ke kumu Spring/Summer 2023

ke kumu

Ho‘okupu for 100

By: Trever K. Asam tasam@cades.com

Cades Schutte’s Hoʻokupu for 100 was a year-long celebration of service to Hawai‘i. Over 70 Cades Schutte attorneys and staff participated throughout the year by performing over 500 hours of community service through beach clean-ups, work days at nonprofits, and events such as the Heart Walk, the Walk to End Alzheimer’s, and the Humane Society Pet Walk. Attorneys further provided pro bono services through Legal Lines and by staffing the Access to Justice room. These attorneys and staff showed our firm’s strong commitment to our community.

These service projects also brought us closer to our clients. At Kākoʻo ʻŌiwi, we worked to battle invasive species in the lo‘i, then enjoyed food from the imu while we learned about the history of the organization and its work to restore food production in Heʻeia. At Puʻuhonua O Waiʻanae, we assisted residents and learned more about their goals to construct a village for their community. We continue to be in touch with the leaders of Puʻuhonua O Waiʻanae and have worked on a pro bono basis to assist them with construction and development of the village.

We are proud to continue our work with these and other organizations and look forward to another 100 years of service.

HO‘OMANAWANUI

While this Hawaiian word is generally used to refer to patience, it also has related meanings of steadfastness, fortitude, courage, and perseverance. As we enter a post-pandemic world, these qualities are ever more important in navigating the many changes we face at work and at home. In this issue of ke kumu, we explore some of the recent changes to laws involving employee benefits and small business loans, introduce legal issues our clients should be wary of concerning their website, speak to the current Hawaii State Bar Association President Rhonda L. Griswold regarding her leadership and how she has overcome challenges in her career, and highlight some ways Cades Schutte seeks to give back in the community. We have seen that ho‘omanawanui is key to navigating the status quo.

the Cover

Patricia J. McHenry was instrumental in the creation of this newsletter, acting as lead proofreader and editor.

Christopher T. Harrison assisted with drafting the forward of this issue.

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If you have questions, or would like to see an article on a particular area of law, please let us know! Submit

Mahalo nui loa

A COMMUNITY EFFORT

Trever is a partner representing clients in federal and state tax matters. Trever is one of Hawai‘i’s leading attorneys for nonprofit and taxexempt organizations and also serves as the firm’s pro bono coordinator.

(808) 521-9274

tasam@cades.com

Cal is the Chair of the Real Estate Disputes Group and advises clients on real estate and land use controversies, challenges to land use approvals and environmental review, and disputes with governmental agencies.

(808) 521-9220

cchipchase@cades.com

Rhonda is Chair of the Trusts and Estates Department and previously served on the firm’s Management Committee for six years. Throughout her career of nearly 40 years, she has been a consistent informal and formal mentor to numerous associates and partners, and has also served on the firm’s Attorney Development & Training Committee.

(808) 544-3871 rgriswold@cades.com

Martin is a registered patent attorney, one of the few patent attorneys in Hawai‘i. He practices patent, trademark, copyright, trade secret, right of publicity, computer, licensing, internet, and entertainment law.

(808) 544-3835 mhsia@cades.com

Cheryl’s experience in public accounting and employee benefits provides her with invaluable insight into her clients’ legal issues. She advises and counsels clients in Employee Benefits, ERISA, and Executive Compensation, including the design, establishment, maintenance, and compliance of qualified retirement plans.

(808) 521-9338 citagaki@cades.com

Andrea practices in the areas of finance and real estate. She represents financial institutions in commercial loan transactions, and regularly advises lenders in consumer finance compliance matters. She also works on commercial real estate transactions, commercial leasing, and the nuances of Hawai‘i real estate law.

(808) 521-9350

aushijima@cades.com

Roger has more than 48 years of experience concentrating in pension plans, employee benefits, and closely-held business organizations. He represents clients in various industries on qualified and nonqualified retirement plans, and welfare benefit plans.

(808) 521-9268

rfonseca@cades.com

Keola is a member of the firm’s Finance, Real Estate, and Corporate Department based out of the firm’s Kahului office on Maui. He leverages over fifteen years of transactional and litigation experience practicing in Hawai‘i, California, and NewYork.

(808) 521-9292

kwhittaker@cades.com

As an associate in the Finance and Real Estate Department, Davis practices in the areas of real estate development, purchase and sale transactions, commercial leasing, and financing matters. He graduated as class valedictorian from the William S. Richardson School of Law and served on the Editorial Board of the University of Hawai‘i Law Review.

(808) 521-9354

dprendergast@cades.com

Emily is an associate in the Finance and Real Estate Department. Her background includes training in dispute resolution, which she leverages in her representations of complex transactional matters.

