Author: JGL Law

So, you’re starting a new business.  Congratulations! If you’re like most new business owners, one of your first “executive” decisions will be deciding whether your business should operate as an entity (corporation, limited liability company, etc.) and, if so, which one?   First, the bad news.  You won’t find the correct answer in a book and neither will your lawyer. Each case is different and your specific circumstances must be evaluated independently to insure that you make the best decision for your particular business. 

The good news is that, for the vast majority of new businesses, the decision isn’t that complicated, especially if you involve your attorney and your certified public accountant early in the process. While there may be additional choices, depending on your particular business and where it will be located, your decision will likely come down to one of the following business structures: C corporation, S corporation, limited liability company, or none of the above, in which case you will operate, by default, as either a sole proprietor if you are a single owner or a partnership if there are multiple owners.

Over the next few posts, we will discuss how each of these business structures operates as well as the relative advantages and disadvantages of each.  In this post, we will start with the sole proprietorship. If you are a single owner and operate your business without forming an entity, you are a sole proprietorship.  This is true even if you use a separate trade name for your business.  The primary benefits of a sole proprietorship are simplicity of operation and minimal startup costs.   Since there is no entity, there is nothing to file and no filing fees.  Likewise, there are no operational agreements and no need to deal with the niceties of your typical business entity like corporate titles, by laws, and documented annual meetings. Finally, since there is no separate entity, there is no separate tax return.  The income or loss of your business will be reported on your personal tax return.

The main disadvantage of a sole proprietorship is that you will be personally liable for all the debts of the business.  This means that your personal assets will be at risk.  In addition, with a few exceptions, proprietorships do not enjoy favorable tax benefits when compared to corporations and limited liability companies. Given the personal liability associated with operating as proprietorship, especially when compared to the relatively small costs involved with forming and maintaining a separate entity, it is rare that you will not be well advised to operate as an entity.  However, this is not to say that there may not be circumstances were operating as a proprietorship makes sense, especially where the risk of personal liability can be greatly reduced, for example by obtaining and maintain the appropriate level of liability insurance.  And it certainly does not mean, contrary to what you hear on those “incorporate for a $1.00” ads on the radio, that operating as a proprietorship is the equivalent of committing financial suicide. 

Again, while it will be rare, there may be cases where operating as a proprietorship will make sense for you.  The key is to make sure you understand and appreciate the risks of doing so and, where possible, that you have taken steps to minimize those risks.

Kathy:  Every year brings new legislation that impacts American employers and employees.  Are there any game-changing laws that have been passed or that are on the horizon for 2013?

Jeremy:  Obviously, much of the country is still reacting to the Supreme Court’s decision rendering the Defense of Marriage Act (DOMA) unconstitutional.  Many employers are now wondering what impact, if any, this decision will have on them and their workforce.  Looking to capitalize on the momentum from the decision, the Senate Committee on Health, Education, Labor, and Pensions (HELP) is now considering a bill that would prohibit employment discrimination based on sexual orientation.  The Employment Non-Discrimination Act (ENDA) of 2013 would entitle homosexual applicants and employees to the same protections and remedies afforded under Title VII of the Civil Rights Act that are currently available to victims of race, gender, age, and disability discrimination, to name a few.  Should ENDA become law, employers will need to immediately train decision-makers and human resources staff in the Act’s intricacies in order to remain Equal Employment Opportunity compliant – something that good counsel can help with.

Although experts have always disagreed about the effects of a federal minimum wage increase, the Senate HELP Committee is also considering a bill that would raise the federal minimum wage from $7.25 to $10.10, in $.95 increments, over a three-year period. Although a Republican controlled House likely spells doom for the proposed increase, the debate highlights an important issue – federal and state laws require, very simply, that all employees be compensated for all hours worked.  Employers that don’t pay their employees correctly stand to face not only regulatory penalties, but also civil liability.  Aside from hefty legal bills, judgments in these cases can be staggering because provisions of the FLSA and the Act’s state law counterparts allow for liquidated (double) and even treble (triple) damages.  Because of the prohibitive impact of failing to comply, employers should, in conjunction with counsel, conduct regular audits of their workforce to ensure that employees are correctly classified as exempt or non-exempt and are being properly compensated for all wages – regular or overtime – earned.

Kathy:  Now that we have talked about legislation, what about case law?  Have there been any decisions that have or will affect workplace relations?

