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Times of Change: The Receivership Insolvency Alternative
Denial is a significant impediment to resolving challenging insolvency situations. A debtor in financial crisis may understandably hold out hope for a new contract or a change in a depressed economic cycle. Employees struggle when paychecks are delayed or the demands to work longer and harder exceed reasonable expectations. Because the debtor is unwilling to consider alternatives, the creditor is forced to act unilaterally to protect its interests. In such situations, creditors are left with few options other than forcing the filing of a bankruptcy case or starting a judicial foreclosure action. The creditor often understands these alternatives could terminate the operation of a formerly profitable business and result in significant expense for everyone. After the recent economic recession, denial often resulted in the loss of an operating business, jobs, and generated large losses for financial institutions.
The involvement of a third party can provide an important option to overcome the impediments of denial in challenging financial situations. Until recently, the use of a third party appointed by the court, called a receiver, was difficult to obtain. Oregon lacked significant guidance for the courts when appointing or overseeing a receiver creating inconsistent and variable outcomes among courts and counties. The lack of clear outcomes or guidance other than limited case law dating back to the 1880s commonly eliminated consideration of the use of a receiver as a tool to address when denial of a difficult fiscal situation was present.
Fortunately, aware of the limitations under Oregon law, the Oregon Law Commission established a Work Group, including this author, to address the deficiencies that existing receivership laws reflected.
The result of the Work Group’s efforts is Senate Bill 899A (2017) (the “Bill”). This Bill was recently approved by the Oregon legislature and signed by Governor Brown. Following the passage of Senate Bill 899A, Oregon’s receivership options will be significantly clarified, expanded, and improved starting on January 1, 2018.
The powers of a receiver are broad and rooted in equity. The Bill provides important guidance to lenders, debtors, receivers and the court on the proper scope and consequences of the court’s orders and the receiver’s actions. For example, Section II of the Bill provides a menu of powers from which a court may select to give a receiver. Not all options are appropriate for every situation and the court and the parties will have the ability to identify the powers that are needed in any given situation. The options are broader than under existing law and permit a number of options allowing an operating business to continue under the supervision of the court and with the consent of the creditors. Instead of an overwhelmed business owner facing financial ruin, a receiver can be appointed to objectively assess ways to improve and enhance the value of the business and its assets for everyone involved.
Importantly, the Bill also provides protections similar to those found under the U.S. Bankruptcy Code to ensure the preservation of an operating business. For example, Section 22 of the Bill provides for an automatic stay of certain actions against the receiver upon appointment. This stay was not something clearly defined or provided for under existing law. The stay prohibits a number of actions for a period of time including continuing pending legal cases, judgment enforcement activities, lien perfection and other actions against a debtor’s property. With important exceptions, this stay provides the newly-appointed receiver the breathing room to gain control of a business or rental property and to assess the viability of continuing operations.
Section 25 of the Bill also addresses a significant limitation under existing Oregon law. This section of the Bill permits the receiver to use or sell the property of a business placed within its control outside of the “ordinary course of business.” This new power allows a receiver to sell that property when the court decides it’s appropriate to do so. Before the Bill, a receiver was often determined to have a custodial role only, meaning that a sale was not possible other than in mutually consensual situations among all of the parties. Now, a receiver could sell all or some of the property within its control with court approval. Doing so will limit or eliminate the need for a creditor to then foreclose upon these assets through a judicial execution process, preserving assets for the creditors and increasing the chance for an economic return to the debtor.
Section 25 of the Bill also provides important protections for any prospective purchasers of assets sold by a receiver. Under existing law, the uncertainty of such sales often deterred third party consideration and could decrease the ultimate recovery and return for the parties involved. Now any sale is free of the continuing rights of the business or property owner—so-called redemptive rights— ensuring that the purchaser from the receiver takes immediate title and ownership of the purchased property. In addition, all such sales occur free and clear of all liens and encumbrances. Those liens will then attach to the sale proceeds in the same order as existed against the property, creating liquidity for the receiver but preserving the claims of creditors. Finally, even if a sale order and/or the receivership are determined to be invalid on appeal, the order permitting the sale will remain valid so long as good faith existed as part of the transaction.
With the involvement of a receiver, the opportunity for recovery and distribution of funds to creditors and the borrower may increase. Therefore, the Bill also contains important provisions concerning the process for filing of claims and distribution of liquidated assets to creditors of the receivership estate. Similar to the U.S. Bankruptcy Code, the Bill establishes a priority schedule for payments to creditors and a process to obtain court approval for payment or denial of contested claims.