(808) 521-9325

etanaka@cades.com

Martin E. Hsia Partner

Cheryl L.M.T. Itagaki Partner

Calvert G. Chipchase Partner

Andrea K. Ushijima Partner

Roger W. Fonseca Senior Counsel

W. Davis Prendergast Associate

Keola R. Whittaker Of Counsel

Emily K. Tanaka Associate

Rhonda L. Griswold Partner

We invite you to take a moment and learn about the team who contributed to this issue.

Trever K. Asam Partner

SECURE Act 2.0 An Update on Key Provisions

Many Washington-watchers were predicting that no tax legislation could pass a bitterly divided Congress in the 2022 election year, but against all odds, a pension bill called “SECURE Act 2.0” (a follow-up to the SECURE Act passed a couple of years ago) was inserted into the Consolidated Appropriations Act—one of those “must-pass” pieces of legislation—during the last few days of December. It is mostly good news, except for an unfortunate “revenue-raiser” (the catch-up rule described below) added to make the bill “revenue neutral” and thus more palatable to legislators. The addition demonstrates the usual Congressional disregard of administrative burden. The following is a brief description of those SECURE Act 2.0 provisions most relevant to Cades Schutte clients, listed in order of their effective dates:

1. Provisions effective in 2023:

• The age at which a required minimum distribution (“RMD”) must be taken out of a retirement plan or IRA is increased from 72 to 73 on January 1, 2023, and will increase to 75 on January 1, 2033. (The odd timing delay of that second increase is another legislative trick since costs more than ten years in the future do not have to be scored as a “revenue-loser” in legislation.)

• The excise tax on underpayment of an RMD is decreased from 50% to 25% (and further decreased to 10% if cured quickly). The value of these changes is questionable because, in the past, the IRS has tended to waive all tax upon presentation of a “good excuse,” and lower taxes may make the IRS less inclined to waive.

• New and enhanced tax credits are given for the cost of starting up new retirement plans for small employers.

• Plans may—but are not required to—permit employees to treat matching and fully-vested profit-sharing contributions as Roth (i.e., currently taxable but tax-free along with earnings at distribution).

• Employers are granted latitude to decide whether to recoup accidental overpayments of pension distributions.

• The $100,000 annual charitable contribution limit for IRAs will now be indexed to inflation, and an additional one-time $50,000 contribution may be made in any year.

• An employer may accept a participant’s “selfcertification” that he or she has a hardship

Roger W. Fonseca rfonseca@cades.com

Cheryl L.M.T. Itagaki citagaki@cades.com

qualifying for a hardship plan withdrawal, simplifying the administrator’s duty of inquiry. (Under current law, a participant may self-certify that a hardship withdrawal is not in excess of the amount required to satisfy the need but may not self-certify as to the existence of the hardship itself.)

• Employers may offer de minimis financial incentives, such as small gift cards, to encourage participation in their retirement plans so long as such incentives are not paid for with plan assets.

• SECURE Act 1.0 allowed for early distributions from plans for qualified births or adoptions. SECURE Act 2.0 sets the repayment period for such distributions at three years from the date the distributions were received.

• There is now an exception to the 10% penalty for distributions before age 59½ for individuals who are terminally ill.

• Effective December 29, 2023, a retirement plan service provider may automatically transfer the balance in a participant’s default IRA (from a former employer’s plan) into the participant’s new employer’s retirement plan unless the participant elects otherwise.

2. Provisions effective in 2024:

• Plans may—but are not required to—make 401(k) matching contributions for participants who make certain student loan repayments without negatively affecting discrimination testing.

• A participant may take a plan distribution of up to $1,000 per year to meet a personal or family emergency without incurring the 10% penalty for distributions before age 59½ and may repay such distribution within three years and get back taxes paid.

• Similarly, a participant may take a plan distribution of up to the lesser of $10,000 or 50% of his or her vested account balance per year for individual cases of domestic abuse without

incurring the 10% penalty for distributions before age 59½ and may repay such distribution within three years and get back taxes paid.

• The cash-out limit will be increased from $5,000 to $7,000, and such amount may be rolled into an IRA unless the participant objects.

• A beneficiary of a Section 529 college savings account will be able to roll up to $35,000 over his or her lifetime into a Roth IRA without tax or penalty.

• SECURE Act 1.0 reduced the period over which many beneficiaries may take plan distributions. SECURE Act 2.0 will now lengthen this period for some participants by permitting an older surviving spouse to be treated as the deceased participant for the purpose of calculating his or her RMD.

• SECURE Act 2.0 made permanent an IRS rule that 401(k) plans that use automatic enrollment or automatic deferral escalation (techniques which have been shown to increase deferrals, but which are complicated to administer and thus prone to mistakes) will be able to “self-correct” errors without penalty within 9½ months after the end of the plan year in which the errors occurred.

• 403(b) plan hardship withdrawal rules will be conformed to mirror those of 401(k) plans.