Jeremy:  Although DOMA is the hot topic right now, most employers and employees are likely to be more practically impacted by two other Supreme Court decisions.  During its most recent term, the Court ruled in a landmark case, American Express v. Italian Colors, that under the Federal Arbitration Act, courts cannot invalidate a class action waiver on the ground that the cost of individually arbitrating a claim exceeds the potential recovery.  Practically speaking, this decision significantly and universally bolsters the strength of class action waivers and mandatory arbitration provisions in employment, credit card, and service provider contracts.  Large and small business owners who have yet to revise the contracts, terms, conditions, and agreements entered into with third parties in order to include arbitration clauses and class action waivers are unnecessarily exposing themselves to significant liability.  If your attorney has not already done so or, at very least, suggested this course, you need to immediately contact counsel that is willing to help protect your interests.

In Vance v. Ball State University, the Supreme Court held that an employee is a supervisor for purposes of vicarious liability under Title VII only if he is empowered by the employer to take tangible employment actions against the victim.  In plain English, supervisors can now only be held personally liable for discriminatory conduct if their employer has given them authority to hire, fire, demote, or suspend the victim of alleged discrimination.  Although this case is great for employers in Virginia, the Virginia Supreme Court in Van Buren v. Grubb recently held that state law claims for wrongful termination against public policy can be brought against individual supervisors.  Thus, employers need to be prepared for state law claims to be brought against individual managers, but, most importantly, both cases shows that employers need to audit their workforce by reviewing the responsibilities given to each employee in order to be best prepared for future litigation.

Kathy:  Jeremy, tell us a little bit about the changes in healthcare.  What is your take on how health care reform will impact employers?

Jeremy:  To the delight of many confused employers, the Administration recently extended the deadline for employers to comply with the Affordable Care Act to 2014.  That said, employers still have a new, comprehensive, and difficult regulatory scheme that they are eventually going to have to follow.  In the face of severe penalties for non-compliance, many employers are scrambling to figure out what kind and how much coverage they need to offer their employees under the ACA’s mandate.  Employers are asking me whether the ACA even applies to their businesses, whether it applies to all or just some of their employees, what exactly constitutes a full time employee under the Act, and, ultimately, what coverage must they offer and how much of the premiums must they pay.  These questions highlight the public’s general lack of knowledge of the specific requirements of the ACA, but also show that employers need guidance this year in order to ensure that they are best equipped to navigate the law’s potential minefields.

Kathy:  How about how healthcare changes will affect workers?

Jeremy:  It remains to be seen whether premiums will indeed go down for average Americans.  If they do, workers could save more than $1,000 each year in healthcare costs.  However, what will ultimately affect workers most is how employers plan to comply with the law.  For example, mega-employers like Wal-Mart or Target, who already employ a significant number of part time employees, are likely to cull their rosters to bring even more employees below the ACA mandate’s definition of full time employee.  Practically speaking, a full time employee could see their hours reduced from 40 to less than 30 so that their employer does not have to offer them health insurance.  Thus, some employees are going to lose twice – less hours AND no health insurance.  Sadly, others may simply be let go.

For many employers, though, such a drastic course could have far reaching implications for their public image.  Because of the potential for negative publicity, many employers will find it beneficial to offer ACA-compliant coverage, rather than attempting to avoid doing so by reducing hours or laying off workers en masse.  In that case, employers need knowledgeable counsel that can distill the ACA into its baseline options.  Indeed, a decision to offer employees coverage may also help a company’s bottom line.  Many employers may be pleased to learn that the minimum level of coverage required by the ACA is likely cheaper than what they currently offer their employees.

*This interview was conducted by Kathy Long and originally published in the Fall, 2013 edition of the Belmont News, the Belmont County Club Community Association Magazine.

If you own and drive a motor vehicle on the roads in the State of Maryland, you probably know that the law requires you to carry insurance on the vehicle.  But do you know how much and what kinds of coverage you are required to carry? The State of Maryland requires vehicle owners to carry the following coverage[1]:

• LIABILITY for the payment of claims for bodily injury or death arising from an accident up to $30,000 for any one person and up to $60,000 for any two or more person;
• PROPERTY DAMAGE LIABILITY for payment of claims for property of another damaged or destroyed in an accident of up to $15,000; and
• UNINSURED MOTORIST equal to the minimum amount of Liability Coverage;

In addition to the above, insurers in the State of Maryland are required to offer coverage for  medical, hospital and disability benefits known as Personal Injury Protection (PIP) up to a minimum of $2,500.  A vehicle owner can elect to waive this coverage, but we strongly recommend that you not do that.  PIP coverage, which is also sometimes referred to as “no-fault insurance,” is available to anyone who is injured in an automobile accident, even the person who caused the accident.  It pays for reasonable and necessary medical expenses that arise from a motor vehicle accident as well as 85% of income lost.

2013 ushered in many changes in the New Year, among them the legalizing of same-sex marriages in Maryland. Now, legally married same-sex couples in Maryland will receive the same benefits (and headaches) as their friends in heterosexual marriages, under the new Rev. Rule 2013-17.

