DC Metropolitan Business Law Alert

Largest Maryland Trade Mission to India Coincides with Liberalization of Indian Securities Laws

Rebecca Tzou — Tue, 31 Jan 2012 12:19:26 -0500

Maryland is working hard to actively develop new business and investments in India. Late last year, more than 100 state officials and business leaders, accompanied by Maryland Governor Martin O’Malley, traveled to India for six days to foster new commercial relationships. This, the largest Maryland trade mission to India and the only one headed by a sitting Maryland governor, was primarily self-funded by the participants. O’Malley cites upwards of ten Maryland businesses that signed term sheets or actually entered into joint ventures with India business partners during the trade mission for a touted $60 million in investments to date. The business deals signed ranged from consulting and engineering transactions to biotech and pharmaceuticals and should aid in continuing to fuel increased trade to and from India evident in the Port of Baltimore trade statistics, registering a 49% increase in India trade from 2010. This Maryland initiative comes at an opportune moment in India’s business development as India’s Securities and Exchange Board recently liberalized the Indian securities market regulations to permit certain investors meeting specified requirements (“Qualified Foreign Investors” or “QFIs”) to directly invest in India public companies. While there are still protocols to follow, an individual QFI can now hold up to 5% of the share equity in an Indian company and can sell such shares and receive bonus shares and dividends. For further details on this developing opportunity, see a Client Advisory Note from our affliate Mumbai office, "Qualified Foreign Investors Can Now Invest Directly in Public Companies." Maryland has opened a trade office in India to support its states’ entrepreneurs in utilizing the momentum instigated by the recent trade mission and expects the positive outcome from the mission to continue to develop, aided by the facilitating changes in the Indian equity markets. Kelley Drye & Warren welcomes the opportunity to partner with Maryland business owners to expand their reach into India, take advantage of the more permissive Indian securities regulations and offer our firm’s already well-established ties to India and our colleagues resident there.

IRS Announces April 17 Filing Date for Income and Gift Tax Returns

Allan Weiner — Fri, 06 Jan 2012 12:18:34 -0500

The IRS has announced that the filing date for income and gift tax returns is Tuesday, April 17. Estate tax returns are due based on the actual date of death. Because April 15 falls on Sunday and April 16 is Emancipation Day in the District of Columbia, the tax filing date is extended to the next day, Tuesday, April 17. The Internal Revenue Code [Section 7503] establishes that the date for tax filing is extended when April 15 falls on a Saturday, Sunday or a legal holiday. For that purpose, a "legal holiday" means any legal holiday in the District of Columbia. Emancipation Day is a legal holiday in the District of Columbia, established in 2005. It is celebrated each year on April 16 to recognize the date when President Abraham Lincoln signed the Compensated Emancipation Act which released certain persons held to service or labor in the District of Columbia. If April 16 falls on a Saturday, Emancipation Day is celebrated on the preceding Friday.

Virginia Supreme Court Issues Decision Changing Law Regarding Employee Non-Competes

Joe Wilson — Fri, 09 Dec 2011 15:32:56 -0500

Recently, the Virginia Supreme Court issued a decision in Home Paramount Pest Control Companies, Inc. v. Justin Shaffer, et al., Record No. 101837, --- S.E.2d ----, 2011 WL 5248212 (Nov. 4, 2011), that changes Virginia law regarding the enforceability of employee covenants not to compete, or at least formally recognizes changes to the law in this area that have occurred over the past several years. Summed up, Home Paramount is significant because it has established a narrower scope for what such a covenant (commonly known as a "non-compete") can prohibit an employee from doing for a future employer and still remain enforceable under Virginia law. As a general matter, non-competes that are overly broad as to what they prohibit an employee from doing for a future employer risk not being enforceable under Virginia law, if challenged. The Home Paramount decision should be of particular importance to entities that employ persons in Virginia, most notably those entities who have non-competes with their employees or are looking to hire persons who have non-competes with other employers.

Click here to read the Kelley Drye client advisory on the Home Paramount decision for additional details.

Join Us on Dec 7th for the Seminar, "gTLDs: The Next Move is Yours!"

Joseph B. Hoffman — Fri, 18 Nov 2011 14:34:40 -0500

ICANN made its move to launch the new generic Top Level Domains (gTLDs), the biggest change to the structure of the Domain Name System since its inception 25 years ago. (A gTLD is the name to the right of the dot in a domain name address - not to be confused with domain names, which are to the left of the dot). Now, whether your organization plans to adopt a gTLD or not, it needs to move to devise a winning strategy.

Join Kelley Drye on December 7th for a free seminar that will explore what opportunities may be exploited, by whom, and when, and discuss what may be done to protect your organization's interest in this vastly changing Internet environment.

We will:

Explain the new gTLD system and application process, including highlighting important myths and misconceptions.

Discuss the marketing and branding opportunities for owners of gTLDs, but the game is open to more than simply those players. Understand this new way of doing business and what types of consulting, technology, management, and other moneymaking opportunities new gTLDs may create.

