August 2012 Headnotes by Jessica Smith

Dallas Bar Association

HEADNOTES

Focus Corporate Counsel/Government Law

August 2012 Volume 37 Number 8

DBA IP Section Lands Dallas Patent Office by Vincent J. Allen

The United States Patent and Trademark Office (USPTO) and the Department of Commerce announced July 2 the selection of the Dallas area as the home to one of four new regional offices of the United States Patent and Trademark Office. The creation of satellite offices marks the first time in the 200-plus year history of the USPTO that it will have operations outside of the Washington, D.C. area. In selecting the sites for the satellite offices, the USPTO considered factors such as geographic diversity, economic impact, available workforce and the local intellectual property community. Dallas was a good candidate for an office to serve the South, but there were other attractive cities vying for an office as well, including Houston, Atlanta and Austin. With more than 50 metro areas under consideration nationwide, the selection process was highly competitive according to Acting U.S. Commerce Secretary Rebecca Blank. But it was Dallas’s intellectual property community that was instrumental in putting Dallas at the top of the list. A proposal in support of the selection of Dallas prepared by the DBA IP Section highlighted Dallas’s strong university and research community, talented workforce and robust business community. Emphasis was also placed on the fact that Texas is second only to California in the number of patent applications filed each year. David Kappos, the Director of the USPTO reportedly said, “The DFW area sprang off the page at me.” He knew when he read the proposal that the USPTO had to select Dallas as one of the satellite offices. Hilda Galvan, Chair of the DBA IP Section and a partner at Jones Day, reports that although the proposal in support of Dallas was a group effort, Lisa Evert, a founding partner of Hitchcock Evert, is the one who spearheaded the preparation of the proposal. Marc Hubbard, a partner at Gardere, and Wei Wei Jeang, a partner at Andrews Kurth, were also instrumental in refining the proposal and rallying community support. Max Ciccarelli, a partner at Thompson & Knight, is credited with bringing the opportunity to the attention of the IP Section after his assistant saw a post by the USPTO on Facebook inviting comments on the selection of the satellite offices. The proposal was joined by the Center for American and International Law, the Dallas Regional Chamber, Southern Methodist University, the University of Texas at Dallas and the University of Texas at Arlington. Michael Pegues, a partner at Bracewell Giuliani, reached out to various organizations and local and national political leaders to garner support. Through the efforts of the IP Sec-

tion members, local companies Research in Motion, Ericsson and MetroPCS wrote separate letters in support of the proposal, as did Dallas Mayor Mike Rawlings. Although the deadline for establishing at least three of the offices is August 2014, the USPTO has already begun developing a “concept of operations” for the Dallas office. On July 11, just nine days after the announcement of the cities selected, Secretary Blank and Director Kappos met with local officials, attorneys, university representatives and company representatives in Dallas to discuss the opening of the new office. Vikram Aiyer, Special Advisor to the Under Secretary of Commerce, says that although he cannot commit to an exact timeframe for the opening of the Dallas office, the plan is to open the office “as quickly as we can,” noting that the Detroit office was opened well ahead of schedule. Aiyer reports that the USPTO “couldn’t be happier or more excited to come to Dallas.” The July 11 meeting he said “energized the USPTO to move even faster.” The Dallas Bar Association will play a key role in helping to develop the new office, and the USPTO looks forward to working with the DBA, according to Aiyer. Aiyer could not comment specifically on the location, but Galvan, who attended the meeting with Director Kappos, says that the UPSTO will take into consideration the location of its client base, namely patent attorneys, as well as access to public transportation. The Dallas office of the USPTO will have a significant local economic impact. The opening of the Detroit office will result in the creation of 125 new jobs in its first year, and it is expected that the Dallas office will create a similar number. Dallas area patent attorneys expect that they will be able to attract new clients, and in particular foreign clients, that might otherwise select a D.C. based firm because of proximity to the USPTO. Roger Burleigh, Director of the U.S. Patent Department for Ericsson, noted that a local USPTO office will provide tremendous value through the ease of faceto-face meetings with Examiners, which has been at best a rare occurrence during his twelve-year tenure as a patent attorney for the company. Moreover, “The Office will provide a fantastic opportunity for new Texas engineering graduates and could serve as a breeding ground for new patent attorneys who could gain the necessary experience to go directly into in-house practice at the completion of law school.” The DBA IP Section will post updates in the future on the USPTO’s progress at HN www.dbaip.com. Vincent J. Allen is co-chair of the Publications Committee and is a partner at Carstens & Cahoon, LLP where he specializes in intellectual property law. He can be reached at allen@cclaw.com.

DBA Wins State Bar Awards

The DBA received numerous awards at the State Bar of Texas Annual Meeting in June, including the Award of Merit for best overall programs, the Star of Achievement for the DVAP Campaign and Headnotes was recognized as best overall newsletter. SBOT President Bob Black (left) presents the association’s awards to DBA President Paul Stafford.

Focus

The SEC’s Whistleblower Program: Its First Birthday Approaches by Steve Korotash

Since the inception of the SEC Whistleblower program in September 2011, the SEC has not revealed a great deal about its operation. Particularly, there has been little light shed upon two areas of corporate concern: whether the SEC’s response to whistleblower allegations will prove unduly burdensome for companies; and whether costly Sarbanes-Oxley mandated compliance programs will be circumvented. This article attempts to illuminate these areas. The agency provided its first insight into the program’s workings in a 2011 endof-year report to Congress, revealing the receipt of 334 Whistleblower tips during the program’s initial 7 weeks of operation. The tips came from 37 states and numerous foreign countries. The most common complaints were market manipulation (16.2 percent), offering fraud (15.6 percent), and corporate disclosures and financial statements (15.3 percent). Significantly, whistleblower activity has not diminished since the report. Sean McKessy, head of the SEC’s Office of the Whistleblower, has advised staff members that the volume of tips being received is

Inside 5

Demolition Cases Require More Stringent Review

Toto, We Are Not at a Law Firm Anymore!

11 New Securities Offering Possibilities Under the JOBS Act 13 Ethical Pitfalls for Government Contractors

Corporate Counsel/Government Law

continuing at the level initially reported, and according to officials, the tips are improving. In April, SEC Enforcement Director Rob Khuzami noted that “the quality of tips has increased” over time, citing a greater level of detail and supporting documentation. He attributed the improvement to whistleblowers increasingly retaining counsel. SEC Assistant Director Michael King, a supervisor in the Commission’s Foreign Corrupt Practices Act (FCPA) Specialization Group, recently echoed Khuzami’s point. At a gathering of Houston oil company compliance leaders, King noted that whistleblowers’ attorneys have made detailed presentations to the enforcement staff. These presentations sometimes include PowerPoint materials that outline evidentiary support for the whistleblowers’ claims. He also cited an instance in which attorneys brought their whistleblower client from overseas to participate in the presentation to the SEC. It also appears that the prospect of whistleblowers circumventing internal reporting mechanisms at their companies continued on page 12

NEED BILLABLE HOURS? Join the DBA Lawyer Referral Service Log on to www.dallasbar.org/dallas-lawyer-referral-service or call (214) 220-7499.

