Northwest Business Litigation

Must a Fiduciary Disclose Helpful Information to Participants?

Victor Washington played in the NFL for five years before a string of injuries ended his career. The NFL's disability plan agreed that he was disabled. However, the plan asserted Washington had a "non-football" disability, entitling him to a lower monthly benefit than a football-related injury. The plan limited football-related disabilities to those caused by a single football injury. The plan asserted Washington's disabilities were cased by multiple injuries, none of which were disabling by themselves.

Washington disputed this interpretation but eventually settled his claim. Later, the plan lost a case with another player involving the same issue. The court hearing the matter held the plan's position regarding the single/multiple injury distinction was unreasonable.

Upon learning of that decision, Washington sued to rescind his settlement. He argued the plan should have told him that the reason for denying his claim was unreasonable. The Ninth Circuit in a divided decision held that the decision was not “material” information and therefore the fiduciaries did not have to disclose it.

The Ninth Circuit’s decision includes a helpful summary of the duties of loyalty and disclosure imposed on fiduciaries. Although the judges disagreed about the materiality of the other player's lawsuit, they agreed, “a misrepresentation is material if there is a substantial likelihood that it would mislead a reasonable employee in making an adequately informed decision in pursuing disability benefits to which she may be entitled.”

Looking to Europe for antitrust enforcement

With the U.S. Supreme Court consistently ruling against antitrust plaintiffs, and with the Justice Department scaling back its antitrust enforcement efforts, it appears the European Union has taken the lead in regulating trade and competition.  Monday's ruling by the EU's Court of First Instance against Microsoft, including imposition of a $613 million fine, confirms that European law takes a hard line against dominant firms.  That tough stance will have repercussions outside of Europe.  The court's order that Microsoft must, for example, share communications code with its rivals will affect how the company conducts operations throughout the world. 

Deferred Compensation Deadline Approaches

Two years ago, Congress passed new laws that for the first time impose strict rules on "deferred compensation plans."  Congress chose to define that term broadly as "the legal right to compensation in one year that is not paid until a future year." That definition includes all kinds of common arrangements not usually considered "deferred compensation:” employment offer letters, change in control agreements, stock options, bonuses, etc. Employers must understand how the law works to avoid triggering retroactive income taxes with interest and a 20% penalty.

Employers should therefore take the following steps to ensure that they do not unintentionally create a significant tax liability:

1. Identify all potential deferred compensation arrangements. As mentioned above, this potentially includes any employment or severance agreement and any incentive compensation program, including bonuses, stock options and stock appreciation rights.

2. Review the arrangements for compliance with the law. Certain arrangements are grandfathered out of the law; others have exemptions. 

3. Consider alternatives for compliance with the law. If an arrangement is subject to the law, it must comply in operation even if the written terms of the arrangement do not. There are usually several options available to achieve compliance.

4. Prepare any required amendments. Arrangements subject to the law must comply by year-end 2007. Discuss any changes necessary with employees and record-keepers.

5. Adopt the changes by the end of 2007. This may require action by the Board or Compensation Committee, affected employees or consultants. For them to have time to do due diligence, employers should begin this process now.

California Law Limits Use of Employees' Social Security Numbers

California employers are required to provide itemized statements with employee paychecks that include employee Social Security numbers or other personal identification numbers under Labor Code 226.  As of January 1, 2008, however, only the last four digits of a Social Security number or any other personal identification number may be shown on the statements. If your company has California employees, now is a good time to check that your payroll system is in compliance, or will be by the first of the year.  Employers (even those without California employees) may also wish to review California's Recommended Practices on Protecting the Confidentiality of Social Security Numbers (California Department of Consumer Affairs, Office of Privacy Protection April 2007).

Antitrust law and an activist court

The August/September issue of the Oregon State Bar Bulletin has a commentary on the recent landmark antitrust case from the U.S. Supreme Court, Leegin Creative Leather Products v. PSKS.  It's by Lori Irish Bauman, a contributor to the Oregon Business Litigation Blog.  See our other coverage of the case here and here. 

How do elected judges compare with appointed judges?

When it comes to things that Oregonians value, electing state court judges may rank right up there with no sales tax and no self-serve gas.  But some contend that judges who are appointed - as they are in the federal courts and many states - are "better" because they're not susceptible to political pressures and the whims of voters.

Three legal scholars have studied how both types of judges rank for independence, skill, and effort.  They found, overall, that appointed judges do not perform at a significantly higher level than elected judges.  See the details posted today on the University of Chicago Law School Faculty Blog.

Ninth Circuit reverses jury verdict in hospital antitrust case

The Ninth Circuit yesterday reversed a $16.2 million jury award in an antitrust dispute between two Eugene hospitals.  One of the key issues in Cascade Health Solutions v. PeaceHealth was whether PeaceHealth, the largest provider of hospital services in the market, engaged in illegal attempted monopolization when it offered bundled discounts to insurers -- meaning that it offered a bundle of services for a lower price than it charged for the services individually. 

Companies from across the country weighed in as amicus curiae, and the Ninth Circuit held that the district court's jury instructions on the bundled discount issue were erroneous.  According to the court,  offering a bundled discount that a competitor cannot match is not by itself an antitrust violation.  The Ninth Circuit adopted the test for illegal bundled discounts recommended earlier this year by the Antitrust Modernization Commission.  See further discussion of the case here and here.