• And here’s the “revenue-raiser” stuck into the bill: Starting in 2024, a participant whose annual compensation is over $145,000 (indexed) who elects to make catch-up deferrals (deferrals by age 50+ employees in excess of the usual 401(k) limits) will have those deferrals treated as Roth contributions (i.e., currently taxable). This will force those plans that do not otherwise include Roth provisions to add them if they have employees earning over the limit. There’s no policy reason for this change; it just raises money for the IRS.

• Roth accounts in retirement plans will be no longer required to make pre-death distributions, mirroring Roth IRA accounts.

• The IRS has been directed to expand the EPCRS self-correction program for plan errors by the end of 2024.

• Employers may offer non-highly compensated participants “emergency savings accounts” tied to retirement plans subject to contribution and withdrawal limits.

• Retroactive plan amendments for a prior plan year will be allowed if they increase participant benefits so long as any such plan amendment are adopted by the employer’s tax return deadline.

• The Department of Labor (“DOL”) has been instructed to create a national online database for former participants to search for plan administrator contact information. Plans will be required to report certain information on former employees to the DOL.

3. Provisions effective in 2025:

• If an employer with over ten employees which has been in business for more than three years adopts a new 401(k) plan, that plan must have auto-enrollment of at least 3% of pay and autoescalation up to at least 10% (but not more than 15%) of pay. The plan must also provide that employees who do not want such contributions may take such contributions out within 90 days.

• 401(k) plans must allow long-term part-time employees who have completed at least 500 hours of service in each of two consecutive years (reduced from three consecutive years) to make elective deferrals under the plan even if they are otherwise excluded as part-timers or by a class exclusion. This will not affect discrimination testing but it will still entail an administrative burden. This rule is being extended to apply to 403(b) plans.

• The catch-up contribution limits are being increased to the greater of $10,000 or 50% of a participant’s regular catch-up contribution for individuals who are age 60 to age 63. This odd provision was added in response to lobbying by airline pilots.

4. Provisions effective after 2025:

• Starting in 2027, the Saver’s Tax Credit against taxes otherwise owed for individuals who make contributions to IRAs or retirement plans shall be replaced with a federal matching contribution that will be deposited into an individual’s IRA or retirement plan account. The match is 50% of IRA or retirement plan contributions up to $2,000 per individual. The match phases out at certain income thresholds.

• Starting in 2028, S-corporation shareholders may defer up to 10% of their gain from the sale of stock to an ESOP.

• Starting in 2033, as described above, the RMD date will be increased from age 73 to age 75.

If you have any questions about these changes or how they will affect your plan(s), please contact our ERISA attorneys Cheryl L.M.T. Itagaki and Roger W. Fonseca. All plans have until the end of their 2025 plan years to incorporate the SECURE Act 2.0 changes (though you must follow the new rules as soon as they are effective).

Cheryl L.M.T. Itagaki (Partner) uses her experience in public accounting and employee benefits, providing her with invaluable insight into her clients’ legal issues.

Roger W. Fonseca (Senior Counsel) has more than 48 years of experience concentrating in pension plans, employee benefits, and closely-held business organizations.

Top Ten Ways Organizations are Being Blindsided by their Websites and Social Media

A Practitioner’s Experiences and Perspectives

By: Martin E. Hsia mhsia@cades.com

Websites and social media are now mission-critical for every business. Section 230 of the Communications Decency Act immunized most speech over the Internet from libel and slander liabilities. So what could go wrong?

In the author’s experience: plenty.

Further, you could be blindsided by a vendor hired to create your website or handle your social media. If that vendor disclaimed all warranties, is in a foreign country, or is not a strong business entity, if a problem arises, you may not have any recourse to the vendor. Whether insurance would then cover the potential liability would depend on the specific type of claim and your specific insurance policy.

1Americans With Disabilities Act

There are attorneys in California and elsewhere who search for websites that do not comply with Web Content Accessibility Guidelines 2.1 (“WCAG 2.1”), which sets forth guidelines that allow visually impaired persons to use a screen reader to access a website’s content. California has the Unruh Civil Rights Act, which allows for recovery of statutory damages of a minimum of $4,000, plus attorneys’ fees. Violations of the federal Americans with Disabilities Act (“ADA”) are considered to be violations of the California Unruh Civil Rights Act. Thus, California attorneys are demanding that companies pay thousands of dollars to settle ADA claims threatened by their visually impaired clients for failure to provide reasonable accommodations on websites that do not comply with WCAG 2.1. Attorneys in other jurisdictions assert similar claims based on civil rights laws in those other jurisdictions, sometimes seeking class action status to represent all visually impaired persons in those other jurisdictions.