2 He a d n o t e s l D a l l a s B a r A s s o ciation

Calendar

August Events

AUGUST 3-BELO Noon

“Texas’ Medical Records Privacy Statutes,” Joyce Yeager. (MCLE 1.00)* At Two Lincoln Centre, 5420 Lyndon B. Johnson Frwy., Ste. 240, Dallas, TX 75240. Parking is available in the Visitor’s Lot located in front of the entrance to Two and Three Lincoln Centre. There are several delis within the building. Food is allowed inside the Conference Center. Thank you to our sponsor Griffith Nixon Davison P.C. RSVP to kzack@dallasbar.org. “The Empowerment Dynamic in Law Practice: How to Recognize and Reduce Workplace Stress and Drama,” Cynthia Pladziewicz. Sponsored by the Peer Assistance Committee. (MCLE 1.00)*

WEDNESDAY, AUGUST 1 Noon

Employee Benefits & Executive Compensation Section “Attorney/Client Privilege: Current State of the Law and New Developments,” Bruce Pingree. (Ethics 1.00)*

Solo & Small Firm Section “What Every Attorney Needs to Know When Dealing With the IRS,” Joel N. Crouch. (MCLE 1.00)*

Juvenile Justice Committee

Public Forum Committee

DAYL Judiciary Committee

5:00 p.m. Bankruptcy & Commercial Law Section “Insurance Basics for the Bankruptcy Lawyer: 10 Insurance Questions You Should Know How to Answer,” Eric Madden and Andy Ryan. (MCLE 1.00)*

THURSDAY, AUGUST 2 Noon

Construction Law Section “Deconstructing Bankruptcy: Blueprints for Understanding Title 11 of the United State Code,” Melissa S. Hayward. (MCLE 1.00)* Judiciary Committee “Litigating your Fiduciary Case,” a panel discussion with Judge Carl Ginsberg, Judge Chris Wilmoth, Jeff Tillotson and Diane Sumoski, moderator.

Lawyer Referral Service Committee

DAYL Freedom Run Committee

FRIDAY, AUGUST 3 Noon

Friday Clinic-Belo “Effective Use of Trusts and Structured Settlements,” Susan Gleason, Chris Klemme and Dave Reber. (MCLE 2.00)*

MONDAY, AUGUST 6 Noon

delis within the building. Food is allowed inside the Conference Center. Thank you to our sponsor Griffith Nixon Davison P.C. RSVP to kzack@dallasbar.org.

“Effective Use of Trusts and Structured Settlements,” Susan Gleason, Chris Klemme and Dave Reber. (MCLE 2.00)*

AUGUST 17-BELO Noon

Visit www.dallasbar.org for updates on Friday Clinics and other CLEs.

FRIDAY CLINICS

AUGUST 10-NORTH DALLAS** Noon

A ugust 2012

Tax Law Section “eCourt: Using Digital Resources in Tax Cases,” Chris Egan and Grover Hartt. (MCLE 1.00)*

MONDAY, AUGUST 13 Noon

Noon

Corporate Counsel Section “Ethics and Compliance: Dealing with Corporate Whistleblowers,” Earl M. “Chip” Jones, III. (Ethics 1.00)*

Tort & Insurance Practice Section “Recent Developments in Texas’ Stowers Doctrine,” Michael Huddleston. (MCLE 1.00)*

DAYL Leadership Steering Meeting

DAYL Lawyers Against Domestic Violence

TUESDAY, AUGUST 14 Noon

Peer Assistance Committee

TUESDAY, AUGUST 7

Trial Skills Section “Know Thy Audience: Profiles of the Dallas Jury,” Jason Bloom and Michael Hurst. (MCLE 1.00)*

Business Litigation Section “Ethics and Professionalism,” Talmage Boston. (Ethics 1.00)*

WEDNESDAY, AUGUST 15 Noon

Health Law Section “Defending Criminal Healthcare Investigations & Prosecutions, Qui Tam 101, Antitrust Laws & Healthcare and Stark & Anti-kickback 101,” William McMurrey. (MCLE 1.00)*

Legal History Discussion Group “The Man in Black: Lessons in the Law From the Life & Music of Johnny Cash,” Prof. Howard W. Brill. (MCLE 1.00)*

DAYL Young In-House Counsel CLE Program. For more information, contact cherieh@dayl.com.

WEDNESDAY, AUGUST 22 Noon

Sports & Entertainment Law Section “Apps and Social Media As Platform: Contractual, Ethical, and Trade Practice Considerations,” Evan Fogelman. (MCLE 1.00)*

Legal Ethics Committee

DVAP New Lawyer Luncheon. For more information, contact reedbrownc@lanwt.org.

DAYL Equal Access to Justice Committee

THURSDAY, AUGUST 23

8:30 a.m. Collaborative Law Section Eighth Annual Civil Collaborative Law Training & Symposium. Two-day event. To register, or for more information, log on to www.collaborativelaw.us. (Total MCLE 15.00, Ethics 2.75) Noon

Criminal Law Section “Title of Speech Suggestions in DWI Trials,” Judge Elizabeth Crowder. (MCLE 1.00)*

Environmental Law Section “Common-Sense Sustainability: Translating Environmental Commitment into a Better Brand,” Anna Clark. (MCLE 1.00)* Dallas Gay & Lesbian Bar Association

6:00 p.m. DAYL Board of Directors Meeting

WEDNESDAY, AUGUST 8

DBF Collins Clerkship Appreciation Luncheon. RSVP to ephilipp@dallasbar.org or (214) 220-7487.

Pro Bono Activities Committee

DAYL Ask-A-Lawyer Committee

FRIDAY, AUGUST 24

11:30 a.m. House Committee Walk Through Noon

DAYL Lunch & Learn CLE. For more information contact cherieh@dayl.com.

5:15 p.m. LegalLine—Volunteers welcome. Second floor Belo.

THURSDAY, AUGUST 9 11:30 a.m. DAYL Lawyers Serving Children Noon

CLE Committee

Law in the Schools & Community Committee

Publications Committee

Christian Lawyers Fellowship

DAYL Foundation Board Meeting

6:00 p.m. J.L. Turner Legal Association

FRIDAY, AUGUST 10 Noon

Friday Clinic-North Dallas** “Texas’ Medical Records Privacy Statutes,” Joyce Yeager. (MCLE 1.00)* At Two Lincoln Centre, 5420 Lyndon B. Johnson Frwy., Ste. 240, Dallas, TX 75240. Parking is available in the Visitor’s Lot located in front of the entrance to Two and Three Lincoln Centre. There are several

5:15 p.m. LegalLine—Volunteers welcome. Second floor Belo.

THURSDAY, AUGUST 16

8:00 a.m. Energy Law Section Seminar Review of Oil & Gas Law XXVII. Two-day event. For more information, contact Sandra Anderson at (214) 259-1871. Register online at www. reviewofoilandgaslaw.com.

Christian Legal Society

3:30 p.m. DBA Board of Directors Meeting

Intellectual Property Law Section “The America Invents Act: What it Means to you,” Marc Hubbard and Bradley P. Williams. (MCLE 2.00)*

MONDAY, AUGUST 27 Noon

8:00 a.m. Energy Law Section Seminar Review of Oil & Gas Law XXVII. Two-day event. For more information, contact Sandra Anderson at (214) 259-1871. Register online at www. reviewofoilandgaslaw.com.