Outline some key rules and regulations that will govern how your organization will play.

Assess the risks in joining or not joining the game at this time. Don't be a simple pawn, move to preserve your position for the future - especially if your competitors are in the first round of new gTLD applicants. If nothing more, act now to get the authorities in your organization to make an informed decision as to what they need to do.

Speakers:

Nancy Lutz, Partner, Kelley Drye & Warren LLP

Sarah Langstone, Director of Product Management, VeriSign, Inc.

Alexa Raad, Founder, Architelos Inc.

Date:

December 7, 2011 8:00 AM -10:00 AM ET

Location:

The Tower Club
8000 Towers Crescent Drive
17th Floor
Vienna, Virginia 22182

Email dcevents@kelleydrye.com to register.

Congress Passes Repeal of 3% Withholding and Provides Tax Credits for Hiring Unemployed Veterans

Allan Weiner — Thu, 17 Nov 2011 15:27:54 -0500

By an overwhelming bi-partisan vote, the U.S. Congress passed legislation (H.R. 674) yesterday which repeals a 2005 law that imposes a 3% income tax withholding on government contractor payments in excess of $10,000. The very unpopular withholding provisions were scheduled to become effective at the end of next year. Also, included in the new legislation are tax credits for employers who hire previously unemployed veterans. The tax credits range from $2,400 if the newly-hired veteran was unemployed for at least four weeks, but less than six months, to $5,600 for veterans unemployed for more than six months. Another credit of $9,600 is available for hiring unemployed veterans with service-connected disabilities who were unemployed for at least six months. President Obama is expected to sign the legislation this week or early next week.

Maryland High Court Strikes Down Statutory Caps on Landlords' Liability to Tenants for Lead Paint Injuries

Cameron Argetsinger — Wed, 16 Nov 2011 15:56:01 -0500

Maryland landlords face vastly increased liability for tenants’ claims of lead paint injuries, following a recent decision by the Maryland Court of Appeals. In Jackson v. Dackman Co., the state’s high court invalidated a provision of the Reduction of Lead Risk in Housing Act that previously capped rental property owners’ liability at $17,000 for personal injury claims based on a child’s or pregnant woman’s ingestion of lead.

The Reduction of Lead Risk in Housing Act (the “Act”) requires owners of older rental properties that contain lead-based paint to register their properties with the state and to take certain steps to minimize tenants’ contact with chipping, peeling, or flaking paint within the dwelling. The Act states that its purpose is “to reduce the incidence of childhood lead poisoning, while maintaining the stock of available affordable rental housing.” Maryland Code, Environment § 6-802. As it was enacted, the Act provided that landlords who complied with the statute could be liable for no more than $17,000 for injuries to a child that resulted from exposure to lead in the dwelling. Under certain circumstances, the landlord would have no liability at all if the tenant had not previously given the landlord notice of the child’s elevated blood lead levels and allowed the landlord the opportunity to offer reimbursement up to the $17,000 cap.

In Jackson v. Dackman, the mother of ZiTashia Jackson, a minor, brought suit on her daughter’s behalf against the landlords of two Baltimore rental apartments where they had previously lived. The suit alleged that, before the mother and daughter moved into the rental apartments, the landlords represented to them that the premises were lead free. Nevertheless, the suit claimed, the daughter ingested lead-based paint chips while living there and became permanently injured.

The landlord defendants claimed that the Act provided them with immunity from any liability to the plaintiffs because the plaintiffs had never given them notice of the child’s elevated blood lead levels, or given the landlords an opportunity to pay them reimbursement of up to $17,000. In any event, the landlords argued, they could not be liable for any more than $17,000 under the Act.

The trial court and the Court of Special Appeals agreed with the landlords, finding that there was no liability to the plaintiffs based on the immunity provisions of the Act. The Court of Appeals reversed, finding that the Act’s limitation on liability violated Article 19 of the Maryland Declaration of Rights and was therefore unconstitutional.

Article 19, entitled “Remedy for injury to person or property,” establishes the right to a remedy for any person who experiences an injury to person or property. The court held that the immunity provisions of the Act, which limited the recovery for children who were permanently injured by lead exposure to $17,000 or less, was an unreasonable limit on common law remedies for personal injury. Accordingly, the court found the immunity provision was invalid and unenforceable.

The court next considered whether the invalidated immunity provisions were “severable” from the remaining portions of the Act, meaning that the court could still require the landlords to comply with the Act’s requirements that it did not strike down. For a provision to be severable, the remainder of the statute must be capable of being executed in accordance with the legislative intent. The court found that the Act could be enforced without the immunity provision.

For Maryland landlords, the decision is significant. Landlords now face far greater exposure to claims by their tenants for lead-based paint-related injuries. Where damages for such injuries to minors were once capped at $17,000, there is now no limit to the amount a tenant may seek in a personal injury suit against a landlord.