2 Unlicensed Content

A website contains content that is subject to protection by intellectual property laws, including copyright, trademark, trade secret, and right of publicity laws. If your website contains (a) photos, videos, text, or music that have not been properly licensed from the copyright owner and proper releases have not been obtained from the persons or properties depicted; (b) displays a third party’s trademark in a manner that creates confusion as to whether that third party approved your website; or (c) discloses someone else’s confidential information, you may be faced with a claim for violation of intellectual property rights. Thus, you must be sure that you maintain adequate control of the content shown on your website – do not allow a summer intern to copy a photo from the Internet and post it on your website.

Photographers can use search engines to find copies of their photographs being used without permission on websites. Motion picture studios monitor torrent files and can subpoena internet service providers to find who has been downloading movies. Search engines can find other unlicensed content on your website. If your website contains unlicensed content for which a copyright registration was already issued, then the copyright owner is entitled to recover attorneys’ fees, and “statutory damages” of up to $30,000 ($150,000 for a willful infringement). If a vendor provides content for

your website, you must be certain that the vendor will defend you if that content results in a claim for copyright infringement, trademark infringement, violation of the right of publicity, or other claims.

3 Privacy

If your website collects information from visitors who are under 13 years old, you must comply with the federal Children’s Online Privacy Protection Act. The Federal Trade Commission has published proposed regulations relating to commercial surveillance and data security. If your website collects protected health information, then you may be subject to the federal Health Insurance Portability and Accountability Act. Websites that allow credit card transactions should also comply with the Payment Card Industry Data Security Standard.

Several States (California, Colorado, Connecticut, Utah, and Virginia) have adopted laws governing the privacy of personal data. On August 24, 2022, the California Attorney General announced a settlement with Sephora for $1.2 million for violating California’s privacy law. The European Union also has adopted the General Data Protection Regulation with fines of up to 4% of annual revenue or €20 million, whichever is greater. If your website serves a substantial number of persons from these jurisdictions, then you may become subject to these privacy laws.

4

Domain Names

If you choose a domain name for your website that is confusingly similar to someone else’s trademark, then the owner of that trademark may file a lawsuit or commence a domain name arbitration against you, to take away that domain name.

5 Search Engine Optimization

If metatags and other metadata placed on your website to increase search rankings contain competitors’ trademarks, you may face a claim for trademark infringement. You may not know whether this has been done if you hired a contractor or consultant to increase your search engine rankings, because metatags and metadata, by definition, are not visible when viewing a website.

6 Reviews and Influencers

The Federal Trade Commission has published guidance documents for platforms and marketers. If your website allows reviews, those reviews must identify incentives and material connections between sellers and reviewers (disclose whether a reviewer or influencer received the reviewed item for free, for example), treat positive and negative reviews equally, and have effective reporting mechanisms for consumers and businesses to use.

7 Patent Infringement

Patents have been issued for various technical aspects of how Internet web pages operate. Amazon’s one click shopping was once patented (the patent was later invalidated after very expensive litigation). A claim may be asserted that your website infringes on one of these Internet web page patents. If such a claim is made, it must be evaluated very carefully by a registered patent attorney. Relying on Internet statements that someone is a “patent troll” is NOT a substitute for a careful evaluation. With rare exceptions, only a registered patent attorney would be able to properly evaluate a claim of patent infringement and advise of the available options for addressing it.

8 Hacking and Cybersecurity

The software used to create your website could create a vulnerability for hacking. One of the most important hacks ever of websites was the “Panama Papers” in which a law firm’s website was hacked and financial information of the rich and famous using tax havens was extracted and published, leading to worldwide repercussions. Several reports indicate that the hacker gained access through the Revolution Slider plug-in for WordPress, a content management system that creates web pages used on many websites. Your website is an attack surface that can be exploited by hackers to gain access to all your other systems.

9 Content Issues

If you have customers in other countries, your website may violate laws in those other countries that govern content. The First Amendment only applies to the

United States. Providing information or offering goods or services in other countries through your website or social media may subject you to the laws of those other countries. For example, France requires that all offers, terms of service, invoices, receipts, and other documents relating to trade be in French. All websites and social media pages of organizations carrying out commercial activities in Quebec must be in both French and English. The display or sale of items bearing symbols of the Nazi party is banned by the laws of several countries around the world. Depictions of the Prophet Muhammad may be very offensive or illegal in certain Muslim countries. Laws of various countries also forbid criticism of the government or of various persons.

10

Webmaster or Social Media Contact Leaves

Having an employee or independent contractor create a website or serve as your social media contact can create major problems if the webmaster or social media contact leaves. The webmaster may have registered the domain name in his own personal name and refuse to surrender it. If the webmaster created the website as an independent contractor, he or she owns the copyright rights to the website unless the copyright rights were transferred to you in writing. The webmaster may keep all the data that came through your website. The webmaster may charge a substantial amount of money for translating your data from a proprietary format used on your website to an industry-standard or open format that a new webmaster can use. The webmaster could decide to sabotage your website if terminated. The social media contact may have registered your organization’s name on social media websites under his or her personal name, and take all the followers when he or she leaves. Many other problems could arise. You must be sure that you can continue to use your website without interruption even if your webmaster is terminated, and that you will not be damaged if your social media contact leaves. * * *

The author hopes that this top ten list serves as a warning that helps your organization avoid being victimized.

