apply to any recipient that is a partnership or a limited liability company treated as a partnership for federal tax purposes.
The guidance does not apply to state taxes.

Recipients of ARRA grants that do not qualify for the safe harbor will need to consider whether those grants are taxable under other authorities. Recipients of all ARRA grants, including SGIGs, will need to consider whether they are taxable for state or local tax purposes.

Proposed EEOC Rule on ADEA Defenses

Fri, 12 Mar 2010 16:33:33 GMT

A proposed rule introduced by the Equal Employment Opportunity Commission (EEOC) on February 18, 2010, if adopted, will provide guidance and meaning to the “reasonable factors other than age” defense in the federal Age Discrimination in Employment Act (ADEA).

The ADEA, unlike Title VII, states that it is not unlawful for an employer to take an action “otherwise prohibited” by the statute against an employee where “the differentiation is based on reasonable factors other than age” (RFOA). The Supreme Court interpreted this provision in Smith v. City of Jackson and Meacham v. Knolls Atomic Power Laboratory, which involved disparate impact discrimination claims.

The Supreme Court in Smith held that employees bringing claims under the ADEA can rely on the disparate impact theory, and thus, proof of age-motivation is not required. The Smith decision also stated that employers can defend such a case based on a reasonable factor other than age; however, the Court did not provide which party had the burden of persuasion on this issue. Subsequently, in Meacham, the Supreme Court held that the employer - not the employee - has the burden of proving the RFOA defense.

The EEOC’s proposed rule seeks to provide guidance on what constitutes “reasonable factors other than age” consistent with the decisions in Smith and Meacham. It’s non-exhaustive list of relevant factors to be considered in determining whether an employment practice is reasonable are as follows:

(i) Whether the employment practice and the manner of its implementation are common business practices;

(ii) The extent to which the factor is related to the employer’s stated business goal;

(iii) The extent to which the employer took steps to define the factor accurately and to apply the factor fairly and accurately (e.g., training, guidance, instruction of managers);

(iv) The extent to which the employer took steps to assess the adverse impact of its employment practice on older workers;

(v) The severity of the harm to individuals within the protected age group, in terms of both the degree of injury and the numbers of persons adversely affected, and the extent to which the employer took preventive or corrective steps to minimize the severity of the harm, in light of the burden of undertaking such steps; and

(vi) Whether other options were available and the reasons the employer selected the option it did.

It is important to note that this standard is lower than Title VII’s business-necessity test but higher than the Equal Pay Act’s “any other factor” test.

The EEOC is accepting public comment on the proposed rule until April 19, 2010.

A proposed rule introduced by the Equal Employment Opportunity Commission (EEOC) on February 18, 2010, if adopted, will provide guidance and meaning to the "reasonable factors other than age" defense in the federal Age Discrimination in Employment Act (ADEA).

Update on NuvaRing® Litigation

Fri, 12 Mar 2010 13:09:36 GMT

The NuvaRing® Mass Tort is presided over by Judge Brian R. Martinotti, in the New Jersey Superior Court - Bergen County. Previously, counsel for both plaintiffs and defendants had chosen ten initial bellwether cases for case specific discovery and trial. On, March 3, 2010, Judge Martinotti held a Case Management Conference. During that conference, Judge Martinotti determined that the discovery deadline on the initial bellwether cases would be March 15, 2011, culminating in proposed trial dates some time in May 2011.

As we have discussed in previous posts, studies have shown that the ingredients contained in the birth control product NuvaRing® have been linked to various forms of severe side-effects including: heart attack, stroke, deep vein thrombosis (also known as DVT or blood clots), internal organ damage, myocardial infarction and pulmonary embolism.

At Stark & Stark we pursue claims throughout the nation against drug manufacturers, so they can be held accountable when the drugs they market are proven to be defective or cause catastrophic injury to the people who use them. Contact Stark & Stark to speak with one of the Mass Tort/ Pharmaceutical Litigation attorneys, free of charge, who can help assess any claims that you might have against the manufacturers of NuvaRing®.

Model Seed Funding Doc Myths

info@ryanrobertslaw.com (Ryan Roberts) — Fri, 12 Mar 2010 01:51:36 GMT

A variety of model startup seed funding docs have been released in the past year or so: TechStars Series AA Preferred, YCombinator Series AA Preferred, and TheFunded Founder Institute’s Plain Preferred. And as I mentioned last week, Fenwick & West and Andreessen Horowitz released the Series Seed model documents. The standardized seed funding [...]