On August 29, 2013, the U.S. Department of the Treasury and the Internal Revenue Service (IRS) jointly announced Rev. Rule 2013-17 which treats legally married[1] same-sex couples as married for federal tax purposes. The new policy applies to all same-sex couples who were married in a jurisdiction that recognizes same-sex marriage, even if the jurisdiction they currently reside in does not recognize same-sex marriage.

The ruling applies anywhere marriage is a factor, including but not limited to filing status, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA, claiming the earned income tax credit or child tax credit, and employees who purchased health insurance coverage from their employers.

Generally speaking this means that, beginning in the 2013 tax year, legally married same-sex couples must now choose either the “married filing jointly” or “married filing separately” status on their tax returns. Same-sex spouses that have not yet filed their 2012 federal income tax return will also have the option of filing as married or not married.

Many couples will see a benefit in the terms of their year-end refund. For instance, employees who purchased pre-tax employer-sponsored health insurance for their spouse can now treat that payment as tax free for federal income tax purposes. The participating employee can file a refund claim for the income taxes paid on those spousal coverage premiums.

Couples who were in same-sex marriages in the previous three (3) years may file amended returns and claim additional deductions/tax filing status. Generally, the statute for filing a refund claim is three years from the date of filing or two years from the date upon which the tax was paid, whichever is later. However, this may subject some spouses to the “marriage penalty” where married couples may end up with a higher tax bill as a result of filing jointly than if they filed as single people.

In addition, the new policy extends to retirement plans and estates. Same-sex surviving spouses will now be entitled to inherit the estate of their late husband or wife tax-free. Qualified retirement plans now “must treat a same-sex spouse as a spouse for purposes of satisfying the federal tax laws relating to qualified retirement plans.”

These new rules are equally as important to same-sex couples who are going through a separation. In any divorce, issues revolving filing status, claiming dependency exemptions for the minor children and distribution of retirement accounts undoubtedly arise.

After a separation, under the new rule, a same-sex spouse who has lived apart from their spouse for the last six (6) months of the taxable year, and provides more than half the cost of maintaining the household where the minor child resides, may be considered unmarried and may use the “head-of-household” filing status.

In addition, a same-sex spouse may be eligible to claim any minor children as dependents on their tax returns. Generally, the IRS will treat the parent who has the child for the majority of the time as the eligible parent for this deduction. If the child lives with both parents for an equal amount of time, the IRS will generally give the deduction to the parent with the higher adjusted gross income.

Prior to this ruling, same-sex couples faced potentially additional headaches regarding whether their spouse’s employer sponsored retirement plan would recognize their claim. The IRS has made it clear that not only must the plan treat a same-sex spouse as a spouse but that this new policy extends to qualified domestic relations orders as well. In the event that a domestic relations order assigns a participant’s retirement benefits to a spouse, the plan administrator must honor it.

For more information on this topic, please see:

TaxProfBlog.com

KPMG.com

The Supreme Court’s recent ruling in Vance v. Ball State University changed the landscape for employees claiming discrimination under Title VII, including sexual harassment.[1]  In Vance, the Court limited the definition of a “supervisor” to being a person who can “take tangible employment actions” against the employee, meaning a “significant change in employment status, such as hiring, firing, failing to promote, reassignment with significantly different responsibilities, or a decision causing a significant change in benefits.”[2]

So, it appeared that after Vance the only way an employer could be held vicariously liable for discrimination was if the harasser fell into this definition of a “supervisor.”

In a recent decision, however, the United States District Court for the District of Maryland noted that there could be instances where the employer can be held vicariously liable for sexual harassment conducted by non-supervisors.[3]  In Barcus v. Sears, the harasser did not have any of the powers necessary to qualify as an “employer” under Vance’s definition.[4] The Court noted that it would proceed with its analysis in this case under the assumption that the harasser was the plaintiff’s supervisor.[5] The Court reasoned that as “[t]he [Supreme Court’s] decisions in Ellerth and Faragher were premised on principles of agency, and the Ellerth Court noted that the law of agency sometimes extends liability to an employer for the conduct of an agent who acts with apparent authority even when the agent lacks actual authority.”[6]

The Barcus court continued by explaining what would constitute “apparent authority,” noting that “unusual cases may arise in which the victim was under the false impression that the perpetrator was a supervisor,” and in those instances “the employer may be vicariously liable for the sexual harassment if the victim reasonably but mistakenly believed that the perpetrator was a supervisor.”[7]  In this context, the Barcus court held that as a reasonable juror could find that the harasser had “held himself out” as the employee’s supervisor.[8]  The facts that contributed to this decision were: that the plaintiff reasonably, although mistakenly, thought the harasser was her supervisor; that the harasser “ran the store” from time to time, and the plaintiff believed he had the power to hire and fire her during those periods; and the harasser informed the plaintiff that he would help secure her transfer to another store.