Martin E. Hsia (Partner) practices patents, trademarks, copyrights, trade secrets, right of publicity, computer, licensing, internet, and entertainment law.

Partner Rhonda Griswold is the Chair of the Trusts and Estates Department at Cades Schutte. She is also the 2023 President of the Hawaii State Bar Association (HSBA), and the fourth Cades Schutte partner to serve in this capacity. Edward Kemper interviewed Rhonda at the beginning of this year to learn more about her, and we proudly share excerpts of that interview.

The complete version of this article was first published in the January 2023 issue of the Hawaii Bar Journal

INTERVIEW WITH THE 2023 HSBA PRESIDENT RHONDA GRISWOLD

Please provide your background.

I have been married to Jeff Griswold for 41 years and we have two boys, Wes (age 34) and Luke (age 28). Jeff is an HSBA member who has been trying to retire for several years. Wes is a Boston University graduate and computer engineer who lives in Portland, Oregon, with his journalist wife, Kaitlin. Luke is a University of California, San Diego graduate and an environmental engineer living in the Bay area. Both are also ‘Iolani graduates and we are very proud of them.

I followed Jeff to Hawai‘i in 1980. We had met in Washington, D.C. where I worked for a congressman and Jeff had just graduated from Georgetown Law School. He was a JAG officer stationed at Fort Shafter and, after trying a long-distance relationship in the days before iPhones and email, I took a leap of faith and came to Hawai‘i. It was one of the best decisions of my life.

And, of course, let us know your educational history.

I attended Shasta College, a community college near my hometown and then went to California State University, Chico, where I graduated with a double major in English and Social Science. Chico State had a real reputation as a sorority/fraternity party school but I worked my way through school so no sororities for me (though I did party a bit)! I planned to be a high school teacher and did one semester of student teaching. I was a 21-year-old teaching juniors and seniors who were 17 and 18 years old. I will be the first to admit that it was difficult for me to control the classroom and it gave me a tremendous respect for teachers, a respect that I have to this day. In one of my favorite West

Above: Rhonda with sons Wes and Luke, and husband Jeff.

Wing episodes, one of the characters comments that teachers should live in castles and make six-figure incomes. I totally agree.

In any event, my college counselor encouraged me to go to law school, but I did not know a single lawyer and had no clue as to what lawyers actually do. And I was tired of school. The same college counselor then arranged an internship for me in Washington, D.C. with our local Congressman, Harold T. “Bizz” Johnson, who was Chair of the Public Works & Transportation Committee. Thus, I moved to a city where everyone seemed to be a lawyer (and met the lawyer that I would marry).

After moving to Hawai‘i, I was lucky enough to get accepted at the William S. Richardson School of Law (which had not yet been named) and am a proud graduate of the Class of 1984.

After law school describe your legal career and experience.

I joined Cades Schutte in 1984. I was an associate in the litigation department, working primarily in commercial lender liability cases. I made partner in 1990. But, while I had achieved what I had worked so hard towards, I began to feel like a failure. I did not feel like I was a good mother (Wes was three or four at the time), or a good wife, or a good attorney. I would cry every morning driving over the Pali and every evening driving home. It was debilitating. My husband was very supportive and just wanted me to be happy. But I was overwhelmed with the practice of law and my family responsibilities.

So I sought help. I saw a psychologist who diagnosed me with depression and gave me the tools that I needed to get my life back. First, I reduced my work hours and negotiated a part-time arrangement with my firm (and thereafter worked part-time for about five years while my children were young). Second, I changed my practice area from commercial litigation to trusts and estates. I had handled a few trust litigation matters while in the litigation department but returned to law school and took the Gift & Estate Tax course so that I could better learn the estate planning area. In estate planning, I found work that was meaningful to me. That is not to say that trusts and estates work is any easier than litigation. In many respects, it is not. We deal with difficult family situations and complex and changing tax laws. But I found that estate planning suited me better and gave me more job satisfaction. Finally, I learned to make exercise a

priority for my mental well-being. While I had been a runner since college, I found less time to work out as a busy working mother, but I learned that daily exercise was critical to my well-being.