The standardized seed funding document movement is great and I fully support it.

So now you have more docs to choose from, and maybe more to be confused by. I have and will continue to use these document sets when a client requests. But there are a few myths about standardized seed funding docs, both in terms of their use and their effect on the legal landscape:

Myth #1: Startup Lawyers Hate Standardized Seed Funding Documents Because it Reduces their own Payday.

The premise here is simple: complicated/long docs = $$$ for lawyers.

But lawyers don’t make documents complicated to pad the bill. Legal documents can get “complicated” because of the potential issues that may arise pre- and post-transaction. If these issues didn’t actually happen, the documents wouldn’t be longer or more complicated.

For example, a founder stock purchase agreement is 12+ pages long because founders can, have, and will fail and/or bail on startups (hence the vesting schedule & startup repurchase option). When an issue like this occurs at your startup, you’ll be glad your documents are “complicated.”

Each time a new set of docs get released, I don’t cringe because it means I then have to remove the hockey stick from my revenue projections. I welcome these and future standardized seed funding docs because they provide entrepreneurs with the chance to take a look financing terms. And since the model seed funding documents aren’t as cumbersome as those used in a typical Series A Round, I find that entrepreneurs tend to actually review them. Clients come better prepared now.

An educated entrepreneur is a better entrepreneur. And better entrepreneurs build more successful startups. Startup lawyers (myself definitely included) take the long-term view and want to see our clients succeed.

(Note: If you believe your lawyer is making documents complicated and long for the sake of his or her payday, ask your lawyer about the documents and the need for their complexity/length. If your lawyer’s answer isn’t good enough for you, then find a new lawyer. Of course, you can also ask for fixed-fee billing.)

Myth #2: Standardized Docs Reduce the Need for a Startup Lawyer

This myth is usually offered by someone who thinks lawyers are just gatekeepers of the legal document vault. There is no “walled garden” when it comes to legal documents. You can easily get legal documents via Lexis, Westlaw, Edgar, or any relevant legal treatise.

If you believe lawyers are simply document gatekeepers, you are missing the entire reason for hiring a lawyer — counsel. If you aren’t asking for counsel, you aren’t using your lawyer right. If your lawyer isn’t providing counsel, you have the wrong lawyer.

No set of seed funding documents will replace counsel, either pre-financing or post-financing. But in the event one of you genius hackers does this, please consider me for a job at your startup.

Myth #3: Standardized Docs = Open Source Law.

“Open Source Law” is a buzz phrase thrown around frequently, but what the legal profession is experiencing is more of an automation of various parts of the law practice….not the entire practice of law. There will always be demand for good counsel.

While the practice of startup law isn’t rocket science, it is nevertheless complex. In addition to understanding the provisions of your particular agreement, you have to know (i) what is missing from the agreement, and (ii) how the various provisions, situations, people, and investment amounts interact and may affect other off-document rules and issues. It’s difficult to do this unless you do this frequently.

Law firms are no more immune to open sourcing than any developer, engineer, or pixel pusher. But it doesn’t mean we’ll all go away, we’ll just adapt by providing more value. Those that manage this feat will survive.

Myth #4: Standardized Seed Docs are Appropriate for My Startup’s Raise.

First, most if not all the model seed docs assume your startup is a Delaware corporation. Thus, you are going to have to either edit the docs or reincorporate your startup in Delaware to use them properly. (Next up: the model reincorporation merger kit)

Second, the model seed docs tend to impress upon the entrepreneur that preferred equity is the best angel investment structure. That may be so, but convertible debt can also be appropriate for you startup’s angel round.

However, most (all?) sophisticated investors will not invest via a convertible note. And since the people & groups behind these model seed funding docs are some of the most sophisticated angel investors in the world, preferred equity investment model docs are being released.

Since entrepreneurs trust groups like TechStars and YCombinator, there is the tendency for startups to blindly use these docs, without considering alternatives like convertible debt. To their credit, these groups have earned entrepreneurs’ trust and have altruistic reasons for their release. Nor do they push these docs as “must use” docs.