This decision, if adopted by other courts, has the potential of being a game-changer for those cases when an employee alleging harassment reasonably but mistakenly believes that the alleged harasser possessed the power as defined by Vance. Under those circumstances, the employer may still be held vicariously liable for non-supervisory personnel.

 _______________

In the recent case of Little v. Schneider (August 22, 2013), the Maryland Court of Appeals unanimously reinstated a $2.874 million verdict issued for a plaintiff by a Harford County, MD jury. The jury found that Dr. Schneider (acting as a specialist in vascular surgery) negligently used the wrong size graft in attempting to perform an arterial bypass. This allegedly caused massive bleeding, leaving Ms. Little permanently paralyzed.

During the trial, Plaintiff’s attorney introduced evidence that the defendant physician was not certified. The immediate appellate court (Maryland Court of Special Appeals) for this and other reasons overruled the jury’s verdict and ordered a new trial.

The Maryland high court decided that while ordinarily the jury should not be advised as to whether the defendant physician is not board-certified, there are limits. The Court observed that the general rule in malpractice cases is to distinguish between appropriate examination of expert witnesses who provide opinions, and the examination of a fact witness (in this case the defendant physician) who merely testify “based solely on what she did and what she observed in her actual treatment of the patient.”

The reason behind this rule is that, generally, in a medical negligence suit, the defendant physician’s failure to pass a medical board certification exam (or in this case to even take the exam) has little relevance because “the fact of failure makes it neither more nor less probable that the physician complied with or departed from the applicable standard of care in the diagnosis or treatment of a particular patient for a particular condition.”

During the jury trial, the plaintiff called the treating physician, Dr. Schneider as an adverse witness in her own case. After the plaintiff’s attorney was finished examining Dr. Schneider, his own attorney, attempting to “bolster” his client’s qualifications “opened the door” to the plaintiff’s attorney attacking those qualifications with questions designed to inform the jury that Dr. Schneider was never board certified in vascular surgery, the specialty he was practicing when he injured the plaintiff.

According to the Court of Appeals opinion, Dr. Schneider’s attorney bolstered his qualifications over eleven (11) pages of trial transcript.

Previously, plaintiff’s attorney had been advised by the trial judge that he could not question Dr. Schneider about his lack of board certification in vascular surgery. After the extensive questions asked by Defendant’s attorney, Plaintiff’s attorney again asked the trial judge for an opportunity to question Dr. Schneider about his lack of board certification in vascular surgeon. This time, the trial court reversed its earlier ruling.

The plaintiff claimed that the doctor could not “have it both ways: his accomplishments and great deeds were no more relevant than his lack of board certification.”  The trial judge this time agreed, reversing his earlier ruling and allowing Ms. Little to inquire on the subject of Dr. Schneider’s lack of board certification in vascular surgery.

The Maryland High Court observed that since Dr. Schneider’s counsel attempted to paint a picture of Dr. Schneider as a “model of excellence in the field of vascular surgery and a great humanitarian, the trial judge became persuaded that he exceeded the basic background

information appropriate for accreditation of a fact witness.” Thus, the High Court ruled that “it was reasonable for the trial court to conclude that, by going outside the reasonable limits of accreditation, Schneider placed at issue the question of his excellence in the field of vascular surgery and “opened the door” to rebuttal inquiry on re-direct examination.” The Court further held: “The trial judge did not abuse his discretion in allowing Little to ask Dr. Schneider, on re-direct, about his lack of board certification in order to counter Schneider’s effort to cloak himself as the paragon of vascular surgeons.”

What can be taken away from this?  Although the opinion may ultimately have little practical effect when trying most medical malpractice cases, it is an interesting analysis and cautionary tale of what can happen when an attorney takes a chance and “opens the door” a little wider than was wise, thus allowing unpleasant, damaging evidence to march through.

You’ve made it to your car, coffee in hand, still rubbing the sleep out of your eyes to begin your commute to your office when suddenly up ahead you see something.   What is that?  Its huge, its yellow, it has flashing red lights and a huge stop sign attached to its side – oh yes, it is a SCHOOL BUS!

With children across Maryland returning to school this month, it’s a good time to remind drivers out there to slow down, be on the lookout, and come to a stop for buses loading and unloading school kids.  Sadly, according to the Maryland State Highway Administration’s website, an average of 7 school-age passengers are killed in school bus crashes each year, and 19 are killed getting on and off the bus. Most of those killed are children, five to seven years old.  They are hit in the Danger Zone around the bus, either by a passing vehicle or by the school bus itself.