Computer Law Section “The Evolving Law of Patentable Subject Matter,” Chad Terrell. (MCLE 1.00)*

Securities Section “2012 Update: Ethical and Liability Concerns for Corporate/Securities Counsel,” Prof. Marc Steinberg. (Ethics 1.00)*

Noon

Criminal Justice Committee

DAYL Solo & Small Firm Committee

FRIDAY, AUGUST 17

Friday Clinic-Belo “The Empowerment Dynamic in Law Practice: How to Recognize and Reduce Workplace Stress and Drama,” Cynthia Pladziewicz. Sponsored by the Peer Assistance Committee. (MCLE 1.00)* DAYL Leadership Steering Committee

MONDAY, AUGUST 20 Noon

Labor & Employment Law Section “Maximizing Opening Statements in Employment Trials—the Plaintiff’s and Defense Lawyer’s Perspective,” Gayla Crain and Susan Hutchison. (MCLE 1.00)*

TUESDAY, AUGUST 21

TUESDAY, AUGUST 28 Noon

American Immigration Lawyers Association

DAYL Aid to the Homeless Committee

4:00 p.m. Senior Lawyers Committee 6:00 p.m. Dallas Hispanic Bar Association

WEDNESDAY, AUGUST 29 Noon

DAYL Solo & Small Firm CLE Program. For more information, contact cherieh@dayl.com. Municipal Justice Bar Association

Noon

Franchise & Distribution Law Section “Financial Performance Representations,” Earsa Jackson. (Ethics 1.00)*

Speakers Committee

No DBA Events Scheduled

DAYL Elder Law Committee

DAYL Animal Welfare Committee

THURSDAY, AUGUST 30 FRIDAY, AUGUST 31 Noon

DAYL CLE Committee

If special arrangements are required for a person with disabilities to attend a particular seminar, please contact Cathy Maher at 214/220-7401 as soon as possible and no later than two business days before the seminar. All Continuing Legal Education Programs Co-Sponsored by the DALLAS BAR FOUNDATION. *For confirmation of State Bar of Texas MCLE approval, please call Teddi Rivas at the DBA office at 214/220-7447. **For information on the location of this month’s North Dallas Friday Clinic, contact KZack@dallasbar.org.

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D al l as Bar A ssoci ati on l Headnotes 3

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4 He a d n o t e s l D a l l a s B a r A s s o ciation

A ugust 2012

Headnotes

President's Column

Published by: DALLAS BAR ASSOCIATION

Summer Break By Paul K. Stafford

Driving through the East Texas piney woods, traveling to and through a place I frequented in my youth, I momentarily ignore the day’s distractions and modern challenges for an opportunity to reconnect with a simpler time and place—even if solely in one’s mind. My thoughts turn to summers past and present. I’m reminded of summer camp, and I again realize that the experiences of my youth are instructive today—personally and professionally. As you know, in the U.S. and throughout most western cultures, people utilize August and the preceding summer months as a period of reflection, relaxation, reconnection and renewal. Across the Atlantic, the month of August is when much of Europe is on “holiday”— a month-long end-of-summer respite from the demands of the work-a-day world. In contrast, Americans work more hours than their European counterparts, and they do not usually take the entire month of August off; however, they do take time to get away, relax and spend time with friends and family. Time off from work improves productivity by allowing us to recharge. Vacations, “stay-cations,” excursions, reunions, retreats...you name it. There are innumerable ways in which to pass the time. Many of us have completed, or are in the midst of, their summer stay-cations and vacations, traversing the U.S. and beyond in the hope of relaxing and discovering some form of tranquility. Adults often embark on adventures to places reminiscent of their past—a past filled with memories of their youth. Children often accompany adults on these adventures (sometimes by choice); however, children do not long for nostalgia, but for journeys to places unseen, or for excitement un-experienced. Growing up, summertime was a welcome reprieve from school and August always seemed so far away. I worked various odd-jobs, but nothing steady or overly strenuous. Summers were slow, and mostly easy. Vacations were a rarity.

What we now call “stay-cations” were the norm for me. But summer also usually included a trip to camp. Most kids love camp, and I was no exception. Camp is where kids learn to control their apprehension, stretch their boundaries, take risks with caution and make new friends. Camp is where kids grow. They then return to their respective homes, youthful yet more mature and ready for life’s challenges in the months ahead. As adults, we could learn a lot from young campers. Many of us will travel domestically or abroad, spend time with family and friends, experience new things and prepare for the remainder of a busy year. Whether we take-off a month, a week or a day—whether it’s solo, with a companion, or with family—whether it’s with a small group or large group—we should take time to reflex, relax, reconnect and renew. As for attorneys, we value hard work and success but we should be particularly aware of the stress related to our profession and respect it by occasionally taking some time for ourselves. Just like the youthful campers, when we take a break and recharge, we remove personal and professional apprehension, stretch our boundaries, refine our instincts and enhance our network. When we couple these breaks with CLE seminars or other bar-related activities, we’ll improve our professional knowledge, and may also hear about activities and programming in which other bar associations are involved. We will also let other attorneys and bars know about the goings-on at the DBA, particularly in the general area of promoting work-life balance and peer assistance. And so, we are reminded that August is upon us, as summer begins its end and rolls towards autumn. We are also reminded that through reflection, relaxation, reconnection and renewal, we can become more at ease with ourselves, more appreciative and understanding of others, and more productive to our profession. HN Happy holiday.

DBA Diversity Summit

Diversity Matters—Make a Difference November 29, 2012 8:30 a.m. -5:00 p.m. at Belo The goal of the Diversity Summit is to discuss and develop “best practices” for diversity in the legal profession in four areas—corporate legal departments, large law firms, bar associations and law schools/pipeline programs. Speakers include: • Benny Agosta, Mexican American Bar Association of Texas • Jack Balagia, Exxon Mobil • Kelly Ann Clark, ABA-Young Lawyers Division • Sally Crawford, Jones Day • Janet Dhillon, JC Penney • Robert J. Grey, Jr., Leadership Council on Legal Diversity • Michael Hurst, Gruber Hurst Johansen Hail Shank • Lauren Gilbert Smith, ITT Technical Institute • Dr. Walter Sutton, Wal-Mart Stores, Inc. • Lisa Tatum, President-Elect, SBOT • Joe West, Minority Corporate Counsel Association • Kathleen Wu, Andrews Kurth LLP • And more to come! To reserve your spot, contact ahernandez@dallasbar.org