Nevertheless, entrepreneurs should still consider whether a model seed funding document set (preferred equity) is prudent relative to their startup’s situation.

Conclusion

I support any effort to bring transparency to the law firm establishment and otherwise educate entrepreneurs (including model seed funding documents). That’s one of the reasons why I started this blog in 2006. You can’t be a startup lawyer and not want startups to have a better chance at succeeding. Model seed funding docs help entrepreneurs, but not to the detriment of startup lawyers.

Nevada has a substantial interest in brothel advertisements

thecomplexlitigator@leviant.net (H. Scott Leviant) — Fri, 12 Mar 2010 01:18:39 GMT

Yes. Perhaps an over-generalization, but, yes. See, Coyote Publishing, Inc. v. Miller (9th Cir. Mar. 11, 2010), wherein the Ninth Circuit held that Nevada's restrictions on brothel advertisements are constitutional because they are justified by state's "substantial interest." These headlines sometimes write themselves.

"Approved as to form and content" language added to many agreements finally held to be just shy of worthless

thecomplexlitigator@leviant.net (H. Scott Leviant) — Thu, 11 Mar 2010 21:42:30 GMT

You've seen them. The settlement agreements with "Approved as to form and content" at the end of document, with a place for the attorneys to sign right along with the parties. I know a lawyer that has, for many years, refused to sign off on such language. His reason? He's not a party to the agreement; his client is. It turns out that his instincts were pretty accurate. In what it believes to be a case of first impression, the Court of Appeal (Second Appellate District, Division Four), in Freedman v. Brutzkus (March 11, 2010), examined at least some of the legal import of that language:

The signature block on a contract bears an attorney signature under the legend “approved as to form and content.” Does that signature amount to an actionable representation to an opposing party?s attorney? We conclude that it does not.

Slip op., at 2. The Court noted the lack of authority directly construing the import of this recital:

Apart from the signature approving the agreement “as to form and content,” Freedman does not allege, nor does the record show, that Brutzkus made any representation as to the agreement?s validity, or affirmed any representation of his clients. We find little authority in California or elsewhere addressing the meaning of this recital. (See, e.g., In re Marriage of Hasso (1991) 229 Cal.App.3d 1174, 1181 [declining to find an attorney?s approval “as to form” a condition precedent to enforceability of an agreement]; Ahrenberg Mech. Contractor v. Howlett (Mich. 1996) 545 N.W.2d 4, 5-6, citing Kirn v. Ioor (Mich. 1934) 253 N.W. 318 [finding approval as to form and content of a court order insufficient to establish a consent judgment]; First American Title Ins. Co. v. Adams (Tex.Ct.App. 1992) 829 S.W.2d 356, 364 [determining that an attorney?s approval as to form and substance does not establish a consent judgment or relinquish a party?s right to appeal]; CIC Prop. Owners v. Marsh USA, Inc. (5th Cir. 2006) 460 F.3d 670, 672-673 [agreement stating it was “„reviewed by counsel for parties and approved as to form and content?” indicates that parties were separately advised by counsel].)

Slip op., at 5. Having no direct authority to answer the question raised on appeal, the Court did the only thing it could do, apply common sense:

We conclude that the only reasonable meaning to be given to a recital that counsel approves the agreement as to form and content, is that the attorney, in so stating, asserts that he or she is the attorney for his or her particular party, and that the document is in the proper form and embodies the deal that was made between the parties.

Slip op., at 5-6.

This isn't a complex litigation issue, or a class action issue. It's just a fine example of all those mindless acts of habit that attorneys insist upon without a good reason.

Stipulated Facts Bring De Novo Review

Thu, 11 Mar 2010 21:26:41 GMT

Where the circuit court received only arguments on a stipulated factual record, the appeals court gave the circuit court’s judgment “no presumption of correctness,” and so reviewed that judgment under a de novo standard. Ex parte Ala. Dept. of Revenue, No. 1070925 (Ala. Feb. 26, 2010).

The taxpayer appealed a decision of the administrative law judge (ALJ) to the circuit court. In doing so, the parties — the taxpayer and the Alabama Department of Revenue — stipulated to the factual record and the transcript made before the ALJ. The circuit court reversed the ALJ, and the case found its way through the Court of Civil Appeals to the Supreme Court, which took the case on certiorari.