The new and important revisions to Oregon receivership law create a comprehensive new tool to avoid the consequences of denial. By providing clear guidance to the courts and permitting the involvement of a third party, the receivership process can be effectively used to preserve operating businesses and manage financial outcome to benefit all affected parties. As a revised and comprehensive alternative to bankruptcy, the revised receivership options in Oregon can also provide a cost effective and timely option for addressing the challenging insolvency situations. The lawyers at Saalfeld Griggs P.C. have the experience and knowledge to ensure that affected parties are well positioned to take full advantage of Oregon’s updated and revised receivership process.
Misappropriating Trade Secrets:
Guarding Your Business from Departing Employees
By David Briggs
As unemployment dips to historic lows, most companies know that retaining employees is difficult. Your talented employees are liable to find greener pastures and leave you in a lurch.
The problem is that many of those employees that walk off may decide that they have more value to a new employer if they take some of your confidential information on the way out the door.
We have seen a lot of cases recently about those dearly departed employees who have decided to take information with them when they go. Contact lists, forms, mailing lists, and contract information are among the things employees seem to want to grab on the way out.
What Can Employees Legally Take?
The lawyerly answer of “it depends” is unsatisfying, but appropriate. Employees can often take information in their memories. For example, they can take names of contacts for key customers. But, they generally can’t take information from a bid submitted by the company to a customer to use in order just to outbid you, since that information likely would be considered a trade secret.
What are Trade Secrets?
What that information is will be different for each employer. There is a statute that protects all employers that is relatively generic (and therefore gives us attorneys a lot to fight over). Some employers instead have confidentiality agreements that button up what specifically is a trade secret for their business.
Absent an agreement, we fall back on the statute. That statute requires that information meet two requirements. First, the information generally needs to be valuable to a competitor. Next, you need to take reasonable measures to keep the information confidential.
How Should I Be Protecting My Trade Secrets to Keep in Confidential?
You may opt to encrypt every document and hire armed security to stand outside your server room, but the law doesn’t require anything exotic. Your systems should be password protected and policies disseminated to employees about the confidentiality of your information. You should have basic protocols in place for who should be able to view the information (both internally and externally).
If you or your employees are regularly sending your “confidential” information to venders, competitors, or colleagues outside the organization, it seems hard to argue that we have done enough to protect that information later.
You can get confidentiality agreements with employees that more particularly describe their obligations. You can also get non-disclosure agreements with third-party recipients of your information.
What Should I Do Now to Protect My Information?
Obviously the first step is to review your policies and procedures on how you handle and safeguard the information.
Consider getting confidentiality agreements with your employees and non-disclosure agreements with third parties.
Finally, if you’re concerned with your employees’ ability to walk away with some of the work, regardless of what information they take with them, consider getting a non-piracy agreement that prevents employees from soliciting or serving your customers or taking more employees along with them. After all, if one employee defection is bad, multiple defections are worse. Plus, you can get these kinds of agreements at any time during your employee’s employment with the company.
In a market where unemployment has dipped to record lows, we all must expect employee departures. However, with some planning, you can make sure that when they go, it’s only them that go and not your confidential information.
What the new FEMA guidelines mean for development in Oregon
On January 30, 2015, President Obama signed Executive
Order 13690 (“EO”) as part of his Climate Action Plan.
The EO amended Executive Order 11988, signed by President Jimmy Carter in 1977, that required federal agencies “to avoid to the extent possible the long and short term adverse impacts associated with the occupancy and modification of floodplains and to avoid direct and indirect support of floodplain development wherever there is a practicable alternative.” The new EO established a Federal Flood Risk Management
Standard (“Standard”) for federally-funded projects and instituted a process for soliciting and considering stakeholder input to improve the ability of communities to prevent, mitigate, and respond to the damage caused by flooding.
While the EO applies the Standard only to federally- funded projects, the reality is that the EO allows for additional federal agency management by expanding current floodplains beyond their current base flood levels. The rationale behind the implementation of the Standard is to ensure that projects funded by federal tax dollars endure. The EO targets flooding due to substantial infrastructure costs associated with floods and the U.S. Global Research Program’s projections that incidents of severe flooding will continue to intensify into the 21st Century. Floods currently constitute 85% of disaster declarations and accounted for approximately $260 billion in damage between 1980 and 2013 within the United States.
Federal agencies have the option to choose one of three methods for expanding the Standard for base flood levels and flood hazard areas:
- Climate-informedScience Approach. Use the best-availabledata and methods to forecast changes from flooding.