In Maryland, it is illegal for a vehicle to pass a school bus with its red light flashing.[1]  You must stop your vehicle at least 20 feet from the front or rear of the bus, and you must remain stopped until the school vehicle resumes motion or the alternately flashing red lights are deactivated.[2]  Whether you are traveling on a two-lane roadway, a two-lane roadway with a center turning lane, or a four-lane roadway without a median separation, all traffic from both directions must stop.

Do you cringe and shake your head when you hear about an accident involving a school bus?  Do you say to yourself “really, how could someone run into the back of a BUS?!?!   Trust me, knowing the number of bus drivers our workers’ compensation and personal injury departments have represented over the years, it happens far too often.

The Pre-Litigation Discovery of Insurance Coverage Amendment Act of 2012 is now in effect in the District of Columbia and offers a new and powerful tool to Plaintiffs and their personal injury attorneys in settling claims for maximum value.

In January 2013, the Council for the District of Columbia amended the Compulsory/No-Fault Vehicle Insurance Act of 1982[1] to require pre-litigation disclosure of any insurance agreement under which certain persons may be liable to satisfy all or part of the claim or to indemnify or reimburse for payments made to satisfy the claim by insurance companies.  This was done in order to facilitate settlements and “reduce the amount of litigation” in the Superior Court of the District of Columbia.[2]

Once the claimant has made a written claim for compensation or damages concerning a vehicle accident, the Act requires an insurer to disclose the amount of its insured’s applicable limits of coverage, regardless of whether the insurer contests the applicability of the policy to the claim.

The claimant must also provide the insurer with the following information:

(1)   The date of the vehicle accident;

(2)   The name and last known address of the alleged tortfeasor;

(3)   A copy of the vehicle accident report, if any;

(4)   The insurer’s claim number, if available;

(5)   The claimant’s health care bills and documentation of the claimant’s loss of income, if any, resulting from the vehicle accident; and

(6)   The records of health care treatment for the claimant’s injuries caused by the vehicle accident.[3]

Additional documentation is required if the claim is brought by the estate of an individual or a beneficiary of the individual, whose death resulted from a vehicle accident.

Unlike Maryland’s similar statute requiring insurers to disclose policy limits,[4] the District’s new law does not require the claimant to document health care bills and loss of income of at least $12,500.00 in order for the insurer to be required to make the disclosure. Importantly, the insurer is required by the new law to respond in writing within thirty (30) days of receipt of the request.

The Family and Medical Leave Act of 1993 (the “FMLA”) provides much-needed flexibility for employees who need time off of work in order to care for personal or familial needs.[1] Title I[2] of the FMLA allows eligible employees[3] working for a covered employer[4] up to 12 weeks of unpaid leave to care for a “spouse, or a son, daughter, or parent, of the employee, if such spouse, son, daughter, or parent has a serious health condition,” among other reasons.[5]

Up until this summer, however, the federal Defense of Marriage Act (“DOMA”) prevented many same-sex couples from using FMLA benefits enjoyed by their heterosexual counterparts.  In particular, an otherwise eligible employee in a same-sex couple legally married and living in a state that allowed or recognized same-sex marriage could not avail himself or herself of the FMLA’s 12 weeks of unpaid leave to care for his or her same-sex spouse.  This is because under DOMA, the federal government was prohibited from recognizing any marriage that was not between one man and one woman.[6]

On June 26, 2013, the Supreme Court in United States v. Windsor declared as unconstitutional the provisions in DOMA that denied federal benefits to state-sanctioned, legally married same-sex couples.[7]  In light of the Supreme Court’s decision, the Department of Labor updated its Fact Sheet #28F’s definition of “spouse” to make include same-sex couples as consistent with the Windsor decision.  The Fact Sheet now defines “spouse” as “a husband or wife as defined or recognized under state law for purposes of marriage in a state where the employee resides, including ‘common law’ marriage and same-sex marriage.”[8] By redefining “spouse,” eligible homosexual employees who are legally married and who reside in those states (and jurisdictions) that recognize same-sex marriages—currently California,[9] Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont, Washington, and the District of Columbia—may now be able to avail themselves of FMLA protections for a spouse with a serious health condition.[10]

The Windsor opinion also expanded coverage for those persons covered by Title II of the FMLA, i.e., most employees of the federal government. [11]  The Office of Personnel Management, the entity that administers Title II of the FMLA, noted on its website that the term “spouse” now includes same-sex couples who are legally married regardless of whether or not they currently reside in a state that recognizes same-sex marriage.  So, if a same-sex couple gets married in Maryland, a state that has legalized same-sex marriages, and resides in Virginia, a state that neither permits same-sex marriages nor recognizes same-sex marriages from other states, that couple may still be able to avail themselves of FMLA benefits if they are employees of the federal government and otherwise qualify under Title II.[12]

What practical effect does this have on you?