2101 Ross Avenue Dallas, Texas 75201 Phone: (214) 220-7400 Fax: (214) 220-7465 Website: www.dallasbar.org Established 1873 The DBA’s purpose is to serve and support the legal profession in Dallas and to promote good relations among lawyers, the judiciary, and the community. OFFICERS President: Paul K. Stafford President-Elect: Sally Crawford First Vice President: Scott McElhaney Second Vice President: Brad C. Weber Secretary-Treasurer: Shonn Brown Immediate Past President: Barry Sorrels Directors: Jerry Alexander (Chair), Kim Askew (At-Large), Chip Brooker (President, Dallas Association of Young Lawyers), Wm. Frank Carroll, Victor Corpuz (President, Dallas Asian American Bar Association), Rob Crain, Laura Benitez Geisler, Lori Hayward (President, J.L. Turner Legal Association), Hon. Martin Hoffman, Michael K. Hurst, Michele Wong Krause, Karen McCloud, Christina McCracken (At-Large), Hon. Kenneth Molberg ( Judicial At-Large), Carlos Morales (President, Dallas His-panic Bar Association), Mary L. Scott, Diane M. Sumoski, Robert L. Tobey and Aaron Tobin (At-Large). Advisory Directors: Angelina LaPenotiere (PresidentElect, Dallas Hispanic Bar Association), Mandy Price (President-Elect, J.L. Turner Legal Association), Sarah Rogers (President-Elect, Dallas Association of Young Lawyers) and Jennifer Wang (President-Elect, Dallas Asian American Bar Association). Delegates, American Bar Association: Rhonda Hunter, Hon. Douglas S. Lang Directors, State Bar of Texas: Lawrence Boyd, Christina Melton Crain, Ike Vanden Eykel, Andy Payne, Frank E. Stevenson, II HEADNOTES Executive Director/Executive Editor: Catharine M. Maher Communications/Media Director & Headnotes Editor: Jessica D. Smith In the News: Judi Smalling Art Director: Thomas Phillips Display Advertising: Karla Howes, Jessica Smith Classified Advertising: Judi Smalling PUBLICATIONS COMMITTEE Co-Chairs: Vincent J. Allen and Lea Dearing Vice-Chairs: Natalie L. Arbaugh and Dawn Fowler Members: Timothy G. Ackermann, Kevin Afghani, Favad Bajaria, Matthew Baker, Jody Bishop, Lisa Blackburn, Jason Bloom, Kandice Bridges, William Brown, Lance Caughfield, Sally Crawford, James Crewse, Joel Crouch, G. Edel Cuadra, David Dodds, Adam Dougherty, Sabeen Faheem, Enrique Flores, Megan George, Susan Halpern, Zachary Hoard, James Holbrook, Ezra Hood, Mary Louise Hopson, Dyan House, Michael Hurst, Michelle Jacobs, Jessica Janicek, Taylor Jerri, Soji John, Douglas Johnson, Adam Kielich, Michelle Koledi, Susan Kravik, Scott McElhaney, Nick Nelson, Jenna Page, Kirk Pittard, Laura Anne Pohli, Robert Ramage, Jared Slade, Thad Spalding, Paul K. Stafford, Jeanette Stecker, John C. Stevenson, Scott Stolley, Michael Sukenik, Robert Tobey, Peter S. Vogel, Suzanne R. Westerheim and B. Joyce Yeager DBA & DBF STAFF Executive Director: Catharine M. Maher Accounting Assistant: Shawna Bush Communications/Media Director: Jessica D. Smith Controller: Sherri Evans Director of Community Services: Alicia Hernandez Events Coordinator: Rhonda Thornton Executive Assistant: Mary Ellen Johnson Executive Director, DBF: Elizabeth Philipp LRS Program Assistant: Biridiana Avina LRS Interviewer: Marcela Mejia Law-Related Education & Programs Coordinator: Amy E. Smith Membership Coordinator: Kimberly Watson Projects Coordinator: Kathryn Zack Publications Coordinator: Judi Smalling Receptionist/Staff Assistant: Teddi Rivas DALLAS VOLUNTEER ATTORNEY PROGRAM Director: Alicia Hernandez Managing Attorney: Michelle Alden Volunteer Recruiter: Chris Reed-Brown Paralegals: Whitney Breheny, Miriam Caporal, Lakeshia McMillan, Andrew Musquiz, Tina Douglas Program Assistant: Patsy Quinn Copyright Dallas Bar Association 2012. All rights reserved. No reproduction of any portion of this publication is allowed without written permission from publisher. Headnotes serves the membership of the DBA and, as such, editorial submissions from members are welcome. The Execu-tive Editor, Editor, and Publications Committee reserve the right to select editorial content to be published. Please submit article text via e-mail to jsmith@dallasbar.org (Communications Director) at least 45 days in advance of publication. Fea-ture articles should be no longer than 750 words. DISCLAIMER: All legal content appearing in Headnotes is for informa-tional and educational purposes and is not intended as legal advice. Opinions expressed in articles are not necessarily those of the Dallas Bar Association. All advertising shall be placed in Dallas Bar Association Headnotes at the Dallas Bar Association’s sole discretion. Headnotes (ISSN 1057-0144) is published monthly by the Dallas Bar Association, 2101 Ross Ave., Dallas, TX 75201. Non-member subscription rate is $30 per year. Single copy price is $2.50, including handling. Periodicals postage paid at Dallas, Texas 75260. POSTMASTER: Send address changes to Headnotes, 2101 Ross Ave., Dallas, TX 75201.

Augu st 2 0 1 2

Focus

D al l as Bar A ssoci ati on l Headnotes 5

Corporate Counsel/Government Law

Demolition Cases Require More Stringent Review by Jennifer Richie and Janet Spugnardi

Cities across the state address dilapidated structures by using administrative boards. These boards, made up of city council appointees, have the authority to order owners to repair, secure or demolish their properties and may assess civil penalties of $1,000 per day. Traditionally, Texas cities have relied on these boards almost exclusively to deal with the most dangerous buildings. The Texas Local Government Code delineates a process for notice and hearing of substandard building issues and provides that the board’s orders on appeal are subject to the substantial evidence review. Substantial evidence review requires only a “scintilla of evidence” to support the board’s findings on appeal. Courts have long held that cities do not commit a taking, and thus, do not have to compensate an owner when the city is abating a public nuisance. When these administrative boards issued demolition orders, they would make a finding that the property is a public nuisance. And prior to City of Dallas v. Heather Stewart, 361 S.W.3d 562 (Tex. 2012), many believed that any review of this finding would be by substantial evidence. Recently, however, the Texas Supreme Court in the Stewart case held that “sub-

stantial evidence review of a nuisance determination resulting in a home’s demolition does not sufficiently protect a person’s rights under Article I, Section 17 of the Texas Constitution,” and that administrative boards’ “nuisance determinations cannot be accorded preclusive effect in a takings suit….” The Court held that nuisance determinations must be reviewed de novo. Heather Stewart owned a house in Dallas, which she abandoned in 1991. During the subsequent 10 years, the Stewart home was plagued by constant code violations and, though boarded up, was broken into and occasionally occupied by vagrants. In September 2001, the Dallas’ Urban Rehabilitation Standards Board found that Stewart’s house constituted an urban nuisance and ordered its demolition. One year later, Stewart requested a rehearing before the board, which was denied, and the board affirmed the demolition order. Before the demolition occurred, Stewart appealed the board’s decision to district court. The City subsequently demolished the home while the appeal was pending, and Stewart amended her complaint to include constitutional due process and state takings claims. The trial court severed Stewart’s appeal of the board’s order from her constitutional claims. The trial court, on substantial evidence review, affirmed the board’s finding that Stewart’s home