Corporate Officers and Personal Liability: Watch What You Sign

Brooke Ringel — Wed, 19 Oct 2011 13:22:58 -0500

Although a company is legally considered enough of a “person” to apply for a loan or enter into another type of contract, an actual human being – usually an officer or partner – has to sign his or her name to the document. Can that signature cause the company representative to also be personally liable for the company’s obligations? A Maryland Court of Special Appeals case from earlier this year demonstrates how such a situation may arise.

In Ubom v. SunTrust Bank, No. 2862 (Md. Ct. Special App. Apr. 4, 2011), the Ubom Law Group, PLLC (“ULG”), a Maryland limited liability company, applied for a commercial line of credit in the amount of $100,000 from SunTrust Bank. ULG’s managing partner, Uduak J. Ubom, completed the first page of the credit application on behalf of ULG, and signed his name as “Applicant,” followed by “Managing Attorney.” The second page of the application requested information pertaining to the loan guarantor. Mr. Ubom completed this section of the application, providing his personal identifying and financial information, and signed his name as “Guarantor.” On the guarantor signature line, Mr. Ubom also added “Managing Attorney.”

When ULG defaulted on the loan, SunTrust sued both ULG and Mr. Ubom in his personal capacity as guarantor of the loan. The lower court granted summary judgment in favor of SunTrust. Mr. Ubom appealed only the judgment against him, arguing that he should not be held personally liable for ULG’s debt because (1) he did not write his name in the block for “Legal Name of Guarantor,” and (2) he wrote “Managing Attorney” after his name on the guarantor signature line.

The Court of Special Appeals rejected these arguments and affirmed the circuit court’s grant of summary judgment against Mr. Ubom. The question before the Court was whether Mr. Ubom signed his name in his capacity as an officer of the corporation, or whether it was a personal guaranty. The Court held that Mr. Ubom guaranteed the loan in his personal capacity. The fact that Mr. Ubom included his corporate title next to his name did not relieve him of personal liability. Other factors also proved to the Court that Mr. Ubom signed the application as guarantor in his personal capacity: There were two signature lines – one for “Applicant” and one for “Guarantor.” The most reasonable interpretation of Mr. Ubom’s signature on both lines was that he was signing as guarantor in his personal capacity; it would have added nothing to SunTrust’s security to have ULG, through its Managing Attorney, to guarantee the loan to which it was already bound. The “Guaranty” language in the application unambiguously made the individual signing as guarantor jointly liable for the debt of the applicant. Finally, Mr. Ubom provided his personal information, including social security number and net worth, in the guarantor section of the application.

Thus, be careful what you sign if you intend to sign only in your official capacity. The addition of a corporate title will not always save you from personal liability.

IRS Announces Voluntary Employment Classification Settlement Program

Allan Weiner — Wed, 21 Sep 2011 16:41:31 -0500

The IRS announced a new program today that will permit employers voluntarily to reclassify workers as employees rather than nonemployees or independent contractors, without significant retroactive tax impact. To qualify, employers must have filed all required Forms 1099 for the workers for the past three years and not be under audit currently by IRS, the Labor Department or a state agency for worker classification issues. Employers that have significant numbers of workers whose employment classification is questionable should consider the application of this new program.

D.C. Council Approves Income Tax Increase; Eliminates Retroactive Tax on Interest Earned from Out of State Municipal Bonds

Aaron Rosenfeld — Wed, 21 Sep 2011 14:33:30 -0500

On September 20, 2011, the District of Columbia Council agreed to raise the income tax rate on all households in the District earning $350,000 or more per year to 8.95% from 8.5%. The rate increase shall be effective as of October 1, 2011, the beginning of the District’s 2012 fiscal year. According to the District’s Office of the Chief Financial Officer, the tax increase affects about 6,000 residents of the District and is projected to increase the District’s tax revenue by $106 million over the next four years. The Council also approved a measure to eliminate the retroactive application of income tax on interest earned from out of state municipal bonds; opting, instead, to tax the interest earned on out of state municipal bonds beginning with bonds purchased on or after January 1, 2012.

Virginia Supreme Court Takes On Non-Competition Agreements

Aaron Rosenfeld — Thu, 15 Sep 2011 13:19:26 -0500

Virginia businesses and employees are eagerly awaiting rulings from the Virginia Supreme Court on two cases that it has heard or is preparing to hear concerning the enforceability of non-competition agreements between employers and employees. The results of these cases should provide businesses and employees in Virginia with greater clarity on the scope of enforceable non-competition agreements. The Virginia Supreme Court heard the first case, Home Paramount Pest Control Cos. Inc. v. Justin Shaffer, et. al., earlier this week. That case addresses restrictions in an employment agreement which prohibit a former employee from engaging in certain specific competitive activities, including soliciting customers of the former employer, within a defined geographic area. The second case, BB&T Insurance Services, Inc. v. Thomas Rutherfoord, Inc., et. al., for which a hearing date has not yet been scheduled, also involves the solicitation of the former employer’s customers. Unlike Home Paramount, this case addresses the fact that the post-employment non-competition covenants were provided as a condition precedent to the employer’s purchasing the employee’s business. We will keep you posted on the decisions in these cases and their impact on non-competition agreements in Virginia.