- Freeboard Value Approach. Add an additional 2 or 3 feet to the base flood elevation of the 100- year flood.
- 500-yearElevation Approach. Define the area subject to flooding as areas subject to a0.2%-annual-chanceflood.
While this three-option approach offers increased flexibility for agency implementation of the Standard, the expansion of the floodplains and flood hazard areas may reach beyond federally-funded projects and impact private development of land near coasts, rivers, and wetlands.
An example of this ancillary regulation in Oregon is the National Marine Fisheries Service’s (“NMFS”) Biological Opinion (“BiOp”), issued April 14, 2016. The BiOp stated that the Federal Emergency Management Agency (“FEMA”) was operating the National Flood Insurance Program (“NFIP”) in violation of the Endangered Species Act (“ESA”) by allowing development that threatened the survival of eighteen ESA-listed species through the reduction or destruction of critical habitats. Accordingly, NMFS ordered FEMA to revise its floodplain mapping protocols, expand mapped floodplains, and revamp its minimum floodplain regulatory criteria to enforce the new standards provided in the BiOp. These new standards prohibit all development within floodplains that is not confined to either designated open space, low intensity recreational use, habitat restoration, or limited water dependent uses unless that development can be done with no adverse impact or a net beneficial effect on the habitat located within the floodplain.
As a result of this decision and the EO, FEMA is in the process of developing new floodplain maps and regulatory criteria for the newly expanded floodplain zones. The BiOp states that development should not occur, or should be highly restricted, within the 170 feet on either side of any stream, including seasonal or ephemeral streams, effectively creating a 340-footbuffer of undevelopable land surrounding every body of water from the Willamette River down to a creek bed that is dry most of the year.
FEMA responded with a letter sent to jurisdictions within Oregon on June 13, 2016 (“Letter”). The Letter states that although the BiOp was addressed to FEMA, the ESA is applicable not only to federal agencies but also to state agencies, local jurisdictions, and individuals. This interpretation allows NMFS to regulate development within the floodplains where the habitat of endangered species is at risk. The Letter goes on to outline the staged implementation of the “Reasonable Prudent Alternative” (“RPA”) that implements preliminary restrictions on all development within floodplains. Communities have the opportunity to voluntarily place a temporary moratorium on development within floodplains or comply with the restrictions that Oregon Department of Land Conservation and Development (the “ODLCD”) and FEMA provided in Element 2 of the RPA.
RPA Element 2 will remain in place as ODLC and FEMA work with various stakeholders to develop a model ordinance to govern floodplain development. Given the Trump Administration’s overall focus on deregulation, it is difficult to determine whether there will be pushback regarding the floodplain expansions at the federal level. At this point, FEMA is moving ahead with rule changes to comply with NMFS’s March 15, 2018 preliminary deadline for the implementation of the Interim Measures.
Early Neutral Evaluation
Early Neutral Evaluation (“ENE”) is a form of alternative dispute resolution that is becoming increasingly popular, particularly in disputes involving difficult factual or legal issues. The concept is simple. Before litigating a dispute, the parties agree to hire an impartial expert to provide an objective evaluation of the case.
The evaluator’s report is non-binding and confidential, but can serve as a catalyst for resolution. Each dispute is different, but some clients and cases may benefit from this approach. The following are some answers to Frequently Asked Questions about ENE.
Frequently Asked Questions What is the purpose of ENE?
ENE is a method for the parties to receive an expert’s assessment of the merits of the case at an early stage.
The process can be a “reality check” for the parties, and is particularly helpful when the parties are far apart on the merits or value of the case. ENE can identify and clarify the key issues in dispute, and enhance direct communication between the parties about their claims and supporting evidence. If litigation follows, ENE may also assist with discovery and motion planning.
Ultimately, the expert’s unbiased opinion can position the dispute for early resolution.
Who serves as a neutral evaluator?
The parties must mutually agree to a neutral evaluator who possesses the required expertise to analyze the dispute. The evaluator should be someone familiar with the industry or businesses and with experience involving similar disputes. For example, in a construction defects case, the evaluator might be an experienced civil engineer, construction lawyer, or general contractor. Dispute resolution services, such as AAA, can help facilitate the identification and selection of an evaluator.
How does ENE work?
The ENE process is more informal than arbitration or trial, and is adaptable to the particular needs of the parties and dispute. Typically, the parties submit initial written statements to the evaluator. An initial statement describes the nature of the dispute, the parties’ views of the critical liability and damage issues, important evidence, and any other information that may be useful to the evaluator.