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was an urban nuisance and awarded the City its attorney’s fees. Stewart’s constitutional claims were then tried to a jury de novo. The jury rejected the City’s contention that Stewart’s home was a nuisance and awarded her $75,707.67 in damages. On appeal, the Second Court of Appeals at Dallas affirmed the trial court’s judgment. The Supreme Court granted Dallas’ request for review and on July 1, 2011, issued its original opinion. While noting the major threat posed by dilapidated structures and the need of cities to abate these nuisances, the Court expressed concern in allowing “a panel of citizens untrained in constitutional law” to determine constitutional rights. The Court was troubled by the fact that nuisance determinations under the statutory scheme are decided by “an agency appointed by a [c]ity to represent a [c]ity’s interest” and that cities are incentivized to demolish properties because “abatement actions are motivated, at least in part, by a city’s bottom line.” Dallas filed a motion for rehearing, and an onslaught of amicus curiae briefs shortly followed. On January 27, 2012, the court vacated its first opinion and substituted a new, almost identical opinion. The only change was the court’s addition of a sec-

tion to address the concerns raised by the amici that cities would be exposed to 10-years’ worth of takings claim litigation and could not afford to litigate all nuisance cases in district court. The court dismissed these arguments by clarifying that a property owner must appeal the nuisance finding within 30 days to exhaust administrative remedies and must bring the takings claim within that appeal and that de novo review is only required when a nuisance determination (in a demolition order) is appealed. Even in light of the clarification provided by the Texas Supreme Court’s January 27, 2012 opinion, cities are still struggling to understand the reach and ramifications of the Stewart case on nuisance abatement, zoning, and other code enforcement activities. Many cities have reviewed and modified their substandard building processes post-Stewart, and some are utilizing alternatives, including filing civil cases in HN municipal or district courts. Janet Spugnardi practices municipal law at Messer, Campbell & Brady in Frisco, Texas and can be reached at jspugnardi@mcblawfirm.net. Jennifer Richie, the immediate past chair of the Government Law Section, is a Senior Assistant City Attorney for Irving, Texas. She can be reached at jrichie@cityofirving.org.

School Supply Drive Monday, July 30-Friday, August 3 Help Dallas ISD students by donating school supply items, including pens, pencils, paper, notebooks, backpacks, etc. Bring supplies to the Belo Mansion Friday, July 30-August 3, 9:00 a.m. to 4:00 p.m. For more information, contact kzack@dallasbar.org. Sponsored by the DBA Community Involvement and Mentoring Committees, in conjunction with Big Brothers Big Sisters and W.W. Samuell High School.

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6 H e a d n o t e s l D a l l a s B a r A s s o ciation

Inspiring Women 2012 The DBA hosted the fifth annual “Inspiring Women” event, Wednesday, June 27. More than 500 members of the Dallas legal community came to hear inspiring stories from a panel of esteemed professional women who related humorous and honest insights into professionalism and how they have reached the pinnacles in their careers. Those participating in the panel included Nina Cortell, Haynes and Boone LLP; Dawn Estes, Taber Estes Thorne & Carr PLLC; Hilda Galvan, Jones Day; Tonya Johannsen, The Beck Group; Hon. Catharina Haynes, Fifth Circuit U.S. Court of Appeals; Debra Hunter Johnson, Reciprocity Restaurant Group; and Karen Gren Scholer, Jones Day.

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D al l as Bar A ssoci ati on l Headnotes 7

2012 DBA 100 CLUB – CONGRATULATIONS! We are proud to recognize the following Firms, Corporate Legal departments and Government agencies for their 100% support of the Dallas Bar Association as members of the 2012 DBA 100 Club! The DBA 100 Club is a distinguished membership recognition category that reflects a commitment to the advancement of the legal profession and the betterment of the community. The DBA 100 Club consists of Firms and Government agencies with two or more attorneys as well as corporate legal departments that have 100% membership in the DBA. Recognition for 100% support is given to the 2012 DBA 100 Club members in our Headnotes publication, at our Annual meeting in November and in the 2013 DBA Membership Directory. It’s not too late to become a member of the 2012 DBA 100 Club! Please submit your request via email including a list of all lawyers in your Dallas office/corporate legal department to Kim Watson, kwatson@dallasbar.org. We will verify your list with our membership records and once approved, your name will be added to the 2012 DBA 100 Club!

THANK YOU FOR YOUR SUPPORT OF THE DALLAS BAR ASSOCIATION! DBA 100 Club Members as of July 17, 2012 Law Firms with 2 to 5 Attorneys 123 Divorce Company A. William Arnold III & Associates, P.C. Ackerman & Savage, L.L.P. Adair, Morris & Osborn, P.C. Aldous Law Firm Alexander Dubose & Townsend LLP Anderson & Brocious P.C. Armstrong Kellett Bartholow P.C. Ashcraft Law Firm Ashley & Laird Atkins, O’Toole & Briner, L.L.C. Barnett • McNair • Hall, L.L.P. Beirne, Maynard & Parsons, L.L.P. Blankenship, Wiland & O’Connor, P.C. Blume, Faulkner, Skeen & Northam, PLLC Broden & Mickelsen Brown Fox Kizzia & Johnson PLLC Bruegger & McCullough, P.C. Brusniak Blackwell, P.C. Buchanan & Bellan, L.L.P. Busch Ruotolo Simpson LLP Calhoun Pilgrim LLP Carlock-Gormley-Hight Clark Law Firm Coffin & Driver, PLLC Collins Law Group PC Crain Lewis, L.L.P. Curtis | Castillo PC Daniel Sheehan & Associates, LLP Dedman & Handschuch PLLC Diamond | Apgar, LLP Edwards & de la Cerda, L.L.C. ELROD, PLLC Fair & Watts, P.C. Fisher Holmes & Welch, P.C. Grogan & Brawner P.C. Gunnstaks Law Office Hamilton & Squibb, LLP Hance & Wickham, P.C. Hankinson LLP Harper | Washam LLP Helms, Roberts & Diaz LLP Hemingway & Hansen LLP Hollingsworth Walker Holmes Firm PC Horton & Archibald, P.C. Hunt | Ham, PLLC Jameson & Powers, P.C. John R. Vermillion & Associates, LLC Johnson & Silver, LLP Johnson Broome Cantu, P.C. Johnston u Tobey, P.C. Kabani & Kabani, PLLC Kapioltas & Forni, PLLC Kaplan & Associates, L.L.P. Karel & Hicks, P.C. Keane, Fowler & Donohue Kelly, Durham & Pittard, LLP Kim L. Lawrence, PC

Kinser & Bates, L.L.P. Kish & Manktelow, P.C. Kleiman, Lawrence, Baskind & Fitzgerald, L.L.P. Koning Rubarts LLP Korn, Bowdich & Diaz, L.L.P. Landa & Landa Law Office of Emily Horton PLLC Law Offices of Maduforo & Osimiri Law Offices of Mitchell Madden Lidji Dorey & Hooper Lillard Wise Szygenda PLLC Little Pedersen Fankhauser LLP Lori A. Leu & Associates Maris & Lanier, P.C. Marshall & Kellow, LLP McShane & Davis, L.L.P. Milby, PLLC Miller and Bennett, Attorneys and Counselors Mills & Williams L.L.P. Mincey-Carter, PC Mitchell, Goff & Mitchell, LLP Mosaic Family Services Inc. Mullin Hoard & Brown, L.L.P. Owens Hervey PLLC Powers Taylor LLP Prager & Miller, P.C. Pratt & Yungblut, P.C. Quaid & Quaid, L.L.C. Raggio & Raggio, P.L.L.C. Ramirez & Associates, P.C. Rasansky Law Firm Ray & Thatcher, Attorneys at Law PC Reed & Riordan, PLLC Richardson Koudelka, LLP Rochelle & Rankin LLP Russell & Wright, PLLC Sawicki & Lauten, LLP Schuerenberg & Grimes, P.C. Secore & Waller, L.L.P. Sheils Winnubst, PC Smith, Stern, Friedman & Nelms, P.C. Stromberg Stock Stuber Cooper Voge, PLLC Sullivan & Holston The Blum Firm, P.C. The Coles Firm P.C. The Collie Firm, PLLC The DeLoney Law Group, PLLC The Draper Law Firm, P.C. The Elliott Law Firm, P.C. The Foret Law Firm The Krenik Law Firm The Law Office of Rob Wiley, P.C. The Law Offices of Richard A. Gump, Jr., P.C. The Law Offices of Shanna Nugent, P.C. The Law Offices of Tim O’Hare The McFarlin Firm, PLLC Thomas, Cinclair & Beuttenmuller, PC Tillman Betanzos LLP Tinsley Law Firm Tobolowsky & Burk, P.C. Vela | Keller P.C.