If you are an employee in a legally recognized same-sex marriage covered by either Title I or Title II of the FMLA, these changes mean that you may now be able to seek up to 12 weeks of FMLA protected leave to care for your same-sex spouse who has a serious health condition.

Other useful discussions on this topic include:

• Modern Families and Worker Protections

On June 26, 2013, the United State Supreme Court issued its 5-4 opinion in the case of United States v. Windsor. This opinion found that section 3 of the Defense of Marriage Act (DOMA) was unconstitutional.  Section 3 defined the word “marriage” to mean “only a legal union between one man and one woman as husband and wife, and defined the word “spouse” as only person of the opposite sex who is a husband or a wife.  1 U.S.C. §7.

With this ruling, the high court changed the coverage of over 1000 federal laws and many 1000s of regulations promulgated thereunder, that use marital status to confer, withhold or affect person’s federal rights. While the Court’s majority opinion does not actually come out and say that the decision is based on a Federalism argument, it hints at it. The Court essentially has now re-affirmed that it is the states that have the power to continue to be the final word on family relations.  What this means is that there will still be plenty of unanswered questions surrounding real property rights of same sex marriages so long as some states permit and recognize same sex marriages while others adhere to the traditional definition of marriage.

Thus, far twelve states (Maryland, Massachusetts, Connecticut, Iowa, Vermont, New Hampshire Minnesota, Rhode Island, Delaware, Washington, Maine and New York) and the District of Columbia have legalized same-sex marriages. While those laws may have settled the big question on who can get married, they raise a number of practical real estate questions.

One question arises from the manner in which co-owners hold title to their property. Traditionally, co-owners can own their property as tenants in common or as joint tenants with rights of survivorship. Married couples have the additional advantage of being able to own real property as tenants by the entirety. Now, same-sex couples can own real property as tenants by the entirety. What does this mean and why is it relevant?

Tenants in common each share their percentage interest in the real property. Business partners typically use tenancy in common as their preferred way to hold title. Each co-owner can sell and/or borrow against his percentage interest in the property. One main attribute is that each co-owner can bequeath his interest in his will. Each co-owner’s creditors can attach that co-owner’s percentage interest in the real property to satisfy their claim.

Joint tenants with rights of survivorship are each deemed to own their pro rata interest in the real property. If there are two joint tenants, then each is deemed to own a 50 percent interest. A joint tenant cannot sell or borrow against his interest. Any attempt to do so will convert the joint tenancy into a tenancy in common. A joint tenant also cannot bequeath his interest. By definition, when one joint tenant dies, his interest automatically gets transferred to the surviving joint tenant. Many same-sex couples use the joint tenancy to ensure that upon death, their partner becomes the 100 percent, sole owner. However, one main drawback is that property held in a joint tenancy is vulnerable to the claims against all other joint tenants.  So for example, if one joint tenant is held liable for a car accident, and has a judgment entered against him, that judgment is a lien and will attach to his interest in any real property he owns.

The strongest way to hold title, available only to married couples, is the tenancy by the entirety. Like the joint tenancy, the tenancy by the entirety has the attribute of survivorship. Meaning, when one tenant dies, the surviving tenant automatically becomes the sole owner. The reason this is considered to be the strongest form of ownership is that the claims of one tenant’s creditors do not attach to the real property owned by the tenancy by the entirety. The one exception is if the creditor is the Internal Revenue Service.

After Windsor, same sex couples who now own real property as joint tenants, and who marry, should consider re-titling their property as tenants by the entirety.  Re-titling is a relatively simple matter. All that is involved is to prepare and record a new deed. Deeds to modify the tenancy are exempt from transfer and recordation taxes in all three local jurisdictions.  Re-titling will allow married same sex couples to enjoy the protections against creditors that the tenancy by the entirety provides? Unless estate planning dictates otherwise, tenants in common should also consider re-titling their property into a tenancy by the entirety.”  Until states recognize same sex marriages, transfer and recordation taxes between “spouses” will need to be factored into any re-titling decision.

Since the Windsor case, was itself an estate tax case, it did resolve the issues of the disparate treatment of same sex couples for state and federal estate and gift tax purposes. Since many other provisions of the federal estate and gift tax statutes now cannot apply the traditional definition of marriage and spouse this decision will have significant impact on same sex couple estate plans as well.  It would appear that since federal estate and gift tax laws can no longer use the traditional definition of a marriage or spouse, they will look to each state’s definition for guidance. But this of course can always be supplanted by additional federal legislation and accompanying regulation.