If more information would be helpful, the evaluator may hold an informal evaluation session. At the session, the parties can present their claims, defenses, and key evidence. The evaluator may hear from key witnesses, review pertinent documents, and observe arguments by the parties. However, the session is informal and the rules of evidence and procedure do not apply.
After receiving all the pertinent information, the evaluator renders a written evaluation of the case. The evaluation consists of an unbiased opinion of the issues presented, including the parties’ respective strengths and weaknesses and a likely outcome. As appropriate, the report may include an estimate of the likelihood of liability and a range of possible damage awards. The parties can then use the evaluation to help negotiate a settlement or dispose of specific issues prior to proceeding with litigation.
Is ENE confidential?
ENE is a confidential process that is off the record. All information and documents received by the evaluator are confidential. The evaluator cannot testify or divulge information at a later trial or hearing. If the dispute is tried or arbitrated, the parties cannot rely on or introduce as evidence any settlement offers, proposals, or admissions made by the other party during ENE.
What are the downsides to ENE?
There are benefits and disadvantages to every dispute resolution method, including ENE. One of the more common drawbacks is the cost associated with ENE. Due to their expertise, an evaluator typically charges more on an hourly basis than a mediator or arbitrator. ENE also requires the parties to expend more time— and money—to prepare their case than is common at an early stage. This effort is not wasted if the case proceeds to litigation or arbitration, but may be a barrier to resolution.
The nature of ENE also informs the other side of your key arguments and facts at an early stage. While the ENE process is confidential, the other side stills learns information that it can use to its advantage during litigation or arbitration. Although the parties may obtain much of this information in litigation through discovery, it is shared at an earlier stage through ENE.
What happens if ENE is unsuccessful?
ENE is not binding on the parties. The evaluator has no power to decide the case or force settlement. The parties preserve their litigation options if they are unable to resolve the case.
I think ENE is a great idea. Can I force the other side to participate?
All parties must agree to ENE. Often agreement occurs before the dispute through the parties’ written contract. However, the parties can agree to the ENE at any stage. So, this provision could be added to an arbitration provision in your existing contracts. Contact our firm if you are interested in including ENE as a dispute resolution option in your business contracts.
Selecting a dispute resolution process is an important decision. As always, the best option depends on the unique facts and circumstances of each case. Contact our firm if you are interested in learning more about Early Neutral Evaluation. We are happy to help.
FIRM ANNOUNCEMENTS AND SEMINARS
On April 1, Saalfeld Griggs’ Wine, Beer, Cider Industry Team proudly sponsored Willamette
Valley Wineries Association ‘The Pinot Noir Barrel Auction’, held at the Allison Inn & Spa.
On April 11, Members of Saalfeld Griggs’ Construction Industry Team attended the Marion
County Home Builder’s Association Trade Show Night.
On April 13, Saalfeld Griggs attorneys and spouses attended the annual luncheon for the Boys & Girls Club of Salem at the Salem Convention Center.
During the spring of 2017, Saalfeld Griggs partnered with Columbia Bank to host a three part series of seminars for friends and clients. Seminars were held on: February 28, April 25 and June 6.
On May 6, Saalfeld Griggs hosted its annual Sporting Clays shoot at Mid-Valley Clays & Shooting School.
On May 6, Members of Saalfeld Griggs’ Agri- Business Industry Team attended the Horses of Hope Triple Crown Party and Auction at the Salem Convention Center.
On May 11, Saalfeld Griggs’ attorneys attended the Marion County Home Builder’s Association open house at their new location on Madrona Ave.
On May 17, Members of Saalfeld Griggs’ Dental Industry Team gave a presentation on Employment Issues for Dentists. The seminar was co-hosted by
Columbia Bank, Patterson Dental and DBIC, and took place at the Valley River Inn in Eugene.
On May 18, The firm’s Construction Industry Team sponsored and attended ‘Raise the Roof,’ an auction to benefit Advanced Construction Education (“ACE”) at the Salem Convention Center.
On May 20, Members of the firm attended Family Building Blocks’ Uncorked Wine Auction.
On June 16, Saalfeld Griggs sponsored SEDCOR’s annual golf tournament at Illahe Country Club.
On June 26, Saalfeld Griggs’ Construction Industry Team sponsored the Marion County Home Builder’s Association Annual Golf Tournament at Salem Golf Course.
SAALFELD GRIGGS PC
Areas of Practice
- Business & Taxation
- Creditors’ Rights & Bankruptcy
- Employee Benefits
- Employment Law
- Estate Planning & Probate
- Real Property & Land Use