Walker & Long Whaley, Letteer & Mock, P.C. Winn, Beaudry & Winn, L.L.P. Wisener Nunnally Gold LLP Withers & Withers, P.C. Wolfish & Newman, P.C. Woodward & Shaw Woolley <> Wilson, LLP. Wright & Toles Yarbrough & Elliott, P.C. Law Firms with 6 or More Attorneys Ackels & Ackels, L.L.P. Addison Law Firm P.C. Allmand Law Firm PLLC Anderson Tobin, PLLC Andrews & Barth, PC Baker & McKenzie LLP Baker Botts, L.L.P. Bell Nunnally & Martin LLP Blanscet Sutherland Hooper & Hale, LLP Boyle & Lowry, L.L.P. Brousseau Graham & Massingill Brown & Hofmeister, L.L.P. Brown McCarroll, L.L.P. Burford & Ryburn, L.L.P. Calloway, Norris, Burdette & Weber, PLLC Campbell & Chadwick, P.C. Canterbury, Elder, Gooch, Surratt, Shapiro & Stein, P.C. Cantey Hanger LLP Carrington, Coleman, Sloman & Blumenthal, L.L.P. Carstens & Cahoon, LLP Carter Stafford Arnett Hamada & Mockler, PLLC Cavazos, Hendricks, Poirot & Smitham, P.C. Cobb Martinez Woodward PLLC Condon Thornton Sladek Harrell LLP Cowles & Thompson, P.C. Curran Tomko Tarski LLP David, Goodman & Madole, P.C. Deans & Lyons, LLP DeHay & Elliston, L.L.P. Fletcher, Farley, Shipman & Salinas, LLP Ford, Nassen & Baldwin, P.C. Fulbright & Jaworski L.L.P. Godwin Ronquillo PC Goldfarb LLP Goranson Bain, PLLC Gordon & Rees, LLP Grau Koen, P.C. Griffith Nixon Davison, P.C. Gruber Hurst Johansen Hail Shank LLP Guida, Slavich & Flores, P.C. Hermes Sargent Bates, LLP Hiersche, Hayward, Drakeley & Urbach, P.C. Johnson Jordan Cresswell Monk, PC Kessler Collins, P.C. Key Harrington Barnes PC Klemchuk Kubasta LLP KoonsFuller

Kroney Morse Lan, PC Langley Weinstein LLP Law Office of Ben Abbott, P.C. Lewis Brisbois Bisgaard & Smith LLP Littler Mendelson, P.C. Locke Lord LLP Loewinsohn Flegle Deary L.L.P. Lynn Tillotson Pinker & Cox, L.L.P. Malouf Lynch Jackson & Swinson, P.C. Matthews, Stein, Shiels, Pearce, Knott, Eden & Davis, L.L.P. McCathern | Mooty | Grinke, LLP McCurley, Orsinger, McCurley, Nelson & Downing, L.L.P. McGuire, Craddock & Strother, P.C. McKool Smith P.C. Meadows, Collier, Reed, Cousins, Crouch & Ungerman, L.L.P. Middleberg, Riddle & Gianna Munsch Hardt Kopf & Harr, P.C. Passman & Jones, P.C. Reese Gordon Marketos, LLP Riney Palter PLLC Rochelle McCullough LLP Rose Walker, LLP Sayles Werbner, P.C. Scheef & Stone, L.L.P. SettlePou Shackelford, Melton & McKinley, LLP Shannon, Gracey, Ratliff & Miller, L.L.P. Sorrels, Udashen & Anton Staubus & Randall, L.L.P. Steed Flagg Lamberth LLP Stinnett Thiebaud & Remington L.L.P. Susman Godfrey L.L.P. Taber Estes Thorne & Carr PLLC The Bassett Firm, P.C. The Hartnett Law Firm The Law Offices of Frank L. Branson, P.C. Thomas, Feldman & Wilshusen, L.L.P. Thompson & Knight LLP White & Wiggins L.L.P. Winstead PC Wright Ginsberg Brusilow P.C. Corporate Legal Departments Alon USA Energy Inc. Austin Industries, Inc. Baptist Foundation of Texas Belo Corp. Contran Corporation Front Burner Restaurants, LP Genesco Sports Enterprises Hexter-Fair Title Company MetroPCS Communications, Inc. Morgan Management Corporation Neuberger Berman ORIX USA Corporation Tenaska Power Services Co. Government Agencies City of Irving

Don’t handle professional negligence cases? Taylor Dunham does. We handle professional negligence cases in the legal, accounting, and actuarial areas. Our experience, skill, determination and resources have resulted in recoveries by way of verdicts, settlements and arbitrations against some of the largest law and accounting firms in the country. When your client has been harmed by the negligence of another professional, consider Taylor Dunham. For more information on this area of our practice, visit us online at: www.taylordunham.com Taylor Dunham, LLP ° 301 Congress Avenue, Suite 1050 °Austin, TX 78701° 800.557.5565

8 He a d n o t e s l D a l l a s B a r A s s o ciation

Focus

A ugust 2012

Corporate Counsel/Government Law

The Changing Landscape of Eminent Domain in Texas by Robert F. Brown and Meredith Ladd

On May 23, 2011, Texas Governor Rick Perry ceremonially signed Senate Bill 18 (SB 18). According to the Governor, SB 18 was enacted to provide “stronger eminent domain provisions protecting Texas landowners from local and state government entities that might consider abusing private property rights.” Governor Perry’s press release and videotaped statements at the ceremonial signing of SB 18 can be found at the Governor’s website at http://governor.state.tx.us/news/pressrelease/16160/. SB 18 made a number of significant changes to condemnation practice. The new provisions, which became effective September 1, 2011, included the creation

of a new subchapter in Texas Government Code chapter 2206, entitled “Truth in Condemnation Procedures Act” (TCPA). Now, before a governmental entity may institute litigation to condemn property, it must satisfy the requirements of the TCPA. Presumably, the failure to do so would result in the dismissal (or at the very least the abatement) of the condemnation action until the TCPA’s prerequisite procedures are satisfied. The TCPA is intended to promote transparency and accountability. The TCPA requires that a governmental entity provide notice in its posted meeting agendas when it is considering exercising its power of eminent domain to condemn property; that a “record vote” to condemn property be conducted at a public meet-

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they are appointed (presumably to allow the parties time to exercise their preemptory strikes); and that notice of the hearing be served on the parties not later than the 20th (formerly the 11th) day before the hearing. Tex. Prop. Code §§ 21.014-.016. Other significant SB 18 changes include the requirement that all levels of government (formerly just the State and State agencies) provide a relocation assistance program for persons or entities displaced by land acquisition, and that condemnation damages now include compensation for “material impairment of direct access,” as compared to the prior law that only considered “material and substantial impairment of access.” Tex. Prop. Code §§ 21.042, 21.046. While the jury is still out on the longterm effects of SB 18 on condemnation practice for landowners and condemning authorities, there is little doubt that the immediate impact will result in land acquisition for public projects taking more time and costing more money. Practitioners on both sides of the condemnation bar are cautioned to carefully review the changes created by SB 18 in the ever-evolving landscape of eminent domain practice in HN Texas.