The state’s high court confirmed that a de novo standard applied to the circuit court’s judgment. The facts here were undisputed; indeed, the parties had stipulated to them in the circuit court. As a result, the case’s “controlling question” — the tax status of a certain transaction — was not a point of disputed fact. Rather, it was a dispute over how the tax law should be applied to the “undisputed” facts “and, accordingly, the conclusions to be drawn from the facts.” This elicited de novo review:

When reviewing a case in which the trial court sat without a jury and heard evidence in the form of stipulations, briefs, and the writings of the parties, this Court sits in judgment of the evidence; there is no presumption of correctness. When this Court must determine if the trial court misapplied the law to the undisputed facts, the standard of review is de novo, and no presumption of correctness is given the decision of the trial court.

(Citations omitted).

The court then addressed the merits of the case.

China Issues New Tax Rules For Representative Offices Of Foreign Enterprises

Thu, 11 Mar 2010 19:01:28 GMT

On February 20, 2010, China's State Administration of Taxation (the "SAT") issued a Notice On Interim Measures For Tax Administration Of Representative Offices Of Foreign Enterprises (Guoshuifa [2010] No. 18, also referred to as "Circular 18"). Circular 18 states measures governing enterprise income tax (EIT), business tax, and value added tax (VAT) on representative offices of foreign enterprises (including those in Hong Kong, Macau and Taiwan). It takes effect retroactively as of January 1, 2010.

Main Points

Enterprise Income Tax

According to Article 6 of Circular 18, a legally registered representative office of a foreign enterprise must set up accounting books pursuant to relevant laws, regulations and rules. Furthermore, it must maintain the books based on legitimate vouchers, calculate the amount of its taxable income and tax liabilities according to the principle that function should match the risks taken, and declare EIT and business tax amount 15 days before the end of a quarter.

In a case where a representative office cannot correctly keep the books or calculate its costs and expenses, or where it does not objectively declare taxes as required, the governing tax authority can determine its taxable income by either of the two following methods:

1. Expenditure-Based Method – This method applies to representative offices that can correctly calculate its expenditure on operation but not its gross income or costs and expenses.

The formulas are:

Deemed gross income = Expenditures for operation of current period / (1 – Deemed profit rate – Business income tax rate;

Deemed payable tax amount = Deemed gross income x Deemed profit rate x EIT rate.

Expenditures for operations include: (i) salaries, bonuses, allowances, welfare allowances paid inside and outside of China to its personnel; (ii) payments on equipment and immovable properties; (iii) communication expenses; (iv) traveling and accommodation expenses; rental payments for equipment, and other expenses. The other expenses include: (i) cost of samples (including its transportation) purchased by the representative offices within China for the head quarter; (ii) storage and customs clearance expenses incurred within China when samples are shipped to China; (iii) interpretation and translation expenses for personnel of the headquarter who visit China; (iii) bid documents expenses for projects in China paid by the headquarter on behalf of its representative office.

The cost of purchasing fixes asset and the cost of decoration when an office is opened or relocated will be treated as one-time expenditures for operation when occurred. The expense that is actually incurred for marketing and public relationship is treated as an expenditure for operation. In addition, interest income cannot be used to offset against the expenditures for operation.

The following are excluded as expenditures for operation: Charitable donations made in cash within China, late payment fees and fines paid in Cash by the representative offices, and expenses unrelated to the representative office's business and paid by it on behalf of the head quarter.

2. Gross Income-based Method – This method should be applied when an representative correctly calculates its gross income but cannot accurately compute its costs and expenses. The formula is as follows:

Deemed EIT = Gross income x Deemed profit rate x EIT Rate

According to Circular 18, the new deemed profit rate is 15%, amending the previous rate of 10% which was used for more than a decade. The actual profit-based method will replace the expenditure-based method and the gross income-based method if a representative office can accurately keep the books and compute its taxable income and gross income correctly.

VAT and Business Tax

Under Circular 18, representative offices that engage in VAT and taxable business activities will be subject to VAT and business tax according to the relevant laws and regulations. According to the relevant Chinese laws, VAT is imposed on sales of merchandise services related to processing, repairing and assembling and import of goods.