I was not sure if I should share this deeply personal information but have decided to do so for two reasons. First and foremost, if it helps even one person who is feeling overwhelmed by this profession to seek help, then it is worth it. Second, I want employers and fellow attorneys to be sensitive to the mental health issues that affect our profession and encourage them to provide support and options to those who may be experiencing depression, burn out, or hopelessness. In 1991 I was ready to quit the profession but because

my mentors at Cades Schutte stepped up to the plate for me, I was able to find a meaningful and sustainable practice area and believe that I have ultimately been a productive partner for our firm and in a position to help others. I don’t know if any of my partners know how fragile I felt at the time (I don’t think my husband even knew how fragile I felt), but I am grateful.

The Bar Directory lists past presidents of the HSBA who are current and former Cades Schutte members. How many were there?

I was privileged to have worked with all three Cades partners who served as HSBA presidents. As a law student, I took professional responsibility from Fred Schutte and then worked with him on analyzing an ethical issue after I first joined the firm. As a young litigator, I worked with Bill Fleming on a case on Maui and later I worked with Bill on his estate plan. And I had several cases with Jeff Portnoy as a litigation associate. I also helped Jeff with his “American Idol” fundraiser during his term as HSBA president. Jeff was and is still a force to be reckoned with in any arena.

What do you consider to be the major issues facing the bar association this coming year, and what plans do you have regarding those issues?

These are my personal views but I believe there is a concern about attrition at all levels of practice. I understand that law school enrollment nationwide (including at the William S. Richardson School of Law) has decreased, which means that there are fewer young lawyers in the pipeline. I am concerned about young and mid-career attorneys becoming overwhelmed by the practice of law for the reasons I discussed above and leaving the profession. And we always face the problem of losing talented lawyers to

the mainland firms where they are paid so much more and the cost of living is generally less. Plus we have the natural aging of lawyers (including myself) who need to come up with succession plans and gracefully transition out of the practice (easier said than done).

We also need to continue the work of promoting and achieving diversity amongst our members. The legal profession and the judiciary should reflect the diversity of the people we are serving, whether it be race, gender, or sex. That is not the work of the Committee on Diversity, Equality, and the Law alone. It is up to each and every one of us and our firms to support those who have been historically underrepresented in our profession. This can include encouraging high school and college students in underrepresented groups to pursue law school, providing scholarships and internships, providing job opportunities, and mentoring.

And, finally, I am always concerned about access to justice. While Volunteer Legal Services of Hawai‘i and Legal Aid Society of Hawai‘i do an admirable job addressing the legal needs of low-income individuals, there are a vast number of those in the middle-class who cannot afford our services. Many of us do “lowbono” work for those who cannot afford our standard rates but I think we need to explore ways to provide more economical services.

Are there any other thoughts that you would like to share?

Despite my discussion of my personal mental health issues, my grandmother always called me the “family optimist.” And I am. I am a glass-half-full optimist. I want to see the best in people. I want the HSBA to provide resources and tools to help our members be the best versions of themselves.

I am a true believer in the power of kindness. One of my favorite expressions (from a sign at Kailua Intermediate School) is “Spread Kindness Like Confetti.” And while we are often advocates and certainly need to be tough in the positions that we take, we can still be kind, even to our adversaries. It is truly a privilege to serve as HSBA President. I will do my best.

Rhonda L. Griswold (Partner) is Chair of the Trusts and Estates Department. For nearly forty years, she has concentrated her practice in estate and trust planning, including using a variety of planning devices to reduce estate and gift taxes.

Above: Rhonda with Justice Ruth Bader Ginsburg

New federal rule requires entities making more than 100 loans to small businesses per year to collect and report data to the federal government

Emily K. Tanaka etanaka@cades.com

Andrea K. Ushijima aushijima@cades.com

On March 30, 2023, the Consumer Financial Protection Bureau (“CFPB”) finalized the small business lending rule to increase transparency in small business lending and help enforce fair lending laws. The rule implements the small business lending data collection requirements set forth in Section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Background

The federal Equal Credit Opportunity Act (“ECOA”) prohibits discrimination in credit transactions on the basis of race, color, religion, national origin, sex, marital status, age, and other prohibited bases. ECOA applies not only to consumer residential loans, but also to commercial loans.

For many years, banks and other financial institutions have been required to report demographic and loan data for consumer residential loans to the federal government pursuant to the federal Home Mortgage Disclosure Act (“HMDA”) and its implementing Regulation C. The aggregated data is analyzed by regulators to determine whether patterns of housing finance discrimination exist in our communities.

Section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act amended ECOA to also require small business lenders to collect and report certain business credit data to the CFPB. Section 1071 is viewed as the small business equivalent to HMDA with the data to be used by regulators to determine whether patterns of discrimination exist in small business lending.

Who it Applies To

The small business lending rule applies to both traditional financial institutions and other entities making small business loans including for-profit companies, trusts, non-profits, and

other entities. Entities making more than 100 loans per year to small businesses for two consecutive years are considered covered entities triggering the obligation to report loan and applicant data to the CFPB.