ing; and that the approval motion to adopt an ordinance, resolution or order authorizing condemnation state the following phrase, or a phrase substantially similar to the following: “I move that the (name of governmental entity) authorize the use of the power of eminent domain to acquire (describe the property) for (describe the public use).” Tex. Gov’t Code § 2206.053(a), (c). SB 18 also changed the procedures set forth in Texas Property Code chapter 21, which governs condemnation litigation procedures. For example, while case law has always required that a condemning authority make a good faith offer to buy needed property interests before filing a condemnation lawsuit, SB 18 clarifies this obligation by making it a statutory requirement and by defining what constitutes a good faith or bona fide offer. To constitute a bona fide offer, a final offer to purchase land must include and be based upon a written appraisal; must include the deed, easement or other conveyance instruments; and must provide the owner at least 14 days to respond before suit is filed. Tex. Prop. Code § 21.0113. SB 18 also impacts the scheduling of the special commissioners hearing by requiring that the court give each party “a reasonable period to strike one of the three commissioners appointed by the judge;” that the special commissioners not convene a hearing until at least 20 days after

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Focus

D al l as Bar A ssoci ati on l Headnotes 9

Corporate Counsel/Government Law

Toto, We Are Not at a Law Firm Anymore! by Jennifer Rodriguez

Someone once asked me why, given the usual difference in pay scale, a lawyer would choose to work in a corporate environment versus in a law firm. The question ended with “...is it because it’s easier?” I had to control my urge to laugh, but then I wondered if that is the general perception about corporate (in-house) lawyers. Working in a corporation versus at a firm is absolutely not easier. Nor is it harder. It is just…different. I firmly believe that while we can each make a choice as to how we choose to practice, some lawyers are better suited to corporate work. While there are certain aspects of corporate work that necessarily correlate to law firm work (litigation management is one example), the biggest difference is the practical nature of the guidance. The question often posed to outside counsel is “can we do this?” while the corporate

lawyer is more often faced with “how can we do this?” Therefore, the advice can be quite different. It is true that the corporate lawyer has a bit of an advantage here. Outside counsel is generally only presented with a succinct set of facts and it can be difficult to plot a course of action when you are not privy to the strategic end-goal. Conversely, much of a corporate lawyer’s day can be consumed with meetings to discuss new initiatives or plans for growth (or downsizing, for that matter). The information, debate and ideas shared in those meetings often give the corporate lawyer the knowledge base necessary to form that practical guidance. The difficulty, however, is that as hard as corporate counsel might try, it is a challenge to overcome the stereotype that the legal department is a bottleneck or the “Sales Prevention Department.” The legal department is generally not

a profit center, and many people in the corporate world have had limited, if any, exposure to lawyers in general. Those two facts can result in the department being viewed as a “necessary evil.” That challenge, however, can be met through partnership and creative thinking. Because corporate lawyers serve the same internal clients repeatedly, there is a greater opportunity to form relationships. Back-to-back meetings can be exhausting, but they can also be very productive when learning about your client’s needs and approach. It is then the corporate lawyer’s job to analyze the risks associated with various tactics and to suggest ways in which to meet the overall goal with less risk. Asking “what if we try this?” becomes a regular part of strategic planning. As such—and this may be surprising to some—it is really quite rare that an in-house lawyer will say “no” to their internal clients. Business partnership builds trust. Thus, in

the rare instance that the corporate lawyer must say “no,” business partners can trust that the advice is sound rather than assuming that the legal department is standing in the way of progress. Serving as corporate counsel may seem overwhelming, but it can also be a very satisfying way to see how the legal piece is interwoven throughout the business puzzle. Building a practice in a corporate setting is a career path which is certainly not one-size-fits-all. Many of my friends are long-term law firm lawyers who look at my career and wonder how I do what I do. And the same is true in reverse. We are all good lawyers in our own right, but we bring very distinctive skills to the table. It’s not easier or harder, or better or worse. HN It’s just different. Jennifer Rodriguez is Vice President and General Counsel for The LaSalle Group, Inc./Constant Care Family Management. She can be reached at jrodriguez@lasallegroup.com.

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Focus

Dal l as Bar A ssoci ati on l Headnotes 11

Corporate Counsel/Government Law

New Securities Offering Possibilities Under the JOBS Act by R. Shawn McBride

The Jumpstart Our Business Startups Act (JOBS Act) was signed into law on April 5, 2012. The JOBS Act included a number of major provisions covering a variety of areas: (1) reforming reporting requirements for “Emerging Growth Companies,” (2) allowing general solicitation in certain offerings to accredited investors, (3) crowdfunding provisions (discussed below), (4) small company capital formation provisions exempting certain additional private offerings, and (5) provisions adjusting the number of shareholders possible in a private company without triggering SEC registration. Many of the changes of the JOBS Act only become effective after SEC rulemaking is enacted in connection with the legislation. This article focuses on summarizing the crowdfunding provisions of the JOBS Act (this is merely a summary—the detailed provisions should be reviewed before conducting any transaction). Crowdfunding is an acronym for “Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act of 2012” which states the basic goal of this portion of the legislation. While the provisions have yet to take effect, the legislation has set a broad outline of what will be possible after SEC rules on crowdfunding have been enacted—and such rules are due within 270 days of the enactment of the JOBS Act. The apparent goal of the crowdfunding provisions is to allow an issuer to make small offerings (up to $1 million depending on timing and other offerings previously made by the issuer) to investors (including non-accredited investors)

through brokers or “funding portals.” Available Purchasers. The crowdfunding provisions greatly enhance the practical universe of available investors for issuers. Investors with net worth or annual income less than $100,000 can purchase the greater of $2,000 or 5 percent of their net worth or annual income in issuer securities during each 12-month window. Investors with either net worth or annual income greater than $100,000 can purchase the greater of $10,000 or 10 percent of their net worth or annual income in issuer securities during each 12-month window. Offering Conditions. Among other things, the broker or funding portal must provide disclosures to investors about the risks and other investor education materials as the SEC may require in its rulemaking. The broker or funding portal must also (1) ensure the investors review the disclosures provided, affirm their understanding of the risk of loss of their investment, and answer questions demonstrating risk and investment knowledge, (2) do fraud checks on the issuer as required by the SEC including background checks on officers, directors and 20 percent holders, and (3) comply with additional requirements set forth in detail in the crowdfunding provisions. Use of Funding Portals. Funding portals is a new concept that creates a class of intermediary that can help issuers carry out crowdfunding transactions. The legislation provides that, among other things, to qualify as a “funding portal” the portal cannot (1) offer investment advice, (2) solicit purchases, sales or offers to buy the securities offered or displayed on its website or portal, (3) compensate its employees, agents or

other persons for soliciting the sale of the securities or base compensation on the sale of securities shown on the website or portal, and (4) handle investor funds or securities. Additionally, the funding portal must comply with other prohibitions of the SEC to be included in SEC rule making. The legislation provides that the SEC can exempt funding portals from registering as brokers or dealers under existing law if the funding portal: (1) remains subject to various authorities of the SEC, (2) is a member of a national securities association registered under the Securities Exchange Act of 1934, and (3) is subject to other rules as the SEC may dictate. New Offering Possibilities. The

crowdfunding provisions seem to suggest that a universe of offerings by issuers to small investors will open in the next several months. The markets will determine how quickly funding portals come online and become available for issuers. Substantial burdens are placed on the funding portals including background checks and ensuring investors understand risks. If the funding portals develop as anticipated by the crowdfunding provision, we may see a new era of small offerings by HN emerging companies. R. Shawn McBride is the Managing Member of The R. Shawn McBride Law Office, P.L.L.C., which helps clients with transactional legal issues. He can be reached at shawn. mcbride@rshawnmcbridelaw.com.