Other Matters

Detailed document list and procedure for tax registration and fillings are also provided for by Circular 18. In addition, representative offices seeking tax treaty benefits must complete tax registration and filings pursuant Article 6 of Circular 18, and must follow the applicable tax treaty and Guoshuifa [2009] No. 124 regarding nonresidents' eligibility for tax treaty treatment.

Guishuifa [1996] No. 165, Guoshuifa [2003] No. 28 and Guoshuihan [2008] No. 945 are abolished upon Circular 18's effective date of January 1, 2010. Local tax authorities no longer accept applications for EIT exemption by representative offices, but they will continue to handle the EIT exemption applications that have already been approved.

Authored By:

Jingyuan Sun
(212) 634-3094
jsun@sheppardmullin.com

Gaps in Divorce Record Force Reversal

Thu, 11 Mar 2010 17:21:03 GMT

The trial court incorporated a “partial agreement” between the parties into its final divorce judgment. The record on appeal contained no written evidence of that agreement, however, and the trial court had not received evidence on any contested issue. The agreement thus was not valid. And, without evidence, the trial court had no discretion to adjudicate other issues. The Court of Civil Appeals reversed the judgment and ordered the trial court to hold an evidentiary hearing. Willis v. Willis, No. 2080876 (Ala. Civ. App. Feb. 26, 2010)

The trial court incorporated the parties’ “partial agreement” into a divorce judgment that purported to dispose of all pending issues between the parties. The agreement did not appear in the appellate record. Neither party had “made any representation identifying the issues upon which the parties had reached an agreement.” And the trial court had received no evidence on any of the issues that “might have still been in dispute” following the partial agreement.

The judgment thus had to be reversed, for two reasons.

First, the partial agreement was unenforceable. Under section 34-3-21 of the Alabama Code, agreements made by attorneys must be in writing or entered into the court’s minutes. Oral agreements between parties are enforceable only if made in open court or during a pretrial conference. Here, despite the parties’ representations in appellate briefing, the record contained no “written documentation” of the partial agreement, and there was “no indication that a hearing was actually conducted.” The agreement thus was not binding; the judgment incorporating it had to be reversed.

Second, because the trial court did not receive evidence on a number of issues, it “had no discretion” to adjudicate those issues. This included property division, alimony, and child support. The appellate court also noted that the record on appeal did not contain most of the forms required in child-support cases.

The Court of Civil Appeals reversed and remanded the judgment. It ordered the trial court “to conduct an evidentiary hearing on any issues upon which the parties have failed to reach a settlement agreement and to properly incorporate any settlement into its judgment.”

Dispute Over Arbitration Clause in Private School Contract Must Receive Evidentiary Hearing

Thu, 11 Mar 2010 16:23:23 GMT

The Fourth District ruled this week that a contested arbitration clause must be resolved via an evidentiary hearing. The case is The King's Academy, Inc. and Robert Crowley v. John Doe et al. Of note, this case seems identical to Curcio v. Sovereign Healthcare of Boynton Beach, LLC, so there is some surprise that the court did not simply issue a PCA. Essentially, the ruling can be expressed in mathematical terms: [dispute over unconscionability] + [dispute over circumstances surrounding execution of contract] = mandatory evidentiary hearing per F.S. 682.03(1)("If the court shall find that a substantial issue is raised as to the making of the agreement or provision, it shall summarily hear and determine the issue and... grant or deny the application")

The Fourth District ruled this week that a contested arbitration clause must be resolved via an evidentiary hearing.

The case is The King's Academy, Inc. and Robert Crowley v. John Doe et al.

Of note, this case seems identical to Curcio v. Sovereign Healthcare of Boynton Beach, LLC, so there is some surprise that the court did not simply issue a PCA.

Essentially, the ruling can be expressed in mathematical terms:

[dispute over unconscionability] + [dispute over circumstances surrounding execution of contract] = mandatory evidentiary hearing per F.S. 682.03(1)("If the court shall find that a substantial issue is raised as to the making of the agreement or provision, it shall summarily hear and determine the issue and... grant or deny the application")

The Breastfeeding Employee

Thu, 11 Mar 2010 15:20:41 GMT

Do breastfeeding employees have any protection under the laws? That was the question I wanted an answer to after learning from other women that some employers were not supportive of their decision to continue breastfeeding upon return to work. The employers of the women I talked to did not refuse to allow the women to pump at work, but did not make it easy for them either. Many of the women did not have regular breaks or a private and convenient place to express their breast milk.