A “Small business” is a business that is considered a “small business concern” under Small Business Administration (“SBA”) regulations, or alternatively, a business with up to $5 million in gross annual revenue in its preceding fiscal year.

What Data Will Be Reported

Collected information and data will include the loan amount, interest rate, loan fees, reasons for denial, borrower’s gross annual revenue, and demographic information, such as ethnicity, race, and sex of at least one principal owner. If the potential borrower does not self-report the demographic information, the lender reports the failure or refusal to provide such information. Unlike HMDA, small business lenders are not required or permitted to report demographic data based on visual observation, surname, or any other basis.

Generally, covered lenders must report data to the CFPB annually by June 1 of the year following the calendar year in which it collected the data. Lenders will be required to retain evidence of compliance, including the data registers, for at least three years. In addition, the lender will

be required to provide identifying information about itself as part of the submission process. The lender will be required to make this data available to the public on its website, or otherwise available on request.

What Disclosures are Required

Covered lenders must provide a nondiscrimination notice to potential borrowers. Lenders must inform small business applicants that it is not permitted to discriminate on the basis of the applicant’s responses about its minorityowned, women-owned, and LGBTQI+-owned business status or the principal owners’ ethnicity, race, and sex.

Trade Credit, Incidental Credit, and Loans to Non-Profits Are Not Counted Toward the 100 Loan Threshold

Entities who extend “trade credit” or “incidental credit” to small businesses need not count such transactions in the 100-loan per year threshold. “Trade credit” means a financing arrangement in which a business acquires goods or services from another without making immediate payment in full to the supplier/provider.

“Incidental credit” refers to extensions of credit that (i) are not made pursuant to the terms of

a credit card account; (ii) are not subject to a finance charge; and (iii) are not payable by agreement in more than four installments. For example, if a service provider, such as a hospital, doctor, lawyer, or merchant, allows a client or customer to defer payment of a bill with four payment installments, this deferral of debt is considered incidental credit and excepted from compliance with the procedural requirements under the small business lending rule. The CFPB excluded incidental credit because these “lenders” might not have intended to extend credit and might not have the means to manage the compliance burdens under the rule.

Loans to non-profit organizations are not covered because non-profit organizations are not considered small businesses for purposes of the rule.

Effective Date

The provisions of the small business lending rule are effective 90 days after publication in the Federal Register, and therefore go into effect on June 28, 2023. However, the timeline of compliance is set up in tiers, depending on the number of covered originations that the lender had in the previous year. Lenders that originate at least 2,500 small business loans annually must collect data starting October 1, 2024. Lenders that originate at least 500 loans annually must collect data starting April 1, 2025. Lenders that originate at least 100 loans annually must collect data starting January 1, 2026.

This article provides a brief summary of some of the notable provisions within 12 CFR Part 1002 (Regulation B). For more information, you may wish to review the CFPB compliance aids for the small business lending rule, the final rule published by the CFPB, and Regulation B and ECOA in its entirety.

Andrea K. Ushijima (Partner) practices in the areas of finance and real estate. She represents financial institutions in commercial loan transactions and regularly advises lenders in consumer finance compliance matters.

Emily K. Tanaka (Associate) has a background which includes training in dispute resolution, which she leverages in her representations of complex transactional matters.

On March 9, 2023, Mayor

Blangiardi signed into law two bills that significantly affect properties on and near Oʻahu’s shoreline. The enacted ordinances, Ordinances 23-3 and 23-4, are the culmination of a yearlong process to increase the regulation of land within the shoreline setback and the special management area (SMA). In part, the changes to the law are intended to respond to predicted sea level rise and coastal erosion by implementing more stringent restrictions on structures and activities that may be susceptible to coastal hazards.

Shoreline Setbacks – Ordinance 23-3

Under state law and the City’s current rules, the shoreline setback line runs 40 feet inland from and parallel to the certified shoreline. The land between the shoreline setback line and the certified shoreline is known as the shoreline setback area, within which new structures and activities are generally prohibited.

Ordinance 23-3 establishes a new shoreline setback line ranging from 60 feet to 130 feet from the certified shoreline. Specifically, beginning on July 1, 2024,

the shoreline setback line will be 60 feet from the certified shoreline for lots within urban Honolulu. Lots outside of urban Honolulu will be subject to a shoreline setback line ranging from 60 feet to 130 feet based on the annual coastal erosion rate associated with the lot. Lots in areas that do not have evidence of historical erosion will be subject to a setback of 60 feet.

Once a shoreline has been certified and shoreline setback line has been established, the shoreline setback line cannot be moved farther seaward as the result of a subsequent certified shoreline survey.