Additional questions arise when same-sex couples residing in Maryland or the District own property in a state that has not yet legalized same-sex marriage: Can or should that couple re-title their second home or investment property? What happens when one partner dies? Which state’s inheritance laws apply?

The answers depend on the state where the property is located. For example, in states which currently recognize civil unions, but not gay marriages, same-sex couples can hold real property as tenants by the entirety, but in order to re-title property already owned, the law requires that all lenders consent to such change.  For example, in Delaware,  clients with second homes have not experienced any problems obtaining lender consents. However,  in Virginia, which does not recognize same-sex marriages, civil unions or domestic partnerships, a joint tenancy with rights of survivorship remains the strongest form of ownership available.

At the federal level, the Garn-St. Germain Act provides that real property transfers between spouses are exempt from the “due-on-sale” clauses contained in virtually all mortgages. It appears that when a same-sex couple resides in a state where gay marriage is legal, transfers between those partners will also be exempt. But what about when that same couple seeks to transfer property located in a state that does not recognize their marriage? Will they be subject to the onerous due-on-sale clause that permits a lender to declare the loan to be in default and accelerate the entire unpaid principal balance? The recent Windsor decision would appear to leave this as an open question. The penultimate sentence on the majority opinion states that “This opinion and its holding are confined to those lawful marriages,” i.e., marriages which are already lawful in the 12 states making same sex marriages lawful.

These issues are far from clear. As with most radically new laws, it will take many years for the regulations and subsequent court cases to clarify just how the new laws will apply to the various real world scenarios impacted.  Regulators and jurists should use this opportunity to re-think whether marital status should be a factor at all when determining federal and or state private property rights.  If all persons were treated equally under both state and federal laws regardless of their sex or marital status, cases like Windsor would never be necessary. Perhaps striking of Section 3 of DOMA is a good first step toward a gender and marital neutral world.

* This article was previously published in the August 2013 issue of Title News, the National publication of the American Land Title Association (ALTA).

The False Claims Act (FCA), originally conceived by Abraham Lincoln during the Civil War, has been an effective tool for the Government to recover funds fraudulently taken from all types of government programs from national security to Medicare for over a century and a half.  But like all statutes, the FCA has its limitations, including time.  Until recently, it was believed that with little exception fraudulently taken taxpayer funds could be recovered only for a period of six years prior to the filing of a complaint.  31 U.S.C. § 3731(b).

Enter into the FCA arena a little used or known law from the 1940s, the Wartime Suspension of Limitations Act (the “WSLA”). The WSLA tolls the statute of limitations in cases of fraud committed during wartime against the Government “until five years after the termination of hostilities as proclaimed by the President or by a concurrent resolution of Congress.” 18 U.S.C. § 3287.  Several courts, including the United States Court of Appeals for the Fourth Circuit, have held that the wars in Iraq and Afghanistan triggered the WSLA such that FCA claims have been tolled since 2001.[i]  Additionally, there does not appear to be limitations to the type of FCA fraud at issue.  As one Court held in June, the WSLA is not limited to “war frauds”, i.e. “frauds related to the administration of the war” but applies to all types of FCA cases, including fraud against medical programs like Medicare and Medicaid.[ii]

The application of the WSLA to FCA cases is undergoing an evolutionary process, and courts have much more work to do on the proper application of the WSLA to the FCA’s statute of limitations as litigants test its limits.  At the very least, these recent decisions demonstrate that claims long thought to have been extinct can be potentially resurrected and that existing FCA claims can reach fraud that occurred twelve years ago in some cases.

Many employers and certainly many employees may be shocked to learn that “Paruresis,” commonly known as “shy bladder syndrome” or the inability to urinate with others present, qualifies as a disability under the Americans with Disabilities Act Amendments Act of 2008 (“ADAAA”).  Although the subject is somewhat comical at first blush, it is crucial that employers and employees know that the protections afforded employees are broader than ever.  This was not always so; especially for shy bladder syndrome.

Last year, the United States District Court for the Western District of Virginia granted summary judgment (i.e., ending the case) for the employer in Linkous v. CraftMaster Mfg., Inc.,[1] a shy bladder disability discrimination case.  There, the plaintiff was terminated after he failed two drug tests.  The first test appeared to the testing company to have been suspiciously altered.  Plaintiff was asked to submit to a second test, in which he would be observed.  Plaintiff then failed to provide an observed urine sample, and was thereafter terminated.  Plaintiff alleged that he was unable to urinate because he suffered from paruresis, thus preventing him from urinating if someone was watching.  The Court held that Plaintiff was not disabled under the version of the Americans with Disabilities Act (“ADA”) prior to its 2008 amendments because the Plaintiff failed to establish that his impairment substantially limited his ability to urinate at work or in the community.  In addition, the impairment appeared to be “sporadic,” which by definition cannot qualify as a substantial limitation under the ADA.