Unfortunately, as of 2009 approximately 15 states have enacted laws that protect a lactating employee. Iowa is not one of those states. Of the states with laws, none provide a lactating employee any time, other than their normal breaks, in which to pump and only a few require the employer to provide a lactation area. I would argue that such laws do not effectively provide any protection to a lactating employee. Without adequate time and a private area, many women would abandon the idea of continuing to breastfeed their children.

With all the benefits that breastfeeding provides for both mother and child, it would be beneficial for employers to support mothers who wish to continue breastfeeding upon their return to work. I am lucky to work for an employer that has supported my decision to continue breastfeeding upon my return to work. For those of you with employers that may not prohibit you from pumping at work, but do not necessarily encourage you, talk to your employer before the issue arises. Perhaps your employer has never been faced with the issue or the issue has never been discussed. Employers, think about this issue prior to a request from an employer. Think about whether you can create a private place for a lactating worker or provide such employer with additional time in which to pump. Thinking about it now may reduce future problems.

Trial Judges Are Not Umpires

Thu, 11 Mar 2010 13:20:15 GMT

Via Sports Law Blog, I saw a new paper: Aaron Zelinsky, The Justice as Commissioner: Benching the Judge-Umpire Analogy, 119 Yale L.J. Online 113. [After writing this post, I saw the WSJ Law Blog covered it, too.]

Here's the abstract:

The judge-umpire analogy has become “accepted as a kind of shorthand for judicial ‘best practices’” in describing the role of a Supreme Court Justice. However, the analogy suffers from three fundamental flaws. First, courts historically aimed the judge-umpire analogy at trial judges. Second, courts intended the judge-umpire analogy as an illustrative foil to be rejected because of the umpire’s passivity. Third, the analogy inaccurately describes the contemporary role of the modern Supreme Court Justice. Nevertheless, no workable substitute for the judge-umpire analogy has been advanced. This Essay proposes that the appropriate analog for a Justice of the Supreme Court is not an umpire, but the Commissioner of Major League Baseball.

I agree with his argument regarding Supreme Court Justices. Given the Justices' policy-making focus and their practice of deciding cases based on the long-term consequences rather than the particular facts of the case, the umpire analogy makes little to no sense for them.

But that's not the whole story. The judges-as-umpires analogy does not work for trial judges either, because the analogy downplays the inherent uncertainty in the law and diminishes the significance and breadth of what trial judges do.

There are a handful of situations in which a trial judge, like an umpire, must draw upon their experience and intuition to quickly exercise discretion in applying a general rule, like when ruling upon evidentiary objections at trial.

Most of the time, however, trial judges have plenty of time to contemplate the issues before them, like when ruling upon motions to dismiss, motions for summary judgment, and motions for post-trial relief — the three most important dispositive motions.

In those instances, the judge is not merely called upon to decide whether or not a pitch was within the strike zone. Indeed, in many situations, the judge is not even asked to decide if the pitch really was within the strike zone (i.e., whether the allegations made by one side are true or false), because they are required to accept the truth of what one of the parties says or of what the jury found. (There are a handful of exceptions, like sentencing decisions, but those, too, are fraught with uncertainty.)

In most situations, the judge is asked to figure out where the strike zone should be. It is as if there were different strike zones for fastballs, breaking balls, and changeups, and the umpire had to determine — based on nothing more the players' arguments about the pitch (i.e., the briefs and the oral argument) — which rule should apply.

But that's not the hard part. In many situations, trial judges must decide not just which rule should apply based on imperfect and incomplete information, but what the rules even are.

Imagine there were different strike zones for different pitches, yet no one agreed what a sinker, curveball, slider, screwball, palmball, or knuckleball even was, and the umpires were supposed to decide which pitch was really used by reviewing dozens of calls by prior umpires, many of which seemed to reach contradictory results and none of which involved the exact same style pitch as the situation at hand.

Making matters worse, imagine, too, that the players themselves don't know for sure what the rules are, and that, after each pitch, the coaches run out to argue over what type of pitch it was.

Does that sound like baseball to you? It sounds like Calvinball to me.

And it sounds like a heckuva game to play.