Other important provisions of Ordinance 23-3 include:

• Limits on repairs to previously lawful structures located in the shoreline setback area

• Additional conditions on the granting of a shoreline setback hardship variance

• Changes to shallow lot standards

• Increases to the shoreline setback line for new shoreline lots created by a subdivision or consolidation of land

• New requirements on lot shape and size for newly-created residential lots

• A tenfold increase in civil fines for violations of the shoreline setback ordinance

Special Management Area (SMA)–Ordinance 23-4

The SMA is the land extending mauka from the certified shoreline to a boundary established by the Honolulu City Council that is further inland than the shoreline setback line. “Development” within the SMA is subject to additional limitations and regulations. Ordinance 23-4 broadens the definition of “development,” thereby expanding the range of activities requiring an SMA permit.

Importantly, development now includes the construction or reconstruction of dwelling units, of any size, that are situated on shoreline lots or lots impacted by waves, storm surges, high tides, or shoreline erosion. Only the addition of minor accessory structures and floor area to a dwelling unit are not considered development, provided such additions do not exceed 300 sq. ft. The construction or reconstruction of dwelling units that have an aggregate floor area of 7,500 sq. ft. or are part of a larger development of three or more dwelling units continue to be classified as development.

Other important provisions of Ordinance 23-4 include:

• Exemptions for the relocation of dwelling units away from the shoreline

• Additional restrictions on the use of landscaping to protect shoreline lots

• Environmental review exemptions for certain residential projects

• Guidelines discouraging the development of structures within areas that may be affected by sea level rise

• A tenfold increase in civil fines for violations of the SMA ordinance

Our experienced team can guide you in navigating Hawai‘i’s Coastal Zone Management regulations and the effects of changes to Honolulu’s shoreline setbacks and SMA ordinances. We look forward to assisting you as you seek to maximize your property’s potential.

Calvert G. Chipchase (Partner) is a recognized expert in litigation and land use. His approach balances practical considerations and zealous advocacy.

Keola R. Whittaker (Of Counsel) leverages over fifteen years of transactional and litigation experience practicing in Hawai‘i, California, and New York.

W. Davis Prendergast (Associate) practices in the areas of real estate development, purchase and sale transactions, commercial leasing, and financing matters.

Recent Wins and Developments

Outstanding Woman Lawyer Award

Rhonda Griswold received the 2023 Outstanding Woman Lawyer Award from Hawaii Women Lawyers (HWL). This award honors an individual attorney who has achieved accomplishments of significant merit that advance the mission of HWL to improve the lives and careers of women in all aspects of the legal community, influence the future of the legal profession, enhance the status of women, and promote equal opportunities for all people. The HWL Board recognized Rhonda’s many achievements throughout her distinguished career, including in her practice with Cades Schutte and in her substantial volunteer service to our community.

Preservation Honor Awards

Cades Schutte was recognized for celebrating its centennial anniversary in 2022 in the Historic Hawai‘i Foundation’s Preservation Honor Awards.

On the Board

Rhonda L. Griswold is serving as 2023 President of the Hawaii State Bar Association. See page 12 for an excerpt of her interview in the Hawaii Bar Journal.

Trisha H.S.T. Akagi was appointed as a lawyer representative (bankruptcy) for the Ninth Circuit Court of Appeals Judicial Conference

Ellen R. Ashford is serving as Co-Chair of the NAIOP Hawaii DL Steering Committee. NAIOP is the nation’s leading trade association for developers, owners, investors, asset managers, and other professionals in industrial, office, and mixed-use commercial real estate.

Outstanding Pro Bono Attorneys

Caitlin M. Moon was recognized as one of the 2022 Outstanding Pro Bono Attorneys for her work with Volunteer Legal Services Hawaii at the 2022 Pro Bono Celebration on October 27, 2022. The event was sponsored by the Hawaii Access to Justice Commission, the Hawaii State Bar Foundation, and the Hawaii Justice Foundation and Supported by the Hawaii State Bar Association.

Benchmark Litigation

Cades Schutte’s Litigation Team and Employment Law and Labor Relations Team were recognized by the 2022/2023 Benchmark Litigation Rankings.

In addition, John P. Duchemin, C. Michael Heihre, Kelly G. LaPorte, Jeffrey S. Portnoy, and David Schulmeister were named Litigation Stars and David F.E. Banks and Amanda M. Jones were named Labor and Employment Stars.

Caitlin M. Moon has been elected to the Board of Hawai‘i Nature Center (HNC) for a two-year term. HNC is a nonprofit organization that seeks to foster awareness, appreciation, understanding, and stewardship of Hawai‘i’s environment by educating children with an interactive and immersive approach.

Caitlin was also selected as a fellow for the 15th Annual Leadership Institute of the Hawaii State Bar Association (HSBA). The HSBA Leadership Institute is a competitive eight-month program designed to identify and develop leaders in various sectors of Hawai‘i’s legal community.

A guiding force for our clients as they navigate the legal universe