Now under the more expansive ADAAA, however, even some temporary ailments or those having a small effect on a person’s daily life are valid grounds for claiming employment discrimination. On this topic, the Equal Employment Opportunity Commission (“EEOC”) recently issued an opinion letter commenting that shy bladder syndrome can form the basis for an ADA claim.  In the letter, the EEOC says that under the ADAAA and its implementing regulations Paruresis now qualifies as a disability by including bladder and brain functions as major life activities, by lowering the standard for establishing that an impairment “substantially limits” a major life activity, and by focusing the determination of whether an individual is “regarded as” having a disability on how the individual has been treated because of an impairment, instead of on what the employer may have believed about impairment.

What does this mean going forward?

The Definition of Disability Has Not Changed

Now, as always, the ADAAA defines a disability as 1) a physical or mental impairment that substantially limits one or more major life activities; or 2) a record of a physical or mental impairment that substantially limited a major life activity; or 3) when a covered entity takes an action prohibited by the ADAAA because of an actual or perceived impairment that is not both transitory and minor.[2]

Major Life Activities Now Include Major Bodily Functions

Under the ADAAA and the EEOC’s regulations, an individual with paruresis, for example, has a disability under the first or second definition if his or her condition substantially limits one or more major life activities.[3]  As a result of the expansion of coverage provided by the ADAAA, major life activities include major bodily functions, such as bladder and brain functions, and functions of the neurological and genitourinary systems.[4]

“Substantially Limits” is No Longer as Demanding a Standard

Both the statute and the amended regulations explicitly state that “substantially limits” shall be construed broadly in favor of expansive coverage.[5]  Thus, the term now requires a lower degree of limitation than ever before – indeed, an impairment does not need to prevent or severely or significantly restrict a major life activity to be considered “substantially limiting.”[6]

Moreover, whether an impairment substantially limits a major life activity must now be made without regard to the ameliorative effects of mitigating measures.[7]  So, an individual’s paruresis substantially limits a major life activity if it would do so in the absence of treatment, including cognitive-behavioral therapy and/or medication.

The statute and regulations also state that an impairment that is episodic or in remission is a disability if it would substantially limit a major life activity when active.[8]  Therefore, whether an individual’s shy bladder substantially limits a major life activity is based on the limitations imposed by the condition when its symptoms are present.

It is Easier for Individuals to Establish Coverage Under the “Regarded As” Definition of “Disability”

Under the ADAAA and the EEOC’s regulations, an employer “regards” an individual as having a disability if it takes an action prohibited by the ADA based on an individual’s impairment, or on an impairment that the covered entity believes the individual has, unless the impairment is both transitory and minor.[9]  Under the ADAAA, the focus for establishing coverage is on how a person has been treated because of an impairment, rather than on what an employer may have believed about the nature of the impairment.[10]  Paruresis is not a transitory impairment, so if an employer takes an adverse action against an individual because of paruresis, whether the condition is real or perceived, the individual probably will be “regarded as” having a disability.

At bottom, these are huge changes for employers and employees.  With change comes uncertainty.  It is imperative that both employers and employees understand that because the law is evolving they should seek legal advice if they are unsure about where they stand in relation to the ADAAA.

[1] 2012 WL 2905598 (W.D. Va. July 16, 2012)

[2] 42 U.S.C. § 12102(1); 29 C.F.R. § 1630.2(g)(1)

[3] 42 U.S.C. § 12102(1)(A), (B); 29 C.F.R. § 1630.2(g)(1)(i), (ii).

[4] 42 U.S.C. § 12102(2)(B); 29 C.F.R. § 1630.2(i)(1)(ii).

[5] 42 U.S.C. § 12102(4)(A); 29 C.F.R. § 1630.2(j)(1)(i).

[6] ADA Amendments Act of 2008, Pub. L. No. 110-325, § 2(b)(4), (6), 122 Stat. 3553 (2008); 29 C.F.R. § 1630.2(j)(1)(ii), (iv)–(v).

[7] 42 U.S.C. § 12102(4)(E); 29 C.F.R. § 1630.2(j)(1)(vi).

[8] 42 U.S.C. § 12102(4)(D); 29 C.F.R. § 1630.2(j)(1)(vii).

[9] 42 U.S.C. § 12102(3); 29 C.F.R. § 1630.2(l).

[10] 29 C.F.R. § 1630.2(j)(1)(iii).