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12 H e a d n o t e s l D a l l a s B a r A s s o ciation

DBA Bankruptcy Section Bench Bar

A ugust 2012

The SEC’s Whistleblower Program continued from page 1

The DBA Bankruptcy Section recently held its annual Bench Bar event. Attendees included (top left) Byrn “Byrnie” Bass and Judge Barbara J. Houser. Speakers included various panels and guest speaker Harvey Rosenblum, Ph.D (top right).

may have been exaggerated. According to SEC officials, the vast majority of whistleblowers have reported their information internally prior to filing tips with the SEC. Their motivation for doing so is likely explained by the fact that internal reporting can increase the amount of award they receive, a consideration not overlooked by whistleblowers’ counsel. In remarks before Congress, Khuzami talked about insuring that groundless tips do not create undue burdens on companies. And although numerous SEC supervisors maintain that the staff is handling whistleblower tips in the same manner as it does other forms of tips and complaints—that appears not to be the case universally. Anecdotal accounts provided by defense counsel contradict the contention that whistleblower complaints are not receiving a higher level of scrutiny. According to a Dallas attorney who is handling a matter that he is certain was triggered by a whistleblower, the staff is “looking under every rock, clearly trying to document their extraordinary diligence.” He is convinced, “that with the memory of Madoff still in the air, the staff is afraid that they will be second-guessed if they miss anything brought to them by a whistleblower.” He added, “So what companies may be facing is predictable overkill.” That sentiment was repeated by a defense attorney who represented a publicly traded company in an SEC informal inquiry. “It was clear that the inquiry was originated by a whistle-

blower complaint. We produced evidence demonstrating that the matter being examined wasn’t material and, ordinarily, the inquiry would have ended right there. Instead, the company was required to produce voluminous documents, prepare summary reports and submit its officials for interviews.” The burden on the company, he said “was significant and not justified.” Moreover, another securities defense attorney related her recent experience with an apparent whistleblower tip, explaining that SEC examiners, armed with a very detailed allegation, “hit the doors of a regulated entity like it was D-Day. They clearly had been told that money was missing, and they were all set to shutter the doors.” She added, “They saw there had been no misapplication of funds, but since they were there, they began combing the place for technical deficiencies.” Whether these accounts portend rough going for companies and their legal teams remains to be seen. One prediction is safe, however: when the SEC makes its first whistleblower award, it will trumpet the news far and wide, hoping to make it universally known that a financial windfall awaits those who blow the whistle to the SEC. The result likely will be a strong spike in whistleblower complaints and some long nights HN for general counsel. Steve Korotash works in K&L Gates’ Dallas office. Prior to joining the firm, he served as an associate director of the SEC’s Enforcement Division, leading the SEC’s enforcement efforts in the Southwest. He can be reached at Stephen.Korotash@klgates.com.

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Dal l as Bar A ssoci ati on l Headnotes 13

Corporate Counsel/Government Law

Ethical Pitfalls for Government Contractors by Eileen Youens

A salesman treats a potential new client to an expensive steak dinner. A business owner helps her son’s new software company get started by ordering the company’s electronic records management package for her business. While both of these scenarios are perfectly acceptable in the private sector, they may constitute criminal behavior if the new client in the first example or the business owner in the second example is a public servant. Many laws and rules regulate the relationships that governments have with their contractors and potential contractors. These laws and rules cover obvious crimes like bribery, improper influence and making false claims against government funds), but they also address behavior that may not seem improper to companies accustomed to doing business in the private sector: specifically, giving gifts to public servants and self-dealing. The following discussion will focus on these last two “ethical pitfalls,” concluding with guidance on where to find the relevant laws and rules.

Gifts to Public Servants

Simply giving a gift to a public servant who is involved in awarding government contracts—even without any suggestion of quid pro quo, and even before bidding on a contract—may be illegal under socalled “gifts and favors” laws. The scope and consequences of these laws vary tremendously. When reviewing gifts and favors statutes and regulations, a focus on the following seven factors is recommended: (1) which gift-givers are covered (e.g., potential future contractors,

current contractors); (2) which types of gifts, favors or honorarium are prohibited (or, if permitted, require disclosure when given); (3) which public servants are covered; (4) which relatives (or employees or other affiliates) of those public servants are covered; (5) if disclosure is required, what are the requirements for disclosure; (6) if there are exceptions, what are the requirements for each exception; and (7) what the consequences are for violating the statute or rule. For example, it is a Class A misdemeanor under Texas law for a person “who is interested in or likely to become interested in any contract or purchase” involving the exercise of a public servant’s discretion to “offer[], confer[], or agree[] to confer any benefit on” that public servant. Tex. Penal Code §§ 36.08, 36.09. (There are several exceptions. See Tex. Penal Code §§ 36.07, 36.10.) As another example, subsection 36(b) (3) of the Grants Management Common Rule (a set of regulations that applies to all government recipients of federal grant funds) also contains broad restrictions on gifts to public servants. Although there are no criminal penalties imposed by the Rule, governments who violate the Rule risk losing grant funding.

Self-Dealing

Most governments place restrictions on contracts that benefit public employees or officials (and their family members) financially. When reviewing these selfdealing statutes and rules, look for the same seven factors outlined in the Gifts section above, modifying the first two as follows: (1) which types of personal interest (e.g., owning stock in a company seek-

ing to do business with the government, receipt of income under the contemplated contract) are prohibited or require disclosure; and (2) which activities undertaken by the public servant (e.g. awarding contracts, drafting specifications) are prohibited or trigger disclosure. One example of a self-dealing restriction can be found in Section 12A-1(a) (3) of the Dallas City Charter, which prohibits city officials or employees from having “any financial interest, direct or indirect,” or from engaging “in any business, transaction, or professional activity” or from incurring “any obligation of any nature” that is in conflict with the proper discharge of the official’s or employee’s duties. Compare this restriction with state law, which prohibits local government officials from voting on a contract that presents a conflict of interest (as defined) and requires disclosure of certain conflicts of interest (as defined). See Texas Local Government Chapters 171 and 176.

Where to Find Relevant Laws and Regulations Several layers of laws and regulations—the United States Constitution, federal statues, federal regulations, state constitutions, state statutes, state regulations and local rules (such as charters and ordinances)—apply to public entities and their contractors. You need to familiarize yourself with the applicable provisions of each pertinent source of law, as well as any relevant case law and attorney general opinions, depending on where your clients want to do business. Many government entities offer handbooks or guidelines to potential contractors. (See, e.g., www.oag.state.tx.us/open/publications_og.shtml) Start there, but do your HN own research as well.

Eileen Youens teaches and advises local governments and government contractors on public procurement issues. She can be reached at eileen@youensconsulting.com.

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